Central Tax Circulars

CGST Circular 107/2019

To,

The Principal Chief Commissioners / Chief Commissioners / Principal Commissioners/
Commissioners of Central Tax (All) /

The Principal Director Generals / Director Generals (All)

Madam/Sir,

Subject: Clarification on doubts related to supply of Information Technology
enabled Services (ITeS services) – reg.

1) Various representations have been received seeking clarification on issues related to
supply of Information Technology enabled Services (hereinafter referred to as “ITeS
services”) such as call center, business process outsourcing services, etc. and
“Intermediaries” to overseas entities under GST law and whether they qualify to be “export
of services” or otherwise.

2) The matter has been examined. In view of the difficulties being faced by the trade and
industry and to ensure uniformity in the implementation of the provisions of the law across
field formations, the Board, in exercise of its powers conferred by section 168 (1) of the
Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), hereby
clarifies the issues in succeeding paragraphs.

3) Intermediary has been defined in the sub-section (13) of section 2 of the
Integrated
Goods and Service Tax Act, 2017 (hereinafter referred to as “IGST” Act) as
under –

“Intermediary means a broker, an agent or any other person, by whatever
name
called, who arranges or facilitates the supply of goods or services or both, or
securities, between two or more persons, but does not include a person who
supplies such goods or services or both or securities on his own account.”

3.1 The definition of intermediary inter alia provides specific exclusion of
a person i.e.
that of a person who supplies such goods or services or both or securities on
his own account. Therefore, the supplier of services would not be treated as
„intermediary‟ even where the supplier of services qualifies to be „an agent/
broker or any other person‟ if he is involved in the supply of services on his
own account.

4) Information Technology enabled Services (ITeS services), though not
defined under
the GST law, have been defined under the sub-rule (e) of rule 10 TA of the
Income-tax Rules, 1962 which pertains to Safe Harbour Rules for international
transactions. It defines ITeS services as-

“information technology enabled services” means the following business
process
outsourcing services provided mainly with the assistance or use of information
technology, namely:—

(i) back office operations;

(ii) call centres or contact centre services;

(iii) data processing and data mining;

(iv) insurance claim processing;

(v) legal databases;

(vi) creation and maintenance of medical transcription excluding medical
advice;

(vii) translation services;

(viii) payroll;

(ix) remote maintenance;

(x) revenue accounting;

(xi) support centres;

(xii) website services;

(xiii) data search integration and analysis;

(xiv) remote education excluding education content development; or

(xv) clinical database management services excluding clinical trials,
but does not include any research and development services whether or not in
the nature of contract research and development services”.

5) There may be various possible scenarios when a supplier of ITeS services
located in
India supplies services for and on behalf of a client located abroad. These
scenarios have been examined and are being discussed in detail hereunder:

5.1 Scenario -I:

The supplier of ITeS services supplies back end services as listed in para
4 above. In
such a scenario, the supplier will not fall under the ambit of intermediary
under sub-section (13) of section 2 of the IGST Act where these services are
provided on his own account by such supplier. Even where a supplier supplies
ITeS services to customers of his clients on clients‟ behalf, but actually
supplies these services on his own account, the supplier will not be
categorized as intermediary. In other words, a supplier “A” supplying services,
listed in para 4 above, on his own account to his client “B” or to the customer
“C” of his client would not be intermediary in terms of sub-section (13) of
section 2 of the IGST Act.

5.2 Scenario -II:

The supplier of backend services located in India arranges or facilitates
the supply of
goods or services or both by the client located abroad to the customers of
client. Such backend services may include support services, during
pre-delivery, delivery and postdelivery 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.). The
supplier of such services will fall under the ambit of intermediary under
sub-section (13) of section 2 of the IGST Act as these services are merely for
arranging or facilitating the supply of goods or services or both between two
or more persons. In other words, a supplier “A” supplying backend services as
mentioned in this scenario to the customer “C” of his client “B” would be
intermediary in terms of sub-section (13) of section 2 of the IGST Act.

5.3 Scenario –III:

The supplier of ITeS services supplies back end services, as listed in para
4 above, on
his own account along with arranging or facilitating the supply of various
support services during pre-delivery, delivery and post-delivery of supply for
and on behalf of the client located abroad. In this case, the supplier is
supplying two set of services, namely ITeS services and various support
services to his client or to the customer of the client. Whether the supplier
of such services would fall under the ambit of intermediary under sub-section
(13) of section 2 of the IGST Act will depend on the facts and circumstances of
each case. In other words, whether a supplier “A” supplying services listed in
para 4 above as well as support services listed in Scenario -II above to his
client “B” and / or to the customer “C” of his client is intermediary or not in
terms of sub-section (13) of section 2 of the IGST Act would have to be
determined in facts and circumstances of each case and would be determined
keeping in view which set of services is the principal / main supply.

6) It is also clarified that supplier of ITeS services, who is not an
intermediary in terms
of sub-section (13) of section 2 of the IGST Act, can avail benefits of export
of services if he satisfies the criteria mentioned in sub-section (6) of
section 2 of the IGST Act, which reads as under –

export of services‖ means the supply of any service when,––

(i) the supplier of service is located in India;

(ii) the recipient of service is located outside India;

(iii) the place of supply of service is outside India;

(iv) the payment for such service has been received by the supplier of service in
convertible foreign exchange; and

(v) the supplier of service and the recipient of service are not merely
establishments of
a distinct person in accordance with Explanation 1 in section 8.

7) It is requested that suitable trade notices may be issued to publicize the
contents of
this Circular.

8) Difficulty, if any, in the implementation of this Circular may be brought
to the notice
of the Board. Hindi version will follow.