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.



      
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