Some Intermediaries Vow to Continue Legal Tussle Against Govt. Over GST

The legal battle over Goods and Services Tax (GST) on intermediaries is far from over despite a recent clarification by the government, as some exporters, IT-enabled services providers, and hospitality and travel companies are set to continue their challenge on the constitutionality of the indirect tax on the services they export.

These intermediaries say that they have been left out of the recent clarification by the government and that they will continue their legal battle across high courts. The main contention for these companies is that they have been slapped with GST on services that makes them uncompetitive globally.

The government has said that services outsourced to India or carried out in the country for foreign entities will not be treated as intermediary services, and hence not face 18% GST. The clarification has come as a huge relief for the country’s $180 billion technology sector.

But, according to tax experts, the recent clarification doesn’t cover about 100,000 intermediaries who were the first to be hit by the decision to slap this GST.

The tax department was holding back tax refunds of IT companies too, and the recent clarification, in essence, merely says this money should be paid back – but only to IT companies.

“The circular doesn’t provide any clarification on the core issue of place of provision of intermediary services that has put the Indian service exporters in trouble. The controversy can be resolved by making certain amendments as per the recommendation of the Rajya Sabha select committee report. Alternatively, a judicial review could be undertaken to settle the issue,” said Abhishek a Rastogi, partner at law firm Khaitan & Co. Many intermediaries had approached courts and challenged the government’s stand to levy GST on them.

One of the companies which is terming its business as an export of service and seeking exemption from GST is a Mumbai-based entity. It imports large machineries worth millions of dollars and sells those to some of the largest companies in India. This company claims that it provides a “service” to multinational machine manufacturers for a fee.

The tax department, however, terms it as an intermediary.

As per current regulations, exports do not attract GST and exporters can also claim refunds of the tax paid on inputs from the revenue department. This policy is aimed at making Indian goods and services more competitive in the international markets.

But, according to the tax department’s rationale, if an Indian company is merely implementing what is being dictated by a foreign entity, then it is an intermediary and is not exporting any services.

The controversy erupted following a 2018 directive by the Authority of Advance Rulings on GST.

The ruling that defined intermediaries said they don’t export.

The indirect tax department had started issuing notices to several IT/ITES companies demanding up to 18% GST on money received on convertible foreign exchange.

The GST Council, however. Said IT companies should not be considered intermediaries. S-ET

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