Intermediary under GST Laws


Indirect tax laws in India, particularly after the introduction of the Goods and Services Tax (GST), are pivoted on the “destination-based consumption tax” principle. This implies that tax is levied in the event the consumption is within the taxable territory and exports are not to be taxed.1 However, a peculiar provision inherited from the service tax regime — the concept of “intermediary” — has reversed this concept. Ordinarily, an Indian supplier earning foreign exchange from supplies made to non-residents is considered as engaged in export and hence not subject to GST. However, in the case of intermediary, irrespective of the fact that the supply is made by an Indian supplier to non-residents and foreign exchange is earned, the supply is nonetheless not considered an export and consequently the Indian supplier must charge GST from the non-residents. Besides the nebulous, fact-based test of intermediary — which has led to a host of disputes on the export status of the supply — the very presence of intermediary concept is anathema to the destination-based consumption tax principle and thus requires a revisit.

Genesis of intermediary concept in Indian indirect tax laws

The conceptual foundation of destination-based consumption tax has existed even in the pre-GST law regimes of indirect taxes. Constitutionally, the States have always been precluded from taxing exports and that position continues even in the GST regime.2 Similarly, the service tax law has traditionally exempted export of services.3 In the pre-GST regime the tax administration specifically admitted that “service tax is a destination-based consumption tax and it is not applicable on export of services” and clarified that “export of services would continue to remain tax free” irrespective of a specific exemption in the statute.4

Subsequently, while the legal position remained the same that export of services were not taxed, new rules were framed to determine whether and when particular service qualified as export.5 In respect of certain services, these rules provided that the services would be considered as exported if they were “delivered outside India and used in business outside India”, besides the satisfaction of the foreign exchange condition. The inherent complexity in the implementation of these rules was compounded by conflicting departmental clarifications which mooted the “benefit” test to determine the status of export. The earlier clarification6 propagated the view that “the phrase ‘used outside India’ is to be interpreted to mean that the benefit of the service should accrue outside India”. The subsequent clarification7 opined “that the words ‘accrual of benefit’ are not restricted to mere impact on the bottom-line of the person who pays for the service. … In other words, these words may be interpreted in the context where the effective use and enjoyment of the service has been obtained. The effective use and enjoyment of the service will of course depend on the nature of the service. For example, effective use of advertising services shall be the place where the advertising material is disseminated to the audience though actually the benefit may finally accrue to the buyer who is located at another place”. These administrative clarifications, therefore, revealed the understanding of the tax administration that place where “benefit” of the services was felt was a necessary condition to determine export of service notwithstanding the complete absence of such test in the rules.

As expected, these rules and the departmental understanding resulted into widespread litigation which, furthermore, resulted in split-Benches of the Appellate Tribunal which nonetheless concluded in favour of the exporters.8 Since the orders of the Appellate Tribunal gave short thrift to the administrative clarifications, the tax administration challenged them before the Supreme Court, which matters are still pending consideration of the Supreme Court.9

In order to address the controversy and limit the scope for disputes, the incumbent rules were replaced by comprehensive “Place of Provision of Service Rules, 201210determined, on the basis of the type of service under consideration, the place where such service was considered to be provided, and hence whether it amounted to export. It was in these 2012 Rules that the concept of “intermediary” was birthed. It was provided that place of provision of intermediary service “shall be the location of the service provider”.11 “intermediary’ in the following terms:

2(f) intermediary mean a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the “main service”) between two or more persons, but does not include a person who provides the main service on his account.

As evident, the scope of intermediary was limited to a person who arranged or facilitates a provision of a service between two or more persons. Subsequently the span of its coverage was expanded to even included facilitation of goods with the amendment of these 2012 Rules in the year 2014, whereafter the definition of “intermediary” reads as under:

2(f) intermediary mean a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the “main service”) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account.

Thus, facilitation in respect of goods was also brought within the scope of intermediary. The tax administration further clarified that even sub-agents would be classified as intermediaries and they would be required to discharge tax on their services.12

There are significant legal consequences on account of the introduction of the intermediary concept. In view of the 2012 Rules, the place of supply of services provided by a person who is engaged in facilitation is in India and thus such services are stripped of their export status. This results in a position wherein an Indian service provider, who qualifies as an intermediary, is required to collect tax even from its foreign consumer who is paying in foreign exchange. This is besides the fact that there is significant litigation brewing in view of the ambiguous expressions such as “arranges or facilitates a provision of a service”, scope of “main service”, etc.13

Intermediary under GST laws

Notwithstanding the interpretation issues and larger consequences of the intermediary concept under the service tax law, it has been continued in the GST laws as well. In fact, whereas intermediary concept was part of the subordinate legislation under the service tax law, it has been clothed statutory recognition under the GST regime. The Integrated Goods and Services Tax Act, 2017 (IGST Act) defines intermediary in the following terms:

2. (13) 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;.

Upon a comparison, it is clear that the definition in IGST Act, which applies across the board in other GST legislations as well,14 closely resembles the definition under the service tax law. Even though the reference to “main service” under the service tax law is missing in the GST definition, it appears to exist in principle in the latter part of the definition under the IGST Act.

Furthermore, conceptually the IGST Act appears to mirror the service tax law consequence in so far as it is provided that in the case of intermediary services the place of supply shall be the location of the supplier of services.15 In view of this stipulation, an intermediary service fails to meet the test of export of service as it inter alia stipulates that “the place of supply of service is outside India” is a necessary condition for a service to qualify for export status.16 As a net consequence, under the GST laws intermediary services are ineligible to claim exemption on account of export and thus such Indian service providers earning foreign exchange from supplies made to non-residents must nonetheless charge GST on their supplies.

Given the harsh consequences of classification as intermediary and the continuity of the ambiguous expressions employed to define its scope, large number of disputes have arisen in the GST regime. To enlist a few, services of promotion of courses of foreign universities amongst Indian students by Indian service providers has been considered to be intermediary services, thereby denying them benefit of export status and requiring them to charge GST on the commission earned by them from the foreign universities;17 back-office support services, payroll processing, maintenance of records of employee provided to overseas companies provided by Indian service provider has also been concluded as being in nature of intermediary services;18 etc.

In view of such interpretation being assigned by the field-formations, consequent to wide-ranging representations by the exporters, the tax-administration issued various clarifications on the scope of intermediary, only to reveal the flip-flop in the policy-thinking. In July 2019, a Circular was issued by the tax administration in the context of information technology enabled services (ITeS) such as call center, business process outsourcing services, etc.19 This Circular addressed three scenarios of back-end ITeS and whether they qualified as intermediary, only to create more conclusion rather than objectively explain the nuances of the concept. Within a few months, in December 2019, the tax administration withdrew ab initio the July 2019 Circular acknowledging that it received numerous representations expressing apprehensions on the implications of the said Circular.20 Subsequently, the tax administration issued another Circular in September 2021, albeit not industry-specific but general, again seeking to explain the nuances of intermediary concept.21 The salient features emerging from the September 2021 Circular are enlisted below:

1. The tax administration has acknowledged that “there is broadly no change in the scope of intermediary services in the GST regime vis-à-vis the service tax regime”.

2. Because “an intermediary is someone who arranges or facilitates the supplies of goods or services” it is “a natural corollary that the arrangement requires a minimum of three parties, two of them transacting in the supply of goods or services or securities (the main supply) and one arranging or facilitating (the ancillary supply) the said main supply”. As a consequence, activity between only two parties cannot be considered as intermediary.

3. The role of intermediary is only supportive, akin to an agent, etc. and does not cover a person who himself provides the main supply.

4. Intermediary does not include a person who supplies such goods or services or both or securities on his own account. In fact, this Circular varies from the earlier circular to clarify that subcontracting for a service is not an intermediary service.

Thus, after the September 2021 Circular there is certain clarity in law on the scope of intermediary. However, it also reveals the extent of inquiry required to be undertaken to determine if a situation of intermediary exists. It is therefore not surprising that disputes persist as regards application of the legal scheme to the individual facts of the transacting entities. Judicial dockets are filled with various lis on whether on the given set of facts an intermediary is constituted.22 This is notwithstanding the fact that by now there are many decisions of the High Courts which have concluded on the contours of intermediary in a variety of situations both under the service tax and GST laws.23 In fact, in few matters the matters have even reached Supreme Court and remain pending,24 though it has declined to examine the issue in certain cases.25

Tax policy perspective

The concept of intermediary is not just an eyesore for the Indian exporters, disturbing their pricing and cost-effectiveness in the global market, it violates a number of tax policy principles thereby necessitating a relook at its relevance in the GST laws:

1. First, the introduction of intermediary concept effectively divides service exporters into two categories — those who export substantive services and those who provide ancillary or support services — and prohibits the latter category to enjoy the export status benefits. There is no rationale for such a classification insofar as both categories of service providers serve non-residents thereby both being equal stakeholders to the proposition that taxes should not be exported.

2. Second, even those category of service providers who are classified as intermediaries earn foreign exchange by serving non-residents. Hence, one of the key reasons for extending benefits to exporters is satisfied even by intermediaries. Unless it is conscious decision by the Government of India that it has sufficient foreign exchange reserves thereby disregarding the decades old policy of incentivising exports, there is no reason to deny the export status to intermediaries who also earn precious foreign exchange.

3. Third, under the aegis of World Trade Organisation (WTO), there is international consensus that service exports can take place through one of the four modes of which the very first mode of service supply is “cross-border trade” wherein “A user in country A receives services from abroad through its telecommunications or postal infrastructure.  Such supplies may include consultancy or market research reports, telemedical advice, distance training, or architectural drawings.”26 India is not just a signatory to WTO but also specifically accepts export of services through all these four modes of service.27 On this conceptual premise as well, thus, intermediaries qualify as having engaged in export of services. Thus, denying them export status benefit is a sheer discrimination.

4. Fourth, the subjective contours and the changing views of the concept evident from the shifting clarifications of the tax department clearly establish that the concept of intermediary violates a fundamental canon of taxation i.e. tax certainty. The Supreme Court has exhorted the policy framers for legal certainty in taxation.28 Even otherwise, it is now an accepted canon of taxation which is vividly described by Adam Smith in the following terms:29

“The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. Where it is otherwise, every person subject to the tax is put more or less in the power of the tax-gatherer, who can either aggravate the tax upon any obnoxious contributor, or extort, by the terror of such aggravation, some present or perquisite to himself. The uncertainty of taxation encourages the insolence and favours the corruption of an order of men who are naturally unpopular, even where they are neither insolent nor corrupt. The certainty of what each individual ought to pay is, in taxation, a matter of so great importance, that a very considerable degree of inequality, it appears, I believe, from the experience of all nations, is not near so great an evil as a very small degree of uncertainty.”

5. Fifth, by constant revisit to the conceptual foundations, both by the tax administration and with the growing judicial elocution, it is clear that the law is very subjective depending on the minute fact-based appreciation of each transaction. This in turn violates the canon of “economy in collection”, which inter alia proscribes a levy of such a tax where “the levying of it may require a great number of officers, whose salaries may eat up the greater part of the produce of the tax, and whose perquisites may impose another additional tax upon the people” and also because such a tax “may obstruct the industry of the people, and discourage them from applying to certain branches of business which might give maintenance and employment to great multitudes”.30

Even otherwise, India has emerged as the world’s leading destination for technological innovations and outsourced operations, even if by adding value to the core operations carried out abroad. The entire business process outsourcing (BPO) industry, pay-roll processing and other classes of service activities which form a core component of India’s outward facing service economy is subjected to tax uncertainty singlehandedly by this concept of intermediary. Such a scenario does not auger well for the core national outlook. The policymakers need to introspect whether collecting GST at18% on such activities is more rewarding to the national exchequer versus the potential loss of business opportunities owing to the non-competitive financial costs ascribed to this large class of service exporters, thereby depriving India of benefits from participation in the global service economy.


Even though it has been more than a decade that the concept of intermediary found its way into the indirect tax regime, even today there is no policy rationale for its introduction even though it disturbs the conceptual premise of the destination-based consumption tax principle. Not just that it deviates from the core pivot of the indirect tax laws, the concept of intermediary also breeds overwhelming uncertainty in the tax law so much that it renders each transaction to a case-specific outcome which situation is neither conducive to the business (inter alia given the uncertainty) nor the tax-administration (inter alia given the high costs of administration on such account) and, in fact, belies the reason of introduction of GST which is mooted as a reform to introduce tranquillity in the legal system instead of creating more disputes. From a larger macro-economic perspective and towards mitigating dispute, the policymakers should consider the continued relevance of the intermediary concept to withdraw its application altogether from the GST laws in the interests of larger national economic interests.

†Advocate, Supreme Court of India. LLM, London School of Economics; BBA, LLB (Hons.) National Law University, Jodhpur. The author can be reached at

1. See generally, All-India Federation of Tax Practitioners v. Union of India, (2007) 7 SCC 527 inter alia observing that, in view of this principle, service tax would “be leviable only on services provided within the country”.

2. Constitution of India, Art. 286(1)(b).

3. For illustration, see Department of Service Tax, Notification No. 6/99-ST dated 9-4-1999.

4. Department of Service Tax, Circular No. 56/5/2003-ST dated 25-4-2003.

5. Export of Services Rules, 2005, notified vide Department of Service Tax, Notification No. 9/2005-ST dated 3-3-2005.

6. Department of Service Tax, Circular No. 111/05/2009-ST dated 24-2-2009 on the subject “Applicability of the provisions of the Export of Services Rules, 2005 in certain situations.”

7. Department of Revenue, Circular No. 141/10/2011-TRU dated 13-5-2011 on the subject “Export of services — Clarification of phrase used outside India.”

8. For illustration, see Microsoft Corpn. India (P) Ltd. v. CST, 2014 SCC OnLine CESTAT 3447; Paul Merchants Ltd. v. CCE, (2013) 29 STR 257.

9. Batch of cases in CST v. Kingfisher Airlines Ltd., Civil Appeal No. 5250 of 2015, order dated 15-12-2023

10. Notified vide Department of Service Tax, Notification No. 28/2012-ST dated 26-6-2012

11. Place of Provision of Service Rules, 2012, R. 9(c).

12. Ministry of Finance, Circular No. 180/06/2014-ST dated 14-10-2014.

13. For illustration, see Commr. of GST v. Orange Business Solutions (P) Ltd., 2019 SCC OnLine CESTAT 9268.

14. See Central Goods and Services Tax Act, 2017, S. 2(120).

15. Integrated Goods and Services Tax Act, 2017, S. 13(8).

16. Integrated Goods and Services Tax Act, 2017, S. 2(6)(iii).

17. Global Reach Education Services (P) Ltd., 2018 SCC OnLine WB AAR-GST 18. affirmed in appeal by Appellate Advance Ruling Authority in Global Reach Education Services (P) Ltd., 2018 SCC OnLine WB AAAR-GST 9 (2018) 15 GSTL 618.

18. Vservglobal (P)Ltd., In re, 2018 SCC OnLine Mah AAR-GST 12 (2018) 19 GSTL 173, Affirmed in appeal by Appellate Advance Ruling Authority in Vservglobal (P) Ltd., (2019) 26 GSTL 127.

19. Ministry of Finance, Circular No. 107/26/2019-GST dated 18-7-2019.

20. Ministry of Finance, Circular No. 127/46/2019-GST dated 4-12-2019.

21. Ministry of Finance, Circular No. 159/15/2021-GST dated 20-9-2021.

22. For illustration, see Uber India Systems (P) Ltd. v. Union of India, Civil Writ Petition No. 17856 of 2021 —order dated 10-9-2021 (P&H); Netgear Technologies India (P) Ltd. v. Commr. (CGST) 2023 SCC OnLine Del 2996, etc.

23. For illustration, see CCE and CGST v. Blackberry India (P) Ltd., 2023 SCC OnLine Del 4467.; Ernst and Young Ltd. v. Commr. (CGST), 2023 SCC OnLine Del 1764; Genpact India (P) Ltd. v. Union of India, (2023) 109 GSTR 429. ; Cube Highways and Transportation Assets Advisor (P) Ltd. v. Commr. (CGST), (2023) 5 HCC (Del) 787 : 2023 SCC OnLine Del 5017. etc.

24. For illustration, see CST v. Verizon India (P) Ltd.,Civil Appeal No. 3546 of2020

25. For illustration, see CCEv. Chevron Phillips Chemicals India (P) Ltd., Civil Appeal Diary No. 51950 of 2023, order dated 29-1-2024 (SC) (given for uploading); CCE (GST)v. SNQS International Socks (P) Ltd., Civil Appeal Diary No. 8343/2024, order dated 19-3.-024.

26. See generally, WTO, GATS Training Module: Chapter 1 “Basic Purpose and Concepts”, available at <>.

27. See generally, Foreign Trade Policy, Government of India, Ch. 11, para 11.52, available at <>.

28. Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613.

29. Adam Smith, The Wealth of Nations, Book V, Ch. II, Part II, available at <>.

30. Adam Smith, The Wealth of Nations, Book V, Ch. II, Part II, available at <>.

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