Government Withdraws GST Circular On Taxing IT-Enabled Services

In a clarification, the government has withdrawn its circular that stated Goods and Service Tax will be levied on information technology-enabled services, and such services will not be treated as exports.

This removes ambiguity created by a previous circular of the Central Board of Indirect Taxes and Customs that stated services such as back-office support centres will be treated as ‘intermediaries', and GST will be levied on them.

The IGST Act defines intermediary as a broker, an agent or a person who arranges or facilitates the supply of goods or services between two or more persons, but does not include the supplier.

The previous circular had said GST of 18 percent will be charged on service providers engaged in back-end services like delivery and logistical support, post-sales support services, transportation of goods, among others.

For instance, a business process outsourcing company handling support services of a credit card company, provides support services to the credit card company's customers, then the credit card company will not be treated as an intermediary.

“There is a difference between facilitation and direct rendering of support services which was getting overlapped and interpreted as if most such activities are intermediary services,” said Krishan Arora, partner at Grant Thornton India LLP.

According to Abhishek Jain, partner at EY India, a further clarification will be needed to avoid any litigation. “While withdrawal of the circular should be helpful, the industry looks forward to a clarification on the scope of intermediary to avoid unwarranted litigation, and possible financial repercussions and uncertainty.”