GST UPDATE ON INTERMEDIARY SERVICES VS IMPORT OF SERVICES

GST update /2026-27/0038

GST UPDATE ON INTERMEDIARY SERVICES VS IMPORT OF SERVICES
In today's article, we discuss the recent decision of the GST Appellate Tribunal in the case of M/s Dow Chemical International Private Limited v. Commissioner of State Tax, wherein the Tribunal examined whether procurement support services received from a foreign group entity qualify as "intermediary services" or "import of services" under the GST law.
The ruling assumes significance for multinational groups operating centralized procurement, sourcing, and supply chain management functions through overseas affiliated entities. The decision provides important guidance on the distinction between intermediary services and services supplied on one's own account, which directly impacts the determination of place of supply and GST liability under reverse charge mechanism (RCM).
Brief Facts of the Case
Dow Chemical International Private Limited (Indian entity) entered into a Procurement Agreement with Dow Europe GmbH, Switzerland, a group company functioning as the centralized procurement hub for the global Dow Group.
Under the agreement, Dow Europe performed various procurement-related functions including:

Identification and evaluation of suppliers
Supplier negotiations
Procurement strategy development
Supplier relationship management
Procurement governance and analytics
Quality reviews and procurement optimization.

During the period January 2022 to June 2022, Dow India paid IGST under Reverse Charge Mechanism treating the services received from Dow Europe as import of services.
Subsequently, Dow India took the view that the services provided by Dow Europe were in the nature of intermediary services under Section 2(13) of the IGST Act. According to the company, the place of supply of intermediary services under Section 13(8)(b) of the IGST Act was the location of the supplier, i.e., Switzerland.
Therefore, the transaction did not qualify as import of services and GST paid earlier was claimed as refund. The refund claims were rejected by the adjudicating authority as well as the first appellate authority, leading to appeals before GSTAT.

Core Issue Before the Tribunal
Whether procurement support services provided by Dow Europe GmbH to Dow India constitute "intermediary services" under Section 2(13) of the IGST Act, or whether such services are supplied on “principal-to-principal basis” and therefore qualify as import of services liable to GST under reverse charge mechanism?
Appellant's Arguments
The appellant contended that:

The arrangement involved three parties namely Dow India, Dow Europe, and third-party suppliers. Dow Europe merely facilitated procurement between Dow India and foreign suppliers.
There existed two distinct supplies:
Main supply of goods between suppliers and Dow India; and
Ancillary facilitation services provided by Dow Europe.
Dow Europe did not supply goods on its own account but merely arranged and facilitated procurement.
Consideration paid to Dow Europe was linked to procurement volume and was similar to commission-based arrangements generally associated with intermediary services.
Reliance was placed upon various Advance Ruling decisions including Airbus Group India and Toshniwal Brothers wherein procurement facilitation activities were treated as intermediary services.

Department's Arguments
The Revenue argued that:

The Procurement Agreement specifically recognized Dow Europe as an independent contractor. Therefore it is not merely facilitating procurement but was independently rendering substantive procurement and sourcing services.
Dow Europe was not authorized to bind Dow India and was not acting as its agent.
Procurement strategy, supplier governance, analytics, quality management, and sourcing functions were core services rendered by Dow Europe on its own account.
Therefore, the exclusion contained in Section 2(13) of the IGST Act not applied, and the services could not be classified as intermediary services.
Consequently, the transaction constituted import of services taxable under reverse charge mechanism.

Tribunal's Observations and Decision
The Tribunal analyzed the definition of intermediary under Section 2(13) of the IGST Act along with CBIC Circular No. 159/15/2021-GST dated 20.09.2021.
The Tribunal observed that although three parties were involved in the overall procurement arrangement, the essential test was whether Dow Europe merely facilitated a supply between two principals or independently supplied substantive services on its own account.
The Tribunal noted that:

Dow Europe functioned as the centralized procurement hub of the entire Dow Group.It performed comprehensive procurement functions and not merely ancillary facilitation activities.
The services provided were core procurement services involving independent expertise, systems, governance, and strategic sourcing capabilities.
Dow Europe acted as an independent contractor and did not represent or bind Dow India. The services were supplied on principal-to-principal basis.
The transaction did not satisfy the essential conditions required for classification as intermediary services. Place of supply cannot be governed by Section 13(8)(b) relating to intermediary services.
The arrangement was similar to the principles laid down by the Karnataka High Court in Columbia Sportswear India Sourcing Pvt. Ltd. and the Delhi High Court in Blackberry India Pvt. Ltd., wherein services rendered independently on principal-to-principal basis were held not to be intermediary services.

The Tribunal further held that Advance Ruling decisions relied upon by the appellant possess only persuasive value and cannot override binding judicial precedents of High Courts.
Accordingly, GSTAT held that the services rendered by Dow Europe were supplied cannot be classified as intermediary services under Section 2(13) of the IGST Act. These services were performed on its own account and therefore fell outside the scope of intermediary services.
Consequently, it was held that output tax was paid by Dow India validly and the refund claims filed by Dow India were rejected and all appeals were dismissed.

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