Tax Body

BENGALURU: Back offices of multinationals, and Indian companies offering back-office services to MNCs are intermediaries and must therefore pay 18% GST, the tax body Authority of Advance Ruling (AAR) has said. AAR gave this ruling in a case against Vserv, a mobile advertising company.
The matter has sent the industry into a tizzy. Till now, these services were treated as exports and were not taxed. If the AAR ruling stands, it is expected to have a big hit on the operations of these companies.

“Our preliminary analysis suggests that the concept of exclusion of `main service’ from intermediary service entry has been ignored in the ruling. If the implication of this ruling is not suitably clarified, it will make our companies non-competitive in the global market, potentially resulting in loss of revenue, jobs and customers. This will have a direct impact on the 500+ GICs (global in-house centres), with over 3.5 lakh employees currently operating out of India, and supporting their global counterparts,” IT industry body Nasscom said in a statement on Monday. It is also apprehensive of government seeking retrospective tax from companies.

Pratik Jain, national leader of indirect taxes at PwC India, said the ruling was not a proper interpretation of law and the GST council needs to examine it before it becomes a problem. “Intermediary is someone who, like a broker, helps in concluding the sale or purchase and is not limited to data processing or support post the transaction,” Jain said, adding this can be a stray ruling and the decision is not legally binding on other states. In other words, it is binding only on the particular tax payer and the applicant can challenge it before an authority.

According to tax experts, the concept of intermediary has existed since 2014 under the service tax law. This meant that if a BPO or a GIC is arranging or facilitating the sale of goods and services for its customers into India, it will qualify as intermediary, thus attracting an 18% GST compared to 15% service tax earlier.

In the current AAR, the taxpayer was involved in many activities — accounting, liaising activities with supplier, follow up for shipping bill documents, raising of payment requests and managing various documentation requirements associated with supply. The AAR held that these activities qualify as intermediary services and would not qualify as export of services and would be liable to GST @ 18%. This ruling is against the position taken by most industry players and would be litigated before higher courts before it reaches finality”. Abhishek Jain, tax partner at EY India, said.