GST Intermediary Dispute Remains Unresolved

GST Intermediary Dispute Remains Unresolved

Recently, a circular -159/51/2021-GST-Clarification on Doubts Regarding the Scope of ‘Intermediary’ was released, but I’m not sure if the doubts were cleared or persisted…

First and foremost, the term “intermediary” is defined as “a person who acts as a middleman between two parties.”

‘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,’ says the definition.

The term “intermediary” was borrowed from the Service Tax Regime in the GST. As stated in the circular, the scope of ‘’intermediary services” under the GST REGIME does not differ from the scope of ‘’intermediary services” in the Service Tax REGIME.

The circular merely mentions who is a middleman, however, it is unclear if the services provided by the intermediary are considered exports of services or not –– the debate continues —–

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Several instances are offered in a circular format but are only described once

Who is the intermediate

I.e., who arranges or facilitates the provision of products or services, i.e., a third party between two parties, although it is unclear if intermediary services are exportable or not?

Let’s look at an example:

A- Machine Manufacturer and Supplier in India

B- if you want to buy a machine but don’t live in India.

C- Assists ‘’B” in identifying customers –

C acts as an intermediary, invoicing ‘’B” in order to complete the transaction between ‘’A” and ‘’B”.

Non-filers of monthly GST returns would be prevented from filing GSTR-1 from next year. 

Why can’t C’s services be classified as exports of services because he provides services outside of India?

The supply of any service when it is exported is referred to as service export.

  • Supplier of service located in India –i.e A and C
  • Recipient of service located outside India- i.e B
  • Payment for such service received in convertible foreign exchange.
  • Place of supply of service is outside India – as per Sec 13(8) clause (b) IGST ACT 2017

IN THE CASE OF INTERMEDIARY SERVICE – SUPPLY PLACE – SUPPLIER LOCATION

The location of the supplier in India does not justify the export of services in this case.

The foregoing is still disputed, and litigation is ongoing, according to the circular.

Conclusion: If GST is a destination-based consumption tax, and C is providing a service to B – OUTSIDE INDIA, and payment is made in convertible foreign currency, why can’t it be classified as a service export?

So, unless the government clarifies the above, the litigation will continue.

Discounts under GST Regime!

Sec.15 of the CGST Act, 2017, reproduced below

The value of the supply shall not include any discount which is given –

  • Before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply
  • After the supply has been affected, if –

    # – Such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices, and
    # –  Input tax credit as is attributable to the discount on the basis of the document issued by the supplier has been reversed by the recipient of the supply.”

Summary:

The logical inference which could be drawn from the plain reading of above provision is:

  • Discount, if mentioned on the face of the invoice, can be reduced from the taxable value of the supply of goods.
  • Discount, even if not mentioned on the face of the invoice can be reduced from the taxable value, if following conditions are satisfied:

i) Discount is established in terms of an agreement before supply. In simple words, both supplier and recipient are aware and have agreed about the discount before the supply.

ii) Discount is linked to a specific supply invoice.

iii) ITC attributable to the discount is required to be reversed by the buyer or recipient of the supply.

tax audit, refund, notice, assessmentGST liability of the supplier would be reduced if both supplier and receiver of the goods or services are aware of the discount before supply.

There will be no differentiation in GST between trade and cash discounts.

In fact, GST segregates the discounts allowed into two categories:

  • Those given before or at the time of supply, and
  • Those given after the time of supply.

Discount allowed before or at the time of supply, and it has been mentioned in the invoice separately, it will not be added in the value of supply.

Example: Company offers a 10 % discount on the sale of goods worth Rs. 200. If the company mentions the discount amount (Rs. 20) separately in the invoice, the value of the taxable supply will be Rs.180 (200–20).

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Bank balance sheet affected India’s growth

GST, bank balance sheet affected India’s growth: UN

The goods and services tax, as well as protracted issues of corporate and bank balance sheet problems, pushed India’s economic growth downward in 2017, but a gradual recovery is expected and the economy is forecast to growth at 7.2% in 2018, according to a un report.

bank balance sheet affected India’s growth

According to estimates in the UN Economic and Social Commission for Asia and the Pacific’s flagship publication Economic and Social Survey of Asia and Pacific, India’s GDP grew at 6.6% in 2017, down from 7.1%. The report said India’s GDP is forecast to grow 7.2% in 2018.

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