Supply of BPO services qualifies as export (and not intermediary) under GST

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Supply of BPO services qualifies as export (and not intermediary) under GST

Tejasvi

@tejasvi

November 29, 2022

Public Policy

466

The Hon’ble High Court, Punjab & Haryana in the case of Genpact India Private Limited (Genpact India) recently held that supply of Business Process Outsourcing (BPO) services by Genpact is not in the nature of ‘”intermediary services” under GST Law and will qualify as “export of services”, thereby allowing refund of INR 26 crores.

High Court’s reasoning to allow petitioner’s writ petition were as follows:

Analysis of the Agreement (MSA) with foreign entity

Foreign entity has service agreement for providing BPO services with respective Genpact India customers at global level. Foreign entity issues invoices and receives remittance from the Genpact India customers. Foreign entity under the MSA sub-contracted the execution of the BPO services to the petitioner (detailed clause wise analysis available as an appendix to this document). The petitioner executes the delivery of BPO services to the customers of Genpact India under the MSA.

Petitioner issues invoices to foreign entity and receives payment from foreign entity in convertible foreign exchange as its service fee. Thereby, it is clear from the MSA that it is clearly for the purpose of sub-contracting services to the petitioner by foreign entity. These are the very services which foreign entity was contractually supposed to provide to its own customers.

Analysis of the definition of ‘intermediary’

As per definition of “intermediary” under Section 2 (13) of the IGST Act the following three conditions must be satisfied for a person to qualify as an “intermediary”;-

- First, the relationship between the parties must be that of a principal-agency relationship.

- Second, the person must be involved in arrangement or facilitation of provisions of the service provided to the principal by a 3rd party.

- Third, the person must not actually perform the main service intended to be received by the service recipient itself.

Scope of an “intermediary” is to mediate between two parties i.e. the principal service provider (the 3rd party) and the beneficiary (the agents principal) who receives the main service and expressly excludes any person who provides such main service “on his own account”.

Favorable detailed Service Tax order for the period April 2016 to September 2016

Order in original dated January 25, 2018 passed by the Assistant Commissioner, Division-East-1, GST, Gurugram, granted refund of Rs.26,34,83,928/- after making a detailed analysis of the MSA and holding that the petitioner cannot be treated as “intermediary”. The definition of “intermediary” under the service tax regime vis-a-vis the GST regime would show that the definition has remained similar, as also dealt with in para 2 of the Circular dated September 20, 2021.

No appeals were filed against such order. Department cannot deviate from the view taken when there is no change in the definition of “intermediary”.

It is settled position of law that even though res judicata does not apply to tax proceedings, department cannot take a different view for different periods, when there is no change in the law and facts.

Principle of consistency as such ought to apply in the present matter as well.

The instant ruling will be a big relief for the Industry. This should aid in resolving several pending litigations and also ease processing of pending refund claims held up as a result of exports being viewed as “intermediary services”.

We hope you will find the update useful.

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Tejasvi