Nasscom asks govt to reconsider clarification on intermediary services

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The recent government circular on the issue of intermediaries for the information technology services industry has created more confusion than relief, and industry body National Association of Software and Services Companies (Nasscom) plans to take up the issue further with the government. A circular from the Central Board for Indirect Taxes and Customs that was released last week said the services offered by the IT and ITeS sectors at the back end, especially with respect to business process outsourcing, may attract an 18 percent goods and services tax (GST) because they will not qualify as export. Nasscom has recommended that the CBIC drop or redraft two of the three scenarios it has laid out in the circular.

“Scenario 1” as described in the circular says that pure ITeS services provided on “own account” will not qualify as intermediary services. However, the Income Tax rules defining IT services that this is based on excludes “research and development services whether or not in the nature of contract research and development services”. “This exclusion, while logical from an ITeS definition standpoint, could create possible confusion and possible litigation on “contract research and development services”, being treated as an “intermediary”. From a reading of the definition of ‘intermediary services’, it is clear that R&D services clearly qualify as ‘export of services’ and are covered under the General Rule of the place of supply provisions,” Nasscom said in a statement.

It suggests a specific mention of “research and development” be made for exclusion from being considered as intermediary service. The “Scenario 2” defined in the circular further says that back end services such as support services during pre-delivery, delivery, and post-delivery of supply (such as order placement and delivery and logistical support, obtaining relevant Government clearances, transportation of goods, post-sales support and other services, etc.) will also qualify as intermediary. Nasscom has asked that this scenario be dropped or “redrafted to clearly state that the supplier of intermediary services needs to be an “agent or broker” and the scope of services should be limited to the pre-supply stage”.

The third scenario laid out in the circular says that in situations where ITeS supplies are performed along with other services in terms of arranging or facilitation, their classification as “intermediary services” would depend on the facts and circumstances of each case. “This leaves a lot of room for interpretation and leads to a lot more confusion,” Nasscom said. The industry body recommends that this scenario also be deleted because existing law is clear on the issue.

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