The Supreme Court of India has, through a recent verdict, ushered in much-needed clarity regarding the scope of ‘intermediary services’ under the regime of Goods and Services Tax. The ruling assumes importance since it will guide how businesses and individuals engaged in intermediary activities work their way through compliance and taxation complexities under GST. The judgment comes at a time when uncertainties have developed over time in the application of GST to intermediary services and the roles of intermediaries under the regime. The ruling results from a controversy involving the classification of services supplied by an intermediary and whether such services represent a taxable supply under GST.
Basically, in the context of GST, intermediary services have been described as services provided by any person who acts for a supplier in any transaction with third parties. This shall comprise activities in the nature of facilitating transactions, advising, or arranging transactions on one’s own behalf. The core issue that arose before the Supreme Court was the extent to which intermediary services are subject to GST and how such services should be classified under the tax regime.
This dispute flowed from the interpretation of provisions under the GST Act dealing with the definition and scope of intermediary services, leading to multiple interpretations among businesses and tax authorities. It is in this judgment that the Supreme Court has attempted to clarify some of the main issues relating to intermediary services under GST. The principal issues addressed by the court were as follows: While explaining, the Supreme Court opined that the definition of intermediary services under GST is very wide and comprises any service where the service provider acts as an intermediary between two persons.
It includes facilitating a transaction, providing advisory, consulting, and managing such transactions on behalf of clients. The court observed that the extent of intermediary services has to be understood in consonance with the charter of the GST Act. One of the central issues was whether intermediary services are subject to GST. The court has held that intermediary services do fall within the ambit of GST in that they constitute a supply’ as defined by the Act. From this, the ruling of the court develops the notion that services supplied by an intermediary represent a taxable supply and further that all persons involved in such services must be registered for GST and collect and pay over the tax.
The court has also, in deciding the issue, turned to the place of supply regarding the intermediary services. Place of supply is an important determinant in GST of the jurisdiction in which the tax has to be levied and collected. While ruling on the place of supply for intermediary services, the Supreme Court said that the same should be determined according to the location of the supplier of services. Therefore, the location of the intermediary will be relevant for determining where the tax liability would arise. This ruling of the court also extends to cross-border intermediary service transactions. The Supreme Court explained that the services of an intermediary rendered during an international transaction are liable to GST on similar grounds, only when such services meet the conditions of taxability under the Act, including services offered to overseas clients or in relation to cross-border transactions. The Supreme Court has been insistent on the accuracy of documents and compliance that any business involved in an intermediary has to uphold.
It, therefore, puts pressure on businesses to maintain proper records, raise valid invoices, and comply with GST reporting requirements for proper tax collection and also to avoid any possible dispute with tax authorities. This judgment by the Supreme Court has gone a long way in bringing clarity and guiding intermediary services under GST. First, by defining the scope of intermediary services and confirming their taxability, the court has attended to one of the most critical issues that has affected businesses and persons engaged in such activities. No doubt, this judgment would go on to clarify the GST compliance of intermediaries with much less chance of ambiguity and confusion in interpreting the provisions of tax laws. The ruling has brought to the fore the requirement for businesses and people concerned with intermediary activities to understand and follow the regulations of GST. That means ascertaining the taxability of services of an intermediary, determining correctly the place of supply, proper documentation, and compliance in that regard.
The businesses should re-examine their practices to see that they are in line with the court’s interpretation so as to avoid the probable tax liabilities and penalties. The ruling thus has wider ramifications for the GST regime as such. Elucidating the scope of intermediary services, the Supreme Court has made a contribution to the development and refinement of GST law in India. It also reiterates that for efficient tax administration and compliance, tax provisions need to be interpreted coherently and consistently. The judgment of the Supreme Court on the scope of ‘intermediary services’ under GST works as a much-needed guideline for businesses and persons dealing in the same. It reaffirmed that intermediary services are subject to tax, explained the place of supply, and brought out the issue of compliance and documentation. The ruling provides an important reference point for businesses and tax authorities seeking to unravel the mysteries of GST with respect to intermediary services.