| Headnote |
Constitution of India – Articles 246A and 279A – Constitution (One Hundred and First Amendment Act) 2016 – Central Goods and Services Tax Act, 2017 – Integrated Goods and Services Tax Act, 2017 – Recommendations of Goods and Services Tax Council – Nature of – Held: Recommendations of the GST Council are not binding on the Union and States – Deletion of Art. 279B and the inclusion of Art. 279(1) by the Constitution Amendment Act 2016 indicates that the Parliament intended for the recommendations of the GST Council to only have a persuasive value, particularly when interpreted along with the objective of the GST regime to foster cooperative federalism and harmony between the constituent units – Neither does Art. 279A begin with a non-obstante clause nor does Article 246A state that it is subject to the provisions of Article 279A – Parliament and the State legislatures possess simultaneous power to legislate on GST – Art. 246A does not envisage a repugnancy provision to resolve the inconsistencies between the Central and the State laws on GST – The ‘recommendations’ of the GST Council are the product of a collaborative dialogue involving the Union and States – They are recommendatory in nature – To regard them as binding edicts would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST – Government while exercising its rule-making power under the provisions of the CGST Act and IGST Act is bound by the recommendations of the GST Council – However, that does not mean that all the recommendations of the GST Council made by virtue of the power Art. 279A (4) are binding on the legislature’s power to enact primary legislations. Constitution of India – Constitution (One Hundred and First Amendment Act) 2016 – Articles 246 A and 279A – Central Goods and Services Tax Act, 2017 – ss.2(30), 2(93), 8 – Integrated Goods and Services Tax Act, 2017 – ss.2(11), 5(3), 13(9) – Impugned notifications (Notification 8/2017 and 10/2017) issued by Central Government on the advice of the GST Council levied an integrated tax at the rate of 5 per cent on the supply of specified services, including transportation of goods, in a vessel from a place outside India up to the customs station of clearance in India and categorized the recipient of services of supply of goods by a person in a nontaxable territory by a vessel to include an importer u/s. 2(26) of the Customs Act, 1962 – Respondents-importers of non coking coal on a Cost-Insurance-Freight (CIF) basis, filed writ petition challenging the notifications – High Court held that the impugned notifications are unconstitutional for exceeding the powers conferred by the IGST Act and the CGST Act – On appeal, held: Government in exercise of its power u/s.5(3) of the IGST Act issued the impugned Notification 10/2017 specifying the ‘categories of the supply’ which shall be subject to reverse charge – The notification, besides specifying the criteria also mentioned the corresponding recipient in those categories – The IGST Act and the CGST Act define reverse charge and prescribe the entity that is to be taxed for these purposes – The specification of the recipient- in this case the importer- by Notification 10/2017 is only clarificatory – The Government by notification did not specify a taxable entity different from that which is prescribed in s.5(3) of the IGST Act for the purposes of reverse charge – The impugned notification 10/2017 clearly specifies a taxable person who is liable to pay a reverse charge that is envisaged in the statute – Thus, the impugned notifications cannot be invalidated for an alleged failure to identify a taxable person – Further, the impugned notification 8/2017 cannot be struck down for excessive delegation when it prescribes 10 per cent of the CIF value as the mechanism for imposing tax on a reverse charge basis – Also, Constitution Bench decision in GVK Industries recognises the power of Parliament to legislate over events occurring extra-territorially – The only requirement imposed is that such an event must have a real connection to India – In the present case, the impugned levy on the supply of transportation service by the shipping line to the foreign exporter to import goods into India has a two-fold connection: first, the destination of the goods is India and thus, a clear territorial nexus is established with the event occurring outside the territory; and second, the services are rendered for the benefit of the Indian importer – Thus, the transaction does have a nexus with the territory of India – On a conjoint reading of ss.2(11) and 13(9) of the IGST Act, r/w ss.2(93) of the CGST Act, the import of goods by a CIF contract constitutes an “inter-state” supply which can be subject to IGST where the importer of such goods would be the recipient of shipping service – s.5(4) of the IGST Act enables the Central Government to specify a class of registered persons as the recipients, thereby conferring the power of creating a deeming fiction on the delegated legislation – Validity of the impugned notifications upheld u/ss.5(3) and 5(4) of the IGST Act – However, the impugned levy imposed on the ‘service’ aspect of the transaction is in violation of the principle of ‘composite supply’ enshrined u/s.2(30) r/w s.8, CGST Act and the overall scheme of the GST legislation – Double taxation – Customs Act 1962 – s.2(26). Integrated Goods and Services Tax Act, 2017 – Statutory provisions and Scheme of the Act – Discussed. Constitution of India – Constitution (One Hundred and First Amendment Act) 2016 – Legislative History – Discussed. Integrated Goods and Services Tax, Act 2017 – ss.2(11), 13(9) – Central Goods and Services Tax, Act 2017 – s.2(93) – Whether the import of goods by a CIF contract constitutes an “inter-state” supply which can be subject to IGST where the importer of such goods would be the recipient of shipping service – Held: Yes. Constitution of India – Power of Parliament to levy tax over events occurring extra-territorially – Discussed – Central Goods and Services Tax, Act 2017 – Integrated Goods and Services Tax, Act 2017. Central Goods and Services Tax, Act 2017 – s.2(93) – Integrated Goods and Services Tax, Act 2017 – ss.5(3), 5(4) – Plea of respondents that the amended and unamended s.5(4) do not save the impugned notifications since they still make the reference to the term “recipient” – Held: s.5(4) employs the language “as the recipient”, in contradistinction to s.5(3) of the IGST Act which uses “by the recipient” – Recipient includes the importer – Further, s.5(4) clarifies that it may designate a class of registered persons as the recipient, thereby broadening the scope of s.2(93) of the CGST Act which is anyway an inclusive definition since s.2 is prefaced with “unless the context otherwise requires” – It is settled law that nonreference of the source of power may not vitiate its exercise and application in given facts and circumstances of a case. Integrated Goods and Services Tax Act, 2017 – s.5(3), 13(9) – Central Goods and Services Tax, Act 2017– s.2(93)(c) – Whether the imports of goods on a CIF basis would also constitute import of shipping services, by way of deeming fiction – Held: s.5(3) of the IGST Act does not confer the powers on the Central Government to create a deeming fiction vis-à-vis who constitutes the recipient – It merely enables the Central Government to identify certain categories of goods and services, where the recipient of such services is subject to a reverse charge, as opposed to the usual mode of taxation where the supplier of the service is charged on a forward charge basis – However, s.13(9) of the IGST Act r/w s.2(93)(c) of the CGST Act inherently create a deeming fiction of the importer of goods to be the recipient of shipping service. Constitution of India – “Recommendations”– Articles 3, 109, 111, 113, 117, 203, 207, 255 and 274; Article 233; Articles 243I, 243Y, 280, 281, 338, 338B and 340; Article 263; Articles 270, 275, 344, 349 and 371A – Nature and contextual meaning of – Discussed. Constitution of India – Constitutional role and functions of the GST Council, in the context of the simultaneous legislative power conferred on Parliament and the State legislatures – Discussed. Constitution of India – Constitution (One Hundred and First Amendment Act) 2016 – Articles 246A, 279A – Held: GST Council is not only an avenue for the exercise of cooperative federalism but also for political contestation across party lines – Thus, the discussions in the GST Council impact both federalism and democracy – The constitutional design of the Constitution Amendment Act 2016 is sui generis since it introduces unique features of federalism – Article 246A treats the Centre and States as equal units by conferring a simultaneous power of enacting law on GST – Article 279A in constituting the GST Council envisions that neither the Centre nor the States can act independent of the other. Constitution of India – GST Law – Essential legislative functions – Excessive delegation of, if any – Constitution (One Hundred and First Amendment Act) 2016 – Central Goods and Services Tax, Act 2017 – Integrated Goods and Services Tax, Act 2017 – Whether the impugned notifications are ultra vires the IGST Act on the grounds of excessive delegation – Held: Legislature is required to perform its essential legislative functions – Once the skeletal structure of the policy is framed by the legislature, the details can emerge through delegated legislations – Legislature cannot delegate its ‘essential legislative functions – Essential legislative functions with respect to the GST law are the levy of tax, subject matter of tax, taxable person, rate of taxation and value for the purpose of taxation – Principles governing these essential aspects of taxation find place in the IGST Act – Both the IGST and CGST Act clearly define reverse charge, recipient and taxable persons – Thus, the essential legislative functions vis-à-vis reverse charge have not been delegated. Integrated Goods and Services Tax, Act 2017 – Central Goods and Services Tax, Act 2017 – ss. 2(30) and 8 – Impugned levy seeking to impose IGST on the ‘service’ aspect of the transaction, if in violation of the principle of ‘composite supply’ incorporated u/ s.2(30) r/w s.8 of the CGST Act – Held: Yes – Since the Indian importer is liable to pay IGST on the ‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc. in a CIF contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of s.8 of the CGST Act – Double taxation. Central Goods and Services Tax, Act 2017 – s.2(93)(c) – Integrated Goods and Services Tax, Act 2017 – s.13(9) – Held: The only argument that supports the case of the appellant is that of s.13(9) of the IGST Act r/w s.2(93)(c) of the CGST Act which defines a “recipient” – s.13(9) of the IGST Act creates the deeming fiction of place of supply of service to be the destination of goods when they are transported by means other than mail or courier – No specific exemptions for importers have been carved out – This reasoning is accepted and read into the definition of recipient in s.2(93) of the CGST Act. Central Goods and Services Tax, Act 2017 – s.24(iii) – Integrated Goods and Services Tax Act, 2017 – ss.5(3), (4) – Held: Power of the Central Government to designate persons and categories of supply for reverse charge derives from ss.5(3) and 5(4) of the IGST Act and not s.24(iii) of the CGST Act which mandates the compulsorily registration as a logical corollary to ensure tax collection. Central Goods and Services Tax Act, 2017 – s.2(93) – Integrated Goods and Services Tax Act, 2017 – s.5(3) – Held: Interpreting the term “by the recipient” vis-à-vis the categories of goods and services identified in s.5(3) of the IGST Act should necessarily be governed by the principles governing the definition of “recipient” u/s.2(93) of the CGST Act. Interpretation of Statutes – Legislative history, Parliamentary debates, Committee Reports – Held: Though the traditional view of interpretation of statutes is that legislative history is not readily used in interpreting a law, the modern trend of thinking on the subject has enabled courts to look into the history of a legislation to understand the full purport of the words used and the mischief sought to be remedied by the law – Constitution of India – Articles 246A, 279A – Constitution (One Hundred and First Amendment Act) 2016 – Central Goods and Services Tax Act, 2017 – Integrated Goods and Services Tax Act, 2017. Words and Phrases: “Recommendations”– Constitution of India – Interpretation of, vis-à-vis the provisions of IGST Act and CGST Act – Integrated Goods and Services Tax Act, 2017 – Central Goods and Services Tax Act, 2017. ‘Cooperative federalism’; ‘Dual federalism’; ‘Fiscal federalism’ – Discussed |
