Intermediary services have long been a subject of discussion and debate, particularly regarding why their place of supply is determined by the location of the supplier and whether services provided to a recipient outside India qualify as exports or fall under intermediary services. Setting aside these debates, let’s examine what the provisions state and the rationale behind them.
Who is an Intermediary?
Section 2(13) of the CGST Act, 2017 defines who is an Intermediary. So, this is how intermediary is being defined “”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”
Cracking it:
- The definition states that an intermediary can be any person acting as a broker, agent, or in a similar capacity. Rather than listing specific services that fall under intermediary services, the definition focuses on the nature of the service itself. This approach reflects the law’s intent to broaden the scope of intermediary services, ensuring that no service evades classification by disguising its true nature by specifying different name for the service provided.
- The person must be engaged in arranging or facilitating the supply of goods or services or both or securities. The law explicitly restricts the role of an intermediary to facilitation rather than actual supply. By including the term “securities,” the law clarifies that although securities are not included in the definition of goods and their sale falls outside the ambit, any support or facilitation of such transactions—such as brokerage services—remains taxable under GST. This deliberate inclusion ensures that brokerage and similar services related to securities are brought within the GST framework.
- Every supply involves a supplier and a recipient, and the definition clearly establishes that an intermediary is neither. This means that an intermediary cannot be a party to the actual supply of goods or services they facilitate, either as a supplier or a recipient. Instead, the intermediary acts as a service provider to either the supplier or the recipient, offering facilitation services without being directly part of the main supply.
The concept of ‘intermediary’ under GST was adopted from the Service Tax regime. The definition of ‘intermediary’ was originally provided in Rule 2(f) of the Place of Provision of Services Rules, 2012, under Service Tax law. A comparison of the definitions under the IGST Act and the Service Tax law reveals that there has been no significant change in the scope of intermediary services under GST. The only notable addition is the inclusion of the supply of securities within the definition of an intermediary under GST, which was not explicitly covered under the Service Tax regime.
How to Identify an Intermediary?
1. Minimum Requirement of Three Parties
An intermediary arranges or facilitates the supply of goods, services, or securities between two or more parties, requiring at least three participants: two engaged in the main supply and one facilitating it. Transactions involving only two parties do not qualify as intermediary services. The intermediary solely facilitates the main supply without directly providing it.
2. Two distinct supplies
Intermediary services involve two distinct supplies:
i. The main supply of goods, services, or securities between two principals,
ii. The ancillary supply of facilitation or arrangement by the intermediary. This ancillary supply is separate from the main supply.
A person directly involved in the main supply on a principal-to-principal basis is not an intermediary.
3. Subsidiary Role
An intermediary must have the characteristics of an agent, broker, or a similar facilitator. The terms “arranges or facilitates” imply a subsidiary role, where the intermediary supports the main supply without directly providing it.
4. Not a party to the main supply
An intermediary does not include a person supplying goods, services, or securities on their own account. The term “such” in the definition refers to the main supply being facilitated. If a person is directly involved in the main supply, either fully or partially on a principal-to-principal basis, they do not qualify as an intermediary.
5. Sub-contractor vs Intermediary
Sub-contracting is not considered an intermediary service. When a supplier outsources the main service, either fully or partially, the sub-contractor directly provides the service rather than merely facilitating it. Since the sub-contractor is involved in the actual supply, they do not qualify as an intermediary.
Circular No. 159/15/2021-GST dated 20/09/2021 outlines the key criteria for determining whether a service qualifies as an intermediary, ensuring clarity in classification under GST.
Why place of supply for intermediary services are specifically mentioned in section 13 and not section 12?
Section 7(1)(a) defines supply to include all forms of goods or services transactions—such as sale, transfer, barter, exchange, license, rental, lease, or disposal—when made for consideration in the course or furtherance of business. Since intermediary services involve facilitation for consideration, they fall within the scope of supply under GST.
To determine whether the service is inter-state or intra-state place of supply provisions under IGST Act, 2017 has to be referred. Section 12specifies the provisions in relation to the Place of supply of services where location of supplier and recipient is in India. And section 13 place of supply of services where location of supplier or location of recipient is outside India. As GST is a consumption based tax, when a service of arranging or facilitating a supply is provided to a recipient in India, the POS for the same shall bedetermined under 12(2). However, why it is mentioned specifically in section 13(8) alone is the question here?
In general, GST is a consumption based tax but in some instances tax is levied based on the performance. This has been the case even with the service tax regime. The philosophy behind this is the essence of indirect taxation that is a service should be taxed in the jurisdiction of its consumption. Services could be provided by a person located at one location, actually performed at another while being delivered to a person located at a third location, and occasionally actually consumed at a third location or over a larger geographical territory, falling in more than one taxable jurisdiction or On other occasions the exact location of service recipient itself may not be available. As a result it is necessary to formulate a uniform procedure.
Intermediary services, in particular, present unique complexities. Unlike principal-to-principal transactions where the supply of goods or services takes place between two identifiable parties, intermediary services primarily involve facilitation rather than direct supply. In most cases, these services are performed at the location of the intermediary (supplier of the service), while the actual transaction—the main supply of goods or services—occurs elsewhere.
Recognizing these challenges, Section 13(8) of the IGST Act explicitly provides that the place of supply for intermediary services is the location of the supplier. This provision ensures tax certainty, especially when the recipient’s location is unclear or spans multiple jurisdictions. Furthermore, this approach helps prevent tax evasion and revenue loss by ensuring that transactions do not escape taxation due to ambiguity in determining the place of supply.
By anchoring the place of supply to the supplier’s location, GST law maintains a fair and consistent taxation framework, ensuring compliance while addressing the practical challenges of taxing intermediary services in a globalized economy.
Export of Service vs Intermediary Services:
Another perplexity that persists in relation to intermediary service is that while rendering a service to a recipient outside India whether it must be categorized as Export of Service or Intermediary service.
For a service to qualify as an export of service, the service must fall under the under definition ofsection 2(6). The supplier of service must be in India, recipient of such service should be outside India, place of supply of service should be outside India and the consideration must have been received in convertible foreign currency or in Indian rupees wherever permitted by the RBI.
While intermediary services may meet most of these conditions—such as the supplier being in India, the recipient being outside India, and payment being received in foreign currency—the critical condition of place of supply being outside India is not met. As per Section 13(8)(b) of the IGST Act, the place of supply for intermediary services is always the location of the supplier, which, in this case, is in India. Consequently, despite being provided to a recipient outside India, such services do not qualify as an export of service and remain taxable under GST. Most importantly, determination of whether the supplier arranges or facilitates supply or he himself is one of the principalsto the supply would be crucial to determine whether the service provided is intermediary service or not.
Intermediary services under GST involve multiple tests to determine their classification, place of supply, and export status. Meeting these conditions is crucial for accurately identifying the nature and taxability of the service.
This article is a part of Article Writing Competition 2025.
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