Representation on treatment of ITeS as “Intermediary” under GST

On 14th February 2020, NASSCOM made a representation to Chairman, Central Board of Indirect Taxes and Customs (CBIC) requesting for resolution of issues around ‘intermediary services’ for Information Technology – IT Enabled Services (IT-ITeS) sector.


As you may be aware, the Authority for Advance Ruling (AAR), Maharashtra, in the case of Vserv Global, held that specific back office support services rendered by the applicant qualified as ‘intermediary services’, as the activities performed were in the nature of ‘arranging/ facilitating’ supply of goods or services between overseas company and its customers in India. The decision was upheld Maharashtra Appellate Authority for Advance Rulings (AAAR). It resulted in denying export status to back-office operations in India, making them uncompetitive as a result of additional GST cost of 18% of the value of services. Further, tax authorities started interpreted ITeS in the nature of support operations as “intermediary services”.

This was attempted to be clarified by CBIC vide issue of Circular in July 2019, but the issues were not resolved in the circular adequately. The GST council, in its 37th meeting held on 20 September 2019, announced issuance of a revised Circular in supersession of the July 2019 Circular. While CBIC, vide Circular No. 127/46/2019 – GST dated 4 December 2019, has withdrawn the earlier circular, the revised circular is still awaited.

The primary issue has been the issuance of contrary (and more often than not) adverse advance rulings on the subject which have sought to expand the scope of ‘intermediary services’. The position explained in the case of Vserv Global ruling is being applied by revenue authorities at the ground level, resulting in denial of refunds.

Our request:

Considering the larger impact of uncertainty around the treatment of It-ITeS, we requested CBIC Chairman to evaluate and implement the following alternative measures:

  1. Amendment in the GST Law (IGST Act): We requested CBIC to amend Integrated Goods and Services Tax Act, 2017 (‘IGST Act’) as follows:
  • Proviso to be added in Section 13(8)(b) of IGST Act, 2017:“Provided that nothing contained in this clause shall apply in case of services in the nature of ITeS which are provided by a supplier located in taxable territory.”
  • Further, Explanation should be added after Explanation (d) to section 13(8) of IGST Act, 2017 to provide the definition of ‘ITeS’: “(e) ‘ITeS services’ shall have the same meaning as defined under the sub-rule (e) of rule 10TA of the Income-tax Rules, 1962.”
  1. Issuance of a revised circular: Alternatively, we requested CBIC to expedite issuance of revised Circular indicating the kind of supply that would qualify as intermediary services and those that would not qualify as such.

In the long term, we also requested the government to consider removing the concept of intermediary in entirety.

We will continue to advocate on the issue and hope for a suitable action to be taken soon in light of the magnitude of the issue.

We will keep you posted on further developments in this regard.

Share This Post

Leave a Reply