The Telangana High Court has ruled that Goods and Services Tax (GST) does not apply to construction services provided to the Maldives government when both the supplier and recipient are outside India.
Justices Sujoy Paul and Namavarapu Rajeshwar Rao observed that “In the peculiar facts of this case, since the supply of service and location of recipient and supplier is outside India, the question of levy and collection of tax in the teeth of Section 9 of the CGST Act or Section 5 of IGST Act does not arise.”
Sri Avantika Contractors (I) Limited, is the petitioner, which was contracted by the Government of India (GoI) through an agreement with the Government of Maldives to construct a Police Academy in the Maldives, funded by the GoI.
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Sri Avantika Contractors (I) Limited was awarded the construction contract by the National Buildings Construction Corporation Ltd. (NBCCL), appointed by the GoI. To facilitate the project, NBCCL set up an office in the Maldives, and the petitioner established its office in Addu City, Maldives, with approval from the Oriental Bank of Commerce (OBC) and the Reserve Bank of India.
The petitioner exported goods to its Maldives office, which were declared under GST as ‘zero-rated supplies.’ They argued that since the construction services were entirely performed in the Maldives through their local office, they fell outside the scope of Indian GST laws. NBCCL, the respondent, did not pay GST on these services, claiming that supplies rendered outside India are beyond GST’s jurisdiction.
The petitioner provided documentation to support their claim, including an agreement for setting up the Institute of Security and Law Enforcement Studies (ISLES) in Addu City and certifications from both the GoI and Maldivian authorities. The petitioner also noted that GST law only came into effect on July 1, 2017, and during the contract period, the Service Tax regime was in force. Despite this, an opinion by NBCCL suggested that the project was not taxable under either the Service Tax regime or GST. The petitioner sought an advance ruling, which was unfavorable, and their subsequent appeal was also rejected, leading to the current writ petition.
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The petitioner’s counsel argued that the GST Act and the Integrated GST Act (IGST Act) were not intended to apply beyond Indian territory. They contended that the authorities had misinterpreted these laws by not considering sections and explanations clarifying GST’s territorial application. Even if GST were applicable, the petitioner argued that the tax amount should be reimbursed by the GoI to NBCCL and then to the petitioner, as it effectively transfers within government accounts. The petitioner had already paid taxes under Maldivian GST laws and asserted that GST and IGST should only tax activities within India.
In response, Sri Dominic Fernandes, Senior Standing Counsel for the CBIC, argued that according to Section 2(105) of the CGST Act, the petitioner qualifies as a ‘supplier’, and Section 2(93) defines the ‘recipient’ as the person liable to pay for goods or services. Since NBCCL was registered and located in New Delhi, India, they were responsible for the payment. Fernandes also highlighted that neither the petitioner nor NBCCL had a ‘fixed establishment’ in the Maldives according to the CGST Act.
The court reviewed the submissions and clarified that the term ‘registered place’ in Section 2(7) refers to Indian registration, not foreign jurisdictions. It concluded that the Maldivian establishments of the petitioner and respondent could be considered fixed establishments under the IGST Act.
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The High Court emphasised that Section 13 of the IGST Act specifically addressed the situation where the place of supply and both the supplier and recipient are outside India. It was observed that Section 13(4) clearly stated that the ‘place of supply’ for construction services is the location of the immovable property, which in this case is in the Maldives. As a result, the provisions of the CGST and IGST Acts concerning intra-state and inter-state supplies are not applicable.
The court criticised the Appellate Authority for not adequately addressing this provision and found that their decision was inconsistent with the relevant legal provisions. It also rejected arguments related to the ‘zero-rated return’ and the claim that the advance ruling order was not challenged separately, asserting that the advance ruling was merged with the appellate order.
Consequently, the court set aside the appellate order and the original advance ruling, directing that the GST, along with interest and penalties if applicable, should be reimbursed to the petitioner within 90 days.
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