New revelations regarding service exports and intermediaries

- Sales tax: Soham Mashruwala

The GST law requires great care when dealing with exports. From time to time new difficulties arise from the amendment of the law and dangerous judgments. Provision has been made for export under the IGST Act and if in any case there is a supplier's transaction as an intermediary, such transaction is not considered export and tax has to be paid under GST Act. Often foreign companies open their own company in India and receive services. From time to time, the government has to collect GST by trapping a stable company in India in the illusion of deemed supply. Following the meeting of the GST Council, two circulars have been issued by the government in this regard which are discussed in today's article.

Circular 12/12/2021 - GST

Section 3 (12) of the IGST Act defines an intermediary service as defined as an intermediary by any name known as a broker, agent or any other person who arranges the supply of goods or services or both or the transaction of securities. If a bank arranges to supply more to individuals and not itself. Referring to the previous service tax provision in the government circular, he said that the provision of this intermediary is not different from GST and the following basic prerequisites must first exist to be an intermediary service:

1. At least three parties should be in the transaction.

. There should be two specialized supplies, one being the main supply goods, or services or securities, and the other ancillary supplies arranged by intermediaries.

. The person providing the intermediary service does not make a main supply himself but his working style is to support the main supply.

. Intermediary never supplies itself.

In addition, a transaction in which a subcontract has been awarded cannot be considered as an intermediary. Thus, if the transaction is treated as an intermediary in an export transaction, the place of supply intermediary is considered to be the location for the supply of services for this transaction as per section 13 of the IGST Act and if it is located in India, the export is not considered and GST has to be paid.

Circular 181/12/2021-GST

Section 3 (2) of the IGST Act defines the export of services. There is a provision in sub-section (2) that export is counted only when the service provider and the recipient of the service are not both units of a specific person as per Explanation 1 of section 3 of the IGST Act. Due to this provision, when a foreign company receives a service from its subsidiary based in India, there is a risk of paying GST. ) And the definition of "person" as per Section 3 (2) of the Fear Act. In addition, the definition of a company in Section 6 (30) of the Companies Act 2018 and a foreign company in section 6 (2) is also to be seen. Given all these definitions, the result is that when the service is supplied by a foreign company to a foreign company by a subsidiary or sister concern or group company under the Companies Act 2016 in India, the transaction is considered export because of the different constitution of the person providing the service and Is born as a person. Similarly, when a company in India has a subsidiary abroad or has been incorporated abroad under its rule, when an Indian company serves, it will be considered an export and will not be bound by Section 3 (2) (2) of the IGST Act.