Bombay HC Upholds Legality of Section 13(8)(b) & Section 8(2) of IGST

Dharmendra M. Jani Vs Union of India (Bombay High Court)

Section 13(8)(b) and Section 8(2) of the IGST Act are constitutionally valid but cannot levy tax under CGST and MGST Acts

The Hon’ble Bombay High Court in Dharmendra M. Jani v. Union of India [Writ Petition No. 2031 of 2018 dated June 06, 2023] held that the provisions of Section 13(8)(b) and Section 8(2) of the Integrated Goods and Services Tax Act, 2017 (“the IGST Act”) are legal, valid and Constitutional. However, the said sections are confined to the provisions of the IGST Act only and the same cannot be made applicable for the levy of tax on services under the Central Goods and Services Tax Act, 2017 (“the CGST Act”) and the Maharashtra Goods and Services Tax Act, 2017 (“the MGST Act”).

Facts:

Mr. Dharmendra M Jani (“the Petitioner”) is a proprietor of M/s. Dynatex International. The Petitioner is engaged in providing marketing and promotion services to overseas customers.

Overseas customers are engaged in the manufacture and sale of goods. As per the agreement, the Petitioner solicits purchase orders for these overseas customers. The Indian purchaser, i.e., the importer, directly gives the order to the overseas customer. The sale invoice is raised in the name of the Indian purchaser and direct payment is made to the overseas customer. The overseas customer pays a commission to the Petitioner against the invoice issued by the Petitioner. The Petitioner receives this payment in India in convertible foreign exchange.

Hon’ble Justice Ujjal Bhuyan held that Section 13(8)(b) of the IGST Act is not only against the scheme of the CGST Act and IGST Act, but it also violates Articles 245, 246A, 269A and 286(1)(b) of the Constitution of India. The deeming fiction created under Section 13(8)(b) of the IGST Act does not establish any nexus with the taxing regime in India. Hence, Section 13(8)(b) of the IGST Act is ultra vires of the said act apart from being unconstitutional.

Hon’ble Justice Abhay Ahuja held 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 or the MGST Act. Section 13(8)(b) as well as Section 8(2) of the IGST Act are constitutionally valid and operative for all purposes.

Due to the difference of opinion between Justice Ujjal Bhuyan and Justice Abhay Ahuja, the Hon’ble Chief Justice directed the matter to the Hon’ble Justice G.S. Kulkarni.

Hon’ble Justice G.S. Kulkarni held that Section 13(8)(b) and Section 8(2) of the IGST Act are legal, valid and constitutional. Still, they cannot be used to levy tax on intermediary services under the CGST and MGST as no state law can impose or authorise the imposition of a tax on the supply of goods or services. Hence, these provisions of the IGST Act cannot be used to levy tax on intermediary services under the CGST and MGST Acts.

Issue:

Whether Section 13(8)(b) read with Section 8(2) of the IGST Act are constitutionally valid?

Held:

The Bombay High Court in Writ Petition No. 2031 of 2018 held as under:

• Considering the view taken by Justice G.S. Kulkarni and Justice Abhay Ahuja, the Hon’ble Bombay High Court held that the provisions of Section 13 (8)(b) and Section 8(2) of the IGST Act are legal, valid and constitutional.
• However, the provisions of Section 13(8)(b) and Section 8(2) are confined in their operation to the provisions of the IGST Act only and the same cannot be made applicable for the levy of tax on services under the CGST and MGST Acts.

Relevant Provisions:

Section 8(2) of the IGST Act:

“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…”

Section 13(8)(b) of the IGST Act:

“13. 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:––

(a)…

(b) intermediary services;”

 FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. The principal challenge in both these petitions is to the vires of section 13(8)(b) and section 8(2) of the Integrated Goods and Services Tax Act, 2017 (“IGST” for short).

2. On 9th June, 2021 Hon’ble Shri Justice Ujjal Bhuyan in paragraphs No.65 and 66 of his Judgment and Order in Writ Petition No.2031 of 2018 held as under :-

“65. Thus having regard to the discussions made above and upon thorough consideration, we have no hesitation in holding that section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017 is ultra vires the said Act besides being unconstitutional.

66. Writ petition is accordingly allowed to the above extent. However, there shall be no order as to cost.”

3. Similar view holding section 13(8)(b) of the IGST Act to be ultra-vires and unconstitutional had been taken in Writ Petition (L) No.639 of 2020.

4. One of us (Abhay Ahuja, J.) had held section 13(8)(b) as well as section 8(2) of the IGST Act as constitutionally valid observing in paragraphs No. 119 and 120 of judgment and order (dissenting) dated 16th June, 2021 in Writ Petition No.2031 of 2018 as under:-

“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 13(8)(b) as well as Section 8(2) of the IGST Act are constitutionally valid and operative for all purposes.

120. Petition is accordingly dismissed. There shall be no order as to costs.”

5. Similar view was taken by one of us (Abhay Ahuja, J.) holding section 13(8)(b) as well as section 8(2) of the IGST Act as constitutionally valid in Writ Petition (L) No.639 of 2020.

6. In view of the difference of opinion with regard to the constitutionality of Section 13(8)(b) of the IGST Act wherein one of the Hon’ble Judges, Hon’ble Shri. Justice Ujjal Bhuyan had struck down the constitutional validity of the said provision and allowed the petitions and one of us (Abhay Ahuja, J.) had held the said provision to the constitutional, on 16th June, 2021, the Division Bench (Hon’ble Shri. Justice Ujjal Bhuyan and Hon’ble Shri. Justice Abhay Ahuja) had directed the Registry to place the matters before The Hon’ble The Chief Justice on the administrative side as per the following order :-

“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. While as per one opinion (opinion of Justice Ujjal Bhuyan) the said provision is unconstitutional, Justice Abhay Ahuja has expressed his disagreement and has rendered his separate opinion today.

3. In view of such difference of opinion, Registry to place the matters before Hon’ble Chief Justice on the administrative side for doing the needful.”

7. Pursuant to the above reference order, the then Hon’ble The Chief Justice had referred these matters for the opinion of the third Judge, our learned brother Hon’ble Shri. Justice G.S.Kulkarni and he has rendered his opinion vide judgment and order dated 18th April, 2023 holding the said provision to be constitutional, observing as under :

“ORDER

(i) The provisions of Section 13(8)(b) and Section 8(2) of the IGST Act are legal, valid and constitutional, provided that the provisions of Section 13(8)(b) and Section 8(2) are confined in their operation to the provisions of IGST Act only and the same cannot be made applicable for levy of tax on services under the CGST and MGST Acts.

(ii) The reference as made to this Court is accordingly answered in the above terms.

114. The office to place the matter before the Division Bench.”

8. Accordingly, the matters have been placed before us pursuant to an administrative order dated 19th May, 2023, of the then Hon’ble The Acting Chief Justice in accordance with the Rules, for pronouncement of the final judgment for disposing of the matters.

9. Considering the views taken by our learned brother Hon’ble Shri. Justice G.S.Kulkarni and one of us (Abhay Ahuja, J.), we hold the provisions of Section 13(8)(b) and Section 8(2) of the IGST to be legal, valid and constitutional.

6. Petitions are accordingly dismissed. There shall be no orders as to costs.

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