Intermediary services: characterisation, exposure and structuring
The single largest export refund dispute in India. It is decided on the agreement, not on the argument.
An intermediary under Section 2(13) of the IGST Act is a broker, agent or any other person who arranges or facilitates the supply of goods or services between two or more persons, but does not include a person who supplies such goods or services on his own account. Section 13(8)(b) fixes the place of supply for intermediary services at the location of the supplier, so an Indian intermediary serving a foreign principal makes a domestic supply. The characterisation is the whole dispute.
The four ingredients
Circular 159/15/2021-GST identifies them. A minimum of three parties. Two distinct supplies — the main supply between the principal and the third party, and the ancillary supply of arranging or facilitating it. The intermediary's role of arrangement or facilitation. And the absence of supply of the main service on one's own account.
The circular also records two propositions of practical importance: sub contracting is not intermediation, and a person supplying a service on a principal to principal basis is not an intermediary even if the service is connected with the principal's own supplies.
The test is functional. A label in the agreement describing the party as a service provider does not decide it, and neither does a label describing it as an agent.
The clearest indicator is the basis of remuneration. A commission on third party sales concluded by the principal points strongly to intermediation; a fixed or cost plus fee for a defined scope points away from it.
The exposure
The supply is treated as a domestic supply, so tax is payable, usually as CGST and SGST in the supplier's state. Refund claims for earlier periods are rejected, and demands are raised for the past years within limitation with interest.
The third judge's reading in Dharmendra M. Jani confines Section 13(8)(b) to the IGST Act, which supports the argument that CGST and SGST cannot be levied on the same supply. That argument should be pleaded where a state demand has been raised.
The GST Council has considered removing the intermediary place of supply rule so that the default recipient location rule applies. Any advice must be checked against the current text and the notified effective date.
The commercial consequence is that the tax is usually unrecoverable from the foreign principal, so it is a margin loss rather than a pass through.
Structuring, and its limits
Where the commercial reality permits, contract on a principal to principal basis with a fixed or cost plus fee for a defined scope of services rendered to the principal, with no authority to conclude contracts and no commission on third party transactions.
Where a commission structure is commercially necessary, at least ensure the agreement describes the service rendered to the principal, states that the supplier has no authority to bind either party, and records that the supplier is not a party to the principal's contracts with customers.
What does not work is relabelling an agency arrangement. Where the supplier introduces buyers, negotiates on the principal's behalf and earns a percentage of the concluded sale, the substance governs.
Where the arrangement is genuinely mixed, split it: a fixed fee service agreement for the support services and a separate arrangement for any genuine agency function, with the tax consequence of each recognised.
Authorities relied on
Sections 13(8)(b) and 8(2) of the IGST Act were upheld on reference, but confined in operation to the IGST Act and not available to sustain a levy of CGST and SGST.
A principal to principal service provider under a master services agreement is not an intermediary.
Upheld the validity of Section 13(8)(b) as a valid exercise of legislative power to fix the place of supply.
What to do on Monday
Review every foreign services agreement for the three party test and the remuneration basis.
Convert commission structures to fixed or cost plus service fees where the commercial reality permits.
Record in the agreement that Indian customers contract with the principal and not with you.
Where a demand is raised under the State Act, plead the confinement of Section 13(8)(b) to the IGST Act.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Is a marketing support provider an intermediary?
Not where it renders services to the foreign principal on its own account for a fee, with no authority to conclude sales. The agreement and the remuneration basis decide it.
Does back office work make us an intermediary?
No, where the work is done for the principal on a principal to principal basis. Genpact and the circular support that.
Can the state demand SGST on an intermediary service?
The third judge's reading in Dharmendra M. Jani supports the argument that it cannot. Plead it where such a demand is raised.
Will the rule be removed?
The Council has considered omitting the intermediary place of supply rule. Verify the current text and the effective date before advising; a prospective change does not cure past years.
Can we recover the tax from the foreign principal?
Only if the contract permits it. Most do not, which is why the structuring must be done before signing.
In this cluster
- Place of supply under GST: the full decision tree
- Export of services: the five conditions and where claims fail
- Dharmendra M. Jani: the constitutional attack on intermediary taxation, and where it stands
- 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.