TaxTMI 
TaxTMI 
2021 (6) TMI 563
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....my opinion." 68. I have now had the privilege and advantage of perusing the erudite judgment and order in the above matter delivered by my learned respected Brother Shri Justice Ujjal Bhuyan. I am unable to share the conclusion arrived at by him holding that Section 13(8) (b) of the Integrated Goods and Services Tax Act, 2017 ("IGST Act") offends Articles 245, 246A, 269A and 286(1)(b) of the Constitution of India and is also ultra vires the IGST Act besides being unconstitutional. For reasons discussed in the following paragraphs, I am of the opinion that Section 13(8)(b) cannot be considered to be unconstitutional or ultra vires the IGST Act. Section 13(8)(b) of the IGST Act would in my view be constitutionally valid and operative for all purposes. 69. Pursuant to this Petition under Article 226 of the Constitution of India, Petitioner seeks to declare section 13(8)(b) and section 8(2) of the IGST Act as ultra vires Articles 14, 19(1)(g), 245, 246, 246A, 269A, 286 of the Constitution of India and also ultra vires the provisions of the IGST Act and section 9 of the Central Goods and Services Tax Act, 2017 ("CGST Act") and Maharashtra Goods and Services Tax Act, 2017 ("MGST Ac....
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....on 8 provides for intrastate supply, i.e., supply within one State or within one Union Territory. Section 13 of the IGST Act deals with a situation where location of the supplier or the location of the recipient is outside India. Sub-Section (2) provides that the place of supply of services shall be the location of the recipient of services. Sub-Sections 3 to 13 provide exceptions. As per Sub-Section 8, the place of supply shall be the location of the supplier of services and which includes the intermediary services in Clause (b), which are the services rendered by Petitioner. 75. Further, it is submitted that by way of deeming fiction under Section 13(8)(b) of the IGST Act, where the location of the recipient of service is outside India, the place of supply is treated as the location of the supplier of services which is in India, thereby bringing into the tax net export of services. Reference has also been made to Section 8(2) of the IGST Act, 2017, which provides that in case of services where the location of the supplier and the place of supply of services are in the same State or same Union Territory, it would be treated as an intrastate supply. With reference to these provi....
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....be permitted. Petitioner is therefore challenging Section 13 (8) (b) read with Section 8(2) of the IGST Act as being ultra vires Articles 14, 19 (1) (g), 245, 246A, 269A and 286 of the Constitution of India as well as the IGST Act and section 9 of the CGST and MGST Act. 79. Before commencing the examination of the aforesaid challenge, it would be helpful to set out the principles of judicial review. 80. Whether a law or a provision is unconstitutional or not, has to be decided by the Court on the touch-stone of the Constitution. It is also settled law that Courts should proceed to construe a statute with a view to uphold its constitutionality. ITC Ltd. v. Agricultural Produce Market Committee (2002) 9 SCC 232, Asst. Director of Inspection Investigation v. A.B. Shanthi (2002) 6 SCC 259, Shri Krishna Gyanoday Sugar Ltd. v. State of Bihar, (2003) 4 SCC 378 and Welfare Association A.R.P. Maharashtra v. Ranjit P. Gohil (2003) 9 SCC 358, State of A.P. v. K. Purushottam Reddy and Others, (2003) 9 SCC 564 (SC). 81. In the case of State of Madhya Pradesh v/s. Rakesh Kohli & Another (2012) 6 SCC 312 the Supreme Court had set out the following principles to be considered while examin....
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.... `The Least Dangerous Branch') 32. The Court is, therefore, faced with a grave problem. On the one hand, it is well settled since Marbury V. Madison (supra) that the Constitution is the fundamental law of the land and must prevail over the ordinary statute in case of conflict, on the other hand the Court must not seek an unnecessary confrontation with the legislature, particularly since the legislature consists of representatives democratically elected by the people. The Court must always remember that invalidating a statute is a grave step, and must therefore be taken in very rare and exceptional circumstances. 33. We have observed above that while the Court has power to declare a statute to be unconstitutional, it should exercise great judicial restraint in this connection. This requires clarification, since, sometimes Courts are perplexed as to whether they should declare a statute to be constitutional or unconstitutional. 34. The solution to this problem was provided in the classic essay of Prof James Bradley Thayer, Professor of Law of Harvard University entitled 'The Origin and Scope of the American Doctrine of Constitutional Law' which ....
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....le doubt" vide Commonwealth ex. Rel. O'Hara V. Smith 4 Binn. 117 (Pg.1811). 35. Thus, according to Prof. Thayer, a Court can declare a statute to be unconstitutional not merely because it is possible to hold this view, but only when that is the only possible view not open to rational question. In other words, the Court can declare a statute to be unconstitutional only when there can be no manner of doubt that it is flagrantly unconstitutional, and there is no way of avoiding such decision. The philosophy behind this view is that there is broad separation of powers under the Constitution, and the three organs of the State - the legislature, the executive and the judiciary, must respect each other and must not ordinarily encroach into each other's domain. Also the judiciary must realize that the legislature is a democratically elected body which expresses the will of the people, and in a democracy this will is not to be lightly frustrated or obstructed. 36. Apart from the above, Thayer also warned that exercise of the power of judicial review "is always attended with a serious evil", namely, that of depriving people of "the political experience and the moral....
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....the majority of the Court held to invalid) observed "I think I appreciate the objection to the law but it appears to me to present a question upon which men reasonably might differ and therefore I am unable to say that the Constitution of the United States prevents the experiment being tried". The Court certainly has the power to decide about the constitutional validity of a statute. However, as observed by Justice Frankfurter in West Virginia V. Barnette 319 U.S. 624 (1943), since this power prevents the full play of the democratic process it is vital that it should be exercised with rigorous self restraint. ........................................................................................................ ........................................................................................................ 46. In our opinion adjudication must be done within the system of historically validated restraints and conscious minimization of the judges personal preferences. The Court must not invalidate a statute lightly, for, as observed above, invalidation of a statute made by the legislature elected by the people is a grave step. As obs....
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....dustries Ltd. (2020) 5 SCC 274, the Supreme Court, (in the decision authored by Hon'ble Shri Justice A.M. Khanwilkar) has reiterated that the examination of the Court begins with a presumption in favour of constitutionality. This presumption, the Supreme Court states is not just borne out of judicial discipline and prudence, but also out of the basic scheme of the Constitution wherein the power to legislate is the exclusive domain of the Legislature/ Parliament. This power is clothed with power to decide when to legislate, what to legislate and how much to legislate. Thus, to decide the timing, content and extent of legislation is a function primarily entrusted to the legislature and, in exercise of judicial review, the Court starts with a basic presumption in favor of the proper exercise of such power. There has to be a delicate balance of powers or rather separation of powers to be preserved under the Constitution. 85. In paragraph 30 of the decision of Exide Industries (supra) the Supreme Court, while observing that the time tested principle of checks and balances does not empower the Court to question the motives or wisdom of the legislature, except in circumstances when the....
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....mprehensive VAT or just VAT. The differences reflect the diversity of situation prevailing in different countries. GST is applicable all across Europe. UK has had VAT since 1993. New Zealand introduced GST in 1986. Australia introduced VAT in 2000. Canada initiated GST in 1991. Ukraine has VAT. Singapore has GST. USA does not have GST/VAT. Malaysia introduced GST in 2015 but was dismantled in 2018. 86.2. Historically, Indian experience with GST like tax began in late 1970s. The first proposal being the Indirect Taxation Enquiry Committee Report of 1978 by L.K. Jha. The Jha Committee suggested introduction of manufacturing VAT as MANVAT. This could not be implemented due to inter linkage issues. Then came the Long Term Fiscal Policy (LTFP) report in 1985 that suggested MODVAT. Thereafter there was a Tax Reform Committee Report of 1992 with focus on requirements for opening up the economy which was initiated in 1991 under New Economic Policy (NEP). There was a proposal to tax services also. Services were brought into the indirect tax net by 1994 by imposing service tax on them as the services sector had been expanding rapidly. In 1994 the MODVAT scheme was expanded to include capi....
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....duced in the Loksabha on December 19, 2014 by the then Finance Minister. The Statement of Objects and Reasons of the 122nd Constitutional Amendment Bill, 2014 (which became the 101st Constitutional Amendment Act, 2016), reads as under: "1. The Constitution is proposed to be amended to introduce the goods and services tax for conferring concurrent taxing powers on the Union as well as the States including Union territory with Legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both. The goods and services tax shall replace a number of indirect taxes being levied by the Union and the State Governments and is intended to remove cascading effect of taxes and provide for a common national market for goods and services. The proposed Central and State goods and services tax will be levied on all transactions involving supply of goods and services, except those which are kept out of the purview of the goods and services tax. 2. The proposed Bill, which seeks further to amend the Constitution, inter alia, provides for- (a) subsuming of various Central indirect taxes and levies such as Central Excise Du....
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....l shall be taken by a majority of not less than three-fourths of the weighted votes of the members present and voting in accordance with the following principles...." 86.8. The Bill after being passed in the Loksabha on May 6, 2015 was sent to the Rajyasabha. On 12th May 2015, the bill was sent to the Select Committee for examination. The Select Committee submitted its report on July 22, 2015. It would be relevant to quote from paragraph 1.10 of the said report under the head RATIONALE BEHIND MOVING TOWARDS GST as under: "1.10 The introduction of GST would mark a clear departure from the scheme of distribution of fscal powers envisaged in the Constitution. The proposed dual GST envisages taxation of the same taxable event i.e., supply of goods and services, simultaneously by both the Centre and the States." 86.9. The Bill was passed with amendments in the Rajyasabha on August 3, 2016 and in the Loksabha on 8th August 2016 and after ratification by half of the States, the Constitution (One Hundred and First Amendment) Act 2016 ("Constitution (101st) Amendment Act") received the assent of the Hon'ble President of India on 8th September 2016. The said proposed dual GST ....
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....ed upon the statement of Objects and Reasons to the Constitution 101st Amendment Act, 2016 as set out above and in paragraph 23, has observed as under: "23. The Constitution (101st Amendment) Act, 2016 dated 08.09.2016 was passed to amend the Constitution of India. By Constitution (101st Amendment) Act, 2016, new Articles 246A, 269A and 279A were inserted. Amendments were also made in Articles 248, 249, 250, 268, 269, 270, 271, 286, 366 and 368. Article 268A was omitted. Amendments were also made in Seventh Schedule to the Constitution in List I and List II...." 86.13. Thereafter, the Supreme Court went on to quote Article 246A, Article 269A and other Articles and sections of the Constitution (101st) Amendment Act which were relevant in respect of deciding the challenge relating to the Compensation to States for loss of revenue on account of introduction of Goods and Services Tax to finally hold that that the Compensation Act as well as the Rules were not unconstitutional or ultra vires the Constitution of India. 86.14. Pursuant to the above referred amendments to the Constitution of India, including Articles 246A, 269A, 366(12A), 366(26A), the Parliament has enacted....
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.... services tax to be levied on intra-State supplies. It is expected to reduce cost of production and inflation in the economy thereby making the Indian trade and industry more competitive, domestically as well as internationally. It is also expected that introduction of the integrated goods and services tax will foster a common or seamless Indian market and contribute significantly to the growth of the economy. 4. The Integrated Goods and Services Tax Bill, 2017, inter alia, provides for the following, namely- (a) to levy tax on all inter-State supplies of goods or services or both except supply of alcoholic liquor for human consumption at a rate to be notifed, not exceeding forty percent as recommended by the Goods and Services Tax Council (the Council); (b) to provide for levy of tax on goods imported into India in accordance with the provisions of the Customs Tariff Act, 1975 read with the provisions contained in the Customs Act, 1962; (c) to provide for levy of taxes on import of services on reverse charge basis under the proposed Legislation; (d) to empower the Central Government to grant exemptions by notification or by special orde....
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....o make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the Union List) (2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the Concurrent List) (3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the "State List"). (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included (in a State) notwithstanding that such matter is a matter enumerated in the State List". 89.2 Article 246A is quoted as under: "Art. 246A:- (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 ....
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....India. (2) Parliament may by law formulate principles for determining when a supply of goods or of services or both in any of the ways mentioned in clause (1)." 89.5 Article 245 of the Constitution of India is quoted as under: "245. Extent of laws made by Parliament and by the Legislatures of States - (1) Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. (2) No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation." 89.6 Article 366(12A) defines "Goods and Services Tax" to mean any tax on supply of goods or services or both except taxes on the supply of the alcoholic liquor for human consumption. 89.7 Article 366 (26A) defines "services" to mean anything other than goods. 90. It is well known that taxation is recognized as an instrument of raising revenue. Under Article 336 (28), of the Constitution of India taxation is defined to include imposition of any tax, whether general or local or special. Article 265 says that no tax shall be ....
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....is contained in the Seventh Schedule, and the Parliament and legislature of every State have simultaneous power to make laws with respect to any tax imposed on supply of goods and services other than supply of alcoholic liquor for human consumption. 91.3 Under Article 246A (2), Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods or services takes place in the course of inter State trade or commerce. 91.4 It is therefore apparent that the IGST Act has been enacted by the Parliament for levy of IGST on inter-state supply of goods or services, inter alia, pursuant to the exclusive power contained in Article 246A(2). 92.1. Under Article 269A, Parliament has powers to make laws (i) with respect to goods and services tax where the supply of goods or services or both takes place in the course of inter-State trade or commerce (Article 269A(1)) or (ii) on the principles determining place of supply, and when a supply of goods or services takes place in the course of inter-state trade or commerce (Article 269A(5)). 92.2. Under Article 269A of the Constitution, any law pertaining to supply of goods or services in the course o....
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....der section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person: Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (51 of 1975) on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962 (52 of 1962). 2) The integrated tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council. 3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this A....
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....section 12, supply of services, where the location of the supplier and the place of supply are in-- (a) two different States; or (b) two different Union territories; or (c) a State and a Union territory, shall be treated as a supply of services in the course of inter-State trade or commerce. 4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce. (5) Supply of goods or services or both,-- (a) when the supplier is located in India and the place of supply is outside India; (b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or (c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce. 94.6. Section 8 of the IGST Act deals with inter-State supply as under: Intra-State supply 1) Subject to the provisions of section 10, supply of goods where the location of the supplier and the place of supply of goods are in the same Stat....
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....it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person; (c) where the supply does not involve movement of goods, whether by the supplier or the recipient, the place of supply shall be the location of such goods at the time of the delivery to the recipient; (d) where the goods are assembled or installed at site, the place of supply shall be the place of such installation or assembly; (e) where the goods are supplied on board a conveyance, including a vessel, an aircraft, a train or a motor vehicle, the place of supply shall be the location at which such goods are taken on board. (2) Where the place of supply of goods cannot be determined, the place of supply shall be determined in such manner as may be prescribed. 94.8. Section 11 of the Act deals with place of supply of goods other than supply of goods imported into, or exported from India as under: "Place of supply of goods imported into, or exported from India. The place of supply of goods,-- (a) imported into India shall be the location of the importer; ....
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....his regard or, in the absence of such contract or agreement, on such other basis as may be prescribed. (4) The place of supply of restaurant and catering services, personal grooming, fitness, beauty treatment, health service including cosmetic and plastic surgery shall be the location where the services are actually performed. (5) The place of supply of services in relation to training and performance appraisal to,-- (a) a registered person, shall be the location of such person; (b) a person other than a registered person, shall be the location where the services are actually performed. (6) The place of supply of services provided by way of admission to a cultural, artistic, sporting, scientific, educational, entertainment event or amusement park or any other place and services ancillary thereto, shall be the place where the event is actually held or where the park or such other place is located. (7) The place of supply of services provided by way of,- (a) organisation of a cultural, artistic, sporting, scientific, educational or entertainment event including supply of services in relation to a conference, fair, exhibit....
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....n of the first scheduled point of departure of that conveyance for the journey. (11) The place of supply of telecommunication services including data transfer, broadcasting, cable and direct to home television services to any person shall, -- (a) in case of services by way of fixed telecommunication line, leased circuits, internet leased circuit, cable or dish antenna, be the location where the telecommunication line, leased circuit or cable connection or dish antenna is installed for receipt of services; (b) in case of mobile connection for telecommunication and internet services provided on post-paid basis, be the location of billing address of the recipient of services on the record of the supplier of services; (c) in cases where mobile connection for telecommunication, internet service and direct to home television services are provided on pre-payment basis through a voucher or any other means,-- (i) through a selling agent or a re-seller or a distributor of subscriber identity module card or re-charge voucher, be the address of the selling agent or re-seller or distributor as per the record of the supplier at the time of supply; or ....
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.... be in proportion to the amount attributable to services provided by way of dissemination in the respective States or Union territories as may be determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed. 94.10. Section 13 deals with place of supply of services where location of supplier or location of recipient is outside India.-- (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: Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services. (3) The place of supply of the following services shall be the location where the services are actually performed, namely:-- (a) services supplied in respect of goods which a....
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....s shall be taken as being in each of the respective States or Union territories and the value of such supplies specific to each State or Union territory shall be in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed. (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. Explanation.--For the purposes of this sub-section, the expression,-- (a) "account" means an account bearing interest to the depositor, and includes a non-resident external account and a non-resident ordinary account; (b) "banking company" shall have the same meaning as assigned to it under clause (a) of section 45A of the Reserve Ban....
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....erritory; (f) the country code of the subscriber identity module card used by the recipient of services is of taxable territory; (g) the location of the fixed land line through which the service is received by the recipient is in the taxable territory. (13) In order to prevent double taxation or non-taxation of the supply of a service, or for the uniform application of rules, the Government shall have the power to notify any description of services or circumstances in which the place of supply shall be the place of effective use and enjoyment of a service. 94.11. Section 16 deals with Zero rated supply.-- (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. (2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero rated supplies, notwithstanding that such supply may be an exempt supply. (3) A registered person mak....
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....finition. This would not be an export of services in as much as Intermediary Services are specifically provided in Section 13 (8)(b) under the authority of the Constitution of India provided in Article 269A read with Article 246A. Petitioner is providing intermediary service of arranging, marketing, facilitating the export of his overseas customers to Indian importers and that is the reason he receives commission. It is in respect of these intermediary services that Section 13(8)(b) refers to the place of supply of such service as the location of the supplier. 98. The legislature keeping in mind the peculiar exigencies of fiscal affairs and underlying concerns of public revenue enacts provisions. Section 13(8)(b) of the IGST Act in respect of intermediary services is one such provision. Intermediary services are specifically dealt with, where it has been specifically provided that where the supplier or the recipient is outside India, then in respect of Intermediary services, the place of supply shall be the location of the supplier. There is no quarrel with the definition of export of services contained in Section 2 (6) of the IGST Act, though it is stated in the Affidavit of th....
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....lause (5) (which not being bound by the Explanation to clause (1) of Article 269A), empowers the Parliament to legislate on principles for determining the place of supply and when the supply would be in the course of inter-state trade or commerce. A conjoint reading of Article 269A(1) with Article 269A(5) and Article 246A exclusively empowers the Parliament to make law on what is inter-state supply and what is not which obviously includes what is intra-state in contradistinction to what is inter-state and that power is exclusively with the Parliament. In my considered opinion, the power to enact provisions determining the nature of supplies (as inter state supply in section 7 of IGST Act or intra state supply in section 8 of IGST Act) or place of supply (as contained in sections 10 to 14 of the IGST Act including section 13(8)(b) where in the case of intermediary services, where supplier or the service recipient is located outside India, the place of supply has been stipulated to be the location of supplier) originates from these Articles. The power of the Parliament to stipulate principles on place of supply or to legislate on the same as contained in the IGST Act is empowered by ....
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....e the service recipient is outside India. In Section 8(2) the reference is to the same State in India, whereas in Section 13 (1) read with Section 13(8)(b) it is location of the service recipient being outside India. Besides Petitioner is admittedly an intermediary rendering intermediary services to a service recipient located outside India. Therefore, Section 13(8)(b) comes into the picture in the case of Petitioner. Once the Parliament has in its wisdom stipulated the place of supply in case of Intermediary Services be the location of the supplier of service, no fault can be found with the provision by artificially attempting to link it with another provision to demonstrate constitutional or legislative infraction. 105.1. In any event Section 8(2) in my view is not applicable to the case of Petitioner as location of supplier and place of supply is not within same State (in India) but in taxable territory viz. India. 105.2. Therefore, to say that by virtue of Section 13 (8) (b) read with Section 8(2) of the IGST Act, Parliament has sought to impose tax on export of services out of the territory of India by treating the same as local supply in violation of Articles 246A and 2....
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....stly prevents one State in India from imposing any tax on supply of goods and services within another State as that is the prerogative of individual States i.e no authority to any State to impose tax on intra state supply within another State except that other State; Secondly it does not permit any State in India to authorize imposition of tax on import into or export out of the territory of India of goods and services as that is the prerogative of the Central Government; Thirdly it states that the Parliament alone and not the State Legislatures will formulate the principles for determining when supply of goods or of services or both in any of the ways mentioned in clause (1) above i.e outside the State or import into or export out of India. 106.4. In fact it is in view of the language of newly amended Article 286 (2) pursuant to the Constitution (101st) Amendment Act, 2016 that the Parliament can formulate principles for determining when a supply of goods or services or both have taken place either outside the State or in the course of import into or export out of the territory of India. 106.5. Even the omission of Article 286(3) pursuant to the Constitution (101st) Amendmen....
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....and not integrated with the supply of goods taking place and therefore the decision is clearly distinguishable. In the decision of The Central India Spinning & Weaving and Manufacturing Co. Ltd., The Empress Mills, Nagpur v. The Municipal Committee, Wardha AIR 1958 SC 341 the Supreme Court construed the terms export and import in terms of Article 286(1). However, as mentioned earlier, we are concerned with the supply of services of an intermediary as provided in Section 13(8)(b) read with Section 2(13) of the IGST Act and therefore these decisions would in my view be distinguishable. 106.13. It is, therefore, not relevant in the circumstances that export and import have not been defined under the Constitution or that the same would be of wide construction. 106.14. As discussed earlier, Article 246A (2) has invested exclusive power in the Parliament to make laws in respect of supply of goods or services in the course of inter-state trade or commerce. Article 269A(5) authorizes the Parliament to make law for determining place of supply and when a supply of goods or services takes place in the course of inter-state trade or commerce. Article 286(2) also authorizes Parliament to ....
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....as customer to the Indian purchaser. There is no discussion or factual submission that Indian intermediary i.e. Petitioner is purportedly a commission agent to a supplier in Germany who is exporting goods to an importer in Singapore. In fact the agreements, illustrative copy whereof has been annexed to the petition are only in respect of counterparty from Japan. Firstly, as has been observed by the Supreme Court in the case of Exide Industries (supra), the Court, cannot venture into hypothetical spheres which are not contemplated in the enactment while adjudging the constitutionality of a duly enacted provision and unfounded limitations cannot be read into the process of judicial review. Secondly, the very fact that Counsel for Petitioner is seeking to include these facts during the course of hearing it would not be necessary for us to deal with the challenge on the basis of these facts. The Supreme Court of India in the case of Government of National Capital Territory, Delhi Vs. Inder Pal Singh Chadha (2002) 9 SCC 461, has held that constitutional issues should not be decided unless that it is necessary to do that for the purpose of giving relief in given case. It would, therefore....
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....territorial legislation. 107.6. Even otherwise as can be seen, Article 245(1) begins with the language, subject to the provisions of this Constitution; which means that Article 245 is subject to the other provisions of the Constitution such as Article 246A, Article 269A, the bringing in of the new GST law as well or legislations on interstate supply of goods and services as well as on principles regarding place of supply. 107.7. We are in complete agreement with the principles laid down by the Hon'ble Supreme Court in the case of GVK Industries (supra). However, having observed that this is not a case of extra territorial legislation it would not be necessary to comment on the same. 107.8. Therefore, Section 13(8)(b) of the IGST Act cannot be said to be ultra vires Article 245 of the Constitution of India. 108. It is clear from the above provisions, that only the Parliament is empowered to legislate on matters pertaining to the supply of goods or services that take place in the course of inter state trade or commerce. As far as the Petitioner's supply is concerned admittedly the same is supply in the course of inter-state trade or commerce pursuant to the provisions of ....
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....dity of a statute said to be violative of Article 14, it is necessary to bear in mind certain well established principles which have been evolved by the Courts as rules of guidance in discharge of its constitutional function of judicial review. The first rule is that there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles. This rule is based on the assumption, judicially recognised and accepted, that the legislature understands and correctly appreciates the needs of its own people, its laws are directed to problems made manifest by experience and its discrimination are based on adequate grounds. The presumption of constitutionality is indeed so strong that in order to sustain it, the Court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil....
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.... decision referred to various principles based on which the constitutionality of a statute or a provision would need to be considered. " .... .... .... ..... ...... .... .... ..... It is now well established that while Article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation. In order, however, to pass the test of permissible classification two conditions must be fulfilled, namely (a) that the classification must be funded on an intelligible, differentia which distinguishes persons or things that are grouped together from others left out of the group and (b) that that differentia must have a rational relation to the object sought to be achieved by the statute in question. The classification may be founded on different bases, namely, geographical, or according to objects or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. It is also well established by the decisions of this Court that Article 14 condemns discrimination not only by a substantive law but by a law of procedure." ....
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....tatute is based on discrimination is not referable to any classification which is rational and which has nexus with the object intended to be achieved by the said statute". 110.7. In the case of G.K. Krishnan etc. Vs. State of Tamil Nadu and Anr. etc. AIR 1975 Supreme Court 583 held as under :- "...A person who challenges a classification as unreasonable has the burden of proving it. There is always a presumption that a classification is valid, especially in a taxing statute. The ancient proposition that a person who challenges the reasonableness of a classification and therefore, the constitutionality of the law making the classification, has to prove it by relevant materials, has been reiterated by this Court recently." 110.8. The Supreme Court in the case of Exide Industries Ltd., (supra), has observed that the approach of constitutional courts ought to be different while dealing with fiscal statutes. The Supreme Court has observed that the legislature is the best forum to weigh different problems in the fiscal domain and form policies and address the same including creation of liability, constitution of liability, exemption of liability, or subject an existing pr....
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....sonable classification and the same is neither arbitrary nor unreasonable and cannot be said to be discriminatory in any manner. This is also not a case of class discrimination. 110.11. Further, as far as the judgments referred to by Petitioner in support of his contention, there cannot be any disagreement on the principles laid down in those judgments. However in my considered view, they are not applicable to the case of the Petitioner in view of the above discussion. 110.12. The levy on account of Section 13(8)(b) of the IGST Act is therefore neither arbitrary nor unreasonable nor discriminatory. 110.13. Therefore the challenge under Article 14 must fail and fails. 111.1. Let us now examine Petitioner's challenge to Article 19(1) (g) of the Constitution of India. 111.2. Petitioner has submitted that by virtue of Section 13(8) (b), the service provided by Petitioner to its overseas customers has resulted in an unreasonable restriction upon the right of Petitioner to carry on trade under Article 19(1)(g) of the Constitution of India, which action could result in closure of business of Petitioner and that it would encourage the foreign service recipient to set up liai....
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.... have been enacted. 111.7. Therefore, Section 13 (8) (b) of the IGST Act is not unconstitutional or ultra vires Article 19(1)(g). 112.1. On behalf of Petitioner it is submitted that levy of GST on intermediary services by Petitioner is contrary to fundamental concept of GST as a destination based consumption tax. It is asserted that for taxing a service it is not the place of performance, but the place of consumption, which is relevant; export would take place when the service is provided from India by a person in India, but is received and consumed abroad. The artificial exception carved out in Section 13(8)(b) of the IGST Act is contrary to all principles of interpretation, and, therefore, liable to be struck down as ultra vires to the fundamental principle of destination based consumption tax. 112.2. GST has three main aspects viz. it is calculated as VAT, it brings goods and services together on the same platform. Of course it is an indirect tax but it is not levied on the act of production, sale and so on. It is levied on all transactions called supply from start to the end. So primarily GST is a tax levied on supply of goods and services. The earlier excise dut....
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....evy is on supply within the taxable territory i.e. within the boundaries of India and not extra-territorial in accordance with Article 245 of the Constitution of India. Therefore, when the place of supply in the case of intermediary services, such as that rendered by Petitioner, the place of supply of such service is provided to be the location of supplier of services, viz., Petitioner, it could not be said that Section 13(8)(b) of the IGST Act is in breach of this principle as the place of supply has been specifically provided. 112.6. There are three methods of calculation of indirect taxes viz. specific duty, ad valorem tax and value added tax (VAT). GST uses the method of value added tax of calculation which removes the cascading effect. GST is calculated on "value added" and not the value of the goods or services; value addition is the value added to the raw materials and other things purchased by the producer which means that the cost of purchase inputs would be excluded. This method of levy of tax is intended to remove the cascading effect of tax on tax and profit on tax. Therefore the IGST Act in my view is not VAT but only calculated as VAT. 112.7. In the decision in ....
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....ed to the decision of All India Federation of Tax Practitioners (supra). However, that was also a decision under the service tax regime and would be distinguishable in view of the amendment to the Constitution bringing in the GST law. Also it is observed that an appeal in the said matter is pending final adjudication before the Hon'ble Supreme Court. 112.9. Therefore, as observed earlier, there does not appear to be any conflict between this principle and Section 13 (8) (b) of the IGST Act as the scheme of GST in India is a levy on supply. 113.1. I now come to the Petitioner's challenge that Section 13(8)(b) seeks to runs contrary to the scheme of the Act and deems an inter-State supply as intra-State supply and, therefore, the Section is ultra vires the charging section as well as the scheme of the IGST Act. Petitioner has cited Sections 1, 5, 7, 7(1), 7(2), 7(3), 7(5), 12 and 13 have been cited by learned counsel for Petitioner to submit that from the scheme, scope and object of the IGST Act, the levy of IGST is on inter-State supplies. It has also been submitted that import and export of services have been treated as inter-State supplies in terms of Sections 7(1) and 7(5).....
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....es such supplies to be inter-State supplies. And which power to designate inter-State supply also comes from Articles 246A, 269A(1) read with 269A(5) as discussed earlier. In my view, Section 13(8)(b) does not and cannot deem an inter-State supply to be an intra-State supply. When there is a specific provision for levy and collection of IGST, then, in my view, referring to the charging section of another Act is not called for or rather it would be irrelevant. Section 13(8)(b) of the IGST Act has been enacted pursuant to the powers under Article 269A(5) of the Constitution of India and in accordance with the scheme of the IGST Act by which IGST is levied on all inter-State supplies of goods and services. 113.4. There cannot be any dispute as to the doctrine of pith and substance as canvassed by Petitioner while deciding on legislative competence or that under Article 265 no tax can be levied without authority of law. Having already held that Section 13(8)(b) has been enacted pursuant to the authority of law and that the said Section 13(8)(b) cannot be linked with Section 8(2) of the IGST Act to deem an inter-state supply as an intra-state supply, the said concerns are unfounded. ....
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....e of intermediary services to be the location of supply of services would invoke Section 8(2). Both the provisions have different purposes. As stated earlier Section 8 deals with nature of supply whereas Section 13 deals with place of supply and the attempt to artificially link Section 8(2) with Section 13(8)(b) is misplaced and unfounded as discussed earlier. In my considered opinion, Section13 (8) (b) cannot be linked with Section 8 (2) of the IGST Act. Therefore, in my view, the challenge with reference to the charging sections of Acts which operate in different fields in respect of supplies of different natures appears to be unnecessary. 114.6. Hence Section 13 (8) (b) is not ultra vires Section 9 of the CGST Act and MGST Act. 115.1. Coming to the Petitioner's grievance on double taxation; On behalf of Petitioner it has been firstly asserted that GST is being levied twice on the same commission, once on the Petitioner and then on the Indian purchaser of goods. Secondly the same supply would be taxed in the hands of Petitioner and on the basis of the destination based principle would also be taxed in the hands of the service recipient in the importing country. 115.2. I ....
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.... reliance upon Reports of Parliamentary Standing Committees has been once again reiterated in the decision of the Constitution Bench of the Supreme Court in the case of Kalpana Mehta v. Union of India (2018) 7 SCC 1. Paragraph 134 in the said judgment authored by the then Chief Justice of India Justice Dipak Misra and Justice A.M. Khanwilkar as well as paragraph 257 authored by Justice Dr. D. Y. Chandrachud are apt and are quoted as under: "134........it is clear as day that the Court can take aid of the report of the parliamentary committee for the purpose of appreciating the historical background of the statutory provisions and it can also refer to committee report or the speech of the Minister on the foor of the House of the Parliament if there is any kind of ambiguity or incongruity in a provision of an enactment. 257......The validity of the advice which is tendered by a Parliamentary Committee in framing its recommendations for legislation cannot be subject to a challenge before a court of law. The advice tendered is after all what it purports to be: it is advice to the legislating body. The correctness of or the expediency or justifcation for the a....
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.... 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 supply of services where location of supplier and recipient is in India.-(1) The provisions of this sect....
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....ory, 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 the legislature has thought it ft to consider such intermed....