The Bombay High Court on Tuesday upheld the provisions of the Integrated Goods and Services Tax Act that allowed the levying of GST on services provided by intermediaries to overseas customers. However, there is still no clarity on what should be levied on these transactions—central and state GST or integrated GST.
An intermediary is an agent or broker who facilitates the supply of goods or services between two people or an entity that is acting on behalf of another person in the supply of goods or services. The dispute revolved around the taxability of services provided by these intermediaries to their overseas customers as opposed to the export of services that have zero tax liability.
The issue initially came before the court in April 2021 and was later referred to a single bench as the division bench failed to reach an agreement on the constitutionality of these provisions. The single bench had upheld the constitutionality of IGST provisions while explicitly barring states from levying GST on these services. But the question of whether IGST could be levied on the services was still left open.
The matter revolved around the provisions of the IGST Act, which deemed all services provided by intermediaries as "local supply''. This meant that all services rendered by an intermediary would be subject to GST, despite the service recipient being in a foreign country. The taxpayer had claimed that this was in violation of the constitution, as states cannot levy taxes on exports.
While the single judge explicitly barred states from levying taxes on these transactions, the division bench has left the matter open for policymakers. There is still no clarity as to the type of tax leviable on these services, says Abhishek Rastogi, who represented the intermediaries.
While the respected decision of the court tilts towards constitutionality of the place of the provisions for intermediary services, there is a need for clarification and amendment as to which tax would be applicable on such services when the location of the service provider and place of provision of services are in the same stateAbhishek Rastogi, Advocate for Intermediaries
A detailed examination should be done before deciding on the taxability of these services, according to Rastogi, as every transaction involving three people may not fall under the gamut of intermediary services.
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