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CBIC withdraws GST Circular on Supply of ITeS

CBIC withdraws GST Circular on Supply of ITeS

The Central Board of Indirect Taxes and Customs has withdrawn the circular published earlier in July this year which created a confusion on whether ITeS service providers can be considered as ‘intermediaries’ based on self-assessment under the Goods and Service Tax (GST). Government decided to withdraw the circular because of the numerous apprehending representations it received implicating the circular.

The latest circular released by CBIC on 4th December 2019 ended the ambiguity created in back-office/ IT services industry as they were supposed to be treated as ‘intermediaries’ under Goods and Services Tax (GST). According to subsection (13) of section 2 of the Integrated Goods and Services Tax Act, 2017[1] an Intermediary is defined as

  A broker, an agent or any other person, who lays out or facilitates the supply of goods or services or both, or securities, connecting two or more people. However, the person who supplies such goods or services on his own account is not considered as Intermediary.

This definition of intermediary specifically excluded the person who supplies goods or services or securities o his own account.

What are ITeS?

As per the sub-rule (e) of rule 10 TA of Income Tax Rules, 1962 which concerns with Safe Harbour Rules for international transactions, ITeS  is the outsourcing services provided with the assistance of information technology. The following outsourcing services are provided with the assistance of information technology :

  • Back office operations
  • Call centres or Contact centre services
  • Data processing and Data mining
  • Insurance claim processing
  • Legal databases
  • The creation and maintenance of medical transcription excluding medical advice
  • Translation services
  • Payrolls
  • Remote maintenance
  • Revenue accounting
  • Support centres
  • Website services
  • Data search integration and analysis
  • Remote education excluding education content development
  • Clinical database management service, excluding clinical trials.
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Information technology-enabled services do not include any research and development services whether or not in the nature of contract research and development services.

Reasons behind the withdrawal of Circular on Supply of ITeS

Since the Central Board of Indirect Taxes released the circular on 18 July 2019, they had been receiving numerous representations stating the apprehended implications of the circular. The circular created an ambiguity in the back-office and ITeS service industry as they were supposed to be treated as intermediaries under “Goods and Service Tax.”

As per the experts, the circular was ambiguous and did not provide clarity on whether which service would qualify as ‘support service’ and which would qualify as ‘arranging or facilitating the supply of goods’. The withdrawal of circular came at the right time as Tax authorities were about to issue show-cause notices to back-office service providers on the allegation of being classified as an intermediary.


The withdrawal of the circular issued by CBIC on 4th December 2019 has ended the ambiguity created by the circular issued earlier in July 2019. This withdrawal of circular came as a huge relief to Information Technology enabled Services firms and back end offices because as per the circular issued earlier the activities performed by them came under ‘intermediary’ classification. Now the withdrawal of the circular will provide clarification on which service to be qualified as ‘intermediary’. The withdrawal of the circular should be helpful. However, there is still a need for clarification on the scope of an intermediary to avoid unwanted judicial or financial circumstances.

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