It was much awaited clarification but it didn’t came with complete relief to the Industry. I am talking about the recent circular issued by the Central Board of Indirect Taxes and Customs (CBIC) about applicability of GST on provision of back end support services by Indian Business Process Outsourcing Services Providers to their clients abroad. The sector was in turmoil since an Advance Ruling given by the Advance Ruling Authority of Maharashtra in case of Vserve global Private Limited, wherein it was held that back-office support services would be covered under the definition of Intermediary Services and therefore, would not be considered to be export of services even though they complies with all other conditions for being treated as export of services. This would have made them liable for GST @ 18%. This advance ruling was further upheld by the Appellate Authority for Advance Ruling Maharashtra. After this advance ruling GST departments across states have started issuing notices to the BPO service providers denying the benefits available on Export of services and charging 18% GST on such services.
Looking at the huge negative implications of this provision and subsequent rulings, it was very critical and much awaited clarification from CBIC. However, it didn’t give complete relief to the industry.
The circular first reproduces the definition of an intermediary and put emphasis on the exclusion clause provided in the definition which is – ‘but does not include a person who supplies such goods or services or both or securities on his own account.’ It further clarifies that the supplier of service would not be treated as ‘intermediary’ even where the supplier qualifies to be ‘an agent/broker or any other person’ if he is involved in the supply of service on his own account.
Then it goes specific to the ITeS services. It first defines the ITeS services and refers to the definition of ITeS services as provided in the Income Tax Rules. The definition lists down various business process outsourcing services which, if provided mainly with the assistance or use of information technology would mean ITeS services. It further analyses three possible scenarios in which a supplier of ITeS services located in India supplies services for and on behalf of a client located abroad.
Scenario-I : The supplier won’t be treated as an Intermediary where these services are being provided on his own account either to the client or to the customer of his client.
Scenario-II : The supplier would be considered as an intermediary. Services under this scenario may include support services, during pre-delivery, delivery and post-delivery of supply (such as order placement and delivery and logistical support, obtaining relevant government clearances, transportation of goods, post-sales support and other services, etc.).
Scenario-III :In this scenario the classification between provider of ITeS services and services of an intermediary would need to be determined on the basis of facts & circumstances of each case and would be determined keeping in view which set of services is the principal/main supply.
Inclusion of post-sales support services in the ambit of Intermediary services would trigger new controversy. This aspect should be further revisited in consultation with the Industry.