ARTICLES ON GST INDIA

     Except wherever references have been provided, all other views expressed in the articles are our own views. Readers are advised to consult some expert on the subject before acting upon the views. We disown any kind of personal liability.

GST : MY APPROACH MAY BE WRONG BUT I THINK SO

      After going through the provisions of the following Acts, I am of the opinion that it had been essential to make certain law provisions but no such provisions have been made. Secondaly, some of the provisions have been enacted in a manner they create confusion. 
1. The Constitution (One Hundred and First Amendment) Act, 2016;
2. The Central Goods and Services Tax Act, 2017;
3. The Integrated Goods and Services Tax Act, 2017.
      Here I would like to draw attantion of raders towards few provisions as follows:
1.   Article 269A of the Constitution of India, read with article 246 provides for levy and collection of goods and services tax on supply of goods or of services or both where such supply takes place in the course of inter-State trade or commerce. Explanation of clause (1) of Article 269A provides that for the purpose of levy and collection of goods and services tax on supply of goods or services or both which takes place in the course of import into the territory of India shall be deemed a supply of goods or services or both in the course of inter-State trade or commerce.
       Clause (5) of Article 269A of the Constitution provides that the parliament may, by law, 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. I am of the view that no law has been made to formulate the principles for the purpose of determining when a supply of goods or services or both takes place in the course of inter-State trade or commerce.

2.   Article 286 of the Constitution prohibits States from levying goods and services tax on supply of goods or services or both where such supply takes place ─
(i) outside State;
(ii) in the course of export out of the territory of India; or
(iii) in the course of import into the territory of India.
       Clause (2) of the said Article provides that the Parliament may, by law, formulate the principles for determining when a supply of goods or services or both takes place in any of the manners. So far no such law has been made by the Parliament.

3.   Article 269A of the Constitution provides for levy of goods and services tax on supplies in the course of inter-State trade or commerce whereas sub-section (1) of section 5 of the Integrated Goods and Services Tax Act, 2017 provides for levy of tax on inter-State supplies of goods or services or both. Expression "inter-State supply" has not been defined. Marginal note of section 7 of the Integrated Goods and Services Tax Act, 2017 runs as "inter-State supply" but inside the said section what has been provided is that that which supplies shall be treated as "supply of goods or services or both in the course of inter-State trade or commerce".
      Sub-section (5) of section 7 of the said Act runs 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.
       Here supply referred to in clause (a) is an export supply. Supply mentioned in clause (b) may also be a supply in relation to which supplier and the Special Economic Zone in which supply is received may be located in the same State. Therefore, such supplies will be intra-State supplies. But in the sub-section, provision has been made to treat them supply of goods or services or both in the course of inter-State trade or commerce. Here provision has been made to treat something untrue to be true. This amounts to creation of legal fiction. In the law, legal fiction can be created for limited purpose and where fiction is created it requires the purpose. No such purpose has been given.
4.   Clause (1) of Article 269A of the Constitution runs as follows:

(1) Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
Explanation.—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.
      But proviso of sub-section (1) of section 5 of the Integrated Goods and Services Tax Act, 2017 provides for levy and collection of the integrated tax on goods imported into India. Tax is not leviable on "goods imported into India". Goods and services tax is leviable on supply of goods or services or both in the course of import into the territory of India. Expressions "goods imported into India" and "supply of goods in the course of import into the territory of India" do not have the same meanings.

5.   For the sake of arguments, let us accept that the taxable event "inter-State supplies of goods or services or both" is the same event which has been defined as "supply of goods or services or both in the course of inter-State trade or commerce" in section 7 of the Integrated Goods and Services Tax Act, 2017. Then it can be concluded that rates of tax have also been notified for following supplies of goods or supplies or both:
(a) when the supplier is located in India and the place of supply is outside India;
(b) supply to a Special Economic Zone developer or a Special Economic Zone unit.
       Such supplies have been declared "Zero rated supply" in sub-section (1) of section 16 of the Integrated Goods and Services Tax Act, 2017 as follows:
(1) “Zero rated supply” means any of the following supplies of goods or services or both, namely:—
(a) export of goods or services or both; or
(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
       These are the supplies referred to in clauses (a) and (b) of sub-section (5) of section 7 of the Integrated Goods Service Tax Act, 2017, in respect of which provision has been made to treat them supplies of goods or services or both in the course of inter-State trade or commerce. Rates of tax have also been notified for such supplies. Such supplies may include:
(i) supplies which attract nil rate of tax; or
(ii) supplies which are wholly exempt from tax under section 6 of the said Act; or
(iii) any other supplies which are taxable supplies.
       Before, proceeding further it will be useful to see sub-section (2) of the said section 16. This sub-section runs as follows:
(2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply.
       This sub-section makes provides for claim of input tax credit subject to provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, 2017. The provision puts a rider on claim of input tax credit. The notwithstanding clause extends the scope of claim of input tax credit also in respect of exempt supply. Definition of expression "exempt supply" includes supplies not leviable to tax i.e. supplies of alcoholic liquor for human consumption, petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel. Therefore, supplies of these goods are also covered in the zero-rated supplies.
       Clause (12A) of Article 366 of the Constitution defines the expression "goods and services tax" to mean any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption. Also tax is not leviable on supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel by virtue of sub-section (2) of section 5 of the Integrated Goods and Services Tax Act, 2017. Supplies of these goods are outside the purview of the said Act. Therefore, there is neither power nor any need to provide rate of tax in respect of supply of these goods. Purpose is not to levy any tax on supplies, declared zero rated supplies and to make their value free from tax element to the extent it is possible within the framework of the law. Therefore, such supplies (zero rated supplies) may appropriately be declared not leviable to tax.
       About sub-section (1) of section 16 it is to be noted that─
(a) zero rated supplies are understood to be the supplies the gross value of which do not include any amount of tax.
(b) where goods to be supplied are purchased by the exporter-supplier from another person and such goods are exempt goods, benefit of input tax credit, in respect of inputs and input services utilised in manufacture, production or processing of goods, cannot be allowed. This is because amount of tax is not reflected in the purchase invoice received by the exporter-supplier from the supplier of inputs and input services.
(c) sub-section does not start with non-obstante clause to override the rate of tax fixed under sub-section (1) of section 5 of the Integrated Goods and Services Tax Act, 2017.
(d) sub-section gives only names of supplies which are to be understood as zero rated supplies.
(e) NACEN (The National Academy of Customs, Excise and Narcotics) has been closely associated with preparation of GST Law drafts. Query "How exports will be treated under GST?, in the FAQ on GST Second Edition (Revised) has been replied as "Exports will be treated as zero rated supplies. No tax will be payable on exports of goods or services, however credit of input tax credit will be available and same will be available as refund to the exporters." In the e-flier related to the Integrated Goods and Services Tax, prepared by the NACEN, about "Zero rated supplies" it has been expressed that exports and supplies to SEZ(s) are considered "zero rated supply" on which no tax is payable.
       In view of the above, in my personal opinion, a zero rated supply is not leviable to tax. Therefore, it is not a taxable supply. In clause (2) of section 2 of the Central Goods and Services Tax Act, 2017 has been defined to mean a supply of goods or services or both which is leviable to tax under the Act. This definition of expression "taxable supply" is also applicable to provisions of the Integrated goods and Services Tax Act, 2017. In my opinion, sub-section (2) may be re-drafted as follows:
"(2) Notwithstanding anything contrary contained in any other provision of the Act or in any notification issued under the Act, ─
(a) no tax shall be levied on a zero rated supply; and
(b) a registered person may avail the credit of credit of input tax in respect of goods or services or both, as the case may be, utilised by him in making a zero rated supply; and
(c) where a person, making zero rated supply, is himself liable for payment of tax under reverse charge mechanism on any inputs, input services or any other services required for making such supply, supply of such inputs, input services or other services shall be wholly exempt from tax.

6.  Sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 provides two options for allowing refund to a registered person making zero rated supply. Either of them can be availed for claiming refund. These options are as follows:
(i) the person may make the zero rated supply without payment of tax under bond or Letter of Undertaking and may claim refund of unutilised amount of input tax credit; or
(ii) the person he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, after payment of integrated tax and claim refund of such tax paid on goods or services or both supplied.
      Here second option is impractical and incomplete too. The option cannot be applied in cases of zero rated supplies which otherwise would have been exempt supplies. The option also does not provide for adjustment of unutlised amount of input tax credit in the amount of tax payable. There may be cases in which amount of input tax credit, for any reason, may exceed the amount of tax payable. In such a case, refund of full amount of input tax credit will not be refunded. In one case, a job worker received goods from outside principal and paid integrated tax on them. He claimed input tax credit in his input tax credit ledger. After doing job work he computed tax amount and deposited such amount in cash. Thereafter, he exported the goods. Now he can claim refund of amount deposited by him in cash.
In these circumstances he will not get the refund of unutilised amount of input tax credit. Law does not allow him to go for other option. In his case first option has become inapplicable. Legal aspect is that a person cannot be asked to pay any amount as tax if it is not leviable under the law.

7.  In relation to zero rated supplies, refund of unutilised amount of input tax credit had been subjected to prescribed conditions. Rule framed in this respect provides for submission of Letter of Undertaking. In the Letter of Undertaking, there is a condition that if supply is not within the prescribed time, the person will pay integrated tax. Thus the rule creates liability of payment of tax. I am of the view that the Government is not empowered for levying tax under rule framing powers. Creation of liability is a substantive law. Otherwise also, liability of payment of tax will depend on mode of disposal of goods which could not be exported within the prescribed or extended time and that too at the time of disposal of such goods. The goods which could not be exported within the time, ─
(i) can be exported on any date after the end of the prescribed or extended time if export order is not cancelled; or
(ii) if export order is cancelled, the goods may remain in stocks for disposal within India in any of the following manners:
(a) goods may be supplied on a later date within the State making the taxable person liable for payment of tax under the State GST Law and the Central Goods and Services Tax Act, 2017; or
(b) goods may be supplied on a later date as inter-State supply making the taxable person liable for payment of tax integrated tax under the Integrated Goods and Services Tax Act, 2017; or
(iii) if export order is cancelled, goods may be supplied as export supply to any other person outside India without liability of payment of tax.
       In my opinion, there is no justification for prescribing such a condition.

8.  In the Constitution, expression "in the course of"have been used with expressions "inter-State trade or commerce", "in the course of import" and "in the course of export" have been used. In Article 269, which provides for levy of tax on sale or purchase of goods, expression "in the course of inter-State trade or commerce" has been used. Earlier to amendment in Article 286 similar expressions were used in reference to sale of purchase of goods taking place in the course of export or import. In those circumstances Honorable Supreme Court had held that expression "in the course of" has specific meaning. Disclaimer: Readers are advised to seek opinion of some legal expertise before acting upon the views expressed here. I disown any liability.

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