The Central Board of Indirect Taxes and Customs (CBIC) issued the clarification on doubts related to the scope of “Intermediary”.
The Board has received the representations citing ambiguity caused in the interpretation of the scope of “Intermediary services” in the GST Law.
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 the exercise of its powers conferred by section 168 (1) of the Central Goods and Services Tax Act, 2017, issued the clarification.
‘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.”
The concept of intermediary services, as defined above, requires some basic pre-requisites, which are a Minimum of Three Parties; Two distinct supplies namely main and Ancillary supply, intermediary service provider to have the character of an agent, broker, or any other similar person; does not include a person who supplies such goods or services or both or securities on his own account, and sub-contracting for a service is not an intermediary service.
For example, ‘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 the 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 machines 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’.
Further, ‘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 the main supply of service of design and development of software to ‘A’, and thus, ‘C’ is not an intermediary in this case.
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