gst: Gujarat High Court to relook at GST on intermediaries – The Economic Times

Clipped from: https://economictimes.indiatimes.com/small-biz/gst/gujarat-high-court-to-relook-at-gst-on-intermediaries/articleshow/78765013.cmsSynopsis

The Gujarat High Court in July had held that supply of services by intermediaries outside India is not an export and that 18% GST should be levied on that. That meant that these entities will have to cough up 18% additional GST, like any other domestic companies on such services provided to service recipient based outside India.

MUMBAI: The controversy around levying Goods and Services Tax on intermediaries has come back to the fore and the Gujarat High Court is planning to relook at the controversy.

The issue is whether certain Indian units of multinationals or BPOs are actually supplying services or exporting. As per the GST framework 18% tax has to be levied if it is not an export.

The Gujarat High Court in July had held that supply of services by intermediaries outside India is not an export and that 18% GST should be levied on that. That meant that these entities will have to cough up 18% additional GST, like any other domestic companies on such services provided to service recipient based outside India.

Many BPOs had requested the high court to review its stand. The court is now planning to accept the review petitions.

“Gujarat High Court had ruled that the provisions are constitutional but the court would now relook the issue. Many Indian exporters are already facing lot of pressure due to Covid and the GST burden makes them uncompetitive due to the competition from neighbouring countries and the court’s stand would certainly give huge respite,” said Abhishek A Rastogi, partner, Khaitan & Co, who is arguing these petitions.

Due to certain provisions in the current GST law indenting agents have to pay tax on services rendered in India but if they open an office in Dubai, Hong Kong or Sri Lanka, they are exempted. The agents exporting services and earning foreign exchange feel they are being penalised for qualifying as “intermediary” under Section 2(13) of the CGST Act.

This ruling could also impact the BPOs and several other captive units of multinationals say tax experts. In 2018 Authority of Advance Ruling (AAR) ruled that back office support services qualify as “intermediary” support services and not exports. Tax department has been issuing notices to BPOs in this regard.

The BPOs had first claimed that the tax department’s stand was unconstitutional. The High Court however ruled that the indirect tax department was within its rights and hence the stand was constitutional.

“The review requests to relook into not only the constitutional aspect of the controversy but also that a reasoned order be passed by the GST council without being influenced by the court‘s observation on constitutionality and with the liberty to the applicant to approach the court again in case the representation is not dealt properly”, added Rastogi.

Industry trackers said the debate was also whether BPOs are commission agents and brokers. If so, they would not be considered exporters and their revenues would be subject to taxes as only exports are exempted from domestic taxes and receive certain benefits. So, services provided by Indian entities to foreign companies would not be treated as exports and hence taxable in India.

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