Sec 13(8)(B) & 8(2) Of IGST Act Are Intra Vires Constitution, Same Cannot Be Used To Levy Tax On Services Under CGST & MGST: Bombay HC
Observing that the intention of the legislature is not to tax such transaction of export of services, which is also categorized as an intermediary service both under the IGST Act as also under the CGST and the MGST Acts, the Bombay High Court ruled that it would be too far-fetched to hold that the intention of Section 13(8)(b) read with Section 8(2) of the IGST Act is to reach out to such foreign transactions so as to tax them as an intra- State trade and commerce, which has no foundation for taxability, either under the IGST Act or CGST/MGST Act.
If the contention as urged on behalf of the Respondents/ Department is accepted, then the definition of "export of services" as contained in Section 2(6) of the IGST Act and the consequences of export of services as the law would mandate including under Section 16 of the IGST Act, would stand nullified and/or rendered meaningless, added the Court.
The Bench of Justice G. S. Kulkarni observed that the provisions of Section 13(8)(b) and Section 8(2) of the Integrated Goods and Services Tax Act, 2017 (IGST) are confined in their operation to the provisions of IGST Act only and the same cannot be made applicable for levy of tax on services under the CGST Act and MGST Act.
Hence, on such interpretation, the provisions are intra vires the Constitution, the IGST, the CGST, and the MGST Acts, added the Bench.
Advocates Bharat Raichandani & Rishabh Jain appeared for the Petitioner and ASG Anil C. Singh, AGP Jyoti Chavan & Dushyant Kumar with Senior Advocate Pradeep Jetly appeared for the Respondent.
In a nutshell, the Petitioners primarily challenge the constitutional validity of the provisions of Section 13(8)(b) of the provisions of Section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017, since there was difference of opinion between the fellow Judges. One of the Division Bench Judges struck down Section 13(8)(b) of the IGST Act as ultra vires the IGST Act, besides being unconstitutional, whereas the companion Judge upheld the validity of the said provisions on all counts. Therefore, in view of the cleavage of opinion, the Division Bench recording ordered that the proceedings be placed before the Chief Justice. Consequent thereto, by an order passed by the Chief Justice, the proceedings are referred for the opinion of this Court.
After considering the submissions, the High Court noted 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. 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 the Constitution and the provisions of the IGST Act or otherwise.
Explicitly, by virtue of clause (1)(b) of Article 286 of the Constitution, no law of a State can impose, or authorize the imposition of, a tax on the supply of goods or of services or both, where such supply takes place outside the State; or in the course of the import or export of the goods or services outside the territory of India, added the Court.
The Bench observed that the transactions in question of the petitioners are in fact a transaction of export of service, as the recipient of service is the foreign principal since 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 contraindication that "factually" it can be regarded as either inter-State or intra-State sale of services, added the Bench.
The High Court elucidated that 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 service”, the place of supply shall be (is deemed to be) the location of supplier of services.
“The legal consequence as brought about by such deeming combination is that a supply of service, of the nature of intermediary services, which is in the nature of "export of service" as defined under Section 2(6) of the IGST Act becomes an "intra-State" sale falling under the charging provision (Section 9) of the CGST Act and the MGST Act. Thus, according to the petitioners, a transaction/trade or commerce which is necessarily a transaction of "export of service" becomes an 'intra-State'/local transaction, being available to be taxed as an intra- State transaction. The contention of the petitioners is also to the effect that once a transaction is of export of services and as defined under Section 2(6) of the IGST Act, in regard to which there is no definition under Section 2 of CGST Act or under section 2 of MGST Act, Section 13(8)(b) cannot by a legal fiction and/or an implication form any transaction to be taxed under the CGST Act and MGST Act, by categorizing it to be an intra-State sale”, opined the Court.
The High Court admitted that there is an apparent dichotomy, as a transaction of export of services as that of the petitioners, on one hand, is treated as inter-State trade or commerce by virtue of sub-section (5) of Section 7, and on the other hand, the same transaction is treated as an intra-State trade and commerce by virtue of Section 13(8)(b) of the IGST Act.
Observing that it is not necessary to consider the validity of the provisions of IGST on the touchstone of Articles 14 and 19(1)(g) of the Constitution as canvassed by the petitioners, the High Court refused 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.
It also cannot be overlooked that there is the likelihood that there are categories of transactions in relation to the intermediaries which may stricto sensu fall under the provisions of the IGST Act only and hence, dislodge the provisions of Section 13(8)(b) from the IGST Act merely because it is deemed to have an application under the CGST Act and the MGST Act qua the export of service, in regard to such categories of persons who can also be classified as intermediaries, would be a fatal proposition, concluded the High Court.
Cause Title: Dharmendra M. Jani and Anr. v. Union of India and Ors.