GST on intermediary services – Considered Export or not?
Matter: Pursuant to this Petition under Article 226 of the Constitution of India, Petitioner seeks to declare section 13(8)(b) and section 8(2) of the IGST Act as ultra vires Articles 14, 19(1)(g), 245, 246, 246A, 269A, 286 of the Constitution of India and also ultra vires the provisions of the IGST Act and section 9 of the Central Goods and Services Tax Act, 2017 (“CGST Act”)
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
Dharmendra M. Jani vs The Union Of India And 3 Ors on 16 June 2021
Bench: Ujjal Bhuyan, Abhay Ahuja
WRIT PETITION NO.2031 OF 2018
Dharmendra M. Jani … Petitioner
Union of India and others … Respondents
Brief narration taking into consideration the stand by Justice Abhay Ahuja
Petitioner is the proprietor of M/s. Dynatex International, having office in Mumbai. It is submitted that Petitioner is a registered supplier under the provisions of the Goods and Services Tax Act, 2017. The Petitioner provides marketing and sales promotion services to customers/principals located outside India who in turn export goods to importers in India on the basis of agreements. In terms of such agreements, Petitioner solicits purchase orders for its overseas customers by undertaking activities of marketing and promotion of goods of its overseas customers. The Indian purchaser, i.e., importer directly places a purchase order on the overseas customer of Petitioner for the supply of goods, which are then shipped by the overseas customer to the Indian importer/purchaser. Such goods are cleared by the Indian purchaser from the customs by payment of applicable customs duty. The overseas customer raises an invoice in the name of the Indian purchaser, who directly remits the sale proceeds to the overseas customer. Upon receipt of such payment, the overseas customer pays commission to Petitioner against invoice raised by Petitioner, upon his overseas customer, which it is submitted is received by Petitioner in India in convertible foreign exchange. Further, As per Sub-Section 8, the place of supply shall be the location of the supplier of services and which includes the intermediary services in Clause (b), which are the services rendered by Petitioner. Further, it is submitted that by way of deeming fiction under Section 13(8)(b) of the IGST Act, where the location of the recipient of service is outside India, the place of supply is treated as the location of the supplier of services which is in India, thereby bringing into the tax net export of services. With reference to these provisions, it is submitted that the export of service by Petitioner as an intermediary is being treated as an intrastate supply of services, rendering such a transaction liable to payment of CGST and SGST.
Analysis and opinion:
Section 2(13) defines “intermediary” as “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;”
Section 13 deals with the place of supply of services where the location of supplier or location of recipient is outside India. Clause (8) The place of supply of the following services shall be the location of the supplier of services, namely:–
(a) services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders;
(b) intermediary services;
(c) services consisting of hiring of means of transport, including yachts but excluding aircraft and vessels, up to a period of one month.
On behalf of Petitioner, it is submitted that the levy of GST on intermediary services by Petitioner is contrary to the fundamental concept of GST as a destination-based consumption tax. It is asserted that for taxing a service it is not the place of performance, but the place of consumption, which is relevant; export would take place when the service is provided from India by a person in India but is received and consumed abroad. The artificial exception carved out in Section 13(8)(b) of the IGST Act is contrary to all principles of interpretation, and, therefore, liable to be struck down as ultra vires to the fundamental principle of destination-based consumption tax. GST has three main aspects viz. it is calculated as VAT, it brings goods and services together on the same platform. Of course, it is an indirect tax but it is not levied on the act of production, sale, and so on. It is levied on all transactions called supply from start to the end. So primarily GST is a tax levied on the supply of goods and services. The earlier excise duty, sales tax, service tax, and so on, which were on the “act of” are eliminated and the tax is no more on the act of producing or on point of sales. Since GST is to be calculated as value-added tax with an input tax credit available from one level of supply to the next in the chain of production and distribution, the cascading effect of one tax on to the other is eliminated. Therefore, the scheme of the GST law in India is taxation on supply. Concepts cannot be imposed upon clear, unambiguous Articles of the Constitution of India as well as the language in the provisions of the statute. There is no dispute that the supply under consideration is an inter-State supply of service. The inter-State levy is on supply within the taxable territory i.e. within the boundaries of India and not extra-territorial in accordance with Article 245 of the Constitution of India. Therefore, when the place of supply in the case of intermediary services, such as that rendered by Petitioner, the place of supply of such service is provided to be the location of supplier of services, viz., Petitioner, it could not be said that Section 13(8)(b) of the IGST Act is in breach of this principle as the place of supply has been specifically provided.
View by Justice Ahuja:
In the above circumstances, a position of law, as discussed, regarding the legitimacy of Section 13(8)(b) or Section 8(2) of the IGST Act cannot be doubted. Petitioner has neither made a case of non-existence of competence nor demonstrated any constitutional infirmity in Section 13(8)(b)or Section 8(2) of the IGST Act, nor a case of applicability of Section 8(2) of the IGST Act to the case of Petitioner. Petitioner has also failed to make out a case that Section 13 (8) (b) or Section 8(2) of the IGST Act are ultra vires the scheme of the IGST Act. Petitioner has failed to demonstrate that Section 13(8)(b) of the IGST Act is ultra vires Section 9 of the CGST Act or the MGST Act. Therefore the challenge fails. In the light of the above, I am of the view that neither Section 13(8)(b) nor Section 8 (2) of the IGST Act are unconstitutional. Also, neither Section 13 (8) (b) nor Section 8 (2) of the IGST Act are ultra vires the IGST Act. Section 13 (8) (b) is also not ultra vires Section 9 of the CGST Act, 2017. Section 13(8)(b), as well as Section 8(2) of the IGST Act, are constitutionally valid and operative for all purposes.
The above explanation is only an extract taken from the order pronounced. In case the reader wishes to know the detailed analysis and applicability of such order for the course of business should get back to us.
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