Implications of circulars on "intermediary services" and services provided by subsidiaries to overseas affiliates

The Central Board of Indirect Taxes and Customs (CBIC), yesterday, issued two much awaited Circulars for providing clarity on the scope of ‘intermediary services’ as well services provided by subsidiaries to overseas affiliates.

NASSCOM has been pursuing both these issues for over 3 years and we are extremely glad to see it culminate into such a positive outcome! We wish to take this opportunity to thank you for your support in pursuing these matters and being available for our interactions with the Government on this topic. It is such joint effort that is a hallmark of NASSCOM as an association and we hope to replicate this success on other tax issues as well.

The Circular on Intermediary is broadly based on the draft circular approved in the 37th GST Council meeting and while that draft was specific to the IT/ ITeS sector placing reliance on the definitions under the Income Tax Act, 1961, this version is more broad based and can therefore be applied across the board. This circular also addresses the emerging concerns around treatment of contract Research and Development (R&D) and Information Technology (IT) services. It should serve as a panacea for the numerous disputes that are pending at various levels of litigation and also ease processing of pending refund claims held up as a result of exports being viewed as “intermediary services”. Our detailed blog on the Circular can be accessed from here

The Circular providing clarification on services provided by subsidiaries to their overseas affiliates will ensure that Global Capability Centres (GCCs) do not face any GST issues in their exports to their parent/ group companies across the world. This will also help in resolving refund issues and clearing litigations pending before the appellate and judicial authorities. Refer here for detailed blog on this clarification.

We hope that with these Circulars, numerous disputes that are pending at various levels of litigation will stand resolved for our Industry. This should also ease processing of refund claims that have been held up given the ambiguity and interpretations adopted at the ground level.

In order to discuss the implications of both the Circulars, we are organising a webinar along with Knowledge Partners Deloitte India tomorrow (i.e. September 22, 2021) at 12 noon. Deloitte team will do a run-through of these Circulars. We are planning to invite officials from Ministry of Finance for the discussion.