The Gujarat High Court, in its recent ruling in the case of Material Recycling Association of India while upholding the validity of section 13(8)(b) read with Section 2(13) of the IGST Act, 2017 held that the service provided by intermediary in India viz Intermediary services cannot be treated as “export of services” under the IGST Act, 2017 and thus will be subject to CGST + SGST.
The petitioner, Material Recycling Association of India is an association comprising the 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 scrap, recycling companies based outside India engaged in providing business promotion and marketing services for principals located outside India.
The petitioner, has challenged the constitutional validity of Section 13(8)(b) of the Integrated Goods Service Tax Act, 2017 and to hold the same as ultra vires under Articles 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 members of the petitioner association and to their clients located outside India.
The petitioner submitted that the member of the petitioner association receives only the commission upon receipt of sale proceeds by its foreign client in convertible foreign exchange. Accordingly, IGST cannot be levied on the members of the petitioner association, who are engaged in the transaction of export of service, covered under the Section 16(1) of the IGST Act, 2017 which provides for “zero rated supply”.
The Gujarat High Court held that the provision of Section 13(8)(b) read with Section 2(13) of the IGST Act, 2017 are not ultra vires or unconstitutional in any manner. Further the intermediary services cannot be treated as “export of services” under the IGST Act,2017 and therefore, rightly included in Section 13(8) (b) of the IGST Act to consider the location of supplier of service as place of supply so as to attract CGST and SGST.
Further the Court in its order stated that the contention of the petitioner that it would amount to double taxation is also not tenable in eyes of law because the services provided by the petitioner as intermediary would not be taxable in the hands of the recipient of such service, but on the contrary a commission paid by the recipient of service outside India would be entitled to get deduction of such payment of commission by way of expenses and therefore, it would not be a case of double taxation. Further, if its is not taxable in India, then such services would not be taxable anywhere.
The bench observed that “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”.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
