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Split Verdict on Constitutionality of Section 13(8)(B) Igst Act Delivered by Bombay High Court

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Case name

Dharmendra M. Jani vs Union of India and others 


Section 13(8)(b) of the Integrated Goods and Services Tax Act states that the place of supply of intermediary services is deemed as the location of the supplier of the services. As a result of this deeming provision, the services given by intermediaries like agents, brokers, etc., to overseas clients are brought under tax liability. The export of service by tan intermediary would be treated as intra-state supply of services under section 13(8)(b) read with section 8(2) of the IGST Act rendering such transaction liable to payment of central goods and services tax (CGST) and state goods and services tax (SGST). 

The petition was put forth by Mr. Dharmendra M Jain, who runs a proprietorship giving marketing and promotion services to foreign clients

Arguments before the Court

The Petitioner’s side put forth the argument that Parliament lacks the legislative competence to tax ‘export of service’ by deeming it as a local supply. He further contended that the customers he served had no base in India and that the consideration he received was in foreign currency. GST is a destination-based tax on consumption. 

Therefore, services provided by a service provider in India to a service receiver located outside India which is treated as export of service cannot be taxed; for taxing a service it is not the place of performance but the place of consumption which is relevant. Once the services are consumed outside India, Parliament has no jurisdiction to levy tax on such services consumed outside India. 

It was contended that since GST is an indirect tax, the rule of indirect taxation is that it must be capable of being passed on to the end receiver of the service. Therefore, it is trite that an agent cannot be burdened with GST. 

The petitioner put forth that the tax was arbitrary and discriminatory resulting in violation of Article 14 of the Constitution of India. Also, the provision infringed the right to trade and business under Article 19(1)(g) of the Constitution. 

Observations by the Court

While Justice Ujjal Bhuyan has held the provision to be unconstitutional, Justice Abhay Ahuja dissented. 

“…by artificially creating a deeming provision in the form of section 13(8)(b) of the IGSTAct, where the location of the recipient of service provided by an intermediary is outside India, the place of supply has been treated as the location of the supplier i.e., in India. This runs contrary to the scheme of the supplier i.e., in India. This runs contrary to the scheme of the CGST Act as well as the IGST Act besides being beyond the charging sections of both the Acts”

Justice Ahuja wrote a one-page order stating that he was unable to persuade himself to agree with Justice Bhuyan. 

Court’s Orders

Justice Ahuja said that he will release a separate opinion on June 16, recording his reasons for disagreement with Justice Bhuyan. 

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