Divergent opinion on constitutional validity of Section 13(8)(b) IGST Act pertaining to intermediary services
The Hon’ble Bombay HC in Dharmendra M. Jani v. Union of India [W.P. No. 2031 of 2018 dated June 09, 2021] Justice Ujjal Bhuyan held that Section 13(8)(b) of the Integrated Goods and Service Act, 2017 (“IGST Act”) is ultra vires of Articles 14, 19, 245, 246, 246A, 269A and 286 of the Constitution of India and also ultra vires the provision of Central Goods and Service Tax Act, 2017 (“CGST Act”), IGST Act and Maharashtra Goods and Service Tax Act, 2017 (“MGST Act”). Justice Abhay Ahuja disagreed with the Justice Ujjal Bhuyan, now the matter is to be placed before Hon’ble the Chief Justice on the administrative side for doing the needful.
Mr. Dharmendra M Jani (“the Petitioner”) is a proprietor of M/s. Dynatex International. The Petitioner is engaged in providing marketing and promotion service to overseas customers.
The overseas customers are engaged in manufacture and sale of goods. As per the agreement the Petitioner solicits purchase orders for these overseas customers. The Indian purchaser i.e. importer directly gives order to the oversea customer. The sale invoice is raised in the name of the Indian purchaser and direct payment is made to overseas customer. The oversea customer pays commission to the Petitioner against the invoice issued by the Petitioner. This payment is received by the Petitioner in India in convertible foreign exchange.
The Petitioner stated that the transaction undertaken by the Petitioner is an export of service within the meaning of Section 2(6) of IGST Act. Further, the Petitioner is also an intermediary as per Section 2(13) of IGST Act. As per conjoint reading of Section 13(8)(b) and 8(2) of IGST Act a deeming fiction has been created for the intermediary, where the location of recipient is outside of India, the place of supply shall be location of recipient which is in India. Due to this the export of service by the Petitioner being an intermediary will amount to intra-state supply of service and the Petitioner will be liable to pay CGST and SGST.
The present writ petition has been filed to challenge the constitutional validity of Section 13(8)(b) read with Section 8(2) of the IGST Act.
Whether Section 13(8)(b) read with Section 8(2) of the IGST Act is constitutionally valid.
The Hon’ble Bombay HC in W.P. No. 2031 of 2018 dated June 09, 2021 held as under:
Justice Ujjal Bhuyan:
Justice Abhay Ahuja
Similar petition had been filed in Hon’ble Bombay HC in in ATE Enterprises Pvt. Ltd. v. Union of India [W.P.(L) No. 639/2020 dated June 9, 2021] challenging the legality and constitutionality of Section 13(8)(b) of the IGST Act which was tagged with the above case and disposed off in light of the above judgement.
It is to be noted that the Hon’ble Gujarat HC took contrary stand in case of Material Recycling Association of India v. Union of India [R/Special Civil Application No. 13238 of 2018 dated July 24, 2020] to hold that there is no deeming provision created instead it is contemplated by the IGST Act to consider the location of the service provider of intermediary to be place of supply. Thus, Section 13(8)(b) of the IGST Act cannot be said to be ultra vires or unconstitutional in any manner.
Section 5(1) of the IGST Act
“5. Levy and collection.
(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person..”
Section 7(1) and (5) of the IGST Act
“7. Inter-State supply
(1) Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in––
(a) two different States;
(b) two different Union territories; or
(c) a State and a Union territory,
(5) Supply of goods or services or both,––
(a) when the supplier is located in India and the place of supply is outside India;
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section,
shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.”
Section 8(2) of the IGST Act
“8. 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:
Provided that the intra-State supply of services shall not include supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit.”
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:––
(b) intermediary services;”
Section 9(1) of the CGST Act
“9. Levy and collection.
(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.”
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