CBIC’s clarification on supply of ITes services to overseas clients and its coverage under intermediary services

The CBIC vide Circular No. 107/26/2019-GST dated July 18, 2019 has clarified various issues related to supply of Information Technology enabled Services (“ITeS services”) such as call center, business process outsourcing services, etc. and “Intermediaries” to overseas entities under GST law and whether they qualify to be “export of services” or otherwise.

Gist of the key clarifications issued are as under:

1. No intermediary services even where the supplier of services qualifies to be an agent/ broker if he is involved in the supply of services on his own account:

• Term ‘Intermediary’ has been defined in the sub-section (13) of Section 2 of the IGST Act, 2017 (“IGST Act”). The definition of intermediary, inter alia, provides specific exclusion of a person i.e. that of a person who supplies such goods or services or both or securities on his own account.
• Therefore, the supplier of services would not be treated as “intermediary” even where the supplier of services qualifies to be “an agent/ broker or any other person” if he is involved in the supply of services on his own account.

2. Definition of ITeS services:

• ITeS services, though not defined under the GST law, have been defined under the sub-rule (e) of Rule 10 TA of the Income-tax Rules, 1962 which pertains to Safe Harbour Rules for international transactions. It defines ITeS services as-
  
  "information technology enabled services" means the following business process outsourcing services provided mainly with the assistance or use of information technology, namely: 
  (i) back office operations; (ii) call centres or contact centre services; (iii) data processing and data mining; (iv) insurance claim processing; (v) legal databases; (vi) creation and maintenance of medical transcription excluding medical advice; (vii) translation services; (viii) payroll; (ix) remote maintenance; (x) revenue accounting; (xi) support centres; (xii) website services; (xiii) data search integration and analysis; (xiv) remote education excluding education content development; or (xv) clinical database management services excluding clinical trials, but does not include any research and development services whether or not in the nature of contract research and development services”.

3. Various scenarios when a supplier of ITeS services located in India supplies services for and on behalf of a client located abroad

• Scenario I: Supplier of ITeS services supplies back end services on his own accountIn such a scenario, the supplier will not fall under the ambit of intermediary under sub-section (13) of Section 2 of the IGST Act where these services are provided on his own account by such supplier. Even where a supplier supplies ITeS services to customers of his clients on clients’ behalf, but actually supplies these services on his own account, the supplier will not be categorized as intermediary.

• Scenario II: Supplier of backend services located in India arranges or facilitates the supplySuch backend services may include support services, during pre-delivery, delivery and postdelivery of supply (such as order placement and delivery and logistical support, obtaining relevant Government clearances, transportation of goods, post-sales support and other services, etc.). The supplier of such services will fall under the ambit of intermediary.

• Scenario III: Supplier of ITeS services supplies back end services, on his own account along with arranging or facilitating the supplyIn this case, the supplier is supplying two set of services, namely ITeS services and various support services to his client or to the customer of the client. Whether the supplier of such services would fall under the ambit of intermediary will depend on the facts and circumstances of each case and would be determined keeping in view which set of services is the principal/ main supply.

4. It is also clarified that supplier of ITeS services, who is not an intermediary in terms of sub-Section (13) of Section 2 of the IGST Act, can avail benefits of export of services if he satisfies the criteria mentioned in sub-Section (6) of Section 2 of the IGST Act.