🧠 HeadNote & Summary
(2021) taxcode.in 96 HC
IN THE HIGH COURT OF BOMBAY
Dharmendra M. Jani
v.
Union of India and Ors.
Writ Petition No. 2031 of 2018
Decided on 16-Jun-21
Shri Justice Ujjal Bhuyan and Justice Abhay Ahuja
Add. Info:
For Appellant(s): Mr. Bharat Raichandani alongwith Ms. Pragya Koolwal i/by UBR Legal.
For Respondent(s): Mr. Anil C. Singh alongwith Mr. Pradeep S. Jetly, Senior Advocate and Mr. J.B. Mishra, Mr. S.G. Gore with Smt. Jyoti Chavan.
Judgment/Order:
JUDGMENT AND ORDER:
(PER ABHAY AHUJA, J.)
(DISSENTING)
67. On 9th June 2021, I had passed the following order:-
“1. Having noted the Judgment and Order dated 9th June, 2021 as pronounced by my Respected Learned Brother Shri Justice Ujjal Bhuyan, with greatest respect being unable to persuade myself to share the opinion of my Learned Brother, I would like to record my separate opinion in the matter.
2. List the matter on 16th June, 2021 for pronouncement of 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 Act”).
70. Although, the facts in the matter as well as the pleadings and submissions on behalf of Petitioner and Respondents have been very meticulously set out in my learned Brother’s judgment, it would be in the fitness of things to briefly narrate the same.
71. Petitioner is proprietor of M/s. Dynatex International, having office in Mumbai. It is submitted that Petitioner is a registered supplier under the provisions of the Goods and Services Tax Act, 2017 and has annexed certificate of provisional registration dated 28th June, 2017 to the Petition. It is further submitted that the Petitioner provides marketing and sales promotion services to customers/principals located outside India who in turn export goods to importers in India on the basis of agreements, illustrative copy whereof has been annexed as Exhibit “C” to the Petition. In terms of such agreements, Petitioner solicits purchase orders for its overseas customers by undertaking activities of marketing and promotion of goods of its overseas customers.
72. The Indian purchaser, i.e., importer directly places purchase order on the overseas customer of Petitioner for supply of goods, which are then shipped by the overseas customer to the Indian importer/purchaser. Such goods are cleared by the Indian purchaser from the customs by payment of applicable customs duty. The overseas customer raises invoice in the name of the Indian purchaser, who directly remits the sale proceeds to the overseas customer. Upon receipt of such payment, the overseas customer pays commission to Petitioner against invoice raised by Petitioner, upon his overseas customer, which it is submitted is received by Petitioner in India in convertible foreign exchange.
73. It is submitted that the transaction entered into by Petitioner with the foreign customer is one of export of service from India. Reference is made to Section 2(6) of the IGST Act, which defines export of service and to Section 2(13) of the IGST Act, which defines intermediary. It is submitted that Petitioner’s case is an export of service by an intermediary.
74. It is submitted that Section 7 of the IGST Act deals with interstate supply, whereas, Section 8 deals with intrastate supply. Section 7 provides as to when a supply would be considered as interstate supply in India, i.e., supply between two or more States or Union Territories of India and Section 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 servispecces 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 intra-state supply. With reference to these provisions, it is submitted that the export of service by Petitioner as an intermediary is being treated as intra-state supply of services, rendering such a transaction liable to payment of CGST and SGST.
76. In the above circumstances this Petition has been fled challenging the constitutional validity of Section 13(8)(b) read with Section 8(2) of the IGST Act, on various grounds, essentially covering the following points :-
i. GST is a destination based tax on consumption and section 13(8)(b) of the IGST Act is contrary to the said principle;
ii. Section 13(8)(b) read with Section 8(2) of the IGST Act is ultra vires Article 246A read with Article 269A, Article 286 as well as Article 245 of the Constitution of India as the section results in levy on export of services as intra- State supply;
iii. Section 13(8)(b) is ultra vires the charging section 5;
iv. Section 13(8)(b) is ultra vires Section 9 of the CGST Act and MGST Act;
v. Section 13(8)(b) results in violation of Article 14 of the Constitution being arbitrary, unreasonable and discriminatory; vi. Section 13(8)(b) results in violation of right to carry on business viz. Article 19(1)(g) of the Constitution;
vii. No Double Taxation is permitted.
77. Respondents have fled Reply. Petitioner has fled Rejoinder. On behalf of the Parties written submissions have also been fled for the assistance of the Court. I have also heard Learned Counsel for Petitioner, Shri Bharat Raichandani as well as Learned Additional Solicitor General, Shri Anil C. Singh for the Respondent Revenue alongwith Shri Pradeep Jetly, learned Senior Counsel and Shri J.B. Mishra, Learned Standing Counsel for Revenue and with their able assistance, we have perused the papers and proceedings in the matter. The issue that arises for consideration, is whether the provision of Section 13(8)(b) read with Section 8(2) of the IGST Act is unconstitutional or ultra vires the IGST Act, Section 9 of the CGST Act/MGST Act.
78. In short the issue is that Petitioner is aggrieved that his supply of intermediary services as intermediary to his overseas customers, which according to him is export of service by virtue of section 13(8)(b) of the IGST Act read with section 8(2) of the said Act is being treated as an intra-State supply making him liable to pay CGST and MGST, which he submits cannot 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.1
81. In the case of State of Madhya Pradesh v/s. Rakesh Kohli & Another2 the Supreme Court had set out the following principles to be considered while examining the validity of statutes on taxability. In paragraph 32, the Supreme Court stated thus:-
“32:- While dealing with constitutional validity of a taxation law enacted by Parliament or State Legislature, the court must have regard to the following principles:-
(I)there is always presumption in favour of constitutionality of a law made by Parliament or a State Legislature,
ii) no enactment can be struck down by just saying that it is arbitrary or unreasonable or irrational but some constitutional infirmity has to be found,
(iii) the court is not concerned with the wisdom or unwisdom, the justice or injustice of the law as Parliament and State Legislatures are supposed to be alive to the needs of the people whom they represent and they are the best judge of the community by whose suffrage they come into existence,
(iv) hardship is not relevant in pronouncing on the constitutional validity of a fiscal statute or economic law, and
(v) in the field of taxation, the legislature enjoys greater latitude for classification…”
82. Also the following paragraphs in the decision in the case of Government of Andhra Pradesh & Ors Vs. P. Laxmi Devi3 may be helpful:-
“30. The first decision laying down the principle that the Court has power to declare a Statute unconstitutional was the well-known decision of the US Supreme Court in Marbury v. Madison 5 U.S. (1Cranch) 137 (1803). This principle has been followed thereafter in most countries, including India.
B. How and when should the power of the Court to declare the Statute unconstitutional be exercised?
Since, according to the above reasoning, the power in the Courts to declare a Statute unconstitutional has to be accepted, the question which then arises is how and when should such power be exercised.
31. This is a very important question because invalidating an Act of the Legislature is a grave step and should never be lightly taken. As observed by the American Jurist Alexander Bickel “judicial review is a counter majoritarian force in our system, since when the Supreme Court declares unconstitutional a legislative Act or the act of an elected executive, it thus thwarts the will of the representatives of the people; it exercises control, not on behalf of the prevailing majority, but against it.” (See A. Bickel’s `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 was published in the Harvard Law Review in 1893. In this article, Professor Thayer wrote that judicial review is strictly judicial and thus quite different from the policymaking functions of the executive and legislative branches. In performing their duties, he said, judges must take care not to intrude upon the domain of the other branches of government. Full and free play must be permitted to that wide margin of considerations which address themselves only to the practical judgment of a legislative body. Thus, for Thayer, legislation could be held unconstitutional only when those who have the right to make laws have not merely made a mistake (in the sense of apparently breaching a constitutional provision) but have made a very clear one, so clear that it is not open to rational question. Above all, Thayer believed, the Constitution, as Chief Justice Marshall had observed, is not a tightly drawn legal document like a title deed to be technically construed; it is rather a matter of great outlines broadly drawn for an unknowable future. Often reasonable men may differ about its meaning and application. In short, a Constitution offers a wide range for legislative discretion and choice. The judicial veto is to be exercised only in cases that leave no room for reasonable doubt. This rule recognizes that, having regard to the great, complex ever-unfolding exigencies of government, much which will seem unconstitutional to one man, or body of men, may reasonably not seem so to another; that the Constitution often admits of different interpretations; that there is often a range of choice and judgment; that in such cases the Constitution does not impose upon the legislature any one specific opinion, but leaves open this range of choice; and that whatever choice is not clearly in violation of a constitutional provision is valid even if the Court thinks it unwise or undesirable. Thayer traced these views far back in American history, finding, for example, that as early as 1811 the Chief Justice of Pennsylvania had concluded: “For weighty reasons, it has been assumed as a principle in constitutional construction by the Supreme Court of the United States, by this Court, and every other Court of reputation in the United States, that an Act of the legislature is not to be declared void unless the violation of the Constitution is so manifest as to leave no room for reasonable 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 education and stimulus that comes from fghting the question out in the ordinary way, and correcting their own errors” and with the tendency “to dwarf the political capacity of the people and to deaden its sense of moral responsibility”.
37. Justices Holmes, Brandeis and Frankfurter of the United States Supreme Court were the followers of Prof. Thayer’s philosophy stated above. Justice Frankfurter referred to Prof Thayer as “the great master of constitutional law”, and in a lecture at the Harvard Law School observed “if I were to name one piece of writing on American Constitutional Law, I would pick Thayer’s once famous essay because it is the great guide for judges and therefore, the great guide for understanding by non-judges of what the place of the judiciary is in relation to constitutional questions”. (vide H. Phillip’s `Felix Frankfurter Reminisces’ 299-300, 1960).
38. In our opinion, there is one and only one ground for declaring an Act of the legislature (or a provision in the Act) to be invalid, and that is if it clearly violates some provision of the Constitution in so evident a manner as to leave no manner of doubt. This violation can, of course, be in different ways, e.g. if a State legislature makes a law which only the Parliament can make under List I to the Seventh Schedule, in which case it will violate Article 246(1) of the Constitution, or the law violates some specific provision of the Constitution (other than the directive principles). But before declaring the statute to be unconstitutional, the Court must be absolutely sure that there can be no manner of doubt that it violates a provision of the Constitution. If two views are possible, one making the statute constitutional and the other making it unconstitutional, the former view must always be preferred. Also, the Court must make every effort to uphold the constitutional validity of a statute, even if that requires giving a strained construction or narrowing down its scope vide Mark Netto V. Government of Kerala and Ors. [1979]1SCR609. Also, it is none of the concern of the Court whether the legislation in its opinion is wise or unwise.
39. In a dissenting judgment in Bartels V. Iowa 262 US 404 412(1923), Justice Holmes while dealing with a state statute requiring the use of English as the medium of instruction in the public schools (which 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 observed by this Court in State of Bihar V. Kameshwar Singh AIR 1952, SC 252 (274); “The legislature is the best judge of what is good for the community, by whose suffrage it comes into existence”.
In our opinion, the Court should, therefore, ordinarily defer to the wisdom of the legislature unless it enacts a law about which there can be no manner of doubt about its unconstitutionality.
47. As observed by the Constitution Bench decision of this Court in M.H. Quareshi V. State of Bihar: [1959]1SCR629 :
The Court must presume that the legislature understands and correctly appreciates the needs of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds. It must be borne in mind that the legislature is free to recognize degrees of harm and may confine its restrictions to those cases where the need is deemed to be the clearest, and finally that in order to sustain the presumption of constitutionality the Court may take into consideration matters of common knowledge, common report, the history of the times, and may assume every state of facts which can be conceived existing at the time of the legislation. (See also Moti Das V. S.P. Sahi MANU/SC/0021/1959 : AIR 1959SC942.
48. In the light of the above observations, the impugned amendment is clearly constitutional. The amendment was obviously made to plug a loophole in the Stamp Act so as to prevent evasion of stamp duty, and for quick collection of the duty. There are other statutes e.g. the Income Tax Act in which there are provisions for deduction at source, advance tax, etc. which aim at quick collection of tax, and the constitutional validity of these provisions have always been upheld”.
83. In the case of Hamdard Dawakhana & Another v/s. Union of India4, the Supreme Court has observed that another principle that is to be borne in mind while examining the constitutionality of a statute is that it must be assumed that the legislature understands and appreciates the need of the people, that the laws it enacts are directed to problems which are made manifest by experience, and that the elected representatives assembled in a legislature enact laws which they consider to be reasonable for the purpose for which they are enacted.
84. In the case of Union of India v. Exide Industries Ltd.5, 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 same is demonstrated from enacted law, quoted the following passage from United States v/s. Butler et al (297 US (1936)) in support as under:-
“The power of courts to declare a statute unconstitutional is subject to two guiding principles of decision which ought never to be absent from judicial consciousness. One is that courts are concerned only with the power to enact statutes, not with their wisdom. The other is that while unconstitutional exercise of the power by the executive is subject to judicial restraint, the only check upon our own exercise of power by the executive is subject to judicial restraint. For the removal of unwise laws from the statute books appeal lies not to the courts but to the ballot and to the process of democratic government….”
The Court further held that in the Indian constitutional jurisprudence, the above principle has been reckoned by this Court in its early years in1954 in K. C. Gajapati Narayan Deo & Ors. v/s. The State of Orissa 15 (1954) SCR 1 wherein the Court observed thus:-
“…If the Legislature is competent to pass a particular law, the motives which impelled it to act are really irrelevant. On the other hand, if the legislature lacks competency, the question of motive does not arise at all. Whether a statute is constitutional or not is thus always a question of power… If the Constitution of a State distributes the legislative powers amongst different bodies, which have to act within their respective spheres marked out by specifc legislature entries, or if there are limitations on the legislative authority in the shape of fundamental rights, questions do arise as to whether the legislature in a particular case has or has not, in respect to the subject matter of the statute or in the method of enacting it, transgressed the limits of its constitutional powers…”
86. But before we proceed further, a word on the background/history of GST.
86.1. GST is goods and services tax. It is an indirect tax, levied on supply of goods or services or both. GST has been in operation in more than 160 countries after being introduced in France in 1954. Different countries follow different models of GST. Most countries do not have full GST. They have partial GST. Full GST means all indirect taxes are covered under it and calculated as Value Added Tax (VAT). Some countries have GST calculated as VAT or comprehensive 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 capital goods and to shift to comprehensive VAT. MODVAT was replaced by CENVAT in 2000. Full-fledged CENVAT came into operation in July 2001. MODVAT on goods was also expanded by bringing in more commodities in its purview. Then came the Task Force on Indirect Taxes, which recommended moving towards comprehensive VAT on goods and services. It became necessary to bring goods and services on the same platform so that credit for inputs could be given across goods and services and not just separately for each of them. The rules of CENVAT credit were introduced along with credit on service tax. These were a precursor to introducing GST. For sales tax, VAT was introduced in the states and almost all the states added VAT by 2005. CENVAT was for the Centre and VAT was used by the states.
86.3. The sales tax regime in India was complex. Since states were free to levy sales tax on goods and services at the rate they thought ft, residents would buy necessities from States which had lower sales tax. Across various indirect taxes – sales tax, services tax, excise duty – input credit was not available so the cascading effect continued. To eliminate this, GST was proposed in the Budget for 2006 – 2007. The important change that would come with the introduction of GST in the country was that earlier the indirect taxes were imposed on the “act of” production, sales, transportation etc. but under GST it was going to be on the transaction of supply.
86.4. Though, India has had several indirect taxes, the difficulty that was faced was that input credit was not available from one tax to another and there was cascading effect. This is sought to be taken care of under the GST regime.
86.5. In 2009 the Empowered Committee of State Finance Ministers was set up for comprehensive indirect tax reform by the introduction of GST in India.
86.6. On March 11,2011 the Constitution (115th Amendment) Bill was introduced in the Lok Sabha and the bill was referred to the standing committee on Finance for examination. The committee submitted its report on 7 August 2013. However, since the bill in the Lok Sabha had lapsed due to the dissolution of the 15th Lok Sabha on March 2014, the same could not be considered.
86.7. Thereafter, the Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 to introduce the GST and confer simultaneous powers on the Centre and States was introduced 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 Duty, Additional Excise Duties, Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, Special Additional Duty of Customs, and Central Surcharges and Cesses so far as they relate to the supply of goods and services;
(b) subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, Taxes on lottery, betting and gambling; and State cesses and surcharges in so far as they relate to supply of goods and services;
(c) dispensing with the concept of ‘declared goods of special importance’ under the Constitution;
(d) levy of Integrated Goods and Services Tax on inter- State transactions of goods and services;
(e) levy of an additional tax on supply of goods, not exceeding one per cent in the course of inter-State trade or commerce to be collected by the Government of India for a period of two years, and assigned to the States from where the supply originates;
(f) conferring concurrent power upon Parliament and the State Legislatures to make laws governing goods and services tax;
(g) coverage of all goods and services, except alcoholic liquor for human consumption, for the levy of goods and services tax. In case of petroleum and petroleum products, it has been provided that these goods shall not be subject to the levy of Goods and Services Tax till a date notified on the recommendation of the Goods and Services Tax Council.
(h) compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period which may extend to five years;
(i) creation of Goods and Services Tax Council to examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, exemption list and threshold limits. The Council shall function under the Chairmanship of the Union Finance Minister and will have the Union Minister of State in charge of Revenue or Finance as member, along with the Minister in-charge of Finance or Taxation or any other Minister nominated by each State Government. It is further provided that every decision of the Council 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 fiscal 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 which envisages taxation of the same taxable events i.e. supply of goods and services, simultaneously and concurrently by both the Centre and the State. This has led inter alia to the introduction of Articles 246A, 269A, 279A, 366(12A) (defining Goods and Services Tax), 366 (26A) (defining services) and omission of Article 268A, Entry 92, Entry 92-C in the Union List to Schedule VII of the Constitution of India to make way for IGST, CGST and MGST.
86.10. The amendment to the Constitution has defined “goods and services tax” to mean any tax on supply of goods, or services, or both (except taxes on the supply of alcoholic liquor for human consumption) by including the same in sub-Clause 12A of Article 366 of the Constitution of India. The expression “supply” has been defined under the GST Law and not under the Constitution to keep the process of future amendment simple whereas the terms “goods and services” are defined under both i.e. the Constitution and the GST legislation. The expression “goods” was already defined under sub-clause (12) of Article 366 to include all the materials, commodities and articles; the expression “services” has been defined in sub-Clause 26A of Article 366 to mean anything other than goods.
86.11. At this stage it would also be appropriate to refer to the Supreme Court decision in the case of Union of India and another versus Mohit Minerals Private Limited and Another6 where while considering challenge to the Goods and Services Tax (Compensation to States) Act, 2017 as well as the Goods and Services Tax (Compensation) Rules, where the following observations in paragraph 7 with respect to the amendment to the Constitution.
“7..… The Constitution (122nd Amendment) Bill, 2014 was introduced in the Lok Sabha to seek amendment in the Constitution, inter alia, providing for subsuming of various indirect taxes and central and states’ surcharges and cesses so far as they relate to supply of goods and services both on Intra State and Interstate. The Constitution 101st Amendment Act 2016 was passed to levy goods and services tax.…… On 12 April 2017, Parliament enacted 3 acts namely (1) the Central Goods and Services Tax Act, 2017; (2) Integrated Goods and Services Tax Act, 2017; and (3) the Goods and Services Tax (Compensation to States) Act, 2017.”
86.12. The Supreme Court in the case of Mohit Minerals (supra) has relied 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 the Central Goods and Services Tax Act, 2017 (“CGST Act”) as well as the Integrated Goods and Services Tax Act, 2017 and the State Legislature has enacted the Maharashtra Goods and Services Tax Act, 2017 (“MGST Act”). The CGST Act and the MGST Act have been enacted to make a provision for levy and collection of tax on intra-State supply of goods or services or both respectively by the Central Government and the State Government. The IGST Act has been enacted to make a provision for levy and collection of tax on inter-State supply of goods or services or both by the Central Government.
86.15. The Statement of Objects and Reasons of the IGST Act, are quoted as under:
“Presently, Article 269 of the Constitution empowers the Parliament to make law on the taxes to be levied on the sale or purchase taking place in the course of inter-State trade or commerce. Accordingly, Parliament had enacted the Central Sales Tax Act, 1956 for levy of central sales tax on the sale taking place in the course of inter-State trade or commerce. The central sales tax is being collected and retained by the exporting States.
2. The crucial aspect of central sales tax is that it is non-vatable i.e. the credit of this tax is not available as set-off for the future tax liability to be discharged by the purchaser. It directly gets added to the cost of goods purchased and becomes part of the cost of business and thereby has a direct impact on the increase in the cost of production of a particular product. Further, the fact that the rate of central sales tax is different from the value added tax being levied on the intra-State sale creates a tax arbitrage which is exploited by unscrupulous elements.
3. In view of the above, it has become necessary to have a Central legislation, namely the Integrated Goods and Services Tax Bill, 2017. The proposed Legislation will confer power upon the Central Government for levying goods and services tax on the supply of goods or services or both which takes place in the course of inter-State trade or commerce. The proposed Legislation will remove both the lacunas of the present central sales tax. Besides being vatable, the rate of tax for the integrated goods and services tax is proposed to be more or less equal to the sum total of the central goods and services tax and state goods and services tax or Union territory goods and 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 notified, 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 order, on the recommendation of the Council;
(e) to provide for determination of the nature of supply as to whether it is an inter-State or intra-State supply;
(f) to provide elaborate provisions for determining the place of supply in relation to goods or services or both;
(g) to provide for payment of tax of a supplier of online information and database access or retrieval services;
(h) to provide for refund of tax paid on supply of goods to tourists leaving India;
(i) to provide for apportionment of tax and settlement of funds and for transfer of input tax credit between the Central Government, State Government and Union territory;
(j) to provide for application of certain provisions of the Central Goods and Services Tax Act, 2017, inter alia, relating to definitions, time and value of supply, input tax credit, registration, returns other than late fee, payment of tax, assessment refunds, audit, inspection, search, seizure and arrest, demands and recovery, appeals and revision, offences and penalties and transitional provisions, in the proposed Legislation; and
(k) to provide for transitional transactions in relation to import of services made on or after the appointed day…….”
87. With the above prefatory observations and the back drop, let us now examine the challenge by Petitioner.
88. The approach of the Court in testing the constitutional validity of a provision is well settled. In the case of Exide Industries Ltd. (supra), the Supreme Court has observed that the fundamental concern of the Court should be to inspect firstly the existence of enacting power and once such power is found to be present, then next is to ascertain whether the enacted provision impinges upon any right enshrined in Part-III of the Constitution. The process of examining validity of a duly enacted provision as envisaged under Article 13 of the Constitution is based on the aforesaid two steps.
89. It would therefore be appropriate to first consider the challenge with respect to Articles 246, 246A, 269A, Article 286 and Article 245 of the Constitution of India, which are quoted as under:
89.1. Article 246 is quoted as under:
“246. Subject matter of laws made by Parliament and by the Legislatures of States:-
(1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to 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 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.”
89.3. Article 269A of the Constitution of India is quoted as under:
“Art. 269A :- (1) Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
Explanation. – For the purposes of this clause, supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce.
(2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India.
(3) Where an amount collected as tax levied under clause (1) has been used for payment of the tax levied by a State under Article 246A, such amount shall not form part of the Consolidated Fund of India.
(4) Where an amount collected as tax levied by a State under Article 246A has been used for payment of the tax levied under Clause (1), such amount shall not form part of the Consolidated Fund of the State.
(5) Parliament may, by law, formulate the principal for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce”.
89.4. Article 286 of the Constitution of India is reproduced as under:
“Article 286. Restrictions as to imposition of tax on the sale or purchase of goods.—
(1) No law of a State shall impose, or authorise the imposition of, a tax on the supply of goods or of services or both, where such supply takes place-
(a) outside the State; or
(b) in the course of the import of the goods or services or both into, or export of the goods or services or both out of, the territory of 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 levied or collected except by authority of law. The Constitution of India is quasi federal in nature with clear precise demarcation of legislative powers between the Center and the States.
91. As can be seen, Article 246 of the Constitution of India deals with the distribution of legislative powers as between Union and the State legislatures as contained in the VIIth Schedule of Constitution. The VIIth Schedule to the Constitution of India gives three lists. List – I is known as the Union list, list -II is the State list and list – III is the concurrent list. If an item is listed in list- I then the Union or the Parliament would have competence to legislate on such item. If the item is in list-II, then the State would have the power. If the item is in the concurrent list, then both the Union or the State can legislate. And, under Article 248 of the Constitution of India but subject to Article 246A, Parliament has exclusive (residuary) power to make any law with respect to any matter not enumerated in the Concurrent List or State List. The power read with the Union List under Seventh Schedule implies that the Parliament has residuary powers to legislate any law with respect to any tax not mentioned in either of the Concurrent or State List.
91.1. Pursuant to the Constitution (One Hundred and First Amendment) Act, 2016, from the 16th day of September 2016, and with the operation of Article 246A through the Constitution (101st) Act, 2016, the legislative relations between the Union and the States have evolved and the said amendment has created ‘special provision with respect to goods and services tax such that the Parliament and the Legislature of every State, now have power to make laws with respect to goods and services tax imposed by the Union or by that State. Entry 92 as well as 92C stand deleted by this amendment in order to facilitate the operation of this special provision.
91.2. It is seen that the power to make laws under Article 246A is a non obstante power to anything contained in Article 246 and Article 254 i.e. the general power of the Parliament and States to make laws with respect to subject-matters covered in the lists under Seventh Schedule and supremacy of central legislation in case of repugnancy between a central Act and State legislation. Therefore, Article 246A will override the general powers, even if a subject-matter of taxation 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 of inter-State trade or commerce is to be enacted by the Parliament. Under Article 269A(5) the rules or principles for place of supply are also to be formulated by the Parliament.
92.3. The GST on supplies in the course of inter-State trade or commerce is levied and collected by the Government of India and such tax is apportioned between the Union and the State. The manner of apportionment may be provided by the Parliament by law on the recommendations of the GST Council.
93. Pursuant to the aforesaid powers under Article 246A and Article 269A, the IGST Act has been enacted.
94. Before moving further, it would be apposite to refer to the following provisions of the IGST Act which are relevant for our discussion.
94.1. Section 2(6) defines “export of services” as under:
“export of services” means the supply of any service when, —
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; or in Indian rupees wherever permitted by the Reserve Bank of India; and
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;
94.2. Section 2(13) defines “intermediary” as under:
“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 more persons, but does not include a person who supplies such goods or services or both or securities on his own account;”
94.3. Section 2 (21) of IGST Act defines “ supply” as under:-
“supply” shall have the same meaning as assigned to it in section 7 of the Central Goods and Services Tax Act;
94.4. Section 5 of the IGST Act is the charging section and deals with the levy and collection of IGST as under:
“Levy and collection.
1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under 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 Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both.
(5) The Government may, on the recommendations of the Council, by notification, specify categories of services, the tax on inter-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:
Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax.
94.5. Section 7 of the IGST Act deals with inter-State supply as under:
“Inter-State supply.
(1) Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in–
(a) two different States;
(b) two different Union territories; or
(c) a State and a Union territory, shall be treated as a supply of goods in the course of inter- State trade or commerce.
(2) Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-State trade or commerce.
(3) Subject to the provisions of 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 State or same Union territory shall be treated as intra-State supply:
Provided that the following supply of goods shall not be treated as intra-State supply, namely:–
(i) supply of goods to or by a Special Economic Zone developer or a Special Economic Zone unit;
(ii) goods imported into the territory of India till they cross the customs frontiers of India; or
(iii) supplies made to a tourist referred to in section 15.
(2) Subject to the provisions of section 12, supply of services where the location of the supplier and the place of supply of services are in the same State or same Union territory shall be treated as intra-State supply:
Provided that the intra-State supply of services shall not include supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit.
Explanation 1.–For the purposes of this Act, where a person has,
(i) an establishment in India and any other establishment outside India;
(ii) an establishment in a State or Union territory and any other establishment outside that State or Union territory; or
(iii) an establishment in a State or Union territory and any other establishment registered within that State or Union territory,
then such establishments shall be treated as establishments of distinct persons.
Explanation 2.–A person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory.
94.7. Section 10 of the Act deals with place of supply of goods other than supply of goods imported into, or exported from India as under:
“(1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under,–
(a) where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient;
(b) where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, 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;
(b) exported from India shall be the location outside India.”
94.9. Section 12 deals with place of supply of services where location of supplier and recipient is in India.–
(1) The provisions of this section shall apply to determine the place of supply of services where the location of supplier of services and the location of the recipient of services is in India.
(2) The place of supply of services, except the services specified in sub-sections (3) to (14),–
(a) made to a registered person shall be the location of such person;
(b) made to any person other than a registered person shall be,-
(i) the location of the recipient where the address on record exists; and
(ii) the location of the supplier of services in other cases.
(3) The place of supply of services,–
(a) directly in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or coordination of construction work; or
(b) by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel; or
(c) by way of accommodation in any immovable property for organising any marriage or reception or matters related thereto, official, social, cultural, religious or business function including services provided in relation to such function at such property; or
(d) any services ancillary to the services referred to in clauses (a), (b) and (c),
shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located:
Provided that if the location of the immovable property or boat or vessel is located or intended to be located outside India, the place of supply shall be the location of the recipient.
Explanation.–Where the immovable property or boat or vessel is located in more than one State or Union territory, the supply of services shall be treated as made in each of the respective States or Union territories, 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.
(4) The place of supply of restaurant and catering services, personal grooming, ftness, 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, exhibition, celebration or similar events; or
(b) services ancillary to organisation of any of the events or services referred to in clause (a), or assigning of sponsorship to such events,–
(i) to a registered person, shall be the location of such person;
(ii) to a person other than a registered person, shall be the place where the event is actually held and if the event is held outside India, the place of supply shall be the location of the recipient.
Explanation.–Where the event is held in more than one State or Union territory and a consolidated amount is charged for supply of services relating to such event, the place of supply of such services shall be taken as being in each of the respective States or Union territories 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 services by way of transportation of goods, including by mail or courier to, —
(a) a registered person, shall be the location of such person;
(b) a person other than a registered person, shall be the location at which such goods are handed over for their transportation:
[Provided that where the transportation of goods is to a place outside India, the place of supply shall be the place of destination of such goods.]
(9) The place of supply of passenger transportation service to, —
(a) a registered person, shall be the location of such person;
(b) a person other than a registered person, shall be the place where the passenger embarks on the conveyance for a continuous journey:
Provided that where the right to passage is given for future use and the point of embarkation is not known at the time of issue of right to passage, the place of supply of such service shall be determined in accordance with the provisions of sub-section (2).
Explanation.–For the purposes of this sub-section, the return journey shall be treated as a separate journey, even if the right to passage for onward and return journey is issued at the same time.
(10) The place of supply of services on board a conveyance, including a vessel, an aircraft, a train or a motor vehicle, shall be the location 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
(ii) by any person to the final subscriber, be the location where such prepayment is received or such vouchers are sold;
(d) in other cases, be the address of the recipient as per the records of the supplier of services and where such address is not available, the place of supply shall be location of the supplier of services:
Provided that where the address of the recipient as per the records of the supplier of services is not available, the place of supply shall be location of the supplier of services:
Provided further that if such pre-paid service is availed or the recharge is made through internet banking or other electronic mode of payment, the location of the recipient of services on the record of the supplier of services shall be the place of supply of such services.
Explanation.–Where the leased circuit is installed in more than one State or Union territory and a consolidated amount is charged for supply of services relating to such circuit, the place of supply of such services shall be taken as being in each of the respective States or Union territories 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.
(12) The place of supply of banking and other financial services, including stock broking services to any person shall be the location of the recipient of services on the records of the supplier of services:
Provided that if the location of recipient of services is not on the records of the supplier, the place of supply shall be the location of the supplier of services.
(13) The place of supply of insurance services shall,–
(a) to a registered person, be the location of such person;
(b) to a person other than a registered person, be the location of the recipient of services on the records of the supplier of services.
(14) The place of supply of advertisement services to the Central Government, a State Government, a statutory body or a local authority meant for the States or Union territories identified in the contract or agreement shall be taken as being in each of such States or Union territories and the value of such supplies specific to each State or Union territory shall 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 are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services:
Provided that when such services are provided from a remote location by way of electronic means, the place of supply shall be the location where goods are situated at the time of supply of services:
Provided further that nothing contained in this clause shall apply in the case of services supplied in respect of goods which are temporarily imported into India for repairs or for any other treatment or process and are exported after such repairs or treatment or process without being put to any use in India, other than that which is required for such repairs or treatment or process;
(b) services supplied to an individual, represented either as the recipient of services or a person acting on behalf of the recipient, which require the physical presence of the recipient or the person acting on his behalf, with the supplier for the supply of services.
(4) The place of supply of services supplied directly in relation to an immovable property, including services supplied in this regard by experts and estate agents, supply of accommodation by a hotel, inn, guest house, club or campsite, by whatever name called, grant of rights to use immovable property, services for carrying out or coordination of construction work, including that of architects or interior decorators, shall be the place where the immovable property is located or intended to be located.
(5) The place of supply of services supplied by way of admission to, or organisation of a cultural, artistic, sporting, scientific, educational or entertainment event, or a celebration, conference, fair, exhibition or similar events, and of services ancillary to such admission or organisation, shall be the place where the event is actually held.
(6) Where any services referred to in sub-section (3) or sub-section (4) or sub-section (5) is supplied at more than one location, including a location in the taxable territory, its place of supply shall be the location in the taxable territory.
(7) Where the services referred to in sub-section (3) or sub-section (4) or sub-section (5) are supplied in more than one State or Union territory, the place of supply of such services 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 Bank of India Act, 1934 (2 of 1934);
(c) “financial institution” shall have the same meaning as assigned to it in clause (c) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934);
(d) “non-banking financial company” means,– (i) a financial institution which is a company; (ii) a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; or (iii) such other non-banking institution or class of such institutions, as the Reserve Bank of India may, with the previous approval of the Central Government and by notification in the Official Gazette, specify.
(9) The place of supply of services of transportation of goods, other than by way of mail or courier, shall be the place of destination of such goods.
(10) The place of supply in respect of passenger transportation services shall be the place where the passenger embarks on the conveyance for a continuous journey.
(11) The place of supply of services provided on board a conveyance during the course of a passenger transport operation, including services intended to be wholly or substantially consumed while on board, shall be the first scheduled point of departure of that conveyance for the journey.
(12) The place of supply of online information and database access or retrieval services shall be the location of the recipient of services. Explanation.–For the purposes of this sub-section, person receiving such services shall be deemed to be located in the taxable territory, if any two of the following noncontradictory conditions are satisfied, namely:–
(a) the location of address presented by the recipient of services through internet is in the taxable territory
(b) the credit card or debit card or store value card or charge card or smart card or any other card by which the recipient of services settles payment has been issued in the taxable territory;
(c) the billing address of the recipient of services is in the taxable territory;
(d) the internet protocol address of the device used by the recipient of services is in the taxable territory;
(e) the bank of the recipient of services in which the account used for payment is maintained is in the taxable territory;
(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 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 unutilised input tax credit; or
(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder.
95. Petitioner’s case is that his supply is export of services as defined in section 2(6) of the IGST Act. But because of (i) Section 13(8)(b) of the IGST Act which in the case of Intermediary services (as well as two other services), provides the place of supply to be the location of supplier (and not the location of the recipient and which according to him should have been the case) as the service recipient is outside India read with (ii) section 8(2) which provides that where the location of the supplier and the place of supply of services are in the same State, the supply is being treated as intra State supply, Petitioner’s export is being deemed as intra-state supply making him liable to CGST and MGST. Petitioner has therefore questioned the vires of these two provisions or the competence of the Parliament to enact these provisions with reference to Articles 246A, 269A, 286 and 245 of the Constitution of India. According to Petitioner, Parliament cannot legislate to deem an export of services to be an intra -state Supply as is purportedly being done by virtue of section 13(8)(b) read with section 8(2) of the IGST Act.
96. Admittedly, Petitioner is an Intermediary (as defined in section 2(13) ) above rendering Intermediary Services (as provided for in section 13(8)(b) above) to its overseas customers based on which the overseas customers export their goods to importers in India for which Petitioner receives commission.
97. From the above referred provisions it emerges that the only exception is if the intermediary has provided the service on his own account in which case he may claim to be an exporter of the service if he otherwise falls within the definition. 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 the Revenue that Petitioner does not satisfy the conditions of the said Section. It is admitted position that Petitioner is an Intermediary (Section 2 (13) of IGST Act) providing Intermediary Services to service recipient located outside India. Therefore, for the purposes of place of supply Section 13(8) (b) comes into play.
99. In my view, when there is a specific provision defining Intermediary as in section 2(13) of the IGST Act and Intermediary Services are specifically dealt with in section 13(8)(b), the question of application of general provision of Section 2(6) of export of services would not arise. The following Latin phrase is apt here, Specialia derogant generaliabus, which means special provisions are never limited or explained by the general, i.e., special provisions derogate from general, but generalia specibus non derogant which means general provisions do not derogate from special provisions.
100. There would therefore be no question of deeming Petitioner’s supply of intermediary services to be intra-State supply.
101. It is pursuant to the powers invested by the Constitution, that the Parliament, in Sections 7 and 8 of IGST Act has provided for determination of the nature of supply, whether inter-state or intra- State; Section 7 provides for what supply is inter-State and Section 8 provides for what is treated as intra-State.
102. It is pursuant to the power in Article 269A(5) that Chapter V of the IGST Act entitled “Place of Supply of Goods or Services or Both” containing Sections 10 to 14 has been enacted by the Parliament.
103. It is observed that the Explanation to Article 269A(1) deems supply of goods or services in the course of import into India to be supply in the course of inter-State trade or commerce. A plain reading indicates that the said Explanation clearly limits itself to clause (1) of Article 269A. Article 269A empowers the Parliament to levy and collect GST on supplies in the course of inter-state trade or commerce. In my view, just because the import into India has been deemed to be inter-state trade or commerce, that under Article 269A, in no way would take away the power of the Parliament to stipulate any other type of supply to be a supply in the course of inter-State trade or commerce; firstly because the Explanation deeming import to be inter-state is restricted to clause (1) of Article 269A and secondly clause (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 the Constitution Amendment Act, 2016. Therefore, there is no doubt that the power to stipulate the place of supply as contained in Sections 13 (8)(b) of the IGST Act is pursuant to the provisions of Article 269A (5) read with Article 246A and Article 286 of the Constitution. The impugned provisions are in my view constitutional and are not in any way ultra vires the Constitution. If the Parliament pursuant to powers invested in it by the Constitution has in its wisdom dealt with Intermediary Services as that rendered by Petitioner, that is a matter within the Parliament’s domain.
104. In this context it will also be useful to refer to Chapter 21 of the GST flyer of CBIC (www.cbic.gov.in) where in paragraph 10.1 it has been stated that considering the intangible nature of supply of services, in respect of certain categories of services, the place of supply is determined with reference to a proxy. The said paragraph is quoted as under:
“10. Place of supply
10.1Place of supply provisions have been framed for goods & services keeping in mind the destination/consumption principle. In other words, place of supply is based on the place of consumption of goods or services. As goods are tangible, the determination of their place of supply based on the consumption principle is not diffcult. Generally the place of delivery of goods becomes the place of supply. However, the services being intangible in nature, it is not easy to determine the exact place where services are acquired, enjoyed and consumed. In respect of certain categories of services, the place of supply is determined with reference to a proxy…..
105. Coming to Petitioner’s case of Section 13(8)(b) invoking Section 8(2) to deem inter-state supply as intra-state supply, it is observed that Section 8 deals with nature of supply and Section 13 deals with place of supply. Both the provisions have different purposes. One is to determine the nature of supply whether it is intra-State and the other is to stipulate place of supply in the case where the supplier or the recipient of the services is located outside India; Whereas Section 8(2) refers to a situation to be intra-state if location of supplier and place of supply is in the same State, Section 13(8) refers to place of supply being the location of the supplier of service in case of intermediary services whereas in the instant case 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 269 is completely fallacious and untenable and the argument deserves to be rejected in view of what has been observed. In fact Section 16 as quoted above clearly has zero rated the supply involving export of services (as defined in Section 2(6) of the IGST Act) and therefore also the issue raised by Petitioner that the impugned provisions seek to make a levy on the same is untenable. However, as noted earlier that when there is a specific provision defining Intermediary as contained in section 2(13) of the IGST Act and Intermediary Services are specifically dealt with in section 13(8)(b), the question of application of a general provision would not arise, particularly when the constitutionality of both the above provisions has been upheld.
105.3. Therefore, there would be no question of Section 13(8) (b) or Section 8(2) being unconstitutional. Rather these provisions are clearly intra vires Articles 246, 246A and 269A of the Constitution.
106.1. With respect to Article 286, Petitioner submits that no State has the authority to levy local tax on export of services as that would be in violation of Article 286 (1), which states that no law of the State shall impose or authorise the imposition of tax on the supply of goods or services or both where such supply takes place outside the State. It has also been submitted that Section 13 (8) (b) read with Section 7(5) has deemed an export of service to be a local supply which is in violation of Article 286 (1) and that a central legislation cannot authorise the State to collect tax which has been prohibited by the Constitution.
106.2. Article 286 of the Constitution of India is reproduced as under:
“Article 286. Restrictions as to imposition of tax on the sale or purchase of goods.—
(1) No law of a State shall impose, or authorise the imposition of, a tax on the supply of goods or of services or both, where such supply takes place-
(a) outside the State; or
(b) in the course of the import of the goods or services or both into, or export of the goods or services or both out of, the territory of 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).”
106.3. A plain reading of Article 286 of the Constitution of India as quoted above suggests that Article 286 firstly 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) Amendment Act, 2016 signifies that the power to legislate on any matter relating to inter-state supply is with the Parliament and not with the State.
106.6. The whole purpose of Article 286(2) is to empower the Parliament to formulate principles to determine the situs of supply. This is also stated in Article 269A(5).
106.7. It is in furtherance of the powers under Article 246A, 269A and 286 of the Constitution of India, the Parliament by legislation, in Sections 7 (inter-State supply) and 8 (Intra-State supply) of the IGST Act has provided for determination of the nature of supply and in Sections 10 to 14 for place of supply.
106.8. The impugned provision does not in any manner deem an export of service to be a local apply whereas Section 13 pertains to place of supply and Section 7 pertains to the nature of inter-state supply as enacted by the Parliament pursuant to Article 246A read with Article 269A of the Constitution. Both the Sections as discussed have different purposes.
106.9. The submission by Petitioner that in terms of Section 13(2), Petitioner’s service is an export of service appears to be misplaced as Section 13(2) clearly stipulates that except for the services specified in sub-sections (3) to (13), the place of supply to be the location of the recipient of services. And one of such exception in Section 13(8)(b) clearly stipulates that the place of supply for “intermediary services” shall be the location of the supplier of services. Therefore this submission appears to be misplaced.
106.10. The argument that a central legislation cannot authorize the State to collect tax which is prohibited by the Constitution or that the provisions are a colorable legislation is without any legs to stand in view of provisions under Articles 245, 246A, 269A of the Constitution of India.
106.11. Therefore, the argument of Petitioner that the impugned provisions are violative of Article 286(1) do not hold any water.
106.12. Petitioner’s reliance on the decision in the case of State of Travancore, Cochin & Ors. V. The Bombay Co. Ltd .7 admittedly refers to the unamended Article 286, and refers to a series of integrated activities in the course of export sale of goods whereas in the case at hand, we are dealing with supply of intermediary services which are specifically covered under Section 13(8)(b) of the IGST Act and defined as such 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, Wardha8 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 make law for determining when supply of goods or services take place outside a State in India or in the course of import of goods or services into or export of goods or services out of the territory of India. There is no conflict between Article 246A, Article 269A or Article 286 which clearly empower the Parliament to formulate laws for determining place of supply and when a supply of goods or of services or both takes place in the course of inter-state trade or commerce or as to when supply of goods or services or both take place outside a State or in the course of import into or export out of the territory of India.
107.1. On behalf of Petitioner in the written submissions, counsel has sought to canvass that the provisions of section 13 (8) (b) of the IGST Act are ultra vires Article 245 of the Constitution of India. According to him by stipulating place of supply in the case of intermediary services to be the location of the supplier of services is to levy tax on the overseas recipient thereby attracting the provisions of Article 245. In the written submissions a question is raised whether the Parliament is empowered to enact laws in respect of extra-territorial aspects or causes that have no nexus with India. Counsel has also alluded to a hypothetical situation where the supplier of goods is in Germany and the buyer of goods is in Singapore to question whether such a transaction would be subject to GST at the hands of petitioner by virtue of the impugned section even though payment of GST in respect of such transactions is exempted under the IGST law. He has sought to rely upon paragraph 76 of the decision in the case of GVK Industries Ltd Vs. ITO9.
107.2. At the outset we observe that this challenge by way of written submissions on behalf of petitioner has been taken up for the first time during the course of arguments and does not find place in the petition, either in the facts or the grounds or the prayers even though petition has been amended pursuant to leave granted earlier. Also the hypothetical situation in respect of which this new challenge seems to be taken up is not the case of petitioner. It has been clearly stated in paragraph 4.6 of the petition that Indian purchaser i.e. the importer directly places a purchase order on the overseas customer for supply of the goods and the goods are directly shipped by the overseas 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 Chadha10, 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, not be necessary for us to deal with this hypothetical situation to consider the challenge under Article 245 of the Constitution of India. Moreover, since the hypothetical situation canvassed by Petitioner with respect to levy of IGST in cases where both supplier and buyer of goods are located outside India, it is admitted position that there is already an exemption notification in that regard providing ‘Nil’ rate of tax and therefore I do not consider it necessary to dwell on it.
107.3. For the sake of convenience it would be appropriate to quote Article 245 of the Constitution of India 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.”
107.4. A plain reading of Article 245, makes it clear that the impugned section in no way violates this provision as from the plain language of the said section it is clear that the same do not seek extra territorial operation nor seek to levy tax on service recipient outside India. All that Section 13(8)(b) does is to provide for place of supply in respect of intermediary services where the service recipient is outside India (as in the case of the Petitioner), to be the location of the supplier of services. Therefore, there is no question of extra territorial legislation here. In the facts of the present case, the recipient is located outside India and the intermediary services supplier is located in India and therefore section 13 (8)(b) would become applicable in that the place of supply would be the location of the supplier of services viz. in the taxable territory in India. Even if the supplier of services was located outside India in which case as per this provision the place of supply would be the location of the supplier i.e. outside India and would not be taxable in India; and there would be no question of extra territorial legislation.
107.5. It is further clear from the charging section 5 of the IGST Act that the levy of IGST is within the taxable territory i.e. India and therefore also there would also be no case of extra-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 Section 7 of IGST Act. Also as can be seen from subsection (5) of Article 269A of the Constitution that it is only the Parliament that can formulate the principles for determining the place of supply or when a supply of goods or of services or both takes place in the course of interstate trade or commerce. In fact the language of article 286 (2) also refers to 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. Section 13(8)(b) and Section 8(2) operate for different purposes and as we have held that Section 13(8)(b) read with Section 8(2) is not ultra vires the Constitution of India.
109. Having held that the IGST law is constitutional, and the provisions pertaining to the place of supply contained in section 13(8)(b) of the IGST Act in respect of intermediary services would not be violative of Articles 246A, 269A, 286, 245 of the Constitution of India, we now move on to consider Petitioner’s challenge under Articles 14 and 19(1)(g) of the Constitution of India.
110.1. Petitioner’s grievance of violation of Article 14 of the Constitution of India is on two counts:
(1) One is despite having purportedly satisfied the definition of export of services as defined in Section 2(6) of the IGST Act, by virtue of Section 13(8)(b), the intermediary services provided by the Petitioner to its overseas customer are not being treated as export of service thereby discriminating against Petitioner and other exporters of service;
(2) secondly the intermediary services provided by Petitioner in India are subject to GST, whereas that is not the case with other service providers like marketing agents, management consultants, market research agents, professional advisers as such services are not subject to GST pursuant to Section 13(2) of the IGST Act.
110.2. Before we discuss Petitioner’s challenge to this Article, a brief introduction to the principles on the subject.
110.3. The Constitution Bench of the Supreme Court in the case of R.K. Garg Vs. Union of India and Ors.11 has stated the principles to be borne in mind while considering the constitutional validity of a statute under Article 14 as under :-
“Now while considering the constitutional validity 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 rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J., that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straight – jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The Court should feel more inclined to give judicial deference to legislature judgment in the field of economic regulation than in other areas where fundamental human rights are involved…”
110.4. In the aforementioned case of R.K. Garg Vs. Union of India and Ors. (supra), the Supreme Court has once again laid down that in order to pass the test of reasonable classification, the classification must fulfill two conditions, namely, (l) that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others and (2) that differentia must have a rational relation to the object sought to be achieved by the Act. The differentia which is a basis of the classification and the object of the Act are distinct things and what is necessary is that there must be a nexus between them. This means that Article 14 forbids class discrimination by conferring privileges or imposing liabilities upon persons arbitrarily selected out of a large number of other persons similarly situated in relation to the privileges sought to be conferred or the liabilities proposed to be imposed, it however does not forbid classification provided such classification is not arbitrary. In other words, what is necessary in order to pass the test of permissible classification under Article 14 is that the classification must not be arbitrary, artificial or evasive, but must be based on some real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved by the legislature.
110.5. It would also be pertinent to refer to the case of Shri Ram Krishna Dalmia v/s. Shri Justice S. R. Tendolkar & Others12, the larger bench of the Supreme Court while considering the challenge to a notification issued under the Commissions of Enquiry Act,1952 has in paragraph 11 of its 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.”
(i) that a law may be constitutional even though it relates to a single individuals if, on account of some special circumstances or reasons applicable to him and not applicable to others, that single individual may be treated as a class by himself;
(ii) that there is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles;
(iii) that it must be presumed that the Legislature understands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds;
(iv) that the legislature is free to recognize degrees of harm and may confine its restrictions to those cases where the need is deemed to be the clearest;
(v) that in order to sustain the presumption of constitutionality 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; and
(vi) that while good faith and knowledge of the existing conditions on the part of a Legislature are to be presumed,, if there is nothing on the face of the law of the surrounding circumstances brought to the notice of the Court on which the classification may reasonably be regarded as based, the presumption of constitutionality cannot be carried to the extent of always holding that there must be some undisclosed and unknown reasons for subjecting certain individuals or corporations to hostile or discriminating legislation. The above principles will have to be constantly borne in mind by the Court when it is called upon, to adjudge the constitutionality of any particular law attacked as discriminatory and violative of the equal protection of the laws.”
110.6. The Supreme Court, in the case of V.S. Rice and Oil Mills and Others Vs. State of Andhra Pradesh etc.13 has stated that :-
“This Court has repeatedly pointed out that when a citizen wants to challenge the validity of any statute on the ground that it contravenes Article 14, specific, clear and unambiguous allegations must be made in that behalf and it must be shown that the impugned statute is based on discrimination is not referable to any classifcation 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.14 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 provision to new regulatory measures. In the very nature of taxing statutes, legislature holds the power to frame laws to plug in specific revenue leakages. Such laws are always pin-pointed in nature and are only meant to target a specific avenue of taxability. It was further observed that no doubt, fiscal statutes must comply with the tenets of Article 14, but it is to be noted that a larger discretion is given to the legislature in taxing statutes than in other spheres.
110.9. There is no discrimination between Petitioner’s case and other exporter of services. The intermediary services rendered by Petitioner are specifically provided as one of the services in addition to banking services and transport hiring services where the place of supply has been provided as the location of the supplier of services as per Section 13(8)(b) of the IGST Act. Intermediary has been specifically defined and which as discussed earlier does not include a person who renders the services for himself. Here, because of the intermediary, the export of goods is taking place from the overseas customer to the Indian importer, which is the transaction of import of goods for which the intermediary services have been provided by Petitioner. Therefore, between Petitioner and others there is no discrimination. Section 13(8)(b) would not be hit by Article 14 on this ground. For the same reason the second ground of discrimination, is also not tenable in as much as the Act has specifically provided for such intermediaries. Petitioner who is providing Intermediary Service to recipient outside India is on a different footing, the objective in my view would be to prevent revenue from escaping.
110.10. In my view, therefore there is a reasonable classification founded on intelligible differntia which has a rational relation/nexus to the object sought to be achieved. The objectives could be, as stated in the Respondent’s reply, to encourage the Make in India program and create the level playing field. It is however clarified that no view is being expressed with respect to the claims or counter-claims on the Make in India program referred to above as that is clearly a matter of the policy of the Government of India, which needless to say is the prerogative of the Government. Also in the second ground the objective in my view would be to prevent revenue from escaping and therefore, there is reasonable 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 liaison offices in India and escape taxation.
111.3. At the outset, we are unable to appreciate as to how by virtue of Section 13(8)(b) of the IGST Act, Petitioner would be restricted to carry on its business or for that matter result in closure of business of Petitioner. As has been discussed earlier, Petitioner is a marketing/sales agent for overseas exporters of products imported by customers in India, for which he earns commission. All that Section 13(8)(b) seeks to do is to impose a levy on Petitioner by stipulating that in respect of Intermediary Services, where the recipient is outside the country, in those cases, the place of supply shall be the location of the supplier. As to how that would result in a restriction or closure of business of the Petitioner is unfathomable particularly when the submission is devoid of my details. There is no restriction imposed on the intermediary services of a person like Petitioner. It is a legitimate power of the parliament, as discussed earlier, to enact IGST Act including Section 13 (8)(b). If the submission of Petitioner was to be considered, then any tax levied by the Central or State Government would be a restriction to carry on trade under Article 19(1)(g) of the Constitution of India.
111.4. Further, whether a foreign exporter would set up a liaison office in India is a matter which is in the individual freedom of such an exporter subject of course to the other applicable laws. As to what Section 13(8)(b) of the IGST Act has to do with it or as to how that would infringe on Petitioner’s right is not understood. Even otherwise, as on date there is no grievance of Petitioner that his overseas customer has set up liaison office in India.
111.5. On behalf of Petitioner, Paragraph 6 of the decision of the Supreme Court in the case of Bengal Immunity Company Vs. State of Bihar15 has been cited in support of his contentions.
111.6. A plain reading of Paragraph 6 suggests that no such restriction as set out in the said paragraph has been imposed by virtue of Section 13(8)(b) of the IGST Act. It appears that Petitioner has failed to appreciate that the Parliament has power to legislate on place of supply and on inter-state supply of goods and services pursuant to Article 269A read with Article 246A and Article 286 of the Constitution of India, by virtue of which the IGST Act and Section 13(8)(b) 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 duty, sales tax, service tax and so on, which were on the “act of” are eliminated and the tax is no more on the act of producing or on point of sales. Since GST is to be calculated as value added tax with input tax credit available from one level of supply to the next in the chain of production and distribution, the cascading effect of one tax on to the other is eliminated.
112.3. The Goods and Services Tax as envisaged pursuant to the newly introduced GST law is a tax on the supply of goods and services. This can be borne out not only from paragraph 1.10 of the Report of the Select Committee of the Rajya Sabha on the Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 as quoted earlier, but also from the statement of objects and reasons thereof which became the Constitution (101st Amendment) Act, 2016 as well as from the Statement of Objects and Reasons of the IGST Act as set out earlier. Even Article 366 (12A) defines Goods and Services Tax to any tax on supply of Goods and Services or both, therefore the charging sections in GST laws, CGST as well as IGST is to levy GST on supply.
112.4. Even Section 2 (21) of IGST Act defines “ supply” as under:-
“(21) “supply” shall have the same meaning as assigned to it in section 7 of the Central Goods and Services Tax Act; and
(ii) Section 7 of the CGST Act, 2017 refers to scope of supply and reads as under:
“7. (1) For the purposes of this Act, the expression “supply” includes––
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II….”
112.5. Therefore, the scheme of the GST law in India is taxation on supply. Concepts cannot be imposed upon clear, unambiguous Articles of the Constitution of India as well as the language in the provisions of the statute. There is no dispute that the supply under consideration is an inter-State supply of service. The inter- State levy 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 the case of All India Federation of Tax Practitioners v. Union of India16 (which relied on the principles laid down in Moti Laminates Pvt. Ltd. v. Collector of Central Excise Ahmedabad17) relied upon by Petitioner where the constitutional validity on the levy of service tax and the legislative competence of the Parliament to impose such tax was considered, and it was observed by the Supreme Court that the concept of VAT which is a general tax that applies in principle to all commercial activities involving production of goods and provision of services to conclude that VAT is a consumption tax borne by the consumer. The Supreme Court further want on to hold that service tax is a VAT, which in turn is a destination based consumption tax and not a charge on the business but on the consumer and it would logically be leviable only on services provided within the country. In my respectful view the said decision may be distinguishable. As described herein GST is a tax on supply and not on the sale. One of the elements of GST as mentioned is that the calculation of GST is like VAT, which is on the value addition to reduce the cascading effect of the various taxes thereby reducing the effective rate of indirect taxes. This is one of the three methods of calculation of indirect taxes, viz., specifc duty, ad valorem tax and value added tax. That was a different context and the constitutional amendments introducing special provisions of Article 246A, Article 269A and Article 279A, have brought in the new GST regime. It is also observed that the Constitutional Amendment bringing an end to the service tax regime has omitted Article 268A and Entry 92C (though the same was not notified).
112.8. As regards the decision in the case of Commissioner of Service Tax v. SGS India Pvt. Ltd.18 Petitioner therein was providing technical inspection and certification agency services and technical testing and analysing agency service on behalf of its foreign customers who imported goods from India whereas in the case at hand the Petitioner is admittedly an “intermediary” defined in the IGST Act and providing intermediary services to its foreign customers who were exporting goods into India. The Court in that case held that the services provided by SGS were fully covered by a clarification issued by the Revenue and also referred 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).
113.2. Since the supply, being discussed here, is an inter-State supply, as has been discussed by us earlier, the following portion of the charging section may be reproduced here. Section 5 of the IGST Act, is quoted as under :-
“5. Levy and Collection – (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under 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).
….”.
113.3. The above Section clearly states that all that on inter- State supplies of goods and services, there shall be levied a tax called the Integrated Goods and Service Tax, which shall be paid by the taxable person. There is no divergence of view that the scheme, scope and object of the IGST Act is a levy on inter-State supplies and the supply in this case is an inter-State supply. But what the argument of Petitioner seems to miss is that the Parliament as discussed earlier, can by law determine the place of supply, which pursuant to Article 269A(5) of the Constitution of India, it has done by enacting Chapter V containing Sections 10 to 14 on place of supply. Section 13(8)(b) as discussed earlier pertains to the case of intermediary services, where the service recipient is outside India and where the place of supply has been provided to be the location of the supplier. When the Constitution has empowered the Parliament to formulate principles determining the place of supply, in my view, Section 13(8)(b) cannot be said to be ultra vires the charging section as Section 13(8)(b) does not violate the levy on the supply made by the intermediary, particularly in view of Section 7, which designates 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.
113.5. 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 ultra vires the charging section or the scheme of the Act. 114.1. Petitioner is also concerned that Section 13(8)(b) of the IGST Act is ultra vires the charging Section 9 of the CGST Act as well as corresponding Section 9 of the MGST Act which provides for a levy of CGST/MGST on intra-state supplies of goods and services or both since according to Petitioner in view of Section 13(8)(b) read with Section 8(2) the subject supply would be treated as intra-state supply.
114.2. It would be useful to quote Section 9 (1)of the CGST Act as under :-
“9. Levy and collection. – (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty 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.
114.3. Similar is the provision under the MGST Act and is therefore not being reproduced.
114.4. Firstly there is no dispute that the supply under consideration is an inter-State supply of service. Therefore, when the place of supply in the case of intermediary services, such as that rendered by Petitioner and 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 Section 9 of the CGST Act/MGST Act as both these provisions operate in different fields. When there is a specific provision dealing with the case of Petitioner viz. Section 13 (8)(b) of the IGST Act, which has been enacted pursuant to the powers under Article 269A (5) of the Constitution of India, then also in my view the challenge appears to be without substance.
114.5. Petitioner has also referred to Section 8(2) to submit that Section 13(8)(b) of the IGST Act by stipulating the place of supply in the case 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 am unable to appreciate any of these arguments. As far as the first argument is concerned, there are, in my view, two distinctly identifiable supplies involved, i.e., (i) supply of services by the intermediary to the overseas supplier of goods and (ii) supply of goods by overseas supplier to the Indian importer. The first supply attracts Section 13 (8)(b) of the IGST Act. The second supply is liable to tax under the Customs Act, 1962 and the incidence of customs duty would be on the importer of goods and not on the intermediary service provider. Moreover, the principle is well settled that two taxes which are separate and distinct imposts on two different transactions/supplies is permissible as in law there is no overlapping.
115.3. With respect to the second assertion that the same supply would be taxed by foreign service recipient in his hands in the importing country, that in my view is also not really tenable in the eyes of law as IGST is not extra-territorial and generally speaking 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. Moreover, that would depend on the laws of that country . It is also pertinent to refer to the earlier discussion that Petitioner is providing intermediary services as an intermediary as defined in the IGST Act to the overseas customer and not as an exporter of service.
116.1. It is observed that Petitioner has placed much reliance upon the 139th Department related Parliamentary Standing Committee on Commerce in support of his contentions In support of his contention, Petitioner has extracted paragraphs 15.1 to 15.3 of the recommendations regarding amendment to section 13(8) of the IGST Act to exclude ‘intermediary’ services and make it subject to the default section 13(2) so that the benefit of export of services would be available.”
116.2. Without commenting on the necessity for the Parliament, GST Council/Government to take steps to implement or effectuate the above recommendations, it is pertinent to appreciate that the recommendations, do not have any binding value nor are they enforceable.
116.3. Reliance upon reports of Parliamentary Committees are external aids to construction to be used only when there is ambiguity in the statute. The law relating to 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 India19. 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 floor 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 justification for the advice is a matter to be considered by the legislature and by it alone.”
116.4. In any event, it is always open to Petitioner to make appropriate representation to give effect to the above recommendations and for the Respondents to consider the same.
117. Learned Additional Solicitor General, Shri Anil Singh has drawn our attention to the decision of the Gujarat High Court in the case of Material Recycling Association of India Vs. Union of India and Others (R/Special Civil Application No. 13238 of 2018 with R/Special Civil Application No. 13243 of 2018) decided on 24th July, 2020, wherein, he submits a similar challenge as in this Petition was made in respect of Section 13(8)(b) of the IGST Act and which had been rejected. It is observed that the said decision challenged the constitutional validity of Section 13(8)(b) of the IGST Act under Articles 14, 19, 265 and 286 of the Constitution of India. The Gujarat High Court after considering the submissions made by the counsel for the parties and after analysis in Paragraphs 63 to 68, has upheld the constitutional validity of Section 13(8)(b) read with Section 2(13) of the IGST Act. Though, the challenge before this Court is with respect to some more Articles of the Constitution of India, however I am in respectful agreement with the conclusion of the Gujarat High Court in the said case. True also that the decision in the case of Material Recycling Association of India (supra) cannot be treated as a binding precedent, however I am persuaded to rely on the following paragraphs :-
“64. The introduction of Goods and Service Tax in India in the year 2017 is 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 is amended by the Constitution (One Hundred First Amendment) Act, 2016 to bring on to introduce Article 246A which provides for special provision with respect to Goods and Service Tax. Article 246A begins with non-obstante clause stipulating that notwithstanding anything contained in Articles 246 and 254, the parliament subject to Clause-2, Legislature of every State, have power to make laws with respect to Goods and Service Tax imposed by the Union or by such State. Clause 2 of Article 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 supply of services where location of supplier and recipient is in India.—(1) The provisions of this section shall apply to determine the place of supply of services where the location of supplier of services and the location of the recipient of services is in India.
(2) The place of supply of services, except the services specified in sub-section (3) to (14),–
(a) Made to a registered person shall be the location of such person;
(b) made to any person other than a registered person shall be, –
(I) the location of the recipient where the address on record exists; and
(ii) the location of the supplier of services in other cases.”
The aforesaid provision of sub-section 12(2)(b) 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. Sub-section 3 to 14 of Section 12 stipulates the place of supply of service in various eventualities. However, the same does not cover the case of intermediary. Section 13 of IGST 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 in outside India. Sub-section 2 of Section 13 stipulates that the place of supply of service except the services described in sub-section 3 to 13 shall be the location of the recipient of the services and if the location of recipient of service is not available in the ordinary course of business, the place of supply shall be location of supplier of service. Thus, sub-section 3 to 13 carves out an exception to the place of supply of services to be the place of recipient of services where the location of supplier or location of recipient is outside India. On perusal of provision of Section 13 of IGST Act, 2017, subsection 3 to 13 thereof provide different eventualities to determine the place of supply of services. Sub-section 3 describes place of supply of services where the services are actually performed, Sub-section 4 refers to place of supply of services supplied directly in relation to an immovable property, Sub-section 5 refers to supply of services supplied by way of admission to, or organization of a cultural artistic etc. and Sub-section 6 provides that when services as provided in sub-sections 3, 4 and 5 are at more than one location, 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 the legislature has thought it ft to consider such intermediary services; the place of supply would be the location of the supplier of the services. In that view of the matter, it would be necessary to refer to the definition of “export of services” as contained in Section 2(6) of the IGST Act, 2017 which provides that export of service means the place of service of supply outside India. Conjoint reading of Section 2(6) and 2(13), which defines export of service and intermediary service respectively, then 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. In such circumstances, the respondent no.3 have issued Circular No.20/2019 where 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.
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68. The contention of the petitioner that it would amount to double taxation is also not 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. If the services provided by intermediary is not taxed in India, which is a location of supply of service, then, providing such service by the intermediary located in India would be without payment of any tax and such services would not be liable to tax anywhere. In such circumstances, the contentions raised on behalf of the petitioner are not tenable in view of the Notification No.20/2019 issued by the Government of India, Ministry of Finance whereby Entry no.12AA is inserted to provide Nil rate of tax granting exemption from payment of IGST for service provided by an intermediary when location of both supplier and recipient of goods is outside the taxable territory i.e. India. Therefore, the respondents have thought it ft to consider granting exemption to the intermediary services viz. service provider when the movement of goods is outside India.
69. In view of the foregoing reasons, it cannot be said that the provision of Section 13(8)(b) r.w. Section 2(13) of the IGST Act,2017 are ultra vires or unconstitutional in any manner. It would however, be open for the respondents to consider the representation made by the petitioner so as to redress its grievance in suitable manner and inconsonance with the provisions of CGST and IGST Act. The petition is, therefore, disposed of accordingly. Rule is discharged with no order as to costs.”
118. In the circumstances, a position of law, as discussed, regarding the legitimacy of Section 13(8)(b) or Section 8(2) of the IGST Act cannot be doubted. Petitioner has neither made a case of nonexistence of competence nor demonstrated any constitutional infirmity in Section 13(8)(b)or Section 8(2) of the IGST Act, nor a case of applicability of Section 8(2) of the IGST Act to the case of Petitioner. Petitioner has also failed to make out a case that Section 13 (8) (b) or Section 8(2) of the IGST Act are ultra vires the scheme of the IGST Act. Petitioner has failed to demonstrate that Section 13(8)(b) of the IGST Act is ultra vires Section 9 of the CGST Act or the MGST Act. Therefore the challenge fails.
119. In the light of the above, I am of the view that neither Section 13(8)(b) nor Section 8 (2) of the IGST Act are unconstitutional. Also neither Section 13 (8) (b) nor Section 8 (2) of the IGST Act are ultra vires the IGST Act. Section 13 (8) (b) is also not ultra vires Section 9 of the CGST Act, 2017 or the MGST Act, 2017. Section 13(8)(b) as well as Section 8(2) of the IGST Act are constitutionally valid and operative for all purposes.
120. Petition is accordingly dismissed. There shall be no order as to costs.
[ UJJAL BHUYAN, J.]
[ABHAY AHUJA, J.]
References:
1. 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).
2. (2012) 6 SCC 312
3. AIR 2008 SC 1640
4. (1960) Cri LJ 671
5. (2020) 5 SCC 274
6. Civil Appeal No. 10177 of 2018
7 .AIR 1952 SC 366
8. AIR 1958 SC 341
9. 2011 332 ITR 130 (SC)
10. (2002) 9 SCC 461
11. AIR 1981 Supreme Court 2138
12. AIR 1958 SC 538
13. AIR 1964 Supreme Court 1781
14. AIR 1975 Supreme Court 583
15. 1955(2) SCR603
16. 2007 (7) STR 625
17. 1995 (76) ELT 241 (SC)
18. 2016 (34) STR 554 (Bom)
19. (2018) 7 SCC 1
Original judgment copy is available here.
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