TMI Blog2020 (8) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to Goods and Service Tax. Article 246A begins with non-obstante clause stipulating that notwithstanding anything contained in Articles 246 and 254, the parliament subject to Clause-2, Legislature of every State, have power to make laws with respect to Goods and Service Tax imposed by the Union or by such State - The basic underlying change brought in by the GST regime is to shift the base of levy of tax from point of sale to the point of supply of goods or service. In that view of the matter, Section 13(8)(b) of the IGST Act,2017 which is framed by the parliament inconsonance with the Article 246(2) of the Constitution of India is required to be considered. Conjoint reading of Section 2(6) and 2(13), which defines export of service and intermediary service respectively, then the person who is intermediary cannot be considered as exporter of services because he is only a broker who arranges and facilitate the supply of goods or services or both. In such circumstances, the respondent no.3 have issued Circular No.20/2019 where exemption is granted in IGST rates from payment of IGST in respect of services provided by intermediary in case the goods are supplied in India. The b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intermediary services viz. service provider when the movement of goods is outside India. It cannot be said that the provision of Section 13(8)(b) r.w. Section 2(13) of the IGST Act,2017 are ultra vires or unconstitutional in any manner - petition disposed off. - R/SPECIAL CIVIL APPLICATION NO. 13238 of 2018 With R/SPECIAL CIVIL APPLICATION NO. 13243 of 2018 - - - Dated:- 24-7-2020 - HONOURABLE MR. JUSTICE J.B.PARDIWALA AND HONOURABLE MR. JUSTICE BHARGAV D. KARIA Appearance: MR ABHISHEK RASTOGI WITH MR NACHIKET A DAVE(5308) for the Petitioner(s) No. 1 MR DEVANG VYAS(2794) for the Respondent(s) No. 1 MR PY DIVYESHWAR for the Respondent(s) No. 3 VIRAL K SHAH(5210) for the Respondent(s) No. 2 CAV JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1. Rule returnable forthwith. Mr. Viral K. Shah, learned advocate waives service of notice of rule on behalf of the respondent nos.1 and 2. Mr. P. Y. Divyeshwar, learned advocate waives service of notice of rule on behalf of the respondent no.3. 2. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the constitutional validity of Section 13(8)(b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xchange for the same. 3.3 According to the petitioner, IGST cannot be levied on the members of the petitioner association, who are engaged in the transaction of export of service as stated above as the petitioner members export of services is covered by the Section 16(1) of the IGST Act, 2017 which provides for zero rated supply . 3.4 The export of services as defined under sub-section-6 of Section-2 of the IGST Act,2017 reads thus:- 6. Export of service means the supply of any service when,-- (i) the supplier service is located in India; (ii) the recipient of service is located outside India; (iii) the place of supply of service is outside India; (iv)the payment for such service has been received by the supplier of service in convertible foreign exchange; and (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8; 3.5 The definition of intermediary is provided in sub-section 13 of Section-2 of the IGST Act,2017 reads thus: 2(13) intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of goods and/or services. In the supply contract involving the payment of consideration, the person who is liable for payment of such consideration will be considered recipient. It is important to note that consideration could be paid by recipient or any third person. The determination will not depend on the fact who makes the payment but the person who is liable to make the payment will be considered recipient. In the contract for supply of goods, where no consideration is payable, recipient would mean a person to whom goods have been delivered or possession or use of the goods is given or made available. In respect of contract of supply of services, where no consideration is payable, recipient would mean the person to whom service has been rendered. 3.8 Chapter (iv) of the IGST Act,2017 provides for determination of the nature of supply. Under Section 8 of the IGST Act,2017 when the location of supplier and the place of supply happens to be in the same State, such supplies are deemed to be inter-State supply subject to levy of both CGST and SGST. Section 8(2) of the IGST Act,2017 reads as under:- 8. Intra-State supply (1) . (2) Subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase of goods.- (1) No law of a State shall impose, or authorise the imposition of, a tax on the supply of goods or of services or both, where such supply takes place - (a) outside the State; or (b) in the course of the import of the goods or services or both into, or export of the goods or services or both out of, the territory of India. (2) Parliament may by law formulate principles for determining when a supply of goods or of services or both in any of the ways mentioned in clause (1). 5. Relying upon the above provision of Article 286, it was canvassed that parliament has been authorized to formulate the principles for determining when a supply is deemed to have been undertaken outside the territory of the State or when it has been undertaken in the course of import/export of such goods for services and has not been empowered to determine the place of supply . It was therefore, submitted that the power vested with the parliament is confined by the scope of clause 1 of Article 286 and the parliament is not authorized to legislate and artificially assign the place of supply to be within India when clearly the services are being exported out of India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(92)(a) of the CGST Act provides that recipient means the person who is liable to pay the consideration for supply of goods/services. It was therefore, submitted that the provision under Section 13(8)(b) of the IGST Act,2017 is ultra vires to Article 286(1) and is therefore, liable to be struck down. 9. Learned advocate for the petitioner submitted that when the members of the petitioner association provide service to a non-resident service recipient such services is clearly for the benefit of recipient located outside India and therefore, such transaction can be said to have been executed in the course of export and would fall within the exemption of Article 286(1) (b)of the Constitution Of India. In such circumstances, it was submitted that Section 13(8)(b) read with Section 8(1) of the IGST Act,2017 is violative of Article 286(1) of the Constitution of India as the service provider would be liable to the SGST and CGST on the commission received from the service recipient. 10. Learned advocate for the petitioner further submitted that Section 13(8)(b) of the IGST,2017 is violative of Article 14 of the Constitution of India as it renders differential treatment when services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emained the same there does not appear to be any reason as to why intermediary services should be treated differently from the other advisory services. 13. Learned advocate for the petitioner therefore, submitted that even if it is assumed that the location of the recipient of services or the nature of intermediary services mandates a differential treatment for the purposes of ascertaining the place of supply, it does not have any nexus with the object sought to be achieved which are rendered within India and to exclude those where the services are clearly exported. It was submitted that when the benefit is to the account of the non-resident recipient and is not physically or integrally connected to any asset located in India, there appears to be no explanation as to how the differential treatment accorded to the intermediary services can help achieve the object of taxing services which are rendered within India and to exclude those that are clearly exported. 14. In order to explain, learned advocate for the petitioner gave following illustrations. (i) A person based in Mumbai provides management consultancy service on a remote basis to B located in New York. The place of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rohibited, so that he may act accordingly. It was submitted that the Apex Court also held that the vague laws may trap the innocent by not providing fair warning, that such a law impermissibly delegates basic policy matters to policemen and to judges for resolution on an ad hoc and subjective basis, with the attendant, dangers of arbitrary and discriminatory application as under: 77. It is the basic principle of legal jurisprudence that an enactment is void for vagueness if its prohibitions are not clearly defined. Vague laws offend several important values. It is insisted or emphasized that laws should give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly. Vague laws may trap the innocent by not providing fair warning. Such a law impermissibly delegates basic policy matters to policemen and also judges for resolution on an ad hoc and subjective basis, with the attendant dangers of arbitrary and discriminatory application. More so uncertain and undefined words deployed inevitably lead citizens to steer far wider of the unlawful zone .. than if the boundaries of the forbidden areas were clearly marked. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fundamental principle which the Parliament and all the functionaries allied to GST have to follow on an unconditional basis is that GST is a destination based tax and accordingly any transaction which terminates outside the territory of India should not be taxed. 21. It was submitted that Section 13(8)(b) of the IGST Act, 2017 contributes to tax cascading and double taxation contrary to the objectives of the GST. It was submitted that transaction of providing intermediary services would be subject to tax in the country where the recipient is located as it would be an import of service for such recipient. It was therefore, submitted that the transaction would suffer GST in India and tax in the country outside India where the recipient of service is located which would result in transaction being subjected to double taxation and would affect the margin or commission earned by the members of the petitioner association, who are working as intermediaries. 22. Learned advocate for the petitioner relied upon para 1.9 of Rajya Sabha Select Committee Report (supra), wherein the rationale behind introduction of GST explained and reads thus : 1.9 Secondly, to do away with the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppears to be the object behind the Government enacting special scheme to ensure that the duty is not levied even on inputs going to the export products. Rule 6(6)(v) has been consciously and expressly enacted with the specific objective to ensure that duty is not levied even on inputs going to the export products. 25. Learned advocate for the petitioner thereafter relied upon the Notification no.20/2019 IGST dated 9th September 2019, which provides that in case of services provided by an intermediary when location of both supplier and the recipient outside the taxable territory and such services should be taxed at Nil rate. The relevant entry no.12AA in the Notification No.9/2017 Integrated Tax (Rate), dated 28th June 2017 was made as under :- G.S.R .(E).-In exercise of the powers conferred by sub-section(1) of Section 6 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby makes the following further amendments in the notification of the Government of India, in the Ministry of Finance (Department of Revenue) No.9/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliance was placed on the following paragraphs of the standing committee report as under:- 15.2 In view of the fact that GST is a destination-based consumption tax, the Committee is of the view that following steps may be taken: Provide that Place of Supply of Indian Intermediaries of Goods will be the location of service recipient i.e. customers located abroad (and not the location of such intermediaries as is currently provided), so that Intermediary Services will be treated as Exports ; or Provide an exemption to Indian Intermediaries of Goods from levy of IGST, exercising the powers vested under Section 6(1) of IGST Act; or Notify such services under Section 13(13) of the IGST Act to prevent double taxation (tax in India as well as in the importing country) by treating place of effective use (foreign country) as place of supply. 15.3 The Government may also cause amendment to section 13(8) of the IGST Act to exclude intermediary services and made it subject to the default section 13(2) so that the benefit of export of services would be available. 27. Referring to the above recommendation, it was submitted that the petitioner also wishes no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services, which were on their account and where they would be treated as intermediaries. It was submitted that the circular did not clarify the meaning of the phrase on his own account as appears in the definition of intermediary in Section 2(13) of IGST Act,2017. It was therefore, submitted that the circular only give hypothetical situations where services were being provided through various modes for Information Technology enabled Services. 31. Reference was also made to the discussion in 37th GST Council Meeting held in September 2019 and reliance was placed on the following minutes of the meeting with regard to definition of intermediary as per the Section 2(13) of the IGST Act. The relevant extract of minutes reads as under :- Agenda Item 22(ii) Circular on treatment if IT/ITES Services (1/2) Several representations have been received from NASSCOM and ASSOCHAM citing confusion on classification of IT / ITS Services as intermediary services in Circular No. 107 / 26 /2019. GST dated 18.07.2019 leading to denial of export benefits on such services. Intermediary' has been defined in the sub-section (13) of Section 2 of the Integrated Goods and Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in providing intermediary services. 33. Learned advocate for the petitioner submitted that entry no.12AA introduced by the Notification No.20/2019-Integrated Tax (Rate) provides exemption to intermediary services provided by a resident service to a non-resident recipient when the person who receives goods from such person is located outside India. The exemption is only in respect of the location of the recipient of the goods with whom the intermediary has no privity of contract. In such circumstances, when the recipient of service provides goods outside India, then it would be exempt and no GST is payable, but the goods supplied by the recipient of service who is located outside India to the buyer in India, then the intermediary would be subjected to CGST and SGST. It was therefore, submitted that in such circumstances, the members of the petitioner association are subject to discrimination. 34. Reliance was also placed on the recommendation of the Fitment Committee, which are placed before the GST Council in its 37th Meeting held on 20th September 2019, which reads as under :- 7. Recommendation: IGST exemption may be provided for GST on the supply of intermediary serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ediaries could shift base of their providing services to a location outside India for the purpose of billing the service recipient and/or close their Indian office so as to escape tax implication. It is also possible that intermediary services would term the service as management consultancy service by realigning the services so as to get out of the rigors of Section 13(8)(b) of the IGST Act. 38. At last it was submitted that as per Section 13(13) of the IGST Act,2017, the Central Government has been authorized to notify specific set of services where the place of supply shall be the place where the service is effectively used or enjoyed. It was therefore, submitted that it would be in the larger interest that Section 13(8)(b) be declared as ultra vires and unconstitutional as there is a clear case of double taxation as intermediary services would be subject to GST when the service provider is situated in India and the same service shall be subject to tax in the country where service recipient is located. It was therefore, prayed that the necessary direction be issued to the respondents to issue necessary notification and consider the representation made by the petitioner from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 13(8) of IGST Act, 2017, the supply of services by the Intermediaries to the recipients outside India are not export of services irrespective of the mode of payment. 41. It was submitted that in the following cases, services provided on commission basis by Indian entity as an intermediary to the recipient located outside the Indian territory have not been held as export of service:- (i) M/s. Global Reach Education Services Pvt Ltd. {2018 (15) G.S.T.L. 618 (App. A.A.R.-GST, Kolkata)} (ii) Sabre Travel Network India Pvt. Ltd. {2019 (21) G.S.T.L. 87 (A.A.R.-GST. Maharashtra)} (iii) Vishakhar Prashant Bhave {2019 (20) G.S.T.L. 494 (A.A.R.-GST Maharashtra)} (iv) Vservglobal Pvt. Ltd. {2018 (19) G.S.T.L. 173 (A.A.R. - GST, Maharashtra)} 42. It was submitted that the contention of the petitioner that the services provided by the petitioner are classified as Intermediary and taxed under a deeming fiction and migration of Indian exporters because of unfair provisions is without any basis as the place of provision of service of an intermediary being the location of the service provider is purposeful and considered policy decision of the Government o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity a duty can be imposed at the stage which the authority finds to be convenient and the most effective whatever stages it may be. The Central Government is therefore legally competent to evolve suitable machinery for collection of the service tax subject to the maintenance of a rational connection between the tax subject to the maintenance of a rational connection between the tax and the person on whom it is imposed. It is outside the Judicial ken to determine whether the Parliament should have specified a common mode for recovery of the tax as a convenient administrative measure in respect of a particular class. That is ultimately a question of policy, which must be left lo legislative wisdom. Supreme Court has also held in the aforesaid judgment that. - Legislative competence is to be determined with reference to the object of the levy and not with reference to its Incidence or machinery and that there is a distinction between the object of fox, the incidence of tax and the machinery for the collection of the tax. (ii) In A.H. Wadia v. CIT (AIR 1949 FC 18), the Apex Court stated that In the case of a sovereign Legislature, the question of extra-territoriality of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r expected to be real, and not illusory or fanciful. 126. Whether a particular law enacted by Parliament does show such a real connection, or expected real connection, between the extra-territorial aspect or cause and something in India or related to India and Indians, in terms of impact, effect or consequence, would be a mixed matter of facts and of law. Obviously, where Parliament itself posits a degree of such relationship, beyond the constitutional requirement that it be real and not fanciful, then the courts would have to enforce such a requirement in the operation of the law as a matter of that law itself, and not of the Constitution: 127. (2) Does Parliament have the powers to legislate for any territory, other than the territory of India or any part of it? The answer to the above would be no. It is obvious that Parliament is empowered to make laws with respect to aspects or causes that occur, arise or exist, or may be expected to do so, within the territory of India, and also with respect to extra-territorial aspects or causes that have an impact on or nexus with India as explained above in the answer to Question 1 above. Such laws would fall within the mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be compared with other service so as to justify the violation of Article 14 of the Constitution It was further submitted that the illustration given by the petitioner is factually incorrect inasmuch as the intermediary service provided by C (in Ahmedabad) to F based in Delhi to procure a order from D (London), IGST is not payable, instead CGST + SGST (Gujarat) is payable and no differential treatment is accorded to intermediary service which was explained through an illustration below giving just opposite situation:- A (Supplier of Service) based in New York provides management consultancy services to B located in Mumbai (Recipient of service), the place of supply shall be Mumbai (location of recipient of service) in view of Section 13(2) of IGST Act, 2017 and IGST is payable. Whereas the same supplier provides intermediary Service to the same recipient, the place of supply shall be New York and Location of supplier of service in view of Section 13(8) of IGST Act, 2017 would be outside India and no tax is payable. Accordingly, it reveals that no tax is payable for Management Consultancy Service and tax is payable for Intermediary Service in respect of the illustr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eets the policies and objectives of the Government. It was submitted that such categorization for the purpose of taxation may be entirely different from the categorization adopted by any other laws which may govern production, distribution, usage or any other aspect of those goods, for example, Motor Vehicle Act categorizes passenger transport vehicles according to number of passengers they may carry, however, the Central Excise Tariff Act has for years categorized cars according to their length and levied differential duties accordingly. 51. In this regard reliance was placed up on the decision of the Hon'ble Supreme Court in case of East India Tobacco Co. v. State of Andhra Pradesh (1982 AIR 1733, 1963 SCR (1) 404) wherein the Apex Court has held that in tax matters, the State is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably. Reliance was also placed upon the decision in case of Raja Jagannath Baksh Singh v. The State of UP. (1962 AIR 1563, 1963 SCR (1) 220) wherein the Apex Court has held that the legislature which is competent to levy a tax must inevitably be given full freedom to determine w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India, therefore, levy of tax on such intermediary service does not infringe the right of the members of the petitioner from practicing any profession or carrying out any occupation or trade or business and as such does not violate Article 19(1)(g) of the Constitution. 55. With respect to contentions of the petitioner that the levy of tax on export of service is ultra vires Article 265 and 286 of the constitution of India, it was submitted that in pursuance of Section 13(8)(b) of the IGST Act, 2017, the place of supply in case of the Intermediary services shall be the location of the supplier of services and since the location of the supplier is in the taxable territory of India, therefore this transaction will not be covered within the definition of export of services as provided in Section 2(6) of IGST Act, 2017 as it is not satisfying one of the conditions of place of supply being outside India, as enumerated in Section 2(6)(iii) of IGST Act, 2017. It was therefore submitted that going by the strict interpretation of Section 13(8)(b) of IGST Act, 2017, the supply of services by the Intermediaries to the recipients outside India are not export of services irrespective of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 13(3) to 13(13) deals with such exceptions because in different situation covered under each of these sub-sections exceptions have been provided to this default place of supply such as place of supply could be the location of the supplier of service, place of performance etc. and such decisions are governed by the revenue considerations and based on catena of judgments of the Apex Court are within the legislative competence as the legislature is free to pick and choose the supply that it intends to tax and the manner in which it intends to tax. 59. It was submitted that the reasoning for prescribing distinct treatment for an intermediary is that an intermediary is a go-between two persons, i.e. main service provider and the service recipient. An intermediary provides service to both the persons, though he may have contractual agreement with only one or both of them, hence, it may not be feasible to prescribe one person as the recipient of intermediary service, thus general rule cannot be applied, further, intermediary acts as an agent of the principal and in that sense, he may be providing a service to the principal and the place of effective use and enjoyment of such ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness to off-set their tax liability on further supplies. 62. With respect to contentions of the petitioner is that policy decisions are subject to judicial review, it was submitted that the petitioner relied upon the judgment of the Supreme Court in the case of Delhi Development Authority Anr {2008 (2) SCC 672) and in Para 65 of the said order, the Hon'ble Supreme Court held that a policy decision is subject to judicial review on the the grounds that: (a) If it is unconstitutional, or (b)If it is dehors the provisions of the Act and the regulations; or (c) If the delegate has acted beyond its powers of delegations; or (d) If the executive policy is contrary to the statutory or a larger policy. It was submitted that in the facts of the present case, none of the aforesaid conditions is applicable in the present case. Hence, the case citation is not relevant with the present case and the argument, put forth by the petitioner, is not tenable. ANALYSIS 63. Having heard learned advocates for the respective parties and having considered the provisions of CGST and IGST Act,2017, the only question which arise whether the provisions of Section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) Made to a registered person shall be the location of such person; (b) made to any person other than a registered person shall be, -- (i) the location of the recipient where the address on record exists; and (ii) the location of the supplier of services in other cases. The aforesaid provision of sub-section 12(2)(b) stipulates that the place of supply of service made to any person other than registered person shall be the location of the recipient where the address on record exists and location of supply of service in other cases. Sub-section 3 to 14 of Section 12 stipulates the place of supply of service in various eventualities. However, the same does not cover the case of intermediary. Section 13 of IGST Act,2017 stipulates that the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India. Sub-section 2 of Section 13 stipulates that the place of supply of service except the services described in sub-section 3 to 13 shall be the location of the recipient of the services and if the location of recipient of service is not available in the ordinary course of business, the place of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f service of supply outside India. Conjoint reading of Section 2(6) and 2(13), which defines export of service and intermediary service respectively, then the person who is intermediary cannot be considered as exporter of services because he is only a broker who arranges and facilitate the supply of goods or services or both. In such circumstances, the respondent no.3 have issued Circular No.20/2019 where exemption is granted in IGST rates from payment of IGST in respect of services provided by intermediary in case the goods are supplied in India. 66. It therefore, appears that the basic logic or inception of section 13(8)(b) of the IGST Act,2017 considering the place of supply in case of intermediary to be the location of supply of service is in order to levy CGST and SGST and such intermediary service therefore, would be out of the purview of IGST. There is no distinction between the intermediary services provided by a person in India or outside India. Only because, the invoices are raised on the person outside India with regard to the commission and foreign exchange is received in India, it would not qualify to be export of services, more particularly when the legislature has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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