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Breather for BPOs: Government withdraws contentious GST Circular on back office support services

The Circular was ambiguous and continued to fuel the debate as to which back-end services constitute as support services and which services would qualify as ‘arranging or facilitating the supply of goods or services between two or more persons’.

, ET Online|
Updated: Dec 05, 2019, 04.41 PM IST
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This may provide respite to the industry, to the extent authorities were placing reliance on the erstwhile Circular to issue Show Cause Notices to back-office support providers.
Months after putting India’s business process outsourcing industry in a quandary, the government has withdrawn the circular that said anyone engaged in the facilitation of supply of goods/services will not be considered to be engaged in export and will now be considered as intermediary, unless it is on his own account.

With this circular most BPO-KPO services were being treated as intermediaries under GST rules and could be taxed under GST. This meant GST authorities were denying any MNC BPOs refunds of amounts paid on inputs, saying the work done for parent companies can’t be considered as exports and will be counted as a service for the same entity.

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’.

In view of such apprehensions as highlighted by various representations filed before the Government, CBIC has ab-initio withdrawn the said Circular (vide Circular No. 127/46/2019 – GST dated 04.12.2019).

This may provide respite to the industry, to the extent authorities were placing reliance on the erstwhile Circular to issue Show Cause Notices to back-office support providers. Also, lot of GST refunds was 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.

"There was a spur in issuance of notices to back-office support providers, post the July Circular. Also, based on few clarifications in the Circular, GST refunds were being denied to some service providers on the allegation of being an intermediary. Accordingly, it would be interesting to see the stand tax authorities would adopt on withdrawal of this Circular.” said Harpreet Singh, Partner in KPMG.

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