2023 (4) TMI 821 - HC - GST

Section 13(8)(b) and 8(2) of IGST Act constitutional but limited to IGST framework, cannot apply to CGST/MGST for export services

Bombay HC held that Section 13(8)(b) and Section 8(2) of IGST Act 2017 are constitutional and valid, but their operation is confined only to IGST Act ... Place of supply - intermediary services - export of services - destination-based consumption tax - deeming fiction - incorporation of IGST provisions into CGST/MGST - zero-rated supply - legislative competence under Article 246A and Article 269A - Article 286 restrictions on state taxation - constitutional validityIntermediary services - place of supply - export of services - deeming fiction - incorporation of IGST provisions into CGST/MGST - zero-rated supply - legislative competence under Article 246A and Article 269A - Article 286 restrictions on state taxation - Validity and territorial scope of Section 13(8)(b) of the IGST Act and Section 8(2) of the IGST Act - HELD THAT: - The Court held that Section 13(8)(b) (place of supply for intermediary services being location of supplier) and Section 8(2) of the IGST Act are not unconstitutional and are valid provisions within the IGST Act. The Court analysed the statutory framework created by the 101st Constitutional Amendment, the definition of 'export of services' in Section 2(6), the place of supply rules in Chapter V (Sections 12 and 13) and the charging schemes under the IGST, CGST and State GST Acts. It found that those IGST provisions operate by a statutory deeming fiction for the purposes of the IGST Act and, read within the IGST code, can render certain intermediary transactions intra State for IGST place of supply determination. However, the Court concluded that the deeming fiction in Section 13(8)(b) cannot be extended beyond the IGST Act to authorize levy of CGST/SGST on exports of services: the CGST/MGST Acts are confined to intra State supplies and their definitions/importation of IGST place of supply rules must be read in context ('unless the context otherwise requires'). Applying principles of contextual interpretation and established limits on statutory fictions, the Court ruled that the IGST deeming must be confined to the IGST code and cannot be used to convert exports of services into taxable intra State supplies under CGST/MGST, because that would conflict with Articles 246A, 269A and Article 286 and would produce anomalous double taxation and undermine the destination based scheme (including zero rating under Section 16). The Court therefore preserved constitutionality of the impugned provisions only on the basis that they are confined in operation to the IGST Act and shall not be applied to sustain CGST/SGST levy on export of services. [Paras 96, 97, 103, 109, 113]Section 13(8)(b) and Section 8(2) of the IGST Act are valid, but their operation is confined to the IGST Act and they cannot be relied upon to levy CGST/SGST on exports of services.Final Conclusion: Reference answered: Section 13(8)(b) and Section 8(2) of the IGST Act are constitutionally valid when confined to the IGST Act; they cannot be applied to sustain levy of CGST or SGST on export of services, and therefore shall not be used to convert export of services into taxable intra State supplies under the CGST/MGST Acts. Issues Involved:1. Constitutional validity of Section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017 (IGST Act).2. Constitutional validity of Section 8(2) of the IGST Act.3. Applicability of Section 13(8)(b) and Section 8(2) of the IGST Act under the Central Goods and Services Tax Act (CGST Act) and Maharashtra Goods and Services Tax Act (MGST Act).Summary:Issue 1: Constitutional validity of Section 13(8)(b) of the IGST ActThe petitioners challenged Section 13(8)(b) of the IGST Act, contending it is unconstitutional and violates Articles 14, 19, 245, 246, 246A, 248, 265, 269A, and 286 of the Constitution. The petitioners argued that the section creates a fiction that treats export of services as intra-State supply, which contradicts the destination-based principle of GST. The court observed that Section 13(8)(b) should be confined to the IGST Act and cannot be applied under the CGST and MGST Acts. The court upheld the validity of Section 13(8)(b) within the context of the IGST Act, but it cannot be used to levy tax under the CGST and MGST Acts.Issue 2: Constitutional validity of Section 8(2) of the IGST ActThe petitioners also challenged Section 8(2) of the IGST Act, arguing it is unconstitutional for similar reasons as Section 13(8)(b). The court held that Section 8(2) is valid within the context of the IGST Act but cannot be applied under the CGST and MGST Acts for taxing export of services.Issue 3: Applicability of Section 13(8)(b) and Section 8(2) of the IGST Act under the CGST and MGST ActsThe court examined whether the provisions of Section 13(8)(b) and Section 8(2) of the IGST Act could be incorporated into the CGST and MGST Acts. It concluded that these provisions are confined to the IGST Act and cannot be applied under the CGST and MGST Acts. The court emphasized that the IGST Act deals with inter-State trade and commerce, while the CGST and MGST Acts pertain to intra-State supply. Therefore, the fiction created by Section 13(8)(b) should not extend to the CGST and MGST Acts.Conclusion:The court upheld the constitutional validity of Section 13(8)(b) and Section 8(2) of the IGST Act, provided they are confined to the IGST Act. These provisions cannot be applied for levy of tax on services under the CGST and MGST Acts. The reference was answered accordingly, and the matter was directed to be placed before the Division Bench.