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TMI Blog2020 (8) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... ution is amended by the Constitution (One Hundred First Amendment) Act, 2016 to bring on to introduce Article 246A which provides for special provision with respect to Goods and Service Tax. Article 246A begins with non-obstante clause stipulating that notwithstanding anything contained in Articles 246 and 254, the parliament subject to Clause-2, Legislature of every State, have power to make laws with respect to Goods and Service Tax imposed by the Union or by such State - The basic underlying change brought in by the GST regime is to shift the base of levy of tax from point of sale to the point of supply of goods or service. In that view of the matter, Section 13(8)(b) of the IGST Act,2017 which is framed by the parliament inconsonance with the Article 246(2) of the Constitution of India is required to be considered. Conjoint reading of Section 2(6) and 2(13), which defines export of service and intermediary service respectively, then the person who is intermediary cannot be considered as exporter of services because he is only a broker who arranges and facilitate the supply of goods or services or both. In such circumstances, the respondent no.3 have issued Circular No.20/2019 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d recipient of goods is outside the taxable territory i.e. India. Therefore, the respondents have thought it fit to consider granting exemption to the intermediary services viz. service provider when the movement of goods is outside India. It cannot be said that the provision of Section 13(8)(b) r.w. Section 2(13) of the IGST Act,2017 are ultra vires or unconstitutional in any manner - petition disposed off. X X X X Extracts X X X X X X X X Extracts X X X X ..... me. 3.3 According to the petitioner, IGST cannot be levied on the members of the petitioner association, who are engaged in the transaction of export of service as stated above as the petitioner members' export of services is covered by the Section 16(1) of the IGST Act, 2017 which provides for "zero rated supply" . 3.4 The export of services as defined under sub-section-6 of Section-2 of the IGST Act,2017 reads thus:- "6. Export of service means the supply of any service when,-- (i) the supplier service is located in India; (ii) the recipient of service is located outside India; (iii) the place of supply of service is outside India; (iv)the payment for such service has been received by the supplier of service in convertible foreign exchange; and (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8; 3.5 The definition of intermediary is provided in sub-section 13 of Section-2 of the IGST Act,2017 reads thus: 2(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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration, the person who is liable for payment of such consideration will be considered recipient. It is important to note that consideration could be paid by recipient or any third person. The determination will not depend on the fact who makes the payment but the person who is liable to make the payment will be considered recipient. In the contract for supply of goods, where no consideration is payable, recipient would mean a person to whom goods have been delivered or possession or use of the goods is given or made available. In respect of contract of supply of services, where no consideration is payable, recipient would mean the person to whom service has been rendered." 3.8 Chapter (iv) of the IGST Act,2017 provides for determination of the nature of supply. Under Section 8 of the IGST Act,2017 when the location of supplier and the place of supply happens to be in the same State, such supplies are deemed to be inter-State supply subject to levy of both CGST and SGST. Section 8(2) of the IGST Act,2017 reads as under:- "8. Intra-State supply (1) …. (2) Subject to the provisions of section 12, supply of services where the location of the supplier and the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or both, where such supply takes place - (a) outside the State; or (b) in the course of the import of the goods or services or both into, or export of the goods or services or both out of, the territory of India. (2) Parliament may by law formulate principles for determining when a supply of goods or of services or both in any of the ways mentioned in clause (1)." 5. Relying upon the above provision of Article 286, it was canvassed that parliament has been authorized to formulate the principles for determining when a supply is deemed to have been undertaken outside the territory of the State or when it has been undertaken in the course of import/export of such goods for services and has not been empowered to determine the "place of supply". It was therefore, submitted that the power vested with the parliament is confined by the scope of clause 1 of Article 286 and the parliament is not authorized to legislate and artificially assign the place of supply to be within India when clearly the services are being exported out of India. 6. It was further submitted that as per Section 13(8)(b) of the IGST Act,2017 if the supplier, who is providing intermediary services to a person s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the provision under Section 13(8)(b) of the IGST Act,2017 is ultra vires to Article 286(1) and is therefore, liable to be struck down. 9. Learned advocate for the petitioner submitted that when the members of the petitioner association provide service to a non-resident service recipient such services is clearly for the benefit of recipient located outside India and therefore, such transaction can be said to have been executed in the course of export and would fall within the exemption of Article 286(1) (b)of the Constitution Of India. In such circumstances, it was submitted that Section 13(8)(b) read with Section 8(1) of the IGST Act,2017 is violative of Article 286(1) of the Constitution of India as the service provider would be liable to the SGST and CGST on the commission received from the service recipient. 10. Learned advocate for the petitioner further submitted that Section 13(8)(b) of the IGST,2017 is violative of Article 14 of the Constitution of India as it renders differential treatment when services supplied within territory of India and when supplied outside the territory of India. It was submitted that if the supplier and recipient of intermediary servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned advocate for the petitioner therefore, submitted that even if it is assumed that the location of the recipient of services or the nature of intermediary services mandates a differential treatment for the purposes of ascertaining the place of supply, it does not have any nexus with the object sought to be achieved which are rendered within India and to exclude those where the services are clearly exported. It was submitted that when the benefit is to the account of the non-resident recipient and is not physically or integrally connected to any asset located in India, there appears to be no explanation as to how the differential treatment accorded to the intermediary services can help achieve the object of taxing services which are rendered within India and to exclude those that are clearly exported. 14. In order to explain, learned advocate for the petitioner gave following illustrations. (i) A person based in Mumbai provides management consultancy service on a remote basis to B located in New York. The place of supply shall be New York and tax implication shall be Nil as the same would be treated as export of service. (ii) However, when person C in Ahmedabad provides i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpermissibly delegates basic policy matters to policemen and to judges for resolution on an ad hoc and subjective basis, with the attendant, dangers of arbitrary and discriminatory application as under: "77. It is the basic principle of legal jurisprudence that an enactment is void for vagueness if its prohibitions are not clearly defined. Vague laws offend several important values. It is insisted or emphasized that laws should give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly. Vague laws may trap the innocent by not providing fair warning. Such a law impermissibly delegates basic policy matters to policemen and also judges for resolution on an ad hoc and subjective basis, with the attendant dangers of arbitrary and discriminatory application. More so uncertain and undefined words deployed inevitably lead citizens to "steer far wider of the unlawful zone….. than if the boundaries of the forbidden areas were clearly marked." 18. Learned advocate for the petitioner also relied upon the decision of Apex Court by which Section 66A of the Information Technology Act, 2000 was struck down in the case of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction which terminates outside the territory of India should not be taxed." 21. It was submitted that Section 13(8)(b) of the IGST Act, 2017 contributes to tax cascading and double taxation contrary to the objectives of the GST. It was submitted that transaction of providing intermediary services would be subject to tax in the country where the recipient is located as it would be an import of service for such recipient. It was therefore, submitted that the transaction would suffer GST in India and tax in the country outside India where the recipient of service is located which would result in transaction being subjected to double taxation and would affect the margin or commission earned by the members of the petitioner association, who are working as intermediaries. 22. Learned advocate for the petitioner relied upon para 1.9 of Rajya Sabha Select Committee Report (supra), wherein the rationale behind introduction of GST explained and reads thus : "1.9 Secondly, to do away with the cascading effect of taxes due to 'tax on tax' and to allow seamless flow of credit across goods and services as under the erstwhile indirect tax regime no credit of excise duty and service tax paid a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the specific objective to ensure that duty is not levied even on inputs going to the export products." 25. Learned advocate for the petitioner thereafter relied upon the Notification no.20/2019 - IGST dated 9th September 2019, which provides that in case of services provided by an intermediary when location of both supplier and the recipient outside the taxable territory and such services should be taxed at Nil rate. The relevant entry no.12AA in the Notification No.9/2017 - Integrated Tax (Rate), dated 28th June 2017 was made as under :- "G.S.R…….(E).-In exercise of the powers conferred by sub-section(1) of Section 6 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby makes the following further amendments in the notification of the Government of India, in the Ministry of Finance (Department of Revenue) No.9/2017 - Integrated Tax (Rate), dated 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 684 (E), dated the 28th June, 2017, namely: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so that Intermediary Services will be treated as 'Exports'; or • Provide an exemption to Indian Intermediaries of Goods from levy of IGST, exercising the powers vested under Section 6(1) of IGST Act; or • Notify such services under Section 13(13) of the IGST Act to prevent double taxation (tax in India as well as in the importing country) by treating place of effective use (foreign country) as place of supply. 15.3 The Government may also cause amendment to section 13(8) of the IGST Act to exclude 'intermediary' services and made it subject to the default section 13(2) so that the benefit of export of services would be available." 27. Referring to the above recommendation, it was submitted that the petitioner also wishes no levy of IGST on intermediary services when the recipient is located outside the India which results in double taxation and is not in line with the destination based principle as was intended by the GST legislation. 28. Learned advocate for the petitioner also relied upon the recommendation of the Tax Research Unit of Central Board of Indirect Taxes & Customs as per the TRU Office Memorandum dated 17th July 2019 acknowledging the representation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence was also made to the discussion in 37th GST Council Meeting held in September 2019 and reliance was placed on the following minutes of the meeting with regard to definition of 'intermediary' as per the Section 2(13) of the IGST Act. The relevant extract of minutes reads as under :- "Agenda Item 22(ii) Circular on treatment if IT/ITES Services (1/2) • Several representations have been received from NASSCOM and ASSOCHAM citing confusion on classification of IT / ITS Services as intermediary services in Circular No. 107 / 26 /2019. GST dated 18.07.2019 leading to denial of export benefits on such services. • Intermediary' has been defined in the sub-section (13) of Section 2 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as "IGST Act) as under- "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;" • The definition of intermediary inter alia provides specific exclusion of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary has no privity of contract. In such circumstances, when the recipient of service provides goods outside India, then it would be exempt and no GST is payable, but the goods supplied by the recipient of service who is located outside India to the buyer in India, then the intermediary would be subjected to CGST and SGST. It was therefore, submitted that in such circumstances, the members of the petitioner association are subject to discrimination. 34. Reliance was also placed on the recommendation of the Fitment Committee, which are placed before the GST Council in its 37th Meeting held on 20th September 2019, which reads as under :- "7. Recommendation: IGST exemption may be provided for GST on the supply of intermediary services when location of supplier of goods and location of recipient of goods is outside the taxable territory subject to conditions and safeguards prescribed in this regard Analysis: Supply of goods from a place in non-taxable territory to another place in the nontaxable territory without such goods entering into India is neither a supply of goods nor a supply of services [Entry No. 7 of Schedule III of CGST Act w.e.f. 01.02.2019 refers). However, intermed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Government has been authorized to notify specific set of services where the place of supply shall be the place where the service is effectively used or enjoyed. It was therefore, submitted that it would be in the larger interest that Section 13(8)(b) be declared as ultra vires and unconstitutional as there is a clear case of double taxation as intermediary services would be subject to GST when the service provider is situated in India and the same service shall be subject to tax in the country where service recipient is located. It was therefore, prayed that the necessary direction be issued to the respondents to issue necessary notification and consider the representation made by the petitioner from time to time. SUBMISSIONS ON BEHALF OF THE RESPONDENTS: 39. On the other hand, learned advocates appearing for the respondents submitted that the contention of the petitioner that the petitioner is forced to pay CGST/IGST on Services exported out of India, therefore the petitioner has challenged the legislative competence of Union Of India, and the services provided by the petitioner is export of services and is zero rated supply and thus IGST cannot be levied thereon is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kata)} (ii) Sabre Travel Network India Pvt. Ltd. -{2019 (21) G.S.T.L. 87 (A.A.R.-GST. Maharashtra)} (iii) Vishakhar Prashant Bhave - {2019 (20) G.S.T.L. 494 (A.A.R.-GST Maharashtra)} (iv) Vservglobal Pvt. Ltd. - {2018 (19) G.S.T.L. 173 (A.A.R. - GST, Maharashtra)} 42. It was submitted that the contention of the petitioner that the services provided by the petitioner are classified as "Intermediary" and taxed under a deeming fiction and migration of Indian exporters because of unfair provisions is without any basis as the place of provision of service of an intermediary being the location of the service provider is purposeful and considered policy decision of the Government of India. The existing provisions are in consonance with preGST era i.e. Service Tax provisions because till 01.10.2014 Place of Supply (POS) of intermediary services in relation to goods was the location of recipient (default rule, rule 3 of Place of Provision of Services Rules, POPSR) and in relation to services, it was the location of service provider, i.e. the location of the intermediary (rule 9(c) of POPSR). In terms of Section 66B of the Finance Act, 1994, such services were subject to service tax i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of the tax as a convenient administrative measure in respect of a particular class. That is ultimately a question of policy, which must be left lo legislative wisdom." Supreme Court has also held in the aforesaid judgment that. - "Legislative competence is to be determined with reference to the object of the levy and not with reference to its Incidence or machinery and that there is a distinction between the object of fox, the incidence of tax and the machinery for the collection of the tax." (ii) In A.H. Wadia v. CIT (AIR 1949 FC 18), the Apex Court stated that "In the case of a sovereign Legislature, the question of extra-territoriality of any enactment can never be raised in the municipal Courts as a ground for challenging its validity." (iii) In GVK Industries Ltd. V. Income Tax Officer [(2011) 4 SCC 36], the Apex Court examined the limitation of Parliament in enacting legislations with respect to extraterritorial aspects as under: "124. We now turn to answering the two questions that we set out with: (1) Is Parliament constitutionally restricted from enacting legislation with respect to extra-territorial aspects or causes that do not have, nor expected to have any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operation of the law as a matter of that law itself, and not of the Constitution: 127. (2) Does Parliament have the powers to legislate "for" any territory, other than the territory of India or any part of it? The answer to the above would be no. It is obvious that Parliament is empowered to make laws with respect to aspects or causes that occur, arise or exist, or may be expected to do so, within the territory of India, and also with respect to extra-territorial aspects or causes that have an impact on or nexus with India as explained above in the answer to Question 1 above. Such laws would fall within the meaning, purport and ambit of the grant of powers to Parliament to make laws "for the whole or any part of the territory of India", and they may not be invalidated on the ground that they may require extra-territorial operation. Any laws enacted by Parliament with respect to extra-territorial aspects or causes that have no impact on or nexus with India would be ultra vires, as answered in response to Question 1 above, and would be laws made "for" a foreign territory." 45. It was submitted that the contention of the petitioner that the services provided by the petitioner are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement consultancy services to B located in Mumbai (Recipient of service), the place of supply shall be Mumbai (location of recipient of service) in view of Section 13(2) of IGST Act, 2017 and IGST is payable. Whereas the same supplier provides intermediary Service to the same recipient, the place of supply shall be New York and Location of supplier of service in view of Section 13(8) of IGST Act, 2017 would be outside India and no tax is payable. Accordingly, it reveals that no tax is payable for Management Consultancy Service and tax is payable for Intermediary Service in respect of the illustration given by the petitioner, whereas tax is payable for Management Consultancy Service and No tax is payable for Intermediary Service Both the Illustrations shows that equal treatment is given to intermediary service and there is no violation of Article 14 of the Constitution. 48. It was submitted that with regard to reliance placed by the petitioner upon the Office Memorandum F. No 354/352/2018- TRU dated 17.07.2019, is based on the suggestions/preliminary views given by TRU and it was not the final decision taken by the Government as it is clearly mentioned in Para 9 of the said me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Hon'ble Supreme Court in case of East India Tobacco Co. v. State of Andhra Pradesh (1982 AIR 1733, 1963 SCR (1) 404) wherein the Apex Court has held that in tax matters, "the State is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably. Reliance was also placed upon the decision in case of Raja Jagannath Baksh Singh v. The State of UP. (1962 AIR 1563, 1963 SCR (1) 220) wherein the Apex Court has held that the legislature which is competent to levy a tax must inevitably be given full freedom to determine which articles should be faxed, in what manner and at what rate. 52. It was submitted that GST is a destination based tax and in case of inter-state transaction where supplier or recipient of service is located in taxable and non-taxable territory, by default rule under section 13(2) of the IGST Act, 2017, the place of supply is the location of the service recipient. However, there are exceptions to this rule and sub-section 13(3) to 13(12) deals with such exceptions in different situations covered under each of these subsections, exceptions have been provided to this default place of supply such as place of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the location of the supplier is in the taxable territory of India, therefore this transaction will not be covered within the definition of export of services as provided in Section 2(6) of IGST Act, 2017 as it is not satisfying one of the conditions of place of supply being outside India, as enumerated in Section 2(6)(iii) of IGST Act, 2017. It was therefore submitted that going by the strict interpretation of Section 13(8)(b) of IGST Act, 2017, the supply of services by the Intermediaries to the recipients outside India are not export of services irrespective of the mode of payment since the service provided by the members of the petitioner is not export of service, the question of Violation of Article 265 and 286 of the Constitution of India does not arise. 56. In this regard reliance was placed up on the decision of the Hon'ble Supreme Court in the case of M/s.Jindal Stainless Ltd. V. State of Haryana, vide Order dated 11.11.2016 in CA No.3453/2002 wherein it is held that, the power of taxation is controlled under Article 265 of the Constitution and that, no tax can be levied, except by authority of law. It was therefore submitted that IGST Act, 2017 cannot be held to be un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for an intermediary is that an intermediary is a go-between two persons, i.e. main service provider and the service recipient. An intermediary provides service to both the persons, though he may have contractual agreement with only one or both of them, hence, it may not be feasible to prescribe one person as the recipient of intermediary service, thus general rule cannot be applied, further, intermediary acts as an agent of the principal and in that sense, he may be providing a service to the principal and the place of effective use and enjoyment of such service is in the territory where the agent is representing the principal. It was therefore, submitted that general rule is not an appropriate proxy for determining the place of supply of service of an agent/intermediary, for example, if an Indian exporter hires a service of an agent located overseas for export of service, such service should not be subject to tax in India as effective use and enjoyment of service would be outside India and relatable to export of service from India but if general rule is applied to such service, the intermediary services availed for the purposes of exports would be taxed whereas any intermediary s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (d) If the executive policy is contrary to the statutory or a larger policy. It was submitted that in the facts of the present case, none of the aforesaid conditions is applicable in the present case. Hence, the case citation is not relevant with the present case and the argument, put forth by the petitioner, is not tenable. ANALYSIS 63. Having heard learned advocates for the respective parties and having considered the provisions of CGST and IGST Act,2017, the only question which arise whether the provisions of Section 13(8)(b) r.w.s. 2(13) and 8(1) of the IGST Act,2017 are ultra vires and unconstitutional or not. 64. The introduction of Goods and Service Tax in India in the year 2017 is with an object of providing one tax for one nation so as to harmonize the indirect tax structure in the country. For the said purpose, the Constitution is amended by the Constitution (One Hundred First Amendment) Act, 2016 to bring on to introduce Article 246A which provides for special provision with respect to Goods and Service Tax. Article 246A begins with non-obstante clause stipulating that notwithstanding anything contained in Articles 246 and 254, the parliament subject to Clause-2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of intermediary. Section 13 of IGST Act,2017 stipulates that the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India. Sub-section 2 of Section 13 stipulates that the place of supply of service except the services described in sub-section 3 to 13 shall be the location of the recipient of the services and if the location of recipient of service is not available in the ordinary course of business, the place of supply shall be location of supplier of service. Thus, subsection 3 to 13 carves out an exception to the place of supply of services to be the place of recipient of services where the location of supplier or location of recipient is outside India. On perusal of provision of Section 13 of IGST Act,2017, sub-section 3 to 13 thereof provide different eventualities to determine the place of supply of services. Sub-section 3 describes place of supply of services where the services are actually performed, Sub-section 4 refers to place of supply of services supplied directly in relation to an immovable property, Sub-section 5 refers to supply of services supplied by way of admission to, or org ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of intermediary to be the location of supply of service is in order to levy CGST and SGST and such intermediary service therefore, would be out of the purview of IGST. There is no distinction between the intermediary services provided by a person in India or outside India. Only because, the invoices are raised on the person outside India with regard to the commission and foreign exchange is received in India, it would not qualify to be export of services, more particularly when the legislature has thought it fit to consider the place of supply of services as place of person who provides such service in India. 67. Therefore, there is no deeming provision as tried to be canvassed by the petitioner, but there is stipulation by the Act legislated by the parliament to consider the location of the service provider of intermediary to be place of supply. Similar situation was also existing in service tax regime w.e.f. 1st October 2014 and as such same situation is continued in GST regime also. Therefore, this being a consistent stand of the respondents to tax the service provided by intermediary in India, the same cannot be treated as "export of services" under the IGST Act,2017 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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