2021-TIOL-1326-HC-MUM-GST

Dharmendra M Jani Vs UoI

GST/IGST  - Petitioner has prayed for a declaration that section 13(8)(b) and section 8(2) of the Integrated Goods and Services Tax Act, 2017 are  ultra vires  articles 14, 19, 245, 246, 246A, 269A and 286 of the Constitution of India and also  ultra vires  the provisions of the Central Goods and Services Tax Act, 2017, Integrated Goods and Services Tax Act, 2017 and Maharashtra Goods and Services Tax Act, 2017.

Dissenting view recorded by Justice Abhay Ahuja

+ Whether a law or a provision is unconstitutional or not, has to be decided by the Court on the touch-stone of the Constitution. It is also settled law that Courts should proceed to construe a statute with a view to uphold its constitutionality. [para 80]

+ The sales tax regime in India was complex. The important change that would come with the introduction of GST in the country was that earlier the indirect taxes were imposed on the “act of” production, sales, transportation etc. but under GST it was going to be on the transaction of supply. [para 86.3]

+ The approach of the Court in testing the constitutional validity of a provision is well settled. In the case of Exide Industries Ltd. (supra), the Supreme Court has observed that the fundamental concern of the Court should be to inspect firstly the existence of enacting power and once such power is found to be present, then next is to ascertain whether the enacted provision impinges upon any right enshrined in Part-III of the Constitution. The process of examining validity of a duly enacted provision as envisaged under Article 13 of the Constitution is based on the aforesaid two steps. [para 88]

+ Article 265 says that no tax shall be levied or collected except by authority of law. [para 90]

+ IGST Act has been enacted by the Parliament for levy of IGST on inter-state supply of goods or services, inter alia, pursuant to the exclusive power contained in Article 246A(2). [para 91.4]

+ Petitioner's case is that his supply is export of services as defined in section 2(6) of the IGST Act. But because of Section 13(8)(b) of the IGST Act r/w section 8(2) Petitioner's export is being deemed as intra-state supply making him liable to CGST and MGST. Petitioner has therefore questioned the vires of these two provisions or the competence of the Parliament to enact these provisions with reference to Articles 246A, 269A, 286 and 245 of the Constitution of India. According to Petitioner, Parliament cannot legislate to deem an export of services to be an intra-state Supply as is purportedly being done by virtue of section 13(8)(b) read with section 8(2) of the IGST Act. [para 95]

+ Admittedly, Petitioner is an Intermediary (as defined in section 2(13) ) rendering Intermediary Services (as provided for in section 13(8)(b) above) to its overseas customers based on which the overseas customers export their goods to importers in India for which Petitioner receives commission. [para 96]

+ It emerges that the only exception is if the intermediary has provided the service on his own account in which case he may claim to be an exporter of the service if he otherwise falls within the definition. This would not be an export of services inasmuch as Intermediary Services are specifically provided in Section 13 (8)(b) under the authority of the Constitution of India provided in Article 269A read with Article 246A. Petitioner is providing intermediary service of arranging, marketing, facilitating the export of his overseas customers to Indian importers and that is the reason he receives commission. It is in respect of these intermediary services that Section 13(8)(b) refers to the place of supply of such service as the location of the supplier. [para 97]

+ It is admitted position that Petitioner is an Intermediary (Section 2 (13) of IGST Act) providing Intermediary Services to service recipient located outside India. Therefore, for the purposes of place of supply, Section 13(8) (b) comes into play. [para 98]

+ When there is a specific provision defining Intermediary as in section 2(13) of the IGST Act and Intermediary Services are specifically dealt with in section 13(8)(b), the question of application of general provision of Section 2(6) of export of services would not arise. The following Latin phrase is apt here, Specialia derogant generaliabus , which means special provisions are never limited or explained by the general, i.e., special provisions derogate from general, but generalia specibus non derogant which means general provisions do not derogate from special provisions. [para 99]

+ A conjoint reading of Article 269A(1) with Article 269A(5) and Article 246A exclusively empowers the Parliament to make law on what is inter-state supply and what is not which obviously includes what is intra-state in contradistinction to what is inter-state and that power is exclusively with the Parliament.

+ The power to enact provisions determining the nature of supplies (as inter-state supply in section 7 of IGST Act or intra state supply in section 8 of IGST Act) or place of supply (as contained in sections 10 to 14 of the IGST Act including section 13(8)(b) where in the case of intermediary services, where supplier or the service recipient is located outside India, the place of supply has been stipulated to be the location of supplier) originates from these Articles.

+ The power of the Parliament to stipulate principles on place of supply or to legislate on the same as contained in the IGST Act is empowered by the Constitution Amendment Act, 2016.

+ Therefore, there is no doubt that the power to stipulate the place of supply as contained in Sections 13(8)(b) of the IGST Act is pursuant to the provisions of Article 269A (5) read with Article 246A and Article 286 of the Constitution. The impugned provisions are in my view constitutional and are not in any way ultra vires the Constitution. If the Parliament pursuant to powers invested in it by the Constitution, has in its wisdom, dealt with Intermediary Services as that rendered by Petitioner, that is a matter within the Parliament's domain. [para 103]

+ Whereas Section 8(2) refers to a situation to be intra-state if location of supplier and place of supply is in the same State, Section 13(8) refers to place of supply being the location of the supplier of service in case of intermediary services whereas in the instant case the service recipient is outside India. In Section 8(2) the reference is to the same State in India, whereas in Section 13 (1) read with Section 13(8)(b) it is location of the service recipient being outside India. Besides Petitioner is admittedly an intermediary rendering intermediary services to a service recipient located outside India. Therefore, Section 13(8)(b) comes into the picture in the case of Petitioner. Once the Parliament has in its wisdom stipulated the place of supply in case of Intermediary Services be the location of the supplier of service, no fault can be found with the provision by artificially attempting to link it with another provision to demonstrate constitutional or legislative infraction. [para 105]

+ In any event, Section 8(2) is not applicable to the case of Petitioner as location of supplier and place of supply is not within same State (in India) but in taxable territory viz. India. [para 105.1]

+ To say that by virtue of Section 13 (8)(b) read with Section 8(2) of the IGST Act, Parliament has sought to impose tax on export of services out of the territory of India by treating the same as local supply in violation of Articles 246A and 269 is completely fallacious and untenable and the argument deserves to be rejected.

+ In fact Section 16 as quoted above clearly has zero rated the supply involving export of services (as defined in Section 2(6) of the IGST Act) and therefore also the issue raised by Petitioner that the impugned provisions seek to make a levy on the same is untenable. However, as noted earlier that when there is a specific provision defining Intermediary as contained in section 2(13) of the IGST Act and Intermediary Services are specifically dealt with in section 13(8)(b), the question of application of a general provision would not arise, particularly when the constitutionality of both the above provisions has been upheld. [para 105.2]

+ Therefore, there would be no question of Section 13(8) (b) or Section 8(2) being unconstitutional. Rather these provisions are clearly intra vires Articles 246, 246A and 269A of the Constitution. [para 105.3]

+ It is in furtherance of the powers under Article 246A, 269A and 286 of the Constitution of India, the Parliament by legislation, in Sections 7 (inter-State supply) and 8 (Intra-State supply) of the IGST Act has provided for determination of the nature of supply and in Sections 10 to 14 for place of supply. [para 106.7]

+ The impugned provision does not in any manner deem an export of service to be a local supply whereas Section 13 pertains to place of supply and Section 7 pertains to the nature of inter-state supply as enacted by the Parliament pursuant to Article 246A read with Article 269A of the Constitution. Both the Sections as discussed have different purposes. [para 106.8]

+ The submission by Petitioner that in terms of Section 13(2), Petitioner's service is an export of service appears to be misplaced as Section 13(2) clearly stipulates that except for the services specified in sub-sections (3) to (13), the place of supply to be the location of the recipient of services. And one of such exception in Section 13(8)(b) clearly stipulates that the place of supply for “intermediary services” shall be the location of the supplier of services. [para 106.9]

+ The argument that a central legislation cannot authorize the State to collect tax which is prohibited by the Constitution or that the provisions are a colorable legislation is without any legs to stand in view of provisions under Articles 245, 246A, 269A of the Constitution of India. Therefore, the argument of Petitioner that the impugned provisions are violative of Article 286(1) do not hold any water. [para 106.10, 106.11]

+ Therefore, Section 13(8)(b) of the IGST Act cannot be said to be ultra vires Article 245 of the Constitution of India. The levy on account of Section 13(8)(b) of the IGST Act is, therefore, neither arbitrary nor unreasonable nor discriminatory. [para 107.8, 110.12]

+ There is no discrimination between Petitioner's case and other exporter of services. The intermediary services rendered by Petitioner are specifically provided as one of the services in addition to banking services and transport hiring services where the place of supply has been provided as the location of the supplier of services as per Section 13(8)(b) of the IGST Act. Intermediary has been specifically defined and which as discussed earlier does not include a person who renders the services for himself. Here, because of the intermediary, the export of goods is taking place from the overseas customer to the Indian importer, which is the transaction of import of goods for which the intermediary services have been provided by Petitioner. Therefore, between Petitioner and others there is no discrimination. Section 13(8)(b) would not be hit by Article 14 on this ground. [para 110.9]

+ All that Section 13(8)(b) seeks to do is to impose a levy on Petitioner by stipulating that in respect of Intermediary Services, where the recipient is outside the country, in those cases, the place of supply shall be the location of the supplier. As to how that would result in a restriction or closure of business of the Petitioner is unfathomable, particularly when the submission is devoid of my details. There is no restriction imposed on the intermediary services of a person like Petitioner. It is a legitimate power of the parliament, as discussed earlier, to enact IGST Act including Section 13 (8)(b). If the submission of Petitioner was to be considered, then any tax levied by the Central or State Government would be a restriction to carry on trade under Article 19(1)(g) of the Constitution of India. Therefore, Section 13(8)(b) of the IGST Act is not unconstitutional or ultra vires Article 19(1)(g). [para 111.3, 111.7]

+ Section 8 deals with nature of supply whereas Section 13 deals with place of supply and the attempt to artificially link Section 8(2) with Section 13(8)(b) is misplaced and unfounded as discussed earlier. In my considered opinion, Section 13 (8)(b) cannot be linked with Section 8 (2) of the IGST Act. Therefore, in my view, the challenge with reference to the charging sections of Acts which operate in different fields in respect of supplies of different natures appears to be unnecessary. [para 114.5]

+ Reliance upon reports of Parliamentary Committees are external aids to construction to be used only when there is ambiguity in the statute. [para 116.3]

+ The Gujarat High Court [Material Recycling Association of India ( 2020-TIOL-1274-HC-AHM-GST )] after considering the submissions made by the counsel for the parties and after analysis in Paragraphs 63 to 68, has upheld the constitutional validity of Section 13(8)(b) read with Section 2(13) of the IGST Act. Though, the challenge before this Court is with respect to some more Articles of the Constitution of India, however Bench is in respectful agreement with the conclusion of the Gujarat High Court in the said case. [para 117]

+ Neither Section 13(8)(b) nor Section 8(2) of the IGST Act are unconstitutional. Also neither Section 13(8)(b) nor Section 8(2) of the IGST Act are ultra vires the IGST Act. Section 13(8)(b) is also not ultra vires Section 9 of the CGST Act, 2017 or the MGST Act, 2017. Section 13(8)(b) as well as Section 8(2) of the IGST Act are constitutionally valid and operative for all purposes. [para 119]

- Petition is dismissed: BOMBAY HIGH COURT

2021-TIOL-187-SC-CUS-LB

UoI Vs Raj Grow Impex LLP

Cus - Import of yellow peas - Union of India and the authorities related with customs have questioned the orders dated 15.10.2020 and 05.01.2021, passed by the High Court of Judicature at Bombay in Writ Petition (L) Nos. 3502-3503 of 2020 and Writ Petition (ST) No. 24 of 2021 respectively - The appellants are essentially aggrieved of the directions issued by the High Court for compliance of the orders-in-original dated 28.08.2020 passed by the Additional Commissioner of Customs, Group-I, Mumbai and consequently, for release of the goods imported by the private respondents though the goods in question are, according to the appellants, liable to absolute confiscation.

Held by Supreme Court Larger Bench:

+ Principal submissions on behalf of the appellants are: that the High Court has erred in entertaining the writ petitions and the directions by the High Court for release of goods were not compatible with the purpose of adjudication by the Appellate Authority; that the subject goods, being covered by Section 3(2) of the FTDR Act and having been imported without licence as also in excess of the cap of 1.5 lakh MTs, became prohibited goods under Section 11 of the Customs Act by virtue of the deeming fiction in Section 3(3) of the FTDR Act; that in view of the purpose of notifications and the observations of this Court in Agricas 2020-TIOL-141-SC-CUS-LB , such prohibited goods were liable to be confiscated absolutely and could not have been released to mingle in the Indian market; and that the case of Atul Automations 2019-TIOL-35-SC-CUS-LB has no application to the facts of the present case. [para 48.1]

+ Principal submissions on behalf of the importers are: that the notifications in question placed quantitative restrictions and there had not been any order or notification prohibiting the subject goods and hence, they could not have been treated as absolutely prohibited goods but were only restricted goods; that in Atul Automations , the goods imported without authorisation were held by this Court to be restricted goods and the same principle applies to the subject goods when they have been imported without import licence; that even if the subject goods are to be treated as prohibited, discretion was nevertheless available with the Adjudicating Authority to allow their redemption on payment of fine and such discretion has rightly been exercised in the orders-in-original; that the discretion cannot be ordered to be exercised in any particular manner; that re-export of the subject goods is not a feasible option and the demand and supply of the pulses in question being dynamic in nature, the release of the subject goods will not be adverse to the economy; that the orders-in-appeal could be challenged in further statutory appeal. [para 48.2]

+ Though Bench is at one with the High Court that, ordinarily, when the matter is sub judice in the higher forum and that too before the Constitutional Court, the executive authorities should not attempt to bring about a new state of affairs without taking permission from the Court and/or bringing the relevant facts to the notice of the Court. However, even in this regard, before pronouncing on the impropriety on the part of an executive authority who had done anything without prior information to the Court or without taking Court's permission, all the relevant surroundings factors are also required to be examined so as to find as to whether such an action was calculated at interference with the administration of justice or was a bona fide exercise of power in the given circumstances. [para 54.1]

+ One of the fundamental and material circumstance, which the High Court totally omitted to consider, was that the writ petitions were filed as if seeking execution of the orders-in-original and that if the writ, as prayed for, was to be issued and the goods were to be released, nothing much on merits was to be left for examination by the Appellate Authority; and if, for any reason, the orders-in-original were to be interfered with at a later stage in the appellate forum, irreparable damage would have been done because the goods would have been released for the domestic market. (As noticed, it has indeed happened to a large extent in present cases, with release of a substantial quantity of goods of the respondent- importers). [para 54.3]

+ The purpose of our comments foregoing is that even while the High Court was right in questioning the fact that the Commissioner chose to pass the order when the matter was sub judice , the High Court missed out the relevant feature that the importers had preferred the writ petitions essentially to pre-empt any further proceedings by the statutory authority concerned under the Customs Act. In other words, the invocation of writ jurisdiction by the importers was itself questionable. [para 54.4]

+ It is at once clear that when the matter was left for decision by the Commissioner (Appeals), there was neither any occasion nor any justification for the High Court to pass the order for release of the goods for the simple reason that any order for release of goods was to render the material part of the matter a fait accompli. Having rightly left the matter for decision in appeal, the High Court committed a serious error in yet issuing such a writ as if the orders-in-original dated 28.08.2020 had become rule of the Court and as if the Court was ensuring its due execution. It gets, perforce, reiterated that if the orders-in-original dated 28.08.2020 were to be executed under the mandate of the High Court, the appeals were going to be practically redundant after release of the goods and nothing material was to remain for decision by the Appellate Authority on the main subject matter of the appeal. [para 57]

+ Order dated 15.10.2020 passed by the High Court suffers from inherent contradictions and inconsistencies; and cannot be approved. [para 58]

+ While entertaining the said second writ petition, the High Court seems to have also omitted to consider that the said writ petition was filed against the order-in-appeal passed by the Appellate Authority and the alternative remedy of regular statutory appeal to CESTAT was available to the importer. In our view, on consideration of the relevant facts and circumstances in their correct perspective, the High Court would not have entertained the writ petitions so filed in these matters. [para 60.2]

+ We are, therefore, clearly of the view that the impugned orders dated 15.10.2020 (read with the modification order dated 09.12.2020) and 05.01.2021 remain unsustainable and are required to be set aside. [para 61]

+ For dealing with the core issues, we need to examine in the first place as to whether the goods in question fall in the category of prohibited goods, as argued on behalf of the appellants or in the category of restricted goods, as argued on behalf of the importers. [para 62.1]

+ The categorical findings in the case of Agricas (supra) by this Court, read with the provisions above-quoted, hardly leave anything to doubt that sub-section (3) of Section 3 of the FTDR Act applies to the goods in question and, for having been imported under the cover of the interim orders but, contrary to the notifications and the trade notice issued under the FTDR Act and without the requisite licence, these goods shall be deemed to be prohibited goods under Section 11 of the Customs Act; and all the provisions of the Customs Act shall have effect over these goods and their import accordingly. However, a long deal of arguments has been advanced before us as regards the category in which these goods are to be placed, i.e., whether they are of ‘restricted' category or ‘prohibited' category. [para 65]

+ The gravamen of the contentions on the part of the importers, that the subject goods fall in ‘restricted' category and not ‘prohibited' category, is that the notifications in question placed quantitative restrictions and there had not been any other order or notification prohibiting the import of these goods. The contentions remain baseless and are required to be rejected. [para 66]

+ Only the particular restricted quantity of the commodities covered by the said notifications could have been imported and that too, under a licence. Therefore, any import within the cap (like that of 1.5 lakh MTs) under a licence is the import of restricted goods but, every import of goods in excess of the cap so provided by the notifications, is not that of restricted goods but is clearly an import of prohibited goods. [para 66.2]

+ Thus, we have no hesitation in holding that the goods in question, having been imported in contravention of the notifications dated 29.03.2019 and trade notice dated 16.04.2019; and being of import beyond the permissible quantity and without licence, are ‘prohibited goods' for the purpose of the Customs Act. [para 68]

+ The unnecessary and baseless arguments raised on behalf of the importers that the goods in question are of ‘restricted' category, with reference to the expression ‘restricted' having been used for the purpose of the notifications in question or with reference to the general answers given by DGFT or other provisions of FTDR Act are, therefore, rejected. The goods in question fall in the category of ‘prohibited goods'. [para 68.1]

+ Once it is clear that the goods in question are improperly imported and fall in the category of ‘prohibited goods', the provisions contained in Chapter XIV of the Customs Act, 1962 come into operation and the subject goods are liable to confiscation apart from other consequences. [para 69]

+ The Adjudicating Authority in the present matters had given an option of payment of fine in lieu of confiscation with imposition of penalty whereas the Appellate Authority has found faults in such exercise of discretion and has ordered absolute confiscation with enhancement of the amount of penalty. [Section 125(1) of the Customs Act refers]. [para 69.1]

+ It is hardly of any debate that discretion has to be exercised judiciously and, for that matter, all the facts and all the relevant surrounding factors as also the implication of exercise of discretion either way have to be properly weighed and a balanced decision is required to be taken. [para 71.1]

+ Having found that the goods in question fall in the category of ‘prohibited goods' coupled with the relevant background aspects, including the reasons behind issuance of the notifications in question and the findings of this Court in Agricas (supra), the question is as to whether the exercise of discretion by the Adjudicating Authority in these matters, giving option of payment of fine in lieu of confiscation, could be approved? [para 72]

+ As noticed, the exercise of discretion is a critical and solemn exercise, to be undertaken rationally and cautiously and has to be guided by law; has to be according to the rules of reason and justice; and has to be based on relevant considerations. The quest has to be to find what is proper. Moreover, an authority acting under the Customs Act, when exercising discretion conferred by Section 125 thereof, has to ensure that such exercise is in furtherance of accomplishment of the purpose underlying conferment of such power. The purpose behind leaving such discretion with the Adjudicating Authority in relation to prohibited goods is, obviously, to ensure that all the pros and cons shall be weighed before taking a final decision for release or absolute confiscation of goods. [para 79]

+ It is but evident that the orders-in-original dated 28.08.2020 cannot be said to have been passed in a proper exercise of discretion. The Adjudicating Authority did not even pause to consider if the other alternative of absolute confiscation was available to it in its discretion as per the first part of Section 125(1) of the Customs Act and proceeded as if it has to give the option of payment of fine in lieu of confiscation. The Appellate Authority, on the other hand, has stated various reasons as to why the option of absolute confiscation was the only proper exercise of discretion in the present matter. We find the reasons assigned by the Appellate Authority, particularly in paragraph 54.3 of the order-in-appeal dated 24.12.2020 (reproduced in point ‘c' of paragraph 38.2 hereinabove) to be fully in accord with the principles of exercise of discretion, as indicated hereinabove and in view of the facts and peculiar circumstances of this case. [para 80]

+ The sum and substance of the matter is that as regards the imports in question, the personal interests of the importers who made improper imports are pitted against the interests of national economy and more particularly, the interests of farmers. When personal business interests of importers clash with public interest, the former has to, obviously, give way to the latter. The imports in question suffer from the vices of breach of law as also lack of bona fide and the only proper exercise of discretion would be of absolute confiscation and ensuring that these tainted goods do not enter Indian markets. Imposition of penalty on such importers; and rather heavier penalty on those who have been able to get some part of goods released is, obviously, warranted. [para 82]

+ Hence, the discretion could only be for absolute confiscation with levy of penalty. At the most, an option for re-export could be given to the importers and that too, on payment of redemption fine and upon discharging other statutory obligations. [para 84]

+ We are constrained to observe that the root cause of the present controversy had not been that much in the notifications in question as it had been in the interim orders passed by the High Court of Rajasthan, Bench at Jaipur. It needs hardly any elaboration that only under the cover of such interim orders that the importers ventured into the import transactions which resulted in excessive quantities of peas/pulses than those permitted by the notifications reaching the Indian ports.

+ This state of affairs was an avoidable one; and would have been avoided if, before passing interim orders, the respective Courts would have paused to consider the implications and impact of such interim orders, which were, for all practical purposes, going to operate as mandatory injunction, whereby the appellants were bound to allow the goods to reach the Indian ports, even if the notifications were prohibiting any such import. [para 91]

+ One of the simple questions to be adverted to at the threshold stage in the present cases was, as to whether the importers (writ petitioners) were likely to suffer irreparable injury in case the interim relief was denied and they were to ultimately succeed in the writ petitions. A direct answer to this question would have made it clear that their injury, if at all, would have been of some amount of loss of profit, which could always be measured in monetary terms and, usually, cannot be regarded as an irreparable one. Another simple but pertinent question would have been concerning the element of balance of convenience; and a simple answer to the same would have further shown that the inconvenience which the importers were going to suffer because of the notifications in question was far lesser than the inconvenience which the appellants were going to suffer (with ultimate impact on national interest) in case operation of the notifications was stayed and thereby, the markets of India were allowed to be flooded with excessive quantity of the said imported peas/pulses. [para 93]

+ This Court had, in unequivocal terms, declared in Agricas (supra), that the importers cannot be said to be under any bona fide belief in effecting the imports under the cover of interim orders; and they would face the consequences in law. It gets, perforce, reiterated that all this was avoidable if the implications were taken into account before granting any interim relief in these matters. [para 94]

+ These appeals deserve to be allowed and, while setting aside the orders passed by the High Court and approving the orders-in-appeal, the goods in question are to be held liable to absolute confiscation but with a relaxation of allowing re-export, on payment of the necessary redemption fine and subject to the importer discharging other statutory obligations. The respondent- importers being responsible for the improper imports as also for the present litigation, apart from other consequences, also deserve to be saddled with heavier costs [Costs imposed of Two lakhs each on respondent-importers]. [para 96]

- Appeals allowed: SUPREME COURT OF INDIA