Split Verdict Of Division Bench: Bombay HC Referral Judge Upholds Validity Of Section 13(8)(b) Of IGST Act

The Bombay High Court has recently upheld the constitutional validity of Section 13(8)(b) of the Integrated Goods and Services Tax (IGST) Act.

Which intermediary service providers based outside India could be taxed for providing services in India.

Section 13 of the IGST Act provides for imposition of tax for a specific situation when the location of a supplier or location of a recipient is outside India.

Sub-section (8)(b) clarified that for intermediary services (as agents, or brokers) the location for taxation purposes was the location from where the supplier has supplied the said services.

Now, sub-section (2) of Section 8 of the IGST Act has stated that where the location of the supplier and the place of supply of services are in the same state or same union territory, it would be treated as intra-state supply.

Therefore, the export of service by the petitioner as 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).

This was the main point of grievance where an array of petitioners raised in the High Court. They claimed that they paid CGST & SGST from under protest without collecting the same from their foreign customers, bearing the net tax burden of about 40 % of the total revenue.

Therefore, the matter was referred to Justice GS Kulkarni, who held that the provision was constitutionally valid as it was applicable only for the framework within the IGST Act.

The judgment stated that “None of the provisions under the IGST Act can be considered to be meaningless, so far as they are applicable within the framework of the IGST Act. These provisions under the IGST Act, in my opinion, need to be applied and understood in their applicability only under the IGST Act, even applying the principles of strict construction of the taxing statutes.”

However, the Court clarified that Section 13(8)(b) wasn’t applicable to services taxable under the CGST Act and the Maharashtra Goods and Services Tax (MGST) Act. This is because of restrictions imposed under Article 286 of the Constitution on sale or purchase outside India.

Justice Kulkarni’s opinion came after a Division Bench of the High Court gave a split verdict in June 2021 on the constitutional validity of the provision. While Justice Ujjal Bhuyan struck down the provision as unconstitutional.

As in the procedure, the matter was referred to Justice Kulkarni by then Chief Justice Dipankar Datta for his opinion.

The limited question before the referral judge was to determine the constitutional validity of Section 13(8)(b) of the IGST Act.

Now, the matter will be placed before a Division Bench, which will proceed to decide on the merits of the petition.