In the case of Dharmendra M. Jani vs. Union of India, the Bombay High Court examined the constitutional validity of Section 13(8)(b) and Section 8(2) of the Integrated Goods and Services Tax Act, 2017 (IGST Act).
Facts of the Case:
- Petitioner’s Business: Dharmendra M. Jani, operating as a sole proprietor under the name “M/s Dynatex International,” is engaged in providing marketing and promotion services to overseas customers. These services facilitate the procurement of goods from India by foreign clients.
- Nature of Services: The petitioner acts as an intermediary, connecting foreign buyers with Indian suppliers, and earns a commission for these services.
- Legal Challenge: The petitioner contested the constitutional validity of Section 13(8)(b) and Section 8(2) of the IGST Act, arguing that these provisions unjustly categorize intermediary services provided to foreign clients as services rendered within India. Consequently, such services are subjected to the Central Goods and Services Tax (CGST) and the Maharashtra Goods and Services Tax (MGST), which the petitioner claimed was arbitrary and violated constitutional provisions.
Judicial Proceedings:
- Initial Division Bench Hearing (June 2021): A division bench of the Bombay High Court delivered split judgments on the matter. Justice Ujjal Bhuyan deemed Section 13(8)(b) unconstitutional, stating it was ultra vires the IGST Act and violated fundamental rights. Conversely, Justice Abhay Ahuja upheld the validity of the provision, asserting its constitutionality. Due to this divergence, the case was referred to a third judge for resolution.
- Third Judge’s Decision (June 2023): Justice Sunil B. Shukre, serving as the third judge, upheld the constitutional validity of both Section 13(8)(b) and Section 8(2) of the IGST Act. However, he clarified that these provisions should be confined to the IGST Act and should not extend to the levy of tax under the CGST and MGST Acts. This interpretation implies that intermediary services provided by an Indian supplier to a foreign recipient are not subject to CGST and MGST, as they are considered intra-state supplies under the IGST framework.
Judgment Summary:
- Constitutional Validity: The court upheld the legality and constitutionality of Section 13(8)(b) and Section 8(2) of the IGST Act, provided their application remains within the confines of the IGST Act.
- Tax Implications: Intermediary services rendered by an Indian entity to a foreign recipient are to be treated as intra-state supplies under the IGST Act. Consequently, these services are not liable for taxation under the CGST and MGST Acts.
This judgment provides clarity on the taxation of intermediary services in cross-border transactions, delineating the scope of GST applicability under different legislative frameworks.