The classification of marketing and sales promotion services rendered by Indian entities to overseas principals has remained one of the most litigated issues under the GST regime. The controversy essentially revolves around whether such services qualify as “intermediary services” under Section 2(13) of the Integrated Goods and Services Tax Act, 2017 (“IGST Act”) or constitute “export of services” under Section 2(6). The distinction is critical because intermediary services are taxable in India by virtue of Section 13(8)(b), whereas export of services qualify as zero-rated supplies.

The Legal Framework: Export vs. Intermediary

Section 2(6) of the IGST Act treats a service as export where the supplier is in India, the recipient is outside India, consideration is received in convertible foreign exchange, and the place of supply is outside India. In contrast, Section 2(13) defines an intermediary as a broker, agent or any person who “arranges or facilitates” the supply of goods or services between two or more persons, but excludes a person who supplies such goods or services on his own account.

The controversy has generally arisen in cases where Indian entities undertake marketing support, customer liaison, sales promotion, technical support or recruitment assistance for foreign group entities and are remunerated on a cost-plus or commission basis.

Essential Ingredients of “Intermediary”

Judicial precedents and CBIC Circular No. 159/15/2021-GST have consistently emphasized three essential features of an intermediary arrangement:

• There must be a minimum of three parties;
• The intermediary must arrange or facilitate the main supply between two other persons; and
• The intermediary should not supply services on its own account.

Thus, where the Indian entity independently provides back-office, promotional or support services to its overseas client on a principal-to-principal basis, courts have increasingly held that such services cannot be classified as intermediary services merely because they incidentally support the foreign entity’s business in India.

Turning the Tide: Landmark Judicial Precedents

Recent High Court decisions indicate an evolving judicial approach in favour of taxpayers in appropriate fact situations.

The Karnataka High Court in Excelpoint Systems (India) Pvt. Ltd. dated 27-11-2025 held that marketing and technical support services rendered to a foreign group company qualified as export of services. The Court noted that the taxpayer was providing services on its own account and was not acting as a broker or commission agent between the overseas entity and Indian customers.

Similarly the Rajasthan High Court in IDP Education India Pvt. Ltd. dated 21-11-2025 reaffirmed that a principal-to-principal arrangement without any authority to conclude contracts or represent the foreign entity does not satisfy the statutory ingredients of intermediary services.

Likewise the Delhi High Court in Fateh Education Consulting Private Limited dated 08-05-2026 applied similar reasoning, holding that where an Indian entity contracts directly with foreign universities, raises invoices on them, and receives consideration without charging students, the foreign university remains the service recipient, and incidental counselling, marketing, or recruitment support in India does not make the provider an intermediary and it was reaffirmed that such services, rendered on a principal-to-principal basis, qualify as export of services.

Key Principles Emerging from Courts

A review of recent judgments reveals certain indicative factors relevant for classification:

1. Principal-to-Principal Relationship

Where the agreement demonstrates that the Indian entity provides services independently and bears responsibility for performance, the exclusion clause in Section 2(13) becomes applicable. Courts have repeatedly stressed that services supplied “on one’s own account” are outside the intermediary definition.

2. Absence of Authority to Conclude Contracts

If the Indian entity merely undertakes promotional or support activities without authority to negotiate or conclude contracts on behalf of the foreign principal, it is difficult to characterize the arrangement as facilitation of supply.

3. Nature of Consideration

Fixed remuneration or cost-plus consideration generally supports the argument that the Indian entity is providing an independent service. Pure commission-based compensation linked directly to sales may, however, strengthen the department’s case for intermediary classification.

4. No Separate Main Supply Facilitated

Courts have emphasized that intermediary services presuppose a distinct “main supply” between two parties which the intermediary facilitates. Where the Indian entity itself is the actual supplier of support or marketing services, the requirement of facilitation fails.

Continuing Areas of Litigation

Despite favourable judicial developments, disputes continue because tax authorities often rely on the broad phrase “arranges or facilitates” to deny export benefits. Advance rulings have also not been uniform. In several cases, authorities have treated marketing and promotion activities as intermediary services on the ground that such services indirectly facilitate sales by the foreign principal in India.

Further, contractual drafting continues to play a decisive role. Clauses authorizing solicitation of customers, negotiation support, or acting “on behalf of” the foreign entity may expose taxpayers to intermediary classification.

Actionable Corporate Takeaways

Characterising cross-border marketing services hinges heavily on the exact text of the underlying Service Agreement. Global enterprises and Indian service arms must proactively safeguard their transactions:

• Draft P2P Clauses: Explicitly state in the Master Service Agreement (MSA) that the service is executed on a Principal-to-Principal basis.
• Define Independent Scope: Ensure the scope of work highlights "independent marketing, brand promotion, and backend research," while completely avoiding terms like "agent," "broker," or "sales closer".
• Establish Clear Invoicing: Structure invoices with a transparent cost-plus or fixed-fee model, avoiding transaction-linked commissions.

By decoupling pure promotional support from actual transactional brokerage, Indian service providers may support a position for zero-rated export status and reduce exposure to GST liability.

Conclusion

The law on intermediary services under GST has witnessed a discernible shift towards a more pragmatic and business-oriented interpretation. Courts have increasingly recognized that services such as marketing, customer support, and sales promotion rendered on a principal-to-principal basis to overseas recipients cannot be classified as intermediary services merely because they contribute to the recipient’s underlying business activities.

The omission of Section 13(8)(b) with effect from 30 March 2026 marks a watershed development and is expected to significantly curtail disputes on a going-forward basis. However, as the amendment is prospective, controversies pertaining to transactions undertaken before the effective date will continue to be adjudicated under the pre-amended regime. Accordingly, litigation on the intermediary issue is unlikely to subside immediately. Even so, the growing body of favourable judicial precedents offers considerable support to taxpayers and reinforces the principle that genuine cross-border service exports should not be denied zero-rated treatment merely on an expansive interpretation of the term “intermediary.”