GST UPDATE ON CONSTITUTIONAL VALIDITY OF SECTION 13(8)(b) OF IGST ACT, 2017 PART-III:-

In our earlier updates, we discussed about the different opinions of judges involved in the case of M/s DHARMENDRA M. JANI wherein Justice Ujjal Bhuyan opined that the provision contained in section 13(8)(b) of the IGST Act, 2017 is unconstitutional and ultra-vires whereas Justice Abhay Ahuja was of the viewpoint that the provision contained in section 13(8)(b) of the IGST Act, 2017 is constitutionally valid and operative for all purposes. Although, the final verdict of the larger bench in this case is pending, we would like to discuss the most appropriate and justifiable view in our opinion on this matter in this present update.

One of the main contentions of the petitioner in this case was that the deeming fiction created by the provision under section 13(8)(b) of the IGST Act, 2017 has the consequence of treating the export of service as ‘intra-state supply’ and thereby leading to levy of CGST and SGST which is erroneous. In this regard, the interpretation of Hon’ble Justice Abhay Ahuja appears to be more logical that when there is specific provision defining intermediary in section 2(13) of the IGST Act, and the place of supply has been specifically mentioned as the location of supplier, there is no need to go to the general meaning of export of service so as to consider the transaction of intermediary located in India providing services to foreign recipient as export ignoring the fact that place of supply is specifically mentioned as location of supplier which is NOT OUTSIDE INDIA. Consequently, considering the transaction in general parlance so as to allege that the deeming fiction is not valid does not appear to be proper.

The Petitioner also challenged the provision on the grounds that it violates the Article 14 of the Constitution of India. In this respect, the viewpoint of Justice Ujjal Bhuyan appears to be more suitable as similar service providers such as marketing consultants, management consultants, market research agents, professional advisors who provide consultancy services are considered as exports whereas differential treatment is being given to intermediaries. However, the Hon’ble Justice Abhay Ahuja opined that the intermediary is different service provider as the definition excludes person who renders services for himself. However, discrimination cannot be made as regards various consultants and the intermediaries.

As regards the fact whether the provision of section 13(8)(b) complies with the provision of Article 246A and 269A, the opinion of Justice Abhay Ahuja appears to be to the point wherein it was stated that 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 supply in the course of inter-state trade or commerce. Parliament can very well make laws on what is inter-state supply and also make laws as regards determination of place of supply.

Furthermore, it was contended by the petitioner that Article 286(1) provides that State cannot impose tax on supply which takes place outside the State or in the course of import or export. The Hon’ble Justice Ujjal Bhuyan conceded with the petitioner that no State has authority to levy local tax on export of services and so section 13(8)(b) deeming export to be local supply is violation of Article 286(1) of the Constitution of India. However, in our opinion, the view placed by Justice Abhay Ahuja appears to be reasonable that as the transaction is not covered under export of service, the contention that levy of local tax on export is improper is not at all tenable. When the transaction is not export, the tax can be very well levied by State as well and there is no violation of Article 286(1) of the Constitution of India.

As regards violation of Article 245 is concerned which states that a law which has extra-territorial operation cannot be enforced. With respect to this, again the viewpoint of Justice Abhay Ahuja appears to be appropriate that provision of section 13(8)(b) does not lead to extra-territorial operation of law because the location of supplier of services is in India. Hence, it cannot be said that the transaction has no nexus at all in India.

The petitioner also contended 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 the 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. There was no express discussion on this contention by Justice Ujjal Bhuyan whereas it was held by Justice Abhay Ahuja that the contention is baseless because if it was true 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.

In view of the above comparative discussion of the opinions of the two judges, it is observed that the justification in support of the decision that the provision of section 13(8)(b) of IGST Act, 2017 is constitutionally valid and operative appears to be logical and reasonable. The above comparison has been done for academic discussion only and the final verdict of the third member will have precedence.

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GST UPDATE ON CONSTITUTIONAL VALIDITY OF SECTION 13(8)(b) OF IGST ACT, 2017 PART-III:-

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