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Split verdict by High Court on constitutional validity of section 13(8)(b) of IGST Act - Matter to be placed before Hon'ble The Chief Justice.

  • Edited on 16th June 2021

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 the matter, no unanimous decision could be reached by the bench. Justice Bhuyan held the section as ultra-vires and unconstitutional, whereas Justice Ahuja dissented with justice Bhuyan and delivered his separate verdict on 16th June 2021. 

In view of such difference in opinion, now the matter to be placed before Hon'ble the Chief Justice for doing the needful.

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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.


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.

High Court

It is evident that section 13(8)(b) of the IGST Act not only falls foul of the overall scheme of the CGST Act and the IGST Act but also offends Articles 245, 246A, 269A and 286(1) (b) of the Constitution. The extra-territorial effect given by way of section 13(8)(b) of the IGST Act has no real connection or nexus with the taxing regime in India introduced by the GST system; rather it runs completely counter to the very fundamental principle on which GST is based i.e., it is a destination based consumption tax as against the principle of origin based taxation.

The other submissions made by Mr. Singh that levy of IGST on supply of services by intermediaries to foreign customers would strengthen the Make in India program by encouraging foreign investment can be no answer to challenge to constitutionality of a parliamentary statute. Besides such a statement has been made de-hors any supporting statistics and analysis. Therefore, the same cannot be of any assistance to the respondents.

Thus having regard to the discussions made above and upon thorough consideration, we have no hesitation in holding that section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017 is ultra vires the said Act besides being unconstitutional.

Justice Ahuja

Having noted the Judgment and Order dated 9th June, 2021 as pronounced by my Respected Learned Brother Shri Justice Ujjal Bhuyan, with greatest respect being unable to persuade myself to share the opinion of my Learned Brother, I would like to record my separate opinion in the matter.

In view of such difference in opinion, now the matter to be placed before Hon'ble the Chief Justice for doing the needful.

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Jun 13, 2021

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