By V. Raghuraman
Chartered Accountant
Geetha Pentakota
Introduction
1. It is common knowledge that
the levy of additional duty of customs, commonly known as CVD and special
additional duty, commonly known as SAD, have been replaced for many products
with the IGST, also known as integrated tax on imports of goods. In this
article, we examine whether there can be a levy of such integrated tax on the
activity of actual imports into the country using the present wordings in the
statute.
Legal Analysis
IGST or the integrated tax is a tax which is
levied on inter-State supplies of goods or services. The levy is under an
enactment called Integrated Goods and Services Tax Act, 2017.
2. The charging provision is
section 5 which levies a tax on all inter-State supplies of goods or services.
Proviso to section 5(1) of the IGST Act reads as under:
“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 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.”
3. Section 7 of the IGST Act,
2017 would talk of determination of what is inter-State supply. For our
purposes, section 7(2) of the IGST Act states that “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”.
4. If one compares the
language used in section 7(2) and proviso to section 5(1), the events
considered are different. Section 7(2) talks about “imported into territory
of India, till they cross the customs frontiers of India….” Proviso to
section 5(1) talks about “goods imported into India”. While the former
deals only with determining what is inter-State supply and states that till
goods cross the customs frontiers, they are treated as supply in the course of
import or export of goods, the latter is the charging section which states that
the charge on goods imported is determined by the Customs Tariff Act.
Therefore, the two seem to operate in two different fields. While one talks of
“in the course of imports or exports”, the other talks of “goods imported into
India”. The former would probably cover instances such as high sea sales, while
the latter deals with actual imports into the country.
5. The net effect of this
would be that u/s. 7, transaction in high seas, would be termed as in the
course of imports or exports and would be treated as inter-State supply of
goods or services. Though the proviso to section 5(1) states that integrated
tax on goods imported into India would be levied and collected in accordance
with the provisions of section 3 of the Customs Tariff Act, there is no fiction
created to stipulate that goods imported into India would be treated as supply
in the course of inter-State trade or commerce. The fiction created in
section 7(2), it seems to the authors, is not sufficient to take care of direct
imports because of inappropriate language used in section 7(2). If this
position is true, then the charge of integrated tax on direct imports is on
precarious grounds. We could read it this way too – the charge under IGST Act
is restricted to tax only on transactions at the high seas or before customs
clearances and cannot be fastened on goods actually imported.
6. We now have to look at the
Constitution of India. The Constitution 101st Amendment Act has
already created a fiction as to what kind of supply vis-à-vis imports is
deemed to be in the course of inter-State trade or commerce. The Explanation to
Article 269A(1) reads as under:
“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.”
7. The above would show that
extent to which fiction can be created by Parliament to treat any supply vis-à-vis
import is already specified in the Constitution. Only supply in the course of
import into the territory of India alone is deemed to be supply in the course
of inter-State trade or commerce. Direct imports are not covered. This is quite
clearly the case as direct imports were already covered under the customs
legislation.
8. Such being the case,
Parliament cannot create any fiction vis-à-vis imports to treat them as
supply in the course of inter-State trade or commerce except to the extent
provided in the Explanation to Article 269A(1). No fiction can be created by
the Parliament to treat direct imports as supply in the course of inter-State
trade or commerce because the scope of fiction is already defined in the
Constitution i.e., Explanation to Article 269A(1). Article 269A(5) confers
power on the Parliament 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. Section 7 of the IGST Act has been
enacted pursuant to the powers granted by Article 269A(5). The powers given by
Article 269A(5) should be read along with section 269(1). While formulating the
provisions regarding place of supply, the Parliament cannot go beyond
Explanation to Article 269A(1) create any fiction with respect to direct
imports as the scope of fiction is already defined in the said Explanation.
9. We can look at this in
another way too – Article 246A which was introduced by the above Amendment Act,
is a special provision with respect to goods and services tax and therefore, to
that extent would override Article 246 in the matter of vesting legislative
powers. Parliament already had powers under Article 246 read with Schedule VII
List 1 entry 83, to levy a duty of customs and therefore, the special
provisions for levy of GST on goods or services supplied can be restricted to
only two things:
a. Tax on goods or services
supplied inside India
b. Tax on goods or services
supplied in the course of export or import and not on actual imports or exports
which is covered by the customs legislation already.
This reading would clearly
harmonise the two Articles in the Constitution as otherwise, the state
legislatures would have the power to levy import duties which is clearly not
the case.
10. As we are dealing
with the subject of imports, it would be relevant to note what is import.
Section 2(10) of the IGST Act, 2017 defines import of goods to mean bringing
goods into India from a place outside India. Section 2(23) of the Customs Act,
1962 has the same definition. Therefore, we have to examine some decisions on
the concept of import. The Hon’ble Supreme Court discussed when import is said
to take place.
– Kiran
Spg. Mills vs. Collector of Customs, (2000) 10 SCC 228
6. Attractive, as the
argument is, we are afraid that we do not find any merit in the same. It has
now been held by this Court in Hyderabad Industries Ltd. v. Union of India
[(1999) 5 SCC 15 : JT (1999) 4 SC 95] that for the purpose of levy of
additional duty Section 3 of the Tariff Act is a charging section. Section 3
sub-section (6) makes the provisions of the Customs Act applicable. This would
bring into play the provisions of Section 15 of the Customs Act which, inter
alia, provides that the rate of duty which will be payable would be (sic the
rate in force) on the day when the goods are removed from the bonded warehouse.
That apart, this Court has held in Sea Customs Act [ Sea Customs Act, S. 20(2),
Re, AIR 1963 SC 1760 : (1964) 3 SCR 787, 803], SCR at p. 803 that in the case
of duty of customs the taxable event is the import of goods within the customs
barriers. In other words, the taxable event occurs when the customs barrier is
crossed. In the case of goods which are in the warehouse the customs barriers
would be crossed when they are sought to be taken out of the customs and
brought to the mass of goods in the country. Admittedly this was done after
4-10-1978. As on that day when the goods were so removed additional duty of
excise under the said Ordinance was payable on goods manufactured after
4-10-1978. We are unable to accept the contention of Mr. Ramachandran that what
has to be seen is whether additional duty of excise was payable at the time
when the goods landed in India or, as he strenuously contended, they had
crossed into the territorial waters. Import being complete when the goods
entered the territorial waters is the contention which has already been
rejected by this Court in Union of India v. Apar (P) Ltd. [(1999) 6 SCC 117]
decided on 22-7-1999. The import would be completed only when the goods are to
cross the customs barriers and that is the time when the import duty has to be
paid and that is what has been termed by this Court in Sea Customs case [ Sea
Customs Act, S. 20(2), Re, AIR 1963 SC 1760 : (1964) 3 SCR 787, 803] (SCR at p.
823) as being the taxable event. The taxable event, therefore, being the day of
crossing of customs barrier, and not on the date when the goods had landed in
India or had entered the territorial waters, we find that on the date of the
taxable event the additional duty of excise was leviable under the said
Ordinance and, therefore, additional duty under Section 3 of the Tariff Act was
rightly demanded from the appellants.”
One may see with profit the following decisions also:
– The
Hon’ble Supreme Court in Union of India vs. Apar (P) Ltd., (1999) 6 SCC
117
– Bharat
Surfactants (P) Ltd. vs. Union of India, (1989) 4 SCC 21
– Further,
we can see the decision of the Supreme Court in Garden Silk Mills Ltd. vs.
Union of India, (1999) 8 SCC 744
17. It was further
submitted that in the case of Apar (P) Ltd. [(1999) 6 SCC 117: JT (1999) 5 SC
161] this Court was concerned with Sections 14 and 15 but here we have to
construe the word “imported” occurring in Section 12 and this can only mean
that the moment goods have entered the territorial waters the import is
complete. We do not agree with the submission. This Court in its opinion in
Bill to Amend Section 20 of the Sea Customs Act, 1878 and Section 3 of the
Central Excises and Salt Act, 1944, Re [AIR 1963 SC 1760 : (1964) 3 SCR 787 sub
nom Sea Customs Act (1878), S. 20(2), Re] SCR at p. 823 observed as follows:
“Truly speaking, the
imposition of an import duty, by and large, results in a condition which must
be fulfilled before the goods can be brought inside the customs barriers, i.e.,
before they form part of the mass of goods within the country.”
18. It would appear to
us that the import of goods into India would commence when the same cross into
the territorial waters but continues and is completed when the goods become
part of the mass of goods within the country; the taxable event being reached
at the time when the goods reach the customs barriers and the bill of entry for
home consumption is filed.
– Hotel
Ashoka vs. ACCT 2012(276) E.L.T. 433 (S.C.)
18. It is
an admitted fact that the goods which had been brought from foreign countries
by the appellant had been kept in bonded warehouses and they were transferred
to duty free shops situated at International Airport of Bengaluru as and when
the stock of goods lying at the duty free shops was exhausted. It is also an
admitted fact that the appellant had executed bonds and the goods, which had
been brought from foreign countries, had been kept in bonded warehouses by the
appellant. When the goods are kept in the bonded warehouses, it cannot be said
that the said goods had crossed the customs frontiers. The goods are not
cleared from the customs till they are brought in India by crossing the customs
frontiers. When the goods are lying in the bonded warehouses, they are deemed
to have been kept outside the customs frontiers of the country and as stated by
the learned senior counsel appearing for the appellant, the appellant was
selling the goods from the duty free shops owned by it at Bengaluru
International Airport before the said goods had crossed the customs frontiers.
19. Thus,
before the goods were imported in the country, they had been sold at the duty
free shops of the appellant.
20. In view of the
aforestated factual position and in the light of the legal position stated
hereinabove, it is very clear that no tax on the sale or purchase of goods can
be imposed by any State when the transaction of sale or purchase takes place in
the course of import of goods into or export of the goods out of the territory
of India. Thus, if any transaction of sale or purchase takes place when the
goods are being imported in India or they are being exported from India, no
State can impose any tax thereon.
The legal position
therefore is that only when duty is paid can it be said that the goods are
imported.
11. But what do we mean
by the terminology “in the course of import or export”?
12. Article 286 of the
Constitution prior to its amendment read as under:
286. (1) No law of a
State shall impose, or authorise the imposition of, a tax on the sale or
purchase of goods where such sale or purchase takes place—
(a) outside the State; or
(b) in the course of the import of the goods into, or export of the
goods out of the territory of India.
(2) Parliament may by law formulate principles for determining when
a sale or purchase of goods takes
place in any
of the ways
mentioned in clause (1).
(3) Any law of a State shall,
in so far as it imposes, or authorises the imposition of,—
(a) a tax on the sale or purchase of goods declared by Parliament by
law to be of special importance in inter-State trade or commerce; or
(b) a tax on the sale or purchase of goods, being a tax of the
nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of
clause (29A) of article 366, be subject to such restrictions and conditions in
regard to the system of levy, rates and other incidents of the tax as
Parliament may by law specify.
13. Section 5(2) of the
CST Act was enacted pursuant to Article 286. Section 5(2) read as under:
“(2) A sale or purchase
of goods shall be deemed to take place in the course of the import of the goods
into the territory of India only if the sale or purchase either occasions such
import or is effected by a transfer of documents of title to the goods before
the goods have crossed the customs frontiers of India.”
14. The above fiction gives
an idea as to what can be treated as to be in the course of imports. It doesn’t
include direct imports and rightly so. No doubt section 5(2) is a fiction. But
the manner in which it is worded, it essentially encompasses the natural
meaning of the expression “in the course of import”. Section 5(2) of CST Act
doesn’t cover direct imports. It covers only sale which occasions import or
sale by transfer of document of title to goods before the goods have crossed
the customs frontier. It is understandable too as the customs legislation is
the one which should cover it.
15. Article 286 has been
amended by the Constitution 101st Amendment
Act. The amended Article reads as under:
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 takes place in any of the ways mentioned in clause (1).
– This
is also best expressed in the words of the Supreme Court in State of
Travancore-Cochin vs. Bombay Co. Ltd., 1952 SCR 1112 : AIR 1952 SC 366 :
(1952) 3 STC 434 [popularly known as First case of Travancore].
10. We are clearly of
opinion that the sales here in question, which occasioned the export in each
case, fall within the scope of the exemption under Article 286(1)(b). Such
sales must of necessity be put through by transporting the goods by rail or
ship or both out of the territory of India, that is to say, by employing the
machinery of export. A sale by export thus involves a series of integrated
activities commencing from the agreement of sale with a foreign buyer and
ending with the delivery of the goods to a common carrier for transport out of
the country by land or sea. Such a sale cannot be dissociated from the export
without which it cannot be effectuated, and the sale and resultant export form
parts of a single transaction. Of these two integrated activities, which
together constitute an export sale, whichever first occurs can well be regarded
as taking place in the course of the other. Assuming without deciding that the
property in the goods in the present cases passed to the foreign buyers and the
sales were thus completed within the State before the goods commenced their
journey as found by the Sales Tax Authorities, the sales must, nevertheless, be
regarded as having taken place in the course of the export and are, therefore,
exempt under Article 286(1)(b). That clause, indeed, assumes that the sale had
taken place within the limits of the State and exempts it if it took place in
the course of the export of the goods concerned.
………
12. It was said that,
on the construction we have indicated above, a “sale in the course of export”
would become practically synonymous with “export”, and would reduce clause (b)
to a mere redundancy, because Article 246(1), read with Entry 83 of List I of
the Seventh Schedule, vests legislative power with respect to “duties of
customs including export duties” exclusively in Parliament, and that would be
sufficient to preclude State taxation of such transactions. We see no force in
this suggestion. It might well be argued, in the absence of a provision like
clause (b) prohibiting in terms the levy of tax on the sale or purchase of
goods where such sales and purchases are effected through the machinery of
export and import, that both the powers of taxation, though exclusively vested
in the Union and the States respectively, could be exercised in respect of the
same sale by export or purchase by import, the sales tax and the export duty
being regarded as essentially of a different character. A similar argument
induced the Federal Court to hold in Province of Madras v. Boddu Paidanna and
Sons [1942 FCR 90] that both central excise duty and provincial sales tax could
be validly imposed on the first sale of groundnut oil and cake by the
manufacturer or producer as “the two taxes are economically two separate and
distinct imposts”. Lest similar reasoning should lead to the imposition of such
cumulative burden on the export-import trade of this country which is of great
importance to the nation’s economy, the Constituent Assembly may well have
thought it necessary to exempt in terms sales by export and purchases by import
from sales tax by inserting Article 286(1)(b) in the Constitution.
13. We are not much
impressed with the contention that no sale or purchase can be said to take
place “in the course of” export or import unless the property in the goods is
transferred to the buyer during their actual movement, as for instance, where
the shipping documents are indorsed and delivered within the State by the
seller to a local agent of the foreign buyer after the goods have been actually
shipped, or where such documents are cleared on payment, or on acceptance, by
the Indian buyer before the arrival of the goods within the State. This view,
which lays undue stress on the etymology of the word “course” and formulates a
mechanical test for the application of clause (b), places, in our opinion, too
narrow a construction upon that clause, in so far as it seeks to limit its
operation only to sales and purchases effected during the transit of the goods,
and would, if accepted, rob the exemption of much of its usefulness.
14. We accordingly hold
that whatever else may or may not fall within Article 286(1)(b), sales and
purchases which themselves occasion the export or the import of the goods, as
the case may be, out of or into the territory of India come within the
exemption and that is enough to dispose of these appeals.
16. In our view, the above
passage does conclude that the sale and purchase in the course of import should
be widely construed to cover integrated activities. If that be so, it would
become crystal clear that activities covering actual imports and exports would
be taxed under the customs legislations and other activities relating to or in
the course would not suffer any tax under the earlier regime to soften the tax
impact on such transactions. If this proposition was accepted, then the entire
IGST mechanism should be restricted only to transactions that occur in the
course of import or export and not actual imports or exports themselves.
17. Now it becomes clear that actual imports are covered by customs
legislation and IGST Act can only cover the supply in the course of imports or
exports. Further, as import of goods is already covered under the customs
legislation, it cannot be termed as a supply under the CGST Act, 2017 itself
which definition applies to the IGST Act also. Having understood this, we may
have to look at whether the customs legislation can impose an integrated tax.
18. The expression
‘integrated tax’ has a specific connotation. It is defined by section 2(12) of
IGST Act as means the integrated goods and services tax levied under this
Act;
19. Proviso to section
5(1) states 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 on the value as determined under the said Act at the point
when duties of customs are levied on the said goods u/s. 12 of the Customs Act,
1962.
20. An Act cannot create
a charge on a particular transaction under some other Act. IGST Act cannot
create a charge under Customs Act in respect of a taxable event. The main
provision of section 5(1) does not cover import [ie., there is no fiction
created in the main provision of section 5(1) that inter-State supplies include
imports]. The proviso to section 5(1) is misplaced. It cannot be read as
proviso to section 5(1). There is no provision similar to section 7(4) of IGST
Act so far as import of goods are concerned. A fiction should have been created
similar to section 7(4) of IGST Act so far as import of goods are concerned. So
howsoever one interprets Explanation to Article 269A(1) or Article 286, there
is no provision in IGST Act to create charge on imports. Therefore, the proviso
to Section 5(1) to the IGST Act is completely superfluous and redundant. It can
be saved only by stating that it was done ex abundanti cautela.
21. Section 3(7) of
Customs Tariff Act states that “any article which is imported into India
shall, in addition, be liable to integrated tax at such rate, not
exceeding forty per cent. as is leviable under section 5 of the Integrated
Goods and Services Tax Act, 2017 on a like article on its supply in India, on
the value of the imported article as determined under sub-section (8).”
22. Section 3(7) of the
Customs Tariff Act is creating a charge of integrated tax on imports which is
not permitted, as the customs legislation does not define what is an integrated
tax. As stated earlier, integrated tax has specific connotation. It is a levy
under IGST Act. One might compare the language used in section 3(7) with that
used in sections 3(1) and 3(5) of the Customs Tariff Act [Sections 3(1) and
3(5) deal with additional customs duty]. Sections 3(1) and 3(5) read as under:
3. (1) Any article which
is imported into India shall, in addition, be liable to a duty (hereafter in
this section referred to as the additional duty) equal
to the excise duty for the time being leviable on a like article
if produced or manufactured in India and if such excise duty on a like article
is leviable at any percentage of its value, the additional duty to which the
imported article shall be so liable shall be calculated at that percentage of
the value of the imported article:
(5) If the Central
Government is satisfied that it is necessary in the public interest to levy
on any imported article [whether on such article duty is leviable under
subsection ( 1) or, as the case may be, sub-section ( 3) or not] such
additional duty as would counter-balance
the sales tax, value added tax, local tax or any other charges for the time
being leviable on a like article on its sale, purchase or transportation in
India, it may, by notification in the Official Gazette, direct that such
imported article shall, in addition, be liable to an additional duty at a rate
not exceeding four per cent. of the value of the imported article as specified
in that notification.
23. A perusal of the
above would show that additional duty equivalent to excise duty and sales tax
is levied. Therefore, the nature of duty remained as customs duty. Only the
rate is equivalent to excise duty or the sales tax rate.
24. All along, whenever
any additional duty of customs equivalent to excise duty or special additional
duty equivalent to sales tax were levied on imported goods, the relevant
provisions were made in the Customs Tariff Act. It used the expression
“equivalent to”.
25. A perusal of section
3(7) would show that what is leviable u/s. 3(7) is not additional duty
equivalent to rate of integrated tax. Section 3(7) stipulates levy of
integrated tax on imports. Customs Tariff Act cannot levy integrated tax.
Integrated tax is levied under IGST Act which is a law made pursuant to Article
246A read with Article 269A. Article 269A does not empower levy of tax on
direct imports. Integrated tax which takes its power under Article 269A cannot
be levied on imports. So, can one counter this argument to say that the
terminology used should be ignored, as Parliament has power to make laws with
respect to imports as well as inter-State supplies?
26. One cannot read the
words ‘integrated tax’ in section 3(7) of Customs Tariff Act to mean customs
duty. It is also interesting to note section 17 of IGST Act which deals with
apportionment of ‘integrated tax’.Section 17 states that:[relevant extract]
17. (1) Out of the
integrated tax paid to the Central Government,––
……….
(d) in respect of
import of goods or services or both by an unregistered person or by a
registered person paying tax under section 10 of the Central Goods and Services
Tax Act;
(e) in respect of import
of goods or services or both where the registered person is not eligible for
input tax credit;
(f) in respect of import
of goods or services or both made in a financial year by a registered person,
where he does not avail of the said credit within the specified period and thus
remains in the integrated tax account after expiry of the due date for
furnishing of annual return for such year in which the supply was received, the
amount of tax calculated at the rate equivalent to the central tax on similar
intra-State supply shall be apportioned to the Central Government.”
27. If integrated tax on
imports is to be read as customs duty, how can section 17 of IGST Act deal with
its apportionment.
28. Section 2(62) of
CGST Act defines ‘input tax’ as under: [relevant extract]
“(62) “input tax” in
relation to a registered person, means the central tax, State tax, integrated
tax or Union territory tax charged on any supply of goods or services or both
made to him and includes—
(a) the integrated goods and services tax charged on import
of goods;”
29. Section 42 of CGST Act
reads as under:
42. (1) The details of
every inward supply furnished by a registered person (hereafter in this section
referred to as the “recipient”) for a tax period shall, in such manner and
within such time as may be prescribed, be matched––
(a) with the
corresponding details of outward supply furnished by the corresponding
registered person (hereafter in this section referred to as the “supplier”) in
his valid return for the same tax period or any preceding tax period;
(b) with the integrated
goods and services tax paid under section 3 of the Customs Tariff Act, 1975 in
respect of goods imported by him; and
(c) for duplication of
claims of input tax credit.
30. If integrated tax in
section 3(7) of Customs Tariff Act were to be understood as customs duty,
section 2(62) and section 42 of CGST Act should not have been so worded. The
use of integrated tax in section 3(7) of Customs Tariff Act has been
consciously taken, which is vindicated from the language in section 17 of IGST
Act and sections 2(62) and 42 of IGST Act.
31. Taxable event of
import cannot suffer a levy under IGST Act. Customs Act alone can create charge
on imports. Import is a taxable event under the Customs Act. It is not a
taxable event under IGST Act. The same aspect [i.e., import] cannot be taxed
under two Acts. So howsoever one chooses to interpret Explanation to Article
269A(1) or Article 286, charge on imports cannot be created under IGST. Article
286, even prior to its amendment, did not empower levy of CST on imports. Imports
were not treated as part of inter-State trade or commerce. This is evident from
entry 41 and 42 of List I to Seventh Schedule. So, section 3(7) of Customs
Tariff Act and proviso to section 5(1) of IGST Act fail to create a valid charge of integrated tax on imports.
32. Rag-bag legislation
acknowledged by the Hon’ble SC in Ujagar Prints’s case 1989 (38) ELT 535 was vis-à-vis
entries in List I of the Seventh Schedule to the Constitution. It stated that
if one entry doesn’t empower Parliament to make law vis-à-vis a
particular levy, there is no prohibition on relying on the residual entry to
find the source for power to make law in respect of such levy. The Hon’ble SC
did state that Parliament has exclusive power to make laws in respect of those
matters which are not covered either by List II or List III. Would this
principle apply to harmonious interpretation of Article 246, 246A and 269A? If
one were to apply rag-bag legislation principle, one of the fall outs would be
that Parliament is empowered to make law, prescribing two levies in respect of
very same aspect [Factually, Parliament has prescribed only one levy;
Theoretically, it is empowered to prescribe two levies in respect of the same
aspect]. IGST Act has been enacted
pursuant to Article 246A read with Article 269A of the Constitution. Customs
Act has been enacted pursuant to Article 246. Article 269A does not empower levy
of GST on direct imports. Can the Customs Act which is enacted under Article
246 levy integrated tax [though integrated tax is a levy pursuant to Article
269A which doesn’t empower levy of integrated tax on direct imports] on
imports? The Hon’ble SC did not consider a situation where Parliament made
enactment pursuant to two different Articles of the Constitution. If Parliament
is said to be empowered to make a law in respect of a particular levy under
more than one Article, doesn’t it render one of the Articles otiose. Is
it not against the principles of harmonious construction?
33. Interestingly, if
one were to interpret that Explanation to Article 269A(1) and Article 286
empower levy on direct imports, not only 3(7) of Customs Tariff Act but even
the main levy on imports i.e., basic customs duty [i.e., section 12 of Customs
Act read with section 2 of Customs Tariff Act] would fail. This is because if
one were to interpret that Explanation to Article 269A(1) and Article 286
empower levy on direct imports, it means that direct imports are deemed to be
inter-State supplies. Levy on inter-State supplies are governed by IGST Act. So
the natural fall out is that direct imports which are deemed to be inter-State
supplies should be liable only to integrated tax and not customs duty.
34. It would also be
interesting to note that the recent clarification by the government stating
that customs duty would be levied only on actual imports but would include the
price charged in several high sea sale transactions for the purpose of customs
valuation shows that when actual imports do take place, it is only the customs
legislation which would be relevant.
35. Though we have made
passing references to high sea sales while talking about section 7(2) of the
IGST Act at few places in this article, we wish to opine that there is no valid
levy of IGST on high sea sales. The purpose of this article is not to examine
the levy of IGST on high sea sales. Therefore, without going into details, we
would like to mention that the intention of legislators to levy IGST on high
sea sales is not achieved by the manner in which section 7(2) of the IGST Act
is worded. Though the Explanation to Article 269A(1) and Article 286(1)(b) is
intended to empower levy of IGST on high sea sales, the said intention is not
carried out by the legislators. This is because the language used in section
7(2) should have been similar to that in the section 5(2) of CST Act or at the
least, the language similar to Explanation below Article 269A(1) or Article
286(1)(b) should have been replicated in section 7(2). Section 7(2) doesn’t use
the expression “in the course of”. The levy of IGST, therefore, fails
even in case of high sea sales.
Though Article 286 has been amended, there
is no provision similar to section 5(2) of CST Act in IGST Act. This argument
would give additional support to the view that high sea sales are not liable to
IGST.
Conclusion
The conclusions reached could be summarised as under:
a. Levy of customs duty on
actual imports can arise only under the Customs Act, 1962.
b. Levy of integrated tax on
supplies in the course of import or export excluding actual imports/exports can
be made under the IGST Act, 2017, but the present wordings fall short of what
is used in the Constitution and therefore, the same does not seem to extend to
transactions such as on high sea sales.
c. The present levy u/s. 3(7)
of the Customs Tariff Act which states that there shall be levied an integrated
tax is clearly beyond the legislation itself, as the customs legislation can
only levy a customs duty equivalent to the integrated tax and not an integrated
tax per se. This would now need legislative amendments. _
