Recently, a Special Bench of the Hon’ble Bombay High Court presided by Hon’ble Shri. Justice G.S. Kulkarni in the case of Dharmendra M. Jani v. UOI & Ors (WP 2031 of 2018) decided an issue on whether Section 13(8)(b) of the IGST Act 2017 was ultra vires the Constitution and the provisions of the IGST Act or otherwise. This case was previously decided a Division Bench but due to a difference of opinion, the Hon’ble Chief Justice of the Bombay High Court referred it to a Special Bench.

In particular, the issue before the Special Bench was whether the transactions entered (in the form of services being provided) by a taxpayer with its overseas customers are in the transactions of “export of services” since such services were consumed and used by the overseas clients outside India, for which valuable foreign exchange was earned by the country, and thus, were outside the purview of the Central GST and the Maharashtra GST Acts.

Arguments of the Taxpayer

  • Section 13(8)(b) of the IGST Act read with Section 2(13) and 2(6) to the extent, these provisions seek to levy GST on services provided by the taxpayers to its overseas customers, which are consumed by such customers/ recipients outside India, by fiction of law as created by these provisions are treated as intra-state supply making GST leviable on such export of service, under the CGST Act and MGST Act. These provisions are violative of the provisions of Article 246A read with Articles 269A and 286 of the Constitution this more particularly when the nature of the transaction entered by the taxpayers with overseas customers is not in dispute.
  • GST is a destination-based tax on consumption. It is a value-added tax. It is a tax provided on services consumed within the territory of India. Hence, it does not have extra-territorial operation or nexus.
  • Levy of tax on the export of service by virtue of the impugned provisions is ultra vires Article 246A read with Article 269A and Article 286 of the Constitution. These provisions under the Constitution confer power only on the Parliament to frame laws for inter-State trade or commerce. Such provisions do not permit the imposition of tax on the export of services out of the territory of India by treating the same as a local supply.
  • It is well settled that any provision which leads to double taxation needs to be struck down. In the instant case, it is submitted that Section 13(8)(b) falls foul of the same vice. The same supply would be taxed at the hands of the taxpayers as well as the foreign customer. Following the destination-based principle, it would be an import of service for the foreign service from India and would be taxed at the hands of the importing country. Thus, on the same supply, two taxing jurisdictions would levy VAT/GST.

Arguments of the Revenue

  • Three services i.e. soliciting purchase orders, promotion and marketing are all conducted within India though the recipients of the service may be outside India. Services being rendered by the taxpayer take place entirely in India, hence, there is no export of service.
  • Even otherwise under the statutory provisions i.e. under Section 2(6) of the IGST Act, an export of service is deemed to be a service that meets the five conditions as mentioned therein. Condition no.3 is the place of supply, whereas condition no.2 is the location of the recipients. The place of supply both in terms of the actual rendering of services is in India, hence, in terms of Section 13 (8) (b) of the IGST Act, the place of supply being the location of the supplier which is in India, hence, there is no export of service.
  • The IGST, CGST, and MGST laws have been framed pursuant to the specific amendment made to the Constitution of India by the 101st Constitution Amendment. The presumption of constitutionality must be displaced by the taxpayer, for which the taxpayer needs to establish that the services rendered by them amount to “export of services”. The constitutional validity of the impugned provisions would be required to be upheld for the reason that the taxpayer is rendering services while being located in India. As the taxpayer solicits purchase orders for his foreign customers and undertakes marketing and promoting activities for goods sold by overseas customers in India, hence, on the face of it the services rendered by the taxpayer are being rendered in India and not outside India.
  • Once a class of person can be distinguished by the test of reasonable classification and once the Parliament has legislative competence to provide for a distinction between different classes, the impugned provision cannot be violative of the provision of either Article 14 or Article 19(1)(g) of the Constitution. 

Decision of the Special Bench

  • The taxpayers’ transactions are in reality service export transactions, since the foreign principal is the beneficiary of the service. The destination/consumption of taxpayer-provided services occurs in a foreign country. This absolutely meets the criteria of “export of service” as specified under Section 2(6) of the IGST Act, since there is no evidence that “factually” it can be viewed as either inter-State or intra-State sale of services.
  • Section 2(6) of the IGST defines “export of services” as the supply of any service when (i) the supplier of 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 supplier of service has received payment for such service in convertible foreign exchange; and (v) the supplier of service and the recipient of service are not merely establishments of a distinct pedigree. All of the elements of Section 2(6) are present in the transactions under consideration by the taxpayers.
  • A polarity exists as a result of the interaction of the enactments, namely the IGST Act on the one hand and the CGST and MGST Acts on the other, in terms of taxing the export of services supplied by intermediaries. Furthermore, there seems to be some internal conflict within the IGST Act’s requirements.
  • The conflict is that the export of services for a commission to be received by the petitioners fructifies only after the goods are supplied by the foreign principals who benefit from the export of services provided by the intermediaries and are received as imports by the Indian purchasers. Using the destination principle, the money to be paid to the petitioners is already contained in the transaction that the foreign principal may have with its client (the Indian importer), on which the Indian importer is already taxed. Thus, once such supply has already been taxed at the hands of the Indian importer, it does not fit into any acceptable parameters that the export of services between the intermediaries and the foreign principal (recipient of services), which is an independent transaction by any analogy, can be considered to be a part of the transaction between the foreign supplier and the Indian importer, in light of a destination-based principle on which the Goods and Services Tax Act is based.
  • Given the destination-based premise on which the GST model functions and is established, there can be no interlinking of these individual transactions. If such an analogy is derived from the cumulative reading of Section 13(8)(b) read with Section 8(2) of the IGST Act, so as to be read and applied under the provisions of the CGST and the MGST Act, it would result not only in double taxation but also in an implausible and illogical effect, in recognising two independent transactions as one transaction for the purpose of levying CGST and MGST as intra-State trade and commerce. It is therefore for this reason that it would be catastrophic, if not ludicrous, to recognise two separate transactions as being clubbed together only for the purpose of being included and/or brought under the regime of the CGST and the MGST Act.
  • The intention of the legislature is not to tax such transactions of export of services, also known as intermediate services under the IGST Act as well as the CGST and MGST Acts. If this is the effect, interpretation, and operation of these two provisions, it would result in an absurdity not only rendering the provisions unworkable but also creating uncertainty in the operation of the statutory mechanism, as neither a desire for double taxation nor such a result would be acceptable under the regime of both legislations, namely the legislations governing Inter-State and Intra-State trade and commerce.
  • Transactions clearly in the course of inter-state trade or commerce, particularly transactions of export of services as defined in Section 2(6) of the IGST Act and intermediary services, must be subjected, relevant, and confined only to the provisions of the IGST Act, while transactions in the course of intra-state trade or commerce must remain confined to the provisions of the CGST Act and the MGST Act. Transactions that are intra-State transactions and those that are inter-State transactions must be compartmentalised in order to be recognised under distinct regimes and taxed without creating any artificial incongruity between the regimes. It would be excessively harsh and unjust to the assessees to be unsure about the tax regimes under which they will be taxed. Such ambiguity is not helpful to trade or commerce, nor is it beneficial to income. The laws’ goal cannot be to cause disagreements and litigation, but rather to ensure a smooth and precise flow under a strong taxation system.
  • The fiction which is created by Section 13(8)(b) would be required to be confined only to the provisions of IGST Act, as there is no scope for the fiction travelling beyond the provisions of IGST Act to the CGST and the MGST Acts, as neither the Constitution would permit taxing of an export of service under the said enactments nor these legislations would accept taxing such transaction. 


  • The provisions of Section 13(8)(b) and the provisions of Section 8(2) of IGST Act cannot be struck down as unconstitutional being violative of the provisions of Articles 14, 19(1)(g), 245, 246, 246A, 265, 269A and 286 of the Constitution. This more particularly considering the fact that the impugned provisions insofar as they stand and are applicable only under IGST Act.
  • It also cannot be overlooked that there is likelihood that there are categories of transactions in relation to the intermediaries which may stricto sensu fall under the provisions of the IGST Act only and hence, to dislodge the provisions of Section 13(8)(b) from the IGST Act merely because it is deemed to have an application under the CGST Act and the MGST Act qua the export of service, in regard to such categories of person who can also be classified as intermediaries, would be a fatal proposition.
  • It is for such reason insofar as the provisions of Section 13(8)(b) is concerned, the same are required to be read to confined only to the provisions of the IGST Act. Constitutionally, it is not permissible for such provision to operate under the CGST Act and the MGST Act. It is not possible to foresee and visualize such provision becoming relevant in case of a particular transaction which may purely fall under the IGST Act.
  • The fulcrum of this judgment by the distinguished authors in this case has opened up a novel think tank as well as new vistas for international economists to ponder as to whether there can be double taxation and tax avoidance treaties in respect of goods and services tax.

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December 2023