Article 269A (1) & Article 246A of the Constitution give powers to the Parliament to make law to provide levy and collection of goods and services tax on supply of goods or services or both where such supply takes place in the course of inter-State trade or commerce, and for apportionment of such collected tax in between the Union and the States. Explanation of clause (1) of Article 269A provides that for the purpose of levy and collection of goods and services tax, and for apportionment of such collected tax in between the Union and the States, supply of goods or services or both 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.
In exercise of its powers under Articles 269A and 246A (2), the Parliament has enacted the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as the IGST Act). Section 5 of the said IGST Act provides levy and collection of tax, called integrated goods and services tax, on inter-State supply of goods or services or both. However, proviso of sub-section (1) of said section 5 provides that integrated tax on goods imported into India shall be levied under section 3 of the Customs Tariff Act, 1975. Sub-section (7) of section 3 of the Customs Tariff Act, 1975 provides levy of integrated tax on “Any article which is imported into India“.
In my personal opinion, expression “any article which is imported into India” used in section 3(7) of the Customs Tariff Act, 1975 does not refer to (i) supply of goods; (ii) supply of articles. The expression does not include materials and commodities imported into India. Moreover, the expression may also apply to transactions or activities which are not a supply of goods. Expression “territory of India” as given in the Constitution, and definitions of the word “India” provided in the Central Goods and Services Tax Act, 2017 or in the Customs Act, 1962, are not the same. For these reasons and for certain other reasons, I am of the view that tax levy clause in the Integrated Goods and Services Tax Act, 2017 and the Customs Tariff Act, 1975 has not been drafted properly.
Apart from provisions of Articles 246(2) and 269A of the Constitution, the discussion will also involve reference of certain provisions of the following Acts, namely:-
(i) The Integrated Goods and Services Tax Act, 2017;
(ii) The Central Goods and Services Tax Act, 2017;
(iii) The Customs Act, 1962; and
(iv) The Customs Tariff Act, 1975.
Therefore, it will be useful to quote here the text of certain relevant provisions. These provisions, with their reference are being given here under:
1. In the Article 366 of the Constitution,-
(i) words “goods” and “services” have been defined as follows:–
(12) “goods” includes all materials, commodities, and articles;
(26A) “Services” means anything other than goods;
(ii) expression “goods and services tax” has been defined 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;’
2. Clause (2) of Article 246A runs as follows:–
“(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.”
3. Clause (1) of Article 269A runs as follows:–
“269A. (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. “
4. In exercise of its powers given in the Constitution, the Parliament has enacted the Integrated Goods and Services Tax Act, 2017.
5. Chapter IV of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as the IGST Act) relates to “Determination of Nature of Supply”. This chapter contains three sections, namely, section 7, section 8 and section 9. Title of section 7 runs as “Inter-State supply”. Sub-section (2) of said section 7 runs as follows:–
“(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.”
6. Section 5 of the IGST Act relates to levy and collection of tax. Sub-section (1) of the said section 5 of the IGST Act runs as follows:–
“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).”
7. Expressions “import of goods” and “integrated tax” have respectively been defined in clauses (10) and (12) of section 2 of the IGST Act as follows:–
(10) “import of goods” with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India;
(12) “integrated tax” means the integrated goods and services tax levied under this Act;
8. Words “goods” and “India” have respectively been defined in clauses (52) and (56) of section 2 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act) as follows:–
‘(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;’
‘(56) “India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its territory and territorial waters;’
9. Word “supply” has been defined in section 7 of the CGST Act 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 by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
(2) Notwithstanding anything contained in sub-section (1),––
(a) activities or transactions specified in Schedule III; or
(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.
(3) Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as—
(a) a supply of goods and not as a supply of services; or
(b) a supply of services and not as a supply of goods.”
10. Definitions of words “goods”, “India” and “supply”, provided in the CGST Act, also apply to provisions of the IGST Act.
11. Sub-sections (7), (8) and (8A) of sections 3 of the Customs Tariff Act, 1975 (51 of 1975) are related to levy and collection of integrated tax. These sub-sections run as follows:–
(7) Any article which is imported into India shall, in addition, be liable to integrated tax at such rate, not exceeding forty per cent. as is leviable under section 5 of the Integrated Goods and Services Tax Act, 2017 on a like article on its supply in India, on the value of the imported article as determined under sub-section (8) or sub-section (8A), as the case may be.
(8) For the purposes of calculating the integrated tax under sub-section (7) on any imported article where such tax is leviable at any percentage of its value, the value of the imported article shall, notwithstanding anything contained in section 14 of the Customs Act, 1962, be the aggregate of— (a) the value of the imported article determined under subsection (1) of section 14 of the Customs Act, 1962 or the tariff value of such article fixed under sub-section (2) of that section, as the case may be; and (b) any duty of customs chargeable on that article under section 12 of the Customs Act, 1962, and any sum chargeable on that article under any law for the time being in force as an addition to, and in the same manner as, a duty of customs, but does not include the tax referred to in sub-section (7) or the cess referred to in sub-section.
(8A) Where the goods deposited in a warehouse under the provisions of the Customs Act, 1962 are sold to any person before clearance for home consumption or export under the said Act, the value of such goods for the purpose of calculating the integrated tax under subsection (7) shall be,—
(a) where the whole of the goods are sold, the value determined under sub-section (8) or the transaction value of such goods, whichever is higher; or
(b) where any part of the goods is sold, the proportionate value of such goods as determined under sub-section (8) or the transaction value of such goods, whichever is higher:
Provided that where the whole of the warehoused goods or any part thereof are sold more than once before such clearance for home consumption or export, the transaction value of the last such transaction shall be the transaction value for the purposes of clause (a) or clause (b):
Provided further that in respect of warehoused goods which remain unsold, the value or the proportionate value, as the case may be, of such goods shall be determined in accordance with the provisions of sub-section (8).
Explanation.—For the purposes of this sub-section, the expression “transaction value”, in relation to warehoused goods, means the amount paid or payable as consideration for the sale of such goods.”
12. The Customs Tariff Act, 1975 or the Customs Act, 1962 does not provide the definition of word “article”. However, clause (22) of section 2 of the said Act defines the word “goods” as follows:–
(22)”goods” includes –
(a) vessels, aircrafts and vehicles;
(b) stores;
(c) baggage;
(d) currency and negotiable instruments; and
(e) any other kind of movable property;
13. Word “import” and “India”, and expression “imported goods” have been defined in clauses (23), (27) and (25) of the Customs Act, 1962 as follows:
(23) “import”, with its grammatical variations and cognate expressions, means bringing into India from a place outside India;
(27) “India” includes the territorial waters of India;
(25)”imported goods” means any goods brought into India from a place outside India but does not include goods which have been cleared for home consumption;
14. Schedule III of the CGST Act relates to activities or transactions which are neither to be treated supply of goods nor supply of services. Vide the Central Goods and Services Tax (Amendment) Act, 2018, with effect from February 01, 2019, new entries 7 and 8 have been added. These entries run as follows:-
“7. Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.
8. (a) Supply of warehoused goods to any person before clearance for home consumption;
(b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.”
Comments:
1. The Constitution Bench of the Honorable Supreme Court, in M/s A. V. Fernandez vs. State of Kerala, Judgment Dated: 02/04/1957, has made following observations:
“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. “
All GST Laws are fiscal laws. Therefore, while interpreting these laws, literal interpretation is to be followed.
2. Levy of integrated tax on import supply of goods.-
The Constitution, inter-alia, provides for levy of goods and services tax on supply of goods or services or both in the course of import into the territory of India. According to definition of word “goods” given in the Constitution, goods includes all materials, commodities, and articles. Proviso of sub-section (1) of section 5 of the IGST Act provides 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. Sub-section (7) of section 3 of the Customs Tariff Act, 1975 provides levy of integrated tax on “Any article which is imported into India”. Word “article” has not been defined in the said Customs Tariff Act or the Customs Act, 1962. However, word “goods” have been defined in the Customs Act, 1962, but sub-section (7) of the Customs Tariff Act, 1975 does not provide levy of integrated tax on goods imported into India. Thus, the Customs Tariff Act, 1975 does not provide levy of integrated tax on commodities and materials imported into India.
3. Import into India and import into the territory of India.-
The Constitution, inter-alia, provides for levy of goods and services tax on supply of goods or services or both in the course of import into the territory of India. Sub-section (2) of section 7 of the IGST Act is about the “Supply of goods imported into the territory of India”. However, in section 5(1) of the IGST Act, in place of expression “into the territory of India”, word “India” has been used. In section 3(7) of the Customs Tariff Act, 1975, also, word “India” has been used. It is noticeable that Territory of India includes territories of all States and all Union Territories where as word “India”, as defined in the Central Goods and Services Tax Act, 2017 and the Customs Act, 1962, is wider than territory of India.
4. Expression “supply of goods in the course of import”.-
Use of words “in the course of” in between the expression “supply of goods” and word “import” indicates that activity of supply of goods and activity of import are so integrally connected that they cannot be dissociated with each other. In Article 269A of the Constitution expression “supply of goods or services or both in the course of import” has been used. In section 7(2) of the IGST Act, expression “Supply of goods imported into the territory of India, till they cross the customs frontiers of India” has been used. In the proviso of section 5(1) of the CGST Act, expression “goods imported into India” has been used. Section 3(7) of the Customs Tariff Act, 1975 provides levy of integrated tax on “Any article imported into India”. Here we see that proviso of section 5(1) of the IGST Act and section 7(3) of the Customs Tariff Act, 1975, both, have nothing to do with supply of goods in the course of import”. Also definitions of “import of goods” provided in the IGST Act and the Customs Act, 1962 have nothing to do with supply of goods.
Definitions of “import of goods”, provided in the IGST Act, runs as follows:–
(10) “import of goods” with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India;
Definition of word “import”, provided in the Customs Act, 1962, runs as follows:–
“(23) “import”, with its grammatical variations and cognate expressions, means bringing into India from a place outside India;”
These both definitions may be relevant for the purpose of import of goods but they are not relevant to “supply of goods in the course of import”. Suppose, I go the United Kingdom as a visitor. During my stay there, I purchase a laptop from a shop at London. I make payment to the seller and receive the laptop. While returning to my country, I carry the laptop with me. In this case, supply of laptop by London seller to me gets completed with delivery of laptop to me by the London seller. Thereafter, London seller has nothing to do with the laptop. Here, activity of supply of laptop has nothing to do with its import into India. Had I wished, I would have given laptop to my friend in United Kingdom. When I carry the laptop to India, for the purpose of the Customs Act, it is import of laptop but for the purpose of GST, it is not a supply of laptop in the course of import. Here supply of laptop by London seller and import of laptop are two independent events. These two events are not integrally connected.
4. “supply of goods”.-
Definition of word “supply” has been provided in section 7 of the CGST Act. For the purpose of supply of goods in the course of import into the territory of India(or India), following clause may be said to be relevant, namely:-
“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 by a person in the course or furtherance of business;”
Essential feature of supply made as sale, transfer, barter, exchange, licence, rental, lease or disposal is that such activities should be for valuable consideration. In the example given above, carrying of laptop by me from United Kingdom to India is import of laptop but is not supply of laptop in the course of import. Similarly, when a friend of mine, located in a foreign country, sends me a gift item free of cost. He does not make a supply of the gifted item because there is no consideration. For the purpose of Customs Duty, it is import of the item but for the purpose of GST, it is not a supply in the course of import.
6. Expression “Supply of goods or services or both in the course of import of goods or services or both into the territory of India”.-
Article 286(1) provides that no law of a State shall impose, or authorise the imposition of, a tax on the supply of goods or of services or both, where such supply takes place-
(a) outside the State;
(b) in the course of the import of the goods or services or both into, or export of the goods or services or both out of, the territory of India.
Clause (2) of the same Article 286 of the Constitution 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 ways referred to in clauses (a) and (b) of clause (1) of the said Article 286.
Unfortunately, no such law was proposed. Had such law been made, there would have been no difficulty in levying GST on supply of goods in the course of import of goods or services or both into the territory of India.
7. Addition of entries 7 & 8 in Schedule III of the CGST Act.-
Had the Parliament made principles for determining when a supply of goods or services or both takes place in the course of export of goods or services or both out of, or import of goods or services or both into, the territory of India, there would have been no necessity of adding entries 7 & 8 in Schedule III of the CGST Act. Entry 8(b) added in the Schedule III, which says that supply of goods consignee by endorsement of documents of title to goods shall neither be treated a supply of goods nor a supply of services, is debatable because such a provision breaks the chain and ultimate recipient of goods does not receive goods as a result of a supply.
8. Definition of India.-
In the Constitution, expression “territory of India” has been used with import & export. Expression “territory of India” has already been given in the Constitution of India. In view of this there would have been no necessity of defining word “India”.
9. Definitions of expression “export of goods” & “import of goods”.-
Since in the Constitution, expression ” supply of goods or services or both in the course of export of goods or services or both out of, or import of goods or services or both into, the territory of India has been used. For the purpose of the said expression, definitions of “export of goods”, and “import of goods” are irrelevant.
Regarding interpretation of fiscal statutes (tax laws), the Constitution Bench of the Honorable Supreme Court, in M/s A. V. Fernandez vs. State of Kerala, Judgment Dated: 02/04/1957, has made following observations:
‘”The answer given by the learned counsel for the appellant to the above reasoning was that in fiscal statutes what you have got to look to is not the spirit of the statute but the letter of the law; and if you could not bring a particular tax within the letter of the law, the subject could not be made liable for the same. Our attention was drawn in this connection to the observations of Lord Russell of Killowen in Inland Revenue Commissioners v. Duke of Westminster(1) :
“I confess that I view with disfavour the doctrine that in taxation cases the subject is to be taxed if in accordance with a Court’s view of what it considers the substance of the transaction, the Court thinks that the case falls within the contemplation or spirit of the statute. The subject is not taxable by inference or by analogy, but only by the plain words of a statute applicable to the facts and circumstances of his case.” As Lord Cairns said many years ago in Partington v. The Attorney General (1):-“As I understand the principle of all fiscal legislation it is this: if the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.”
The passage was quoted with approval by the Privy Council in the Bank of Chettinad v. Income Tax Commissioner (1) and the Privy Council registered its protest against the suggestion that in revenue cases “the substance of the matter” may be regarded as distinguished from the strict legal position.
(See also F. L. Smith & Co. v. F. Greenwood (2)).
(1) [1936] A.C. 1, 24.
(2)(1869) 4 H.L. 100, 122.
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. “‘
In the last, I will like to request the learned readers of this article to give their valuable opinions about the subject matter and to correct me if I have said anything which is wrong in their opinion.
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Disclaimer: Except the quoted versions, interpretations made and all other views expressed here are my personal views and are meant only for academic discussion. Readers are advised to follow the provisions of 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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NICE SIR