In an important judgement, the Bombay High Court has held that services provided by intermediaries to persons abroad will not attract CGST (Central Goods & Services Tax) and MGST (Maharashtra Good & Services Tax, also called SGST). However, it upheld the legality of IGST (Integrated Goods & Services Tax).

“The provisions of Section 13(8)(b) and Section 8(2) of the IGST Act are legal, valid and constitutional, provided that the provisions under these Sections are confined in their operation to the provisions of the IGST Act only, and the same cannot be made applicable for levy of tax on services under the CGST and MGST Acts,” a bench of Justice G S Kulkarni said.

Section 13(8)(b) of the IGST Act refers to intermediary services while determining the location of the supplier as the Place of Supply (PoS). Section 8(2) of the IGST Act defines intra-state supply, which states that if a supplier is in India and the recipient is located abroad, then these will be treated as establishments of distinct persons.

The matter was brought before the single judge after a difference in opinion arose between two judges on a division bench in 2021. While one of them struck down Section 13(8)(b) of the IGST Act as ultra vires, the companion Judge upheld the validity of the said provisions on all counts. Following this, the matter was referred by the Chief Justice to a third judge, who disposed the two petitions.

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One of the petitioners, a proprietary firm, is engaged in providing marketing and promotion services to customers located outside India. The overseas customers to whom services are provided by the petitioner are engaged in the manufacture and/ or sale of goods. Such customers may or may not have an establishment in India. The petitioner provides services only to its foreign principal and receives consideration in convertible foreign exchange. To provide such services, the petitioner enters into an agreement with its overseas customers

Under such agreement, the petitioner provides services to enable his foreign principal to get purchasers for its goods in India or elsewhere. The petitioner thus undertakes marketing and promotion of goods sold by its overseas customers in India. There are two transactions – one between the petitioner and the foreign customers, and the second between the foreign customer and Indian buyers. Both are distinct transactions. The petitioner said its transaction is an export of services and outside the purview of the CGST and the MGST Acts. Accordingly, it pleaded to the court to declare that the provisions of GST laws were null and void. The second petition was also on similar lines.

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Commenting on the ruling, Abhishek A Rastogi, founder of Rastogi Chambers, who argued before the Bombay High Court and earlier before the Gujarat High Court said: “Basis the destination based concept, it has been held that the state cannot impose state GST on services rendered by Indian intermediaries to a recipient located outside of India. In other words, state GST cannot be levied when services are rendered outside the state, as per constitutional provisions. Technically, IGST cannot be levied on these transactions keeping in mind the statutory provisions.” The way forward is for the division bench to harmonise with the order passed by the third judge, to decide on the fate of Indian intermediaries, added Rastogi.

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