Your IT company exports software development services to a US client. You filed returns treating the supply as zero-rated export, claimed ITC refund, and received it. Then the department issued a demand notice: "The service is intermediary in nature under Section 2(13) of the IGST Act. Place of supply is the supplier's location (India). IGST is payable, not zero-rated." The demand is Rs 1.8 crore - three years of GST on what you believed was an export.
This is the single most devastating GST dispute for Indian IT companies. The place of supply determination decides whether your entire revenue is zero-rated (no GST) or taxable at 18%. And the appeal process for POS disputes is different from other GST appeals - it goes to the GSTAT Principal Bench in New Delhi, not your local State Bench.
This guide explains the complete GSTAT appeal process for IT/software place of supply disputes - from the demand order through first appeal to the Principal Bench hearing and final order.
What Is a Place of Supply Dispute for IT/Software and Why Does It Matter?
A place of supply (POS) dispute for IT/software companies is a GST dispute where the department challenges the location of supply determined by the taxpayer, typically reclassifying what the company treated as an export (POS outside India, zero-rated) to a domestic supply (POS in India, taxable at 18%). The dispute arises from the application of Section 12 or Section 13 of the IGST Act, 2017.
For IT companies, POS disputes most frequently involve three scenarios: (1) the intermediary classification under Section 2(13)/13(8)(b), where the department argues the company is facilitating a supply between two parties rather than providing services on its own account; (2) the OIDAR classification under Section 13(12)/14, where the department treats software services as online information and database access or retrieval; and (3) the export qualification under Section 2(6), where the department challenges whether all five conditions for export of services are met.
IT businesses that face these disputes benefit from GSTAT IT/software appeal services (know more) that understand both the POS legal framework and the technical realities of software service delivery models.
Key Terms You Should Know
Place of Supply (POS): The location where a supply of goods or services is deemed to occur under the IGST Act. POS determines whether the supply is intra-state (CGST+SGST), inter-state (IGST), or zero-rated (export/SEZ).
Section 12 (Domestic POS): Governs POS when both supplier and recipient are in India. Default rule for services: location of recipient. For IT services between two Indian entities in different states, this determines whether IGST or CGST+SGST applies.
Section 13 (Cross-Border POS): Governs POS when either supplier or recipient is outside India. Default rule: location of recipient. But exceptions for intermediaries (Section 13(8)(b) - POS = supplier's location) and OIDAR (Section 13(12) - POS = recipient's location) override the default.
Intermediary (Section 2(13) IGST): A broker, agent, or person who arranges or facilitates supply between two parties but does not supply on their own account. If classified as intermediary, POS becomes the supplier's location - making the supply domestic (taxable) rather than export (zero-rated). This is the 'intermediary trap.'
OIDAR Services: Online Information and Database Access or Retrieval services under Section 2(17) IGST - services delivered via the internet with minimal human intervention. POS is always the recipient's location (Section 13(12)).
Principal Bench Jurisdiction: Under Section 109 of the CGST Act, any GSTAT appeal where one of the issues involves place of supply must be heard exclusively by the Principal Bench in New Delhi - not the State Bench. This is a critical routing distinction for IT companies.
Who Faces IT/Software Place of Supply Disputes?
The following IT/software entities face the highest risk of POS disputes and GSTAT appeals:
- Software development companies providing offshore services to foreign clients - the intermediary vs own-account distinction is always challenged
- IT staffing companies that deploy engineers at client locations abroad - the department often classifies this as intermediary/manpower supply
- SaaS companies providing cloud software to Indian customers from servers outside India - OIDAR classification disputes arise
- Indian subsidiaries of global tech companies providing shared services to group entities - transfer pricing + POS double exposure
- Digital marketing and SEO agencies serving foreign clients - intermediary classification if they facilitate third-party ad placements
- IT consulting companies with delivery centres in multiple Indian states - domestic inter-state POS disputes on which state gets the SGST
For the full GSTAT filing process, our guide on how to file a GSTAT appeal (know more) covers the end-to-end procedure.
Legal Framework: IT/Software Place of Supply Provisions
| Provision | POS Rule | IT/Software Dispute |
|---|---|---|
| Section 12(2) IGST | Default domestic POS: location of recipient | Which state receives SGST for multi-state IT company |
| Section 13(2) IGST | Default cross-border POS: location of recipient | Whether IT export qualifies for zero-rating |
| Section 13(8)(b) IGST | Intermediary POS: location of supplier | THE intermediary trap - blocks export treatment |
| Section 13(12) IGST | OIDAR POS: location of recipient | Whether software service is OIDAR or custom development |
| Section 2(6) IGST | Export of services: 5 cumulative conditions | Whether POS is outside India (condition 3 of 5) |
| Section 2(13) IGST | Intermediary definition | Whether IT company supplies on own account or facilitates between parties |
| Section 109 CGST | GSTAT bench allocation | POS issues go to Principal Bench (New Delhi) exclusively |
Critical: Under Section 109 of the CGST Act, where any one issue in the appeal involves place of supply, the entire appeal must be heard by the GSTAT Principal Bench in New Delhi - even if the company is located in Bengaluru, Hyderabad, or Pune. This routing rule is unique to POS disputes and catches many appellants off guard.
How to File a GSTAT Appeal for IT/Software Place of Supply: Step-by-Step
1. Analyse the First Appellate Order and Identify the POS Issue. Determine whether the dispute is: (a) intermediary classification under Section 2(13)/13(8)(b), (b) OIDAR classification under Section 13(12), (c) export qualification under Section 2(6), or (d) domestic inter-state POS under Section 12. Each requires different evidence and legal arguments.
2. Confirm Principal Bench Jurisdiction. If any issue in the appeal involves place of supply, the appeal must be filed with the Principal Bench in New Delhi - not your State Bench. This is mandated by Section 109 of the CGST Act. IT companies in Bengaluru, Hyderabad, or Chennai must file at New Delhi for POS disputes. See our Form APL-05 guide (know more) for bench selection in the form.
3. Compute the Pre-Deposit. For IT POS disputes, the disputed amount is typically the entire IGST that the company treated as zero-rated. On Rs 10 crore annual exports, the IGST at 18% = Rs 1.8 crore per year. The pre-deposit is 10% = Rs 18 lakh at the GSTAT stage (additional to Rs 18 lakh at first appeal). Use pre-deposit calculation (know more) services for multi-year demands.
4. Gather IT-Sector-Specific Evidence. Collect: (a) master service agreements (MSAs) showing the company provides services on its own account (not as intermediary), (b) work orders/SOWs detailing the scope of software development, (c) invoices raised in the company's own name (not on behalf of a third party), (d) FIRC/BRC proving foreign exchange receipt, (e) LUT/Bond copy for zero-rated supply.
5. Draft Grounds of Appeal with Intermediary Defence. The strongest defence against intermediary classification is demonstrating that the IT company: (a) provides services on its own account, (b) bears the risk of service delivery, (c) uses its own employees/resources, (d) is not merely arranging supply between two parties. Cite CBIC Circular and relevant High Court rulings. Use GSTAT appeal filing (know more) services for professional drafting.
6. Upload Documents and Pay Court Fee on GSTAT Portal. Upload all evidence as indexed PDFs on efiling.gstat.gov.in. Pay court fee via Bharat Kosh. For POS disputes involving demand orders, the fee is Rs 1,000 per Rs 1 lakh of disputed tax (max Rs 25,000).
7. Attend Principal Bench Hearing in New Delhi. The Principal Bench conducts hearings physically and virtually (hybrid mode). IT companies outside Delhi can request virtual hearing. Prepare a technical brief explaining the software service delivery model - the bench needs to understand how IT services are delivered to determine if the company is an intermediary or an independent service provider.
Documents and Records for IT/Software POS GSTAT Appeal
- Form GST APL-05 with grounds citing Section 12/13 IGST and intermediary/OIDAR defence
- Certified copies of Order-in-Appeal (APL-04) and Order-in-Original
- Show Cause Notice (SCN)
- Master Service Agreement (MSA) with the foreign client - proving own-account service delivery
- Work orders / Statements of Work (SOWs) detailing scope, deliverables, and timelines
- Invoices raised in the company's own name (not on behalf of a principal)
- FIRC/BRC proving foreign exchange receipt for each invoiced amount
- LUT/Bond copy valid during the export period
- Employee deployment records - showing the company's own team delivered the services
- Risk allocation evidence - indemnity clauses, SLA penalties, warranty terms borne by the company
- GSTR-1 Table 6A showing zero-rated export supplies for the disputed period
- Technical brief explaining the software delivery model (onshore/offshore, project-based/time-and-material)
- Pre-deposit payment proof and Bharat Kosh court fee receipt
- Vakalatnama / GSTAT FORM-04
IT/Software POS: Key Dispute Scenarios and GST Treatment
| Scenario | Department's Position | Correct Treatment / Defence |
|---|---|---|
| Indian IT company develops custom software for US client | Intermediary - arranging supply between US client and Indian developers | Own-account supply - company bears risk, uses own resources, invoices in own name. POS outside India. Zero-rated. |
| IT staffing company deploys engineers at foreign client site | Intermediary - facilitating manpower supply | If company bears risk and manages resources: own-account. If mere deployment: may be intermediary. Contract structure is critical. |
| SaaS company provides cloud software to Indian users | OIDAR service - POS is recipient's location (India), taxable at 18% | If automated delivery with minimal human intervention: OIDAR (taxable). If significant customisation: not OIDAR, standard service. |
| Indian subsidiary provides shared IT services to parent abroad | Intermediary/not arm's length - POS is India | If subsidiary provides on own account per MSA with transfer pricing: export. If merely forwarding parent's work: intermediary risk. |
| Digital agency manages Google/Meta ads for foreign client | Intermediary - arranging ad supply between platform and client | If agency provides strategic services on own account: not intermediary. If merely placing ads as agent: intermediary classification likely. |
| IT company provides services from Bengaluru to Mumbai client | POS is Mumbai (recipient location) - IGST applies | Correct under Section 12(2). But dispute arises if company has branch in Mumbai - which location is most directly concerned? |
Note: The intermediary classification is the most litigated POS issue for Indian IT companies. The department's default position is to treat offshore IT service providers as intermediaries - the burden of proving own-account service delivery lies with the company.
Common Mistakes to Avoid in IT/Software POS Appeals
Mistake 1: Filing the appeal at the State Bench instead of the Principal Bench. POS disputes must go to the Principal Bench in New Delhi under Section 109. Filing at the State Bench results in the appeal being transferred - wasting weeks. IT companies using GSTAT e-filing assistance (know more) get bench routing guidance as a standard step.
Mistake 2: Not addressing the intermediary classification with contract-level evidence. Generic arguments like "we are not an intermediary" fail. The appeal must demonstrate, contract by contract, that the company: provides services on its own account, bears the risk, uses its own employees, and is not merely arranging supply between two parties. MSA clauses on indemnity, SLA, and warranty are the strongest evidence.
Mistake 3: Confusing OIDAR with standard software development. OIDAR requires minimal human intervention and automated delivery. Custom software development involving significant human effort (coding, testing, deployment) is not OIDAR. Read our GSTAT pre-deposit rules (know more) for payment timelines when the disputed amount is large.
Mistake 4: Not proving all 5 conditions of Section 2(6) for export. Export of services requires: (1) supplier in India, (2) recipient outside India, (3) POS outside India, (4) payment in convertible foreign exchange, (5) supplier and recipient not merely establishments of the same entity. Missing even one condition (e.g., delayed FIRC) disqualifies the export treatment.
Mistake 5: Not preparing a technical brief on the service delivery model. GSTAT Members deciding POS disputes need to understand onshore-offshore models, time-and-material vs fixed-price contracts, and the difference between project delivery and staff augmentation. A 2-3 page brief with diagrams showing the service flow is essential.
Penalties and Financial Impact of IT/Software POS Disputes
Under Section 73 (non-fraud), if the IT company genuinely believed its services were zero-rated exports but the POS is redetermined as India, the demand is 18% IGST on the entire revenue for 3 years plus 18% interest per annum and 10% penalty. For a company with Rs 50 crore annual export revenue, the Section 73 exposure is Rs 9 crore per year x 3 years = Rs 27 crore in tax alone, plus Rs 2.7 crore penalty and significant interest.
Under Section 74 (fraud/suppression), if the department alleges the company knowingly misclassified intermediary services as exports, the demand covers 5 years with 100% penalty. The exposure can exceed Rs 100 crore for large IT companies. This is why POS disputes are the highest-stakes GST litigation for the IT sector.
Under Section 112(9), the automatic stay on recovery after pre-deposit payment is critical for IT companies. Without the stay, the department can attach bank accounts and freeze operations - potentially shutting down the business.
How IT/Software POS Appeals Connect Across the Legal Framework
POS disputes for IT companies do not exist in isolation. The POS determination affects: (1) whether the supply is zero-rated (export) or taxable at 18%, (2) whether the ITC refund already received must be returned with interest, (3) whether the LUT filed is valid or must be cancelled, and (4) which state receives the SGST component in domestic inter-state disputes. A single POS reclassification triggers a cascade of demands - IGST demand, ITC refund recovery, interest, and penalty.
The GSTAT Principal Bench has exclusive jurisdiction over POS disputes. This means the appeal is heard in New Delhi regardless of where the IT company is located. The Bench comprises two Judicial Members and two Technical Members - providing both legal and tax administration perspectives. For complex IT service delivery models, the Bench can empanel subject-matter experts to assist in understanding the technical aspects.
Importantly, the GSTAT Principal Bench's rulings on POS will set precedents for the entire IT sector. The first wave of POS appeals - expected between 2026-2027 - will establish the jurisprudence on intermediary classification, OIDAR boundaries, and export qualification for software services. Early appellants have the opportunity to shape these precedents.
GSTAT Appeal Process: IT/Software POS Dispute Timeline
| Stage | Action | Timeline |
|---|---|---|
| 1 | Receive demand order (DRC-07) challenging POS | Day 0 - note date of communication |
| 2 | File first appeal (APL-01) on gst.gov.in | Within 3 months of demand order |
| 3 | Commissioner (Appeals) hearing and order (APL-04) | 6-12 months (varies by jurisdiction) |
| 4 | Pay GSTAT pre-deposit (10% additional) | Before filing APL-05 |
| 5 | File GSTAT appeal (APL-05) - Principal Bench, New Delhi | Within 3 months of APL-04; backlog by 30 June 2026 |
| 6 | Scrutiny by Registrar; defect-cure if needed | Up to 30 days for rectification |
| 7 | Case registration and cause list scheduling | Depends on Principal Bench workload |
| 8 | Principal Bench hearing (physical or virtual) | Multiple hearings may be needed for complex POS |
| 9 | GSTAT order (APL-04A) - confirm, modify, annul, or remand | Within 30 days of final hearing (Rule 103) |
| 10 | If favourable: ITC refund restored. If adverse: HC appeal (Section 117) | 180 days for HC appeal from GSTAT order |
Key Takeaways
Place of supply disputes are the highest-stakes GST litigation for Indian IT/software companies. A single POS reclassification from export (zero-rated) to domestic (18% IGST) can create demands exceeding Rs 100 crore for large companies, covering multiple years of revenue.
Under Section 109 of the CGST Act, all GSTAT appeals involving place of supply issues must be heard by the Principal Bench in New Delhi - not State Benches. IT companies in Bengaluru, Hyderabad, Pune, or Chennai must file at the Principal Bench for POS disputes.
The intermediary classification under Section 2(13)/13(8)(b) of the IGST Act is the most litigated POS issue for IT companies. Defence requires contract-level evidence showing the company provides services on its own account, bears the risk, and is not merely arranging supply between two parties.
OIDAR services (automated, minimal human intervention) have POS at the recipient's location. Custom software development with significant human effort is not OIDAR. The distinction is factual and must be demonstrated with service delivery evidence.
The GSTAT Principal Bench's first wave of POS rulings (expected 2026-2027) will set precedents for the entire IT sector. Early appellants have the opportunity to shape the jurisprudence on intermediary classification and export qualification for software services.
Need Help with Your IT/Software Place of Supply Appeal?
Place of supply disputes require a deep understanding of the IGST Act's POS framework, the intermediary definition, OIDAR boundaries, and the unique Principal Bench jurisdiction. The stakes are the highest in GST litigation - 18% on entire revenue across multiple years.
Explore our GSTAT IT/software appeal services (know more) for end-to-end POS dispute assessment, Principal Bench filing, and hearing representation.
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