GST Circular No 159/15/2021 GST : Clarification on doubts related to scope of “Intermediary”
F.No. CBIC-20001/8/2021-GST
Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes and Customs
GST Policy Wing
***
New Delhi, dated the 20th September, 2021
To,
The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/
Commissioners of Central Tax (All)
The Principal Directors General/ Directors General (All)
Madam/Sir,
Subject: Clarification on doubts related to scope of “Intermediary”–reg.
Representations have been received citing ambiguity caused in interpretation of the
scope of “Intermediary services” in the GST Law. 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.
2. Scope of Intermediary services
2.1 ‘Intermediary’ has been defined in the sub-section (13) of section 2 of the Integrated
Goods and Services 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.
2.2 The concept of ‘intermediary’ was borrowed in GST from the Service Tax Regime. The
definition of ‘intermediary’ in the Service Tax law as given in Rule 2(f) of Place of Provision
of Services Rules, 2012 issued vide notification No. 28/2012-ST, dated 20-6-2012 was as
follows:
“intermediary” means a broker, an agent or any other person, by whatever name called, who
arranges or facilitates a provision of a service (hereinafter called the ‘main’ service) or a
supply of goods, between two or more persons, but does not include a person who provides the
main service or supplies the goods on his account;”
2.3 From the perusal of the definition of “intermediary” under IGST Act as well as under
Service Tax law, it is evident that there is broadly no change in the scope of intermediary
services in the GST regime vis-à-vis the Service Tax regime, except addition of supply of
securities in the definition of intermediary in the GST Law.
3. Primary Requirements for intermediary services
The concept of intermediary services, as defined above, requires some basic prerequisites, which are discussed below:
3.1 Minimum of Three Parties: By definition, an intermediary is someone who arranges
or facilitates the supplies of goods or services or securities between two or more persons. It is
thus a natural corollary that the arrangement requires a minimum of three parties, two of them
transacting in the supply of goods or services or securities (the main supply) and one arranging
or facilitating (the ancillary supply) the said main supply. An activity between only two parties
can, therefore, NOT be considered as an intermediary service. An intermediary essentially
“arranges or facilitates” another supply (the “main supply”) between two or more other
persons and, does not himself provide the main supply.
3.2 Two distinct supplies: As discussed above, there are two distinct supplies in case of
provision of intermediary services;
(1) Main supply, between the two principals, which can be a supply of goods or
services or securities;
(2) Ancillary supply, which is the service of facilitating or arranging the main supply
between the two principals. This ancillary supply is supply of intermediary service
and is clearly identifiable and distinguished from the main supply.
A person involved in supply of main supply on principal to principal basis to another
person cannot be considered as supplier of intermediary service.
3.3 Intermediary service provider to have the character of an agent, broker or any
other similar person: The definition of “intermediary” itself provides that intermediary
service provider means a broker, an agent or any other person, by whatever name called….”.
This part of the definition is not inclusive but uses the expression “means” and does not
expand the definition by any known expression of expansion such as “and includes”. The use
of the expression “arranges or facilitates” in the definition of “intermediary” suggests a
subsidiary role for the intermediary. It must arrange or facilitate some other supply, which is
the main supply, and does not himself provides the main supply. Thus, the role of intermediary
is only supportive.
3.4 Does not include a person who supplies such goods or services or both or
securities on his own account: The definition of intermediary services specifically mentions
that intermediary “does not include a person who supplies such goods or services or both or
securities on his own account”. Use of word “such” in the definition with reference to supply
of goods or services refers to the main supply of goods or services or both, or securities,
between two or more persons, which are arranged or facilitated by the intermediary. It implies
that in cases wherein the person supplies the main supply, either fully or partly, on principal
to principal basis, the said supply cannot be covered under the scope of “intermediary”.
3.5 Sub-contracting for a service is not an intermediary service: An important
exclusion from intermediary is sub-contracting. The supplier of main service may decide to
outsource the supply of the main service, either fully or partly, to one or more sub-contractors.
Such sub-contractor provides the main supply, either fully or a part thereof, and does not
merely arrange or facilitate the main supply between the principal supplier and his customers,
and therefore, clearly is not an intermediary. For instance, ‘A’ and ‘B’ have entered into a
contract as per which ‘A’ needs to provide a service of, say, Annual Maintenance of tools and
machinery to ‘B’. ‘A’ subcontracts a part or whole of it to ‘C’. Accordingly, ‘C’ provides the
service of annual maintenance to ‘A’ as part of such sub-contract, by providing annual
maintenance of tools and machinery to the customer of ‘A’, i.e. to ‘B’ on behalf of ‘A’.
Though ‘C’ is dealing with the customer of ‘A’, but ‘C’ is providing main supply of Annual
Maintenance Service to ‘A’ on his own account, i.e. on principal to principal basis. In this
case, ‘A’ is providing supply of Annual Maintenance Service to ‘B’, whereas ‘C’ is supplying
the same service to ‘A’. Thus, supply of service by ‘C’ in this case will not be considered as
an intermediary.
3.6 The specific provision of place of supply of ‘intermediary services’ under section 13
of the IGST Act shall be invoked only when either the location of supplier of intermediary
services or location of the recipient of intermediary services is outside India.
4. Applying the abovementioned guiding principles, the issue of intermediary services is
clarified through the following illustrations:
Illustration 1
‘A’ is a manufacturer and supplier of a machine. ‘C’ helps ‘A’ in selling the machine by
identifying client ‘B’ who wants to purchase this machine and helps in finalizing the contract
of supply of machine by ‘A’ to ‘B’. ‘C’ charges ‘A’ for his services of locating ‘B’ and helping
in finalizing the sale of machine between ‘A’ and ‘B’, for which ‘C’ invoices ‘A’ and is paid
by ‘A’ for the same. While ‘A’ and ‘B’ are involved in the main supply of the machinery, ‘C’,
is facilitating the supply of machine between ‘A’ and ‘B’. In this arrangement, ‘C’ is providing
the ancillary supply of arranging or facilitating the ‘main supply’ of machinery between ‘A’
and ‘B’ and therefore, ‘C’ is an intermediary and is providing intermediary service to ‘A’.
Illustration 2
‘A’ is a software company which develops software for the clients as per their requirement.
‘A’ has a contract with ‘B’ for providing some customized software for its business operations.
‘A’ outsources the task of design and development of a particular module of the software to
‘C’, for which “C’ may have to interact with ‘B’, to know their specific requirements. In this
case, ‘C’ is providing main supply of service of design and development of software to ‘A’,
and thus, ‘C’ is not an intermediary in this case.
Illustration 3
An insurance company ‘P’, located outside India, requires to process insurance claims of its
clients in respect of the insurance service being provided by ‘P’ to the clients. For processing
insurance claims, ‘P’ decides to outsource this work to some other firm. For this purpose, he
approaches ‘Q’, located in India, for arranging insurance claims processing service from other
service providers in India. ‘Q’ contacts ‘R’, who is in business of providing such insurance
claims processing service, and arranges supply of insurance claims processing service by ‘R’
to ‘P’. ‘Q’ charges P a commission or service charge of 1% of the contract value of insurance
claims processing service provided by ‘R’ to ‘P’. In such a case, main supply of insurance
claims processing service is between ‘P’ and ‘R’, while ‘Q’ is merely arranging or facilitating
the supply of services between ‘P’ and ‘R’, and not himself providing the main supply of
services. Accordingly, in this case, ‘Q’ acts as an intermediary as per definition of sub-section
(13) of section 2 of the IGST Act.
Illustration 4
‘A’ is a manufacturer and supplier of computers based in USA and supplies its goods all over
the world. As a part of this supply, ‘A’ is also required to provide customer care service to its
customers to address their queries and complains related to the said supply of computers. ‘A’
decides to outsource the task of providing customer care services to a BPO firm, ‘B’. ‘B’
provides customer care service to ‘A’ by interacting with the customers of ‘A’ and addressing
/ processing their queries / complains. ’B’ charges ‘A’ for this service. ‘B’ is involved in supply
of main service ‘customer care service’ to ‘A’, and therefore, ’’B’ is not an intermediary
5. The illustrations given in para 4 above are only indicative and not exhaustive. The
illustrations are also generic in nature and should not be interpreted to mean that the service
categories mentioned therein are inherently either intermediary services or otherwise.
Whether or not, a specific service would fall under intermediary services within the meaning
of sub-section (13) of section 2 of the IGST Act, would depend upon the facts of the specific
case. While examining the facts of the case and the terms of contract, the basic characteristics
of intermediary services, as discussed in para 3 above, should be kept in consideration.
6. It is requested that suitable trade notices may be issued to publicize the contents of
this Circular.
7. Difficulty, if any, in the implementation of this Circular may be brought to the notice
of the Board. Hindi version will follow.
(Sanjay Mangal)
Principal Commissioner (GST)
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