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TMI Blog2023 (4) TMI 821X X X X Extracts X X X X X X X X Extracts X X X X ..... has been divided into the following sections to facilitate analysis: Particulars Paragraph A Prelude 2-3 B Facts 4-11 C Stand of the Revenue 12-17 D Submissions on behalf of the Petitioners 18-20 E Submissions on behalf of Respondents 21-44 F Analysis and Conclusion 45-114 1. Their Lordships of the Division Bench have spoken in different voices in deciding the above Writ Petitions. In view of the cleavage of opinion, by an order dated 16 June 2021 the Division Bench recording the disagreement, ordered that the proceedings be placed before the Hon'ble the Chief Justice. Consequent thereto, by an order passed by the Hon'ble the Chief Justice, the proceedings are referred for the opinion of this Court. A) PRELUDE 2. The petitioners in both the petitions primarily challenge the constitutional validity of the provisions of Section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017 (for short "the IGST Act"). In Writ Petition No. 2031 of 2018, there is an additional prayer assailing the constitutional validity of Section 8(2) of the IGST Act. The petitioners have commonly contended that the impugned provisions are violative of Articles 14, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce as provided by the petitioner fructifies, if an Indian purchaser [importer] directly places a purchase order on such overseas customer of the petitioner, for supply of goods. Such transaction is enabled as a result of the service so provided by the petitioner to his foreign principal. The goods are directly shipped by the petitioner's overseas customer to the Indian purchaser. This is an independent transaction between these two parties, namely, the Indian importer and the foreign exporter, which has nothing to do with the petitioner. On arrival of the goods in India, they are cleared by the Indian purchaser directly from the port/customs. In regard to the payment of consideration qua such import, such overseas customer raises a sale invoice in the name of the Indian purchaser. The Indian purchaser directly remits the sale proceeds to the overseas customer. Thus, the petitioner has no concern whatsoever qua such import transaction. 8. Once such payment is received by the overseas customer from the Indian importer, the foreign principal pays a commission to the petitioner, against an invoice issued by the petitioner. The entire payment is received by the petitioner in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any writ, order or direction more particularly in the nature of a Writ of Declaration to declare Section 13(8)(b) and Section 892) of the Integrated Goods and Services Tax Act, 2017 as null, void and ultra vires Article 14, 19, 246, 246A, 248, 265, 268A, 286 and 302 read with Entry 41 and 83 of List 1 of VII Schedule of the Constitution of India and as also being beyond the legislative competence of Parliament under Article 269A of the Constitution of India and as also being beyond the legislative competence of Parliament under Article 269A of the Constitution of India and being ultra vires the provisions of CGST Act and MGST Act, 2017 and pass such further or other orders as this Hon'ble Court may deem fit and necessary in the facts and circumstances of the case and thus render justice. (b) that this Hon'ble Court be pleased to issue a writ of mandamus or any other appropriate writ, order or direction staying the implementation of the provision to above in prayer clause (a) and stay thereof; (c) For ad-interim reliefs in terms of prayer clause (b)." Writ Petition (L) No. 639 of 2020 of A.T.E. Enterprises Private Limited 11. The facts of this petition are not too different f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of intermediary services shall be the location of the supplier of services in cases where the location of the supplier of services is in India and the location of the recipient of services is outside India as null, void and ultra vires Article 14, 19(1)(g), 265 and 286 of the Constitution of India; and/or b) This Hon'ble Court may be pleased to issue an appropriate writ, order or direction reading down Section 13(8)(b) of the IGST Act insofar as it stipulates that the place of supply in case of intermediary services shall be the location of the supplier of services in cases where the location of the supplier of services is in India and the location of the recipient of services is outside India; and/or c) This Hon'ble Court be pleased to issue a writ of mandamus or any other appropriate writ, order of direction staying the implementation of the provision referred to in prayer clause (a) and (b) above; and/or d) This Hon'ble Court may be pleased to direct the Respondent to refund the amount of GST (CGST and SGST) paid by the petitioner on intermediary services provided to its foreign principals till date; and/or e) That such further and other reliefs be granted as this Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided in relation to goods and services and to bring both at par, PoS for both was made to the location of the intermediary. It is next stated that if the PoS was to be made to be the location of recipient under default rule, PoS for all intermediaries located in the taxable territory providing service to a person, whose usual place of residence is outside India, would be the location of the recipient, i.e., outside India and thus, such services would have gone outside the tax net. 14. The counter affidavit further states that the issue of POS of intermediaries was also discussed during the drafting of the GST laws and same reasoning as above was adopted by the GST Council, a Constitutional body established under Article 279A of the Constitution, entrusted to make recommendations to the Union of India and the States on all matters related to the Goods and Services Tax. It is stated that in regard to the intermediary services provided in relation to goods and services including stocks, transportation of goods, etc., these services are performed and enjoyed at the place where the underlying arranged supply is made. Hence, taxing such services as provided by the Indian service pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries are affecting the procurement of supplies for manufacturers in India, the manufacturers in India can avail input tax credit, and in case of exports, they can avail refund of such taxes. Further, if intermediaries located in India are affecting the import of finished goods, there is no consumption of these input services within India. Whereas the Indian importer would have had to suffer same cost in the event an overseas supplier procured such services from an intermediary in a non-taxable territory. This is a situation akin to a B2C transaction where credit lapses or has no necessity of further continuation. It is stated that such taxable services would cause additional costs, however, it gives an advantage to the counterpart Indian manufacturer. It is stated that if the services of Indian intermediaries are taxed again at the hands of the foreign exporter (under reverse charge in a foreign country), then while making exports from the foreign country, the taxes ought to be zero-rated for the exports from that country. Hence, again there is no double taxation. Submissions on behalf of the petitioners:- 18. Mr. Bharat Raichandani and Mr. Abhishek Rastogi, learned counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch service at the location of the supplier, namely, the location of the petitioners, so that it would be deemed to be an intra-State supply [supply within the State of Maharashtra] leviable with the local GST. Neither the provisions of Article 246A read with Article 269-A and Article 286 of the Constitution would permit such inclusion, nor the basic principles, under which GST would levy, would permit such consequences as created by the impugned provisions. (v) GST is a destination-based tax on consumption. It is a value added tax. It is a tax provided on services consumed within the territory of India. Hence, it does not have extra-territorial operation or nexus. This position is sufficiently clarified by a circular dated 18 February 2019 issued by the revenue [circular no. 20/16/04/2017-GST]. Paragraph 3 of the circular issues the following clarification:- "3. After introduction of GST, which is a destination-based consumption tax, it is essential to ensure that the tax paid by a registered person accrues to the State in which the consumption of goods or services or both takes place. ......" (vi) That the Goods and Service Taxes Council established under Article 279A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmined by the rules applicable in the jurisdiction of its consumption and all revenue accrues within the jurisdiction where the supply to the final consumer occurs. To support this contention, reliance is being placed on the decision of the Division Bench of this Court in Commissioner of Service Tax vs. SGS India Pvt. Ltd. 2014(34) STR 554 (Bom) although SGS rendered in the context of the erstwhile service tax being levied under the Finance Act 1994. It is thus submitted that Section 13(8)(b) is contrary to the fundamental principles of destination-based consumption tax. (viii) Levy of tax on the export of service by virtue of the impugned provisions is ultra vires Article 246A read with Article 269A and Article 286 of the Constitution. These provisions under the Constitution confer power only on the Parliament to frame laws for inter-State trade or commerce. Such provisions do not permit the imposition of tax on the export of services out of the territory of India by treating the same as a local supply. The Parliament, therefore, could not have enacted Section 13(8)(b) to create and impose a tax on the export of services, being effected out of the territory of India by treating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice providers like marketing agents, marketing consultants, management consultants, market research agents, professional advisors, etc., who provide similar services. However, the said services would not be subject to GST in terms of section 13(2) of the Act. Despite having satisfied all the conditions of section 13(2) read with section 2(6) of the IGST Act, by virtue of exception under section 13(8)(b), the services provided by the petitioners are subjected to GST. Thus, the levy is unreasonable and arbitrary and without any basis. It is submitted that a separate provision can be struck down if it is arbitrary or unreasonable. It is also well settled that tax laws are not outside Article 14, as Article 14 applies to Government policies as well. (xi) Article 269A provides for the levy and collection of goods and service tax in the course of inter-State trade or commerce. Sub-clause (1) thereof provides that GST on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India. Further Clause 5 provides that Parliament may, by law, formulate the principles of determining the place of supply and when a supply of goods or of servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress Mills Nagpur vs. Municipal Committee Wardha 1958 AIR SC 341. (xiii) The levy is ultra vires Article 245 of the Constitution. It is submitted that the question that arises is whether the Parliament is empowered to enact laws in respect of 'extra-territorial' aspects or causes that have no nexus with India and furthermore could such laws be bereft of any benefit to India. The submission is that the answer would have to be emphatic no. In supporting such submission, reliance is placed on the decision of the Supreme Court in GVK Industries Limited vs. Income Tax Officer & Anr 2011 332 ITR 130 (SC). (xiv) There could be instances where the supplier of the goods (say, in Germany) and the buyer of the goods (say, in Singapore) are both outside India. Such a transaction would be subject to GST, in the hands of the petitioner by virtue of Section 13(8)(b). Also, exemption from payment of GST provided to such transactions does not validate the levy. Section 13(8)(b) is ultra vires the charging section (xv) Section 13(8)(b) of the IGST Act is a provision for the levy and collection of tax on the inter-State supply of goods and services. Section 1 of the IGST Act provides that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution. Violation of the right to carry on business viz. Article 19(1)(g) of the Constitution (xix) By levying CGST and SGST on the export of service, i.e. the service provided by the petitioners to their overseas customers, the respondents have constituted an unreasonable restriction upon the right of the petitioners to carry on trade under Article 19(1)(g) of the Constitution of India. This action of respondent no. 1 would result in the closure of the business of the petitioners. It would encourage foreign service recipients to set up liaison offices in India and escape taxation. Reliance is placed on the decision of the Supreme Court in Bengal Immunity Company vs. State of Bihar 1955 (2) SCR 603. It is submitted that a similar view has been taken in Himmatlal Harilal Mehta v. State of Madras 1954 SCR 1122. No Double Taxation is permitted (xx) It is well settled that any provision which leads to double taxation needs to be struck down. In the instant case, it is submitted that Section 13(8)(b) falls foul of the same vice. The same supply would be taxed at the hands of the petitioners as well as the foreign customer. Following the destination-based principle, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned provision to empower the State to impose a tax on intermediary services. It is submitted that the impugned provision deems the supply of intermediary services to have occurred within India and treats such services as an intra-State supply thereby leaving state GST. 19. The petitioners have categorically contended that the grievance of the petitioners is in respect of the effect of Section 13(8)(b) categorizing intermediary services which are regarded as 'export of services' undertaken by the petitioners, to be an 'intra-State supply' for the purposes of the CGST and MGST Act. It is thus their contention that the provisions of Section 13(8)(b) remaining in the IGST Act is stated to be of no harm and injury to the petitioners, as any export of services falling under the IGST Act would fall within the ambit of Section 16 providing for 'zero rated supply'. 20. On the above contentions, the petitions need to succeed is the submission on behalf of the petitioners. Submissions of learned ASG on behalf of the respondents 21. It is submitted that the case of the petitioners is premised on the plea that service rendered by them amounts to "export of services", an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, which provides that the intermediary facilitates or arranges services between two or more persons. Thus, although a challenge is of an intermediary being taxed, the factual foundation as seen in the petition is to the effect that the petitioner is an agent simplicitor. Thus, the challenge itself is vague and bereft of particulars, and thus applying the principles of law in V.S. Rice and Oil Mills Vs. State of Andhra Pradesh AIR 1964 SC 1784 and Amrit Banaspati Co. Ltd vs Union Of India And Ors. 1995(3) SCC 335, this Court ought not to delve into the legality and validity of the provisions. 25. The constitutional validity of the impugned provisions would be required to be upheld for the reason that the petitioner is rendering services while being located in India. As the petitioner solicits purchase orders for his foreign customers and undertakes marketing and promoting activities for goods sold by overseas customers in India, hence, on the face of it the services rendered by the petitioner are being rendered in India and not outside India. 26. It is submitted that an intermediary is a distinct category of service provider and is treated as such by the law, since the case of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 274; A.H Wadia V. Income Tax Commissioner A.I.R 1949 F.C. 18 S.C.; GVK Industries Ltd. & Anr vs The Income Tax Officer & Anr. (supra). Applying the principles of law as laid down in the above decisions, the approach of the Court in determining the constitutional validity of a statutory provision would be that the Court would be required to examine the existence of legislative power and once such power is found to be present, then the next step would be to ascertain whether the enacted provision impinges upon any rights enshrined in Part III of the Constitution. Considering the scheme of IGST, CGST and the SGST laws, it is evident that these laws function harmoniously and as a part of a well thought of statutory mechanism to tax goods and services. These three statutory laws operate harmoniously but in different spheres, as they lay down as to how supply is to be taxed, the nature of supply and their place of supply. On Legislative Competence. 28. The Constitutional provisions clearly mandate that the powers are vested with the Parliament to frame laws relating to GST which are wide and untrammelled. Not only the Constitution provides power to the Parliament and Legislatures of ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative competence is to be determined with reference to the object of levy and not with reference to its incidence or machinery, as there is a distinction between the object of tax, the incidence of tax and the machinery for calculation of tax. To support such contention, reliance is placed on the decision in Gujarat Ambuja Cement Ltd. vs. Union of India (supra). It is submitted that Section 13(8)(b) is thus validly enacted. Upon applying the provisions of Section 2(64), 2(86) and Section 9 of the CGST Act read with 8(2) of the IGST Act (none of these provisions being challenged) the supplier of services like the petitioners, who are intermediaries, would be taxable as the supply of services by intermediaries is considered as an intra-state supply under the CGST Act and SGST Act. Other Submissions 30. The petitioners' contention that there is a conflict between Section 13(2) and 13(8) (6) of the IGST Act, resulting in absurdity in law, is not correct, as there is no such conflict. The reason being under Section 13(2) of the IGST Act, the place of supply shall be the location of the recipient unless the services fall within the ambit of sub-section (3) to (13) of the IGST Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matters enumerated in List II in the Seventh Schedule. Further, before the Constitution of 6th Amendment Act 1956, sub-clause 4 of Article 246 empowered the Parliament to make laws in respect of any matter for any part of the territory of India not included in a State List, notwithstanding that such matter is a matter enumerated in the State List. Thus, the State legislature under Entry No. 54 of List II in the Seventh Schedule had powers to levy taxes in respect of the sale or purchase of goods other than newspapers. The power of the State to levy tax was further subject to the provisions of Article 286. It is submitted that Article 286 sub-clause (1) barred the State from imposing tax on the sale or purchase of goods that took place outside the State (Clause 1(a)) and in the course of the import of the goods into or export of the goods out of, the territory of India (Clause 1(b)). However, sub-clause (2) of Article 286 empowers that the Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in Clause(1) of Article 286. Thus, the Parliament had the power to make a law to determine the principles of what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er-State Trade or Commerce. The source of power of Parliament to enact the IGST Act is under Article 269(A). Article 269(5) specifically empowers the Parliament to formulate for determining the place of supply and when the place of supply of Goods and Services or both takes place in the course inter-State Trade and Commerce. Thus, the Parliament has power to determine what is a place of supply under the IGST Act, under Article 269-A, and also under Article-286. The Parliament thus has rightly, in the exercise of its power, enacted Section 13(A), (B) of the IGST Act, determining the place of supply in respect of "Intermediary" services. 37. It is submitted that the contention of the petitioner that only in the case of "Intermediary" service provider, there is a 360 Degree deviation on the incidents of levying of tax, and hence it is ultra vires to Articles 14, 19, 245, 246-A, 269-A & 286 is without any substance as "Intermediary" services provider is a separate class of services provider. 38. Furthermore, Section 12 of the IGST Act, in sub-section (2)(ii), determines that the place of supply of services will be the location of supply of services and in other cases, where the servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport of service. 43. It is next submitted that once a class of person can be distinguished by the test of reasonable classification and once the Parliament has legislative competence to provide for a distinction between different classes, the impugned provision cannot be violative of the provision of either Article 14 or Article 19(1)(g) of the Constitution. It is submitted that being a distinct class of "Intermediary" service provider, the petitioners cannot contend that there is a violation of Article 14 of the Constitution. 44. In light of the above submission, it is submitted that Section 13(8)(b) is Constitutional, valid. Analysis & Conclusion 45. At the outset it is required to be observed that the Division Bench has not framed any formal question to be answered by the referee Judge, as a result of the disagreement between their Lordships. 46. However, on the conspectus of the contentions raised on behalf of the parties and in the context of the difference of opinion between their Lordships of the Division Bench, and as agreed at the Bar, the primary question which is required to be decided by this Court, is whether Section 13(8)(b) of the IGST Act 2017 is ultra vires t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing trend towards GST/VAT can be attributed to key factors such as (i) eliminates weaknesses of single stage taxation system, such as cascading and compounding effect; (ii) GST/VAT preserves tax neutrality by taxing the Value Added Tax by each factor equally; (iii) Consumption tax is a large and more stable source of revenue; and (iv) It is potentially self-enforcing in nature. At present, it is stated that more than 162 Countries across the globe have implemented GST/VAT system of taxation. One of the key principles of GST is that as a general rule, place of taxation of goods and services is determined based on the "destination principles". Exports are to be taxed at zero rate and imports are to be taxed under reverse charge i.e., tax is payable by the recipient of imported goods/services. As per the destination-based consumption principle, regardless of the fact that the tax shall be collected by the supplier, the same is retained by the State in which the goods or services are finally consumed. By such principle, wherever there is an inter-State supply, whether of goods or services, the tax also travels along with the goods or services. 49. On the concept of GST, being a des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taneously, a new Entry 92C was also introduced in the Union List for the levy of service tax. As stated above, as an economic concept, there is no distinction between the consumption of goods and consumption of services as both satisfy human needs. It is this economic concept based on the legal principle of equivalence which now stands incorporated in the Constitution vide Constitution (Eighty-eighth Amendment) Act, 2003. Further, it is important to note, that service tax is a value added tax which in turn is a general tax which applies to all commercial activities involving production of goods and provision of services. Moreover, VAT is a consumption tax as it is borne by the client. (emphasis supplied) 50. The petitioners have placed reliance on the 139th report of the "Department-Related Parliamentary Standing Committee On Commerce" on 'Impact of Goods and Services Tax (GST) on Exports', presented before Rajya Sabha and Lok Sabha on 19 December 2017, being a report made on the place of supply of services observing that Section 13(8) of the IGST Act needs to exclude "Intermediary services", and make it subject to default Section 13(2), so that benefit of Export of services wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2016 insofar as levy of GST is concerned, which replaced the prevailing VAT/Service tax regime prevailing under the provisions of the Finance Act, 1994. Statutory position in respect of the GST regime: 53. The foundation of the GST regime is the 101st Constitution Amendment Act of 2016, by which the Constitution was extensively amended, so as to provide recognition to the introduction, formulation and implementation of Goods and Service Tax (GST) regime. The genesis of the 101st Amendment Act, 2016 is the Constitution (122nd Amendment) Bill, 2014, by virtue of which, inter alia Articles 246-A, 248, 249, 269-A along with the amendments to Articles 286, 366, 368 and the relevant amendments in the VII Schedule to the Constitution in List I (Union List), List II (State List) came to be incorporated. The statement of object and reasons in relation to the Constitution Amendment Act inter alia provided that the Constitution was proposed to be amended to introduce goods and services tax for conferring concurrent taxing powers on the Union as well as the States including Union territory with Legislature, to make laws for levying goods and services tax on every transaction of supply of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. (2) No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation. Article 246A - Special provision with respect to goods and services tax.:- (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State. (2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce. Explanation. - The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council.] Article 248: Residuary powers of legislation (1) Subject to Article 246A, Parliament has exclusive power to makeany law with respect to any matter not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India. (3) Where an amount collected as tax levied under clause (1) has been used for payment of the tax levied by a State under article 246A, such amount shall not form part of the Consolidated Fund of India. (4) Where an amount collected as tax levied by a State under article 246A has been used for payment of the tax levied under clause (1), such amount shall not form part of the Consolidated Fund of State. (5) Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce. Article 286 - Constitution of India: Restrictions as to imposition of tax on the sale or purchase of goods (1) No law of a State shall impose, or authorize 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 formu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace in the course of inter-State trade or commerce. The Parliament having exercised such power is seen from the substantive provisions of Section 7 of the IGST Act, which defines "Inter-State supply" and Section 8 of the IGST defines "Intra-State supply". These provisions are adverted to, little later. 57. Having noted Articles 246-A and 269-A, the next Article of immense significance in the present context is Article 286. Article 286 also has underwent an amendment by the 101st Amendment Act, 2016. Article 286 provides for "restrictions as to imposition of tax on the sale or purchase of goods". By virtue of the such amendment, clause (1) of Article 286 provides that no law of a State shall impose, or authorize 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. Clause (2) of Article 286 provides that 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). It would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the goods or services or both out of, the territory of India. * * * * *3 [(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).] * * * * *4 58. As to what is the cumulative effect of Articles 246-A, 269-A, and 286 of the Constitution, in the context of the issue in hand can be enumerated thus:- (i) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place 'in the course of inter-State trade or commerce'. [Clause (2) of Article 246-A]. (ii) Goods and services tax on supplies 'in the course of inter-State trade or commerce' shall be levied and collected by the Government of India, and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council. [Clause (1) of Article 269-A] (iii) Supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both 'in the course of inter-State trade o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Article 286, the transaction being undertaken by the petitioners can never amount to an intra-State trade, hence , the petitioners cannot be taxed under the CGST Act and the MGST Act, which are legislations applicable to intra-State trade and commerce. In my opinion, the contention of the petitioners appears to be correct that the transactions in question of the petitioners are in fact a transactions of export of service, as the recipient of service is the foreign principal. 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. 61. Once the transactions of the petitioners are of "export of services", as to how the transactions are deemed to be intra-State trade and commerce would be required to be looked into. This is stated to be brought about by the consequences, effect, and interplay of the three enactments, being the legislations consequent to the 101st Amendment to the Constitution, the three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or fixed establishment, the location of the establishment most directly concerned with the provision of the supply; and (d) in absence of such places, the location of the usual place of residence of the supplier; Section 5 - Levy and collection (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent, as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person: Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (51 of 1975) on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962 (52 of 1962). (2) The integrated tax on the supply of pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tories; or (c) a State and a Union territory, shall be treated as a supply of goods in the course of inter-State trade or commerce. (2) Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-State trade or commerce. (3) Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in-- (a) two different States; (b) two different Union territories; or (c) a State and a Union territory, shall be treated as a supply of services in the course of inter-State trade or commerce. (4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce. (5) Supply of goods or services or both,-- (a) when the supplier is located in India and the place of supply is outside India; (b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or (c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section shall be treated to be a supply of goods or services or bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13: Place of supply of services were location of supplier or location of recipient is outside India. (1) The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of the services is outside India. (2) The place of supply of services, except the services specified in sub-sections (3) to(13) shall be the location of the recipient of services: Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services. (3) The place of supply of the following services shall be the location where the services are actually performed, namely :- (a) services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services: Provided that when such services are provided from a remote location by way of electronic means, the place of supply shall be the location where goods are situated at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following services shall be the location of the supplier of services, namely:-- (a) services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders; (b) intermediary services; (c) services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month. Explanation.--For the purposes of this sub-section, the expression,-- (a) "account" means an account bearing interest to the depositor, and includes a non-resident external account and a non-resident ordinary account; (b) "banking company" shall have the same meaning as assigned to it under clause (a) of section 45A of the Reserve Bank of India Act, 1934; (c) ''financial institution" shall have the same meaning as assigned to it in clause (c) of section 45-I of the Reserve Bank of India Act, 1934; (d) "non-banking financial company" means,-- (i) a financial institution which is a company; (ii) a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; or (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rated Supply (1) "Zero rated supply" means any of the following supplies of goods or services or both, namely:-- (a) export of goods or services or both; or (b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit. (2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply. (3) A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:-- (a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit; or (b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es; (b) two different Union territories; or (c) a State and a Union territory, shall be treated as a supply of goods in the course of inter-State trade or commerce. In the context of the present proceedings, we are concerned with sub-section (5)(a) of Section 7, which provides for the supply of goods or services or both, when the supplier is located in India, and the place of supply is outside India; it shall inter alia be treated to be a supply of goods or services or both in the course of inter-State trade or commerce. Thus, a foreign transaction by a legal fiction for the purposes of the IGST Act is treated as an inter-State trade or commerce. Hence, necessarily by virtue of sub-section (5) of Section 7, a transaction as in question wherein the supplier (petitioner) is located in India and the place of supply of goods or services or both is outside India, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce. 66. Section 8 of the IGST Act provides for "Intra-State supply". Subsection (1) thereof provides that subject to the provisions of section 10, supply of goods where the location of the supplier and the place of supply o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply of services where the location of the supplier of services "or" the location of the recipient of the services is outside India. Sub-section(2) of section 13, provides that the place of supply of services, except the services specified in sub-section (3) to (13) shall be the location of the recipient of services. The proviso to subsection (2) states that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services. Sub-section (3) provides that the place of supply of services in clauses (a) and (b) thereunder shall be the location where the services are actually performed. Sub-sections (4) to (7) may not be discussed, as they are not relevant in the present proceedings. The challenge is to the provisions of Section 13(8)(b), which provide that the place of supply shall be the location of the supplier of services in the case of "intermediary" services. 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 services", the place of supply shall be (is deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to how the provisions of IGST Act relevant to the controversy in hand find recognition and/or incorporated into the provisions of CGST Act and MGST Act. The question would be, whether the petitioners are correct in their contention that although the transaction in question is a transaction of 'export of services', falling within the meaning of Section 2(6) of the IGST Act, nonetheless it is being treated as an "intra-State trade or commerce" under the CGST Act and the MGST Act. This merely by virtue of the provisions of the IGST Act being incorporated within the provisions of the CGST and MGST Acts, by virtue of a legislation by incorporation and/or by fiction of law, the character of a transaction from 'export of services' is being altered into a transaction of an intra-State supply of services. 73. To appreciate such contention as urged on behalf of the petitioners, it would be first required to be examined as to which of these provisions of the CGST Act/MGST Act bring about an effect, that the provisions of the IGST Act in the context of the "export of services" become integral to the CGST Act or MGST Act. These provisions can be discussed hereunder. The provisions of the CGS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act; (65) "intra-State supply of services" shall have the same meaning as assigned to it in Section 8 of the Integrated Goods and Services Tax Act; ... ... ... (70) "location of the recipient of services" means,- (a) where a supply is received at a place of business for which the registration has been obtained, the location of such place of business; (b) where a supply is received at a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment; (c) where a supply is received at more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and (d) in absence of such places, the location of the usual place of residence of the recipient; (71) "location of the supplier of services" means,- (a) where a supply is made from a place of business for which the registration has been obtained, the location of such place of business; (b) where a supply is made from a place other than the place of business for which registration has been obtained (a fixed establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both. (5) The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services: Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax: Provided further that where an electronic commerce operator does not have a physical presence in the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under Chapter V of the IGST Act stand incorporated in the CGST Act, so as to create a legal fiction, that for the purposes of levy and collection of tax under the CGST Act, place of supply is required to be considered to be the location of the supplier. The provisions of the MGST Act are identical to the provisions of the CGST Act and, therefore, are not required to be separately noted so as to avoid repetition. 77. On the above backdrop, it needs to be examined whether the petitioners are correct in their contention that merely because Section 13(8)(b) as contained in Chapter V of the IGST Act stands incorporated by virtue of Section 2(86) read with Section 2(65) and other provisions of the CGST Act and the MGST Act, the same is required to be held to be illegal and unconstitutional, as the Parliament does not have legislative Competence to permit the CGST Act to tax export of services in relation to an intermediary under the CGST Act, by classifying the same as an 'intra-State supply of services'. In other words, the petitioner contends that considering the clear effect as brought about under Article 246A, Article 269A and Article 286, explicitly the Parliament does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion between the foreign supplier and the Indian importer, in the light of a destination based principle on which the Goods and Service Tax is founded. Even statutorily no interlinking of these independent transactions can be brought about, in view of the destination based principle on which the GST model operates and is founded. If such an analogy is derived from the cumulative reading of Section 13(8)(b) read with Section 8(2) of the IGST Act, so as to be read and applied under the provisions of the CGST and the MGST Act, in my opinion, it would lead not only to a consequence of double taxation but also to an implausible and illogical effect, in recognizing two independent transactions to be one transaction for the purpose of levy of CGST and MGST as intra-State trade and commerce. It is also for such reason, it would be quite fatal nay absurd to recognize two different transactions being clubbed together, merely for the purposes to be included and/or to be brought within the regime of the CGST and the MGST Act. 80. Thus, there appears to be substance in the contention as urged on behalf of the petitioners that applying the principles that the GST is the destination based tax, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conjoint reading of sub-Section (5) of Section 7 and the provisions of Section 13(8)(b) of the IGST Act. This is to the effect that sub-section (5) of Section 7, which categorically provides that in regard to supply of goods or services or both, when a supplier is located in India and the place of supply is outside India, such supply of goods or services shall be treated to be a supply of goods or services or both, "in the course of Inter-State trade or commerce", whereas in respect of a clear transaction of export of service as defined under sub-section (6) of Section 2 by virtue of Section 13(1), which provides that such provision shall apply to determine the place of supply of services where the location of the supplier of services or recipient of services is outside India, shall be the location of the supplier of services, when it concerns intermediary services, that is to classify the export of service as an 'intra-State' trade or commerce. Thus, on one hand, sub-section (5) of Section 7 categorizes such supply of services as an "inter-State trade or commerce" and in relation to the same supply of services by providing that the location of the recipient of the services being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under a robust taxing system. 84. In these circumstances, the approach of the Court would be by interpretative process to make the provisions of the respective enactments meaningful for their smooth and effective implementation. The duty of the Court would also to accept the constitutionality of the provision rather than being tilted to read the provision to be ultra-virus or unconstitutional. It may be observed that it is well-settled that every provision in an enactment is required to be understood and interpreted within the framework of the object and intention the legislation intends to achieve. The provisions are required to be interpreted so as to forward the intent of the legislation and the purpose sought to be achieved. The first approach of the Court would also be to give effect to the legislative wisdom and make an endeavour to presume constitutionality of the legislative provision rather than to have an approach to declare the same invalid. As noted above, this can be achieved by a process of interpretation, so that an attempt can be made to examine whether the provision can be rendered meaningful. Unless the provision falls foul of the well-settled norms to strike do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication." 86. Adverting to such principles, the legality of Section 13(8)(b) would be required to be examined. As discussed in some detail in examining 'whether Section 13(8)(b) would be required to be struck down', it is imperative for the Court to examine the context in which the provision stands embedded in the provisions of the IGST Act. As stated earlier, section 13 provides for place of supply of services where the location of the supplier or location of the recipient is outside India. Sub-section 8(b) provides that the place of supply in so far as intermediary services are concerned, shall be the location of the supplier of services. On first principles, the necessary implication of Section 13 would be to the effect that Section 13 is required to be held to be specifically confined only to the IGST Act. This becomes clear from the different legislative indications which are discernible from the provisions of the IGST Act itself, as discussed hereunder. 87. First and foremost, 'export of services' has been defined only under the IGST Act under Section 2(6); 'intermediary' has been defined for the purposes of IGST Act under Section 2(13). Thereafter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f supply shall be the location of the supplier of the intermediary services. By virtue of Section 13(1) read with sub-section 8(b) of the IGST Act, a corresponding effect to such transaction stands recognized by operation of Section 12(2)(b)(ii) of the IGST Act, that for such transaction, the place of supply of services shall include the location of the supply of services. On a cumulative reading of Sections 13 and 12 of the IGST Act, as can be instantly noted, by virtue of Section 8(2), necessarily such supply becomes an 'intra-State supply'. This is the second fiction which is created on a cumulative effect of Section 13(8)(b) read with Section 12(2)(b)(ii) read with Section 8(2), albeit that such a transaction is clearly a transaction of "export of services" as defined under Section 2(6), however, for the purposes of the IGST Act, it would amount to an 'intra-State supply'. It is thus difficult to conceive as to why the IGST Act would take within its ambit any intra-State supply, when the IGST Act itself is a legislation, which concerns GST to be levied on 'inter-State trade and commerce' and not on 'intra-State trade and commerce'. 89. Be that as it may, as not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be conveyed by the use of such words under the said circumstances. The Supreme Court in paragraph 28 has observed thus: "28. Now the principle is that all statutory definitions have to be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or context. That is why all definitions in statues generally begin with the qualifying words, similar to the words used in the present case, namely 'unless there is anything repugnant in the subject or context'. Thus there may be sections in the Act where the meaning may have to be departed from on account of the subject or context in which the word had been used and that will be giving effect to the opening sentence in the definition section, namely 'unless there is anything repugnant in the subject or context'. In view of this qualification, the Court has not only to look at the words but also to look at the context, the collocation and the object of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 14, the word 'supply' has been used specifically to mean 'distribution of electricity'. In Section 62(2) the word 'supply' has been used to refer to 'supply of electricity by a trader'. 99. To assign the same meaning to the word "supply" in Section 23 of the Act, as is assigned in the interpretation section, it is, in our opinion, necessary to take recourse to the doctrine of harmonious construction and read the statute as a whole. Interpretation of Section indisputably must be premised on the scheme of the statute. ....." 94. Adverting to the above principles of interpretation of statutes as also the principles of contextual interpretation of statutes as derived from Section 2 of the CGST and MGST Act(s), in my opinion, by virtue of such opening wordings of Section 2 providing that "In this Act, unless the context otherwise requires", the provisions of Section 13(8)(b) cannot be applied in a context which is not attracted and/or which is not provided for under the CGST Act and the MGST Act. The CGST Act and the MGST Act both pertain to 'intra-State supply of goods and services'. These enactments do not define what is 'export of services.' They also do not giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove, to permit "export of services" to be expressly brought under the regime of the "intra-State" supply. Further, in regard to levy of goods and services tax on supplies in the course of inter-State trade or commerce, is one such aspect, with which it would be the Parliament which would have the legislative competence, which is clear from the provisions of Clause (1) of Article 269A read with Clause (5) thereof. This position also stands compounded from the reading of Article 286 of the Constitution, which provides that no law of a State shall impose or authorize the imposition of a tax on the supply of goods and services or both, where such supply takes place inter alia in the course of import of the goods or services or both into or export of goods or services or both, out of the territory of India. However, by virtue of sub-clause(2) of Article 286, it is provided that the Parliament may by law formulate principles for determining when a supply of goods or services or both, takes place in any of the ways mentioned in clause (1) of such Article. 96. In the context of such provisions of the Constitution, it is difficult to conceive that the CGST Act, which has been enacted only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chand N. Shroff, by his Heirs and Legal Representatives 1963 Supp. 1 SCR 699. 99. In Voltas Ltd., Bombay vs. Union of India & Ors. 1995 Supp. SCR 498, it was held that the legislature by a statute may create a legal fiction and in such event, the Court has to give full effect to such statutory fiction after examining and ascertaining, as to for what purpose and between what parties, such statutory fiction has been resorted to. In such context, the Court observed thus: "8. The effect of a statute containing a legal fiction is by now well settled. The legislature by a statute may create a legal fiction saying that something shall be deemed to have been done which in fact and truth has not been done, but even then Court has to give full effect to such statutory fiction after examining and ascertaining as to for what purpose and between what parties such statutory fiction has been resorted to. In the well known case of East End Dwellings Co. Ltd. vs. Finsbury Borough Council, Lord Asquith has said: "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the tax under the Central Act, which were incidental to and part of the process of such payment and collection. It is in such context, the Court observed that the words in the State Act cannot possibly mean that the tax or penalty imposed under the State Act would be deemed to be tax or penalty payable under the Central Act. As the meaning attributed to some of the provisions of Central Act cannot be enlarged by the provisions under the State Act. 103. In view of the above discussion, I am not inclined 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. This more particularly considering the fact that the impugned provisions insofar as they stand and are applicable only under IGST Act. It may be observed that the legislative wisdom to have the provisions of Section 2(6), Section 7, Section 8(2), Section 12 and Section 13 under the IGST Act and the consequence of any such transaction of export of service being scrutinized for the benefit under Section 16 of a Zero Rated Tax, need not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng applied to an exporter of service. Be that as it may, such observations of the Division Bench appear to be not the case of the respondent-revenue, as the respondents are on record to canvass that persons like petitioners in regard to the transaction in question are required to be regarded as "intermediaries" within the meaning of Section 2(13) of the IGST Act, for the reason that such intermediaries receive commission in convertible foreign currency for the services provided by them as intermediaries. Thus, the consideration, on which the validity of the provisions of Section 13(8)(b) being upheld by the Court, was on a different analogy from what is argued before this Court in the present proceedings. For such reason, the scope of the present proceedings cannot be considered to be identical to the scope of the proceedings before the Court in such case. In this view of the matter, merely because the territorial jurisdiction to decide an issue of Constitutional validity would be available before different Courts as held by the Supreme Court in the decision in M/s. Kusum Ingots & Alloys Ltd vs. Union of India And Anr. (2004) 6 SCC 254, in the present context, such decision would n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the substantive provisions and not to the repealed Rules for any interpretation. The position that such Rules would stand repealed is also conceded on behalf of the respondents, and are no longer in force, although the defence of such Rules is taken in the counter affidavit. 107. As noted above in paragraph 50, it is also clear that there was an appropriate and serious concern on the present issue as raised by the "Department-Related Parliamentary Standing Committee On Commerce" in its 139th Report on Impact of Goods and Services Tax (GST) on Exports, presented before Rajya Sabha and Lok Sabha on 19 December 2017. Such report had made substantive observations that an amendment to Section 13(8) of the IGST Act is required to be thought of, to exclude intermediary services and make it subject to the default Section 13(2) so that, the benefit of export could be made available. Such observations of the Parliamentary Committee certainly must have fell for consideration of the respondents. It would definitely reflect upon the operation of Section 13(8)(2) outside the purview of the IGST legislation. 108. In so far as the contentions as urged on behalf of the State Government are concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder challenge is sustainable in law. The learned referee Judge had the occasion to consider the decisions in Jyoti Prokash Mitter (supra) and Shivani Properties (supra) and held that the learned Judges of the Hon'ble Division Bench having differed completely on the conclusions drawn and directions issued by the learned Single Bench and having framed the point of difference, as aforesaid, the decision would necessarily require consideration of four different points as appears from a reading of the impugned order of the learned Single Bench and all such points had to be decided to return a finding whether the order of the learned Single Bench was sustainable in law. 19. I am of the clear considered view that no statement of law laid down in Jyoti Prakash Mitter (supra) stands in the way of the course of action that I propose to adopt. There is no bar in expressing an opinion, while deciding a reference, by assigning reason(s) which would support such opinion. It has not been shown to me from Jyoti Prokash Mitter (supra) that the issue as to whether the referee Judge can assign separate reasons for his own conclusions without accepting any of the reasons assigned by the differi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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