Relief to Call Centres and BPO Services Back-offices of IT Companies under GST

July Circular Withdrawn to Lift Coverage under “Intermediary Services” who provided other than own account. These were classified as non exporters and thus liable to 18% GST.

In what could be seen as a major relief for corporates, especially multinational companies, the government has decided to withdraw a circular on intermediary services under the GST.

This circular, issued in July, had created a lot of upheaval in the back-office/IT services industry. Substantial GST refunds were also stuck because of this circular, it is said. The withdrawal should come as a relief to IT/ITeS (IT-enabled services) firms and back-office support service providers.

The withdrawal will be effective from July 18.

The circular said that multinational companies will need to redefine their back-end support system for the applicability of GST. The said circular intended to clarify on issues related to supply of ITeS such as call centre and business process outsourcing services and ‘intermediaries’ to overseas entities under the GST law and whether they qualify as ‘export of services’ or not.

In cases where BPO Services on accounts other than his account, the service provider will come under the GST ambit and be required to pay tax at the rate of 18 per cent. It was emphasised that a supplier of service would not be treated as intermediary, if the services are provided on his own account, despite him qualifying as an agent/broker.

The circular was ambiguous and continued to fuel the debate as to which back-end services constitute as support services (during pre-delivery, delivery, post-delivery of supply, post sales support) and which services would qualify as ‘arranging or facilitating the supply of goods or services between two or more persons’.

The authorities were placing reliance on the now superseded circular to issue show cause notices to back-office support providers. Also, a lot of GST refunds were held up by the tax authorities, on account of services qualifying as ‘intermediary’ and hence not exports. However, one would need to understand the legal implications of withdrawal of the circular, before deciding the future course of action.

[CBIC Circular No. 127/46/2019 – GST dated 4 December 2019]

Subject: Withdrawal of Circular No. 107/26/2019-GST dt. 18.07.2019 .

Kind attention is invited to Circular No. 107/26/2019-GST dated 18.07.2019 wherein certain clarifications were given in relation to various doubts related to supply of Information Technology enabled Services (ITeS services) under GST.

2. Thereafter, numerous representations were received expressing apprehensions on the implications of the said Circular. In view of these apprehensions and to ensure uniformity in the implementation of the provisions of the law across field formations, the Board, in exercise of its powers conferred by section 168(1) of the Central Goods and Services Tax Act, 2017, hereby withdraws, ab-initio, Circular No. 107/26/2019-GST dated 18.07.2019.

3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.

F. No. CBEC – 20/06/03/2019 – GST