Case Note & Summary
This writ petition under Article 226 of the Constitution of India was filed before the High Court of Judicature at Bombay challenging the constitutional validity of Section 13(8)(b) read with Section 8(2) of the Integrated Goods and Services Tax Act, 2017 (IGST Act). The petitioner, proprietor of Dynatex International, provided marketing and promotion services to overseas customers and received commission in convertible foreign exchange. He was registered under the CGST Act and claimed that his services constituted export of services under Section 2(6) of the IGST Act and that he was an intermediary under Section 2(13). The petitioner explained that Indian purchasers placed orders directly on overseas customers; goods were shipped and cleared by the importer; the overseas customer remitted sale proceeds and then paid commission to the petitioner. According to the petitioner, Section 13(8)(b) created a deeming fiction that for intermediary services where the recipient is outside India, the place of supply is the location of the supplier in India, and read with Section 8(2), such supply was treated as intra-state supply, making it liable to CGST and SGST. The petitioner paid these taxes under protest and stated that his tax burden increased from 28% in 2012 to 43.81% in 2017. The petitioner raised several grounds: levy on export of service ultra vires Article 269A; Sections 8(2) and 13(8)(b) ultra vires Section 9 of CGST Act; GST is destination-based consumption tax, and Parliament lacks jurisdiction to tax services consumed outside India; violation of Article 14; unreasonable restriction under Article 19(1)(g); indirect tax must be capable of being passed on, and an agent cannot be burdened; and double taxation. Respondents 1 to 4 filed an affidavit-in-reply through the Principal Commissioner of CGST. They contended that intermediary services do not qualify as export of services because all five conditions of Section 2(6) are not satisfied. They traced the history of place of supply rules under the Place of Provision of Service Rules, 2012, and explained that effective 01.10.2014, the place of supply for all intermediaries was made the location of the intermediary to remove ambiguity and bring parity between intermediary of goods and services. They argued that if place of supply were the location of the recipient, services by Indian intermediaries to overseas recipients would escape the tax net. They also submitted that taxing such services was in consonance with the Make in India program because it incentivises foreign companies to manufacture in India. On double taxation, they distinguished two supplies: supply of goods by overseas supplier to Indian importer taxable under Customs Act, 1962, and supply of services by intermediary to overseas supplier taxable under IGST Act. The petitioner filed a rejoinder contending that the 2012 Rules were irrelevant after introduction of GST on 01.07.2017. The court reserved judgment on December 2, 2020 and pronounced it on June 9, 2021. The provided judgment text ends during the petitioner's rejoinder affidavit and does not include the court's analysis, findings, or final decision. Therefore, the operative directions and ratio decidendi are not available in the excerpt.
Headnote
A) Constitutional Law - Ultra Vires - Article 269A - Integrated Goods and Services Tax Act, 2017, Sections 13(8)(b) and 8(2) - The petitioner contended that levy of tax on export of intermediary services is ultra vires Article 269A; respondents argued intermediary services do not qualify as export of services under Section 2(6) because all five conditions are not satisfied, and therefore the levy is intra vires (Paras 2-13, 14.3). B) Constitutional Law - Legislative Competence - Destination-Based Consumption Principle - Constitution of India, Articles 245, 246, 246A, 286 - The petitioner challenged Parliament's jurisdiction to tax services consumed outside India on the ground that GST is a destination-based consumption tax and the place of consumption, not performance, is relevant (Para 13). C) Constitutional Law - Equality - Article 14 - Constitution of India, Article 14 - Alleged discrimination against intermediaries as compared to other exporters of services; petitioner contended levy on intermediary violates Article 14 (Para 13). D) Constitutional Law - Freedom of Trade and Commerce - Article 19(1)(g) - Constitution of India, Article 19(1)(g) - Levy of CGST and SGST on export of services by intermediary alleged as unreasonable restriction on right to carry on trade or business (Para 13). E) Goods and Services Tax - Export of Services - Section 2(6) IGST Act - Integrated Goods and Services Tax Act, 2017, Section 2(6) - Whether intermediary services qualify as export of services; petitioner claimed services are export of service and he is an intermediary, while respondents contended all five conditions of export of services are not satisfied (Paras 8, 14.3). F) Goods and Services Tax - Place of Supply - Deeming Fiction for Intermediary Services - Integrated Goods and Services Tax Act, 2017, Sections 13(8)(b), 8(2) - Section 13(8)(b) provides that for intermediary services where recipient is outside India, place of supply is location of supplier in India; read with Section 8(2), such supply is treated as intra-state supply, making it liable to CGST and SGST (Paras 10-11). G) Indirect Taxation - Passing On of Tax - Principle of Indirect Tax - Central Goods and Services Tax Act, 2017, Section 9 - Petitioner argued that indirect tax must be capable of being passed on to end receiver and an agent cannot be burdened with GST (Para 13). H) Taxation - Double Taxation - Customs Act, 1962 and IGST Act - Customs Act, 1962; Integrated Goods and Services Tax Act, 2017 - Petitioner alleged double taxation on same service; respondents distinguished two separate supplies: supply of goods by overseas supplier to Indian importer taxable under Customs Act and supply of services by intermediary to overseas supplier taxable under IGST Act (Paras 13, 14.4). I) Statutory Interpretation - Relevance of Previous Rules - Place of Provision of Service Rules, 2012 - Place of Provision of Service Rules, 2012 - Respondents relied on change effective 01.10.2014 making place of supply for all intermediaries location of intermediary; petitioner argued 2012 Rules irrelevant after GST regime from 01.07.2017 (Paras 14.1, 15).
Issue of Consideration
Whether section 13(8)(b) read with section 8(2) of the Integrated Goods and Services Tax Act, 2017 are ultra vires Articles 14, 19, 245, 246, 246A, 269A and 286 of the Constitution of India and ultra vires the provisions of the Central Goods and Services Tax Act, 2017, Integrated Goods and Services Tax Act, 2017 and Maharashtra Goods and Services Tax Act, 2017.
Law Points
- Constitutional validity of taxing provisions
- destination-based consumption principle
- place of supply rules for intermediary services
- export of services under IGST Act
- indirect tax pass-through principle
- prohibition against double taxation
