The Continuing Intermediary Services Conundrum, till the prospective ammendment made under Section 13(8)(b) of IGST Act
The jurisprudence surrounding "intermediary services" under the Goods and Services Tax (GST) continues to remain one of the most litigated and commercially significant areas of indirect taxation. Despite years of litigation and numerous judicial pronouncements, businesses providing cross-border consulting, marketing support and back-office services continue to grapple with the fine line separating an "export of services" from an "intermediary service". The recent decision of the Haryana Appellate Authority for Advance Ruling (AAAR) in M/s Maithani Enterprises (decided on 07 May 2026) adds another chapter to this evolving debate by reaffirming that contractual substance, rather than the form of invoicing or the location of payment, ultimately determines GST liability.
Background of the Dispute
The dispute arose from a relatively common business arrangement. An Indian consultancy firm provided sales and marketing consulting and HR advisory services to a Malaysian company, Meteora Consulting, in connection with the latter's consulting engagement with an Indian customer. The Indian entity argued that it supplied services exclusively to its overseas client, received consideration in convertible foreign exchange and satisfied every condition prescribed under Section 2(6) of the IGST Act for an "export of services". Consequently, it claimed entitlement to zero-rated treatment and refund of accumulated input tax credit.
The Haryana AAAR, however, viewed the arrangement through a different lens. Upholding the ruling of the Authority for Advance Ruling, it concluded that the appellant was not providing an independent service to the Malaysian entity but was facilitating the foreign consultant's obligations towards its Indian customer. Consequently, the services were held to be "intermediary services" under Section 2(13) of the IGST Act, attracting the place of supply rule under Section 13(8)(b), thereby rendering the supply taxable in India and disentitling the appellant from claiming export benefits.
Substance Prevails Over Form
What distinguishes this ruling is the Authority's emphasis on the commercial substance of the contractual arrangement. Instead of being persuaded by the fact that invoices were raised on a foreign entity and consideration was received in foreign currency, the AAAR meticulously analysed the underlying agreement. Particular emphasis was placed on clauses requiring the appellant to provide "on-the-ground market services" in India, work alongside the Indian client's team and comply with confidentiality obligations identical to those binding the Malaysian consultant vis-à-vis its customer. The Authority considered these obligations sufficient to establish that the appellant functioned as an integral part of Meteora's service delivery mechanism rather than as an independent consultant rendering services on its own account.
The Three-Party Test
Equally significant is the AAAR's reliance on the existence of three parties in the transaction, the Indian consultant, the Malaysian company and the Indian client. The Authority concluded that the appellant's role was essentially to facilitate the supply of consulting services between Meteora and its Indian customer. This finding enabled it to invoke the statutory definition of "intermediary" under Section 2(13), notwithstanding the taxpayer's contention that it neither negotiated contracts nor concluded transactions on behalf of the overseas entity.
Why the Export Claim Failed
From a legal perspective, once the supply was characterised as an intermediary service, the outcome became almost inevitable. Section 13(8)(b) deems the place of supply of intermediary services to be the location of the supplier. Since the supplier was located in India, the place of supply also remained in India. Consequently, one of the essential ingredients of an export of services—namely, that the place of supply must be outside India—stood unfulfilled, irrespective of the foreign location of the contractual recipient or receipt of consideration in convertible foreign exchange.
Treatment of Judicial Precedents
The decision is also noteworthy for the manner in which the AAAR distinguished the precedents cited by the appellant. Reliance had been placed on decisions such as GoDaddy India Web Services Pvt. Ltd. (decided on 04 March 2016), and Vserv Global (decided on 07 July 2018), which have frequently been invoked to support the proposition that business support services rendered to overseas entities constitute exports when supplied on a principal-to-principal basis. The Authority, however, observed that those decisions turned on materially different factual matrices. In contrast, the contractual obligations in the present case indicated that the appellant was deeply integrated into the execution of the foreign consultant's assignment in India and therefore assumed the character of an intermediary.
Key Takeaways for Service Exporters
While the reasoning adopted by the AAAR is consistent with the umammended statutory language of Section 2(13), it also revives an enduring concern for service exporters. The dividing line between an independent business support service and an intermediary service remains remarkably thin and highly fact-sensitive. Modern consulting engagements routinely require personnel to work alongside clients, coordinate with customer teams and operate under stringent confidentiality obligations. If such operational features are treated as decisive indicators of an intermediary relationship, many legitimate export-oriented consulting arrangements may face significant GST exposure despite the commercial reality that services are contracted, invoiced and paid for by foreign entities.
The ruling also illustrates the continuing importance of contractual drafting. Businesses frequently focus on describing their arrangements as being on a "principal-to-principal" basis. However, the Maithani decision demonstrates that such declarations carry limited weight if other contractual clauses reveal that the Indian service provider is effectively participating in the overseas entity's delivery obligations to an Indian customer. Clauses relating to scope of work, authority to interact with customers, reporting structures, pricing mechanisms and responsibility for deliverables are likely to assume far greater significance than generic declarations regarding the nature of the relationship.
Conclusion
More fundamentally, the decision highlights the persistent uncertainty surrounding intermediary services under the GST framework. Although constitutional challenges to Section 13(8)(b) have produced divergent judicial opinions and the issue continues to attract considerable debate, advance ruling authorities have consistently adopted an expansive interpretation of the intermediary definition. This trend reinforces the need for taxpayers to evaluate cross-border service arrangements from a substance-over-form perspective rather than relying solely on the identity of the contractual recipient or the receipt of foreign exchange.
The Haryana AAAR's ruling therefore serves as a timely reminder that export status under GST is not determined merely by the destination of the invoice or the currency of payment. The real enquiry lies in identifying the true nature of the service and the role played by the Indian supplier in the larger commercial transaction. Where the contractual arrangement reveals that the supplier is facilitating another person's supply to an Indian customer, the tax authorities are likely to characterise the service as an intermediary, with all the attendant GST consequences.
For businesses operating in the consulting, marketing support, implementation and professional services sectors, the message is unequivocal: contractual drafting must faithfully reflect the commercial reality, and the scope of work should clearly establish that the Indian entity is providing an independent service on its own account rather than facilitating another person's supply. In the increasingly scrutinised landscape of cross-border services, substance—not form—continues to be the decisive test.
