[Opinion] Intermediary Services under GST Continue to be the Talk of the Town!

Brijesh Kothary & Saundarya Sinha – [2023] 149 taxmann.com 468 (Article)

Introduction

Intermediary Services is an old concept which was defined in the Service Tax Education Guide, at the time of introduction of negative list regime in erstwhile Service Tax law. The definition was further amended in July 2014 and the legacy has been carried in the Goods and Services Tax regime along with the dispute. “Intermediary Services” was introduced with a motive to tax cross-border transactions of services provided to persons situated outside India but performed within the territory of India.

Background

Recently in the case of Dharmendra M Jani v. Union of India [2023] 149 taxmann.com 317 (Bom.) the constitutional validity of Section 13(8)(b) and Section 8(2) of the IGST Act was challenged. The court, vide its reference order, held that the provisions of Section 13(8)(b) and Section 8(2) of the IGST Act are legal, valid, and constitutional, provided that the Section 13(8)(b) and Section 8(2) are confined in their operation to the provisions of the IGST Act only and the same cannot be made applicable for the levy of tax on services under the CGST and the State GST Acts.

The decision has resurfaced the uncertainty pertaining to the nature of tax payable for intermediary services in the industry. In this article, we wish to analyse the judgment along with its implications and way forward for the industry.

Before diving into the topic, it becomes pertinent to understand the brief background of the subject case. The Division Bench of the Bombay High Court had expressed different opinions over the constitutional validity of the said provisions of the Act. Therefore, the proceedings were placed before the Hon’ble Chief Justice. Consequent thereto, by an order passed by the Hon’ble Chief Justice, the proceedings were referred to the Bombay High Court in the present case. The court settled the issue by holding that the said provisions are legally valid and constitutional, and the matter was placed back to the Division bench which had pronounced dissenting opinion, to settle the issue.

The doubt that now arises is whether the Division Bench will pass a fresh order on the basis of the ratio and principles laid down in the reference order. In case the order is passed on the basis of the ratio and principles laid down in this order, would it be safe to say that IGST is leviable in the cases of intermediary services? Secondly, in the event that the order is passed, and the nature of tax is clarified to be IGST in the case of intermediary services, whether the departmental authorities will continue their practise of issuing a circular and regularising the matter on “as is” basis?

Click Here To Read The Full Article