India’s business process outsourcing industry is in a quandary as refunds of taxes paid on inputs remain stalled for want of a clear directive from the government. A directive that sought to clarify what constitutes exports, and hence shouldn’t be subject to goods and services tax at the rate of 18%, received in-principle approval at the GST Council meeting in Goa in September, but it is being examined afresh and may land before the GST Council’s law committee owing to the revenue outgo.
“There is a view that more clarity is needed to define markers that would help identify which entity is an intermediary and which is not,” a government official privy to the deliberations told ET. The Maharashtra Appellate Authority for Advance Ruling (AAAR) had held in a ruling in February that back-office support services did not qualify as “export of service” and were in the nature of arranging or facilitating supply of goods or services between overseas companies and customers. It said these services fell in the category of intermediary services and were liable to GST.
The government sought to clarify the issue via a circular in July, but one part of the circular left the key issue of classifying whether a company offered intermediary services or carried out exports to the discretion of the taxman. This accentuated the problem further for the over-$180-billion sector as tax officials began to use it as a general principle and issued notices to IT firms. Some companies operating out of SEZs were also not spared.