2021 (6) TMI 563 - HC - GST

Supply of intermediary services as intermediary to his overseas customers - export of service by virtue of section 13(8)(b) of the IGST Act read with section 8(2) of the said Act or not - intra-State supply or not - Constitutional validity of Section 13(8)(b) read with Section 8(2) of the IGST Act - GST is a destination based tax on consumption and section 13(8)(b) of the IGST Act is contrary to the said principle - Vires of Article 246A read with Article 269A, Article 286 as well as Article 245 of the Constitution of India as the section results in levy on export of services as intra-State supply - vires of charging section 5 - vires of Section 9 of the CGST Act and MGST Act - violation of Article 14 of the Constitution being arbitrary, unreasonable and discriminatory - violation of right to carry on business viz. Article 19(1)(g) of the Constitution - Double Taxation is permitted or not. DISSENTING Judgement to 2021 (6) TMI 383 - BOMBAY HIGH COURT HELD THAT - Admittedly, Petitioner is an Intermediary (as defined in section 2(13) ) above rendering Intermediary Services (as provided for in section 13(8)(b) above) to its overseas customers based on which the overseas customers export their goods to importers in India for which Petitioner receives commission - the only exception is if the intermediary has provided the service on his own account in which case he may claim to be an exporter of the service if he otherwise falls within the definition. This would not be an export of services in as much as Intermediary Services are specifically provided in Section 13 (8)(b) under the authority of the Constitution of India provided in Article 269A read with Article 246A. Petitioner is providing intermediary service of arranging, marketing, facilitating the export of his overseas customers to Indian importers and that is the reason he receives commission. It is in respect of these intermediary services that Section 13(8)(b) refers to the place of supply of such service as the location of the supplier. The legislature keeping in mind the peculiar exigencies of fiscal affairs and underlying concerns of public revenue enacts provisions. Section 13(8)(b) of the IGST Act in respect of intermediary services is one such provision. Intermediary services are specifically dealt with, where it has been specifically provided that where the supplier or the recipient is outside India, then in respect of Intermediary services, the place of supply shall be the location of the supplier - when there is a specific provision defining Intermediary as in section 2(13) of the IGST Act and Intermediary Services are specifically dealt with in section 13(8)(b), the question of application of general provision of Section 2(6) of export of services would not arise. It is pursuant to the powers invested by the Constitution, that the Parliament, in Sections 7 and 8 of IGST Act has provided for determination of the nature of supply, whether inter-state or intra-State; Section 7 provides for what supply is inter-State and Section 8 provides for what is treated as intra-State - It is pursuant to the power in Article 269A(5) that Chapter V of the IGST Act entitled Place of Supply of Goods or Services or Both containing Sections 10 to 14 has been enacted by the Parliament. It is observed that the Explanation to Article 269A(1) deems supply of goods or services in the course of import into India to be supply in the course of inter-State trade or commerce - there is no doubt that the power to stipulate the place of supply as contained in Sections 13 (8)(b) of the IGST Act is pursuant to the provisions of Article 269A (5) read with Article 246A and Article 286 of the Constitution. The impugned provisions are in my view constitutional and are not in any way ultra vires the Constitution. If the Parliament pursuant to powers invested in it by the Constitution has in its wisdom dealt with Intermediary Services as that rendered by Petitioner, that is a matter within the Parliament s domain. Section 13(8)(b) invoking Section 8(2) to deem inter-state supply as intra-state supply - HELD THAT - Section 13(8)(b) comes into the picture in the case of Petitioner. Once the Parliament has in its wisdom stipulated the place of supply in case of Intermediary Services be the location of the supplier of service, no fault can be found with the provision by artificially attempting to link it with another provision to demonstrate constitutional or legislative infraction - In any event Section 8(2) is not applicable to the case of Petitioner as location of supplier and place of supply is not within same State (in India) but in taxable territory viz. India. Article 246A (2) has invested exclusive power in the Parliament to make laws in respect of supply of goods or services in the course of inter-state trade or commerce. Article 269A(5) authorizes the Parliament to make law for determining place of supply and when a supply of goods or services takes place in the course of inter-state trade or commerce - There is no conflict between Article 246A, Article 269A or Article 286 which clearly empower the Parliament to formulate laws for determining place of supply and when a supply of goods or of services or both takes place in the course of inter-state trade or commerce or as to when supply of goods or services or both take place outside a State or in the course of import into or export out of the territory of India. A plain reading of Article 245, makes it clear that the impugned section in no way violates this provision as from the plain language of the said section it is clear that the same do not seek extra territorial operation nor seek to levy tax on service recipient outside India. All that Section 13(8)(b) does is to provide for place of supply in respect of intermediary services where the service recipient is outside India (as in the case of the Petitioner), to be the location of the supplier of services. Therefore, there is no question of extra territorial legislation here. In the facts of the present case, the recipient is located outside India and the intermediary services supplier is located in India and therefore section 13 (8)(b) would become applicable in that the place of supply would be the location of the supplier of services viz. in the taxable territory in India - Section 13(8)(b) of the IGST Act cannot be said to be ultra vires Article 245 of the Constitution of India. Thus, only the Parliament is empowered to legislate on matters pertaining to the supply of goods or services that take place in the course of inter state trade or commerce. As far as the Petitioner s supply is concerned admittedly the same is supply in the course of inter-state trade or commerce pursuant to the provisions of Section 7 of IGST Act. Also as can be seen from Sub-Section (5) of Article 269A of the Constitution that it is only the Parliament that can formulate the principles for determining the place of supply or when a supply of goods or of services or both takes place in the course of interstate trade or commerce. Challenge under Articles 14 and 19(1)(g) of the Constitution of India - HELD THAT - The intermediary services rendered by Petitioner are specifically provided as one of the services in addition to banking services and transport hiring services where the place of supply has been provided as the location of the supplier of services as per Section 13(8)(b) of the IGST Act - between Petitioner and others there is no discrimination. Section 13(8)(b) would not be hit by Article 14 on this ground. For the same reason the second ground of discrimination, is also not tenable in as much as the Act has specifically provided for such intermediaries. Petitioner who is providing Intermediary Service to recipient outside India is on a different footing, the objective in my view would be to prevent revenue from escaping Therefore there is a reasonable classification founded on intelligible differntia which has a rational relation/nexus to the object sought to be achieved. The objectives could be, as stated in the Respondent s reply, to encourage the Make in India program and create the level playing field. It is however clarified that no view is being expressed with respect to the claims or counter-claims on the Make in India program referred to above as that is clearly a matter of the policy of the Government of India, which needless to say is the prerogative of the Government - levy on account of Section 13(8)(b) of the IGST Act is therefore neither arbitrary nor unreasonable nor discriminatory - Section 13 (8) (b) of the IGST Act is not unconstitutional or ultra vires Article 19(1)(g). Challenge that Section 13(8)(b) seeks to runs contrary to the scheme of the Act and deems an inter-State supply as intra-State supply - HELD THAT - Section 13(8)(b) pertains to the case of intermediary services, where the service recipient is outside India and where the place of supply has been provided to be the location of the supplier. When the Constitution has empowered the Parliament to formulate principles determining the place of supply, in my view, Section 13(8)(b) cannot be said to be ultra vires the charging section as Section 13(8)(b) does not violate the levy on the supply made by the intermediary, particularly in view of Section 7, which designates such supplies to be inter-State supplies - There cannot be any dispute as to the doctrine of pith and substance as canvassed by Petitioner while deciding on legislative competence or that under Article 265 no tax can be levied without authority of law. Having already held that Section 13(8)(b) has been enacted pursuant to the authority of law and that the said Section 13(8)(b) cannot be linked with Section 8(2) of the IGST Act to deem an inter-state supply as an intra-state supply, the said concerns are unfounded. 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 ultra vires the charging section or the scheme of the Act. Double Taxation - HELD THAT - With respect to the second assertion that the same supply would be taxed by foreign service recipient in his hands in the importing country, that is also not really tenable in the eyes of law as IGST is not extra-territorial and generally speaking a commission paid by the recipient of service outside India would be entitled to get deduction of such payment of commission by way of expenses and therefore, it would not be a case of double taxation. A position of law, 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 nonexistence 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. 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 or the MGST Act, 2017 - Section 13(8)(b) as well as Section 8(2) of the IGST Act are constitutionally valid and operative for all purposes. Petition dismissed.

Summary

Issues Involved:
1. Constitutionality of Section 13(8)(b) of the IGST Act.
2. Violation of Articles 14, 19(1)(g), 245, 246A, 269A, and 286 of the Constitution of India.
3. Ultra vires the IGST Act and Section 9 of the CGST Act/MGST Act.
4. Double taxation concerns.

Detailed Analysis:

1. Constitutionality of Section 13(8)(b) of the IGST Act:
The court examined whether Section 13(8)(b) of the IGST Act, which stipulates that the place of supply for intermediary services is the location of the supplier, is unconstitutional. The judgment concluded that this provision is constitutionally valid. The court emphasized that the Parliament has the authority under Articles 246A and 269A of the Constitution to legislate on the place of supply and the nature of supply, including intermediary services.

2. Violation of Articles 14, 19(1)(g), 245, 246A, 269A, and 286 of the Constitution of India:
- Article 14 (Equality before Law):
The court held that there is no discrimination between the petitioner and other exporters of services. The classification of intermediary services under Section 13(8)(b) is based on intelligible differentia and has a rational nexus to the objective of preventing revenue leakage and ensuring proper tax collection. Therefore, the provision does not violate Article 14.

- Article 19(1)(g) (Right to Practice Any Profession):
The court found no unreasonable restriction on the petitioner’s right to carry on business. Section 13(8)(b) does not impose any restriction or lead to the closure of the petitioner’s business but merely stipulates the place of supply for tax purposes.

- Article 245 (Extent of Laws Made by Parliament):
The court clarified that Section 13(8)(b) does not have extra-territorial operation and is within the legislative competence of the Parliament as it pertains to the taxable territory of India.

- Articles 246A and 269A (Special Provisions with Respect to Goods and Services Tax):
The court affirmed that the Parliament has the exclusive power to legislate on inter-state supply of goods and services and to determine the place of supply. Section 13(8)(b) is enacted under this authority and is thus constitutionally valid.

- Article 286 (Restrictions as to Imposition of Tax on the Sale or Purchase of Goods):
The court noted that Article 286 prevents states from imposing tax on supplies outside their jurisdiction and on imports/exports. Section 13(8)(b) does not authorize states to levy such taxes and is consistent with Article 286.

3. Ultra vires the IGST Act and Section 9 of the CGST Act/MGST Act:
The petitioner argued that Section 13(8)(b) is ultra vires the IGST Act and Section 9 of the CGST Act/MGST Act. The court rejected this argument, stating that Section 13(8)(b) pertains to the place of supply, while Section 9 pertains to the levy of tax on intra-state supplies. These sections operate in different fields and do not conflict with each other.

4. Double Taxation Concerns:
The court addressed the petitioner’s concern about double taxation, clarifying that there are two distinct supplies involved: the intermediary service provided by the petitioner and the import of goods by the Indian purchaser. The intermediary service is liable to IGST, while the import of goods is subject to customs duty. There is no overlapping or double taxation as each tax applies to a different transaction.

Conclusion:
The court upheld the constitutionality and validity of Section 13(8)(b) of the IGST Act, finding it consistent with the provisions of the Constitution and the IGST Act. The petition was dismissed, and the court found no merit in the arguments regarding violation of constitutional rights, ultra vires claims, or double taxation concerns.