IGST on intermediaries: Gujarat High Court admits a petition to review

When IGST is levied on inter-state transfers within India, it is imposed on service providers


IGST | Gujarat High Court | GST service providers

The High Court (HC) of Gujarat has admitted a petition to review its judgment upholding the constitutional validity of the imposition of integrated goods and services tax (IGST) on firms that engage in marketing and promotion services for foreign companies.

The matter pertains to the place of supply rules under the GST regime. For such firms, or indenting agents in technical terms, the place of supply is deemed to be within India. These intermediaries are the agents of foreign companies, and sell their products in India and abroad by charging a commission. They are found mainly in the IT hardware and software, metal, textile and home furnishing industries.

When IGST is levied on inter-state transfers within India, it is imposed on service providers. In the case of indenting agents, however, it is levied on service receivers or companies outside India. It is deducted at the rate of 18 per cent from commissions of indenting agents, explained Abhishek Rastogi, partner at Khaitan & Co, who is the counsel for the petitioners.

The constitutional validity of these provisions was challenged by indenting agents in the HC, but the court upheld the provisions. In the meanwhile, the Central Board of Indirect Taxes and Customs (CBIC) gave partial relief to these agents by exempting them from IGST if transactions occur outside India. But the indenting agents received notices from GST authorities.

Aggrieved, they approached the HC again through a review petition, saying there was a contradiction in the legal position between foreign firms and intra-state movement of services and that the court needs to examine submissions made on constitutionality of the relevant sections under the Central GST Act. The Court has agreed that detailed arguments need to be heard and has admitted the review petition. The court has posted the matter for physical hearing on April 9 before a special Bench, Rastogi said.

“The place of provision for intermediaries has to be consistent in case of inter-state services and, hence, the need to look at the constitutionality aspect,” he said.

Rastogi said though many marketing companies render business-to-business services, the determination of the place of supply on the basis of location of the services recipient would help remove ambiguity in many transactions where the Indian service providers earn foreign exchange for the country.

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