1. Large number of entities located outside India appoint intermediaries in India to enable supply of their products. Such intermediaries are remunerated by way of commission on the sales generated by them. Sec. 2(13) of the IGST Act, 2017 defines intermediaries as under:
“Sec. 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”
2. Further Sec. 13(8)(b) of the IGST Act, 2017, which is applicable for the present case since recipient (i.e. foreign principal) is located outside India, provides that the place of supply for intermediary services shall be the location of the supplier of services (i.e. place of intermediary) which is India. Since place of supply falls in the taxable territory, supply of intermediary services shall not be regarded as export of services and hence the commission received by such intermediaries will be subjected to GST. There is no confusion in the trade till this. However the issue for the present article is whether such intermediaries should charge IGST on the commission received by treating such supply as an inter-state supply or they should charge CGST + SGST by treating such supply as an intra-state supply ?
3. Sec. 7 & Sec. 8 of the IGST Act, 2017 contains provisions to determine whether the supply in question shall be regarded as an inter-state supply or whether the same will be regarded as an intra-state supply respectively.
4. Sec. 8(2) of the said Act is relevant for the present discussion and hence reproduced below:
“Sec. 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”
5. It is beyond any doubt that the location of supplier and the place of supply in case of intermediary services will fall in the same State. This is because Sec. 13(8)(b) of the IGST Act, 2017 as stated above clearly provides that place of supply in case of intermediary services shall be the location of supplier. Hence both the places are same and thus they fall in the same State. Issue before us is whether one can apply Sec. 8(2) or not ? If one applies Sec. 8(2) there is no doubt that the supply shall be regarded as intra-state supply. Conversely if Sec. 8(2) is not applicable, one will have to refer to Sec. 7(5)(c) of the IGST Act, 2017 which provides that any supply of goods or services not covered elsewhere but made in the taxable territory shall be regarded as inter-state supply and hence IGST shall be charged.
6. Confusion stems from the words “subject to the provisions of section 12” as appearing in Sec. 8(2) (supra). It may be recollected that Sec. 12 of the IGST Act, 2017 determines place of supply where location of supplier and recipient is in India. In the present case we have determined place of supply not under Sec. 12 but under Sec. 13 of the IGST Act, 2017 since the same is applicable. Hence it is felt that Sec. 8(2) cannot apply to intermediaries since it will apply only to cases falling under Sec. 12. Crux of the issue thus rests on the words “subject to provisions of Sec. 12”. Whether such words can limit applicability of Sec. 8(2) to only cases covered under Sec. 12 or it can also apply to cases covered under Sec. 13 ?
7. To appreciate the import of words “subject to” it is worthwhile to first consider dictionary meaning of the term as under:
8. As per Black’s Law Dictionary, 5th Edn., the expression “subject to” means liable, subordinate, subservient, inferior, obedient to: governed or affected by: provided: answerable for.
9. As per Collin’s English Dictionary words “subject to” means, under the condition that; we accept, subject to her agreement.
10. Apex Court in the case of Southern Petrochemical Industries Co. Ltd. v. Electricity Inspector AIR 2007 SC 1984 held that ordinarily the expression “subject to‟ conveys the idea of a provision yielding place to another provision or other provisions subject to which it is made.
11. Again Apex Court in the case of R.C.S Balakrishna Chetty and Sons & Co. v. State of Madras AIR 1961 SC 1152 held that the words “subject to” must be read as “conditional upon” to effectuate the object of the law. In this case exemption provision contained in section 5 of the Madras General Sales Tax Act was invoked which could be granted only subject to such restrictions and conditions. In this background it was held that exemption cannot be granted unless conditions are fulfilled since the same is “subject to” i.e. “conditional upon” the conditions prescribed.
12. On reading the above text one can summarize that ordinarily the words “subject to” place limitation on the applicability of the provision in question and link the same to another provision or the rule to which it is made “subject to”. However said interpretation depends on the object of the statute in question (see R.C.S Balakrishna Chetty and Sons & Co. v. State of Madras (supra)).
13. Sec. 8(2) only enables determination of the type of supply i.e. whether the supply is intra-state or not. It does not grant any benefit or concession and hence the words “subject to” cannot be read as “conditional upon”. Same requires to be read to effectuate the object of the law.
14. Readers must be familiar with the fact that the design of GST is based on the “destination” principle. In other words the tax revenue attributable to States should accrues to the State where consumption takes place. Place of supply determines such place where the law deems that the consumption has taken place. In case of intermediary, Sec. 13(8)(b) of the IGST Act, 2017 clearly provides that the place of supply shall be the location of supplier. One may also see Sec. 13(4) of the said Act as another example where the said provision considers the place where immovable property is situated as the place of supply in case of services directly in relation to such property. Hence the place of immovable property is the place of consumption irrespective of the location of the recipient. Attributable revenue thus will go to the concerned State where the property is situated.
15. With such background we submit that the expression “subject to” as appearing in Sec. 8(2) must not be read in a narrow sense as limiting the applicability of said provision only to cases covered under Sec. 12 and should also be applied to cases covered under Sec. 13.
16. Before we part it is worthwhile to refer to the decision of Apex Court in the case of Printers (Mysore) Ltd. v. M. A. Rasheed and others (Civil Appeal No. 4593 Of 1999). In this case a public interest litigation was filed challenging the validity of sale deed of a plot executed by Bangalore Development Authority in favor of appellant on the ground such allotment was against the public policy since public auction or tendering was not done. Sec. 38 of the Bangalore Development Authority Act provided as under:
“38. Power of Authority to lease, sell or transfer property.—Subject to such restrictions, conditions and limitations as may be prescribed, the Authority shall have power to lease, sell or otherwise transfer any movable or immovable property which belongs to it, and to appropriate or apply any land vested in or acquired by it for the formation of open spaces or for building purposes or in any other manner for the purpose of any development scheme.”
17. It was submitted that no rules have been framed for the allotment in question. Since the power provided u/s 38 was “subject to” such restrictions or conditions, it was thus argued that in absence of rules providing for such restrictions or conditions the power cannot be exercised and hence allotment is bad in law.
18. Apex Court relying on an earlier decision in the case of Surinder Singh v. Central Govt.1986 4 SCC 667 held that where a statute confers powers on an authority to do certain acts or exercise power in respect of certain matters, subject to rules, the exercise of power conferred by the statute does not depend on the existence of rules unless the statute expressly provides for the same.
19. Hence only if language of the Statute expressly provides for a restricted meaning of the words “subject to” as appearing in Sec. 8(3)(b), a narrow meaning cannot be attributed. It may be noted that Statute has not provided for any separate provision for determination of the nature of supply for cases covered under Sec. 13. Hence it is submitted that in absence of any express provision, the words “subject to” as appearing in Sec. 8(3) cannot be read as limiting the same to cases covered only under Sec. 12. It will be applied not only in cases covered under Sec. 12 but also in cases covered under Sec. 13 to effectuate the object of the Statute.
20. It is also cardinal principle of interpretation that resort can be made to a general entry only after exhausting all other specific entries in a Statute. Sec. 8(2) clearly does not expressly restrict the applicability of the same to Sec. 13. Hence the same should be applied to Sec. 13 also and accordingly supply of intermediary services should be regarded as an intra-state supply.
21. Since contrary views are prevalent author urges the Government to clarify on the subject at the earliest.