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Law Governing GST in India

Published on : 14 Jan 2021

Goods and Services Tax in India 

The goods and services tax is an indirect tax that is applied on the consumption, sale or manufacture of goods and services. The GST is charged on the supply of goods and services in the territory of India. The Central Goods and Services Tax Act in India came into effect in 2017, which lays down the tax being levied on every value addition to the goods and services. Such value additions shall include multiple stages including but not limited to purchase of raw materials, manufacture, warehousing, sale to the retailer and ultimately sale to the end consumer. The Act intends to compile and regulate various taxes such as central excise duty, additional duties, service tax, special duties, state value-added tax, surcharge, cesses, purchase tax etc. into one single tax known as GST and the same has been implemented via this Act. A few of the judgments that have had a major impact on the GST in India have been discussed below. 

Union of India vs Mohit Mineral Pvt Ltd (Civil Appeal number 10177/2018

This case was a very important turning point in the history of taxation in India, as the judgment that was rendered upheld the constitutional validity of Goods and Services Tax (Compensation to States) Act stating that it was not beyond the legislative competence of the Parliament. All three acts are under the light in this judgment including the Central Goods and Services Act (CGST Act) 2017Integrated Goods and Services Act (IGST Act) 2017 and Compensation to States Act (GST Act) 2017. 'Cess' is a tax that is levied for a special purpose, as an increment to an existing tax. Such special-purpose includes any special administrative purpose or expense such as health cess, education cess, road cess, etcetera. The levy of compensation to states cess under the GST Act is an increment to goods and services tax that is permissible under the law as laid down by the GST Act. However, the imposition of tax on the same subject or same taxable event via two different acts of CGST Act and IGST Act was under question in this judgment. At the same time, the validity of the GST Act was also questioned, calling it a 'colorable legislation'. While dealing with the constitutional validity of the GST Act, the Court rejected the contention of the GST Act being called colorable legislation. Civil appeal arising out of SLP number 25415/2017 was filed by the Union of India (UOI) challenging the ad-interim order passed by the Division Bench of Delhi High Court in writ petition number 7459/2017 in the case of Mohit Mineral Pvt Ltd vs. Union of India. One of the important questions raised was whether the levy of compensation to states cess and GST on the same taxing event is permissible in law. The Court held that the GST imposed as cess on intra-state supply of goods and services under the CGST Act and GST imposed on the supply of goods and services under the IGST Act are two separate imposts in law and are, therefore, not prohibited by any law to be declared as invalid. Thus, it was held that the levy of compensation to state cess on the same taxable event is permissible. Both these contentions have been discussed further. 

Mohit Mineral private limited is a company that is engaged in the trading business of imported and Indian coal. Mohit Mineral filed a petition in the Delhi High Court with two main contentions amongst others. One of the contentions presented by the petitioner is that on the very same transaction, there cannot be an imposition of levy of two taxes, being under the CGST Act and the other under the IGST Act as it amounts to double taxation. The petitioner contended that the levy of taxes was under the same subject causing overlapping of law and stated it to be impermissible by law. The levy of taxes in the present case was under the same subject, the same taxable event being under CGST Act via Section 9 & IGST Act via Section 5. Section 9 of CGST Act provides for levying of cess on intra-state supplies of goods and services. It mandates the levy and collection of cess on the supply of goods and services. Section 5 of the IGST Act states that there shall be a tax levied called the integrated goods and services tax on all inter-state supplies of goods and services or both. The imposition of the tax was taking place twice through the levying of cess on intra-state supplies of goods and services via Section 9 of CGST Act and inter-state supplies of goods and services as laid down in Section 5 of IGST Act. A prima facie case had been made out to hold that there was an imposition of double taxation in the order passed by the Delhi High Court in the case of Mohit Mineral Pvt Ltd vs. UOI. However, it was held in the present case that such order had been passed in error and such decision of the Delhi High Court was overturned. In the present matter, the Court held that "there might be overlapping, but the overlapping must be in law. The fact that there is an overlapping does not detract from the distinctiveness of the aspects." It was held that since the taxes are separate and distinct imposts levied on different aspects, and then there shall be no overlapping in law. The same transaction may involve two or more taxable events in its different aspects. The two separate imposts are the levy of tax on goods and services imposed on intra-state supplies via CGST act & inter-state supplies via IGST Act and two separate imposts in law are not prohibited by any law so as to declare it invalid. It was held that the levy of compensation to state cess is an increment to goods and services tax which is permissible under the law. The second contention presented was that the Compensation to States Act (GST Act) is colorable legislation and lacks legislative competence by violating the Constitution of India, so far as the collection of levy on cess is concerned. However, this contention was rejected, and the GST Act was declared not to be colorable legislation. It was held, that the Parliament of India has full legislative competence to enact the GST Act and the GST Act has in no manner transgressed the Constitution of India. 

Union of India vs. Sapna Jain [SLP(Crl.) number 4322-4324/2019]

This case revolves around the application of Section 132 of the CGST Act, 2017Section 132 addresses where the arrest of accused persons for tax evasion can be carried out by the officers authorized with power under the Act. Section 132 of the CGST Act mandates that if the Commissioner has reasons to believe that any person has committed an offence under offences laid down in Section 132 of the CGST Act, then as the powers conferred to him by Section 69 of the CGST Act, he may authorize any officer of the central tax to arrest such a person. The term of imprisonment and penalty has also been laid down which mandates imprisonment of maximum five years and the offence has been listed as a non-bailable and cognizable offence. In this matter, the Bombay High Court had granted pre-arrest bail to persons who had been accused of tax evasion in respect with the powers granted to officials to issue arrest under the CGST Act. A special leave petition was filed against the order of Bombay High Court granting the pre-arrest bail to persons in case of tax evasion under Section 132 of the CGST Act. Supreme Court then clarified the position as there were many conflicting views that had been taken by various high courts in different cases regarding the arrest of persons addressed under the arrest provisions laid out in the CGST act, 2017. In P.V. Ramana Reddy Vs Union of India & Ors. [Special Leave to Appeal (Crl.) No. 4430/2019]the Telangana High Court rejected the contention of the petitioners to challenge the power to issue summons under GST and held that a person could be arrested by the competent authority in GST evasion. The petitioner approached the Court and challenged the power of summons that had been issued by the officer under the CGST Act under the provisions of Section 69 of the CGST Act. The petitioners were accused if circular trading by claiming input tax credit (ITC) on materials never purchased and the passing on of such ITC to companies to whom such goods were never sold. The petition was filed by petitioners stating that such arrest should not be made by the powers conferred to officers under Section 69 of the CGST Act and sought anticipatory bail. The Court held that issuing invoices or bills without supplying goods and utilizing ITC by using such invoices were offences that fell under the ambit of Section 132 of the CGST Act and despite the petition being maintainable and receiving protection under Criminal Code of Procedure,1973 there was no relief granted to the petitioners. In the present matter, the Supreme Court upheld the order of the Telangana High Court, whereby, bail was denied to persons arrested on charges of tax evasion. It was held that as there were divergent views taken by different High Courts on the same matter, the anticipatory bail that had been provided in the present case and other orders in the present case were not interfered with; however, the Supreme Court declared that from future all the High Courts should keep in mind the order of the Telangana High Court while entertaining requests on the matter of arrest under Section 132 and Section 69 of the CGST Act of 2017. By such an order, the special leave petition was dismissed.

Jay Bee Industries Vs. Union of India (Appeal number 2169 of 2018)

The petitioner was dealing with the manufacture and supply of electrical transformers and its parts. He was subject to goods and services tax on the supplies made in relation to such electrical transformers. He was also entitled to a credit of input tax on the inputs as well as the capital goods and input services. The petitioner was also entitled to input credit tax on inputs contained in finished & semi-finished goods lying in stocks and being utilized under the GST Act. The petitioner was registered with the sales tax department as well as the central excise tax and was accordingly paying appropriate duties & taxes with a GST number provided. From 1st July 2017, when the GST Act came into effect, the petitioner accordingly migrated to the GST and got allotted a new GST number. In accordance with Section 140(3) of the CGST Act, a person registered is entitled to the credit of eligible duties in respect of inputs that are held in stock and semi-finished/finished goods. Accordingly, with Rule 117 of the CGST Rules, 2017, in order to avail such input tax credit, every registered person shall submit an electronic declaration in the name of the form 'Tran-1'. However, even when the Act had become effective from 1st July 2017, the electronic system was not accessible for operation, and even the forms were not made available on the portal. The petitioner was, therefore, not able to fill up the Tran-1 form despite his best efforts. Due to defects of the system and technical glitches, the failure of filing tax returns resulted in failure to comply with procedural requirements. The petitioner sought that the respondents should re-open the common portal so that the petitioner is allowed to file the Tran-1 form and be able to avail the tax input credit in respect of taxes and duties paid on inputs that are held in stock and contained in finished & semi-finished goods. The petitioner also contended that no interest be demanded from the petitioner to the extent of that amount in order to prevent a miscarriage of justice. The respondents, however, contended that the limitation under the Act provides that the filing of the form to obtain credit has to be done within a period of 90 days from the appointed date and therefore cannot obtain the legitimate input service tax. The Court after hearing both the sides held that the input tax credit could not be denied on procedural grounds and relief was granted to the petitioner as he had done his best to file the form but was not able to do so on account of technical glitches. It was settled that input tax credit could not be denied on account of procedural grounds and the filing of forms was allowed despite the expiry of the limitation period. The petition was accordingly allowed, and the respondents were directed to provide the petitioner with the appropriate form. It is therefore concluded that input tax credit cannot be denied on account of procedural grounds. 

State of West Bengal v Calcutta Club Ltd (civil appeal number 4184/2009)

This case came about as a turning point for the reason that it was ruled that services yielded by incorporated clubs to its members would be exempt from service tax. In the present matter, the members of the Calcutta Club were exempted from service tax on the supply of goods and services such as food, drinks and refreshments delivered to them by the club. The question was whether such a supply of food and drinks would be subject to sales tax or not. 

In the present matter, the order of the State of West Bengal to allow the Calcutta club to not pay sales tax on supply of goods and drinks to its members has been challenged. The application has been filed by the State of West Bengal against the judgment rendered in Calcutta Club Ltd. vs. deputy commissioner of commercial taxes (2007 10 VST 385 NULL). The facts of this case are that the Calcutta Club (petitioner) had filed an application praying that the said club is not a "dealer" within the meaning of the West Bengal Sales Tax Act 1994 as there is no sale of goods in the form of food, drinks or refreshments by the club to its permanent members which in turn protects the club from payment of any sales tax under the Sales Tax Act of 1994. The club demanded that it is not subject to pay any kind of sales tax and the request of the respondents for payment of such sales tax on supply of goods to permanent members to be quashed. The club had not been registered as a dealer with the sales tax act of 1994. However, the Deputy commissioner of commercial taxes (respondent) presented that irrespective of the club is incorporated or unincorporated, the club will have to pay tax for the supply of drinks, foods and beverages to its permanent/temporary members as the same fell within the ambit of the definition of "sale" under the sales tax act. It was held that the payment made by the members to the club was actually a payment in the real sense to themselves and the members shall be termed as the 'principal', whereas the club despite being a separate entity shall be the 'agent' who is entitled to the collection of such payment. It was also held that there was no sale that took place in the club and the concept of mutuality between the club and the members shall not be eliminated. Therefore, the application was allowed. 

In the present matter, the State of West Bengal (petitioner) has challenged the above order stating that such supply shall be deemed to fall under the ambit of "sale" and shall be eligible for sales tax irrespective of mutuality or reciprocity between the members and the club. Various judgments were also presented by the State of West Bengal (petitioner) that had rendered orders in favor of such supplies to be deemed a sale. The Calcutta Club (respondents in this matter) presented that the club was merely acting as an agent with its members and are not liable to payment of any tax. The contention presented was that there could be no supply by an agent (the club in this case) to a principal (members of the club in this case). Upon reading of the sales tax act, 1994, it became clear that supply of beverages, drinks and food has to be made upon consideration either in cash or otherwise to make the same eligible for tax. It was held that the collection by the club from members is not payment of the price of food or drinks, but rather reimbursement of expenses met from the fund of the club which has been contributed by the members of the club themselves. The decision taken by the taxation tribunal in Calcutta Club vs. Deputy commissioner of sales tax was a correct decision, and accordingly the present application was dismissed. It was ruled that the Calcutta club would not be entitled to charge service tax on the goods and services rendered to its members. It was held that the club whether incorporated or unincorporated if it is exclusively run by the members only and the members participate in contribution of the fund of the club then the sales tax shall not be levied. 

M/s Sanjose Parish Hospital vs The Commercial Tax Officer(LAWS(KER)-2012-9-420)

In this particular case, the question was whether the supply of medicines, implants and consumables provided by hospitals to in-patients (subject to medical treatment at a hospital) should be subject to any value-added tax during the course of medical treatment. The private hospitals in the State of Kerala and Kerala Private hospitals association state committee had filed a petition disputing their liability to get themselves registered as dealers under the Kerala value-added tax act, 2003 to pay tax for medicines and consumables sold to the medical patients. The hospitals presented the contention that hospitals are not liable to pay tax for the supply of medicines and other items for the medical treatment of patients at the hospital. It was contended that the definition of "sale" contemplates only food and articles of human consumption and the same is exclusive of 'medicine'. The hospitals were rendering what is called "hospital service", and that supply of medicines and other items is incidental to the service rendered to the patients treated. It was held in the judgment that the supply of such medicines and consumables should constitute composite supply and the same treatment shall not be subject to value-added tax (VAT) as it is done with the intention of curing the patient. The levying of taxes on such supply of medicines and other items shall not obligate the hospital to get themselves registered or to pay tax and accordingly the petition was passed allowing the hospitals do not pay value-added tax on supply of medicines and other items to patients during medical treatment. 

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