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TMI Blog2021 (6) TMI 563X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent 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 inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nally valid and operative for all purposes. Petition dismissed. - WRIT PETITION NO.2031 OF 2018 - - - Dated:- 16-6-2021 - UJJAL BHUYAN AND ABHAY AHUJA, JJ. Mr. Bharat Raichandani alongwith Ms. Pragya Koolwal i/by UBR Legal for Petitioner. Mr. Anil C. Singh, ASG alongwith Mr. Pradeep S. Jetly, Senior Advocate and Mr.J.B. Mishra for Respondent Nos.1 to 4. Mr.S.G. Gore, AGP with Smt. Jyoti Chavan, AGP for Respondent No.5-State. JUDGMENT AND ORDER : (PER ABHAY AHUJA, J.) (DISSENTING) 67. On 9th June 2021, I had passed the following order: 1. Having noted the Judgment and Order dated 9th June, 2021 as pronounced by my Respected Learned Brother Shri Justice Ujjal Bhuyan, with greatest respect being unable to persuade myself to share the opinion of my Learned Brother, I would like to record my separate opinion in the matter. 2. List the matter on 16th June, 2021 for pronouncement of my opinion. 68. I have now had the privilege and advantage of perusing the erudite judgment and order in the above matter delivered by my learned respected Brother Shri Justice Ujjal Bhuyan. I am unable to share the conclusion arrived at by him holding that Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 73. It is submitted that the transaction entered into by Petitioner with the foreign customer is one of export of service from India. Reference is made to Section 2(6) of the IGST Act, which defines export of service and to Section 2(13) of the IGST Act, which defines intermediary. It is submitted that Petitioner s case is an export of service by an intermediary. 74. It is submitted that Section 7 of the IGST Act deals with interstate supply, whereas, Section 8 deals with intrastate supply. Section 7 provides as to when a supply would be considered as interstate supply in India, i.e., supply between two or more States or Union Territories of India and Section 8 provides for intrastate supply, i.e., supply within one State or within one Union Territory. Section 13 of the IGST Act deals with a situation where location of the supplier or the location of the recipient is outside India. Sub-Section (2) provides that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, Shri Bharat Raichandani as well as Learned Additional Solicitor General, Shri Anil C. Singh for the Respondent Revenue alongwith Shri Pradeep Jetly, learned Senior Counsel and Shri J.B. Mishra, Learned Standing Counsel for Revenue and with their able assistance, we have perused the papers and proceedings in the matter. The issue that arises for consideration, is whether the provision of Section 13(8)(b) read with Section 8(2) of the IGST Act is unconstitutional or ultra vires the IGST Act, Section 9 of the CGST Act/MGST Act. 78. In short the issue is that Petitioner is aggrieved that his supply of intermediary services as intermediary to his overseas customers, which according to him is export of service by virtue of section 13(8)(b) of the IGST Act read with section 8(2) of the said Act is being treated as an intra-State supply making him liable to pay CGST and MGST, which he submits cannot be permitted. Petitioner is therefore challenging Section 13 (8) (b) read with Section 8(2) of the IGST Act as being ultra vires Articles 14, 19 (1) (g), 245, 246A, 269A and 286 of the Constitution of India as well as the IGST Act and section 9 of the CGST and MGST Act. 79. Before comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed thereafter in most countries, including India. B. How and when should the power of the Court to declare the Statute unconstitutional be exercised? Since, according to the above reasoning, the power in the Courts to declare a Statute unconstitutional has to be accepted, the question which then arises is how and when should such power be exercised. 31. This is a very important question because invalidating an Act of the Legislature is a grave step and should never be lightly taken. As observed by the American Jurist Alexander Bickel judicial review is a counter majoritarian force in our system, since when the Supreme Court declares unconstitutional a legislative Act or the act of an elected executive, it thus thwarts the will of the representatives of the people; it exercises control, not on behalf of the prevailing majority, but against it. (See A. Bickel's `The Least Dangerous Branch') 32. The Court is, therefore, faced with a grave problem. On the one hand, it is well settled since Marbury V. Madison (supra) that the Constitution is the fundamental law of the land and must prevail over the ordinary statute in case of conflict, on the other hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution often admits of different interpretations; that there is often a range of choice and judgment; that in such cases the Constitution does not impose upon the legislature any one specific opinion, but leaves open this range of choice; and that whatever choice is not clearly in violation of a constitutional provision is valid even if the Court thinks it unwise or undesirable. Thayer traced these views far back in American history, finding, for example, that as early as 1811 the Chief Justice of Pennsylvania had concluded: For weighty reasons, it has been assumed as a principle in constitutional construction by the Supreme Court of the United States, by this Court, and every other Court of reputation in the United States, that an Act of the legislature is not to be declared void unless the violation of the Constitution is so manifest as to leave no room for reasonable doubt vide Commonwealth ex. Rel. O'Hara V. Smith 4 Binn. 117 (Pg.1811). 35. Thus, according to Prof. Thayer, a Court can declare a statute to be unconstitutional not merely because it is possible to hold this view, but only when that is the only possible view not open to rational question. In other wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the statute to be unconstitutional, the Court must be absolutely sure that there can be no manner of doubt that it violates a provision of the Constitution. If two views are possible, one making the statute constitutional and the other making it unconstitutional, the former view must always be preferred. Also, the Court must make every effort to uphold the constitutional validity of a statute, even if that requires giving a strained construction or narrowing down its scope vide Mark Netto V. Government of Kerala and Ors. [1979] 1 SCR 609 . Also, it is none of the concern of the Court whether the legislation in its opinion is wise or unwise. 39. In a dissenting judgment in Bartels V. Iowa 262 US 404 412(1923), Justice Holmes while dealing with a state statute requiring the use of English as the medium of instruction in the public schools (which the majority of the Court held to invalid) observed I think I appreciate the objection to the law but it appears to me to present a question upon which men reasonably might differ and therefore I am unable to say that the Constitution of the United States prevents the experiment being tried . The Court certainly has the powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax, and the constitutional validity of these provisions have always been upheld . 83. In the case of Hamdard Dawakhana Another v/s. Union of India (1960) Cri LJ 671, the Supreme Court has observed that another principle that is to be borne in mind while examining the constitutionality of a statute is that it must be assumed that the legislature understands and appreciates the need of the people, that the laws it enacts are directed to problems which are made manifest by experience, and that the elected representatives assembled in a legislature enact laws which they consider to be reasonable for the purpose for which they are enacted. 84. In the case of Union of India v. Exide Industries Ltd. (2020) 5 SCC 274, the Supreme Court, (in the decision authored by Hon ble Shri Justice A.M. Khanwilkar) has reiterated that the examination of the Court begins with a presumption in favour of constitutionality. This presumption, the Supreme Court states is not just borne out of judicial discipline and prudence, but also out of the basic scheme of the Constitution wherein the power to legislate is the exclusive domain of the Legislature/ Parliament. This power is clothed w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular case has or has not, in respect to the subject matter of the statute or in the method of enacting it, transgressed the limits of its constitutional powers... 86. But before we proceed further, a word on the background/history of GST. 86.1. GST is goods and services tax. It is an indirect tax, levied on supply of goods or services or both. GST has been in operation in more than 160 countries after being introduced in France in 1954. Different countries follow different models of GST. Most countries do not have full GST. They have partial GST. Full GST means all indirect taxes are covered under it and calculated as Value Added Tax (VAT). Some countries have GST calculated as VAT or comprehensive VAT or just VAT. The differences reflect the diversity of situation prevailing in different countries. GST is applicable all across Europe. UK has had VAT since 1993. New Zealand introduced GST in 1986. Australia introduced VAT in 2000. Canada initiated GST in 1991. Ukraine has VAT. Singapore has GST. USA does not have GST/VAT. Malaysia introduced GST in 2015 but was dismantled in 2018. 86.2. Historically, Indian experience with GST like tax began in late 1970s. The first prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.5. In 2009 the Empowered Committee of State Finance Ministers was set up for comprehensive indirect tax reform by the introduction of GST in India. 86.6. On March 11,2011 the Constitution (115th Amendment) Bill was introduced in the Lok Sabha and the bill was referred to the standing committee on Finance for examination. The committee submitted its report on 7 August 2013. However, since the bill in the Lok Sabha had lapsed due to the dissolution of the 15th Lok Sabha on March 2014, the same could not be considered. 86.7. Thereafter, the Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 to introduce the GST and confer simultaneous powers on the Centre and States was introduced in the Loksabha on December 19, 2014 by the then Finance Minister. The Statement of Objects and Reasons of the 122nd Constitutional Amendment Bill, 2014 (which became the 101st Constitutional Amendment Act, 2016), reads as under: 1. The Constitution is proposed to be amended to introduce the goods and services tax for conferring concurrent taxing powers on the Union as well as the States including Union territory with Legislature to make laws for levying goods and services tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of implementation of the Goods and Services Tax for a period which may extend to five years; (i) creation of Goods and Services Tax Council to examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, exemption list and threshold limits. The Council shall function under the Chairmanship of the Union Finance Minister and will have the Union Minister of State in charge of Revenue or Finance as member, along with the Minister in-charge of Finance or Taxation or any other Minister nominated by each State Government. It is further provided that every decision of the Council shall be taken by a majority of not less than three-fourths of the weighted votes of the members present and voting in accordance with the following principles . 86.8. The Bill after being passed in the Loksabha on May 6, 2015 was sent to the Rajyasabha. On 12th May 2015, the bill was sent to the Select Committee for examination. The Select Committee submitted its report on July 22, 2015. It would be relevant to quote from paragraph 1.10 of the said report under the head RATIONALE BEHIND MOVING TOWARDS GST as under: 1.10 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced in the Lok Sabha to seek amendment in the Constitution, inter alia, providing for subsuming of various indirect taxes and central and states surcharges and cesses so far as they relate to supply of goods and services both on Intra State and Interstate. The Constitution 101st Amendment Act 2016 was passed to levy goods and services tax. On 12 April 2017, Parliament enacted 3 acts namely (1) the Central Goods and Services Tax Act, 2017; (2) Integrated Goods and Services Tax Act, 2017; and (3) the Goods and Services Tax (Compensation to States) Act, 2017. 86.12. The Supreme Court in the case of Mohit Minerals (supra) has relied upon the statement of Objects and Reasons to the Constitution 101st Amendment Act, 2016 as set out above and in paragraph 23, has observed as under: 23. The Constitution (101st Amendment) Act, 2016 dated 08.09.2016 was passed to amend the Constitution of India. By Constitution (101st Amendment) Act, 2016, new Articles 246A, 269A and 279A were inserted. Amendments were also made in Articles 248, 249, 250, 268, 269, 270, 271, 286, 366 and 368. Article 268A was omitted. Amendments were also made in Seventh Schedule to the Constitution in List I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have a Central legislation, namely the Integrated Goods and Services Tax Bill, 2017. The proposed Legislation will confer power upon the Central Government for levying goods and services tax on the supply of goods or services or both which takes place in the course of inter-State trade or commerce. The proposed Legislation will remove both the lacunas of the present central sales tax. Besides being vatable, the rate of tax for the integrated goods and services tax is proposed to be more or less equal to the sum total of the central goods and services tax and state goods and services tax or Union territory goods and services tax to be levied on intra-State supplies. It is expected to reduce cost of production and inflation in the economy thereby making the Indian trade and industry more competitive, domestically as well as internationally. It is also expected that introduction of the integrated goods and services tax will foster a common or seamless Indian market and contribute significantly to the growth of the economy. 4. The Integrated Goods and Services Tax Bill, 2017, inter alia, provides for the following, namely- (a) to levy tax on all inter-State supplies of goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The process of examining validity of a duly enacted provision as envisaged under Article 13 of the Constitution is based on the aforesaid two steps. 89. It would therefore be appropriate to first consider the challenge with respect to Articles 246, 246A, 269A, Article 286 and Article 245 of the Constitution of India, which are quoted as under: 89.1 Article 246 is quoted as under: 246. Subject matter of laws made by Parliament and by the Legislatures of States:- (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the Union List) (2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the Concurrent List) (3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter-State trade or commerce . 89.4 Article 286 of the Constitution of India is reproduced as under: Article 286. Restrictions as to imposition of tax on the sale or purchase of goods.- (1) No law of a State shall impose, or authorise the imposition of, a tax on the supply of goods or of services 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). 89.5 Article 245 of the Constitution of India is quoted as under: 245. Extent of laws made by Parliament and by the Legislatures of States (1) Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. (2) No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation. 89.6 Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the operation of this special provision. 91.2 It is seen that the power to make laws under Article 246A is a non obstante power to anything contained in Article 246 and Article 254 i.e. the general power of the Parliament and States to make laws with respect to subject-matters covered in the lists under Seventh Schedule and supremacy of central legislation in case of repugnancy between a central Act and State legislation. Therefore, Article 246A will override the general powers, even if a subject-matter of taxation is contained in the Seventh Schedule, and the Parliament and legislature of every State have simultaneous power to make laws with respect to any tax imposed on supply of goods and services other than supply of alcoholic liquor for human consumption. 91.3 Under Article 246A (2), Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods or services takes place in the course of inter State trade or commerce. 91.4 It is therefore apparent that the IGST Act has been enacted by the Parliament for levy of IGST on inter-state supply of goods or services, inter alia, pursuant to the exclusive power contained in Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to it in section 7 of the Central Goods and Services Tax Act; 94.4. Section 5 of the IGST Act is the charging section and deals with the levy and collection of IGST as under: Levy and collection. 1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person: Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (51 of 1975) on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962 (52 of 1962). 2) The integrated tax on the supply of petroleum crude, high speed diesel, motor spi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent States; (b) two different Union territories; or (c) a State and a Union territory, shall be treated as a supply of goods in the course of inter-State trade or commerce. 2) Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-State trade or commerce. 3) Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in-- (a) two different States; or (b) two different Union territories; or (c) a State and a Union territory, shall be treated as a supply of services in the course of inter-State trade or commerce. 4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce. (5) Supply of goods or services or both,-- (a) when the supplier is located in India and the place of supply is outside India; (b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or (c) in the taxable territory, not being an intra-State supply and not covered els ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vement of goods terminates for delivery to the recipient; (b) where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person; (c) where the supply does not involve movement of goods, whether by the supplier or the recipient, the place of supply shall be the location of such goods at the time of the delivery to the recipient; (d) where the goods are assembled or installed at site, the place of supply shall be the place of such installation or assembly; (e) where the goods are supplied on board a conveyance, including a vessel, an aircraft, a train or a motor vehicle, the place of supply shall be the location at which such goods are taken on board. (2) Where the place of supply of goods cannot be determined, the place of supply shall be determined in such manner as may be prescribed. 94.8. Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Union territory, the supply of services shall be treated as made in each of the respective States or Union territories, in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed. (4) The place of supply of restaurant and catering services, personal grooming, fitness, beauty treatment, health service including cosmetic and plastic surgery shall be the location where the services are actually performed. (5) The place of supply of services in relation to training and performance appraisal to,-- (a) a registered person, shall be the location of such person; (b) a person other than a registered person, shall be the location where the services are actually performed. (6) The place of supply of services provided by way of admission to a cultural, artistic, sporting, scientific, educational, entertainment event or amusement park or any other place and services ancillary thereto, shall be the place where the event is actually held or where the park or such other place is located. (7) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urney is issued at the same time. (10) The place of supply of services on board a conveyance, including a vessel, an aircraft, a train or a motor vehicle, shall be the location of the first scheduled point of departure of that conveyance for the journey. (11) The place of supply of telecommunication services including data transfer, broadcasting, cable and direct to home television services to any person shall, -- (a) in case of services by way of fixed telecommunication line, leased circuits, internet leased circuit, cable or dish antenna, be the location where the telecommunication line, leased circuit or cable connection or dish antenna is installed for receipt of services; (b) in case of mobile connection for telecommunication and internet services provided on post-paid basis, be the location of billing address of the recipient of services on the record of the supplier of services; (c) in cases where mobile connection for telecommunication, internet service and direct to home television services are provided on pre-payment basis through a voucher or any other means,-- (i) through a selling agent or a re-seller or a distributor of subscriber identit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each of such States or Union territories and the value of such supplies specific to each State or Union territory shall be in proportion to the amount attributable to services provided by way of dissemination in the respective States or Union territories as may be determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed. 94.10. Section 13 deals with place of supply of services where location of supplier or location of recipient is outside India.-- (1) The provisions of this section shall apply to determine 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. (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: Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services. (3) The place of supply of the following services shall be the location where t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e than one State or Union territory, the place of supply of such services shall be taken as being in each of the respective States or Union territories and the value of such supplies specific to each State or Union territory shall be in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed. (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 aircrafts and vessels, up to a period of one month. Explanation .--For the purposes of this sub-section, the expression,-- (a) account means an account bearing interest to the depositor, and includes a non-resident external account and a non-resident ordinary account; (b) banking company shall have the same meaning as assigned to it un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory; (f) the country code of the subscriber identity module card used by the recipient of services is of taxable territory; (g) the location of the fixed land line through which the service is received by the recipient is in the taxable territory. (13) In order to prevent double taxation or non-taxation of the supply of a service, or for the uniform application of rules, the Government shall have the power to notify any description of services or circumstances in which the place of supply shall be the place of effective use and enjoyment of a service. 94.11. Section 16 deals with Zero rated supply.-- (1) zero rated supply means any of the following supplies of goods or services or both, namely:-- (a) export of goods or services or both; or (b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit. (2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero rated supplies, notwithstanding that such supply may be an exempt supply. (3) A registered person making zero rated supply shall be elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices 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. 98. 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. There is no quarrel with the definition of export of services contained in Section 2 (6) of the IGST Act, though it is stated in the Affidavit of the Revenue that Petitioner does not satisfy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation to clause (1) of Article 269A), empowers the Parliament to legislate on principles for determining the place of supply and when the supply would be in the course of inter-state trade or commerce. A conjoint reading of Article 269A(1) with Article 269A(5) and Article 246A exclusively empowers the Parliament to make law on what is inter-state supply and what is not which obviously includes what is intra-state in contradistinction to what is inter-state and that power is exclusively with the Parliament. In my considered opinion, the power to enact provisions determining the nature of supplies (as inter state supply in section 7 of IGST Act or intra state supply in section 8 of IGST Act) or place of supply (as contained in sections 10 to 14 of the IGST Act including section 13(8)(b) where in the case of intermediary services, where supplier or the service recipient is located outside India, the place of supply has been stipulated to be the location of supplier) originates from these Articles. The power of the Parliament to stipulate principles on place of supply or to legislate on the same as contained in the IGST Act is empowered by the Constitution Amendment Act, 2016. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 8(2) the reference is to the same State in India, whereas in Section 13 (1) read with Section 13(8)(b) it is location of the service recipient being outside India. Besides Petitioner is admittedly an intermediary rendering intermediary services to a service recipient located outside India. Therefore, 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. 105.1. In any event Section 8(2) in my view 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. 105.2. Therefore, to say that by virtue of Section 13 (8) (b) read with Section 8(2) of the IGST Act, Parliament has sought to impose tax on export of services out of the territory of India by treating the same as local supply in violation of Articles 246A and 269 is completely fallacious and untenable and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods and services within another State as that is the prerogative of individual States i.e no authority to any State to impose tax on intra state supply within another State except that other State; Secondly it does not permit any State in India to authorize imposition of tax on import into or export out of the territory of India of goods and services as that is the prerogative of the Central Government; Thirdly it states that the Parliament alone and not the State Legislatures will formulate the principles for determining when supply of goods or of services or both in any of the ways mentioned in clause (1) above i.e outside the State or import into or export out of India. 106.4. In fact it is in view of the language of newly amended Article 286 (2) pursuant to the Constitution (101st) Amendment Act, 2016 that the Parliament can formulate principles for determining when a supply of goods or services or both have taken place either outside the State or in the course of import into or export out of the territory of India. 106.5. Even the omission of Article 286(3) pursuant to the Constitution (101st) Amendment Act, 2016 signifies that the power to legislate on any matter rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore the decision is clearly distinguishable. In the decision of The Central India Spinning Weaving and Manufacturing Co. Ltd., The Empress Mills, Nagpur v. The Municipal Committee, Wardha AIR 1958 SC 341 the Supreme Court construed the terms export and import in terms of Article 286(1). However, as mentioned earlier, we are concerned with the supply of services of an intermediary as provided in Section 13(8)(b) read with Section 2(13) of the IGST Act and therefore these decisions would in my view be distinguishable. 106.13. It is, therefore, not relevant in the circumstances that export and import have not been defined under the Constitution or that the same would be of wide construction. 106.14. As discussed earlier, 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. Article 286(2) also authorizes Parliament to make law for determining when supply of goods or service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cussion or factual submission that Indian intermediary i.e. Petitioner is purportedly a commission agent to a supplier in Germany who is exporting goods to an importer in Singapore. In fact the agreements, illustrative copy whereof has been annexed to the petition are only in respect of counterparty from Japan. Firstly, as has been observed by the Supreme Court in the case of Exide Industries (supra), the Court, cannot venture into hypothetical spheres which are not contemplated in the enactment while adjudging the constitutionality of a duly enacted provision and unfounded limitations cannot be read into the process of judicial review. Secondly, the very fact that Counsel for Petitioner is seeking to include these facts during the course of hearing it would not be necessary for us to deal with the challenge on the basis of these facts. The Supreme Court of India in the case of Government of National Capital Territory, Delhi Vs. Inder Pal Singh Chadha (2002) 9 SCC 461, has held that constitutional issues should not be decided unless that it is necessary to do that for the purpose of giving relief in given case. It would, therefore, not be necessary for us to deal with this hypo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be seen, Article 245(1) begins with the language, subject to the provisions of this Constitution; which means that Article 245 is subject to the other provisions of the Constitution such as Article 246A, Article 269A, the bringing in of the new GST law as well or legislations on interstate supply of goods and services as well as on principles regarding place of supply. 107.7. We are in complete agreement with the principles laid down by the Hon ble Supreme Court in the case of GVK Industries (supra). However, having observed that this is not a case of extra territorial legislation it would not be necessary to comment on the same. 107.8. Therefore, Section 13(8)(b) of the IGST Act cannot be said to be ultra vires Article 245 of the Constitution of India. 108. It is clear from the above provisions, that 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is necessary to bear in mind certain well established principles which have been evolved by the Courts as rules of guidance in discharge of its constitutional function of judicial review. The first rule is that there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles. This rule is based on the assumption, judicially recognised and accepted, that the legislature understands and correctly appreciates the needs of its own people, its laws are directed to problems made manifest by experience and its discrimination are based on adequate grounds. The presumption of constitutionality is indeed so strong that in order to sustain it, the Court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the constitutionality of a statute or a provision would need to be considered. . . . .. . . .. It is now well established that while Article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation. In order, however, to pass the test of permissible classification two conditions must be fulfilled, namely (a) that the classification must be funded on an intelligible, differentia which distinguishes persons or things that are grouped together from others left out of the group and (b) that that differentia must have a rational relation to the object sought to be achieved by the statute in question. The classification may be founded on different bases, namely, geographical, or according to objects or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. It is also well established by the decisions of this Court that Article 14 condemns discrimination not only by a substantive law but by a law of procedure. (i) that a law may be constitutional even though it relates to a single individuals if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the object intended to be achieved by the said statute . 110.7. In the case of G.K. Krishnan etc. Vs. State of Tamil Nadu and Anr. etc. AIR 1975 Supreme Court 583 held as under :- ...A person who challenges a classification as unreasonable has the burden of proving it. There is always a presumption that a classification is valid, especially in a taxing statute. The ancient proposition that a person who challenges the reasonableness of a classification and therefore, the constitutionality of the law making the classification, has to prove it by relevant materials, has been reiterated by this Court recently. 110.8. The Supreme Court in the case of Exide Industries Ltd., (supra), has observed that the approach of constitutional courts ought to be different while dealing with fiscal statutes. The Supreme Court has observed that the legislature is the best forum to weigh different problems in the fiscal domain and form policies and address the same including creation of liability, constitution of liability, exemption of liability, or subject an existing provision to new regulatory measures. In the very nature of taxing statutes, legislature holds the power to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inatory in any manner. This is also not a case of class discrimination. 110.11. Further, as far as the judgments referred to by Petitioner in support of his contention, there cannot be any disagreement on the principles laid down in those judgments. However in my considered view, they are not applicable to the case of the Petitioner in view of the above discussion. 110.12. The levy on account of Section 13(8)(b) of the IGST Act is therefore neither arbitrary nor unreasonable nor discriminatory. 110.13. Therefore the challenge under Article 14 must fail and fails. 111.1. Let us now examine Petitioner s challenge to Article 19(1) (g) of the Constitution of India. 111.2. Petitioner has submitted that by virtue of Section 13(8) (b), the service provided by Petitioner to its overseas customers has resulted in an unreasonable restriction upon the right of Petitioner to carry on trade under Article 19(1)(g) of the Constitution of India, which action could result in closure of business of Petitioner and that it would encourage the foreign service recipient to set up liaison offices in India and escape taxation. 111.3. At the outset, we are unable to appreciate as to how b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al or ultra vires Article 19(1)(g). 112.1. On behalf of Petitioner it is submitted that levy of GST on intermediary services by Petitioner is contrary to 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. 112.2. 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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. 112.6. There are three methods of calculation of indirect taxes viz. specific duty, ad valorem tax and value added tax (VAT). GST uses the method of value added tax of calculation which removes the cascading effect. GST is calculated on value added and not the value of the goods or services; value addition is the value added to the raw materials and other things purchased by the producer which means that the cost of purchase inputs would be excluded. This method of levy of tax is intended to remove the cascading effect of tax on tax and profit on tax. Therefore the IGST Act in my view is not VAT but only calculated as VAT. 112.7. In the decision in the case of All India Federation of Tax Practitioners v. Union of India 2007 (7) STR 625 (which relied on the principles lai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the service tax regime and would be distinguishable in view of the amendment to the Constitution bringing in the GST law. Also it is observed that an appeal in the said matter is pending final adjudication before the Hon ble Supreme Court. 112.9. Therefore, as observed earlier, there does not appear to be any conflict between this principle and Section 13 (8) (b) of the IGST Act as the scheme of GST in India is a levy on supply. 113.1. I now come to the Petitioner s 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 and, therefore, the Section is ultra vires the charging section as well as the scheme of the IGST Act. Petitioner has cited Sections 1, 5, 7, 7(1), 7(2), 7(3), 7(5), 12 and 13 have been cited by learned counsel for Petitioner to submit that from the scheme, scope and object of the IGST Act, the levy of IGST is on inter-State supplies. It has also been submitted that import and export of services have been treated as inter-State supplies in terms of Sections 7(1) and 7(5). 113.2. Since the supply, being discussed here, is an inter-State supply, as has been discussed by us earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 269A(1) read with 269A(5) as discussed earlier. In my view, Section 13(8)(b) does not and cannot deem an inter-State supply to be an intra-State supply. When there is a specific provision for levy and collection of IGST, then, in my view, referring to the charging section of another Act is not called for or rather it would be irrelevant. Section 13(8)(b) of the IGST Act has been enacted pursuant to the powers under Article 269A(5) of the Constitution of India and in accordance with the scheme of the IGST Act by which IGST is levied on all inter-State supplies of goods and services. 113.4. 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. 113.5. Therefore, when the place of supply in the case of intermediary services, such as that rendered by Petitioner, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent purposes. As stated earlier Section 8 deals with nature of supply whereas Section 13 deals with place of supply and the attempt to artificially link Section 8(2) with Section 13(8)(b) is misplaced and unfounded as discussed earlier. In my considered opinion, Section13 (8) (b) cannot be linked with Section 8 (2) of the IGST Act. Therefore, in my view, the challenge with reference to the charging sections of Acts which operate in different fields in respect of supplies of different natures appears to be unnecessary. 114.6. Hence Section 13 (8) (b) is not ultra vires Section 9 of the CGST Act and MGST Act. 115.1. Coming to the Petitioner s grievance on double taxation; On behalf of Petitioner it has been firstly asserted that GST is being levied twice on the same commission, once on the Petitioner and then on the Indian purchaser of goods. Secondly the same supply would be taxed in the hands of Petitioner and on the basis of the destination based principle would also be taxed in the hands of the service recipient in the importing country. 115.2. I am unable to appreciate any of these arguments. As far as the first argument is concerned, there are, in my view, two dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Bench of the Supreme Court in the case of Kalpana Mehta v. Union of India (2018) 7 SCC 1. Paragraph 134 in the said judgment authored by the then Chief Justice of India Justice Dipak Misra and Justice A.M. Khanwilkar as well as paragraph 257 authored by Justice Dr. D. Y. Chandrachud are apt and are quoted as under: 134. .it is clear as day that the Court can take aid of the report of the parliamentary committee for the purpose of appreciating the historical background of the statutory provisions and it can also refer to committee report or the speech of the Minister on the foor of the House of the Parliament if there is any kind of ambiguity or incongruity in a provision of an enactment. 257 The validity of the advice which is tendered by a Parliamentary Committee in framing its recommendations for legislation cannot be subject to a challenge before a court of law. The advice tendered is after all what it purports to be: it is advice to the legislating body. The correctness of or the expediency or justifcation for the advice is a matter to be considered by the legislature and by it alone. 116.4. In any event, it is always open to Petitioner to make ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under Article 246A to frame laws for inter State supply of goods of services. 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. 65. Section 8 of the IGST Act, 2017 provides for intra-State supply so as to take care for the supply of goods to or by a special economic zone and the goods imported in the territory of India till they cross the Custom in India. Section 8 is subject to provision of Section 10 of the IGST Act, 2017 where as Section 12 of the IGST provides for place of supply of services where the location of supplier and recipient is in India. Section 12(1) and 12(2) o the IGST Act,2017 reads as under :- 12. Place of supply of services where location of supplier and recipient is in India.-( 1) The provisions of this section shall apply to determine the place of supply of services where the location of supplier of services and the location of the recipient of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lected or determined as per the contract or agreement. Sub-section 8 of Section 13 refers to place of supply of the services shall be the location of supplier of services in case of banking company, intermediary services and services consisting of hiring of means of transport. Intermediary services is defined in Section 2(13) of IGST Act, 2017 which 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 and accordingly, when intermediary services are provided by brokers, the place of supply could be either the location of service provider or the service recipient. The petitioner has tried to submit that the services provided by a broker outside India by way of intermediary service should be considered as export of services but the legislature has thought it ft to consider such intermediary services; the place of supply would be the location of the supplier of the services. In that view of the matter, it would be necessary to refer to the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of CGST and IGST Act. The petition is, therefore, disposed of accordingly. Rule is discharged with no order as to costs. 118. In the 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 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. Therefore the challenge fails. 119. 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 or the MGST Act, 2017. Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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