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Other forms of support include state incentive schemes, the National Logistics Policy, Pradhan Mantri Gati Shakti, and the Digital India initiative, all of which are aimed at building stronger infrastructure to support the growth of services exports.
While the government is making continued efforts to boost India's services exports, the Goods and Services Tax (GST) department officials seem to have something else in mind. They are literally turning the tables by classifying certain services which are categorised as "Export of Services" under GST into an "Intermediary".
At the outset, it is imperative to understand the meaning of an intermediary. As per Section 2(13) of the Integrated Goods and Services Tax (IGST) Act, an '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.
The concept of an 'intermediary' existed in the erstwhile tax regime, which was carried forward into GST, but with it came unresolved legacy disputes. It all started with the introduction of the Place of Provision of Services Rules, 2012, during the Service Tax period, which stipulated that in the case of an intermediary, the place of provision would be the location of the service provider. This same approach was later adopted under GST through Section 13(8)(b) of the IGST Act.
Typically, when an Indian service provider offers services to a non-resident and earns foreign exchange, the transaction qualifies as an export of service (subject to fulfilment of other conditions) and is accordingly not subject to GST. However, the treatment changes dramatically in case of an intermediary, i.e., in scenarios where any agent or third party is involved to facilitate the supply. Even if such services are provided to non-residents and foreign exchange is received, the transaction is not categorised as export of services.
This issue arises due to Section 13(8)(b) of the IGST Act, which states that for intermediary services, the place of supply is the location of supplier (i.e., in India). One of the key conditions for a service to qualify as an 'export of service' is that the place of supply must be outside India. Since this condition is not met in case of intermediaries, such services fail to meet the criteria for export of services.
Further, as per Section 8(2) of the IGST Act, 2017, these transactions are treated as intra-state supplies and are therefore subject to Central Goods and Service Tax (CGST) and State Goods and Service Tax (SGST). This means that the Indian supplier must charge GST to the foreign client, making the service more expensive and less competitive globally.
Over time, the scope of the term 'intermediary' has become a foundational base for multiple litigations and controversies, which are briefly discussed below.
Lately, taxpayers engaged in export of services are increasingly facing scrutiny from the GST Department. They have been issued several notices, wherein the authorities have classified their cross-border supplies within the ambit of 'intermediary' services. Numerous refund claims filed on the basis of export of services are being rejected on the ground that the underlying transaction amounts to intermediary services and is therefore taxable in India. Moreover, the initiation of proceedings under Section 74 of the CGST Act (alleging fraud, suppression of facts to evade tax, and wilful misstatement) adds fuel to the fire by attracting interest and penalties.
However, the Courts have repeatedly stepped in to provide clarity, making it evident that not every cross-border service can be categorised as an 'intermediary' service. For instance, in Columbia Sportswear India Sourcing (P.) Ltd. v. Union of India, Bengaluru [2025 (5) TMI 2139], the Karnataka High Court observed that the petitioner operated on his own account, making profits rather than arranging supplies for others. The Court relied on the former cases of Amazon Development Centre India Pvt. Ltd. v. Addl. CCT and the Honourable Supreme Court's judgement on Bharati Cellular Ltd. v. Asstt. CIT and ruled that the services in question qualified as exports.
Similarly, in the case of Infodesk India (P.) Ltd. v. Union of India, the Court established that services were being provided on a principal-to-principal basis and thus should be treated as 'export of services'.
Against this backdrop, businesses engaged in the export of services are treading a narrow path. Therefore, strong documentation becomes relevant in these cases. Well-drafted contracts/agreements, clear email communications, detailed invoices explaining the nature of work, and other supporting records are essential to prove the exact nature of service and to defend against wrong classification by the Department.
The classification and scope of 'intermediary' services have also triggered a series of legal disputes, with one of them being the constitutional validity of Section 13(8)(b) of the IGST Act. From a constitutional standpoint, states have never been allowed to tax exports and this principle holds true under GST as well. Since a state cannot impose tax on supplies that take place outside its borders, the provision appears to be in contravention of Article 286(1) of the Constitution.
In the case of Material Recycling Association of India v. Union of India, the Gujarat High Court upheld the constitutional validity of Section 13(8)(b). The Court observed that as per Article 246A of the Constitution, Parliament has exclusive power to make laws on inter-state trade and commerce. It further held that merely because invoices are raised on recipients located outside India and foreign exchange is earned, the transaction does not qualify as an export of services. The Court also noted that this interpretation is in line with the approach followed under the erstwhile regime.
However, proceedings before the Bombay High Court added another dimension to the matter. In the case of Dharmendra M. Jani v. Union of India, the Court initially delivered a split verdict. Justice Ujjal Bhuyan held that Section 13(8)(b) was unconstitutional, whereas Justice Abhay Ahuja, upheld its validity. The case was eventually referred to a third judge, who ruled that the provision was valid and constitutional, but only to the extent that its operation was confined to the IGST Act. He clarified that it could not be extended to levy CGST or SGST on intermediary services.
This interpretation added a new twist. The aforementioned judgment implies that CGST and SGST cannot be levied in such cases and one may also argue that IGST cannot be levied either (since its levy requires the location of supplier and place of supply to be in different states), hence the entire tax mechanism collapses. This implies that such services may fall outside the GST net altogether.
The government has tried to clarify the confusion around the scope of intermediary services several times, but with limited success. The 139th Report of the Rajya Sabha (published in December 2017) recommended that intermediary services should be treated as exports. Yet, this proposal remained on paper with the GST Council showing little interest in pursuing it.
On 20 September 2021, a Circular no 159/15/2021 was issued by the Central Board of Indirect Taxes and Customs (CBIC), attempting to clarify the scope of intermediary services. However, various concerns with respect to the scope of these services were still left unaddressed. For instance, why these services are governed by Section 8(2) of the IGST Act is still dubious. The wordings of Section 8(2) start with 'Subject to the provisions of Section 12', wherein the words 'subject to' imply that the same is conditional on another. Section 12 covers only those situations where both the supplier and recipient are within India. Therefore, in circumstances where the recipient is situated outside India, provisions of Section 12 would not apply.
Further, an important aspect that has not been analysed yet pertains to the applicability of Section 7(5)(c) of the IGST Act, which is a residuary clause for classifying the supplies under the category of 'inter-state' supplies. Since such transactions cannot be covered under Section 8(2) of the IGST Act, nor are they covered under any other provision, the question as to whether such services would fall within the ambit of Section 7(5)(c) to qualify as an inter-state supply needs to be deliberated upon.
Conflicting rulings pronounced by the Authority for Advance Rulings (AAR) have added another layer of perplexity. AAR Andhra Pradesh, in the case of DKV Enterprises (P.) Ltd., held that intermediary services provided to recipients located outside India would fall under inter-state provisions outlined in Section 7(5)(c), thereby attracting IGST. On the contrary, AAR Gujarat, in the case of Sagar Powertex (P.) Ltd., ruled that since both the supplier of service and the place of supply, as per Section 13(8)(b), are within the same state, the supply would be considered intra-state and liable to CGST and SGST under Section 9(1) of the CGST Act, 2017.
While one authority supports the application of IGST (considering it as an inter-state supply), the other authority argues for levy of CGST and SGST, treating it as an intra-state supply. These contrasting interpretations have created ambiguity in determining the appropriate tax liability for intermediary services.
Against the backdrop of ongoing uncertainty, everyone is anticipating CBIC to provide some clarity. The upcoming 56th GST Council meeting may mark a turning point for intermediaries, as some reports claim that a proposal to classify these services as exports is under consideration, thereby making them zero-rated supplies under GST. According to these reports, a senior government official has indicated that final approval is likely once the Law Committee gives its concurrence.
The proposed amendment aims to delete the existing provision, which will not only resolve the ongoing legal controversies but will also allow businesses to claim refunds of input tax credit smoothly. Apart from alleviating the 18% GST burden, this move will also align Indian service providers more competitively with their global peers.
Most importantly, such reform could help resolve several long-standing disputes, including Show-Cause Notices involving demands worth several thousand crore rupees issued to intermediaries. Stakeholders remain hopeful that the amendment will be retrospective in effect, extending relief to both future transactions and those currently under litigation.
Rahul Jhawar, Manager, Grant Thornton Bharat and Nikita Verma, Assistant Manager, Grant Thornton Bharat, has also contributed to the article.
This article first appeared in the Taxmann on 14 August 2025.