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.
