Source: Business Standard
In a major relief to companies, especially multinational ones, the Central Board of Indirect and Custom (CBIC) has decided to withdraw a circular on the scope of information technology-enabled services (ITeS) and coverage under intermediary services. This circular, issued back in July, had created ambiguity in the back-office/IT services industry as they were to be treated as ‘intermediaries’ under the Goods and Services Tax (GST).
The circular has been withdrawn in view of numerous representations being received expressing apprehensions on the implications of the circular. An official notification issued by CBIC on the matter said, “In view of these apprehensions 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, hereby withdraws, ab initio, Circular No. 107/26/2019-GST dated July 18, 2019.”
According to the IGST Act, an intermediary is defined as a broker, an agent or a person who arranges or facilitates the supply of goods or services between two or more persons, but does not include the supplier. The previous circular had stated that GST of 18% will be charged on service providers engaged in back-end services including post-sales support service, delivery & logistical support, transportation of goods, among others.
For instance, if a business process outsourcing (BPO) company managing support services of a credit card company, provides support services to the credit card company’s customers, the credit card company will not be treated as an intermediary.
Furthermore, a lot of GST refunds were also held up by the tax authorities, on account of services qualifying as ‘intermediary’ and hence not being treated as exports. The latest move to withdraw the previous circular might provide relief to the industry, as authorities were relying on the erstwhile circular to issue show-cause notices to the back-office support providers.
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