JULY 10, 2014

By Pratik Shah, CA and Jigar Doshi, CA

THE definition of ‘intermediary' [which is covered under Rule 9 of Place of Provision of Services Rules 2012 (POPS Rules)], is amended to include an intermediary of goods. Thus, effectively now, the tax treatment for intermediary for both goods and services would be same.

It may be noted that the definition of "intermediary" and the Guidance Note (para 5.9.6) issued on 20 June 2012 by the Department assisted the industry to take a stand that the agent who is marketing/assisting in supplying the goods of parent company should not be considered as an “intermediary”.

Based on thisthe POPS was interpreted under Rule 3 and hence treated as based on location of service recipient i.e. outside India. The CENVAT credit lying unutilised was then eligible to be claimed as refund as an export benefit. At present, refund of service tax is currently being claimed by the industry who are the marketing/support arm of overseas parent company in India.

Now, it appears, on the basis of the changes in the definition of ‘intermediary', the place of provision of service for intermediary for goods would be the location of service provider i.e. in India. Accordingly, come 1 October 2014 services provided by commission agents (for both goods and services) will be liable to service tax.

While, the intermediaries for service were pitching for exclusion / deletion of the term (and in-turn non applicability of service tax on commission agent for services), the FM has rather included the intermediary for goods under the Rule 9 of POPS Rules and made the said services taxable.

This change will have a far reaching effect on the intermediaries in India. Liability of services provided to overseas entity being POPS in India would be enormous. Previous claims already processed may also be relooked due to the said change. This would open gate to various litigations unless clarified by the Government. Industry is advised to look into the said amendment minutely and to check if they would fall under the intermediary definition.