Judges in Bombay High Court split on Wednesday on the issue regarding validity of exemption available to the intermediary services under Integrated Goods & Service Tax (IGST). Earlier, Gujarat High Court has upheld the validity of provisions.
According to the provision, in case of intermediary services, there is an exception under the IGST law which provides that if the intermediary is located in India, then the supply is liable to IGST and not export even if the recipient is outside India. This provision is prescribed in section 13(8)(b) of IGST Act.
This issue was challenged before a division bench of Justices Ujjal Bhuyan and Abhhay Ahuja in Bombay High Court. The petitioner prayed to declare section 13(8)(b) of IGST Act as “illegal, null and void, ultra vires and unconstitutional”.
‘Unconstitutional’
After detailed hearing, Justice Bhuyan opined that said section is “ultra vires the said Act besides being unconstitutional”. He refused to accept views of Gujarat HC in Material Recycling Association of India while elucidating that “decision of one High Court is not binding on another High Court though it deserves due consideration and certainly has a high persuasive value”
Justice Bhuyan dismissed Revenue’s stance that levy of IGST on supply of services by Intermediaries to foreign customers would strengthen the ‘Make in India’ program by encouraging foreign investment.
However, Justice Abhay Ahuja expresses that he is unable to be persuaded by Justice Bhuyan’s opinion and therefore “…would like to record my separate opinion in the matter.” Now, the matter has been listed on June 16 for pronouncement of the divergent opinion.
Expert’s view
Experts feel that if at all the verdict gets in favour of the petitioner, then it would make the intermediary service qualify as an export of service, and would certainly give a boost to the intermediaries. Place of Supply (PoS) in case of intermediary has always been litigative. In fact, this had been a topic of discussion in GST Council. CBIC has also come up with a Circular on this but later withdrawn.
Now, the matter is likely to be decided by 3 Judges in the High Court and before the Chief Justice or before the larger bench, two of the arguments which are very relevant for deciding on the constitutionality are likely to play an important role.
Abhishek Jain, Tax Partner with EY said that while the Gujarat HC recently upheld the validity of this provision, the Bombay HC judges have arrived at a split view on the same, thereby creating confusion for taxpayers. “As such, the industry will be expecting for the matter to be moved to the Apex Court, for a final certainty on the matter,” he said.