In my previous article, I have quoted observations of the Honorable Supreme Court on definition of the word “tax”. According to the Honorable Court, the word “tax” is to be understood as a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered. Article 265 of our Constitution of India also provides that no taxes to be levied except save by law. The said Article runs as follows:
“265. No tax shall be levied or collected except by authority of law.”
In our country, our Constitution confers law making powers on the Parliament and the Legislatures of the States. Articles 245, 246 and 246A of the Constitution run as follows:
Extent of laws made by Parliament and by the Legislatures of States.
“245. (1) Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State.
(2) No law made by Parliament shall be deemed to be invalid on the ground that it would have extraterritorial operation.”
Subject-matter of laws made by Parliament and by the Legislatures of States.
“246. (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the “Union List”).
(2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (1), the Legislature of any State 1*** also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the “Concurrent List”).
(3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the “State List”).
(4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List.”
Special provision with respect to goods and services tax.
“246A. (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.
(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.
Explanation.—The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council.”.
For the purpose of Article 246A, word “State” includes Union Territories with Legislature. Expression “goods and services tax” does not include tax on supply of alcoholic liquor for human consumption.
However, here in this article I will keep myself restricted to procedure or method of levy of tax. Under a fiscal statute, tax can be levied on some property or on an event. Every law which provides levy of any tax essentially has a tax levy clause known as charging section. This provision declares levy of tax. In the tax levy provision following things are declared, namely:–
(i) property or event on which tax is being levied;
(ii) tax measure(measure upon which the assessment or determination of tax liability is based e.g. value, weight, volume, etc. to which rate of tax shall be applied);
(iii) rate of tax which shall be applied to tax measure for computing amount of tax; and
(iv) person who shall pay the tax or from whom tax shall be collected.
In a tax levy provision, if anything out of the aforesaid four things is missing, it cannot be said that levy of tax exists. In reference to levy of goods and services tax, we can refer to clause (12A) of Article 366 of the Constitution. The said clause defines the expression “goods and services tax” as follows:
‘(12A) “goods and services tax” means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption;’;
Article 246A of the Constitution, quoted above in this article, gives powers to the Parliament, and, subject to provisions of clause (2) of the said Article, the Legislature of each State, for making law with respect to goods and services tax imposed by the Union or by such State. Conjoint reading of clause (12A) of Article 266 and clause (1) of Article 246A reveals that Article 246A gives powers to the Parliament and the Legislatures of the States to make law to provide levy and collection of tax on supply of goods or services or both except taxes on supply of alcoholic liquor. It is the supply of goods or services or both on which tax can be levied. I mean to say that goods and services tax (GST) can be levied on the event of supply of goods or services or both and tax cannot be levied on goods or services or both. Goods are property whereas supply of goods is an event. GST is a tax leviable on event of supply of goods and is not a tax leviable on property in form of goods.
Let us have a look on sub-sections (1) and (2) of section 9 of the Central Goods and Services Tax Act, 2017. The said sub-sections run as follows:
“Levy and collection of tax
9.(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.
(2) The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council.”
In sub-section (1), we find that following things have been declared, namely:-
(i) event of intra-State supply of goods or services or both on which tax has been levied;
(ii) value of supply of goods or services or both shall be the tax measure;
(iii) tax shall be levied at such rate of tax, not exceeding fourteen per cent. as may be notified by the Government; and
(iv) tax shall be paid by the taxable person.
Here, we see that all four ingredients, required for valid levy of tax, have been provided. Therefore, sub-section 9(1) is a valid tax levy clause. Also event for levy of tax has been declared as “intra-State supply of goods or services or both, except the supply of alcoholic liquor for human consumption”. Supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel has been excluded from scope of levy of GST because of explanation of Article 246A of the Constitution.
In a law which provides for levy and collection of tax, it is the supply of any goods or services or both which can be liable to tax or not liable to tax; or leviable to tax or not leviable to tax. It will be incorrect to use expressions (i) goods or services liable to tax; (ii) goods or services not liable to tax; (iii) goods or services leviable to tax; (iv) goods or services not leviable to tax; (v) taxable goods or services or (vi) exempt goods or services. However, if we want to use these expressions, we should provide definitions of such expressions like:
“goods or services liable to tax” means the goods or services or both intra-State supply of which is liable to tax.
Provisions of GST Acts, which provide for levy and collection of tax, provide that tax shall be levied on supply of goods or services or both. In my personal opinion, expression “supply of goods or services or both” used in Article 366(12A) of the Constitution refers to completed supply of goods or services or both and expression “supply of goods or services or both” does not include an agreement of supply of goods or services or both. All what we know is that unless a contract of supply of a refrigerator, of given specifications for an agreed price, is supplied by the supplier to recipient or its nominee, it cannot be said that supply of the refrigerator has taken place. This is true even in a case in which supplier receives payment in advance at the time of making agreement of supply or at any time before making the supply. However, clause (a) of sub-section (1) of section 7 of the Central Goods and Services Tax Act, 2017 runs as follows:
“7. (1) For the purposes of this Act, the expression “supply” includes––
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration —“
Here, we see that an agreement of supply of goods for a consideration has also been included in the definition of word “supply”. In my personal opinion, unless the goods are supplied there is no event of supply of goods. If there exists anything, then it is the agreement of supply of goods. Agreement of supply of any goods cannot be equated with supply of goods referred to in the Constitution. Even event of receipt of agreed value of goods, without making supply of goods, cannot be equated with event of supply of goods.
In reference to levy of tax on sale of goods, the Honorable Supreme Court has held that it is the completed sale on which tax can be levied. With the Commencement of the Constitution, States were competent to levy tax on sale of goods. In the case, the Sales Tax Officer, Pilibhit vs. Messrs. Budh Prakash Jai Prakash judgment dated: 3 May, 1954, the Honorable Supreme Court had also considered levy of tax on forward contracts which had taken place in between April 01, 1950 and January 31, 1951. In the judgment, the Constitution Bench of Honorable Supreme Court has held as follows:
“The position therefore is that a liability to be held assessed to sales tax can arise only if there is a completed sale under which price is paid or is payable and not when there is only an agreement to sell, which can only result in a claim for damages. It would be contrary to all principles to hold that damages for breach of contract are liable to be assessed to sales tax on the ground that they are in the same position as sale price. The power conferred under entry 48 to impose a tax on the sale of goods can therefore be exercised only when there is a sale under which there is a transfer of property in the goods, and not when there is a mere agreement to sell.”
In a fiscal statute, provisions related to levy and collection of tax, exemption from tax, refund and rebate of tax constitute single scheme of levy of tax. To arrive at the conclusion that whether a particular sale or supply of goods attracts levy of tax or not, provisions related to levy of tax, exemption from tax and refund or rebate of tax should be read together. Normally, tax levy provision is made subject to other provisions of the Act. Being so, the provisions related to exemption, refund or rebate has effect of controlling the tax levy and collection provision of the Act. Alternatively, provisions related to exemption, refund or rebate may be given overriding effect, over the provision related to tax levy and collection, by enacting non obstante clause (a provision which starts with words ‘Notwithstanding anything —‘). About exemptions from GST, I will like to express my views separately.
Disclaimer: Except the quoted versions of the judgments of the Honorable Supreme Court, all other views expressed here are my personal views and are meant only for academic discussion. Readers are advised to obey the law and to seek opinion of their legal advisors before acting upon the views expressed here. I and the publishers of this article disown any liability on account of any loss or damage that may be caused on account of use of views expressed here.
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Dear readers,
In the article, clause “tax shall be levied at such rate of tax, not exceeding fourteen per cent. as may be notified by the Government;” should be read as “tax shall be levied at such rate of tax, not exceeding twenty per cent. as may be notified by the Government;” should be read.