AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (8) TMI 11
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....") 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 Central Goods & Service Tax Act, 2017 (for short "....
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.... 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, including yachts but excluding aircrafts and vessels, up to a period of one month." 3.7 The petitioner has thereafter, referred to the Section ....
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....ry 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 such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilized input tax credit; Or (b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be pres....
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.... 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 illustration, it was pointed-out that though the services are rendered outside India, the member of the petitioner association is subjected to make the payment of CGST and SGST in view of the provision of Section 13(8)(b) of the IGST Act,2017 as the services would not be considered as export of services, but same would be considere....
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....e 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, then it shall be deemed to have been rendered where the goods are located. 12. It was submitted that it is settled law that the test prescribed by Article 14 of the Constitution of India has to be satisfied for any class of legislation (delegated or otherwise) to survive. It was submitted that there should be intelligible differentia ....
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....e 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-14 of the Constitution. 16. Learned advocate for the petitioner submitted that the definition of intermediary provided under Section 2(13) of the IGST Act,2017 provides that -- "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 ....
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....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 para2.51 of the Rajya Sabha Select Committee Report on the Constitution (One Hundred and Twenty Second) Amendment Bill, 2014 presented on 22nd July 2015 was relied upon which reads as under :- "2.51. In respect of this clause some Members proposed amendment that while discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the ....
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....ate 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 which the place of supply for a transaction involving a resident supplier of services providing advisory like services to a nonresident shall be deemed to be India, which is a clear export of service, which is contrary to the object of GST law. 24. Reliance was placed on the decision of Bombay High Court in case of Repro India Ltd. reported in 2009 (235) ELT 614 in relation to a dispute pertaining to re....
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....al 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 territory on company letter head confirming that commission debit note raised relates to contract when both supplier and receiver of goods are outside the taxable territory"; 26. Referring to the above Notification granting exemption for intermediary services when recipient of such service and also the seller of goods and recipient of goods are located outside, the rate of IGST is provided as Nil, therefore, the results in distinction between services being ....
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.... 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 intermediary to the place of supply of the underlying supply. Section 13 of the IGST may be amended accordingly." 29. It was submitted that though the recommendations were made by the Central Board of Indirect Taxes and Custom, Notification no.20/2019 - IGST (Rate) dated 9th September 2019 only takes care of the transaction of intermediary service provided by a resident supplier to an overseas recipient shall be exempt when the resultant purchaser of goods is located outside India. Thus, the intermediary service is ....
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....eived 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 value of the services or goods, the supply of which he facilitates on behalf of his principal, although the principal may authorize the intermediary to negotiate a different price * Separation of value: The value of an intermediary's service is invariably identifiable from the main supply of service or goods that he is arranging. Generally, the amount charged by an agent from his principal is referred to as "commission" * Identity and title: The service provided by the intermediary on behalf of the principal is clearly identifiable * A new Circular based on the key features abov....
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....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 submitted that the exemption that has been carved out by virtue of notification no.20/2019 - Integrated Tax (Rate) dated 30th September 2019 is baseless and calls for differential treatment between the service providers basis of the location of the ultimate recipients of the goods. If such ultimate recipient is based outside India, there shall be no GST implication and if such ultimate recipient is based within India, then provision of intermediary services would attract GST. It was thus submitted that the object sought to be achieved by such differential treatment is not clear and Notification no.20/2019 also suffers from effect from b....
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.... 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 services whereas Section 13 of IGST Act, 2017 determines the place of supply of services in those cases where either the location of supplier or the location of recipient is outside India, however, Section 13(2) provides that the place of supply shall be the 'location of the recipient unless the services falls within the ambit of specified sections from 13(3) to 13(13) of the CGST Act, 2017. Therefore, as per Section 13(8)(b) of the IGST Act, 2017, the place of supply in case of the Intermediary services shall be the 'location of the supplier of services'. Since, the location of the supplier is in the taxable territorial of India, the plac....
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....ent, 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 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." ....
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.... (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, naturally or on account of some human agency, in the social, political, economic, cultural, biological, environmental or physical spheres outside the territory of India, and seek to control, modulate, mitigate or transform the effects of such extra-territorial aspects or causes, or in appropriate cases, eliminate or engender such extra-territorial aspects or causes, only when such extra-territorial aspects or causes have, or are expected to have, some impact on, or effect in, or consequences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, well-being of, or security of inhabitants of India, and Indians. 125. It is important for us to state and hold here that the powers of legislation of Parliament with regard to all aspects or cau....
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....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 service provider. 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. 46. With respect to contentions of the petitioner that exporting taxes is against principles of VAT under international best practices, it was submitted that when the service is not considered as export of service, the contention of the petitioner that exporting taxes is against principles of VAT under international best practices is not tenable. It was further submitted that the benefits accruing to exporters of services are meant for those who actually export services and not to every other entity which is directly or indirectly associated with the exporter because an intermediary is one who by definition does not p....
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....herefore, 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 since enactment of GST Act, 2017. 49. With respect to the contention of the petitioner that there is conflict between Section 13 (2) and 13(8) (b) of IGST Act, 2017 resulting in absurdity in the law, it was submitted that there is no conflict between section 13(2) and 13(8)(B) IGST Act, 2017 inasmuch as Section 13(2) provides that the place of supply shall be the location of the recipient unless the services falls within the ambit of specific sections from 13(3) to 13(13) of the IGST Act, 2017. However, in pursuance of Section 13(8)(b) of the IGST Act, 2017, the place of supply in case of the Intermediary services shall be the location of the supplier of services and on bare reading, it reveals that both the Sub Sections are clear in nature. 50. With respect to contentions of the petitioner that Section 13(8) of IGST Act, 2017 lac....
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....d 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 legally permissible and tenable. 53. With respect to contentions of the petitioner that parliamentary report on export highlights the intent not to tax members of the petitioner, it was submitted that the 139th report on the impact of GST Act on exports presented before the Parliament on 19 December 2017 noted that service providers rendering services to overseas suppliers of goods earn commission in convertible foreign exchange, IGST is levied on such commission because the Government does not recognize their services as "exports" and such report of the Parliamentary Committee is an advisory in nature. It was further submitted that the GST Council is a constitutional body with the representation of Union and State Governments and the GST Council alone has the power to consider such views of the trade/commerce/parliamentary committees and recom....
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.... 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 supply of intermediary is the location of service provider, such Services are taxed if the intermediary service provider is located within the taxable territory. 57. With respect to contentions of the petitioner that pith and substance of the law is to tax supplies made in India and not to tax supplies made outside India, it was submitted that in pursuance of Section 13(8)(b) of the IGST Act, 2017, the place of supply in case of the intermediary Services shall be the location of the supplier of services and since, the location of the supplier is in the taxable territorial of India, therefore in view of said provisions, supplies are made in India, hence, said contention of the petitioner is not tenable. 58. With respect to contentions of the petitioner that GST is a destination based consumption tax, accordingly applicability of GST should be deter....
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.... 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 the two persons and helps in providing or acquiring, or both of a service or goods, in another words an intermediary comes into picture when there is a possibility of flow of service or goods from one person to another. 61. With respect to contentions of the petitioner that GST is an indirect tax, therefore, the ultimate impact of GST should be borne by the end customers, it was submitted that the commission income received by the intermediary facilitating import of goods/ services of a foreign exporter, the importer is liable to pay IGST as such commission amount is includible in the cost of goods/ services invoiced to the importer in India, however, such IGST paid at the time of import is eligible as ITC to the importers / exporters making further supplies within or outside India and the liability to pay tax on such commission is on the importer and no....
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....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 inter State supply of goods of services. The basic underlying change brought in by the GST regime is to shift the base of levy of tax from point of sale to the point of supply of goods or service. In that view of the matter, Section 13(8)(b) of the IGST Act,2017 which is framed by the parliament inconsonance with the Article 246(2) of the Constitution of India is required to be considered. 65. Section 8 of the IGST Act, 2017 provides for intra-State supply so as to take care for the supply of goods to or by a special economic zone and the goods imported in the territory of India till they cross the Custom in India. Section 8 is subject to provision of Section 10 of the IGST Act,2017 where as Section 12 of the IGST provides for place of supply of services where the location of supplier and recipient is in India. Section 12(1) and 12(2) o the IGST Act,2017 reads as under :- "12. Place of suppl....
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....n, 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 as per the contract or agreement. Sub-section 8 of Section 13 refers to place of supply of the services shall be the location of supplier of services in case of banking company, intermediary services and services consisting of hiring of means of transport. Intermediary services is defined in Section 2(13) of IGST Act, 2017 which 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 and accordingly, when intermediary services are provided by brokers, the place of supply could be either the location of service provider or the service recipient. The petitioner has tried to submit that the services provided by a broker outside India by way of intermediary service should be considered as "export of services" but t....