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Indirect Tax Alert - CBIC clarifications basis 45th GST Council recommendations

23 September 2021

Scope of ‘intermediary’ services

This has been an area of raging controversy. The circular1 issued to clarify scope of ‘intermediary’ services helps resolve divergent interpretations adopted by tax authorities and taxpayers. It provides a sigh of relief to taxpayers.

1. Key requirements for considering services as ‘intermediary’ services

  • Minimum 3 parties should be involved in the transaction, namely the ‘Main Supplier’, the ‘Recipient’ of Main Supply and the ‘Intermediary’, who facilitates/arranges the ‘Main supply’ between ‘Main supplier’ and ‘Recipient’. The ‘Intermediary’ does not provide the main supply himself.
  • Two distinct supplies should be involved, namely ‘Main supply’ between two persons on ‘Principal to Principal’ basis and the ‘Ancillary supply’ by the ‘intermediary’ who facilitates the ‘Main Supply’ between principals.
  • Intermediary service providers shall have the character of an agent, broker, or any other similar person. The role of the intermediary is only supportive.
  • The intermediary will not include a person who supplies the goods or services or both or securities on his own account. When a person supplies the main supply, either fully or partly, on principal-to-principal basis, the said supply will not get covered under ‘Intermediary’.
  • Sub-contracting/Outsourcing (and not merely arranging or facilitating) of service (fully or in part) is not intermediary.
  • The provisions pertaining to intermediary shall be invoked only when either the location of supplier of intermediary services or location of the recipient of intermediary services is outside India.

2. Illustrations given in the Circular

The below illustrations are for reference only and each transaction/contract shall be examined in detail to understand the applicability of intermediary services.

Sl. No.

Nature of Transaction

Whether Intermediary or Not and reason


  • ‘A’ supplies a machine to ‘B’ – the Main Supply
  • ‘C’ helps ‘A’ in identifying ‘B’ and assists in finalizing the contract between ‘A’ and ‘B’
  • ‘C’ charges ‘A’ for identifying customer ‘B’ and facilitating supply of machine between ‘A’ and ‘B’.

‘C’ is an ‘intermediary’ as it involves facilitation of supply between ‘A’ and ‘B’


  • ‘A’ is involved in development of software as per requirements of client ‘B’. ‘A’ outsources the task of design and development of a particular module of the software to ‘C’.
  • ‘C’ may interact with ‘B’ for rendition of software development activity

‘C’ makes main supply of software design and development activity to ‘A’, hence services rendered ‘C’ will not qualify as ‘intermediary’ services


  • ‘P’ is an Insurance Company located outside India, who approaches, ‘Q’ for identifying service providers, who would perform the Insurance claim processing services.
  • ‘Q’ contacts ‘R’, who is in the business of providing insurance claim processing. ‘Q’ arranges for contract between ‘P’ and R’ and receives commission.

‘P’ and ‘R’ are involved in the Main supply on Principal-to-Principal.

‘Q’ merely facilitates Main supply between ‘P’ and ‘R’; thus, services rendered by ‘Q’ would qualify as ‘intermediary’ Services.


  • ‘A’ supplies computer to customers all over the world and as part of it, ‘A’ is required to provide customer care services to its customers.
  • ‘A’ outsources customer care services to a BPO firm ‘B’, where ‘B’ provides customer care services to ‘A’ by interacting with the customers of ‘A’.

Services rendered by ‘B’ to ‘A’ is ‘Main Supply’ in the nature of ‘Customer care services’. Hence, services rendered by ‘B’ will not qualify as ‘intermediary’ Services.


3. Our Comments

The circular provides significant relief to several organisations, specifically entities operating in the IT & ITES space. Even though the circular has clarified the intermediary implications on ‘BPO services’, ‘sub-contracting’, and services provided under ‘principal to principal’ contract, the following actions and reviews needs to be undertaken by entities having similar operations -

  • Take decision on applicability of ‘intermediary’ services when the entity is purely involved in ‘Market Research Services’/ ‘Marketing services’ of identifying customers does not facilitate the ‘Main supply’ between principal supplier and principal recipient. The current clarification does not clearly clarify this issue.
  • Several Advance Rulings in the past have held that services would qualify as ‘intermediary’ services and the illustrations provided in the circular may not directly address findings contained in those advance rulings. This would require revalidation of the tax positions adopted in the past drawing inferences from the latest clarification.
  • Further, entities who had adopted a conservative tax approach of levying GST on their services, need to re-examine the positions in the backdrop of the circular to explore refunds.
  • Additionally, the circular has not addressed one of the key issues faced by the IT & ITES sector, wherein the ‘Main supply’ and recipient is located outside India and the facilitation services (intermediary) is rendered by an entity located in India. Also, doubts on the ‘place of supply’, to ascertain whether it is ‘inter’ or ‘intra’ state supply too stands unaddressed.


Clarification on time limit for availment of ITC on debit note

Section 16 (4) of CGST Act, 2017, amended w.e.f. 01 January 2021, provides that a registered person shall not be entitled to take ITC in respect of any Invoice or Debit Note after the due date of furnishing of the return under section 39 for the month of September following the end of the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier. Prior to this amendment, ITC cannot be availed on Debit Note, if it is issued after the time limit for availing ITC on the original invoice related to such debit note. CBIC has issued clarifications on the following in relation to the availment of ITC on debit note:

Sl. No




There was a doubt regarding the Financial Year (FY) for the availment of ITC on debit note for the purpose of section 16(4).

After the amendment to section 16(4), the words ‘invoice relating to such’ is omitted. The availment of ITC on Debit Notes in respect of amended provision shall be applicable from 01 January 2021. Whereas any ITC availed prior to 01 January 2021, in respect of Debit Notes, shall be governed under the provisions of section 16(4), as it existed before the said amendment w.e.f. 01 January 2021.


Whether date of issuance of Debit Note, or date of issuance of underlying invoice is relevant to determine the ‘FY’ after the amendment of section 16(4) of the CGST Act w.e.f. 01 January 2021 and also whether the amended provision will be applicable only in respect of the Debit Notes issued after 01 January 2021?

It is clarified that w.e.f. 01 January 2021, the date of issuance of Debit Note (and not the date of underlying invoice) shall determine the relevant FY.


FY for issuance of debit note for section 16(4) in case of Debit Note issued prior to 01.01.2021, however ITC availed after 01.01.2021.

Debit Note date would be relevant to determine the relevant FY.

Illustration 1. A debit note dated 7 July 2021 is issued in respect of the original invoice dated 16 March 2021. As the invoice pertains to F.Y. 2020- 21, the relevant financial year for availment of ITC in respect of the said invoice in terms of section 16(4) of the CGST shall be 2020-21. However, as the debit note has been issued in FY 2021-22, the relevant financial year for availment of ITC in respect of the said debit note shall be 2021-22 in terms of amended provision of section 16(4) of the CGST Act.

Illustration 2. A debit note has been issued on 10 November 2020 in respect an invoice dated 15 July 2019. As per the amended provision of section 16(4), the relevant financial year for availment of input tax credit on the said debit note, on or after 1 January 2021, will be FY 2020-21 and accordingly, the registered person can avail ITC on the same till due date of furnishing of FORM GSTR-3B for the month of September 2021 or furnishing of the annual return for FY 2020-21, whichever is earlier.


Requirement to carry physical copy of ‘Tax invoice’ if e-invoice with QR code is available

There is no need to carry any physical copy of the Tax invoice in cases where the invoice has been generated by the supplier in the manner prescribed for generation of e-invoice and production of the Quick Response (QR) code having an embedded Invoice Reference Number (IRN) electronically, for verification by the proper officer, would suffice.


Refund of unutilised ITC on goods, exported out of India, which are not ‘subjected to export duty’

It is clarified that only those goods which are actually subjected to export duty will be covered under the restriction imposed under section 54(3) from claim of refund of accumulated ITC. Thus, goods which are not subject to any export duty or NIL rated or exempted fully would not be covered by the restriction imposed under the first proviso to section 54(3) of the CGST Act for the purpose of availment of refund of accumulated ITC. The said clarification would unsettle the decision of AAR in the case of Chowgule & Co (P.) Ltd., In re [2019] 107 294, where in it was held that ‘Nil’ rate is also a rate of tax and thus, these goods would be considered as subjected to export duty.

[Circular no:160/16/2021-GST dated 20 September 2021]


Export of services between group companies

The tax authorities have been denying GST refunds on service exports by a subsidiary/sister concern/group concern, etc. of a foreign company incorporated in India, to foreign company incorporated under laws of an overseas jurisdiction, on the assumption that these entities would quality as establishments of ‘distinct persons’.

CBIC vide this circular has clarified that -

  • The company incorporated in India and Foreign Company are separate persons under the CGST Act, and they are separate legal entities.
  • These two separate persons would not be considered as merely establishments of a ‘distinct person’.
  • Thus, supply of services by a subsidiary/sister concern/group concern, etc. of a foreign company, incorporated in India under the Companies Act, 2013 to the establishments of the said foreign company located outside India would not be barred by the condition (v) of the section 2(6) of the IGST Act, 2017 for being considered as export of services.

[Circular no:161/17/2021-GST dated 20 September 2021]