Indirect Tax Alert - Bombay High Court (Division Bench) rules on the constitutional validity of Sections 13(8)(b) and 8(2) of the IGST Act

Historical Background:

  • Dharmendra M. Jani and A.T.E. Enterprises Pvt. Ltd. (Taxpayer) had filed Writ Petition before the Hon’ble Bombay High Court [WP 2031 of 2018 and WP(L) 639 of 2020, respectively] inter alia challenging the constitutional validity of Sections 13(8)(b) and 8(2) of the Integrated Goods and Services Tax Act, 2017 (IGST Act).
  • In this regard, the Division Bench of the Hon’ble High Court consisting of Justice Abhay Ahuja and Justice Ujjal Bhuyan had given divergent views as under:
    • Justice Bhuyan [2021-VIL-458-BOM]: Section 13(8)(b) of the IGST Act is ultra vires the IGST Act, being unconstitutional.
    • Justice Ahuja [2021-VIL-472-BOM]: Sections 13(8)(b) and 8(2) of the IGST Act are constitutionally valid and operative for all purposes.
  • Due to the divergent views, the matter was referred to a third judge wherein, vide order dated 18 April 2023 [2023-VIL-240-BOM] 1, the reference made to the third judge was answered as under:
    • Sections 13(8)(b) and 8(2) of the IGST Act are legal, valid, and constitutional.
    • Section 13(8)(b) is not ultra vires Section 9 of the CGST Act or the Maharashtra Goods and Services Tax Act, 2017 (MGST Act).
    • However, the operation of Section 13(8)(b) and Section 8(2) of the IGST Act is confined to the provisions of the IGST Act only and the same cannot be made applicable to the levy of tax on services under the CGST Act and MGST Act. On such interpretation, the provisions are intra vires the Constitution, IGST Act, CGST Act and MGST Act.
    • Accordingly, the matter was directed to be placed before the Division Bench of the Hon’ble High Court.
  • Pursuant to the above, the aforesaid matter was placed before the Division Bench of the Hon’ble High Court for final orders.
  • The Division Bench held that the provisions of Sections 13(8)(b) and 8(2) of the IGST Act are legal, valid, and constitutional.

BDO India Comments:

The aforesaid ruling is in line with the conclusion of the third judge that the operation of Sections 13(8)(b) and 8(2) of the IGST Act is constitutionally valid and appears to uphold the present tax treatment of services provided by the intermediaries. It is relevant to note that the final ruling does not refer to another part of the conclusion of the third judge, i.e. operation of Sections 13(8)(b) and 8(2) of the IGST Act is restricted only to the provisions of the IGST Act and cannot be applied to the CGST Act / MGST Act and it appears that this conclusion of the third judge is not accepted by the Division Bench as it does not form part of the final ruling.

[M/s. Dharmendra M. Jani Vs Union of India, [2023-VIL-346-BOM], dated 6 June 2023]

1 Detailed analysis of the ruling

Subscribe to receive the latest BDO News and Insights

Please fill out the following form to access the download.