Referee Judge passed his judgement in the case of split verdict by High Court on constitutional validity of section 13(8)(b) of IGST Act.

After the split verdict by division bench of High Court, Hon'ble Chief Justice had referred the matter for the opinion of Court of Justice Kulkarni.

What is section 13(8)(b) of IGST Act?

Section 13(8)(b) creates a deeming fiction that in case of intermediary services even if the location of the recipient of services is outside India, but for the purpose of IGST Act, the place of supply shall be the location of the supplier of the intermediary services.

Background?

A two judges bench of High Court was hearing a matter - whether section 13(8)(b) of the IGST Act is unconstitutional and ultra vires as far as it disallows export exemption on export of intermediary services?

In this case, a unanimous decision could not be reached by the division bench. Justice Bhuyan held section 13(8)(b) as ultra-vires and unconstitutional whereas Justice Ahuja dissented with justice Bhuyan and held that the same cannot be considered unconstitutional or utlra-vires.

In view of the difference of opinion, the Division Bench ordered to place the matter before the Hon'ble Chief Justice. Consequently Hon'ble Chief Justice referred the matter for the opinion of Court of Justice Kulkarni.

Arguments by Petitioner

Petitioner is engaged in providing marketing and promotion services to customers located outside India.

Petitioner solicits purchase orders for its foreign customers.

The Indian purchaser i.e., the importer directly imports and make payment to foreign party

Overseas customer pays only commission to the petitioner. The entire payment is received by the petitioner in India in convertible foreign exchange.

Essentially the transaction is one of export of service from India earning valuable convertible foreign exchange for the country. 

As per section 13(8)(b), the place of supply of the intermediary services shall be the location of the supplier.

Thus, by way of a deeming fiction, in the case of intermediary services where the location of the recipient is outside India, the place of supply shall be the location of the supplier of services which is in India, thus bringing into the tax net what is basically export of services. 

Petitioner files this writ on the below main grounds.

1. Levy of tax on export of service is ultra vires Article 269A of the Constitution of India.

2. Section 8(2) and section 13(8)(b) of the IGST Act are ultra vires section 9 of the CGST Act which is the charging section.

3. GST is a destination based tax on consumption. Therefore, services provided by a service provider in India to a service receiver located outside India which is treated as export of service cannot be taxed; for taxing a service it is not the place of performance but the place of consumption which is relevant. Once the services are consumed outside India, Parliament has no jurisdiction to levy tax on such services consumed outside India.

Arguments by Revenue

Till 2014, for intermediary of services place of supply was location of service provider and for intermediary of goods place of supply was location of service recipient.

With effect from 01.10.2014 place of supply for all intermediaries (goods as well as services) was made the location of the intermediary. This was because many a times the same person provided agency services for selling of goods and subsequently selling of AMC. Therefore, making a distinction between intermediary of goods and services caused hardship.

It is further stated that the issue of place of supply of intermediaries was discussed during the stage of drafting of GST laws and the above reasoning was adopted by the GST Council. Taxing such services provided by Indian service providers to foreign companies incentivises the foreign company to start manufacturing in India to offset the liability against the tax on goods cleared domestically or get refund of taxes on goods exported from India. Therefore, taxing such services in India is in consonance with the Make in India program.

1st Order by High Court (Per Justice Ujjal Bhuyan)

:

Intermediary Services

:

Import or Export

taxreply.com © 2024. All Rights Reserved