Tue. Jun 15th, 2021

MUMBAI: Bombay high court on Wednesday delivered a split verdict in a challenge to constitutional validity of section 13(8)(b) of Integrated Goods and Services Tax (IGST) Act that imposes a liability on service provided by intermediaries to persons located abroad.
Justice Ujjal Bhuyan declared the section unconstitutional. Justice Abhay Ahuja, who was on the division bench that heard the challenge in a petition filed in 2018by Dharmendra Jani, dissented. His dissenting verdict is to be pronounced on June 16.
Justice Bhuyan said “what we notice is that section 13(8)(b) of the IGST Act read with section 8(2) of the Act has created a fiction deeming export of service by an intermediary to be a local supply i.e., an inter-state supply. This is definitely an artificial device created to overcome a constitutional embargo. Question for consideration is whether creation of such a deeming provision is permissible or should receive the imprimatur of a constitutional court?”
And he said he has “no hesitation in holding that section 13(8)(b) of IGST Act, 2017 is ultra vires the Act besides being unconstitutional.” The judge said, “By artificially creating a deeming provision in the form of section 13(8)(b) of the IGST Act, where the location of the recipient of service provided by an intermediary is outside India, the place of supply has been treated as the location of the supplier i.e., in India. This runs contrary to the scheme of the CGST Act as well as the IGST Act besides being beyond the charging sections of both the Acts.”
But Justice Ahuja said he begs to differ, for reasons to be pronounced next week.
Jani’s case was that he is a Mumbai-based proprietary concern providing marketing and promotion services to customers outside India. It solicits purchase orders for its foreign customers and promotion of goods sold by its overseas customers in India. Section 13 deals with situation where the location of supplier or recipient is outside India and section 13(8) says the place of supply of service shall be the location of supplier which is the intermediary service under sub-clause (b). Section 8(2) of the IGST Act says that in case of supply of services where location of supplier and place of supply of service are in same state it would be treated as -intra-state supply. Thus the export service by the petitioner as intermediary would be treated as inter-state supply rendering such transaction liable to payment of central goods and services tax (CGST) and State goods and services Tax (SGST), which he paid in protest and assailed the validity on grounds of right to equality as well.

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