GST UPDATE ON HC DECISION ON INTERMEDIARY SERVICES PART-4 121/2020-21

We had discussed the contention regarding violation of Article 286 of the Constitution of India pleaded by the petitioner and the aspect of double taxation as considered in the HC decision in our earlier update. In the present update, we will discuss miscellaneous points of this decision.

One of the strong contentions of the petitioner was violation of Article 14 of the Constitution of India as the provision of section 13(8) of IGST Act, 2017 creates discrimination amongst intermediaries located in India and providing services to recipient outside India by levying tax whereas in case of intermediaries providing services in relation to movement of goods outside India there is exemption under notification no. 20/2019-IGST dated 09.09.2019. However, not much has been commented on the discrimination point and rather the Hon’ble High Court has emphatically held that as there was similar provision in the erstwhile service tax regime, the intention of the government to levy tax on intermediaries providing services outside India is clear and so the tax is payable by the petitioner. In this regard, it is pertinent to point that recently Hon’ble Delhi High Court in the case of Brand Equity Treaties Pvt. Ltd. had held that since Rule 117 discriminates and provides extension to file TRAN-1 only to those assessees who faced technical glitch and rather it should grant extension to file TRAN-1 to all the assessees. On similar lines, when the exemption is being given to intermediaries providing services in relation to goods, no tax should be levied for services provided by intermediaries to recipient located outside India. However, this point was not considered in depth by the Hon’ble High Court.

As regards upholding the validity of the provision contained in section 13(8) of the IGST Act, 2017 by stating that there was similar provision in erstwhile service tax regime, it is respectfully submitted that the issue was also litigated in the earlier regime before the Hon’ble Delhi High Court in the case of INDIAN ASSOCIATION OF TOUR OPERATORS VERSUS UNION OF INDIA [2017 (5) G.S.T.L. 4 (DEL.)] wherein the Hon’ble Delhi High Court stated that the section 66C of the Finance Act, 1994 enables the Central Government only to make rules to determine place of provision of taxable service but not of non-taxable service. It was held that services provided by Indian tour operators to foreign tourists during the period from 01.07.2012 to 01.07.2017 which has been paid for in convertible foreign exchange would not be amenable to service tax. It is pertinent to mention that this decision has been further appealed to Supreme Court and the matter is pending before the Apex Court for final verdict. The above clearly indicates that the issue regarding levy of service tax on intermediaries located in India and providing services to foreign recipients is sub-judice and has not attained finality. Consequently, upholding the validity of provision contained in section 13(8) of the IGST Act, 2017 on the grounds that similar provisions were in force in the erstwhile service tax regime needs to be re-visited.

Lastly, the reasoning of the Hon’ble High Court that as intermediary is a broker who arranges or facilitates supply of goods or services cannot be considered as exporter of service will be surely challenged before the Apex Court as it is nowhere mentioned that ‘exporter of service’ is required to provide services on his ‘own account’ and cannot provide services on behalf of principal. In our humble view, merely because the services of intermediary have been provided, the same cannot be reason for not considering the transaction as export of service.

We hope our in-depth analysis on the High Court decision was beneficial to you.

This is solely for educational purpose.
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GST UPDATE ON HC DECISION ON INTERMEDIARY SERVICES PART-4 121/2020-21

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