Saturday, June 24, 2017

INTEGRATED GOODS AND SERVICES TAX (IGST) PAYABLE ON WHAT?

Texts of Law provisions referred in this article are given at the bottom of the article.
****************************************************************************************
Friends!
Tax event, "all inter-State supplies of goods or services or both", used in section 5(1) of the IGST Act, 2017, is an event different from the event provided in clause (1) of article 269A of our Constitution. Although it appears that event has been defined in section 7 of the IGST Act but it is not true in view of legal provisions. I will like to draw your kind attention towards the following.
1. In sub-section (1) of section 5 of the IGST Act, event of levy of tax has been described as inter-State supply of goods or services or both. But it seems that the Parliament has intended to levy tax on transactions of supply of goods or services or both as defined in section 7 of the Act. Ordinarily, an "inter-State supply" does not cover a supply in the course of import into the territory of India. Secondly, term "inter-State supply" is not equivalent to term "supply in the course of inter-State trade or commerce". For the following reasons, tax could not be levied in section 5(1) on transactions described in section 7.
2. Term "inter-State supply" is heading to section 7. In the bill presented before the Parliament, terms, used as marginal notes to various clauses, are neither discussed or debated in the House nor they are passed by the House. Various clauses and sub-clauses of a clause of the Bill are called by their numbers and are also passed by calling their numbers. After the Bill is passed, clauses and sub-clauses of the Bill become section and sub-sections of the Act. However, marginal note to a clause in the bill is published as heading of the section. Thus heading of a section is not treated as part of the Act. Section 28 of the General Clauses Act, 1897 relates to citation of enactments and sections and sub-sections of the Act. It provides that any enactment may be cited by reference to the title or short title (if any) conferred thereon or by reference to the number and year thereof, and any provision in an enactment may be cited by reference to the section or sub-section of the enactment in which the provision is contained.
3. Various sub-sections of section 7 provides that which transactions of supply of goods or services or both shall be treated to be supply of goods or services or both in the course of inter-State trade or commerce. Nowhere in section 7, it has been provided that which transaction of supply of goods or services or both shall be treated "inter-State supply of goods or services or both". Therefore, section 7 does not provide any help to provisions of section 5 of the Act. Since purpose of enactment of various sub-sections of section 7 has not been provided, therefore, it can be inferred that this section has been enacted for all purposes of the Act. But at least section 7 of the Act does not uses phrase "inter-State supply of goods or services or both" and therefore, provisions of section 7 do not apply to section 5 of the Act.
Supposing that section 5 is modified to define tax event as "all supplies of goods or services or both in the course of inter-State trade or commerce", will the modification make sub-section (1) of section 5, a valid piece of legislation. I am of the view that this will not make section 5 a valid provision for the following reasons:
1. Clauses (a) and (b) describes transactions which are the same which have been defined Zero rated supplies in section 16 of the Act. Any amount collected, in respect of such transactions, will not form part of general revenue and it will be refunded to the taxpayer. Secondly, it gives an option to taxpayer to pay or not to pay tax. A tax has no such liberty. It is compulsory exaction of money by public authority for public purposes enforceable by law. One of the essential characteristics of tax is that it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax. Constitution Bench, comprising of seven judges, of Honorable Supreme Court, in its judgment in the case, The Commissioner, Hindu Religious Endowments, Madras vs. Sri Lakshmindra Tirtha Swamiar of Shri Shirpur Mutt. Judgment dated 16 April, 1954, has observed as under:
"A neat definition of what "tax" means has been given by Latham C. J. of the High Court of Australia, in Matthews v. Chicory Marketing Board(1). A tax", according to the learned Chief Justice, "is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered". This definition brings out, in our opinion, the essential characteristics of a tax as distinguished from other forms of imposition which, in a general sense, are included within it. It is said that the essence of taxation is compulsion, that is to say, it is imposed under statutory power without the taxpayer's consent and the payment is enforced by law. The second characteristic of tax is that it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax. This is expressed by saying that the levy of tax is for the purposes of general revenue, which when collected revenues of the object of a tax is not to confer any special benefit upon any particular individual, there is, as it is said, no element of quid pro quo between the taxpayer and the public authority. Another feature of taxation it; that as it is a part of the common burden, the quantum of imposition upon the taxpayer depends generally upon his capacity to pay."
The three principal characteristics of a tax noticed by the Honorable Court, in the above passage, are:
(i) that tax is imposed under statutory power without the tax-payer's consent and the payment is enforced by law;
(ii) that tax is an imposition made for public purposes without reference to any special benefit to be conferred on the payer of the tax; and
(iii) that tax is a part of the common burden, the quantum of imposition upon the tax-payer depending generally upon the capacity of the tax payer to pay.
The following decision of the Honorable Supreme Court in the case M/s Bhawani Cotton Mills Limited vs. State of Punjab & Anr. Judgment dated April 10, 1967 is also noteworthy.
"...it is not enough for the State to say that a person who is not liable to pay tax, must nevertheless pay it in the first instance and then claim refund at a later stage. If a person is not liable for payment of tax at all, at any time, the collection of a tax from him with a possible contingency of refund at a later stage will not make the original levy valid."
The decision in the case, M/s Bhawani Cotton Mills Limited vs. State of Punjab has continuously been followed in other cases. Levy of tax leads to quantification or assessment of tax and recovery of tax and finally amount collected becomes general revenue for the purposes of public. In view of levy of tax on following transactions is not valid.
(a) Supply of goods or services or both, when the supplier is located in India and the place of supply is outside India;
(b) Supply of goods or services or both, to a Special Economic Zone developer or a Special Economic Zone unit;
Supply mentioned in clause (a) is a zero rated supply, an export supply of goods or services or both as mentioned in clause (a) of section 16(1) and supply mentioned in clause (b) is also a zero rated supply to SEZ unit or SEZ developer. In section 16, mechanism has been evolved to make such supplies zero rated by allowing refund of amount of input tax credit, where a taxpayer makes such supplies without payment of amount of tax and by allowing refund of amount equal to amount which would have been payable if supply would not have been zero rated.
Personally, I do not feel any necessity of collecting any amount from persons making zero rated supplies. The mechanism is has been applicable under Central Excise, where levy on removal of goods is to be waved.
Export of goods is, presently dealt under VAT / Central Sales Tax. It is still a zero rated supply. But VAT does not require such a mechanism. After all proof of export under GST regime will be the same which had been under the VAT regime. Where supply, claimed as export supply, will fail it would have to be assessed as intra-State supply or as a supply in the course of inter-State trade or commerce.

*****************
CESS LEVY ON EXPORT
In the tax levy clause, term "inter-State supplies" has been used in the sense it has been used in section 5 of the IGST Act. Zero rating has not been provided in respect of cess. May be that the Government would have intended to realize cess from foreign buyers. If not, then supplies referred to in sub-section (5) of section 7 of the IGST Act, have not been treated covered in the inter-State supplies referred to in sub-section (1) of section 5 of the IGST Act.



ANNEXURE: PROVISIONS OF LAW REFERRED IN THE LETTER IGST ACT:

Levy and collection.
5. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent, as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person:
Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (51 of 1975) on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962 (52 of 1962).
Inter-State supply.
7. (1) Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in—
(a) two different States;
(b) two different Union territories; or
(c) a State and a Union territory,
shall be treated as a supply of goods in the course of inter-State trade or commerce.
(2) Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-State trade or commerce.
(3) Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in—
(a) two different States;
(b) two different Union territories; or
(c) a State and a Union territory,
shall be treated as a supply of services in the course of inter-State trade or commerce.
(4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce.
(5) Supply of goods or services or both,—
(a) when the supplier is located in India and the place of supply is outside India;
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section,
shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.
Zero rated supply.
16. (1) “Zero rated supply” means any of the following supplies of goods or services or both, namely:—
(a) export of goods or services or both; or
(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
(2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply.
(3) A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:—
(a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit; or
(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder.



Sunday, June 18, 2017

INTEGRATED GOODS AND SERVICES TAX (IGST) EXPORT & IMPORT

Friends!
                Sub-section (5) of section 7 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as the IGST Act) runs as follows:
"(5) Supply of goods or services or both,—
(a) when the supplier is located in India and the place of supply is outside India;
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section,
shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce."
                As per clause (b) of section 11 of the IGST Act, the place of supply of goods exported from India shall be the location outside India. Section 11 runs as follows:
11. The place of supply of goods,—
(a) imported into India shall be the location of the importer;
(b) exported from India shall be the location outside India.
                Again, clause (2) of article 286 of the Constitution of India requires the Parliament, by law, to formulate principles for determining when a supply of goods or services or both takes place -
(i) outside the State;
(ii) in the course of export out of the territory of India; and
(iii) in the course of import into the territory of India.
                Article 286 prohibits States from levying tax on transactions referred to above. In clause (5) of article  269A, the Parliament has also been required, by law, to formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.’’. The Parliament has formulated principles for the purpose of determining place of supply and supply of goods or services or both in the course of inter-State trade or commerce but unfortunately, while formulated principles for determining supply of goods or services in the course of inter-State trade or commerce, supply, by or to SEZ unit and SEZ developer, where SEZ, supplier or recipient and place of supply, are located within the same State, provision has been made that such supply shall be treated to be a supply in the course of inter-State trade or commerce. Similar provision has also been made in respect export supply.
                I am of the view that barring the case of supply of goods or services or both in the course of import into the territory of India, Parliament has nowhere been permitted to convert intra-State as well as export transactions into inter-State transactions by enacting deeming clauses. Purpose of creating fiction has not been given. As such, purpose of creating fiction should be understood as "for all purposes of the Act". This includes levy and collection of tax also. But amount required to be paid does not form part of public revenue, amount cannot be termed as tax. Words "import" and "export" should be understood in their popular sense. Term "in the course of" conveys a definite meaning. I think that it is essential to formulate principles required in clause (5) of article 269A and clause (2) of article 286 of the Constitution.


Saturday, June 17, 2017

INTEGRATED GOODS AND SERVICES TAX (IGST)

Friends!
                Clause (2) of Article 246A of the Constitution of India empowers the Parliament for making law for levy of tax on supply of goods or of services or both where such supply takes place in the course of inter-State trade or commerce. The said clause (2) runs as follows:
"(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce."
                Article 279A of the Constitution relates to levy and collection of goods and services tax on supplies in the course of inter-State trade or commerce. Clause (1) of the said Article 279A runs as follows:
"(1) Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
Explanation.—For the purposes of this clause, supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce."
                Exercising these powers, the Parliament has enacted The Integrated Goods and Services Tax Act, 2017. The long title of the Act runs as "An Act to make a provision for levy and collection of tax on inter-State supply of goods or services or both by the Central Government and for matters connected therewith or incidental thereto" and the short title of the Act is "the Integrated Goods and Services Tax Act, 2017."  Section 5 of this Act relates to levy and collection of tax. Sub-section (1) of this Act runs as follows:
"(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent, as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person:
                Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (51 of 1975) on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962 (52 of 1962)."
                Here I will limit my discussion to taxable event or event for levy of tax as given in the Constitution and in section 5 of the Integrated Goods and Services Tax Act, 2017. In the Constitution, taxable event is "on supplies in the course of inter-State trade or commerce" and scope of this event has been extended by adding explanation to include "supply of goods, or of services, or both in the course of import into the territory of India". In sub-section (1) of section 5 of the IGST Act, taxable event is "on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption". In relation to goods imported into India, proviso has been enacted.
                According to long title of the Act and charging section, which is section 5 of the Act, tax has been levied on "inter-State supplies of goods or services or both". Articles 246A (2) and 269A empower the parliament for enacting law on supply of goods or of services or both where such supply takes place in the course of inter-State trade or commerce. Expression "inter-State supply of goods or services or both" is wide enough to cover those supplies, also, which cannot be said "in the course of inter-State trade or commerce.  For example, a father, located at Kanpur in Uttar Pradesh, sends his laptop to his son located at Mumbai, Maharashtra, for his personal use. This is an inter-State supply but such supply cannot be said an inter-State supply in the Course of inter-State trade or commerce.
                Title of section 7 of the IGST Act is "Inter-State supply". But section does not provide which transactions shall be treated "inter-State supply". Various sub-sections of this section, provides that which transactions of supply of goods or services or both shall be treated a supply of goods or of services or both in the course of inter-State trade or commerce. Sub-section (1) of this section runs as follows:
"(1) Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in—
(a) two different States;
(b) two different Union territories; or
(c) a State and a Union territory,
shall be treated as a supply of goods in the course of inter-State trade or commerce."
                We can put the above clause in another way as follows:
(1) "Supply of goods in the course of inter-State trade or commerce", means a supply with respect to which, supplier of goods and subject to provisions of section 10, place of supply of goods are located in-
(a) two different States;
(b) two different Union territories; or
(c) a State and a Union territory.
                Definition of word "supplier" as under:
"(105) “supplier” in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied;"
                According to definition, "supplier" may be any person who makes a supply of goods or services or both and supplier is not limited to only those persons who supply goods or services or both in the course of trade or commerce. Definition of word "person" is also not in reference to business.
                In view of the above, I am of the view that section 5 of the IGST Act, in the shape its sub-section (1) has been enacted, is not proper. Definition clauses, given in section 7, are also not valid. A supply of export nature has also been included in section 7. In reference to supply by or to SEZ unit or SEZ developer where SEZ and supplier or recipient both are located within the same State, transaction has been defined as supply in the course of inter-State trade or commerce. By doing so powers of States (Article 246A) have been curtailed.




Thursday, June 15, 2017

GST INDIA : THRESHOLD LIMIT OF TURNOVER


Friends !
              Sub-clause (d) of clause (4) of article 279A of the Constitution of India runs as follows:
The Goods and Services Tax Council shall make recommendations to the Union and the States on the threshold limit of turnover below which goods and services may be exempted from goods and services tax;
(4) माल और सेवा कर परिषद् निम्नलिखित के सम्बन्ध में संघ और राज्यों को शिफारिश करेगी --
(घ) आवर्त की वह अवसीमा जिसके नीचे माल और सेवाओं को माल और सेवा कर से छूट प्रदान की जा सकेगी ;
                Sub-section (1) and (2) of section 22 of the Central Goods and Services Tax Act, 2017 / State Goods and Services Tax Law, and section 24 of the said laws run as follows:
22. (1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:
Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees.
(2) Every person who, on the day immediately preceding the appointed day, is registered or holds a licence under an existing law, shall be liable to be registered under this Act with effect from the appointed day.
24. Notwithstanding anything contained in sub-section (1) of section 22, the following categories of persons shall be required to be registered under this Act,––
(i) persons making any inter-State taxable supply;
(ii) casual taxable persons making taxable supply;
(iii) persons who are required to pay tax under reverse charge;
(iv) person who are required to pay tax under sub-section (5) of section 9;
(v) non-resident taxable persons making taxable supply;
(vi) persons who are required to deduct tax under section 51, whether or not separately registered under this Act;
(vii) persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise;
(viii) Input Service Distributor, whether or not separately registered under this Act;
(ix) persons who supply goods or services or both, other than supplies specified under sub-section (5) of section 9, through such electronic commerce operator who is required to collect tax at source under section 52;
(x) every electronic commerce operator;
(xi) every person supplying online information and data base access or retrieval services from a place outside India to a person in India, other than a registered person; and
(xii) such other person or class of persons as may be notified by the Government on the recommendations of the Council.
            Here I will like to emphasize on the word "threshold" used in the Constitution. Hindi meanings of the word threshold are : देहलीज, देहरी (मकान या कमरे के प्रवेश द्वार पर लगी चौखट का निचला भाग). In English its meanings are doorsill or doorway. Therefore, limit of turnover expected in the Constitution should have been of threshold (ddorway / doorsill  देहलीज) nature. All persons having turnover below such limit should have been outside the goods and services tax. Here we see limit of turnover of 10 or 20 lakh rupees does not satisfy this condition. In sub-section (2) of section 22, as also persons mentioned in section 24 have been made liable even if their annual turnover will be lower than 10 or 20 lakhs.
       In these circumstances, I am of the view that --  
(i) If the limit of turnover, of 10 or 20 lakh rupees given in section 22(1) of  CGST / SGST Act, is the threshold limit of turnover as expected in clause (4) (d) of Article 279A of the Constitution, then certain provisions of section 24 are contrary to expectation of the Constitution; and

(ii) If the limit of turnover, of 10 or 20 lakh rupees given in section 22(1) of  CGST / SGST Act, is not the threshold limit of turnover as expected in clause (4) (d) of Article 279A of the Constitution, then limit of turnover given is in violation of clause (4)(d) of Article 279A of the Constitution.

Tuesday, June 13, 2017

THREE PRINCIPAL CHARACTERISTICS OF A TAX

FRIENDS!
                In reference to what is tax, the Honorable Supreme Court of India, in the case, the Commissioner, Hindu Religious Endowments, Madras vs. Sri Lakshmindra Tirtha Swamiar of Shri Shirpur Mutt. judgment dated 16 April, 1954, has held as under:
"A tax is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered."
In this regard, the hon'ble judge has observed as follows:
"A neat definition of what "tax" means has been given by Latham C. J. of the High Court of Australia, in Matthews v. Chicory Marketing Board(1). A tax", according to the learned Chief Justice, "is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered". This definition brings out, in our opinion, the essential characteristics of a tax as distinguished from other forms of imposition which, in a general sense, are included within it. It is said that the essence of taxation is compulsion, that is to say, it is imposed under statutory power without the taxpayer's consent and the payment is enforced by law. The second characteristic of tax is that it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax. This is expressed by saying that the levy of tax is for the purposes of general revenue, which when collected revenues of the object of a tax is not to confer any special benefit upon any particular individual, there is, as it is said, no element of quid pro quo between the taxpayer and the public authority. Another feature of taxation it; that as it is a part of the common burden, the quantum of imposition upon the taxpayer depends generally upon his capacity to pay."
               The three principal characteristics of a tax summarized by Hon'ble Mukherjea, J. are as follows:
(i) that it is imposed under statutory power without the tax-payer's consent and the payment is enforced by law;
(ii) that it is an imposition made for public purposes without reference to any special benefit to be conferred on the payer of the tax; and
(iii) that it is a part of the common burden, the quantum of imposition upon the tax-payer depending generally upon the capacity of the tax payer to pay.


TAX : WHAT IT IS

Friends !
              The Honorable Supreme Court of India, in the case, the Commissioner, Hindu Religious Endowments, Madras vs. Sri Lakshmindra Tirtha Swamiar of Shri Shirpur Mutt. judgment dated 16 April, 1954, has held as under:
       "A tax is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered."


Sunday, May 28, 2017

MY 8th QUEST ABOUT GST LAWS

Friends !
             Clause (21), of section 2 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act), provides definition of term "central Tax" as under:
(21) “central tax” means the central goods and services tax levied under section 9;
                A reading of the CGST Act reveals that section 9 provides for levy and collection of goods and services tax, computed on the basis of value of supply and rate of tax. This is general provision for levy and payment of tax. Section 10 of the Act, titled "Composition levy" provides alternate scheme of levy and payment of tax. Under section 10, tax is to be computed in accordance with provisions of section 10 and be paid in accordance with the relevant provisions of the CGST Act.          
                In section 10, what is payable is amount. Word "tax" or term "tax amount" or "amount of tax"  has not been used. Unless we include amount payable under section 10 in the definition of the term "central tax", several provisions of the Act will not be applicable to this amount. For example, for the amount payable under section 10, terms "tax paid" and "tax payable" have frequently been used in section 39 of the Act. This is creating confusion.
               

MY QUEST IS: Whether the definition of term "central tax" provided in clause (21) of the CGST Act, is complete?
MY answer is a big NO.
                It is noteworthy that definition of term "central tax" does not include amount payable or paid under the provisions of section 10. Therefore, definition of term "central tax" provided in clause (21) of section 2 of the CGST Act is incomplete. The term "central tax" could have been defined properly as follows:

  (21) “central tax” means the central tax levied, under section 9, on the supply of goods or services or both and it includes amount computed and payable in accordance with provisions of section 10;
                Hope that the persons concerned will take note of it. Similar is the situation in the State Goods and Services Tax Acts.




Saturday, May 27, 2017

MY 7th QUEST ABOUT EXPORTS AND SEZ IN GST

Friends !
                Amended article 286 of the Constitution of India runs as follows:
286. (1) No law of a State shall impose, or authorise the imposition of, a tax on the supply of goods or of services or both, where such supply takes  place—
(a) outside the State; or
(b) in the course of the import of the goods or services or both into, or export of the goods or services or both out of, the territory of India.
(2) Parliament may by law formulate principles for determining when a supply of goods or of services or both in any of the ways mentioned in clause (1).
                * In my opinion, in clause (2) above, there seems a mistake. Words "takes place" should occur in between words "both" and "in".
                In clause (4) of article 279A, the Goods and Services Tax Council has not specifically been required to make recommendations to the Union on principles for determining when a supply of goods or services or both takes place in any of the ways mentioned in sub-clauses (a) and (b) of clause (1) of article 286 of the Constitution but sub-clause (h) of clause (4) of article 279A gives freedom to the Goods and Services Tax Council to make its recommendations on any other matter related to goods and services tax. These provisions were relevant for levy of GST. Otherwise also, Such principles must have been made part of model IGST Law because provisions relating to export have been framed in this law.
"(h) any other matter relating to the goods and services tax, as the Council may decide."
                GST Council has recommended model GST Laws. In these Laws they have dealt with transactions referred to in clause (1) of article 286. Therefore, it had become essential for the GST Council to include principles for the purpose of determining the said transactions of supply of goods or services or both. The GST Council has itself defined the following terms in section 2 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as the IGST Act):
(5) export of goods;
(6) export of service;
(10) import of goods;
(11) import of services;
                However, on recommendations of the GST Council, sub-section (5) of section 7 of the IGST Act has been enacted as follows:
(5) Supply of goods or services or both,—
(a) when the supplier is located in India and the place of supply is outside India;
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section,
shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.
               
                Looking into the definitions of terms "export of goods" and "export of services", transaction referred to in clause (a) above, is of export supply of goods or services or both. As it relates to clause (b) above, supply to or by Special Economic Zone developer or Special Economic Zone unit will be supplies within the State where supplier, recipient and Special Economic Zone will be located within the State. But in the provision, by fiction, such supplies have been treated as supply of goods or services or both in the course of inter-State trade or commerce. Such supplies to or by SEZ units and Developers have, without any authority in the Constitution, excluded from the jurisdiction of State Legislatures. Clause (1) of Article 246A, subject to provisions of clause (2) of that article and provisions of article 286, gives power to State Legislatures to make goods and services tax law applicable in whole territory of the State.  Although State Legislatures have option to tax certain transactions and not to tax certain transaction of supply but Parliament is not competent to exclude any transaction, on which State Legislature have jurisdiction, from the jurisdiction of the State Legislature. In view of this, the GST Council would have been right in recommending "intra-State supply" in the form it has recommended for the purpose of CGST Act but it cannot be said that the GST Council has been competent in recommending the same definition of "intra-State supply" for the purpose of SGST Act.   
                Purpose of enactment of deeming clauses has not been given. Therefore, these fictions are to apply for all purposes of the Act including levy of tax on such transactions. But we see that any amount  deposited on supplies made in the course of exports and supplies made by or to Special Economic Zone units and Special Economic Zone  Developers will be refunded to them in order to make such supplies zero rated supplies. But such levy cannot be said a valid levy of tax as held by the Supreme Court in several cases. In M/s Bhawani Cotton Limited vs. State of Punjab & Anr,  judgment dated April 10, 1967, the Supreme Court has held as under:
 "If a person is not liable for payment of tax at all, at any time, the collection of a tax from him with a possible contingency of refund at a later stage will not make the original levy valid."
      The Court has reaffirmed its view in (i)Steel Authority of India Ltd. vs. State of Orrissa & Ors, judgment dated February 25, 2000 and (ii) M/s. Nathpa Jhakari Jt. Venture vs. State of Himachal Pradesh & Ors, Judgment dated March 14, 2000.
      In view of the judgments referred to above, collection of amount for allowing refund of such amount is not valid levy. Such persons should have been saved by not enacting such invalid provisions. This would have saved them from blockage of their running capital.
      If any tax has been validly levied then it will have to lead to assessment and collection of tax. A tax which has been validly levied becomes due from the tax payer. Amount of tax due cannot be refunded. Taxes are levied in the public interest. Amount of tax collected in the public interest cannot be used to satisfy some individual's interest.
      This suggests that -
(i) Parliament should enact law provisions, as required by clause of article 286, similar to provisions of section 4 and sub-sections (1) and (2) of section 5 of the Central Sales Tax Act, 1956;
(ii)in the CGST Act, redefine the term "intra-State supply" as "a supply of goods or services or both, relating to which supplier and place of supply are located within the same State";
(iii) delete sub-section (5) of section 7, of the IGST Act, 2017, which by fiction provides that-
"(5) Supply of goods or services or both,—
(a) when the supplier is located in India and the place of supply is outside India;
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section,
shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce."
                States should adopt definition of  "intra-State supply" from the CGST Act, 2017. So far as it is related to export cases or inter-State supply cases, in unproven cases, authorities will have to assess tax under the CGST Act and SGST Act. To ensure the correctness of exports, authorities under those Acts will have to examine documents. Where it will be found that supplies are of inter-State or export nature, they will not assess tax on them and where they will find that supplies are of intra-State nature, they will assess the tax on those supplies. Where they, on examination, will find that supplies are of export nature, they will allow refund of the amount of input tax credit, involved in the transaction. By adopting such practice, need of depositing tax in cases of exports will be done away with.
                If collection of tax is in public interest then development of trade and industry is also in public interest. At the cost of interest of trade and industry, tax should not be collected at least when alternatives are available. A balance should be maintained.



      

Friday, May 26, 2017

गृहस्थ जीवन एक तपस्या

मित्रो !
       एक सरल और सीधा - सादा जीवन हो। जीवन में ईश्वर हो, नियम हो, संयम हो, दया, प्रेम और परमार्थ  हो। न लोभ हो और न लालच ही, न क्रोध हो न वासना ही, न चिंता हो और न भय ही। अपना कर्म करें हम, ज्ञान का विस्तार हो। गृहस्थ जीवन में यही अपेक्षित है।
       सच्चा गृहस्थ जीवन सचमुच एक तपस्या है।


असहाय का सहाय है ईश्वर

मित्रो!

      ईश्वर का हाथ बनकर किसी असहाय और जरूरतमंद की मदद कीजिये, आपको ईश्वर का प्यार और आशीर्वाद तो मिलेगा ही, साथ ही आपको आनन्द की असीमित अनुभूति भी होगी।


Thursday, May 25, 2017

MY 6th QUEST ABOUT GST THRESHOLD

Friends!
                Sub-clause (d) of clause (4) of article 279A of the Constitution of India requires that the Goods and Services Tax Council shall make recommendations to the Union and the States on the threshold limit of turnover below which goods and services may be exempted from goods and services tax.
                The Goods and Services Tax Council has submitted its recommendations in form of draft model GST Acts, recommendations in respect of which were also required to be made.
Meanings of word "Threshold" are:
doorway, entry point or Dehalij, देहली, प्रवेश द्वार,   दहलीज़,  देहरी,   डेवढ़ी,  चौखट,  दहलीज़
                In my opinion, intention, behind enactment of  aforesaid sub-clause (d) of clause (4), had been to provide exemption to small businessmen from compliance of goods and services tax. This has been done in view of the socio-economic complexities and cost of compliance of GST.
                MY QUEST IS: Whether there is any provision in the CGST Act, 2017 which satisfies the requirements of sub-clause (d) of clause (4) of article 279A of the Constitution?
MY answer is a big NO. Limit of aggregate turnover mentioned in sub-section (1) of section 22 of the CGST Act, 2017 is not the desired "threshold limit of turnover" because section 24 denies such limit of turnover in several specified cases. Section 24 fixes tax liability in cases in which turnover is below the limit provided in section 22(1). Sub-section (2) of section 22 includes those persons whose annual aggregate turnover, in period prior to appointed day, has been below twenty lakh rupees. Therefore, limit of turnover of twenty lakh rupees cannot be said entry gate or doorway to GST.
       भारत के संविधान के अनुच्छेद 279क  के खंड (4) का उपखण्ड (d) अपेक्षा करता है कि - माल और सेवा कर परिषद्, आवर्त की वह अवसीमा  जिसके नीचे माल और सेवाओं को माल और सेवा कर से छूट प्रदान की जा सकेगी, की शिफारिश संघ और राज्यों को करेगी। मेरे विचार से माल और सेवा कर परिषद् द्वारा आवर्त की किसी भी अवसीमा की शिफारिश नहीं की गयी है जबकि संविधान में परिषद् के लिए यह अनिवार्य निर्देश थे। संदर्भित खंड में "shall make recommendations" शब्दों का प्रयोग हुआ है।



Wednesday, May 24, 2017

दोहरा चरित्र

मित्रो !
     दो बच्चों के माँ बाप होकर हम सभी अपने दोनों बच्चों से अपेक्षा करते हैं कि हमारे दोनों बच्चे मिल-जुल कर रहे और आवश्यकता पड़ने पर एक-दूसरे की मदद करें किन्तु विडम्बना यह है कि हम में से अनेक लोग अपने भाई से मिल-जुल कर नहीं रहना चाहते। क्या ऐसा करके हम अपने माँ-बाप का दिल नहीं दुखाते हैं? हम दोहरा चरित्र क्यों जीते हैं?

     जिस आचरण का किया जाना हम स्वयं उचित नहीं समझते  उस आचरण के किये जाने की अपेक्षा हम अपने बच्चों से क्यों करते हैं