Intermediary services in cross border transactions shall be liable to CGST & SGST and shall not be considered as export.¹

Facts of the case

Petitioner is an association comprising of recycling industry engaged in manufacture of metals and casting etc. for various upstream industries in India. The petitioner also acts as agent for scrap, recycling companies established outside India in providing business promotion and marketing services for principals located outside India. It is to be noted that the petitioner not only deals with goods sold by foreign principals to customers in India but also acts as facilitator in conducting sale of goods by foreign principal in non-taxable territory to their customers located in non-taxable territory. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the constitutional validity of Section 13(8)(b) of the Integrated Goods Service Tax Act,2017 and holds the same as ultra vires under Article 14, 19, 265 and 286 of the constitution of India with a direction to the respondent to refund of IGST paid on services provided by the petitioner and to the client of petitioner located outside India.

Submissions on behalf of the Petitioner

It was submitted that services provided by the petitioner is export of services and is zero rated supply. So IGST cannot be levied on the same. Still the petitioner is forced to pay CGST/IGST on services exported out of India. It was further submitted by the petitioner that as per Section 13(8)(b) of the IGST Act,2017

"if the supplier, who is providing intermediary services to a person situated outside India, the place where the services are deemed to have been supplied is the place where the supplier is located"

Accordingly, such a transaction will be treated as intra-state supply as per Section 8(1) of the IGST Act and the supplier is required to pay CGST and SGST. Petitioner is of the opinion that when the petition provide service to a non-resident service recipient such service is clearly for the benefit of recipient located outside India and therefore such transaction can be said to have been executed in the course of export and would fall within the exemption of Article 286(1) of the Constitution of India.

In such circumstances, the provisions of Section 13(8)(b) read with Section 8(1) of the IGST Act,2017 is violative of Article 286(1) of the Constitution of India as the service provider would be liable to the SGST and CGST on the commission received from the service recipient. Along with the previously submitted fact, it was informed by the petitioner that Section 13 of the IGST Act, 2017 prescribes special rules for determining place of supply when the nature of services is peculiar i.e. the services can only be rendered in the physical presence of goods, then it shall be deemed to have been rendered where the goods are located.

Submission by the Respondent

Respondent submitted that contention of the applicant that services provided by petitioner is export of services is not tenable in law as the petitioner is providing intermediary services to the service recipient located outside India.

Sec 2(13) of IGST Act, 2017 defines “Intermediary” as-

"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 person who supplies such goods or services or both or securities on his own account."

It was argued that by virtue of provision of Section 13(8)of the IGST Act 2017, the supply of services by the intermediaries to the recipients, located outside India are not export of services irrespective of the mode of payment. The respondent has also relied on the verdict of various cases¹ where it was held that, services procured on commission basis by Indian Entity as an intermediary to recipient located outside India have not been held as export of service.

It was pointed out that differential treatment is accorded to intermediary service is itself a violation to the Article 14 of the Constitution. The reason behind the same is that one service cannot be compared to other service so as to justify the violation of Article 14 of the Constitution.

Judgment of Honorable Gujarat High Court

The objective behind introducing Goods and Service Tax in India in the year 2017 was 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. Clause 2 of Article 246A empowers parliament, who has exclusive power to make laws with respect to goods and services tax where the supply of goods or services or both takes place in the course of interstate trade or commerce. Thus parliament has exclusive power under Article 246A to frame laws for the inter-state supply of goods or services. The basic underlying change brought in by GST regime is to shift the levy of tax from point of sale to point of supply of goods or services or both. So it cannot be said that the provision of Section 13(8)(b) read with Section 2(13) of the IGST Act,2017 is ultra vires or unconstitutional in any manner. The petition is, therefore, disposed of accordingly.

¹ Material Recycling Association Of India Vs Union Of India (2020-TIOL-1274-HC-AHM-GST)

²M/s Global Reach Education Services Pvt. Ltd -[2018(15) G.S.T.L 618 (App A.A.R.-GST, Kolkata)]

²Sabre Travel Network India Pvt. Ltd -[2019 (21) G.S.T.L 87 (A.A.R. -GST Maharashtra)]

³Vservglobal Pvt. Ltd.-[2018(19) G,S.T.L 173 (A.A.R. –GST, Maharashtra)]