For nearly a decade, India’s export-oriented services sector has existed in the shadows of a contradiction, that is intermediary services under the goods and services tax (GST) regime. GST, a destination-based tax, levies tax on services provided to foreign recipients in the same manner as if they were being consumed domestically. This notorious provision of the Integrated Goods and Services Tax Act, 2017 regulates the supply of intermediary services. It identifies many cross-border transactions as domestic supplies, thus delaying refunds, fueling disputes and diminishing India’s competitiveness in the international services economy.
Shankey Agrawal
Partner
BMR Legal
Following years of litigation and ambiguity about the export status of knowledge and businesses processing outsourcing companies, information technology-enabled services companies and global capability centres, the government has finally decided to amend the GST law to end litigation on intermediary services. The 56th meeting of the GST Council promises a substantial reduction in tax burdens for these entities, allowing them to achieve global competitiveness.
Indian intermediaries were excluded from export benefits because the place of supply was deemed to be India. Intermediaries were defined as brokers, agents or any other person arranging or facilitating the supply of goods or services between two or more persons. Any entity carrying on such supply on its own account was excluded. The broad sweep of this definition meant that many inter-company services, such as information sharing, marketing and sales and other corporate support functions, were either ineligible for export benefits or had their claims disputed. When the activity is deemed to be an intermediary service, such suppliers face the double jeopardy of having their claims for GST refunds rejected and of being liable for GST at the rate of 18% together with applicable interest and penalties.
Harsh Shukla
Counsel
BMR Legal
A constitutional challenge to the intermediary provisions failed in the Gujarat High Court in Material Recycling Association of India v Union of India as approved by the Bombay High Court in Dharmendra M Jani v Union of India and Ors. However, a number of high court decisions have found in favour of taxpayers and overturned the tax department’s classification of taxpayers as intermediaries. In a 2023 case involving Ernst and Young, the court found that the taxpayer performed services for other group members but did not facilitate them.
In a landmark reform, the GST Council meeting held in September 2025 recommended several policy changes, including an amendment regarding intermediary services. It proposed that section 13(8) of the IGST Act be deleted. The default rule under section 13(2) of the IGST Act would then apply. The location of the recipient of services would be considered the place of supply of services. The effect of this proposed amendment would be that intermediary services provided to foreign recipients would qualify as an export of services. This exemption is subject to other conditions for the export of services being satisfied. This is currently only a recommendation with no legislative action yet timetabled.
Pratha Khanna
Associate
BMR Legal
The proposed amendment is more than a legislative change; it is a shift in India’s tax philosophy. By reviving the destination principle in the supply of intermediary services, the Council is sending a clear message that competitiveness and not compliance friction must be the defining characteristic of India’s service exports. However, the promise of reform is only as good as its eventual delivery. The treatment of pending disputes will be the proof of good intentions. Of concern, the proposed amendment will eliminate the place of supply for intermediary services, but it will not not change the definition of intermediary in the GST law.
It is also unclear whether the amendment is retrospective or prospective. If the amendment is to be only prospective, a massive backlog of litigation and applications for refunds will have to be dealt with on a case-by-case basis. If transitional directions allow pragmatic closure and a clear position on pending disputes and audits, the compliance dividend will come rapidly. Should the legislative intent and disciplined field applications move in concert, this amendment will put one of GST’s most vexatious chapters of uncertainty to rest.
Shankey Agrawal is a partner, Harsh Shukla is counsel and Pratha Khanna is an associate at BMR Legal
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