Supply Of Services Outside India By "Intermediaries" Not Export, And Hence, Subject To IGST: Gujarat HC [Read Judgment]

The Gujarat High Court has ruled that supply of services outside India by "intermediaries" in India is not an export, thereby continuing their liability of 18% IGST . Justices J. B. Pardiwala and Bhargav D. Karia, while upholding the validity of section 13(8)(b) read with Sections 2(13) (which defines intermediary service) of the IGST Act, 2017, asserted that the service provided by an intermediary in India cannot be treated as "export of services" under the IGST Act, 2017. Sub-section 8 of Section 13 states that the place of supply of the services shall be the location of supplier of services in case of banking company, intermediary services and services consisting of hiring of means of transport. "It therefore, appears that the basic logic or inception of section 13(8)(b) of the IGST Act,2017 considering the place of supply in case of intermediary to be the location of supply of service is in order to levy CGST and SGST and such intermediary service therefore, would be out of the purview of IGST", asserted the bench, adding that there is no distinction between the intermediary services provided by a person in India or outside India. "Only because, the invoices are raised on the person outside India with regard to the commission and foreign exchange is received in India, it would not qualify to be export of services, more particularly when the legislature has thought it fit to consider the place of supply of services as place of person who provides such service in India", stated the bench. The court, however, left it open for the State and the tax department to consider the representation made by the petitioner so as to redress its grievance in consonance with the provisions of CGST and IGST Act. Facts The petitioner has challenged the constitutional validity of Section 13(8)(b) (pertaining to intermediary services) of the Integrated Goods Service Tax Act, 2017, seeking refund of IGST paid on services provided by the members of the petitioner association and to their clients located outside India. The petitioner is an association of recycling industry engaged in manufacture of metals and casting etc., for various upstream industries in India. The members of the petitioner also act as agents for scrape, recycling companies based outside India engaged in providing business promotion and marketing services for principals located outside India. The members of the petitioner also facilitate sale of recycled scrap goods for their foreign principals in India and other countries. Thus, the members of the petitioner association not only deal with goods sold by foreign principals to customers in India but also facilitate sale of goods by foreign principals in non-taxable territory to their customers, who are also located in non-taxable territories. The members of the petitioner association are registered as "Taxable Person" under the provisions of the Central Goods & Service Tax Act, 2017. It was the case of the petitioner that the members of the petitioner association have no role to play in the actual sale and purchase of recycled scrap as the goods supplied by foreign clients to its purchasers are directly shipped by the foreign client to the Indian or overseas purchaser and thereafter, such goods are cleared by the purchaser from the Customs authorities on its own account. The foreign members of the petitioner association raises sales invoice in the name of the purchaser and the purchaser who may be either Indian or overseas directly remits the sale proceeds to the foreign client. According to the petitioner, member of the petitioner association receives only the commission upon receipt of sale proceeds by its foreign client in convertible foreign exchange. The members of the petitioner association raise invoices upon its foreign client for such commission received by them. Thus, according to the petitioner, the transaction entered into by the members of the petitioner association is one of export of service from India and earning valuable convertible foreign exchange for the same. According to the petitioner, IGST cannot be levied on the members of the petitioner association, who are engaged in the transaction of export of service as stated above as the petitioner members' export of services is covered by the Section 16(1) of the IGST Act, 2017 which provides for "zero rated supply" . Observations The bench noted that the introduction of Goods and Service Tax in India in the year 2017 is with an object of providing one tax for one nation so as 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 introduce Article 246A which provides for special provision with respect to Goods and Service Tax. Article 246A begins with a non-obstante clause stipulating that notwithstanding anything contained in Articles 246 and 254, the parliament, and subject to Clause-2,...

Supply Of Services Outside India By "Intermediaries" Not Export, And Hence, Subject To IGST: Gujarat HC [Read Judgment]

Mehal Jain

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