IT-BPM industry welcomes GST clarification on intermediaries

The industry on Tuesday welcomed the Goods and Services Tax (GST) Council’s circular, clarifying the role of intermediaries in the tax regime. This will provide a breather to business process management (BPM) and information technology (IT) services companies. However, some categories of intermediaries would still not be exempt.

Therefore, experts say the government needs to re-look the definition for people engaged in, for example, marketing and promotion services for foreign companies.

“Nasscom welcomes the clarifications issued by the GST Council on the scope of intermediary services and exports of services. We expect these clarifications to lay to rest long-pending disputes of litigation at various levels and ease processing of pending refund claims held up because of exports being viewed as intermediary services,” said industry body National Association of Software and Services Companies (Nasscom). 

It welcomed the clarification that a company incorporated in India and a corporate incorporated by or under the laws of a country outside India, which is also referred to as foreign company under the Companies Act, are separate persons under Central GST Act, and thus are separate legal entities.

“Accordingly, these two separate persons would not be considered as ‘merely establishments of a distinct person under Explanation 1 in section 8’. This will ensure the availability of export status to services provided by Indian IT companies to their foreign group entities. This will also help in resolving refund issues and clearing litigations pending before the appellate and judicial authorities,” it added. 

This is a long-standing issue between the IT-BPM industry and the government. In 2019, Central Board for Indirect Taxes and Customs said the services offered by the IT and ITeS sectors at the back end, especially with respect to business process outsourcing (BPO), may attract an 18 per cent GST. This is because they will not qualify as export.

Welcoming the clarification by the GST Council, Keshav R Murugesh, Group CEO of BPM firm WNS said, “It augurs well for the growth of the BPM industry and the entire ecosystem in the chain. The industry has been advocating this for the past two-three years. This announcement would encourage more players across the country to enter the domain. We thank the government and concerned authorities for lending their unstinted support and recognising that the IT-BPM services sector is part of the country’s growth engine,” he said.

However, intermediaries are a big category, and can include firms that engage in the sale of anything from airline services to software for foreign-based firms. 

There is pending litigation that is looking at the constitutional validity of the imposition of integrated goods and services tax (IGST) on firms that engage in marketing and promotion services to foreign companies.

The high court of Gujarat, in March, admitted a petition to review its own decision on such firms. The matter pertains to the place of supply rules under the GST regime. For such firms, or indenting agents in technical terms, the place of supply is deemed to be within India.