Controversies in place of supply of Intermediary services under GST

Goods and Services Tax (GST) was introduced in India on July 1, 2017, to unify the country's indirect tax system. The new system aims to simplify the tax regime and eliminate cascading taxes. Under GST, the place of supply plays a crucial role in determining the tax liability. The place of supply is the place where the goods or services are deemed to be supplied. However, when it comes to intermediary services, the place of supply has been a matter of controversy.

An intermediary is a person who arranges or facilitates the supply of goods or services between two parties. Intermediary services include services like commission agents, brokers, and marketplaces that connect buyers and sellers. The place of supply of intermediary services is critical because it determines which part of the world will be taxed on the supply of such services.

The GST law has come up with specific provisions to determine the place of supply of intermediary services. However, there are still some controversies regarding the place of supply of intermediary services under GST. In this article, we will take a closer look at these controversies.

Controversy 1: Whether intermediary services are exported or not?

One of the most significant controversies regarding the place of supply of intermediary services is whether these services are exported or not. The term "export" refers to the supply of goods or services from India to a place outside India. According to the GST law, the place of supply of intermediary services provided to a person located outside India is the location of the recipient of services.

However, some experts argue that intermediary services cannot be considered as exports as they do not involve the physical movement of goods. They believe that intermediary services are only facilitating the supply of goods or services between two parties, and hence, cannot be considered as exports.

Controversy 2: Whether intermediary services are intrastate or interstate?

Another controversy regarding the place of supply of intermediary services is whether these services are intrastate or interstate. The term "intrastate" refers to the supply of goods or services within the same state, while the term "interstate" refers to the supply of goods or services between two states.

According to the GST law, the place of supply of intermediary services provided to a person located in India is the location of the supplier of services. However, if the supplier and the recipient are located in different states, the transaction is considered to be an interstate supply, and IGST (Integrated Goods and Services Tax) is levied.

However, some experts argue that intermediary services cannot be considered as interstate supplies as they do not involve the physical movement of goods. They believe that intermediary services are only facilitating the supply of goods or services between two parties, and hence, should be considered as intrastate supplies.

Controversy 3: Whether intermediary services are taxable?

The third controversy regarding the place of supply of intermediary services is whether these services are taxable or not. According to the GST law, intermediary services are taxable. However, the rate of tax depends on the nature of the services provided. For example, commission agents are taxed at 5%, while marketplace operators are taxed at 18%.

However, some experts believe that intermediary services should not be taxed as they do not involve the physical movement of goods. They argue that intermediary services are only facilitating the supply of goods or services between two parties and hence should not be taxed.

Conclusion

The place of supply of intermediary services under GST has been a matter of controversy. There are several questions that remain unanswered, such as whether these services are exports or intrastate supplies, whether they are taxable or not, and what the rate of tax should be. It is essential to resolve these controversies to ensure that the GST system is more transparent and efficient.