A. T. E. Enterprises Private Limited ... vs Union Of India And 3 Ors on 18 April, 2023

Here's a summary of the judgment, structured as requested:

1. Outcome

The Court, acting as the referee judge, held that:
* Sections 13(8)(b) and 8(2) of the Integrated Goods and Services Tax Act, 2017 (IGST Act) are legal, valid, and constitutional.
* Crucially, their operation is strictly confined to the provisions of the IGST Act only. They cannot be applied for the levy of tax on services under the Central Goods and Services Tax Act, 2017 (CGST Act) and the Maharashtra Goods and Services Tax Act, 2017 (MGST Act).

2. Core Issue

The primary issue was the constitutional validity of Section 13(8)(b) and Section 8(2) of the IGST Act, 2017. Petitioners contended that these provisions, by deeming "intermediary services" provided to overseas customers (which are "export of services") as "intra-state supply", illegally subjected them to CGST and MGST, violating constitutional articles and fundamental GST principles.

3. Key Facts

• Petitioners are Indian firms/companies providing marketing and promotion services to overseas customers (foreign principals).
• These services facilitate the sale of goods by foreign principals to Indian purchasers.
• Petitioners receive commission from their foreign principals in convertible foreign exchange after the foreign principals receive payment from Indian importers.
• The actual goods transaction (foreign principal to Indian purchaser) and payment for goods are direct, with petitioners having no role in the import itself.
• Petitioners are registered under the CGST Act and have been paying CGST and MGST on their commission income under protest, considering it an "export of service" which should be zero-rated.
• The challenge arose because Section 13(8)(b) of the IGST Act specifies the "place of supply" for "intermediary services" as the "location of the supplier" (i.e., in India), which, when read with other provisions, leads to these services being treated as "intra-State supply" taxable under CGST/MGST.

4. Arguments (Taxpayer vs Revenue)

• Taxpayer (Petitioners):

  • Constitutional Violation: Sections 13(8)(b) and 8(2) IGST violate Articles 14, 19(1)(g), 245, 246, 246A, 248, 265, 269A, and 286 of the Constitution, being ultra vires and beyond legislative competence.
  • GST is Destination-Based: GST is a destination-based consumption tax. Services provided to foreign principals are consumed outside India, thus constitute "export of services" and should be zero-rated under Section 16 of the IGST Act.
  • Fictional Conversion: The impugned provisions create a legal fiction to convert "export of services" into "intra-state supply," subjecting them to CGST/MGST, which is contrary to the constitutional scheme where State laws cannot tax exports (Article 286).
  • Arbitrary and Discriminatory: The levy is arbitrary and discriminatory, as it disadvantages Indian intermediaries compared to other service exporters and encourages foreign liaison offices in India.
  • Double/Triple Taxation: The commission, already subsumed in the import value (subject to customs duty/IGST on imports), is then taxed again as intermediary services, leading to double/triple taxation.
  • Legislative Intent: The 139th Parliamentary Committee Report suggested amending Section 13(8) to exclude intermediary services and apply Section 13(2) for export benefits, indicating legislative concern.
  • Ultra Vires IGST Act: Section 13(8)(b) is inconsistent with the charging Section 5 of IGST Act (which taxes inter-state supplies) and the overall scheme of the IGST Act itself.

• Revenue (Respondents):

  • Services Performed in India: The services (marketing, promotion) are actually rendered within India, even if the recipient is foreign. Therefore, the "place of supply" is in India, and it does not qualify as "export of services" under Section 2(6) of the IGST Act (as condition (iii) - place of supply outside India - is not met).
  • Legislative Competence: Parliament has exclusive power under Articles 246A(2), 269A(5), and 286(2) to define "place of supply" and "inter-state trade or commerce," making the impugned provisions validly enacted.
  • Harmonious Construction: The IGST, CGST, and MGST Acts operate harmoniously.
  • Reasonable Classification: Intermediaries are a distinct category due to the involvement of multiple parties and contracts, justifying separate rules for place of supply. Value addition occurs at the intermediary's location.
  • No Double Taxation: The import of goods and the intermediary service are distinct transactions. Input Tax Credit (ITC) mechanism ensures no cascading effect for Indian manufacturers.
  • Promotion of "Make in India": Taxing these services aligns with the "Make in India" initiative.
  • Presumption of Constitutionality: Legislative provisions carry a presumption of constitutionality.
  • No Extra-Territoriality: Article 245(2) permits laws with extra-territorial operation.

5. Court’s Reasoning

The referee judge reasoned as follows:
* GST is a Destination-Based Consumption Tax: Reaffirmed the principle that GST is levied on consumption at the destination, citing All India Federation of Tax Practitioners. The services provided by petitioners are indeed "export of services" as they are consumed by foreign principals outside India.
* Incongruity within IGST Act: There is an apparent "dichotomy" or "incongruity" within the IGST Act itself. Section 7(5)(a) treats supply where the supplier is in India and the place of supply is outside India as "inter-State trade or commerce." However, Section 13(8)(b) for "intermediary services" deems the place of supply to be the supplier's location (India), which then, via Section 12(2)(ii) and Section 8(2) of the IGST Act, leads to it being treated as an "intra-State supply." This simultaneous classification as "inter-State" and "intra-State" for the same "export of services" transaction creates an internal conflict.
* Fictions are Limited: Citing Bengal Immunity Co. Ltd. and Voltas Ltd., the Court held that legal fictions are created for specific purposes and their application must be confined to that purpose. The entire framework concerning "export of services," "intermediary," and "zero-rated supply" (Section 16) is designed within the IGST Act for inter-state trade. It is "far-fetched" to extend these IGST fictions to govern CGST/MGST.
* Contextual Interpretation of CGST/MGST: The definitions in CGST/MGST Acts begin with "unless the context otherwise requires." Since CGST/MGST Acts pertain exclusively to "intra-State supply" and do not define "export of services" or "intermediary" or contain provisions akin to Section 13(8)(b) IGST, the context of these Acts does not warrant reading Section 13(8)(b) into them. The legislative intent for CGST/MGST is to tax intra-state supplies, not exports.
* Constitutional Scheme of GST: The 101st Amendment compartmentalized GST powers: Parliament for inter-State supplies (Articles 246A(2), 269A(1),(5)) and State Legislatures for intra-State supplies. Article 286(1)(b) explicitly prohibits State laws from imposing tax on exports. Parliament cannot, through a deeming fiction in the IGST Act, indirectly enable States to tax what is constitutionally prohibited for them.
* Repealed Rules: The old "Place of Provision of Service Rules, 2012" are repealed and irrelevant for interpreting the new GST regime.
* Parliamentary Committee Report: The 139th Report highlighted the issue and recommended changes to Section 13(8) for intermediary services to benefit from export status, underscoring the problematic nature of applying this section to exports.

6. Statutory References

• Constitution of India:
  • Articles 14, 19(1)(g), 245, 246, 246A, 248, 265, 269A, 279A, 286, 366(12-A)
• Integrated Goods and Services Tax Act, 2017 (IGST Act):
  • Sections 2(6), 2(13), 2(14), 2(15), 5, 7, 8 (specifically 8(2)), 12, 13 (specifically 13(8)(b), 13(13)), 16.
  • Chapter IV (Determination of Nature of Supply)
  • Chapter V (Determination of Place of Supply of Goods or Services or Both)
• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Sections 2 (specifically 2(57), 2(58), 2(62), 2(64), 2(65), 2(70), 2(71), 2(72), 2(86), 2(98)), 9, 174.
• Maharashtra Goods and Services Tax Act, 2017 (MGST Act): (Pari materia to CGST Act)
• Customs Tariff Act, 1975: Section 3
• Customs Act, 1962: Section 12
• Finance Act, 1994: Sections 66-C, 94(2)(hhh), Chapter V.
• Place of Provision of Service Rules, 2012: (Repealed)

7. Precedents Cited

• All India Federation of Tax Practitioners vs. Union of India (2007)
• Commissioner of Service Tax, Mumbai-II vs. SGS India Pvt. Ltd. (2014)
• State of Travancore-Cochin and Others vs. The Bombay Co.Ltd. (1952)
• Central India Spinning & Weaving and Manufacturing Co. Ltd. vs. Municipal Committee Wardha (1958)
• GVK Industries Limited vs. Income Tax Officer & Anr (2011)
• Gujarat Ambuja Cement Limited vs. Union of India (2005)
• Bengal Immunity Company vs. State of Bihar (1955)
• Himmatlal Harilal Mehta v. State of Madras (1954)
• BSNL v. Union of India (2006)
• Mohit Minerals vs. Union of India (2020)
• Adani Power Ltd. vs. Union of India (2015)
• Sunil Batra vs. Delhi Administration and Ors. (1978)
• V.S. Rice and Oil Mills Vs. State of Andhra Pradesh (1964)
• Amrit Banaspati Co. Ltd vs Union Of India And Ors. (1995)
• Shri Ram Krishna Dalmia Vs. Shri. Justice S. R. Tendolkar & Ors. (1958)
• Government of Andhra Pradesh & Ors. vs. Smt. P. Laxmi Devi (2008)
• Union of India & Ors. Vs. Exide Industries Ltd. & Anr. (2020)
• A.H Wadia V. Income Tax Commissioner (1949)
• R.L. Arora V. State of Uttar Pradesh (1964)
• CIT, Bombay City-I, Bombay vs. Amarchand N. Shroff (1963)
• Voltas Ltd., Bombay vs. Union of India & Ors. (1995)
• State of Punjab & Ors. vs. Dr. R.N. Bhatnagar & Anr. (1999)
• Prafulla Kumar Swain vs. Prakash Chandra Mishra & Ors. (Not directly cited, but principles of statutory interpretation from G.P. Singh, mentioned in the reasoning for this case, were referred)
• M/s. Khemka & Co. (Agencies) Pvt. Ltd. vs. State of Maharashtra (Principles of legislation by incorporation discussed)
• Whirlpool Corporation v. Registrar of Trade Marks, Mumbai (1998)
• TATA Power Company Ltd. v. Reliance Energy Ltd. (2009)
• Garhwal Mandal Vikas Nigam Ltd. v. Krishna Travel Agency (2008)
• National Insurance Co. Ltd. v. Deepa Devi (2008)
• Material Recycling Association of India vs. Union of India and others (2020)
• M/s. Kusum Ingots & Alloys Ltd vs. Union of India And Anr. (2004)
• Amiyo Bhusan Das vs. United Bank of India & Ors. (2019)
• Shivani Properties Private Limited vs. Bank of India (2014)
• Tapas Paul vs. State of West Bengal & Ors. (2015)
• Jyoti Prokash Mitter (Mentioned in the context of referee judge's power, not a primary legal precedent for the GST issue itself).