GSTAT Principal Bench Rules Procurement Services by Foreign Group Entity Are Not ‘Intermediary Services’ Under IGST Act

Background and Dispute
The appeals before the GSTAT Principal Bench arose from the rejection of refund claims by Dow Chemical International Pvt. Ltd. (the Appellant) for IGST paid under the reverse charge mechanism on services received from Dow Europe GmbH, a related entity based in Switzerland. The Appellant had initially treated these services as ‘import of services’ and paid IGST, but later contended that the services were in fact ‘intermediary services’ under Section 2(13) of the IGST Act, and thus not taxable in India due to the place of supply being outside India.

Nature of Services and Contractual Arrangements
The Appellant entered into a Procurement Agreement with Dow Europe, under which Dow Europe provided a range of procurement-related services, including identification and selection of suppliers, negotiation of procurement terms, and facilitation of supply. The Appellant argued that Dow Europe merely facilitated the supply of goods between the Appellant and independent foreign suppliers, and thus acted as an intermediary.

Arguments by Parties
The Appellant relied on various Advance Ruling Authority decisions and CBIC Circular No. 159/15/2021-GST, asserting that the services met all criteria for ‘intermediary services’: involvement of three parties, two distinct supplies (main and ancillary), and a facilitative role. The Appellant also emphasized the commission-based remuneration structure as indicative of an intermediary relationship.

The Respondent, however, argued that Dow Europe rendered substantive procurement services on its own account, not merely facilitative or ancillary services. The Respondent highlighted the independent contractor status of Dow Europe, the comprehensive nature of procurement operations performed, and the absence of authority to bind the Appellant, contending that these factors excluded the arrangement from the definition of ‘intermediary’. Reliance was placed on the Karnataka High Court’s decision in Columbia Sportswear India Sourcing Pvt. Ltd. and other judicial precedents distinguishing core services from intermediary services.

Tribunal’s Analysis and Reasoning
The Tribunal undertook a detailed examination of the statutory definition of ‘intermediary’ under Section 2(13) of the IGST Act, relevant CBIC circulars, and judicial precedents. It noted that for a service to qualify as ‘intermediary’, there must be a minimum of three parties, two distinct supplies (main and ancillary), and the service provider must not supply the main service on its own account.

Applying these principles, the Tribunal found that while the arrangement involved three parties, the services rendered by Dow Europe were not ancillary or facilitative but constituted the core procurement function for the Dow Group. The Tribunal emphasized that Dow Europe operated as an independent contractor, providing substantive procurement services to the Appellant, and did not merely arrange or facilitate a supply between two other parties.

The Tribunal distinguished the facts from those in Advance Ruling Authority decisions cited by the Appellant, and instead aligned with the reasoning of the Karnataka High Court in Columbia Sportswear and the Delhi High Court in Blackberry India, where similar procurement and support services were held not to be intermediary services.

Legal Principle and Final Decision
The Tribunal held that services provided by Dow Europe to the Appellant were not intermediary services within the meaning of Section 2(13) of the IGST Act, but rather constituted import of services with the place of supply in India. Consequently, the IGST paid was correctly levied, and the Appellant was not entitled to a refund.

The Tribunal also clarified that the mere fact of initially treating a transaction as taxable and later seeking a refund on a different legal interpretation does not, by itself, bar a refund claim under Section 54 of the CGST Act. However, on merits, the refund claims were not sustainable.

Conclusion
All appeals were dismissed, and the orders of the First Appellate Authority rejecting the refund claims were affirmed. The Tribunal’s decision establishes that substantive procurement and sourcing services provided by a foreign group entity to its Indian affiliate are not ‘intermediary services’ under the IGST Act, and are taxable as import of services in India.