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Corporate News *  Service tax penalty can’t survive when assessee acted on dept.’s own view of non-taxability: Delhi High Court. *  GST section 74 extended limitation questionable when form 26AS mismatch was already known: Karnataka High Court grants interim relief. *  CGST demand prima facie impermissible after state GST settlement under section 128A: Bombay High Court. *  Supreme Court asks GSTAT to sympathetically consider delay as taxpayers pursued remedy before wrong forum. *  Supreme Court stays Tripura High Court ruling protecting genuine buyers from ITC denial over supplier’s GST default. *  Diary entries alone can’t prove clandestine removal of goods: CESTAT quashes excise penalty on steel trader. *  Customs could investigate preferential tariff claims even before sec. 28DA: Delhi High Court. *  Customs dept. relied on fake AI generated case laws: supreme court quashes Rs. 425.28 crore penalty. *  No GST exemption in affiliation and annual registration charges for admission or conduct Of examinations: GSTAT. *  Mere invoices, cheque payments insufficient to establish genuine movement of goods: GSTAT restores Rs. 43.44 lakh ITC demand. *  Consolidated GST show cause notice covering multiple financial years is not without jurisdiction: Delhi High Court. *  Construction of independent houses on separate plots not taxable as ‘Residential Complex’ without common facilities: CESTAT. *  GST penalty exceeding statutory maximum unsustainable; Allahabad High Court quashes ? 50,000/- penalty after taxpayer filed return and paid late fee. *  GST order against standard chartered bank passed without hearing set aside by Bombay High Court. *  Retracted statements can’t be relied upon without cross-examination: CESTAT quashes gold confiscation. *  Burden to prove misclassification lies on customs department: CESTAT. *  CESTAT quashes Rs. 98 lakh excise demand on clearance of used refractory brick scrap. *  Service tax demand on irrigation works quashed: Karnataka High Court rules sale of goods component not taxable as service. *  GSTAT restores tax and penalty for transporting iron scrap without E-way bill citing intent to evade tax. *  Madras High Court stays GST recovery from directors without opportunity to show cause under section 89. *  Madras high court stays GST recovery notice against directors; finds prima facie case on applicability of section 79(1)(c). *  Procedural lapses can’t justify harsh punishment without serious customs breach: CESTAT quashes customs broker licence revocation. *  Service tax payable on land leasing and sports complex charges: CESTAT. *  Settled customs dispute can’t be reopened through Article 226 challenge to interest liability: Delhi High Court. *  Mere facilitation of customs clearance can’t establish knowledge of smuggling: Madras High Court. *  GST registration cancellation stayed: Allahabad High Court questions 99% ITC utilisation cap under rule 86B. *  Composition scheme lapses automatically on crossing Rs. 1.5 crore turnover: GSTAT. *  Gujarat High Court quashes GST cancellation orders after officer relied on non-existent AI-generated case laws. *  Importers liable for customs duty benefits availed through manipulated scrips: Delhi High Court. *  Procedural E-way bill lapse alone can’t justify penalty where genuine transaction and absence of tax evasion are established: GSTAT.
Subject News *  Documentary evidence dominates probe, further custody unwarranted: mumbai court grants bail in Rs. 22.44 crore customs duty evasion case. *  Business premises can’t remain sealed for non-participation in GST search: Allahabad High Court. *  GST pre-deposit must be refunded proportionately when taxpayer partly succeeds in appeal: Bombay High Court. *  Supreme Court grants 30 days to file GST appeal; keeps pre-deposit issue open due to deposit in parallel CGST proceedings. *  GST demand can’t exceed amount proposed in SCN: Allahabad High Court quashes Rs. 20.47 Crore order. *  Hundreds-of-crores GST demand and heavy 10% pre-deposit no ground to bypass statutory appeal: Punjab & Haryana High Court. *  Delhi High Court refuses to entertain challenge to gold confiscation due to statutory appeal remedy and unexplained delay. *  Procedural error in customs broker licence inquiry can be rectified through remand: Delhi High Court. *  GSTR-2A mismatch alone can’t justify ITC denial without invoice-wise verification; personal hearing mandatory: GSTAT. *  GST order passed without uploading personal hearing notices violates sec. 75(4): Allahabad High Court. *  TAX EVASION - Sec. 74 GST SCN quashed for not spelling out fraud, wilful misstatement or suppression: Allahabad High Court. *  STPI’s SOFTEX certification and NoC charges taxable as business support services: CESTAT. *  Suspicion can’t replace proof: CESTAT quashes penalty in alleged gold-smuggling operation. *   Limitation runs from communication of order: Madras High Court upholds rejection of delayed GST Appeals. *  Rajasthan High Court quashes GST demand over unsigned show cause notice. *  ITC recovery upheld where supplier failed to deposit GST: Rajasthan High Court. *  Customs commissioner’s empowered to make port trust liable for duty on pilfered goods: Supreme Court. *  Rectification proceedings can’t be used to challenge an uncontested GST assessment through a writ petition: Andhra Pradesh HC. *  GST proceedings against deceased proprietor unsustainable without notice to legal heir: GSTAT. *  Mere availment of ineligible self-assessed ITC doesn’t amount to suppression without evidence of fraud or wilful misstatement: GSTAT. *  Disposal of mining overburden by entity authorised by mining lease holder constitutes taxable service: CESTAT. *  Toll plaza data not mandatory for ITC refund: GSTAT. *  Disputed GST fraud allegations require investigation: Punjab and Haryana High Court makes interim bail absolute in alleged fraud and GST fraud case. *  Non-manufacturer contractor liable to deposit excess excise duty collected from buyer: CESTAT. *  GST order can’t reject taxpayer’s reply as “not satisfactory” without reasons: Madhya Pradesh High Court. *  Uncorroborated statements can’t establish alleged diversion of duty-free goods: CESTAT. *  Erection services were not liable to service tax prior to 10th september 2004: CESTAT. *  Sec. 74 GST notice must spell out statutory ingredients for invoking extended tax demand proceedings: Allahabad High Court. *  No jurisdictional bar under section 6(2)(b) in parallel CGST SGST proceedings: Delhi High Court refuses to bypass GST appeal remedy. *  Madras High Court remits GST demand for fresh adjudication after taxpayer claims it was unaware of SCN following business closure.  

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GST UPDATE ON HC DECISION ON INTERMEDIARY SERVICES PART-1 118/2020-21

GST UPDATE ON HC DECISION ON INTERMEDIARY SERVICES PART-1 118/2020-21
We all know that in order to consider a transaction as export of service, all the conditions as prescribed in section 2(6) of the IGST Act, 2017 should be fulfilled, i.e., supplier is located in India, recipient is located outside India, place of supply of service is outside India, payment is received in convertible foreign exchange and supplier of service and recipient are not merely establishments of a distinct person. However, in case of ‘intermediary services’ provided by service provider in India, GST is being leviable due to the fact that place of supply according to section 13(8) of the IGST Act, 2017, is location of service provider, which is in India, thereby not satisfying the condition that place of supply should be outside India. Consequently, the provision contained in section 13(8) of the IGST Act, 2017 has been challenged before the Hon’ble Gujarat High Court in the case of MATERIAL RECYCLING ASSOCIATION OF INDIA VERSUS UNION OF INDIA but theHon’ble High Court has upheld the validity of section 13(8)(b) and has confirmed that the service provided by intermediary in India cannot be treated as “export of services” under the IGST Act, 2017 and thus will be subject to CGST and SGST. The present update seeks to discuss the contentions and reasoning adopted by the High Court in summarised manner.
The contentions made by the petitioner can be categorised as follows for the sake of easy understanding:-
1.    Violation of Article 286 of the Constitution of India:-It was pleaded that according to Article 286 of Constitution, States cannot impose tax where supply takes place outside State or in the course of import or export of goods or services. However, Parliament is not authorised to legislate and artificially assign place of supply to be within India when clearly services are being exported out of India. It was contended that since the section 13(8) states place of supply to be location of service provider, the tax to be levied is CGST and SGST which is impermissible as State cannot levy tax on services which are provided outside State. Hence, it was contended that the provision of section 13(8) is violative of provisions contained in Article 286 of Constitution of India.
2.    Violation of Article 14 of the Constitution of India:-It was contended that section 13(8) (b) renders differential treatment when services are supplied within territory of India and when supplied outside India. If supplier and recipient were located in India, then as per section 12 of the IGST Act, 2017 there was no special provision for determining place of supply for intermediary and general rule being location of recipient was applicable. Hence, different yardsticks prescribed for same set of services when both parties are situated within and outside India.
3.    GST is destination based taxation system:- It was pleaded that as GST is consumption based/destination based tax reform, provision of section 13(8) prescribing place of supply as location of service provider as against the location of recipient of service is against the basic framework of law.
4.    Leads to double taxation:- It was submitted that Section 13(8)(b)of the IGST Act, 2017 contributes to taxcascading and double taxation contrary to theobjectives of the GST. It was submitted thattransaction of providing intermediary serviceswould be subject to tax in the country where therecipient is located as it would be an import ofservice for such recipient. It was therefore,submitted that the transaction would suffer GSTin India and tax in the country outside India.
5.    Exemption under Notification No. 20/2019-IGST dated 09.09.2019:- There is exemption to services provided by an intermediary when location of both supplier and recipient of goods is outside the taxable territory. Hence, there is distinction made regarding intermediary services rendered on the basis of movement of goods. The intermediary services provided in respect of goods have been exempted if the movement of goods is outside India but in case of intermediary services not involving movement of goods, CGST and SGST is payable which is discriminatory despite the fact that foreign exchange is being earned for the country.
Reasoning adopted by the High Court:- The reasoning adopted by the Hon’ble High Court is summarized as follows:-
1.    Article 246A of the Indian Constitution:-It was mentioned that Article 246A was introduced by the Constitution (One Hundred First Amendment Act, 2016 which provides special provision for GST. Clause 2 of Article 246A provides exclusive power to Parliament to make laws with respect to GST where supply takes place in the course of inter state trade or commerce. The basic underlying change brought inby the GST regime is to shift the base of levy oftax from point of sale to the point of supply ofgoods or service. In that view of the matter,Section 13(8)(b) of the IGST Act,2017 which isframed by the parliament inconsonance with theArticle 246(2) of the Constitution of India isrequired to be considered.
2.    Intermediary cannot be considered as exporter of service:-After perusing the provision of export of service under section 2(6) of IGST Act, 2017 and intermediary under section 2(13) of the IGST Act, 2017, it was held that person who is intermediary cannot be considered as exporter of services because he is only a broker who arranges and facilitates supply of goods or services or both. The High Court held that the law does not seeks to discriminate between intermediary located in India and providing services abroad as the provision is drafted so as to levy CGST and SGST so that it is out of purview of IGST.
3.    Similar provision in erstwhile service tax regime:- It was concluded thatsimilar provision was existing in service tax regime w.e.f. 01.10.2014 and same situation is continued in GST regime as well. Therefore, it is consistent stand of the government to levy tax on services provided by intermediaries in India and so the same cannot be considered as export of services.
4.    No double taxation as contended by petitioner:- The contention of the petitioner that itwould amount to double taxation is also nottenable in eyes of law because the servicesprovided by the petitioner as intermediary wouldnot be taxable in the hands of the recipient ofsuch service, but on the contrary a commissionpaid by the recipient of service outside Indiawould be entitled to get deduction of suchpayment of commission by way of expenses andtherefore, it would not be a case of doubletaxation. If the services provided byintermediary is not taxed in India, which is alocation of supply of service, then, providingsuch service by the intermediary located in Indiawould be without payment of any tax and suchservices would not be liable to tax anywhere.
 
In view of the above reasoning, it was concluded by High Court that provision of section 13(8)(b) of IGST Act, 2017 is not ultra vires or unconstitutional in any manner.
The decision has opened new areas of disputes as it confirms levy of CGST and SGST on the services rendered by intermediaries to the service recipient located outside India while there being contrary opinions of various Advance Rulings. The detailed scrutiny on various points discussed above would be taken up in the forthcoming series of updates.
 
This is solely for educational purpose.
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