A careful reading of section 9 of the Central Goods and Services Tax Act, 2017 (CGST Act) reveals that it provides levy of central goods and services tax on intra-State supply of goods or services or both. At the same time, section 11 of the said Act provides that the Government may, by notification, exempt generally, either absolutely or subject to such conditions as may be specified therein, goods or services or both of any specified description from the whole or any part of the tax leviable thereon. Similarly, a reading of section 5 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as the IGST Act) reveals that it provides levy of integrated goods and services tax on inter-State supply of goods or services or both but section 6 of the said Act provides that the Government may, by notification, exempt generally, either absolutely or subject to such conditions as may be specified therein, goods or services or both of any specified description from the whole or any part of the tax leviable thereon. In both cases, tax is not leviable on “goods or services of both”. Under the CGST Act, tax is leviable on “intra-State supply of goods or services or both” and under the IGST Act, tax is leviable on “inter-State supply of goods or services or both”. Therefore, power, given to the Government to notify goods or services or both which may be exempted from tax leviable thereon, is meaningless.
Before, I proceed further; I will like to quote observations, of the Honorable Supreme Court, made in its judgment in A. V. Fernandez vs. State of Kerala, judgment dated: April 02, 1957. In the said case, the Honorable Apex Court has held as follows:–
“It is no doubt true that in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter.”
The Honorable Supreme Court of India, in its judgment in Commissioner of Income-Tax, Madras vs. Ajax Products Ltd. Through Its Liquidator, Judgment Dated: October 08, 1964, in reference to interpretation of a fiscal statute, has made following observations:-
‘”Would the amendment make any difference in the application of the proviso? The rule of construction of a taxing statute has been pithily stated by Rowlatt J. in Cape Brandy Syndicate v. I.R.C.(1) thus:
“In a Taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is ‘no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”
To put it in other words, the subject is not to be taxed unless the charging provision clearly imposes the obligation. Equally important the rule of construction is that if the words of a statute are precise and unambiguous, they must be accepted as declaring the express intentions of the legislature.”‘
Section 9 of the CGST Act relates to levy and collection of central goods and services tax (hereinafter referred to as the central tax) on all intra-State supplies of goods or services or both, except on supply of certain specified goods. Sub-sections (1) and (2) of the said section run as follows:–
“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.”
Here we see that sub-section (1) provides that central goods and services tax shall be levied on intra-State supply of goods or services or both. Taxable event is “intra-State supply of goods or services or both” on which tax has been levied, Therefore, if exemption from tax can be granted, it can be granted from tax leviable on intra-State supply of any goods or services or both. Exemption cannot be granted from tax leviable on goods or services or both.
Section 11 of the CGST Act grants powers to the Government for granting exemption from tax. Marginal note of said section 11 runs as “Power to grant exemption from tax” and Sub-sections (1) and (2) of the said section run as follows:–
“11. (1) Where the Government is satisfied that it is necessary in the public interest so to do, it may, on the recommendations of the Council, by notification, exempt generally, either absolutely or subject to such conditions as may be specified therein, goods or services or both of any specified description from the whole or any part of the tax leviable thereon with effect from such date as may be specified in such notification.
(2) Where the Government is satisfied that it is necessary in the public interest so to do, it may, on the recommendations of the Council, by special order in each case, under circumstances of an exceptional nature to be stated in such order, exempt from payment of tax any goods or services or both on which tax is leviable.”
Here we see that in sub-section (1), power has been given for granting “exemption from tax leviable on goods or services or both”. To be specific, the said power has not been given for granting exemption from tax leviable on “intra-State supply of goods or services or both”. Tax levy provision of the CGST Act, i.e. section 9 of the CGST Act does not provide for levy of tax on goods or services or both.
In view of the observations, quoted hereinabove, of the Honorable Supreme Court, sub-section (1) and (2) of section 11 of the CGST Act, which give power to the Government for granting exemption from tax leviable on goods or services or both, it cannot be inferred that the Government has given power of granting exemption from tax leviable on supply of goods or services or both. Secondly, word “tax” does not refer to the “central goods and services tax” or the “central tax”.
However, Notification No.2/2017-Central Tax (Rate), New Delhi, the 28th June, 2017 and Notification No.3/2017-Central Tax (Rate), New Delhi, the 28th June, 2017, both, issued by the Government in exercise of its powers under sub-section (1) of section 11 of the CGST Act, grant exemption from central tax leviable on “intra-State supply of goods”. Similarly, Notification No. 12/2017- Central Tax (Rate) New Delhi, the 28th June, 2017 grants exemption from central tax leviable on intra-State supply of services.
So far as it is related to levy of tax and power to grant exemption from tax under the IGST Act, sub-sections (1) and (2) of section 5 of the said Act provides for levy of integrated goods and services tax (hereinafter referred to as the integrated tax) and sub-sections (1) and (2) of section 6 of the said Act gives powers to the Government for granting exemption from tax. These provisions run as follows:–
Section 5 of the IGST Act.-
“Levy and collection.
5(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-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 of the Central Goods and Services Tax Act and at such rates, not exceeding forty 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:
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 (51 of 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 (52 of 1962).
(2) The integrated 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.”
Section 6 of the IGST Act.-
“Power to grant exemption from tax.
6 (1) Where the Government is satisfied that it is necessary in the public interest so to do, it may, on the recommendations of the Council, by notification, exempt generally, either absolutely or subject to such conditions as may be specified therein, goods or services or both of any specified description from the whole or any part of the tax leviable thereon with effect from such date as may be specified in such notification.
(2) Where the Government is satisfied that it is necessary in the public interest so to do, it may, on the recommendations of the Council, by special order in each case, under circumstances of an exceptional nature to be stated in such order, exempt from payment of tax any goods or services or both on which tax is leviable.”
So far as it relates to notifications issued by the Government in exercise of its powers under sub-section (1) of section 6 of the IGST Act, operating portion of Notification No.2/2017-Integrated Tax (Rate), New Delhi, the 28th June, 2017 runs as follows:
“G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 6 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), the Central Government, being satisfied that it is necessary in the public interest so to do, on the recommendations of the Goods and Services Tax Council, hereby exempts inter-State supplies of goods, the description of which is specified in column (3) of the Schedule appended to this notification, falling under the tariff item, sub-heading, heading or Chapter, as the case may be, as specified in the corresponding entry in column (2) of the said Schedule, from the whole of the integrated tax leviable thereon under section 5 of the Integrated Good and Services Tax Act, 2017 (13 of 2017). “
Notification No. 9/2017-Integrated Tax (Rate), New Delhi, the 28th June, 2017, which provides exemption from tax in respect of supply of services runs as follows:–
G.S.R…..(E).- In exercise of the powers conferred by sub-section (1) of section 6 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts the inter-State supply of services of description as specified in column (3) of the Table below from so much of the Integrated Tax leviable thereon under sub-section (1) of section 5 of the said Act, as is in excess of the said tax calculated at the rate as specified in the corresponding entry in column (4) of the said Table, unless specified otherwise, subject to the relevant conditions as specified in the corresponding entry in column (5) of the said Table, namely:-“
In case of IGST Act, following things are noteworthy, namely:-
(i) Sub-section (1) of section 5 of the IGST Act provides levy of integrated goods and services tax on “inter-State supplies of goods or services or both“.
(ii) Sub-sections (1) and (2) of section 6 of the IGST Act are replica of sub-sections (1) and (2) of section 11 of the CGST Act.
(iii) Section 6(1) & 6(2) both give power to the Government for granting exemption from tax, and exemption from payment of tax, respectively, leviable on goods or services or both. But sub-section (1) of section 5 of the IGST Act provides levy of integrated tax on “inter-State supplies of goods or services or both”. Integrated tax is leviable on “inter-State supplies of goods or services or both” but power for granting exemption from tax provides that notification can be issued for granting exemption from tax leviable on “goods or services or both”.
(iv) Sub-section (1) of section 5 provides that tax leviable on inter-State supply of goods or services or both shall be called “integrated goods and services tax”. Because of this, in section 6 of the IGST Act, including its marginal note, in place of word “tax”, words “integrated goods and services tax” should have been used.
Know more about: How to calculate GST in India
Another important thing about IGST Act is that section 7 of the said Act, in clear words, provides that which supplies are to be treated as supplies of goods or services or both in the course of inter-State trade or commerce, or which supplies are to be treated supplies of goods or services or both in the course of inter-State trade or commerce. The section does not specify the purpose for which supplies of goods or services or both, mentioned in various sub-sections of section 7, are to be treated as supplies of goods or services or both in the course of inter-State trade or commerce. Therefore, it can be inferred that all of goods or services or both, referred to in various sub-sections of section 7 of the IGST Act, are either to be treated as supplies of goods or services or both in the course of inter-State trade or commerce or to be treated supplies of goods or services or both in the course of inter-State trade or commerce. Section 7 of the IGST Act runs as follows:–
“Inter-State supply.
7(1) Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in—
(a) two different States;
(b) two different Union territories; or
(c) a State and a Union territory,
shall be treated as a supply of goods in the course of inter-State trade or commerce.
(2) 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.
(3) Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in—
(a) two different States;
(b) two different Union territories; or
(c) a State and a Union territory,
shall be treated as a supply of services in the course of inter-State trade or commerce.
(4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce.
(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, we see that in sub-sections (1) and (3), between the word “treated” and the expression “supply of goods or services or both in the course of inter-State trade or commerce”, words “as a” have been used, whereas in sub-sections (2), (4) and (5), in between the said word and the expression, words “to be a” have been used. What is noteworthy is that supplies referred to in sub-sections (1) and (3) of section 7 of the IGST Act are supplies of goods and supplies of services, respectively, which take place in between two States or two Union Territories or in between one State and a Union Territory whereas supplies [except the supplies which are also covered under sub-sections (1) and (3)] referred to in other sub-sections do not take place in between two States or two Union Territories or in between one State and a Union Territory.
Another, important point noticeable is that section 7 provides that which supplies of goods or services shall be treated as a supply of goods or services in the course of inter-State trade or commerce or which supplies of goods or services shall be treated to be a supply of goods or services in the course of inter-State trade or commerce. At the same time, sub-section (1) of section (5) of the IGST Act provides for levy of tax on “inter-State supply of goods or services or both”. In my personal opinion, expressions “inter-State supply of goods or services or both” and “supply of goods or services or both in the course of inter-State trade or commerce” are not one and the same. I will like to discuss this matter later.
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Disclaimer: Except the quoted versions, interpretation of laws and 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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