Intermediary Services to Finally Join the Export Club (Omission of Section 13(8) of IGST Act)

 

 

One of the most debated provisions in the GST law has been Section 13(8)(b) of the IGST Act, 2017, which decided the place of supply for intermediary services. For years, this section created confusion, litigation, and even hardship for Indian service providers working with foreign clients.

The 56th GST Council Meeting has now proposed a landmark amendment – the omission of Section 13(8)(b). This is not just a small legal change, but a big relief for intermediaries across India.

What Are Intermediary Services?

Intermediary services generally mean when a person arranges or facilitates a supply of goods or services between two parties but does not supply those goods or services on their own account.

 In simple words, an intermediary acts as a broker, agent, or commission agent connecting the buyer and seller.

For example, a consultant in India helping a foreign company find customers or suppliers in India is providing intermediary services. You could say, they are like a matchmaker in the business world—they don’t get married themselves, but they surely make the wedding happen.

What Did Section 13(8)(b) Say?

Section 13(8)(b) provided that for intermediary services, the place of supply would be the location of the supplier.

In practical terms, even if the recipient of services was located outside India, the law deemed the service to be supplied in India.

For example, if an Indian broker helped a US client source goods from China, then under Section 13(8)(b) the place of supply was India, since the broker was located in India. This meant GST was payable in India, even though the service was actually consumed abroad. It was almost like sending a gift abroad but being taxed for unwrapping it at home.

Why Was It a Problem?

This provision caused difficulties on several fronts. Such services could not be treated as zero-rated exports and hence no export benefit was available. There was a risk of double taxation because service providers were taxed in India while the client abroad could also face taxation in their jurisdiction. It gave rise to widespread litigation, with multiple High Courts hearing challenges, including the well-known case of Dharmendra M Jani before the Bombay High Court. It also created unfair treatment for Indian professionals, since IT services provided to foreign clients were treated as exports while intermediary services were not.

The Proposed Change

The GST Council has now recommended the omission of Section 13(8)(b).

After this amendment, the place of supply will be determined under the general rule contained in Section 13(2), which states that the place of supply shall be the location of the recipient of services.

Accordingly, if the recipient is outside India, the service will qualify as an export of service, provided the other conditions of export are met, i.e. NO GST LIABILTY.

What Does It Mean for Businesses?

The amendment opens the door for intermediary services to be treated as zero-rated supplies. This means no GST liability will arise on export transactions. It also allows Indian service providers to become more competitive in pricing since the tax burden will not have to be factored in. The removal of this provision will bring certainty and reduce litigation. It will also boost India’s overall service exports by recognising intermediary services as genuine exports.

Practical Example After Amendment

Consider a consultant in Nagpur who acts as a commission agent for a client in London. Under the earlier rule, the place of supply was Nagpur, and GST had to be paid in India. Under the new rule, the place of supply will be London, and the service will qualify as an export, making it zero-rated. This finally ensures that the ball is in the right court—the tax applies where the service is consumed, not where the consultant sits.

Why This Move is Significant

This amendment aligns GST with its core principle of being a destination-based tax. It ensures that services are taxed where they are consumed, not where they are supplied. More importantly, it brings parity between intermediary services and other categories of cross-border services.

Ending note for my dear readers:

The proposed omission of Section 13(8)(b) is a milestone reform in GST law. It resolves years of confusion, removes tax burdens, and gives Indian intermediaries the long-awaited recognition of their services as exports.

For my dear businessmans and tax professionals, this is the right time to revisit contracts, compliance strategies, and export documentation to ensure that the full benefits of this change can be realised once it is notified.