Information Technology enabled Services (ITeS) are services which has been provided in the back office and remote maintenance operations. Call centers and data processing centers are also a kind of services of Information Technology enabled Services (ITeS).
Whether the particular ITeS is taxable or not under GST, is all depends upon whether or not it is an intermediary service. If the ITeS is an intermediate service, it shall be taxable at the rate of 18%. Let me first explain to you about the intermediary services, these are the service which has been provided by a person as an agent between the buyer and the seller. Even if the service is consumed abroad, intermediary services shall be taxable in India. An intermediary is a person who facilitates or arranges the supplies between 2 people. He does not make the supply in his own account.
On 04.12.2019, the Central Board of Indirect Taxes and Customs (CBIC), through circular no.127/46/2019 issued a clarification regarding its. The effect of the circular is that now certain ITeS would not be considered as intermediary services. Hence, the ITeS covered by the circular will not attract GST.
Taxability of Intermediary Services under GST
As we discussed above, an intermediary service means making a ‘facilitatory arrangement’ between buyers and suppliers for the supply of goods or services. An activity which results in supply from the client to the customers of the client is called a facilitatory arrangement.
The person making Intermediary services do not supply in his own name. Hence, an intermediary cannot be called as the supplier of the goods. Where the Intermediary is providing services to the clients outside India then also such services fall within the scope of GST levy. In simple words, The service of an intermediary shall be taxable even if the buyer and seller are located outside India. i.e. services of Intermediaries supplied outside India to international customers are not classified as export. Thus, GST is payable on intermediary services provided to clients outside India.
Type of Services Covered under the intermediary
The circular covers the following services:
- Pre-delivery, delivery, and post-delivery of supply for Support services.
- Support services for order placement, logistical support, and delivery
- Support services for obtaining Government clearances
- Support services provided for the transportation of goods
- support services for Post-sales
- Classification of ITeS
When the circular was not issued, the taxability of the certain specified services was depended upon the circumstances of the assessee. The circumstances are:
Case I: The assessee is providing the services of ITeS under the assessee’s name to clients. In this case, the assessee is the supplier and shall not be treated as an intermediary. Hence, ITeS do not attract GST. This case shall apply even if the assessee has provided the services to the customers. When this case applies, the assessee shall be treated as the ITeS supplied as an export. So, such supply becomes the zero-rated supply and the assessee can claim the benefit of zero-rated supply available for exports.
Case II: The assessee has supplied the services of the ITeS by acting as an agent between the buyer and the seller. In this case, the assessee is not the supplier. Hence, he should be considered as an intermediary. so, GST shall be attracted in this case. When this case applies, the assessee shall not be allowed to consider the ITeS supplied as an export. That means, the assessee cannot claim the benefit of zero-rated supply available for exports.
Case III: The assessee has supplied the services of the ITeS under both of the cases mentioned in the above scenarios. In such a scenario, the Jurisdictional Officer (JO) shall decide whether such ITeS are taxable or not. After considering the facts and circumstances of each case, the JO will arrive at a decision.
What is the Impact of the Circular
Until 03.12.2019, the specified services of ITeS were classified as intermediary services, and thus attracted GST. However from 04.12.2019, after the circular has been issued by the CBIC stating that the three-scenario classification mentioned shall not be applicable onwards. Hence, these specified services are not taxable.
Now we will discuss some of the most common FAQ arises on GST in these supplies.
Q.1 Whether software is treated as goods or services?
If the software is being developed, designed, programmed, update by the supplier then such a supply of software shall be called supply of service. However, if the pre-developed software is being sold, then such transfer shall be called the supply of goods.
Q.2 A person engaged in the dealing of computer and its parts. Its turnover during the year is Rs.9 Lakhs. Whether such a person is liable for the registration?
We checked the registration limit as per section 22 of the CGST Act, 2017, which states that if the aggregate turnover of the person exceeds the threshold limit of Rs.10 Lakhs or Rs.20 Lakhs (As the case may depend upon the state), then he shall be liable for the registration. In the given case, the aggregate turnover is given of Rs.9 Lakhs, hence there is no need for the registration.
Q.3 What is the rate of GST that shall be applicable to IT services?
The rate of GST shall be 18%
Q.4 What would be the treatment of exports of software in GST?
As we already discussed above that the export of software shall be considered as Zero-rated supply and on zero-rated supply, the supplier shall be eligible for taking the ITC on its input. Also, in Zero-rated supplies, the supplier shall have 2 option in regard to GST which are as follows:
The supplier has the option to export of software by paying the GST and then claimed the refund
Export the software without paying the GST under the letter of undertaking and claimed the refund of input used for making such supplies.
Q.5 How to determine the said service is an export of service or not?
The supply shall be called the export of service if it satisfied all of the following conditions:
The Supplier of services is located in India
The Recipient of services is located outside India
The place of supply of service is outside India
The consideration for such supply can be received in INR form or in foreign currency.
The supplier and the recipient of the supply must be the real distinct person as per section 8 of IGST Act, 2017
Q.6 What is the place of supply for IT services?
As per section 12(2) or Section 13(2) of IGST Act, 2017 the place of supply shall be the location of the recipient or in case the recipient is an unregistered person then the address on records of the recipient available to the supplier. If not available, the location of the supplier shall be the place of supply.
It is relevant to determine the place of supply because if the location of the supplier and the place of supply are in the same state or union territory then CGST and SGST shall be charged otherwise IGST shall be levied.