The Hon’ble Bombay High Court in DHARMENDRA M. JANI, A.T.E. ENTERPRISES PRIVATE LIMITED (FORMERLY KNOWN AS A.T.E. MARKETING PVT. LTD.) VERSUS THE UNION OF INDIA, CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS, NEW DELHI, GOODS AND SERVICES TAX COUNCIL, PRINCIPAL COMMISSIONER OF GOODS AND SERVICE TAX, MUMBAI, STATE OF MAHARASHTRA - 2023 (6) TMI 290 - BOMBAY HIGH COURT held that the provisions of Section 13(8)(b) and Section 8(2) of the Integrated Goods and Services Tax Act, 2017 (“the IGST Act”) are legal, valid and Constitutional. However, the said sections are confined to the provisions of the IGST Act only and the same cannot be made applicable for the levy of tax on services under the Central Goods and Services Tax Act, 2017 (“the CGST Act”) and the Maharashtra Goods and Services Tax Act, 2017 (“the MGST Act”).

Facts:

Mr. Dharmendra M Jani (“the Petitioner”) is a proprietor of M/s. Dynatex International. The Petitioner is engaged in providing marketing and promotion services to overseas customers.

Overseas customers are engaged in the manufacture and sale of goods. As per the agreement, the Petitioner solicits purchase orders for these overseas customers. The Indian purchaser, i.e., the importer, directly gives the order to the overseas customer. The sale invoice is raised in the name of the Indian purchaser and direct payment is made to the overseas customer. The overseas customer pays a commission to the Petitioner against the invoice issued by the Petitioner. The Petitioner receives this payment in India in convertible foreign exchange.

Hon’ble Justice Ujjal Bhuyan held that Section 13(8)(b) of the IGST Act is not only against the scheme of the CGST Act and IGST Act, but it also violates Articles 245, 246A, 269A and 286(1)(b) of the Constitution of India. The deeming fiction created under Section 13(8)(b) of the IGST Act does not establish any nexus with the taxing regime in India. Hence, Section 13(8)(b) of the IGST Act is ultra vires of the said act apart from being unconstitutional.

Hon’ble Justice Abhay Ahuja held that neither Section 13(8)(b) nor Section 8 (2) of the IGST Act are unconstitutional. Also, neither Section 13 (8) (b) nor Section 8 (2) of the IGST Act are ultra vires the IGST Act. Section 13 (8) (b) is also not ultra vires Section 9 of the CGST Act or the MGST Act. Section 13(8)(b) as well as Section 8(2) of the IGST Act are constitutionally valid and operative for all purposes.

Due to the difference of opinion between Justice Ujjal Bhuyan and Justice Abhay Ahuja, the Hon’ble Chief Justice directed the matter to the Hon’ble Justice G.S. Kulkarni.

Hon’ble Justice G.S. Kulkarni held that Section 13(8)(b) and Section 8(2) of the IGST Act are legal, valid and constitutional. Still, they cannot be used to levy tax on intermediary services under the CGST and MGST as no state law can impose or authorise the imposition of a tax on the supply of goods or services. Hence, these provisions of the IGST Act cannot be used to levy tax on intermediary services under the CGST and MGST Acts. 

Issue:

Whether Section 13(8)(b) read with Section 8(2) of the IGST Act are constitutionally valid?

Held:

The Bombay High Court in DHARMENDRA M. JANI, A.T.E. ENTERPRISES PRIVATE LIMITED (FORMERLY KNOWN AS A.T.E. MARKETING PVT. LTD.) VERSUS THE UNION OF INDIA, CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS, NEW DELHI, GOODS AND SERVICES TAX COUNCIL, PRINCIPAL COMMISSIONER OF GOODS AND SERVICE TAX, MUMBAI, STATE OF MAHARASHTRA - 2023 (6) TMI 290 - BOMBAY HIGH COURTheld as under:

• Considering the view taken by Justice G.S. Kulkarni and Justice Abhay Ahuja, the Hon’ble Bombay High Court held that the provisions of Section 13 (8)(b) and Section 8(2) of the IGST Act are legal, valid and constitutional.
• However, the provisions of Section 13(8)(b) and Section 8(2) are confined in their operation to the provisions of the IGST Act only and the same cannot be made applicable for the levy of tax on services under the CGST and MGST Acts.

Relevant Provisions:

Section 8(2) of the IGST Act:

“8. Intra-State supply

(1)...

(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...”

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:––

(a)...

(b) intermediary services;”

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