A view: Why ‘Intermediary Service provided to recipient located outside India’ cannot fall under ‘Inter-State Supply’ and Why IGST is not leviable there against? And alternatively, why such provision treating it as ‘Inter-State Supply’ will be unconstitutional? – Goods and Services Tax – GST – By: – Amit Agrawal – Dated:- 29-1-2019 Last Replied Date:- 30-1-2019 – There is substantial controversy prevalent in trade & industry on whether intermediary services provided by Supplier located in India to Recipient located outside India (hereinafter referred as subject supply ) falls under Inter-state supply u/s 7 (5) (c) of IGST Act, 2017 or under Intra-State Supply u/s 8 (2) of IGST Act, 2017? And whether service provider is liable to pay IGST on said transaction or SGST & CGST? Genesis of the controversy involved: 1. Section 13 of IGST Act determines Place of Supply where location of supplier of services or the location of the recipient of services is outside India, while Section 12
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
bject services falls under Inter-state supply as defined under section 7 of IGST Act, 2017 (& thereby IGST is payable there against) or under Intra-State Supply as defined under section 8 of IGST Act (& thereby SGST & CGST is payable there against)? 4. One of the views prevalent is that due to the express words used at start of Section 8 (2) which defines intra-state supplies (i.e. Subject to the provisions of section 12, which in turn determines place of supply only when location of supplier and recipient is in India), nature of supply cannot be determined u/s 8 (2) if location of service provider or receiver is outside India. As per this view, subject services falls within inter-state supply as same got covered under residual entry of section 7 (5) (c). Altogether opposite view is also available which feels that despite the words used at start of Section 8 (2) (i.e. Subject to the provisions of section 12), subject supply indeed fall under intra-state supply due to above-
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
all under intra-state supply u/s 8 (2). And hence, this article only deals with the followings questions: If subject supply is not intra-state u/s 8 (2), question is, can it really fall under inter-state supply and can IGST be levied on such supply? Our Analysis: A. IGST Act, 2017 is extended to whole of India as per Section 2 of IGST Act, 2017 as amended. A1. Reading of only sub-section 5 (c) of section 7 of IGST Act, will be as follows: Supply of goods or services or both, in the taxable territory, not being an intra-State supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce . A2. From reading of whole section 7, it is clear that sub-section (2) & (4) deals with import of goods / services into the territory of India and same are not relevant for subject supply under consideration here. Sub-section (1) & (3) as well as sub-section (5) (a) actually links determination inter-
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ce tax is a value added tax. A4. I think that it would be almost uncontroversial to say that there is no difference between GST and VAT / Service Tax as far as above explained economic principals by Apex Court are concerned. Accordingly, unless and until there are any deeming fictions created under law, GST remain destination based consumption tax. A5. A cogent reading from above economic principles explained by Apex Court read with very minute but very relevant difference between sub-section 7 (5) (c) of as compared to sub-section (1) & (3) of Section 7 (i.e. missing specific reference to place of supply vis-a-vis location of supplier , though it indeed requires supply in the taxable territory) can only mean that in order to fall under residual entry of sub-section 5 (c), one of the conditions to be fulfilled is that supply of services / goods must be to a recipient located in India. As subject services are provided to recipient located outside India, same cannot be called inter-s
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
plitude to create deeming fiction/s under taxation matters and to levy tax thereon. B2. Even though Parliament has got wide amplitude to create deeming fiction/s under taxation matters, it is also well settled that restrictions imposed by Constitution of India are sacrosanct. And Parliament (& for that matter, even the GST Council) cannot go beyond those restrictions imposed by the Constitution. Question to be considered is whether above-said difference between treated as and treated to be is sufficient & material enough to treat them as deeming provisions and to make subject services as deemed taxable as inter-state supply and weather IGST is payable on the basis of such deeming fiction? And if yes, whether any such reading of sub-section 7 (5) (c) will make it unconstitutional? B3. In this regard, it is very important to note & understand implications of changes bought in the Constitution by way of The Constitution (One Hundred and First Amendment) Act, 2016. Some of thes
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
takes place in the course of inter-State trade or commerce. The term inter-state trade or commerce is commonly understood as trade or commerce between two states / UT. And same in common parlance is not understood as to also include international trade or commerce . B3.1.2 For levy of GST on supplies which takes place in the course of inter-State trade or commerce, Parliament has enacted IGST Act. And all such supplies are called as inter-state supply under various sub-sections of Section 7 by treating those supplies as / to be place in the course of inter-State trade or commerce. B3.1.3 And for levy of GST on supplies which does not takes place in the course of inter-State trade or commerce, Parliament has enacted CGST Act and every state (which includes Union Territory as per clause 26B of Article 366) has enacted respective SGST / UGST Act. These supplies are called as intra-state supplies under Section 8 of the IGST Act. B3.2 Article 269A. Levy and collection of goods and serv
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
r commerce. . B3.2.1 Due to explanation inserted in Article 269A, supply of goods / services in the course of import into the territory of India are deemed to be supply of goods / services in the course of inter-State trade or commerce. However, it is worth noting that for supply of goods / services in the course of export outside the territory of India, there is no such deeming fiction created in Article 269A or anywhere else in the Constitution to treat it as in the course of inter-State trade or commerce. In other words, Parliament (while amending the Constitution in 2016 to bring GST) was fully conscious of the fact that import of goods / services cannot be called as in the course of inter-State trade or commerce and hence, chosen to insert deeming fiction. But still, it has also consciously chosen not to create such deeming fiction for export of goods / services. As explained earlier, only Parliament has been given exclusive powers to levy GST on supplies in the course of inter-St
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
. B3.3 Amended Article 286 reads as under: 286. Restrictions as to imposition of tax on the sale or purchase of goods.- (1) No law of a State shall impose, or authorise the imposition of, a tax on the supply of goods or of services or both, where such supply takes place- (a) outside the State; or (b) in the course of the import of the goods or services or both into, or export of the goods or services or both out of, the territory of India (2) Parliament may by law formulate principles for determining when a supply of goods or of services or both in any of the ways mentioned in clause (1). B3.3.1 Article 286 restricts State from imposing tax where supply of goods / services take place outside the State or where supply of goods / services takes place in course of import or export. Parliament has also empowered under clause (2) to determine when a supply of goods or of services or both in any of the ways mentioned in clause (1). What is worth noting here that supply outside state and supp
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ervices is outside India. In other words, wherever the place of supply of services is within India and within same State wherein supplier is located, State has concurrent power to levy SGST (along-with Centre s CGST) and Centre does not have exclusive powers to levy IGST (Article 246A read with Article 269A & Article 286, as explained above). B3.3.4 Subject supply under discussion here is not treated as export of services under section 2 (6) read with Section 13 (8) (b) of IGST Act. And hence, State has concurrent power (along-with Centre s power to levy CGST) to levy SGST on the subject supply as place of supply is within same state where supplier is located. And, IGST cannot be charged there-against. B.3.4 Furthermore, various entries of List I – Union List and List II – State List (i.e. entries before amendment of year 2016 as well as thereafter) clearly shows that there always was / still is material difference between supplies which are in the course of inter-State trade or co
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
plies when same are neither outside the state nor export. And, for this reason, Section 7 (5) (c), the residual entry, cannot be read into as to make subject supply as inter-state supply. C. Let s look at entire issue a fresh from point of view of reading of Section 7 (5) (a) & its implications: Let s take an example that management consultancy services are supplied by provider located in the State of Maharashtra to recipient located outside India and Place of supply is a foreign country u/s 13 (2). Only difficulty is that service provider is getting his consideration in Indian Rupees and not in convertible foreign exchange. Now, even though said supply is inter-state as per Section 7 (5) (a), supplier is not eligible to make zero-rated supply u/s 16 but is liable to pay IGST due to non-fulfillment of export of service conditions. But, due to provisions of Section 17 (2) of the IGST Act State of Maharashtra will not get any apportionment of taxes from Centre. This is despite the fa
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ur Views on Subject Supply: We are of the view that subject supply (i.e. intermediary services are provided to recipient located outside India by provider located in India) cannot be treated as inter-state supply under Section 7 (5) (c) of IGST Act. Hence, no IGST is payable there against even if same does not fulfill condition of export of services. Any attempt to read Section 7 (5) (c) otherwise, will make the provision unconstitutional. If said supply also does not fall within the definition of intra-state supply under Section 8 (2) of IGST Act (as presumed for this article), then, same is not taxable at all under GST. However, to arrive at that conclusion definitively, question which needs to be reconsidered is whether subject transaction indeed does not fall under intra-state supply u/s 8 (2)? – Reply By Aneesh BU – The Reply = In para 4 you have emphasized on the term 'subject to' used in sec. 8(2) and stated that if location of supplier or receiver is outside India, then
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =