GST Case Law: Judges of Division Bench of High Court of Bombay differ on constitutionality of Section 13(8)(b) of IGST Act, 2017.

Case Name: Dharmendra M. Jani vs. UOI

Brief:

1. There is difference of opinion in the Bench.
2. Matters relate to constitutionality of section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017.
3. As per the opinion of Justice Ujjal Bhuyan the said provision is unconstitutional,
4. Justice Abhay Ahuja has expressed his disagreement and has rendered his separate opinion.
5. In view of such difference in opinion, Registry to place the matters before the Hon'ble Chief Justice on the administrative side for doing the needful.

By filing this petition under Article 226 of the Constitution of India, petitioner has prayed for a declaration that section 13(8)(b) and section 8(2) of the Integrated Goods and Services Tax Act, 2017 are ultra vires articles 14, 19, 245, 246, 246A, 269A and 286 of the Constitution of India and also ultra vires the provisions of the GST Act.

Brief Facts:

Case of the petitioner is that he is a proprietor of a proprietorship firm M/s. Dynatex International having its registered office at Andheri (West), Mumbai which is engaged in providing marketing and promotion services to customers located outside India. It is registered as a supplier under the provisions of the Central Goods and Services Tax Act, 2017 (briefly “the CGST Act” hereinafter).

According to the petitioner, it is a service provider. It provides service to customers located outside India. These overseas customers are engaged in manufacture and / or sale of goods. Such overseas customers may or may not have establishments in India. However, petitioner provides services only to the principal located outside India and in lieu thereof receives consideration in convertible foreign currency from the principal located outside India.

As a matter of fact petitioner undertakes activities of marketing and promotion of goods sold by its overseas customers in India.

The Indian purchaser i.e., the importer directly places a purchase order on the overseas customer of the petitioner for supply of the goods which are then shipped by the overseas customer to the Indian purchaser. Such goods are cleared by the Indian purchaser from the customs. The overseas customer raises sale invoice in the name of the Indian purchaser who directly remits the sale proceeds to the overseas customer. Upon receipt of such payment, the overseas customer pays commission to the petitioner against invoice issued by the petitioner. The entire payment is received by the petitioner in India in convertible foreign exchange.

 Essentially the transaction entered into by the petitioner with the foreign customers is one of export of service from India earning valuable convertible foreign exchange for the country. It is an “export of service” within the meaning of section 2(6) of the Integrated Goods and Services Tax Act, 2017 (briefly “the IGST Act” hereinafter). Petitioner is also an “intermediary” within the meaning of section 2(13) of the IGST Act. So it is an export of service by an intermediary.

Brief Arguments:

As per sub-section (8) of Section 13, the place of supply of the services mentioned therein shall be the location of the supplier of services which is intermediary services in terms of clause (b).

Thus, by way of a deeming fiction, in the case of intermediary services where the location of the recipient is outside India, the place of supply shall be the location of the supplier of services which is in India, thus bringing into the tax net what is basically export of services. In this connection reference may be made to sub-section (2) of section 8 of the IGST Act which says that in case of supply of services where the location of the supplier and the place of supply of services are in the same state or same union territory, it would be treated as an intra-state supply. Therefore the export of service by the petitioner as intermediary would be treated as intra-state supply of services under section 13(8)(b) read with section 8(2) of the IGST Act rendering such transaction liable to payment of central goods and services tax (CGST) and state goods and services tax (SGST).

Justice Ujjal Bhuyan opines that Section 13 (8) (b) of the IGST Act not only falls foul of overall scheme of CGST/IGST Act but also offends Article 245, 246A, 269Aand 288 (1) of Constitution and is also ultra vires IGST Act besides being unconstitutional;

Contrarily, Justice Abhay Ahuja views that “neither Section 13(8)(b) nor Section 8 (2) of the IGST Act are unconstitutional….nor are ultra vires the IGST Act” and thus “are constitutionally valid and operative for all purposes”;

Justice Ahuja dismisses Assessee’s challenge to Article 14 & Article 19(1) (g) of the Constitution of India,

opines “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”;  

“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”; 

Holds that when there is specific provision of levy and collection of IGST, Section 13(8)(b) does not and cannot deem an inter-State supply to be an intra-State supply, “There would therefore be no question of deeming Petitioner’s supply of intermediary services to be intra-State supply”; 

“no fault can be found with the provision by artificially attempting to link it with another provision to demonstrate constitutional or legislative infraction”; 

Bare Act:

Extract of Section - 13, IGST Act, 2017

Place of supply of services where location of supplier or location of recipient is outside India:

.... (8) The place of supply of the following services shall be the location of the supplier of services, namely:—

(b) intermediary services;

Extract of Section - 8, IGST Act, 2017

Intra-State supply

(2) Subject to the provisions of section 12, supply of services where the location of the supplier and the place of supply of services are in the same State or same Union territory shall be treated as intra-State supply

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