Material Recycling Association of India Vs Unoin of India (Gujarat High Court)
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.
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, Legislature of every State, have power to make laws with respect to Goods and Service Tax imposed by the Union or by such State. Clause 2 of Article 246A empowers the parliament, who has exclusive power to make laws with respect to goods and services tax where the supply of goods or of services or both takes place in the course of inter State trade or commerce. Thus, the parliament has exclusive power 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.
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.
Sub-section 12(2)(b) stipulates that the place of supply of service made to any person other than registered person shall be the location of the recipient where the address on record exists and location of supply of service in other cases. Sub-section 3 to 14 of Section 12 stipulates the place of supply of service in various eventualities. However, the same does not cover 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, sub- section 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 organization of a cultural artistic etc. and Sub-section 6 provides that when services as provided in sub- sections 3, 4 and 5 are at more than one location, the place of supply shall be location of taxable territory, Section 7 refers to the location of supply of service, if it is Union territory or State ,then it would be in proportion to the value for services separately collected 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 fit 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 of “export of services” as contained in Section 2(6) of the IGST Act, 2017 which provides that export of service means the place of service of supply outside India. 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 No.20/2019 where exemption is granted in IGST rates from payment of IGST in respect of services provided by intermediary in case the goods are supplied in India.
It therefore, appears that the basic logic or inception of section 13(8)(b) of the IGST Act,2017 considering the place of supply in case 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.
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 therefore, rightly included in Section 13(8) (b) of the IGST Act to consider the location of supplier of service as place of supply so as to attract CGST and SGST.
The contention of the petitioner that it would amount to double taxation is also not tenable in eyes of law because the services provided by the petitioner as intermediary would not be taxable in the hands of the recipient of such service, but on the contrary a commission paid by the recipient of service outside India would be entitled to get deduction of such payment of commission by way of expenses and therefore, it would not be a case of double taxation. If the services provided by intermediary is not taxed in India, which is a location of supply of service, then, providing such service by the intermediary located in India would be without payment of any tax and such services would not be liable to tax anywhere. In such circumstances, the contentions raised on behalf of the petitioner are not tenable in view of the Notification No.20/2019 issued by the Government of India, Ministry of Finance whereby Entry no.12AA is inserted to provide Nil rate of tax granting exemption from payment of IGST for service provided by an intermediary when location of both supplier and 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.
In view of the foregoing reasons, 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.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. Rule returnable forthwith. Mr. Viral K. Shah, learned advocate waives service of notice of rule on behalf of the respondent nos.1 and 2. Mr. P. Y. Divyeshwar, learned advocate waives service of notice of rule on behalf of the respondent 3.
2. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the constitutional validity of Section 13(8)(b) of the Integrated Goods Service Tax Act, 2017 (for short “the IGST Act, 2017”) and to hold the same as ultra vires under Articles 14, 19, 265 and 286 of the Constitution of India with a direction to the respondent to refund of IGST paid on services provided by the members of the petitioner association and to their clients located outside India.
3. The petitioner is an association comprising of recycling industry engaged in manufacture of metals and casting etc., for various upstream industries in India. The members of the petitioner also act as an agents for scrape, recycling companies based outside India engaged in providing business promotion and marketing services for principals located outside India. The members of the petitioner also facilitate sale of recycled scrap goods for their foreign principals in India and other countries. Thus, the members of the petitioner association not only deal with goods sold by foreign principals to customers in India but also facilitate sale of goods by foreign principals in non-taxable territory to their customers, who are also located in non-taxable territories. The members of the petitioner association are registered as “Taxable Person” under the provisions of the Central Goods & Service Tax Act, 2017 (for short “CGST Act”).
3.1 It is the case of the petitioner that the members of the petitioner association have no role to play in the actual sale and purchase of recycled scrap as the goods supplied by foreign clients to its purchasers are directly shipped by the foreign client to the Indian or overseas purchaser and thereafter, such goods are cleared by the purchaser from the Customs authorities on its own account. The foreign members of the petitioner association raises sales invoice in the name of the purchaser and the purchaser who may be either Indian or overseas directly remits the sale proceeds to the foreign
3.2 According to the petitioner, member of the petitioner association receives only the commission upon receipt of sale proceeds by its foreign client in convertible foreign exchange. The members of the petitioner association raise invoices upon its foreign client for such commission received by them. Thus, according to the petitioner, the transaction entered into by the members of the petitioner association is one of export of service from India and earning valuable convertible foreign exchange for the same.
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, 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;”
3.6 It is the case of the petitioner that Section-13 of the IGST Act,2017 deals with situations where location of the supplier or location of the recipient is outside Relevant extract of Section 13 of the IGST Act,2017 relied upon by the petitioner reads as under:-
“13. (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:
******
(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.”
3.7 The petitioner has thereafter, referred to the Section 2(93) of the CGST Act which stipulates who could be considered as recipient of goods or service. Section 2(93) of the CGST Act reads as under:
2(93) “recipient” of supply of goods or services or both, means
—
(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;
(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and
(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied;
In a contract of supply of goods and/or services, there are two parties, one is known as supplier of goods and/or services and other is called recipient of goods and/or services.
In the supply contract involving the payment of 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 place of supply of services are in the same State or same Union territory shall be treated as intra-State supply.”
3.9 Chapter VII of the IGST Act,2017 specifies the conditions for supply to qualify as a “zero rated supply” and provides for service providers to claim refund of IGST with respect o the “zero rated supplies”. Section 16(1) of the IGST Act,2017 reads as under :-
16(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.”
3.10 Section 16(2) of the IGST Act,2017 provides for refund of input tax credit against zero rated supplies, which reads as under :-
“(3)A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:–
(a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilized input tax credit;
Or
(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied”
SUBMISSIONS OF THE PETITIONER
4. Mr. Abhishek A. Rastogi, learned advocate assisted by Mr. Nachiket Dave, learned advocate for the petitioner submitted that Section 13(8)(b) of the IGST Act,2017 provides that in case of supply of intermediary service, the services are deemed to have been supplied at the location of the supplier. Therefore, the question which arises for consideration is whether the service rendered by the members of the petitioner association is an intermediary service or export of service. Learned advocate for the petitioner thereafter, referred to Article 286 of the Constitution of India which after amendment by the Constitution (One Hundred and First Amendment) Act, 2016 provides for restriction as to imposition of tax on the sale or purchase of the goods and services. Article 286 reads thus:-
“ 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
(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 situated outside India, the place where the services are deemed to have been supplied is the place where the supplier is located. Accordingly, such a transaction will be treated as intra-State supply as per Section 8 (1) of the IGST Act,2017 and the supplier is required to pay CGST and SGST.
7. Learned advocate for the petitioner relied upon the following illustration to explain the alleged anomaly of Section 13(8)(b) of the IGST Act,2017 by the following illustration.
“A is situated in Ahmedabad and is engaged in providing intermediary services to B situated in Hong Kong. A receives a commission of 5 percent on sales concluded by B based on A’s services. A connects B at Hong Kong with C at Mumbai and they conclude a sale of goods worth 100 USD. B pays 5 USD to A as commission. A will be required to pay 9% SGST and 9% CGST on services provided to B situated at Hong Kong for which it receives 5 USD.”
Referring to the above illustration, it was pointed-out that though the services are rendered outside India, the member of the petitioner association is subjected to make the payment of CGST and SGST in view of the provision of Section 13(8)(b) of the IGST Act,2017 as the services would not be considered as export of services, but same would be considered as intermediary services.
8. Learned advocate for the petitioner thereafter, submitted that the State has no jurisdiction to impose tax when the supply takes place outside the State. In order to explain this contention, learned advocate for the petitioner submitted that by virtue of Section 13(8)(b) read with Section 8(1) of the IGST Act,2017 when services are provided by a resident supplier to a non-resident recipient, such services will still be deemed to have been rendered within the State in spite of the recipient of services being situated outside India. Thereafter, the comparison between the provisions under the Service Tax Act prevailing prior to coming in force of IGST Act was made. In order to submit that under the GST regime “recipient” has been defined under Section 2(92) (a) of the CGST Act which was not the situation in the erstwhile service tax regime where the understanding of who was the recipient of service was not clearly defined. Section 2(92)(a) of the CGST Act provides that recipient means the person who is liable to pay the consideration for supply of goods/services. It was therefore, submitted 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
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 services are located in the territory of India, then as per Section 12 of the IGST Act,2017 there is no separate provision carved out which prescribes a special treatment for intermediary services. Under Section 12 (2)(a) of the IGST Act,2017 the place of supply of intermediary services shall be location of the recipient. However, Under Section
13 (8)(b) of the IGST Act,2017 when either the supplier or the recipient is situated outside the territory of India, the place of supply shall be deemed to be where the supplier is located. It was therefore, pointed-out that there are different yardsticks prescribed for the same set of services when both parties are situated within and outside India.
11. It was also submitted that Section 13 of the IGST Act,2017 prescribes special rules for determining the place of supply when the nature of services is peculiar i.e. the services can only be rendered in the physical presence of goods, then it shall be deemed to have been rendered where the goods are located.
12. It was submitted that it is settled law that the test prescribed by Article 14 of the Constitution of India has to be satisfied for any class of legislation (delegated or otherwise) to survive. It was submitted that there should be intelligible differentia and such intelligible differentia shall have a rational nexus with the object sought to be achieved. However, in view of the Section 13(8)(b) of the IGST Act,2017 which provides the deeming scenario to treat locations of the supplier of services vis-à-vis when a supplier provides intermediary service to recipient located outside India then, the same is required to be treated differently as per provision of Section-12(2)(a) which provides that the place of supply of service, except the services specified in sub-section (3) to (14) – made to a registered person shall be the location of such person. It was therefore, submitted that when the nature of intermediary services compared with the other advisory services that are provided by management consultants, lawyers or portfolio managers, they substantially remain the same except that these service providers are required to perform different functions. It was therefore, pointed-out that when the services remained the same there does not appear to be any reason as to why intermediary services should be treated differently from the other advisory services.
13. 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
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 services.
(ii) However, when person C in Ahmedabad provides intermediary services on a remote basis to person D in London to procure an order from person E based in Chennai, the place of supply shall be Ahmedabad and he would be liable to pay CGST and SGST in Gujarat.
(iii) On the other hand if the person C in Ahmedabad provides intermediary services to person F based in Delhi to procure an order from person D in London the place of supply shall be Delhi where the recipient is located and the only tax implication would be IGST and person C in Ahmedabad would not be liable to pay CGST and SGST as the person F would be liable to pay the tax as the place of supply would be Delhi.
15. In view of the aforesaid illustration, it was submitted that treating the intermediary services provided by the members of the petitioner association to be the place of supply at India according to Section 13(8)(b) of the IGST Act,2017 would result into violation of Article-14 of the Constitutions.
16. Learned advocate for the petitioner submitted that the definition of intermediary provided under Section 2(13) of the IGST Act,2017 provides that — “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. It was therefore, submitted that when a person, who supplies goods or services or both or securities on his own account, then such person would not be covered within the meaning of intermediary as what is to be construed as trading on one’s account requires a clear explanation in order to determine what is specifically included within the domain of an intermediary. It was therefore, submitted that such definition of intermediary is vague.
17. Learned advocate in support of his submissions, relied upon the decision of Apex Court in case of Kartar Singh Vs. State of Punjab, reported in (1994) 3 SCC 569, wherein it is held that the vague laws offend several important values. It was held that it is insisted or emphasised that laws should give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly. It was submitted that the Apex Court also held that the vague laws may trap the innocent by not providing fair warning, that such a law impermissibly 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 Shreya Singhal vs. Union of India (2015) 5 SCC 1. It was submitted that the Apex Court has explained the concept of “vagueness” at length and held that the Section 66A of the Information Technology Act, 2000 suffers from the vice of vagueness and is liable to be struck down. It was therefore, contended that applying the same yardstick in the present case, Section (13)(8)(b) of the IGST Act,2017 suffers from incurable defect of vagueness and is therefore, liable to be struck
19. Thereafter, referring to the scheme of the Goods and Service Tax, which has come into effect from 2017, it was submitted that the GST is a destination based tax system whereas, Section 13(8)(b) of the IGST Act,2017 which prescribes the place of supply for intermediary service is nothing but aberration and therefore, in order to preserve the basic foundation of scheme of GST as a levy as emphasized in para- 2.51 of the Rajya Sabha Select Committee Report on the Constitution (One Hundred and Twenty Second) Amendment Bill, 2014 presented on 22nd July 2015 was relied upon which reads as under :-
“2.51. In respect of this clause some Members proposed amendment that while discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the destination based taxation principle and need for a harmonized structure of goods and services tax and for the development of a harmonized national market for goods and services.”
20. Learned advocate for the petitioner further relied upon the Circular No.90/09/2019- GST dated 18th February 2019, wherein the aforesaid report in the context of issue of invoices in the case of inter-state supplies was explained. Para-3 of the Circular, which is relevant, reads as under :-
“3. After introduction of GST, which is a destination-based consumption tax, it is essential to ensure that the tax paid by a registered person accrues to the State in which the consumption of goods or services or both takes place. In case of inter-State supply of goods or services or both, this is ensured by capturing the details of the place of supply along with the name of the State in the tax invoice. On the basis of these extracts it is clear that the fundamental principle which the Parliament and all the functionaries allied to GST have to follow on an unconditional basis is that GST is a destination based tax and accordingly any transaction 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 at the stage of manufacture was available to the traders while paying the State level tax or VAT, and vice- versa. Further, no credit of State taxes paid in one State could be availed in other States. Hence, the prices of goods and services got artificially inflated to the extent of this ‘tax on tax’.”
Referring to the above it was submitted that rationale behind the Introduction of the GST Law is well understood in the GST council in order to effectively implement the same in various meetings, the issue with regard to which are arising out of implementation of GST have been addressed. However, issue concerning the Section 13(8)(b) of the IGST has continued remained unsolved.
23. Thereafter, learned advocate for the petitioner submitted that Section 13(8)(b) of the IGST Act,2017 suffers from the defect of unreasonableness as it creates a deeming fiction by which the place of supply for a transaction involving a resident supplier of services providing advisory like services to a non- resident shall be deemed to be India, which is a clear export of service, which is contrary to the object of GST
24. Reliance was placed on the decision of Bombay High Court in case of Repro India Ltd. reported in 2009 (235) ELT 614 in relation to a dispute pertaining to rejection of refund claim, wherein the Bombay High Court has observed as under :-
“The Cenvat credit is allowed n (sic) the duty paid on inputs to mitigate the effect of double taxation of levying duty on inputs as also on the final product. If, however, the exempted final product is exported it calls for a special relaxation/dispensation to make the goods of the country internationally competitive. As an illustration suppose a final product like tractor is otherwise exempted from excise duty even for domestic consumption and such tractors are exported. The various inputs like engines, etc., used in the tractor may have suffered excise duty. The intention is not to export taxes but only to export the goods. If the inputs like engine going into the manufacture of export commodity namely tractors are subject to excise duty, the Indian manufacturer of tractors becomes internationally uncompetitive. This appears to be the object behind the Government enacting special scheme to ensure that the duty is not levied even on inputs going to the export products. Rule 6(6)(v) has been consciously and expressly enacted 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 30th 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) Notification 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:-”
(c) after serial number 12A and the entries relating thereto, the following serial number and entries shall be inserted, namely:-
