A recent ruling of the Maharashtra Advance Ruling Authority has held that back office support services do not qualify as “export of services” as they are in the nature of “intermediary services”.
It is concerning and We as NASSCOM seek to engage with the GST Council and CBIC to highlight the impact of this ruling including some of the key aspects that have been ignored in the ruling:
- Need for clarification on the interpretation of intermediary and the concept of exclusion of “main service” from intermediary services;
- Absence of Tripartite arrangement which is essential for intermediary services;
- Several judicial precedents under the erstwhile service tax regime which have affirmed the view that services provided on “own account” do not qualify as “intermediary”
- The clarification issued in the Education Guide regarding call centre services qualifying as exports. This aspect has also been reaffirmed in a recent Circular under GST clarifying the scope of “principal-agent” relationship.
A brief summary of the decision is provided below for your quick reference along with NASSCOM comments. Please feel free to reach out to our policy team at firstname.lastname@example.org for further questions.
Recap of the decision
- The Applicant (Vservglobal Private Limited) (“Vserv”) is primarily engaged in providing back office support services to overseas clients and had applied to the advance ruling authority seeking a confirmation on whether the activities performed by it qualify as exports and are therefore zero-rated supplies.
- In the application, Vserv had submitted that it fulfilled all the conditions required for services to qualify as “export of services”.
- Importantly, it was also submitted that where supply of goods are facilitated in the course of provision of such service, the same was only incidental to the principal supply and that it therefore did not qualify as an intermediary. Since Vserv was providing such services on a principal-to-principal basis it was clearly excluded from the definition of “intermediary”.
- However, the AAR has ruled that all activities performed by applicant for its client indicate that the applicant is engaged in ‘arranging / facilitating’ supply of goods or services between client and its customers and therefore, qualifying as an intermediary.
- The recent ruling by the Authority of Advance Ruling (AAR) (in the case of M/s Vservglobal) has taken the industry by surprise as it seeks to treat services provided on own account basis as “intermediary” services.
- This could lead to unwarranted disputes and uncertainty in case of exports as once a service is treated as intermediary service under the GST laws, then these services would not qualify as “export of service” even if they are rendered to overseas entities and GST would apply.
- Our preliminary analysis suggests that the concept of exclusion of “main service” from intermediary services entry has been ignored in the ruling.
- If the implication of this ruling is not suitably clarified, it will make our companies non-competitive in the global market, potentially resulting in loss of revenue, jobs and customers. This will have a direct impact of on the 500+ GICs, with over 3.5 L employees currently operating out of India, and supporting their global counterparts.
- NASSCOM feels this may impact India’s image as a global service provider, and could lead to government entities asking of retrospective tax from companies based in India.
- At a time when, when India’s image is bullish on ease of doing business parameters, it is advisable that we ensure a transparent and clear tax regime to maintain our global leadership position. We are hopeful of early resolution on this matter, to address industry’s concerns.