Dharmendra M. Jani: the constitutional attack on intermediary taxation, and where it stands

A commission agent earning in dollars was taxed as though he had supplied in Mumbai. Two judges disagreed, a third decided, and the provision remains on the statute book.

The provision and the grievance

An intermediary, under Section 2(13) of the IGST Act, is a broker or agent who arranges or facilitates a supply between two or more persons, but does not supply the main service on his own account.

Section 13(8)(b) fixes the place of supply for such a service at the location of the supplier. The consequence is that an Indian agent who finds Indian buyers for a foreign manufacturer, is paid in convertible foreign exchange, and renders the entire service from India for consumption abroad, is nevertheless treated as making an intra state supply.

The grievance was constitutional. A transaction that satisfies every commercial and statutory attribute of an export is deemed to be domestic by a deeming fiction, which the petitioners argued exceeded Article 246A and offended Articles 14 and 265, and imposed tax on an extra territorial event.

The split, and the resolution

One learned judge held Section 13(8)(b) and Section 8(2) of the IGST Act unconstitutional, on the ground that they created a fiction converting an export into a local supply.

The other held the provisions valid, reasoning that the legislature is entitled to fix the place of supply and that the exercise was a legitimate one of legislative choice.

On reference, the third judge upheld the validity, but read the provisions down in an important respect. Their operation is confined to the IGST Act. They cannot be pressed into service to authorise a levy of CGST and SGST on a supply that is not an intra state supply under the CGST and SGST Acts.

The result is unsatisfying but workable. The provision stands. Its reach is limited to the Act in which it appears, and the demand raised under the State enactment on the same transaction is vulnerable.

The dispute that actually decides your file

Because validity is settled for the present, the real fight in almost every notice is characterisation. Are you an intermediary, or are you supplying a service on your own account to a foreign recipient?

The distinction turns on whether you facilitate a supply between two other persons or render the service yourself. A back office that performs a process for a foreign group company on a principal to principal basis is not an intermediary. A marketing support provider paid a fixed fee for services rendered to the foreign entity, with no authority to conclude contracts and no commission on third party sales, is generally not an intermediary.

Circular 159/15/2021-GST is central. It identifies the ingredients: a minimum of three parties, two distinct supplies, the intermediary's role of arrangement or facilitation, and the absence of supply on one's own account. It also records that a person supplying a service on a principal to principal basis is not an intermediary, and that sub contracting is not intermediation.

The documentary battleground is the agreement, the invoice description, the basis of remuneration, and whether the foreign principal's customers have any contractual relationship with you.

Structuring, and the amendment on the horizon

Where the commercial reality permits, a principal to principal service agreement with fixed or cost plus remuneration is materially safer than a commission on third party sales.

Where a commission structure is essential, the agreement should record what the service is, that it is rendered to the foreign principal, and that the supplier has no authority to bind either side of the third party transaction.

The GST Council has considered the omission of Section 13(8)(b) so that intermediary services follow the default rule of the recipient's location. Any advice on this must be checked against the current text of the IGST Act and the notified effective date, because until the amendment is notified the deeming fiction continues to apply.

Authorities relied on

What to do on Monday

1. Read every export services agreement for the three party test before the department does, and note the basis of remuneration in each.

2. Where you supply on your own account, make the agreement and the invoice say so in terms, and remove commission language that no longer reflects the arrangement.

3. Preserve the correspondence showing that Indian customers contract with the foreign principal and not with you.

4. For refund rejections already suffered, check the limitation for appeal and press characterisation rather than constitutional validity.

Questions we are asked on this

Is a commission agent for a foreign supplier always an intermediary?

Almost always, if remuneration is a commission on sales concluded between the foreign principal and Indian customers. The characterisation follows the function, not the label in the agreement.

We do back office work for our overseas parent. Are we exposed?

Only if the arrangement facilitates a supply between the parent and a third party. Pure process work for the parent on a principal to principal basis is not intermediation, and Circular 159/15/2021-GST supports that position.

Can the State demand SGST on an intermediary service?

That is precisely where the third judge's reading helps. The deeming fiction lives in the IGST Act, and a demand under the State Act on a supply that is not intra state under that Act is open to challenge.

Our refund claim was rejected on the intermediary ground. What now?

Appeal on characterisation with the agreement, the invoice, the remuneration basis and the absence of any tripartite arrangement. Genpact is the leading authority in your favour.

Will the proposed omission of Section 13(8)(b) apply to past periods?

Do not assume so. Verify the notified effective date; a prospective amendment does not cure an exposure for earlier years.

In this cluster

• Place of supply under GST: the full decision tree
• Intermediary services: characterisation, exposure and structuring
• Export of services: the five conditions and where claims fail
• Mohit Minerals: ocean freight, composite supply, and the sentence that changed GST federalism
• Import of services and reverse charge under Section 5(3) of the IGST Act
• OIDAR services: registration, compliance and the 2023 amendment
• Bill to ship to transactions and Section 10(1)(b)
• High seas sales, bonded warehouse transfers and Schedule III
• Merchant trade and out and out supplies
• Goods transport agencies: reverse charge, the rate option and place of supply

GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.