TaxTMI 
TaxTMI 
2020 (8) TMI 11
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....ice Tax Act, 2017 (for short "the IGST Act, 2017") and to hold the same as ultra vires under Articles 14, 19, 265 and 286 of the Constitution of India with a direction to the respondent to refund of IGST paid on services provided by the members of the petitioner association and to their clients located outside India. 3. The petitioner is an association comprising of recycling industry engaged in manufacture of metals and casting etc., for various upstream industries in India. The members of the petitioner also act as an agents for scrape, recycling companies based outside India engaged in providing business promotion and marketing services for principals located outside India. The members of the petitioner also facilitate sale of recycled scrap goods for their foreign principals in India and other countries. Thus, the members of the petitioner association not only deal with goods sold by foreign principals to customers in India but also facilitate sale of goods by foreign principals in non-taxable territory to their customers, who are also located in non-taxable territories. The members of the petitioner association are registered as "Taxable Person" under the provisions of the ....
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....tes the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account;" 3.6 It is the case of the petitioner that Section-13 of the IGST Act,2017 deals with situations where location of the supplier or location of the recipient is outside India. Relevant extract of Section 13 of the IGST Act,2017 relied upon by the petitioner reads as under:- "13. (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 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: ****** (8) The place of supply of the 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....
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....8. Intra-State supply (1) .... (2) Subject to the provisions of section 12, supply of services where the location of the supplier and the place of supply of services are in the same State or same Union territory shall be treated as intra-State supply." 3.9 Chapter VII of the IGST Act,2017 specifies the conditions for supply to qualify as a "zero rated supply" and provides for service providers to claim refund of IGST with respect o the "zero rated supplies". Section 16(1) of the IGST Act,2017 reads as under :- 16(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." 3.10 Section 16(2) of the IGST Act,2017 provides for refund of input tax credit against zero rated supplies, which reads as under :- "(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 ....
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....sign the place of supply to be within India when clearly the services are being exported out of India. 6. It was further submitted that as per Section 13(8)(b) of the IGST Act,2017 if the supplier, who is providing intermediary services to a person situated outside India, the place where the services are deemed to have been supplied is the place where the supplier is located. Accordingly, such a transaction will be treated as intra-State supply as per Section 8 (1) of the IGST Act,2017 and the supplier is required to pay CGST and SGST. 7. Learned advocate for the petitioner relied upon the following illustration to explain the alleged anomaly of Section 13(8)(b) of the IGST Act,2017 by the following illustration. "A is situated in Ahmedabad and is engaged in providing intermediary services to B situated in Hong Kong. A receives a commission of 5 percent on sales concluded by B based on A's services. A connects B at Hong Kong with C at Mumbai and they conclude a sale of goods worth 100 USD. B pays 5 USD to A as commission. A will be required to pay 9% SGST and 9% CGST on services provided to B situated at Hong Kong for which it receives 5 USD." Referring to the above illust....
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....violative of Article 14 of the Constitution of India as it renders differential treatment when services supplied within territory of India and when supplied outside the territory of India. It was submitted that if the supplier and recipient of intermediary services are located in the territory of India, then as per Section 12 of the IGST Act,2017 there is no separate provision carved out which prescribes a special treatment for intermediary services. Under Section 12 (2)(a) of the IGST Act,2017 the place of supply of intermediary services shall be location of the recipient. However, Under Section 13 (8)(b) of the IGST Act,2017 when either the supplier or the recipient is situated outside the territory of India, the place of supply shall be deemed to be where the supplier is located. It was therefore, pointed-out that there are different yardsticks prescribed for the same set of services when both parties are situated within and outside India. 11. It was also submitted that Section 13 of the IGST Act,2017 prescribes special rules for determining the place of supply when the nature of services is peculiar i.e. the services can only be rendered in the physical presence of goods, th....
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....on based in Mumbai provides management consultancy service on a remote basis to B located in New York. The place of supply shall be New York and tax implication shall be Nil as the same would be treated as export of service. (ii) However, when person C in Ahmedabad provides intermediary services on a remote basis to person D in London to procure an order from person E based in Chennai, the place of supply shall be Ahmedabad and he would be liable to pay CGST and SGST in Gujarat. (iii) On the other hand if the person C in Ahmedabad provides intermediary services to person F based in Delhi to procure an order from person D in London the place of supply shall be Delhi where the recipient is located and the only tax implication would be IGST and person C in Ahmedabad would not be liable to pay CGST and SGST as the person F would be liable to pay the tax as the place of supply would be Delhi. 15. In view of the aforesaid illustration, it was submitted that treating the intermediary services provided by the members of the petitioner association to be the place of supply at India according to Section 13(8)(b) of the IGST Act,2017 would result into violation of Article....
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....itizens to "steer far wider of the unlawful zone..... than if the boundaries of the forbidden areas were clearly marked." 18. Learned advocate for the petitioner also relied upon the decision of Apex Court by which Section 66A of the Information Technology Act, 2000 was struck down in the case of Shreya Singhal vs. Union of India (2015) 5 SCC 1. It was submitted that the Apex Court has explained the concept of "vagueness" at length and held that the Section 66A of the Information Technology Act, 2000 suffers from the vice of vagueness and is liable to be struck down. It was therefore, contended that applying the same yardstick in the present case, Section (13)(8)(b) of the IGST Act,2017 suffers from incurable defect of vagueness and is therefore, liable to be struck down. 19. Thereafter, referring to the scheme of the Goods and Service Tax, which has come into effect from 2017, it was submitted that the GST is a destination based tax system whereas, Section 13(8)(b) of the IGST Act,2017 which prescribes the place of supply for intermediary service is nothing but aberration and therefore, in order to preserve the basic foundation of scheme of GST as a levy as emphasized in par....
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....rt (supra), wherein the rationale behind introduction of GST explained and reads thus : "1.9 Secondly, to do away with the cascading effect of taxes due to 'tax on tax' and to allow seamless flow of credit across goods and services as under the erstwhile indirect tax regime no credit of excise duty and service tax paid at the stage of manufacture was available to the traders while paying the State level tax or VAT, and vice-versa. Further, no credit of State taxes paid in one State could be availed in other States. Hence, the prices of goods and services got artificially inflated to the extent of this 'tax on tax'." Referring to the above it was submitted that rationale behind the Introduction of the GST Law is well understood in the GST council in order to effectively implement the same in various meetings, the issue with regard to which are arising out of implementation of GST have been addressed. However, issue concerning the Section 13(8)(b) of the IGST has continued remained unsolved. 23. Thereafter, learned advocate for the petitioner submitted that Section 13(8)(b) of the IGST Act,2017 suffers from the defect of unreasonableness as it creates a deeming fiction by....
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....es the following further amendments in the notification of the Government of India, in the Ministry of Finance (Department of Revenue) No.9/2017 - Integrated Tax (Rate), dated 28^th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 684 (E), dated the 28th June, 2017, namely:-" (c) after serial number 12A and the entries relating thereto, the following serial number and entries shall be inserted, namely:- (1) (2) (3) (4) (5) "12A Heading 9961 Services provided by an intermediary when location of both supplier and recipient of goods is outside the taxable territory. Nil Following documents shall be maintained for a minimum duration of five years: 1) Copy of Bill of Lading 2) Copy of executed contract between Supplier/Seller and Receiver/Buyer of goods 3) Copy of commission debit note raised by an intermediary service provider in taxable territory from service recipient located in non-taxable territory 4) Copy of certificate of origin issued by service recipient located in non-taxable territory 5) Declaration letter from an intermediary service provider in taxable t....
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....he recipient is located outside the India which results in double taxation and is not in line with the destination based principle as was intended by the GST legislation. 28. Learned advocate for the petitioner also relied upon the recommendation of the Tax Research Unit of Central Board of Indirect Taxes & Customs as per the TRU Office Memorandum dated 17th July 2019 acknowledging the representation made by the petitioner. In the said Memorandum the following recommendations are made. "8.1 Based on revenue consideration and international practice of taxation of such supplies and also on the basis that the place of use & effective enjoyment of service in B2B supplies is location of recipient in non-taxable territory, Option 2 in para 5 may be considered for suitable amendments in law by Law Committee as below:- In case of B2B intermediary service, the place of supply where location of supplier or location of recipient of services is outside India is presently governed by Section 13(8) of IGST Act may be changed to location of the service recipient. However, in case of B2C intermediary service, the place of supply in such cases may be changed from location of in....
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....inafter referred to as "IGST Act) as under- "intermediary" means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account;" * The definition of intermediary inter alia provides specific exclusion of a person who supplies such goods or services or both or securities on his own account * The key representation received from the trade has been that the Circular does not provide clear criteria features for a particular services to be classified as intermediary service * It has been represented that these features were available in the erstwhile service tax regime. It is felt that the same features may help ascertain whether a services is an intermediary services or not * Number of parties: Intermediary services involves minimum three parties and the service provider providing intermediary service involved with two supplies at any one time * Nature and value: An intermediary cannot alter the nature or....
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....of intermediary services when location of supplier of goods and location of recipient of goods is outside the taxable territory subject to conditions and safeguards prescribed in this regard Analysis: Supply of goods from a place in non-taxable territory to another place in the nontaxable territory without such goods entering into India is neither a supply of goods nor a supply of services [Entry No. 7 of Schedule III of CGST Act w.e.f. 01.02.2019 refers). However, intermediary services provided in such supply are still taxable in India as place of supply is in India as per Section 13(8)(b) of IGST Act. The request from IGST exemption on such intermediary services was taken to Fitment Committee meeting held on 14.12.2018. Fitcom deferred the matter for want of safeguards to ensure exemption is not misused by the trade. As directed by FITCOM, discussions were held with the trade and suggestions on safeguards/conditions required for granting exemption (when both the supplier and receiver of goods are outside India) and measures to avoid any potential misuse were deliberated and the suggestions on same are as below." 35. Referring to the above recommendations, it was submi....
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....e petitioner from time to time. SUBMISSIONS ON BEHALF OF THE RESPONDENTS: 39. On the other hand, learned advocates appearing for the respondents submitted that the contention of the petitioner that the petitioner is forced to pay CGST/IGST on Services exported out of India, therefore the petitioner has challenged the legislative competence of Union Of India, and the services provided by the petitioner is export of services and is zero rated supply and thus IGST cannot be levied thereon is not tenable in law as the petitioner is providing intermediary services to the recipient located outside the Indian Territory and under Section 2(13) of IGST Act, 2017 'intermediary' has been defined to mean a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both or securities, between two or more persons, but does not include a person who supplies such goods or services on both or securities on his own account. It was submitted that the services provided by intermediaries located in India to the recipient located outside India in lieu of fee or commission charged for the said services, amounts to 'supply' of se....
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....ion of the Government of India. The existing provisions are in consonance with preGST era i.e. Service Tax provisions because till 01.10.2014 Place of Supply (POS) of intermediary services in relation to goods was the location of recipient (default rule, rule 3 of Place of Provision of Services Rules, POPSR) and in relation to services, it was the location of service provider, i.e. the location of the intermediary (rule 9(c) of POPSR). In terms of Section 66B of the Finance Act, 1994, such services were subject to service tax irrespective of the fact that the services were consumed in India or otherwise. It was therefore, submitted that being a policy decision of the Government, the levy cannot be said to be unlawful or violating the tenets of the Constitution of India. 43. It was further submitted that the Parliament has got wide amplitude to create deeming fiction/s under taxation matters and to levy tax thereon. In this regard changes have been brought in the Constitution by way of The Constitution (One Hundred and First Amendment) Act, 2016 and reliance was placed on provision of Article 246A of the Constitution Of India which reads thus: "246A. Special provision wi....
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....e, the question of extra-territoriality of any enactment can never be raised in the municipal Courts as a ground for challenging its validity." (iii) In GVK Industries Ltd. V. Income Tax Officer [(2011) 4 SCC 36], the Apex Court examined the limitation of Parliament in enacting legislations with respect to extraterritorial aspects as under: "124. We now turn to answering the two questions that we set out with: (1) Is Parliament constitutionally restricted from enacting legislation with respect to extra-territorial aspects or causes that do not have, nor expected to have any, direct or indirect, tangible or intangible impact(s) on or effect(s) in or consequences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, wellbeing of, or security of inhabitants of India, and Indians? The answer to the above would be yes. However, Parliament may exercise its legislative powers with respect to extraterritorial aspects or causes-events, things, phenomena (howsoever commonplace they may be), resources, actions or transactions, and the like-that occur, arise or exist or may be expected to do so, natural....
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....d above in the answer to Question 1 above. Such laws would fall within the meaning, purport and ambit of the grant of powers to Parliament to make laws "for the whole or any part of the territory of India", and they may not be invalidated on the ground that they may require extra-territorial operation. Any laws enacted by Parliament with respect to extra-territorial aspects or causes that have no impact on or nexus with India would be ultra vires, as answered in response to Question 1 above, and would be laws made "for" a foreign territory." 45. 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 concerned, the place of provision of service of an intermediary being the location of the service provider is a purposeful and considered as policy decision of the Government of India as the same situation has existed in the erstwhile service tax regime where with effect from 01.10.2014, the place of provision of services of an intermediary, such as the petitioner, was considered to be the location of the serv....
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.... Consultancy Service and tax is payable for Intermediary Service in respect of the illustration given by the petitioner, whereas tax is payable for Management Consultancy Service and No tax is payable for Intermediary Service Both the Illustrations shows that equal treatment is given to intermediary service and there is no violation of Article 14 of the Constitution. 48. It was submitted that with regard to reliance placed by the petitioner upon the Office Memorandum F. No 354/352/2018- TRU dated 17.07.2019, is based on the suggestions/preliminary views given by TRU and it was not the final decision taken by the Government as it is clearly mentioned in Para 9 of the said memorandum that "The above views are preliminary views of TRU and in the internet meetings, final views would need to be made for the CBIC." It was therefore, contended that in view of the above, the said Office Memorandum has no legal force as the members of the petitioner is providing Intermediary Service and there is no change in the definition as provided in subsection (13) of Section 2 of the IGST Act, 2017 and provisions related to place of supply as provided under Section 13 of IGST Act, 2017 ....
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....which is competent to levy a tax must inevitably be given full freedom to determine which articles should be faxed, in what manner and at what rate. 52. It was submitted that GST is a destination based tax and in case of inter-state transaction where supplier or recipient of service is located in taxable and non-taxable territory, by default rule under section 13(2) of the IGST Act, 2017, the place of supply is the location of the service recipient. However, there are exceptions to this rule and sub-section 13(3) to 13(12) deals with such exceptions in different situations covered under each of these subsections, 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 these exceptions 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. It was therefore submitted that there is no violation of Article 14 of the Constitution Further departure from default rule is also legal....
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....iaries to the recipients outside India are not export of services irrespective of the mode of payment since the service provided by the members of the petitioner is not export of service, the question of Violation of Article 265 and 286 of the Constitution of India does not arise. 56. In this regard reliance was placed up on the decision of the Hon'ble Supreme Court in the case of M/s.Jindal Stainless Ltd. V. State of Haryana, vide Order dated 11.11.2016 in CA No.3453/2002 wherein it is held that, the power of taxation is controlled under Article 265 of the Constitution and that, no tax can be levied, except by authority of law. It was therefore submitted that IGST Act, 2017 cannot be held to be unconstitutional as taxability of intermediary services comes within the scope and ambit of IGST Act, 2017 and accordingly, intermediary services can be taxed under the IGST Act, 2017.It was further submitted that the provisions of intermediary service as per section 13(8)(b) of the IGST Act, 2017 are not violative of Article 286 of the Constitution of India because, there is no tax if place of supply of Intermediary service is outside the taxable territory, however, since the place of s....
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....service to the principal and the place of effective use and enjoyment of such service is in the territory where the agent is representing the principal. It was therefore, submitted that general rule is not an appropriate proxy for determining the place of supply of service of an agent/intermediary, for example, if an Indian exporter hires a service of an agent located overseas for export of service, such service should not be subject to tax in India as effective use and enjoyment of service would be outside India and relatable to export of service from India but if general rule is applied to such service, the intermediary services availed for the purposes of exports would be taxed whereas any intermediary service used for imports of services into India would be outside the tax net which would bring distortion in the tax regime and therefore, intermediary services are to be accorded distinctive treatment. 60. It was submitted that internationally also the intermediary services are treated distinctly from other services in approach as suggested by OECD for taxation of services, it recommends a distinct approach for taxation of intermediary services. An intermediary is a go-between....
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.... and IGST Act,2017, the only question which arise whether the provisions of Section 13(8)(b) r.w.s. 2(13) and 8(1) of the IGST Act,2017 are ultra vires and unconstitutional or not. 64. The introduction of Goods and Service Tax in India in the year 2017 is with an object of providing one tax for one nation so as to harmonize the indirect tax structure in the country. For the said purpose, the Constitution is amended by the Constitution (One Hundred First Amendment) Act, 2016 to bring on to introduce Article 246A which provides for special provision with respect 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. Clause 2 of Article 246A empowers the parliament, who 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. Thus, the parliament has exclusive power under Article 246A to frame laws for inte....
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.... and if the location of recipient of service is not available in the ordinary course of business, the place of supply shall be location of supplier of service. Thus, subsection 3 to 13 carves out an exception to the place of supply of services to be the place of recipient of services where the location of supplier or location of recipient is outside India. On perusal of provision of Section 13 of IGST Act,2017, sub-section 3 to 13 thereof provide different eventualities to determine the place of supply of services. Sub-section 3 describes place of supply of services where the services are actually performed, Sub-section 4 refers to place of supply of services supplied directly in relation to an immovable property, Sub-section 5 refers to supply of services supplied by way of admission to, or organization of a cultural artistic etc. and Sub-section 6 provides that when services as provided in subsections 3, 4 and 5 are at more than one location, the place of supply shall be location of taxable territory, Section 7 refers to the location of supply of service, if it is Union territory or State ,then it would be in proportion to the value for services separately collected or determined....
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.... is received in India, it would not qualify to be export of services, more particularly when the legislature has thought it fit to consider the place of supply of services as place of person who provides such service in India. 67. Therefore, there is no deeming provision as tried to be canvassed by the petitioner, but there is stipulation by the Act legislated by the parliament to consider the location of the service provider of intermediary to be place of supply. Similar situation was also existing in service tax regime w.e.f. 1st October 2014 and as such same situation is continued in GST regime also. Therefore, this being a consistent stand of the respondents to tax the service provided by intermediary in India, the same cannot be treated as "export of services" under the IGST Act,2017 and therefore, rightly included in Section 13(8) (b) of the IGST Act to consider the location of supplier of service as place of supply so as to attract CGST and SGST. 68. The contention of the petitioner that it would amount to double taxation is also not tenable in eyes of law because the services provided by the petitioner as intermediary would not be taxable in the hands of the recipient....