MODEL GST ACT – DICEY ISSUES

2) CGST mainly subsumes central levies such as
service tax, excise duty, countervailing duty [CVD] and special CVD and
the like because, generally speaking, Union possesses jurisdiction under
Constitution of India to levy excise duty on goods up to stage of
manufacture and service tax on services respectively. On the other hand,
SGST absorbs state value added tax [VAT], central sales tax, octroi,
entry tax, entertainment tax, luxury tax, lottery tax etc; since under
Constitution of India as commonly understood competency to exact tax on
post manufacturing activities lies with the states. However, under new
regime, both CGST and SGST are payable simultaneously on supplies
falling within charging section. In the result, there will be 36 state
level SGST Acts, one CGST Act and one IGST Act resulting in 38
legislations. Some critics have also made known their displeasure about
stamp duty at state level not being merged with GST. In my opinion,
there is no meeting point/synergy between a tax based on instrument i.e.
stamp duty and that oriented on concept of supply i.e. GST and thus
such apprehensions are misconceived.

II . CHARGEABILITY VIS-A-VIS TAXABLE EVENT

3)
Charging section 7 of Model CG/SG GST Act, 2016 [Act] brings within its
purview all intra state supplies of goods and/or services payable by
every taxable person. In turn, section 3 defines “supply” in a
comprehensive manner as including all form of supply of goods and/or
services such as sale, transfer, barter, exchange, license, rental,
lease or disposal made or agreed to be made for a consideration by a
person in the course or furtherance of business. It is well settled that
when an inclusive connotation is employed in the definition clause of
an enactment it expands and enlarges the normal meaning of the words and
phrases occurring in body of statute and consequently, takes within its
sweep not only things which they usually signify, but also those which
interpretation clause declares that they all include [CIT vs. TAJ MAHAL
82 ITR 44, 47 (SC)]. Nonetheless, there is another parallel, but equally
strong if not less, rule of construction that an interpretation clause
which extends the meaning of the word does not take away its ordinary
meaning or prevent from receiving its popular and natural sense wherever
that would be properly applicable [CGT vs. GETTI CHETTIAR 82 ITR 599,
605 (SC). Legislature always tries to rope in all possible and
conceivable activities/transactions/ actions/occurrences and the like
[known as “taxable events”] to widen net of the charging provision. Yet a
discerning lawyer with a eagle’s eye will not let this happen within
the framework of interpretation and I have my cogent reservations as to
whether aforesaid charging section 7 of Act is foolproof depending upon
the facts and circumstances of each case. Let us dissect charging
section 7 read with section 3 of Act.

4) Section 3(1)(a) of Act
generally elucidates “supply” as “all forms of supply of any goods
and/or services made or agreed to be made for a consideration by a
person in the course or furtherance of business. In P. Ramanatha Aiyar’s
Advanced Law Lexicon, Volume 4 (Q-Z), page 4565, 2005, 3rd Edition,
word “supply” is described as “that which is or can be supplied;
available aggregate of things needed or demanded; an amount sufficient
for given use or purpose”. In the Imperial Dictionary, “that which is
supplied; sufficiency of things for use or want; a quantity of something
furnished or on hand”. The word “supply’ means to give”, or “to provide
or to afford something that is necessary” [page 4566]. Further, in
Advanced Law Lexicon, 3rd Edition, 2005, Ramanatha Aiyar, Book 2 [D-I],
page 1997 expression “give” is depicted clinchingly as “make another the
recipient of something, bestow..………..,, grant”. Similarly, in Advanced
Law Lexicon, 3rd Edition, 2005, Ramanatha Aiyar, Book 3, page 3813 the
expression “provide” has been described as “to furnish, to supply; one
provides a dinner in the contemplation that some persons are coming to
partake of it; one supplies a family with articles of daily use.” In my
opinion, on a conspectus of aforesaid purport of various terms, to
attract generic clause (a) of Section 3 two separate and distinct
persons must exist. In my opinion, therefore, mutual associations will
not only not fall foul of substantive definition of the term “supply”,
but also gain benefit of the GST Act not containing a deeming fiction to
rope in such entities and consequently, mutuality tenet, in my opinion,
will also prevail and sustain under GST. Principle of mutuality is
consistently countenanced and upheld in the context of service tax in
SATURDAY CLUB LTD vs. ACST (2006) 3 STR 305, 311 (CAL); (2005) 180 ELT
437 (CAL); DALHOUSIE INSTITUTE vs. ACST (2006) 3 STR 311, 314 TO 316
(CAL); (2005) 180 ELT 18 (CAL); SPORTS CLUB OF GUJARAT vs. UOI 20 STR 17
(GUJ); KARNAVATI CLUB vs. UOI 20 STR 169 (GUJ); SPORTS CLUB OF GUJARAT
vs. UOI 31 STR 645 (GUJ); RANCHI CLUB vs. CCE AND ST 26 ITR 401
(JHARKHAND); GREEN ENVIORNMENT vs. UOI 49 GST 563 (GUJ); CCE AND C vs.
SURAT TENNIS CLUB 50 GST 25 (GUJ); NATIONA L ASSOCIATION vs. CST 51 GST
301 (DEL); FICCI vs. CST 38 STR 529, 547 TO 549 (TRI-DEL-PRINCIPA L
BENCH); MATUN GA GYMKHANA vs. CST 38 ITR 407 (TRI-MUM); NASSCOM vs. CST
51 GST 301 TRI-DEL); DELHI CHIT FUND ASSOCIATION vs. UOI 30 STR 347, 352
(DEL)]. Similar approach is espoused under excise and sales tax laws,
for instance, the decision of the Supreme Court in CTO vs. YOUNG MEN’S
INDIAN ASSOCIATION 36 STC 241 pertaining to chargeability of sales tax
in relation to supply of various preparations by the club to its
members. In the same vein are judicial rulings reported in PRESCOT MILLS
LTD vs. CCE (2006) 5 STT 35 (CESTAT -BANG); SPORTS CLUB OF GUJARAT vs.
CST (1975) 36 STC 511 (GUJ) [SALES TAX] and BAJAJ AUTO LTD vs. CCE
(2005) 1 STT 83, 87 (MUM).

5) A charging Section must be
construed strictly and must integrate with and complement machinery and
collection provisions [CIT vs. SRINIVASA SETTY 128 ITR 294, 299 (SC)].
Besides, intra state supply is as such not explained in definition
clause of Act, but expounded in Section 3A of Integrated Goods and
Services Tax Act, 2016 [IGST] as “any supply where the location of the
supplier and place of supply are in the same state”. Branch transfers
are not expressly exempt from IGST, but, in my opinion, they do not fall
within ken of charging Section 3 of IGST. In my opinion, Sections 7
read with 3 of Act are bedrock of serious and fundamental litigation.
All the foregoing propositions of law are not from of doubt and may
entail protracted litigation.

III.COLLECTION OF GST

6)
Time for collection GST would depend upon time of supply of
goods/services as postulated in Sections 12 and 13 of Act respectively.
In respect of goods, broadly, time of supply will be earliest of either
date on which goods are removed by supplier for supply to recipient
where goods are required to be removed or where not required to be
removed when goods are made available to the recipient or date on which
supplier issues invoice in relation to supply or date on which supplier
receives payment or date on which recipient shows receipt of goods in
his books of accounts. In connection with services, liability to pay GST
will generally arise at time of supply of services being either date of
invoice or date of receipt of payment whichever is earlier or date of
completion of the provision of service or the date of receipt of
payment, whichever is earlier or date on which the recipient shows the
receipt of services in his books of accounts. I do not quite understand
as how supplier’s liability under the Act can be fixed on the foundation
of exhibition of the transaction in recipient’s books of accounts as
stated above in light of trite law that Assessee cannot be expected to
perform the impossible [LIC vs. CIT 219 ITR 410, 418 (SC) or still
Assessee cannot be saddled or blamed for what recipient third party does
in its books [CIT vs. BASANT 238 ITR 680 (CAL); CIT vs. OASIS 333 ITR
119 (DEL)].

IV. REGISTRATION

7) Section 19 of Act
contemplates every person liable to be registered shall apply for
registration in every such state in which he is exigible. In other
words, multiple registrations are envisaged by virtue of registration in
each of the states resulting in cumbersome and unwieldy administration,
management and maintenance. Mechanism must be devised by software
professionals comprised in Technology Advisory Group constituted earlier
by harnessing advanced information technology so that single
registration of same person with Unique Identity Number is sufficient to
carry out business in each of the states avoiding need for multiple
registrations. Sub-section (7) of section 19 of Act confers discretion
on the proper officer to reject application for registration which is
objected to by section of the GST stakeholders and hence a suggestion is
doing the rounds that it be made obligatory. In my opinion, there is
nothing fundamentally wrong with said provision inasmuch as sub-section
(8) of section 19 incorporates principles of natural justice to be
adhered to before dismissing application as also sub-section (9)
provides that if no deficiency is communicated to the applicant by
proper officer within time limit prescribed, registration shall be
deemed to have been granted. Moreover, section 79(1) of Act stipulates
that any person aggrieved by any decision or order under Act can file
appeal before first appellate authority. In my opinion, adequate
safeguards are engrafted to protect interests of applicant and no change
in his regard is warranted.

V. RETURNS

8)
Assessees have also launched scathing attack on the number of
details/returns mandated to be filed under model GST law vide sections
25, 26, 27 and 30. Assessee must not be oblivious of the fact that
presently he is dealing with multiple tax legislations [which are now
proposed to be consolidated] where he is required to file as many
returns, face large number of assessments, appeals, penalties and the
like and therefore, in my opinion, there is absolutely no justification
in the protest against multiple returns under GST, more particularly
because data of inward and outward supplies is indispensable for
cross-checking claims of Assessee concerning input tax credit by
matching them. Detection of false and bogus claims must be in-built into
the system itself in order that revenue is not deprived of its
legitimate taxes. Lack of either physical or electronic as also want of
implementation of existing corroborative systems and processes on
account of ulterior and oblique motives has been bane of Indian
assessment system and a section of delinquent Assessees through all
these years taken full advantage of and capitalized on the same and
consequently, caused a lot of heartburn to honest Assessees suffering in
frustration and disgust.

VI. APPEALS

9) Appeals
provisions are laid down in two sets of Sections 79 to 83 under two
different Chapters XVIII. First Chapter XVIII is applicable to CGST law,
whereas second Chapter XVIII is invokable under SGST law. Sections 84
to 93 are common to both. I shall deal with second Chapter XVIII apropos
SGST in ensuing paragraph.

10) First appeal from any “decision”
or “order” u/s. 79 (Second Chapter XVIII) of the Act shall lie before
prescribed first appellate authority within three months [with
condonation further one month] from date of communication of decision or
order to person preferring the appeal subject to inter alia payment of
10% pre-deposit of disputed amount arising out of order. I wonder
whether no predeposit is payable if any demand emanates from a
“decision”. Albeit, in serious cases involving disputed tax liability of
25 crore or more and considered as such by Commissioner vide order in
writing that the department has a very good case on merits, departmental
authorities can apply to first appellate authority urging that a higher
predeposit not exceeding 50% of disputed amount be ordered. Appellant
may raise additional grounds provided omission to take that ground in
original grounds of appeal was not wilful or unreasonable. First
appellate authority has no specific power to set aside any matter to
lower authorities although this issue is not free from doubt as there is
cleavage of opinion on this controversy though nothing prevents him
from calling a remand report inasmuch as under sub-section (8) of
section 79 he may make further inquiry as may be necessary to pass
order. Appellant by way of appropriate framed rules may also be allowed
to adduce additional evidences. Second appeal u/s. 82 of Act lies to
National Goods and Service Tax Appellate Tribunal (Tribunal) against
appellate order framed u/s. 79 or revision order passed u/s. 80 within 3
months of date of communication of order sought to be appealed against
with unlimited power appertaining to period of condonation subject to
sufficient cause and predeposit as discussed hereinabove. Adjournments
shall be granted by first appellate authority/Tribunal subject to a
maximum limit of three times, but consequences of same party seeking
adjournment for fourth time is not stated implying that first appellate
authority/Tribunal will proceed to decide matter on merits. Further on a
bare reading of proviso to sub-section (6)/(2) of section 79/83, each
of the parties to litigation get a chance to apply for adjournment 3
times each; meaning if parties are two, I suppose, appeal itself can be
adjourned six times subject to maximum cap of three occasions per party.
Tribunal through section 83(1) possesses specific powers to admit
additional evidence and set aside issues for fresh adjudication to lower
authorities. Every Tribunal shall consists of as many members of
Technical (CGST), Judicial and Technical (SGST) as may be prescribed.
Appeal from order of Tribunal lies to the High Court on a substantial
question of law within 180 days of date of receipt of order appealed
against subject to condonation application for an unspecified period
with sufficient cause. Notwithstanding appeal vide section 87(2) shall
directly lie to Supreme Court from Tribunal’s order u/s. 83 if disputes
relates to treatment of transactions being intra state or inter state or
place of supply provided there is divergence of views between two or
more states or a state and Centre. Orders of High Court shall be
appealable to Apex Court vide section 88(1).

VII. MISCELLANEOUS

11)
Section 123 cast initial presumptive burden on any person to
demonstrate that he is not liable to tax under the Act in respect of any
supply of goods and/or services or that he is eligible for input credit
u/s. 16. In my opinion, first part of the section throwing primary onus
on person to show he is not covered by the charging provisions is
draconian inasmuch it is well entrenched by way of judge made law that
burden is on revenue to exhibit that a particular person is hit by the
charging provisions [PARIMISETTI SEETHARAMAMMA vs. CIT 57 ITR 532, 536
(SC)]. Indeed entire assumption of jurisdiction to assess is contingent
upon subject being brought within the tentacles of the charging section
and thus by common sense test revenue must first unload this
responsibility. In my opinion, a person cannot do the impossible, that
is, establish the negative fact that he does not fall within the
charging section [VARGHESE vs. ITO 131 ITR 597, 615 (SC)], but
department must positively demonstrate that subject is exigible to tax
by virtue of the substantive charge created by statute. In any case,
statutory presumption u/s. 123 is rebuttable and on clinching legal
arguments onus can shift on revenue to displace arguments of Assessee.
However, last segment of section 123 putting burden on the person
claiming input credit tax is in conformity with settled premise that
person claiming relief must prove that he satisfies conditions precedent
surrounding such concession [PARIMISETTI SEETHARAMAMMA vs. CIT 57 ITR
532, 537 (SC)]. Electronic commerce transactions [digital economy] are
bundled up under Chapter XIB captioned “Electronic Commerce” comprising
sections 43B and 43C of Act mainly on the lines of equalization levy
introduced under Income Tax Act, 1961 vide Chapter VIII of Finance Act,
2016 encompassing sections 163 to 180 thereof. In my opinion, in light
of the fact that these transactions take place in vague and hazy area of
“cyberspace” there is no particular specific identifiable territorial
jurisdiction to which these digital transactions can be traced and
attached and thus to tap potential revenue loss, one of the options
exercised by revenue founded on concept of Base Erosion and Profit
Shifting [BEPS] coined by The Organization for Economic Co-operation and
Development (OECD) is to impose an obligation on “electronic commerce
operator” (operator) to collect an amount at a prescribed rate as may be
notified out of the consideration payable towards supply of goods and/
or services made through such operator. Success of GST story will
primarily depend upon uniform and consistent adoption of model GST
legislation by various states with minimum localization, smooth,
efficient and competent working of logistics provided by Goods and
Service Tax Network [GSTN] to plug leakage of revenue through seamless
matching of input and output supplies, coordinated and unified operation
of the Goods and Service Tax Council (GST Council), education and
training of revenue officers and staff as also Assessees about new GST
law thereby leading to a development of robust common market across the
country reducing cascading effect of taxes affecting pricing of goods
and services.