India: GST Ruling On BPO- A Guide Map For Activities Which May Not Qualify As Exports

Last Updated: 4 January 2019
Article by Gagan Kumar and Amit Kaushik


Business process outsourcing (“BPO”) is a subset of outsourcing that involves the contracting of the operations and responsibilities of a specific business process to a third-party service provider. BPO is typically categorized into back office outsourcing, which includes internal business functions such as human resources or finance and accounting, and front office outsourcing, which includes customer-related services such as contact center (customer care) services. The services may involve dealing with the clients customers. Such services are generally labor intensive and due to cost effectiveness of labour, India has been a popular destination for such services. The entire package of service provided by BPO units in India has long been categorized as "Business Support Service" and considered as exports. 

However, in a recent ruling, the Maharashtra Authority for Advance Ruling (“AAR”), in the case of Vserv Global (P.) Ltd., In re [2018] 99 253 (AAR - Maharashtra), held that where a portion of the services in a package of services provided by the applicant also include facilitation of supply of goods or services or both between overseas client and customers of overseas client, the supply falls under the definition of 'intermediary' as contained under section 2(13) of the Integrated Goods & Service Tax, 2017 (“IGST Act”). Accordingly, the place of provision of such supply would be India and such supplies may not qualify as exports. 

Legal Provisions

For a supply to qualify as an export, one of the essential conditions is that the place of such supply as provided under section 13 of the IGST Act should be outside India. Section 13(8) of the IGST Act provides that the place of supply in case of the intermediary services is the location of the supplier of the service.

The definition of Intermediary Services is defined under Section 2(13) of the IGST Act and is exactly same, as it was under the erstwhile Service Tax Regime. Per IGST Act, an "intermediary" means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.

The definition of "intermediary" as envisaged above does not include a person who provides the service on his own account. In other words, in case the service is provided on principal to principal basis, the same is excluded. The Central Board of Excise and Customs (now known as Central Board of Indirect Taxes and Customs) in the Educational Guide had explained the concept of "Intermediary' and its exclusion clause by way of an illustration. An intermediary is involved with two supplies at any one time:

  1. the supply between the principal and the third party; and
  2. the supply of his own service (agency service) to his principal, for which a fee or commission is usually charged.

Also excluded from this sub-rule is a person who arranges or facilitates a provision of a service (generally referred to as “the main service”), but provides the main service on his own account.

It has also been illustrated that the persons such as call centers, who provide services to their clients by dealing with the customers of the client on the client's behalf, but actually provided these services on their own account' will not be categorized as intermediaries. Therefore, in case the main service is provided on principal to principal basis, the same is excluded.

Where multiple services are provided, the concept of composite supply as provided under Section 2 (30) of the Central Goods & Service Tax Act, 2017 (“CGST Act”) is relevant to determine the nature of supply. A "composite supply" means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. Section 8 of the CGST Act provides that the tax liability of a composite supply is determined on the basis of the nature of principal supply. 

Contentions of the Applicant

The Applicant in the aforesaid ruling, M/s. Vservglobal Private Limited (“Vserv/Applicant'), is an Indian Company having its office at Mumbai and was incorporated to provide back office support services to overseas companies ('Clients'). Clients are engaged in Trading of Chemicals and other products in International Trade. Vserv comes into picture after finalization of Purchase/Sale order by a Client. The activities performed by Vserv for its clients also includes coordination with buyers, sellers and other necessary parties in India for execution of purchase and sell contract entered into by the clients.

The applicant submitted that the applicant proposes to supply "Business Support Service" comprising of 'Back Office Support' and "Accounting" which is its Principle Supply. If these services also facilitate supply of goods and dealing with the client’s customers, then it is only an incidental supply to the Principle Supply. The Applicant submitted that the said services are proposed to be provided as a package and are bundled in natural course of business. Therefore, the said services are "Composite Supply' as defined in Section 2 (30) of the CGST Act. Since the said 'Business Support Services' would be provided by applicant to its client on Principle to Principle basis, therefore, the applicant submitted that the instant case is covered by exclusion clause in definition of 'Intermediary'. The Applicant placed its reliance on the ruling in GoDaddy India Web services (P.) Ltd., In re [2016] 67 324 (AAR - New Delhi), under the Service Tax Regime, wherein it was held that if the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidentally or ancillary services which help in better enjoyment of a main service, then the nature of entire package would be determined by the nature of main service. 


The AAR differentiated the facts of the Applicant with the ruling in case of Go daddy (supra) stating that in that case the provision of support services was admittedly on principal to principal basis and were provided with sole intention of promoting the brand Godaddy US in India for augmenting its business. However, in the present case it was concluded that the activities undertaken by the applicant are for and on behalf of clients to facilitate supply of goods and services between the clients their customers. Accordingly, it was held that the sum of all activities mentioned above indicate that the applicant is a person who arranges or facilitate supply of goods or services or both between the overseas client and customers of the overseas client, and therefore applicant is clearly covered and falls in the definition of an intermediary as defined under the IGST Act and therefore the services proposed to be rendered by the applicant do not qualify as 'export of services' as defined under section 2(6) of the IGST Act, 2017.

Our Analysis

In case multiple supplies are provided in a single package for a consolidated lump sum payment, the relevant question is to determine the nature of principal supply. Some services provided under the package may qualify as intermediary, however, others may not. Therefore, in such cases, it cannot be concluded that the entire package of services qualify as intermediary services merely on the basis that some of the services so qualifies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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