prpri Analysis of HC Order in case of Dharmendra Jani on Intermediary service Analysis of HC Order in the case of Dharmendra Jani on Intermediary service

Recently Bombay High Court has delivered its Judgment in the case of ‘Dharmendra M. Jani Vs Union of India and others‘ on Intermediary service under GST. On this issue Views of Both the Judges Justice Ujjal Bhuyan and Justice Abhay Ahuja differed from Each other so they Both given their separate Judgment. This article makes a Comparison of differing views of Both the judges in table format –

As per J. Ujjal Bhuyan As per J. Abhay Ahuja
Nature of supply Intra-State Supply Inter-State Supply
Export of Service Export of service cannot be deemed to be intra-State supply and taxed. 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.
GST is Value Added Tax In All India Federation of Tax Practitioners, Supreme Court referred to the concept of VAT which is a general tax that applies in principle to all commercial activities involving production of goods and provision of services whereafter it was concluded that VAT is a consumption tax as it is borne by the consumer. It was held that service tax is a VAT which in turn is a destination based consumption tax in the sense that it is on commercial activities. It is not a charge on the business but on the consumer and it would logically be leviable only on services provided within the country, service tax is a value added tax. 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.
Article 14 Intermediary has to pay tax on his service. Marketing Agents, marketing consultants, management consultants, market research agents,
professional advisers who provide similar service are treated as export. Hence violates Article 14
There is no discrimination between Petitioner’s case and other exporter of services. Intermediary has been specifically defined and does not include a person who renders the services for himself. Section 13(8)(b) would not be hit by Article 14 on this ground. There is a reasonable classifcation founded on intelligible differentia which has a rational relation/nexus to the object sought to be achieved.
Article 246A, 269A Article 246A(1) empowers the Parliament and the State to make law on GST imposed by Union and State and Article 246A(2) empowers only Parliament to make law with respect to GST on supply in the course of inter-state trade or commerce. Article 269A provides for levy and collection of GST in the course of inter-state trade or commerce. Explanation specifically provides import is in the course of inter-state trade or commerce, but  nothing about export. Article 269A(5) empowers the Parliament to specify place of supply in the course of inter-state trade or commerce. It does not permit imposition of tax on export of services out of the territory of India by treating the same as a local supply. Hence it violates Article 246A and Article 269A. In my view, just because the import into India has been deemed to be inter-state trade or commerce, that under Article 269A, in no way would take away the power of the Parliament to stipulate any other type of supply to be a supply in the course of inter-State trade or commerce; frstly because the Explanation deeming import to be inter-state is restricted to clause (1) of Article 269A and secondly clause (5) (which not being bound by the Explanation 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.
Article 286 Artcile 286(1) provides that State cannot impose tax on supply which takes place outside the state or in the course of import  into the territory of India or export  out of the territory of India. Article 286(2) provides Parliament may by law formulate principles for determining a supply of goods or of services or both in any of the ways mentioned in clause (1). Thus no state has authority to levy local tax on export of services. Section 13(8)(b) of the IGST Act has deemed an export to be a local supply. This is violation of Article 286(1). As per the powers under Article 246A, 269A and 286  the Parliament by legislation, in Sections 7 (inter-State supply) and 8 (Intra-State supply) of the IGST Act has provided for determination of the nature of supply and in Sections 10 to 14 for place of supply. Hence, enactment of these provisions are within the powers of the Parliament.
Article 245 A law which has extraterritorial operation cannot directly be enforced in another state but such a law is not invalid and is saved by Article 245(2) of the Constitution. But clause (2) does not mean that law having extra-territorial operation can be enacted which has no nexus at all with India. Unless such contingency exists, Parliament shall be incompetent to make law having extra-territorial operation. A plain reading of Article 245, makes it clear that the impugned section in no way violates this provision as from the plain language of the said section it is clear that the same do not seek extra territorial operation nor seek to levy tax on service recipient outside India. All that Section 13(8)(b) does is to provide for place of supply in respect of intermediary services where the service recipient is outside India to be the location of the supplier of services. Therefore, there is no question of extra territorial legislation here.
Article 19(1)(g) No specific comment There is no restriction imposed on the intermediary services of a person like Petitioner. It is a legitimate power of the parliament to enact IGST Act including Section 13 (8)(b). If the submission of Petitioner was to be considered, then any tax levied by the Central or State Government would be a restriction to carry on trade under Article 19(1)(g) of the Constitution of India.
Sec 9 of CGST Act, Sec 5, sec 7, Sec8(2) of the IGST Act Sec 9 of the CGST Act provides for levy of GST on all intra-State supply. Sec 5 provides for levy of GST on all inter-State supply. Section 8(2) provides that where the location of the supplier and place of supply is within the same State/UT, the supply shall be intra-State supply. However, by artificially creating a deeming provision in the form of section 13(8)(b) of the IGST Act, where the location of the recipient of service provided by an intermediary is outside India, the place of supply has been treated as the location of the supplier i.e., in India. This runs contrary to the scheme of the CGST Act as well as the IGST Act besides being beyond the charging sections of both the Acts. Sec 13(8)(b) and Sec 8 are there for different purposes. One is to determine the place of supply and other one is to decide the nature of supply. The recipient is located outside India, hence sec 13 is applicable and sec 8(2) is not applicable. Hence these provisions are intra-virus the Articles 246, 246A, 269A.
Double Taxation Section 13(8)(b) of the IGST Act leads to double taxation. The same supply would be taxed at the hands of the petitioner and following the destination based principle it would be an import of service from India for the foreign service recipient and would be taxed at his hands in the importing country. The principle is well settled that two taxes which are separate and distinct imposts on two different transactions/supplies is permissible as in law there is no overlapping.
Make in India Programme As a matter of fact levy of GST on export of services by intermediary has created an exodus of intermediaries to places like Singapore, Dubai, Hong Kong etc. thereby depriving the central government not just GST but also income tax, valuable foreign exchange and employment to thousands of people. It is however clarifed 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.
Material Recycling Association of India High Court kept it open for the respondents to consider the representation made by the petitioner so as to redress its grievance in a suitable manner and in consonance with the CGST Act and the IGST Act. Views expressed in para 65,66,67 are not acceptable. Relied upon the para 64 to 69
The Parliamentary Standing Committee on Commerce, Report No.139 In view of the fact that GST is a destination based consumption tax, the Committee recommended to provide that place of supply of Indian intermediaries
of goods will be the location of service recipient so that intermediary services will be treated as exports or exemption is to be given to intermediary services.
Reliance upon reports of Parliamentary Committees are external aids to construction to be used only when there is ambiguity in the statute. Here, there is no ambiguity. Recommendation is not mandatory.
CBIC Circular The fact that GST is a destination based consumption tax; it is a value added tax; it is a tax on services provided and consumed within the territory of India having no extra-territorial operation or nexus has been clarified by respondent No.2 i.e., Central Board of Indirect Taxes and Customs in its circular bearing No. 20/16/04/2018-GST dated 18.02.2019 Chapter 21 of the GST fyer of CBIC ( where in paragraph 10.1 it has been stated that considering the intangible nature of supply of services, in respect of certain categories of services, the place of supply is determined with reference to a proxy.

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August 2021