Gujarat HC in the case of Material Recycling Association of India

Intermediary Services in Cross Border Transactions are liable to CGST & SGST and it is not ultra vires

Gujarat HC upholds that intermediary services in cross border transactions are liable to CGST & SGST and it is not ultra vires – Bombay HC decision is expected within the next few weeks.

Case Covered:

Material Recycling Association of India

Versus

Union of India

Facts of the Case:

By this petition under Article 226 of the Constitution of India, the petitioner has challenged the constitutional validity of Section 13(8)(b) of the Integrated Goods Service Tax Act, 2017 (for short “the IGST 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.

Observations of the Court:

Having heard learned advocates for the respective parties and having considered the provisions of CGST and IGST Act,2017, the only question which arises whether the provisions of Section 13(8)(b) r.w.s. 2(13) and 8(1) of the IGST Act,2017 are ultra vires and unconstitutional or not.

The introduction of Goods and Service Tax in India in the year 2017 is with an object of providing one tax for one nation so as to harmonize the indirect tax structure in the country. For the said purpose, the Constitution is amended by the Constitution (One Hundred First Amendment) Act, 2016 to bring on to introduce Article 246A which provides for special provision with respect to Goods and Service Tax. Article 246A begins with a non-obstante clause stipulating that notwithstanding anything contained in Articles 246 and 254, the parliament subject to Clause-2, Legislature of every State, have the power to make laws with respect to Goods and Service Tax imposed by the Union or by such State. Clause 2 of Article 246A empowers the parliament, who has exclusive power to make laws with respect to goods and services tax where the supply of goods or of services or both takes place in the course of inter-State trade or commerce. Thus, the parliament has exclusive power under Article 246A to frame laws for the inter-State supply of goods or services. The basic underlying change brought in by the GST regime is to shift the base of levy of tax from point of sale to the point of supply of goods or services. In that view of the matter, Section 13(8)(b) of the IGST Act,2017 which is framed by the parliament in consonance with Article 246(2) of the Constitution of India is required to be considered.

The judgement of the Court:

In view of the foregoing reasons, it cannot be said that the provision of Section 13(8)(b) r.w. Section 2(13) of the IGST Act,2017 is ultra vires or unconstitutional in any manner. It would, however, be open for the respondents to consider the representation made by the petitioner so as to redress its grievance in a suitable manner and in consonance with the provisions of CGST and IGST Act. The petition is, therefore, disposed of accordingly. The rule is discharged with no order as to costs.

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