AAR GST
Case BriefsTribunals/Commissions/Regulatory Bodies

Tamil Nadu Authority for Advance Ruling: T.G. Venkatesh, Additional Commissioner, and K. Latha, Joint Commissioner held that concerning vessel support services provided to foreign vessels, the service provided falls under export of services as per provisions of the Integrated Goods and Services Tax Act, 2017 (IGST Act) as the place of supply is outside India.

Facts of the case

The applicant is engaged in providing support services related to vessel management to its group company, New Shipping Kaisha Ltd. (Japan).

An application was filed by the applicant, under Section 97 of the Central Goods and Services Tax Act, 2017 before the Tamil Nadu Authority for Advance Ruling to seek an Advance Ruling on the following:

  • Whether the vessel support services provided by the applicant to its group company outside India qualify as “Export of Services” under GST?

Analysis and Decision

The Bench stated that supply of services under Section 2(6) of the IGST Act includes the supply of any service which is provided outside India, the payment received by the supplier is in foreign currency, and the supplier and recipient are not merely the establishment of a distinct person. Therefore, the Bench opined that to determine whether the supply amounts to the export of service, the place of supply is to be determined.

Further, on a joint reading of Sections 13(3) and 13(6) of the IGST Act, the Bench observed that the statutes prescribe the location in the taxable territory where any support services requiring the physical availability of the vessel under management is supplied, then the place of supply is the location in the taxable territory in respect of that voyage of the vessel.

Therefore, the Bench held the following:

  • The vessel support services provided about foreign vessels sailing to other countries outside India, fall under export of services as per Section 2(6) of the IGST Act, as the place of supply in such cases is entirely outside India.
  • Vessels calling out at Port of India, then the place of supply in respect of that vessel is in India as per Section 13(6) of the IGST Act and the services rendered are not export of services.

[NSK Ship Management Pvt Ltd, 2022 SCC OnLine TN AAR-GST 7, decided on 30.06.2022]

Legal RoundUpWeekly Rewind


Top Story of the Week


Aadhaar Card for Sex Workers| Supreme Court bats for sex workers’ right to dignity; directs UIDAI to issue Aadhaar Card without insisting on address proof 

The Supreme Court has upheld sex workers right to identity and issued detailed directions for their protection and upliftment. The directions ranged from prohibiting police actions against consenting sex workers, police and medical protections for sex workers being victim of sexual assault, holding media accountable for voyeurism on revealing identity of sex workers to directing UIDAI to issue Adhar Card for them without insisting on address proof. 

It was observed that  

“…basic protection of human decency and dignity extends to sex workers and their children, who, bearing the brunt of social stigma attached to their work, are removed to the fringes of the society, deprived of their right to live with dignity and opportunities to provide the same to their children.” 

Read here: https://www.scconline.com/blog/post/2022/05/26/aadhaar-sex-workers-without-address-proof-supreme-court-india-judgement-legal-news-updates-research-rights/  


Supreme Court


Insurance companies refusing claims on flimsy/technical grounds must stop! Don’t ask for documents that insured can’t produce 

Insurance companies refusing claims on flimsy/technical grounds must stop! This is what the Supreme Court observed while dealing with  a case where an Insurance Company had refused to settle an insurance claim on non-submission of the duplicate certified copy of certificate of registration of the stolen vehicle. The COurt held that while settling the claims, the insurance company should not be too technical and ask for the documents, which the insured is not in a position to produce due to circumstances beyond his control. 

The Court was dealing with a case where a truck was stolen when and the Court observed the appellant had produced the photocopy of certificate of registration and the registration particulars as provided by the RTO, solely on the ground that the original certificate of registration (which has been stolen) is not produced, non-settlement of claim can be said to be deficiency in service. Therefore, the appellant has been wrongly denied the insurance claim. 

Read here: https://www.scconline.com/blog/post/2022/05/23/insurance-claim-rejection-technical-ground-insurance-company-non-production-document-supreme-court-india-judgments-mr-shah-legal-reserach-updates-news/  

Hindu widow’s pre-existing right to maintenance automatically ripens into full ownership when she is in settled legal possession of the property 

Observing that a Hindu woman’s right to maintenance is not an empty formality, the Supreme Court has held that by virtue of Section 14(1) of the Hindu Succession Act, 1956, the Hindu widow’s limited interest gets automatically enlarged into an absolute right, when such property is possessed by her whether acquired before or after the commencement of 1956 Act in lieu of her right to maintenance. 

Where a Hindu widow is found to be in exclusive settled legal possession of the HUF property, that itself would create a presumption that such property was earmarked for realization of her pre-existing right of maintenance, more particularly when the surviving co-parcener did not earmark any alternative property for recognizing her pre-existing right of maintenance. 

Read here: https://www.scconline.com/blog/post/2022/05/25/hindu-woman-right-to-maintenance-settled-possession-absolute-ownership-section-14-hindu-succession-act-supreme-court-judgment-india-legal-research-updates-news/  

IGST on Ocean Freight for imports unconstitutional; Won’t create a level playing field but will drive Indian shipping lines out of business 

In the case where the constitutionality of two Central Government notifications related to IGST was under scanner, the Supreme Court has held that since the Indian importer is liable to pay IGST on the ‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc. in a CIF contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of Section 8 of the CGST Act. 

The Court observed that, 

“If Indian shipping lines continue to be taxed and not their competitors, it would drive the Indian shipping lines out of business.” 

Read here: https://www.scconline.com/blog/post/2022/05/21/igst-ocean-freight-imports-unconstituional-indian-importers-shipping-lines-supreme-court-india-legal-research-updates-tax-law-news/  


High Courts


Kerala High Court| Right of Press to report truthfully and faithfully; Press shall NOT indulge in sensationalism

Stating that, though the Press has a duty to inform the public, the Division Bench of Devan Ramachandran and Sophy Thomas, JJ., observed that, it is the well-accepted thumb rule that the Press shall not indulge in sensationalism; or in speculating upon the guilt or otherwise of any accused or other individual; or to create an opinion about the comportment or character of a person involved in the Trial; and not to embellish, by impelling or sponsoring an opinion they seek. 

High Court also observed that,

“Press has a duty to inform the public, the publication of lurid details and other sensitive investigative inputs, which are within the sole jurisdiction of the courts to decide upon, certainly require to be put on a tight leash.” 

Read here: https://www.scconline.com/blog/post/2022/05/25/right-of-press-to-report-truthfully-and-faithfully-legal-news-legal-updates-law-kerala-highcourt/

Chhattisgarh High Court| Would pledge of ornaments kept for marriage of a daughter and use for self without knowledge of husband would amount to cruelty? 

In a matter pertaining to mental cruelty, the Division Bench of Kerala HC, expressed that, if a spouse by her own conduct, without caring about the future of the daughter, parts with ornaments which were meant for the marriage, it will be within the ambit of mental cruelty done by the wife. 

The Bench also added to its observation that, during the marriage ceremony in the Indian household, the presentation of the ornament is normally done for which the parents start the effort, from an early date. 

Read here: https://www.scconline.com/blog/post/2022/05/24/would-pledge-of-ornaments-kept-for-marriage-of-a-daughter-and-use-for-self-without-knowledge-of-husband-would-amount-to-cruelty-chhattisgarh-high-court-law-legal-news-legal-updates/ 

P&H High Court| Can an act of dissent be labeled as sedition? 

Expressing that, in a democratic set-up, there always would be voices of dissent and opinions against rules and protest against actions, P&H HC, observed that, some protests may have aggression but still an act of dissent would not be ordinarily labeled as sedition. 

Bench added to its observation that, to attract an offence such as Section 124-A IPC, there must be deliberate resistance and conscious defiance of authority with a conceived plan aimed to unsettle elected government. 

Read here: https://www.scconline.com/blog/post/2022/05/26/can-an-act-of-dissent-be-labelled-as-sedition-punjab-and-haryana-high-court-law-legal-news-legal-updates/ 

Delhi High Court| Once tenant starts paying rent, can he/she turn around and challenge title of landlord? 

In a matter with regard to the grant of leave to defend, Subramonium Prasad, J., expressed that, the tenant cannot merely make allegations that the landlord has other premises without producing some material to substantiate the same. 

High Court added to its observations that, it is a well-settled position that a tenant may take all kinds of pleas in its application for leave to defend but the Rent Controller has to ensure that the purpose of Chapter III of the Rent Control Act is not defeated by granting leave to defend in every frivolous plea raised by the tenant which may result in protracting the case. 

Read here: https://www.scconline.com/blog/post/2022/05/27/once-tenant-starts-paying-rent-can-he-she-turn-around-and-challenge-title-of-landlord-delhi-high-court-law-legalnews-legal-updates/ 


Legislations


Motor Vehicles (Third Party Insurance Base Premium and Liability) Rules, 2022 

On May 25, 2022, the Ministry of Road Transport and Highways, in consultation with the Insurance Regulatory and Development Authority of India, has published Motor Vehicles (Third Party Insurance Base Premium and Liability) Rules, 2022 in order to revise the base premium for third party insurance for unlimited liability. The rules shall come into force on 1st June, 2022. 

Read here: https://www.scconline.com/blog/post/2022/05/26/base-premium-for-third-party-insurance-for-unlimited-liability-revised-vide-motor-vehicles-third-party-insurance-base-premium-and-liability-rules-2022/  

IFSCA (Fund Management) Regulations, 2022 

The International Financial Services Centers Authority has revised the Application and Registration Fee under IFSCA (Fund Management) Regulations, 2022. 

Read here: https://www.scconline.com/blog/post/2022/05/23/fee-structure-under-ifsca-fund-management-regulations-2022-revised/  


New Releases 


 

Case BriefsSupreme Court

Supreme Court: In the case where the constitutionality of two Central Government notifications related to levy of Integrated Goods and Services Tax (IGST) was under scanner, the 3-judge bench of Dr. DY Chandrachud*, Surya Kant and Vikram Nath, JJ has held that since the Indian importer is liable to pay IGST on the ‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc. in a CIF contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of Section 8 of the CGST Act.

The Court observed that,

“If Indian shipping lines continue to be taxed and not their competitors, namely, the foreign shipping lines, the margins arising out of taxation from GST would not create a level playing field and drive the Indian shipping lines out of business.”

Issue

Whether an Indian importer can be subject to the levy of Integrated Goods and Services Tax (IGST) on the component of ocean freight paid by the foreign seller to a foreign shipping line, on a reverse charge basis?

Discussion

It was argued before the Court that the transaction between the foreign exporter and the respondents is already subject to IGST under Sections 5 of the IGST Act read with Sections 3(7) and 3(8) of the Customs Tariff Act as “supply of goods”. An additional levy of IGST on imported goods, that is on the supply of transportation service, by designating the importer as the recipient would amount to double taxation.

The Court explained that any Ocean Freight transaction involves three parties- the foreign exporter, the Indian importer and the shipping line. The first leg of the transaction involves a CIF contract, wherein the foreign exporter sells the goods to the Indian importer and the cost of insurance and freight are the responsibility of the foreign exporter. In other words, the foreign exporter is liable to ensure that the goods reach their place of destination and the Indian importer pays the transaction value to the exporter. The second leg of the transaction involves an agreement between the foreign exporter and the shipping line (whether foreign or Indian) for providing services for transport of goods to the destination, i.e., in the territory of India.

On the first leg of the transaction, between the foreign exporter and the Indian importer, the latter is liable to pay IGST on the transaction value of goods under Section 5(1) of the IGST Act read with Section 3(7) and 3(8) of the Customs Tariff Act. Although this transaction involves the provision of services such as insurance and freight it falls under the ambit of ‘composite supply’.

The Union Government had, however, submitted that the impugned levy is on the second leg of the transaction, which is a standalone contract between the foreign exporter and the foreign shipping line. Thus, the contract between the foreign exporter and the foreign shipping line- of which the Indian importer is not a party- cannot be deemed to be a part of ‘composite supply’.  The Court, however, refused to agree with the submission and observed,

“The Union of India cannot be heard to urge arguments of convenience – treating the two legs of the transaction as connected when it seeks to identify the Indian importer as a recipient of services while on the other hand, treating the two legs of the transaction as independent when it seeks to tide over the statutory provisions governing composite supply.”

This observation was made in reference to the fact that the Court had agreed to Union of India’s submission to hold that when the place of supply of services is deemed to be the destination of goods under Section 13(9) of the IGST Act, the supply of services would necessarily be “made” to the Indian importer, who would then be considered as a “recipient” under the definition of Section 2(93)(c) of the CGST Act. The supply can thus be construed as being “made” to the Indian importer who becomes the recipient under Section 2(93)(c) of the CGST Act.

Stating that the Court is bound by the confines of the IGST and CGST Act to determine if this is a composite supply, the Court said that it would not be permissible to ignore the text of Section 8 of the CGST Act and treat the two transactions as standalone agreements.

The Court explained that the supply of service of transportation by the foreign shipper forms a part of the bundle of supplies between the foreign exporter and the Indian importer, on which the IGST is payable under Section 5(1) of the IGST Act read with Section 20 of the IGST Act, Section 8 and Section 2(30) of the CGST Act. Hence, to levy the IGST on the supply of the service component of the transaction would contradict the principle enshrined in Section 8 and be in violation of the scheme of the GST legislation.

It was, hence, held that while the impugned notifications are validly issued under Sections 5(3) and 5(4) of the IGST Act, it would be in violation of Section 8 of the CGST Act and the overall scheme of the GST legislation.

Conclusion

(i) The recommendations of the GST Council are not binding on the Union and States for the following reasons:

(a) The deletion of Article 279B and the inclusion of Article 279(1) by the Constitution Amendment Act 2016 indicates that the Parliament intended for the recommendations of the GST Council to only have a persuasive value, particularly when interpreted along with the objective of the GST regime to foster cooperative federalism and harmony between the constituent units;

(b) Neither does Article 279A begin with a non-obstante clause nor does Article 246A state that it is subject to the provisions of Article 279A. The Parliament and the State legislatures possess simultaneous power to legislate on GST. Article 246A does not envisage a repugnancy provision to resolve the inconsistencies between the Central and the State laws on GST. The ‘recommendations’ of the GST Council are the product of a collaborative dialogue involving the Union and States. They are recommendatory in nature. To regard them as binding edicts would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST. It is not imperative that one of the federal units must always possess a higher share in the power for the federal units to make decisions. Indian federalism is a dialogue between cooperative and uncooperative federalism where the federal units are at liberty to use different means of persuasion ranging from collaboration to contestation; and

(c) The Government while exercising its rule-making power under the provisions of the CGST Act and IGST Act is bound by the recommendations of the GST Council. However, that does not mean that all the recommendations of the GST Council made by virtue of the power Article 279A (4) are binding on the legislature’s power to enact primary legislations;

(ii) On a conjoint reading of Sections 2(11) and 13(9) of the IGST Act, read with Section 2(93) of the CGST Act, the import of goods by a CIF contract constitutes an “inter-state” supply which can be subject to IGST where the importer of such goods would be the recipient of shipping service;

(iii) The IGST Act and the CGST Act define reverse charge and prescribe the entity that is to be taxed for these purposes. The specification of the recipient – in this case the importer – by Notification 10/2017 is only clarificatory. The Government by notification did not specify a taxable person different from the recipient prescribed in Section 5(3) of the IGST Act for the purposes of reverse charge;

(iv) Section 5(4) of the IGST Act enables the Central Government to specify a class of registered persons as the recipients, thereby conferring the power of creating a deeming fiction on the delegated legislation;

(v) The impugned levy imposed on the ‘service’ aspect of the transaction is in violation of the principle of ‘composite supply’ enshrined under Section 2(30) read with Section 8 of the CGST Act. Since the Indian importer is liable to pay IGST on the ‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc. in a CIF contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of Section 8 of the CGST Act.

[Union of India v. Mohit Minerals Pvt. Ltd., 2022 SCC OnLine SC 657, decided on 19.05.2022]


*Judgment by: Justice Dr. DY Chandrachud


Counsels

For UOI: ASG N Venkataraman

For respondent: Senior Advocates V Sridharan, Harish Salve, Arvind Datar, Vikram Nankani and Advocate Uchit Sheth

For intervenors: Advocate Rajesh Kumar Gautam

Case Briefs

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Sulekha Beevi C.S. (Judicial Member) allowed an appeal brief facts of which were that the appellants imported Lead Ingots and Refined Lead Ingots for manufacture of pure lead and lead alloys and had entered into contract with M/s. KYEN Resources Pte. Ltd. Singapore for import of refined lead ingots and based on the documents received it was observed that M/s. Navam Lanka Ltd. was the manufacturer and shipper of the goods. The appellant claimed exemptions from payment of BCD vide Notification No. 26/2000 dated 1.3.2000 under FTA. The said bills of entry were assessed to duty and facilitated under RMS. The appellant had paid the IGST of Rs.61, 24,785/- on 5.9.2018 and 11.9.2018. The appellant was not able to get the original documents for taking delivery of the impugned goods. It was understood by the appellant that the supplier at Singapore had become bankrupt and was not in a position to provide the original documents. The appellant filed application for refund of the IGST paid on the imported goods as he did not intend to take release of goods. Meanwhile, M/s. Navam approached the appellant to grant NOC (No Objection Certificate) to enable Navam to take charge of the goods and to mitigate the losses.

Pursuant to the issue of NOC, the appellant was under the impression that M/s. Gravita India Ltd. would get the IGM amended and would file fresh bills of entry in their name for clearing the goods. However, M/s. Gravita India Ltd. informed that since cancellation of the bills of entry was not possible in the ICEGATE system, they amended the name of the importer in the bills of entry. Ideally, the customs department ought to have refunded the IGST initially paid by the appellant and ought to have collected the IGST from the substituted importer (M/s. Gravita India Ltd. in this case) with applicable interest. As the refund claim was already withdrawn, the appellant did not respond to the deficiency memo. A Show Cause Notice dated 6.2.2019 was issued proposing to impose penalty on the appellant under sec. 114AA of the Customs Act, 1962 alleging attempt to claim undue refund of the duty to the tune of Rs.61,24,784/-.

Section114AA of the Customs Act, 1962 prescribes that penalty is to be imposed for use of false and incorrect material.

The Tribunal was of the opinion that appellant has replied to the Show Cause Notice explaining the entire situation by which he had to file the refund claim and thereafter the application for withdrawing the refund claim. The adjudicating authority however proceeded to impose a penalty of Rs.50 lakhs. The Tribunal believed that appellant has been put to hardship of making predeposit on such huge penalty by wrong appreciation of facts. The tribunal further found that there was nothing brought out in evidence which attracts the ingredients of section 114AA of the Customs Act, 1962. The mere fact that the department had already appropriated the duty amount paid by the appellant towards the imported goods and therefore could not collect further amount against the amended bills of entry presented by the new purchaser cannot be a ground to issue a Show Cause

Notice alleging attempt to claim undue refund. The appeal was allowed.[Chloride Metals Ltd. v. Commr. Of Customs, 2021 SCC OnLine CESTAT 2599, decided on 02-11-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Bombay High Court: The Division Bench of Ujjal Bhuyan and Abhay Ahuja, JJ., gave a splitting verdict on the constitutionality of Sections 13(8)(b) and 8(2) of the Integrated Goods and Services Tax Act, 2017.

The petitioner, who was engaged in providing marketing and promotional services to customers located outside India had challenged the validity of Sections 13(8)(b) and 8(2) of the Integrated Goods and Services Tax (IGST) Act, 2017 contending that these provisions were ultra vires Articles 14, 19, 245, 246, 246A, 269A and 286 of the Constitution and also ultra vires the provisions of the Central Goods and Services Tax  (CGST) Act, 2017, IGST Act, 2017 and Maharashtra Goods and Services Tax (MGST) Act, 2017. The case of the petitioner was that he is a proprietor of a proprietorship firm  Dynatex International having its registered office in Mumbai which was engaged in providing marketing and promotion services to customers located outside India. It was registered as a supplier under the provisions of the CGST Act, 2017.

Grounds for Challenge

  1. The petitioner contended that Section 13(8)(b) of the IGST Act seeks to levy GST on services provided to, used and consumed by recipients located outside India and treating the same as intra-state supply leviable to CGST and MGST which is not only illegal, void, arbitrary and unreasonable but also ultra vires Articles 14, 19(1)(g), 21, 286, 246A, 265, 269A and 300A of the Constitution Section 9 of the CGST Act and the MGST Act.
  2. Though all service providers like the petitioner should be treated in the same manner, service providers like marketing agents, marketing consultants, professional advisers etc. provide similar services. But by virtue of the exception carved out under section 13(8)(b) of the IGST Act, the service rendered by the petitioner despite satisfying all the conditions of section 13(2) read with section 2(6) of the IGST Act would be subject to GST. Therefore, the levy was most unreasonable and arbitrary, thus violative of Article 14.
  3. Article 269A only grants power to the Parliament to frame laws for interstate trade and commerce i.e., for determining inter-state trade or commerce. It does not permit imposition of tax on export of services out of the territory of India by treating the same as a local supply. Hence, section 13(8)(b) of the IGST Act was ultra vires Articles 246A and 269A of the Constitution.
  4. That Article 286(1) provides that no law of a state shall impose or authorize the imposition of a tax on the supply of goods or services or both where such supply takes place outside the state or in the course of import of the goods or services or both into the territory of India or export of goods or services out of the territory of India. Thus no state has authority to levy local tax on export of services. Section 13(8)(b) of the IGST Act had deemed an export to be a local supply. This was violation of Article 286(1).
  5. That section 13(8)(b) of the IGST Act leads to double taxation and more as the same supply would be taxed at the hands of the petitioner and following the destination based principle it would be an import of service from India for the foreign service recipient and would be taxed at his hands in the importing country.

Analysis by the Court

In All India Federation of Tax Practitioners, it was held that service tax is a VAT which in turn is a destination based consumption tax in the sense that it is on commercial activities. It is not a charge on the business but on the consumer and it would logically be leviable only on services provided within the country. Similarly, in Commissioner of Service Tax Vs. SGS India Pvt. Ltd., 2014 (34) STR 554 (Bom.), the High Court had held that if services were rendered to such foreign clients located abroad then such an act can be termed as ‘export of service’ which act does not invite a service tax liability.

Section 13 of the IGST Act deals with place of supply of services where location of supplier or location of recipient is outside India. However, as per the proviso, where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services. Thus sub-section (2) lays down the general proposition that place of supply of services shall be the location of the recipient of services barring the exceptions carved out in sub-sections (3) to (13). Thus what sub-section (8)(b) says is that in case of supply of services by intermediary the place of supply shall be the location of the supplier of services i.e., the intermediary which is an exception to the general rule as expressed in sub-section (2) of section 13.

The Bench explained, while Article 246A deals with special provision with respect to GST, Article 269A provides for levy and collection of GST in the course of inter-state trade or commerce. Therefore,

“A conjoint reading of the two Articles would show that the Constitution has only empowered Parliament to frame law for levy and collection of GST in the course of inter-state trade or commerce, besides laying down principles for determining place of supply and when such supply of goods or services or both takes place in the course of inter-state trade or commerce. Thus the Constitution did not empower imposition of tax on export of services out of the territory of India by treating the same as a local supply.”

Further, Article 286 lays down restrictions as to imposition of tax on the sale or purchase of goods. Similarly, Article 286(1) imposes an expressed bar that no law of a state shall impose or authorize imposition of a tax on the supply of goods or services or both where such supply takes place in the course of import into or export out of the territory of India. The Bench expressed, though Article 286(2) empowers the Parliament to make laws formulating principles for determining supply of goods or of services or both certainly the same could not be used to foil or thwart the scheme of clause (1).

Noticeably, the petitioner fulfilled the requirement of an intermediary as defined in Section 2(13) of the IGST Act, and all the conditions stipulated in sub-section (6) of Section 2 for a supply of service to be construed as export of service were complied with. The overseas foreign customer of the petitioner fell within the definition of ‘recipient of supply’ in terms of section 2(93) of the CGST Act read with Section 2(14) of the IGST Act. Therefore, it was an ‘export of service’ as defined under section 2(6) of the IGST Act read with Section 13(2) thereof. Hence, Justice Ujjal Bhuyan opined,

“Evidently and there is no dispute that the supply takes place outside the State of Maharashtra and outside India in the course of export. However, what we notice is that section 13(8)(b) of the IGST Act read with section 8(2) of the said Act has created a fiction deeming export of service by an intermediary to be a local supply i.e., an inter-state supply. This is definitely an artificial device created to overcome a constitutional embargo.”

In State of Travancore – Cochin Constitution Bench of the Supreme Court referred to Article 286(1) and held that whatever else may or may not fall within Article 286(1)(b), sales and purchases which themselves occasion the export or the import of the goods, as the case may be, out of or into the territory of India would come within the exemption. Reliance was placed on GVK Industries Ltd., wherein the Supreme Court had held that the Parliament is constitutionally restricted from enacting extra-territorial legislation but such restriction should be made subject to certain exigencies, such as, it should have a real connection to India which should not be illusory or fanciful.

Similarly, in Electronics Corporation of India Limited v. Commissioner of Income Tax, 1989 Supp (2) SCC 642 , it was held that unless a nexus with something in India exists, Parliament would have no competence to make the law. Article 245(1) empowers Parliament to enact law for the whole or any part of the territory of India. The provocation for the law must be found within India itself. Such a law may have extra-territorial operation in order to subserve the object and that object must be related to something in India. It is inconceivable that a law should be made by Parliament in India which has no relationship with anything in India.

Thus, the Bench held that it was apparent that Section 9 of the CGST Act cannot be invoked to levy tax on cross-border transactions i.e., export of services. Likewise from the scheme of the IGST Act, it is evident that the same provides for levy of IGST on inter-state supplies. Import and export of services have been treated as inter-state supplies in terms of Section 7(1) and Section 7(5) of the IGST Act. On the other hand sub-section (2) of Section 8 of the IGST Act provides that where location of the supplier and place of supply of service is in the same state or union territory, the said supply shall be treated as intra-state supply. However, the Bench remarked,

“By artificially creating a deeming provision in the form of Section 13(8)(b) of the IGST Act, where the location of the recipient of service provided by an intermediary is outside India, the place of supply has been treated as the location of the supplier i.e., in India. This runs contrary to the scheme of the CGST Act as well as the IGST Act besides being beyond the charging sections of both the Acts.”

In the light of the above, Ujjal Bhuyan, J., held that Section 13(8)(b) of the IGST Act, 2017 was ultra vires the said Act besides being unconstitutional. However, Abhay Ahuja, J., stated that he was unable to share the opinion of Justice Ujjal Bhuyan and directed to list the matter on 16-06-2021 to express his opinion.[Dharmendra M. Jani v. Union of India, 2021 SCC OnLine Bom 839, decided on 09-06-2021]


Kamini Sharma, Editorial Assistant has reported this brief


Appearance before the Court by:

Counsel for the Petitioner: Adv. Bharat Raichandani a/w. Adv. Pragya Koolwal Counsel for Union of India: ASG Anil C. Singh a/w. Sr. Adv. Pradeep S. Jetly
Counsel for Respondent 1 to 4: Adv. J. B. Mishra
Counsel for State of Maharashtra: AGP S.G. Gore

Case BriefsSupreme Court

Supreme Court: The bench of Dr. DY Chandrachud and MR Shah, JJ has stayed the Delhi High Court’s order holding the levy of IGST on oxygen concentrators imported as gifts for personal use violative of Articles 14 and 21 of the Constitution.

The Ministry of Finance had, through Attorney General K K Venugopal, had argued that on 28 May 2021, at the Forty-Third meeting of the GST Council, a decision was taken to constitute a Group of Ministers to scrutinize the need for “further relief to Covid-19 related individual items immediately”. The Group of Ministers is to submit its report by 8 June 2021.

“… the judgment of the High Court trenches upon a pure issue of policy.”

It was further argued that the exemption which has been granted in respect of the concentrators which are imported by the State or its agencies falls in a clearly distinct classification.

Issuing notice returnable after 4 weeks, the Court directed,

“Till the next date of listing, there shall be a stay of the operation of the impugned judgment and order of the High Court dated 21 May 2021.”

[Ministry of Finance v. Gurcharan Singh, Special Leave to Appeal (C) No.7226/2021, order dated 01.06.2021]


Also read our full report on the Delhi High Court’s order dated May 21, 2021:

Del HC | “I can’t breathe”; HC calls oxygen shortage a ‘George Floyd moment for the citizens’; holds imposition of IGST on oxygen concentrators imported by individuals, unconstitutional

Case BriefsHigh Courts

Delhi High Court: The Division Bench of Rajiv Shakdher and Talwant Singh, JJ., disposed of the petition which was filed in order to decide the constitutionality of imposition of IGST on the imported oxygen concentrators. The Court in its prologue said,

“This is a George Floyd moment for the citizens of this country. The refrain is ―I can’t breathe‖, albeit, in a somewhat different context and setting; although in circumstances, some would say, vastly more horrifying and ghastlier. Chased and riven by the merciless novel Coronavirus, the citizenry has been driven to desperation and despair.”

The petitioner was 85 years old and had approached the Court against the imposition of IGST on the import of the oxygen concentrator which had been gifted to him by his nephew. The petitioner asserted that the imposition of tax was discriminatory, unfair, and unreasonable and that it impinges upon his right to life and health. The clearance of the oxygen concentrator from the customs barrier required payment of IGST at the rate of 12%. It is relevant to note that before 01-05-2021, an individual importer would have had to pay IGST at the rate of 28% qua oxygen concentrator gifted to him for personal use.

The State had issued an impugned notification dated 01-05-2021 whereby IGST on oxygen concentrators imported by individuals for personal use, that are supplied free of cost, was scaled down to 12% and it further issued a notification dated 03-05-2021 whereby it exempted, completely, oxygen concentrators imported for the purpose of COVID relief from the imposition of IGST in cases, where the importer was the ―State Government or, any entity, relief agency or statutory body, authorised in this regard by any State Government” till 30-06-2021.

Major submissions made on behalf of the Amicus and the petitioner: –

  1. The interplay of provisions of The Customs Act, 1962 [Customs Act],The Customs Tariff Act, 1975 [CTA], The Goods and Services Tax Act, 2017[GST Act], and The Integrated Goods and Services Tax Act, 2017[IGST Act] allows for the imposition of Basic Customs Duty [in short ―BCD‖] and IGST on goods imported into the country at the rates stipulated in the CTA.
  2. The source of power to levy and collect IGST on imports is rooted in the explanation appended to Article 269A (1) of the Constitution.
  3. With the enactment of the GST Act, it is now possible to levy simultaneously both Central GST as well as State GST. Excluding 6 items, Central Sales Tax Act, 1956 [CST Act] stands substituted by the IGST Act. Article 246A(2) gives Parliament the exclusive power to levy GST on the supply of goods and services that takes place in the course of inter-state trade and commerce.
  4. Section 3(7) of the CTA which allows for levy of IGST on imported goods pegs the ceiling rate at 40%. The provision for valuation is provided under Section 3(8) and 3(8A) of the CTA. Section 3(12) contains the power for exempting, inter alia, the levy of IGST.
  5. Thus, in effect, from 01.07.2017, BCD is levied on imported goods under the Customs Act and IGST is leviable under Section 3(7) of the CTA read with Section 5 of the IGST Act.
  6. A perusal of the Mega Exemption Notification no. 50/2017, dated 30.06.2017, (which superseded notification 12/2012 dated 17.03.2012) [General Exemption no. 190‖] would show that qua several items where BCD is exempt or reduced, the IGST is nil. This has been a longstanding practice even prior to the issuance of Mega Exemption Notification.
  7. In the notification issued by Directorate General of Foreign Trade, Department of Commerce, Ministry of Commerce and Industry [in short ―DGFT‖], whereby oxygen concentrators were exempted from customs duty/BCD, IGST, via a separate notification, i.e., notification no. 30 of 2021 dated 01-05-2021 was reduced from 28% to 12% qua imports made for personal use. An exception was, however, made insofar as oxygen concentrators imported by a canalising agency was concerned. In such cases, vide notification no. 4 of 2021 dated 03-05-2021, complete exemption from IGST was granted, albeit, subject to certain conditions.
  8. Furthermore, a perusal of entry no. 607A1 of General Exemption no. 190 would show that complete exemption from BCD and IGST is granted for life-saving drugs/medicines imported for personal use which are supplied free of cost by overseas supplier.
  9. Oxygen concentrators would fall within the ambit of Entry no. 607A, Tariff Item no. 9804 of the General Exemption no. 190, as the definition of drugs as provided in Section 3(b) of the Drugs and Cosmetics Act, 1940 [in short ―Drugs and Cosmetics Act‖] would include medical equipment used for treating and preventing human disease. Furthermore, since an oxygen concentrator is, undoubtedly, a piece of life-saving equipment, it should not be subjected to the rigour of certification by officials, named in condition no. 104 stipulated against entry no. 607A.
  10. The impugned notification violates not only the right to health but also the right to human dignity which is interwoven in Article 21 of the Constitution.

Major submissions advanced on behalf of the State: –

  1. Since GST rates and general exemptions are notified based on the recommendations of the GST Council, the request received by the Government of India for extending GST exemptions qua COVID-19 related supplies shall be placed before the GST Council. The GST Council will consider the same and take steps having regard to the relevant factors and the situation prevalent in the country.
  2. The Government of India has provided considerable relief insofar as oxygen concentrators imported for personal use are concerned- BCD hasbeen reduced from 38.5% to nil while IGST has been scaled down from 28% to 12%. The reduction in the rate of IGST from 28% to 12% has been brought about for bringing about parity between oxygen concentrators imported for commercial purpose as against those imported for personal use.
  3. The decision to impose a tax and/or the fixation of the rate at which tax is to be imposed cannot be subjected to judicial review.
  4. The imposition of IGST on imported oxygen concentrators, which are gifted, and are for personal use, does not violate Article 21 of the Constitution. If this argument of the petitioner is accepted, it will lead to absurd consequences in as much citizens will attempt to seek exemption from property tax, and food items since both housing and food items have been considered as a facet of the right to life as encapsulated in Article 21 of the Constitution.

Analysis and Decision

The Court laid down some immutable ground rules to examine challenge laid to tax legislations and levying of tax in extraordinary times and formed main issues to be dealt with.

  1. Whether the State’s action, of imposing IGST on oxygen concentrators, which were directly imported by individuals, albeit free of cost, without the aid of a canalising agency runs afoul of Article 14 of the Constitution?
  2. Whether Article 21 of the Constitution, which includes the right to health and affordable treatment, would require the State to demonstrate that levy and collection of the impugned tax in times of pandemic, war, famine, floods, and such like conditions would subserve public interest?
  • Whether Article 21 of the Constitution, imposes on the State, a positive obligation to provide adequate resources for protecting and preserving the health and well-being of persons residing within its jurisdiction?
  1. What relief, if any, can be granted to the petitioner?

Issue 1

The Court found, The exclusion of individuals, such as the petitioner, from the benefits of the 03.05.2021 notification only because they chose to receive the oxygen concentrators as a gift, albeit directly, without going through a canalizing agency is, in our opinion, violative of Article 14 of the Constitution. While it is permissible for the State to identify a class of persons, to whom tax exemption would be extended, it is not permissible for the State to exclude a set of persons who would ordinarily fall within the exempted class by creating an artificial, unreasonable, and substantially unsustainable distinction.

Issue 2 &3

Exaction by the State, in the form of tax, in good and normal times, is, ordinarily, sustained by the Courts as they defer to the legislative wisdom that the imposition of the tax is for the greater good of the public; unless proved to the contrary. However, in times of peril, the Courts must examine the stand taken by the State to defend an action instituted to lay challenge to a tax – on anvil of Article 21 of the Constitution; as it is not the form but the impact of the tax which will determine its tenability. The Court said that in this context it must be said that there was a positive obligation on the State to take ameliorative measures so that adequate resources are available to protect and preserve the health of persons residing within its jurisdiction. The Court quoted from the Supreme Court verdict in Navtej Singh Johar v. Union of India, (2018) 10 SCC 1,

“―495. The jurisprudence of this Court, in recognising the right to health and access to medical care, demonstrates the crucial distinction between negative and positive obligations. Article 21 does not impose upon the State only negative obligations not to act in such a way as to interfere with the right to health. This Court also has the power to impose positive obligations upon the State to take measures to provide adequate resources or access to treatment facilities to secure effective enjoyment of the right to health. [ Jayna Kothari, ―Social Rights and the Indian Constitution‖, Law, Social Justice and Global Development Journal (2004).]‖”

In the same vein, the notification dated 03-05-2021 exempts imposition of IGST on oxygen concentrators which are imported free of cost, albeit, via canalizing agency up until 30-06-2021. The State could have, if it intended to treat, persons who are similarly circumstanced as the petitioner, at par with those who fall within the sway of the notification dated 03-05-2021- extended the exemption to them as well and withdrawn the same once normalcy was restored.

Issue 4

The Court opined that a declaratory relief can be accorded, to the effect, that imposition of IGST on oxygen concentrators, imported as gifts, i.e., free of cost, for personal use, is violative of Article 14 of the Constitution on the ground that an artificial, unfair and unreasonable distinction has been drawn between persons, who are similarly circumstanced as the petitioner and those who import oxygen concentrators through a canalizing agency.

The logical sequitur of this would be that persons who are similarly circumstanced as the petitioner, i.e., those who obtain imported oxygen concentrators as gifts, for personal use, cannot also be equated with those who import oxygen concentrators for commercial use. Therefore, notification bearing no. 30 of 2021-Customs, dated 01-05-2021, will also have to be quashed.

The State had argued that the Court cannot issue a writ of mandamus directing the State to issue an exemption notification in favour of the petitioner or persons similarly circumstanced. The power to issue an exemption notification under Section 25 of the Customs Act is vested in the State however the Court was not prevented from judicially reviewing an exemption notification once it is issued by the State.

The Court concluded that imposition of IGST on oxygen concentrators which were imported by individuals and were received by them as gifts [i.e. free of cost] for personal use, was unconstitutional.

[Gurcharan Singh v. Ministry of Finance, 2021 SCC OnLine Del 2312 , decided on 21-05-2021]


 

Suchita Shukla, Editorial Assistant has put this report together 

For the petitioner: Mr Sudhir Nandrajog, Senior Advocate with Mr Siddharth Bambha, Mr Shyam D Nandan and Mr Chirag Ahluwalia

For the respondent: Mr Zoheb Hossain, Sr. Standing Counsel, Mr Arvind Datar, Senior Advocate as Amicus Curiae with Mr Rahul Unnikrishnan

Hot Off The PressNews

The GST Council has made the following recommendations on Law & Procedures changes.

1. Measures for Trade facilitation:

a. Reduction in Late Fee for past Returns:

As a measure to clean up pendency in return filing, late fee for non-furnishing FORM GSTR-3B for the tax period from July, 2017 to January, 2020 has been reduced / waived as under: –

(i) ‘NIL’ late fee if there is no tax liability;

(ii) Maximum late fee capped at Rs. 500/- per return if there is any tax liability.

The reduced rate of late fee would apply for all the GSTR-3B returns furnished between 01.07.2020 to 30.09.2020

b. Further relief for small taxpayers for late filing of returns for February, March & April 2020 Tax periods:

For small taxpayers (aggregate turnover uptoRs. 5 crore), for the supplies effected in the month of February, March and April, 2020, the rate of interest for late furnishing of return for the said months beyond specified dates (staggered upto 6th July 2020) is reduced from 18% per annum to 9% per annum till 30.09.2020. In other words, for these months, small taxpayers will not be charged any interest till the notified dates for relief (staggered upto 6th July 2020)and thereafter 9% interest will be charged till 30.09.2020..

c. Relief for small taxpayers for subsequent tax periods (May, June & July 2020):

In wake of COVID-19 pandemic, for taxpayers having aggregate turnover upto Rs. 5 crore, further relief provided by waiver of late fees and interest if the returns in FORM GSTR-3B for the supplies effected in the months of May, June and July, 2020 are furnished by September, 2020 (staggered dates to be notified).

d. One time extension in period for seeking revocation of cancellation of registration:

To facilitate taxpayers who could not get their cancelled GST registrations restored in time, an opportunity is being provided for filing of application for revocation of cancellation of registration up to 30.09.2020, in all cases where registrations have been cancelled till 12.06.2020.

2. Certain clauses of the Finance Act, 2020 amending CGST Act 2017 and IGST Act, 2017 to be brought into force from 30.06.2020.


Ministry of Finance

[Press Release dt. 12-06-2020]

[Source: PIB]