Section 13(8)(b) IGST Act treating intermediary services to overseas customers as intra-state supply upheld as constitutionally valid

The Bombay HC dismissed a petition challenging Section 13(8)(b) of the IGST Act, which treats intermediary services to overseas customers as intra-state supply. The petitioner, an intermediary providing services to overseas customers who export goods to India, argued the provision violated constitutional principles by deeming inter-state supply as intra-state. The HC held that Parliament has constitutional authority under Articles 269A(5) and 246A to determine place of supply for intermediary services. The provision was found neither arbitrary nor discriminatory under Article 14, as it creates reasonable classification with intelligible differentia. The court rejected claims of double taxation and extra-territorial operation, ruling the provision constitutionally valid and within legislative competence.

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Issues Involved:
1. Constitutionality of Section 13(8)(b) of the IGST Act.
2. Violation of Articles 14, 19(1)(g), 245, 246A, 269A, and 286 of the Constitution of India.
3. Ultra vires the IGST Act and Section 9 of the CGST Act/MGST Act.
4. Double taxation concerns.

Detailed Analysis:

1. Constitutionality of Section 13(8)(b) of the IGST Act:
The court examined whether Section 13(8)(b) of the IGST Act, which stipulates that the place of supply for intermediary services is the location of the supplier, is unconstitutional. The judgment concluded that this provision is constitutionally valid. The court emphasized that the Parliament has the authority under Articles 246A and 269A of the Constitution to legislate on the place of supply and the nature of supply, including intermediary services.

2. Violation of Articles 14, 19(1)(g), 245, 246A, 269A, and 286 of the Constitution of India:
- Article 14 (Equality before Law):
The court held that there is no discrimination between the petitioner and other exporters of services. The classification of intermediary services under Section 13(8)(b) is based on intelligible differentia and has a rational nexus to the objective of preventing revenue leakage and ensuring proper tax collection. Therefore, the provision does not violate Article 14.

- Article 19(1)(g) (Right to Practice Any Profession):
The court found no unreasonable restriction on the petitioner’s right to carry on business. Section 13(8)(b) does not impose any restriction or lead to the closure of the petitioner’s business but merely stipulates the place of supply for tax purposes.

- Article 245 (Extent of Laws Made by Parliament):
The court clarified that Section 13(8)(b) does not have extra-territorial operation and is within the legislative competence of the Parliament as it pertains to the taxable territory of India.

- Articles 246A and 269A (Special Provisions with Respect to Goods and Services Tax):
The court affirmed that the Parliament has the exclusive power to legislate on inter-state supply of goods and services and to determine the place of supply. Section 13(8)(b) is enacted under this authority and is thus constitutionally valid.

- Article 286 (Restrictions as to Imposition of Tax on the Sale or Purchase of Goods):
The court noted that Article 286 prevents states from imposing tax on supplies outside their jurisdiction and on imports/exports. Section 13(8)(b) does not authorize states to levy such taxes and is consistent with Article 286.

3. Ultra vires the IGST Act and Section 9 of the CGST Act/MGST Act:
The petitioner argued that Section 13(8)(b) is ultra vires the IGST Act and Section 9 of the CGST Act/MGST Act. The court rejected this argument, stating that Section 13(8)(b) pertains to the place of supply, while Section 9 pertains to the levy of tax on intra-state supplies. These sections operate in different fields and do not conflict with each other.

4. Double Taxation Concerns:
The court addressed the petitioner’s concern about double taxation, clarifying that there are two distinct supplies involved: the intermediary service provided by the petitioner and the import of goods by the Indian purchaser. The intermediary service is liable to IGST, while the import of goods is subject to customs duty. There is no overlapping or double taxation as each tax applies to a different transaction.

Conclusion:
The court upheld the constitutionality and validity of Section 13(8)(b) of the IGST Act, finding it consistent with the provisions of the Constitution and the IGST Act. The petition was dismissed, and the court found no merit in the arguments regarding violation of constitutional rights, ultra vires claims, or double taxation concerns.

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