The Hon’ble High Court of Gujarat vide judgement dated 24.07.2020 held that supply of goods outside India by “intermediaries” was not “export” under the Integrated Goods and Services Tax Act 2017.
The said judgement was passed in response to a petition filed by the Material Recycling Association of India under Article 226 of the Indian Constitution. The Petitioner challenged the constitutional validity of Section 13(8)(b) of the Integrated Goods Service Tax Act, 2017 and prayed to the Hon’ble High Court 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.
The Petitioner is an association 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 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.
The members of the Petitioner association had no role to play in the actual sale and purchase of recycled scrap as the goods supplied by foreign clients to its purchasers were directly shipped by the foreign client to the Indian or overseas purchaser and thereafter, such goods were cleared by the purchaser from the Customs authorities on its own account. The foreign members of the Petitioner association raised sales invoice in the name of the purchaser and the purchaser who may be either Indian or overseas directly remitted the sale proceeds to the foreign client.
Members of the Petitioner association received only the commission upon receipt of sale proceeds by its foreign client in convertible foreign exchange. The members of the Petitioner association raised invoices upon its foreign client for such commission received by them. According to the Petitioner, the transaction entered into by the members of the Petitioner association was one of export of service from India and earning valuable convertible foreign exchange for the same.
In the present matter, Counsel for the Petitioner submitted that IGST could not be levied on the members of the Petitioner association, who were engaged in the transaction of export of service as the Petitioner members’ export of services was covered by the Section 16(1) of the Integrated Goods and Services Tax Act, 2017 that provides for “zero rated supply” .
Counsel for the Petitioner stated that Section 13(8)(b) of the Integrated Goods and Services Tax Act,2017 provides that in case of supply of intermediary service, the services are deemed to have been supplied at the location of the supplier. Therefore, the question which arises for consideration is whether the service rendered by the members of the Petitioner association is an intermediary service or export of service. The Counsel further referred to Article 286 of the Constitution of India which after the 101st amendment of the Constitution Act, 2016 provides for restriction as to imposition of tax on the sale or purchase of the goods and services.
It was further submitted that as per Section 13(8)(b) of the Integrated Goods and Services Tax 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 would be treated as intra-State supply as per Section 8 (1) of the Integrated Goods and Services Tax Act, 2017 and the supplier is required to pay CGST and SGST.
The bench comprising of Justice J. B. Pardiwala and Justice Bhargav D. Karia noted that the introduction of Goods and Service Tax in India in the year 2017 was 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 was amended by the Constitution (One Hundred First Amendment) Act, 2016 to introduce Article 246A which provides for special provision with respect to Goods and Service Tax.
“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”, stated the bench. “In that view of the matter, Section 13(8)(b) of the IGST Act, 2017 which is framed by the parliament in consonance with the Article 246(2) of the Constitution of India is required to be considered”, concluded the court.
The bench appreciated that 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 Integrated Goods and Services Tax Act, 2017 whereas Section 12 of the Integrated Goods and Services Tax Act 2017 provides for the place of supply of services where the location of supplier and recipient is in India.
Furthermore, Section 12(2)(b) of the said act stipulates that the place of supply of service made to any person other than registered person shall be the location of the recipient where the address on record exists and location of supply of service in other cases.
Also, it was held that Section 13 of Integrated Goods and Services Tax Act, 2017 stipulates that 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.
On perusal of Section 13 of IGST Act,2017, the court noted that sub-section 3 to 13 thereof provide different eventualities to determine the place of supply of services.
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.
On a conjoint reading of Section 2(6) and 2(13), which defines export of service and intermediary service respectively, the bench found that the person who is intermediary cannot be considered as exporter of services because he is only a broker who arranges and facilitate the supply of goods or services or both. Accordingly, exemption is granted in IGST rates from payment of IGST in respect of services provided by intermediary in case the goods are supplied in India.
“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 also existed 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”, ruled the bench.
The contention of the Petitioner that it would amount to double taxation was not found tenable in eyes of law because the services provided by the Petitioner as intermediary would not be taxable in the hands of the recipient of such service, but on the contrary a commission paid by the recipient of service outside India would be entitled to get deduction of such payment of commission by way of expenses and therefore, it would not be a case of double taxation.
“Therefore, the respondents have thought it fit to consider granting exemption to the intermediary services viz. service provider when the movement of goods is outside India”, observed the bench, ruling that it cannot be said that the provision of Section 13(8)(b) read with Section 2(13) of the Integrated Goods and Services Tax Act,2017 are ultra vires or unconstitutional in any manner.
