The Central Board of Indirect Taxes and Customs vide the Circular No. 159/15/2021-GST dated 20 September 2021 (‘the Circular’) has clarified the scope of ‘intermediary services’ under the GST Law. The key clarifications provided in the Circular are summarized hereinbelow:

1. Broadly, there is no change in the definition of ‘intermediary’ under the GST regime vis-à-vis Service tax regime except addition of supply of securities in the definition under GST Law.
2. Primary requirements to determine the nature of the intermediary services is summarised below:

•  Minimum three parties – The arrangement of intermediary requires minimum three parties where two of them are transacting the main supply and third party is arranging/facilitating the main supply 
• Two Distinct supplies – There are two supplies involved in the arrangement of intermediary:

• • Main supply: Supply of goods or services or both or securities between the two principals
  • Ancillary supply: Service of facilitating or arranging the main supply between the two principals. This ancillary supply is intermediary service
• Intermediary service provider to have character of an agent, broker or any other similar person – The expression ‘arranges or facilitates’ in the definition of ‘intermediary’ suggests a subsidiary role for the intermediary. The said role is supportive i.e., to arrange/ facilitate the main supply between the principals

• Does not include a person who supplies such goods or services or both or securities on his own account – Definition of ‘intermediary’ specifically provides that intermediary shall not include person who supplies such goods or services i.e., main supply of goods and services on his own account on principal-to-principal basis
• Sub-contracting for a service is not an intermediary service – Where the principal supplier sub-contracts the main service to one or more sub-contractor either fully or partly, such sub-contractor provides the main supply and does not merely arrange or facilitate the main supply between the principal supplier and his customers. Therefore, in such case, the sub-contractor clearly is not an ‘intermediary’.
• Place of supply for intermediary services under Section 13 of the Integrated Goods and Service Tax Act, 2017 shall be invoked only when either the location of supplier of intermediary services or location of the recipient of intermediary services is outside India.

3. Concept of ‘intermediary’ is explained in the Circular through the following illustrations:

• • ‘A’ is a manufacturer and supplier of a machine. ‘C’ helps ‘A’ in selling the machine by identifying client ‘B’ who wants to purchase this machine and helps in finalizing the contract of supply of machine by ‘A’ to ‘B’. In such case, ‘C’ is facilitating the supply between ‘A’ and ‘B’ and is providing intermediary service
  • ‘A’ is a software company and has a contract with ‘B’ for providing some customized software. For development of a particular module, ‘A’ outsources the work to ‘C’, for which ‘C’ interacts with ‘B’ to understand requirements. As ‘C’ is providing main supply of designing of software, it shall not be treated as intermediary services
  • ‘P’ is an insurance company located outside India and requires claim processing services in India. ‘Q’ arranges services of claim processing through ‘R’ which provides services directly to ‘P’. In such case, ‘Q’ is providing intermediary service between ‘P’ and ‘Q’
  • ‘A’ is a global manufacturer supplier and requires services of customer care to address the queries of customers. ‘A’ engages company ‘B’ to provide assistance services to the clients of ‘A’. Here, ‘B’ is providing assistance services on its own and shall not be considered as an intermediary.

The above illustrations given in the Circular are only indicative and not exhaustive.