Advertising Services to Foreign Clients not Classified as Performance - Based u/s 13(3) of IGST, default Provision 13(2) applies Conditionally: CBIC [Read Circular]

The Central Board of Indirect Taxes and Customs ( CBIC ) has clarified that the advertising services to the foreign clients are not classified as performance based under Section 13(3) of the IGST ( Integrated Goods and Services Tax ) Act, 2017. The default section 13(2) of IGST Act applies subject to the condition of Section 2(6) of the IGST law.

Under Section 13(3) of the IGST Act, the place of supply for performance-based services is addressed in two main clauses. Clause (a) pertains to services related to goods that need to be physically available to the supplier of services, but this does not apply to advertising services since they do not involve physical goods that need to be made available to the supplier. Therefore, this clause cannot be used to determine the place of supply for such services.

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Clause (b) of Section 13(3) specifies that the place of supply for services where physical presence is required should be where the services are actually performed. This clause applies to services provided to an individual or their representative, and which necessitates the physical presence of the recipient or their representative with the service provider. However, in the context of advertising services, neither the foreign client nor their representative needs to be physically present with the advertising company in India to avail of the services. Hence, advertising services cannot be classified under this provision.

Given these points, advertising services cannot be classified as performance-based services under either Clause (a) or Clause (b) of Section 13(3) of the IGST Act. Consequently, the place of supply for such services is not covered under these specific provisions.

Instead, the place of supply for advertising services must be determined under the default provision, Section 13(2) of the IGST Act. This section states that the place of supply is the location of the recipient of the services.

Since the recipient of advertising services is the foreign client, who is located outside India, the place of supply is therefore deemed to be outside India. This means that such services are considered an export of services, subject to the conditions laid out in Section 2(6) of the IGST Act.

In some cases, an Indian advertising company might act merely as an agent for the foreign client, facilitating media space with media owners. Here, the contract for media space and advertising is directly between the foreign client and the media owner, with the media owner invoicing the foreign client directly. In these instances, the advertising company is acting as an "intermediary" under Section 2(13) of the CGST Act, and the place of supply for its facilitation services is determined by Section 13(8)(b) of the IGST Act. This means the place of supply is the location of the advertising company itself, not the foreign client.

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While direct advertising services to foreign clients are considered exports and fall under the default provision of the IGST Act, cases where the advertising company acts as an intermediary are governed by different rules, with the place of supply being where the advertising company is located.

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