Sec 13(8)(b) r/w/s 8(2) IGST Act has no relevance for purpose of CGST & SGST Act when it comes to levy of GST on intermediary services

Recently, the Bombay High Court opined that the intention of the legislature is not to tax those transaction of export of services, which is also categorized as an intermediary service both under the IGST Act as also under the CGST and the MGST Acts.

Accordingly, the High Court refused to accept that the intention of Section 13(8)(b) r/w/s 8(2) of the IGST Act is to reach out to such foreign transactions to tax them as an intra-State trade and commerce, which has no foundation for taxability, either under the IGST Act or CGST/MGST Act.

A Single Judge Bench of Justice G. S. Kulkarni therefore observed that “if the contention as urged on behalf of the Respondents/ Department is accepted, then the definition of “export of services” as contained in Section 2(6) of the IGST Act and the consequences of export of services as the law would mandate including under Section 16 of the IGST Act, would stand nullified and/or rendered meaningless”.

Thus, the Bench clarified that the provisions of Section 13(8)(b) and Section 8(2) of the Integrated Goods and Services Tax Act, 2017 (IGST) are confined in their operation to the provisions of IGST Act only and cannot be made applicable for levy of tax on services under the CGST Act and MGST Act.

Advocates Bharat Raichandani & Rishabh Jain appeared for the Petitioner and ASG Anil C. Singh, AGP Jyoti Chavan & Dushyant Kumar with Senior Advocate Pradeep Jetly appeared for the Respondent.

Briefly, the Petitioners primarily challenge the constitutional validity of the provisions of Section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017, since there was difference of opinion between the fellow Judges. One of the Judges of the Division Bench struck down Section 13(8)(b) of the IGST Act as ultra vires the IGST Act, besides being unconstitutional, whereas the companion Judge upheld the validity of the said provisions on all counts. Therefore, in view of the cleavage of opinion, the Division Bench recording ordered that the proceedings be placed before the Chief Justice. Consequent thereto, by an order passed by the Chief Justice, the proceedings are referred for the opinion of this Court.

After considering the submissions, the Bench highlighted that the primary question requiring decision is whether Section 13(8)(b) of the IGST Act 2017 is ultra vires the Constitution and the provisions of the IGST Act or otherwise?

Explicitly, by virtue of clause (1)(b) of Article 286 of the Constitution, no State law can impose, or authorize the imposition of, a tax on the supply of goods or of services or both, where such supply takes place outside the State; or during the import or export of the goods or services outside the territory of India, added the Court.

The Bench went on to observe that the transactions in question of the petitioners are in fact a transaction of export of service, as the recipient of service is the foreign principal, since the destination/ consumption of the services as provided by the petitioners takes place in a foreign land.

“This completely satisfies the test of “export of service” as defined under Section 2(6) of the IGST Act, also as there is no contra indication that “factually” it can be regarded as either inter-State or intra-State sale of services”, added the Bench.

The Bench elucidated that the plain consequence as brought about by Section 13(8)(b) is that when the location of the recipient of service is outside India, then in the context of an “intermediary service”, the place of supply shall be (is deemed to be) the location of supplier of services.

The Bench admitted that there is an apparent dichotomy, as a transaction of export of services as that of the petitioners, on one hand, is treated as inter-State trade or commerce by virtue of sub-section (5) of Section 7, and on the other hand, the same transaction is treated as an intra-State trade and commerce by virtue of Section 13(8)(b) of the IGST Act.

Observing that it is not necessary to consider the validity of the provisions of IGST on the touchstone of Articles 14 and 19(1)(g) of the Constitution, the Bench refused to hold that the provisions of Section 13(8)(b) and the provisions of Section 8(2) of IGST Act 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.

Cause title: Dharmendra M. Jani and Anr. vs. Union of India and Ors. [Writ Petition No. 2031 of 2018 / 2023-Enterslice-3-HC-Bom-GST]

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