Intermediary Services Under GST: Does the K.C. Overseas Judgment Make the Finance Act, 2026 Omission Retrospective?

Background: A Long-Standing Dispute in GST Law

Few provisions under the GST framework have generated as much litigation and controversy as the place of supply rules governing intermediary services. The turbulence surrounding this issue did not originate with GST — it had its roots even in the pre-GST service tax era, where conflicting interpretations on how to determine the place of supply for intermediary transactions had kept both assessees and revenue authorities in a perpetual state of uncertainty.

The enactment of Section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017 only deepened the controversy. For nearly a decade, intermediaries — particularly those serving foreign principals — found themselves caught in a web of adverse tax positions that rendered their services taxable in India, effectively stripping them of the benefit of zero-rated export status.

The Finance Act, 2026, which received Presidential assent on 30th March 2026, has now put a formal end to this prolonged dispute by omitting Section 13(8)(b) of the IGST Act, 2017. However, the omission raises a set of equally complex legal questions: Does this omission operate prospectively or retrospectively? And more importantly, can the Supreme Court's ruling in Union of India vs. K.C. Overseas Education (P) Ltd., 2025 be used to argue that the omission carries retrospective effect?

This article examines these questions in detail.

The Omission of Section 13(8)(b) of the IGST Act, 2017

The Statutory Amendment

Section 157 of the Finance Act, 2026 (Act No. 4 of 2026) brought about the critical change. It reads as follows:

"157. In section 13 of Integrated Goods and Service Tax, Act, 2017, in subsection (8), clause (b) shall be omitted."

Prior to this omission, the provision read:

"(8) The place of supply of the following services shall be location of the supplier of services, namely: — (b) Intermediary services."

What is an Intermediary? The Statutory Definition

The term "intermediary" is defined under Section 2(13) of the IGST Act, 2017 as follows:

"(13) 'intermediary' means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account;"

It is important to note at this stage that while Section 13(8)(b) has been omitted by the Finance Act, 2026, the definition of "intermediary" under Section 2(13) remains untouched. This distinction, as we shall see, carries significant legal implications.

Understanding the Problem That the Omission Sought to Resolve

Illustrative Scenario

Consider the following situation: Mr. Sharma, an Indian agent, acts as an intermediary for a Germany-based principal company. He facilitates orders from Indian buyers on behalf of the foreign principal and receives commission income amounting to Rs. 12.50 lakhs in foreign exchange.

Before the omission, the revenue authorities would invoke Section 13(8)(b) of the IGST Act, 2017 and deem the place of supply to be the location of the supplier — i.e., India. The consequence was direct and damaging:

  • The transaction could not qualify as "export of services" under Section 2(6) of the IGST Act, 2017
  • Mr. Sharma would be liable to pay GST on his commission income
  • No refund of tax paid on such outward supplies would be admissible
  • Indian intermediaries lost their competitive edge against counterparts in other jurisdictions

This created serious distortions in the export ecosystem, adversely impacting IT/BPO companies, commission agents, freight brokers, and a wide range of service providers whose business models depended on facilitating cross-border transactions.

The Legal Position Post-Omission

The New Default Rule Applies

With the removal of Section 13(8)(b), intermediary services now fall under the default place of supply rule prescribed under Section 13(2) of the IGST Act, 2017, which provides:

"(2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services."