Clarification on doubts related to scope of “Intermediary”

Circular No.: 159/15/2021-GST
Date of Circular: 20th September 2021
Relevant Sections and Rules:

• IGST Act, 2017:
  • Section 2(13): Definition of “intermediary”
• CGST Act, 2017:
  • Section 168(1): Power to issue instructions
• Relevant Notifications and Context:
  • Reference to Rule 2(f) of the Place of Provision of Services Rules, 2012 (Service Tax)

Summary of Clarifications Provided:

1. Scope and Definition of “Intermediary”:
   The term “intermediary” under IGST Act includes any broker, agent, or person who arranges or facilitates a supply of goods, services, or securities between two or more persons.

• However, it excludes a person who supplies such goods or services on their own account.
• The concept is unchanged from the Service Tax regime, except for the inclusion of securities.

2. Primary Characteristics of Intermediary Services:

• (i) Minimum of Three Parties:
  There must be a main supply between two parties, and a third party facilitating it (intermediary). A two-party arrangement does not qualify.
• (ii) Two Distinct Supplies:
  • Main supply (goods/services/securities) between two principals
  • Ancillary supply (intermediary service) by the facilitator
    The intermediary must not be supplying the main supply.
• (iii) Role of Agent/Broker/Subsidiary:
  Intermediaries must have a subsidiary or supportive role. They arrange or facilitate the main supply but do not participate directly in it.
• (iv) Own Account Exclusion:
  A person who supplies the main goods/services (fully or partly) on their own account is not an intermediary.
• (v) Subcontracting is Not Intermediation:
  If a person executes part of the main service as a subcontractor, they are not an intermediary. The main supply is being performed, not arranged.

3. Applicability of Place of Supply Rule for Intermediary:
   The specific place of supply provisions under Section 13 of IGST Act apply only when either the supplier or recipient is located outside India.
4. Illustrations Clarifying Intermediary Status:

• Illustration 1: A third party who introduces a buyer to a seller and helps finalize the deal is an intermediary.
• Illustration 2: A subcontractor developing software for a principal is not an intermediary.
• Illustration 3: A commission agent arranging insurance claim services between foreign insurer and Indian vendor is an intermediary.
• Illustration 4: A BPO servicing a foreign client’s customers is not an intermediary, as it provides the service directly.

5. Case-Specific Determination:
   Whether a person is an intermediary or not depends on contractual terms and factual circumstances. The essential criteria outlined in the circular must be evaluated in each case.

Source: Circular No.: 159/15/2021-GST