It took almost more than a decade in achieving GST. India had the luxury of lessons from the GST introductions in other parts of the world during the said period, along with the ones already implemented for long. Three Presidential terms, multiple committees and their reports, the so great Law Ministry and of course the ever so green Finance Ministry. GST could be and to a large extent can be said to be a wider law covering almost the entire value addition chain of merchandize and services. Yet, the over-smartness has thrown the Solar System out of the Milky-Way.
It is absolutely fine when you tax a supply, just like it was fine to tax manufacture, sale and services among others. However, there has to be a limit what you can tax under the garb of Supply, and everything cannot be supply. Under GST, Supply is water while levy is the bubble, be it the large bubble or small bubble, or multiple bubbles, nothing out of the water can be a bubble.
The taxable event – Mere Supply
On the face of it, the levy seems to be pretty much in compliance of the four corners of taxation. Section 9 enunciates that there shall be a tax on all the intra state “supplies”, that’s it. There will be a tax on supplies, for a moment if we undertake that there is no section 7, the GST will be charged on the all the supplies as understood literally and judicially. Neither there is a need to check consideration for supply, nor the commercial nature of supply. There is no qualification over Supply as taxable event, the law applies on all the supplies plain and simple. Meaning thereby, there is tax when you help move your friend’s furniture from one room to another, or you offer your guests some cold drinks.
General Meaning of Supply
Section 7 (1) defines the expression supply, and defines it inclusively. It’s a settled fact that the words “includes” is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute.” When it is so used, these words and phrases must be construed as comprehending not only such things as they signify according to their nature and import but also those things which the interpretation clause declares that they shall include. [Taj Mahal Hotel 1971 SCC (3) 550]”
It will be imperative, therefore to discover the extent of the word supply, following could be referred;
Without going into length of discussion, it can be safely argued that supply in general means parting with something, corporeal or incorporeal, for the cause of another. The above definitions provide more guidance, that supply is to provide or to furnish. The general meaning of supply doesn’t need a consideration in return, besides, it is also not necessary that supply should be in the course or furtherance of business. “Supply is basically supply”, Australians on GST.
The anomaly with Section 7 (1)
To put into perspective, Section 7 (1) doesn’t make any difference qua taxable event. Section 7 (1) through its clauses merely expands the taxable event rather than qualifying the same i.e. Supply is Supply and other things are also Supply if they satisfy either of the clauses mentioned therein. The words include raises a big question into the requirement of sub clause (a), when the supply is hypothesized as an inclusive definition at the very outset. In other words, the expression supply is defined as “supply includes”, meaning thereby there is no qualification on the term supply, the sub clauses only expands its coverage. The conjoint reading of both Section 9 (1) and Section 7 (1) (a) leads every supply to be taxable regardless of whether consideration is involved or not, whether supply is done commercially or non-commercially, making sub clause (a) redundant.
The Hon’ble CESTAT, Mumbai in Cox & Kings Ltd. [Order against Appeal No. ST/386/2012] while gauging the taxability of service tax on tour operators, came across a clash between, the levy of service tax on tour operators and the definition of tour operators. The Tribunal observed that,
6.3 The term tour operator defines only the person providing the service and not the taxable service. The tribunal in the said decision has examined the term Tour Operator and arrived at the conclusion that the service provided by appellant is not a taxable service. In our considered view the term Tour Operator does not define the taxable service. The taxable service is defined as any service provided (or to be provided) to any person, by a tour operator in relation to a tour.
In our considered view the term Tour operator defines only the person providing the service, it does not define the taxable service. In our considered view the said definition of service provider namely, tour operator, by itself cannot be used to define if a particular service falls within the scope of the taxable service or not.
The Tribunal took an expanded meaning of the term “tour operator”, avoiding the surplusage theory. The surplusage theory says that where one reading of a statute would make one or more parts of the statute redundant and another reading would avoid the redundancy, the other reading is preferred. If surplusage is applied to the term supply in Section 7 (1), the words “includes”, will lose its value.
The Genesis of Anomaly
“You are good, until you tend to know it – Certain Someone”
The Malaysian Government implemented GST in Malaysia in the year 2015. Section 7 Supply of Indian GST Act(s) is akin to the Supply definition found under Section 4 of Malaysian GST Act, while Section 9 is levy provision for GST in both the GST Legislations.
The biggest difference between both the Legislation, qua the term supply is, while it is defined in the inclusive manner under Indian GST, the term is defined as “means” under the Malaysian GST. By using the words “means”, the taxable event gets necessarily qualified by the ingredients of consideration and commercial nature of transaction, no so the case with the words “includes”.
Unlike the Malaysian GST, the Australian GST, though doesn’t qualify the term supply [S. 9-10], the necessary qualifications of consideration are couched through the Levy part [S. 9-5]. Both the Supply and Levy, thus in combination serves the purpose. If we, categorize Malaysian Levy as “Category 1” (Qualifies the definition) and Australian Levy as “Category 2” (Qualifies the levy), then the about to implemented UAE VAT Legislation comes under the Category 1, while the South African VAT comes under Category 2. Indian GST comes under extra-ordinary un-callable “Category 3”.
Where the word “includes” could have been apt
The words includes in the first limb of Section 7 (1) could be the result of oversight or over-thinking. It’s a known fact, the Legislation was hastened, and proper care should have been taken to avoid such horrendous errors, more necessarily in the case of Section 7 which is the genes of the whole legislation. Besides, the words “includes” shows the anxiety of the draftsmen, the fear that Courts could dissuade variety of activities as non-supply. Be the case maybe, government deserves kudos, than chides for finally bringing GST (Eh?).
Again, it seems that the words “includes” might not be the devil as they appear to be, if these can be inserted in the clause (a) at the place of “such as”. Not only, such modification would bring the levy on good terms, but it would also serve the purpose of an expansive definition.