A provision changed having made effective from a past date is what we understand from a retrospective amendment, but in our back of mind it is always assumed that such emendation is issued basically as a last resort by the Govt to correct a genuine and inadvertent error for the larger interest of all the parties involved and the purport is that it is made with a positive frame of outlook.
However, under GST law, it appears in recent years this particular ‘Brahmastra’, powered by Section 164 and 168A, has been used multiple times and almost always to the detriment of the taxpayers and to the advantage of the tax administration by ‘correcting’ the drafting errors made in earlier legislation as if making an error and correcting them is a sort of a new norm. Be it a provision related to an ineligible ITC or Schedule III amendments or valuation rule, it seems the legislative has a penchant to change things from a past date every now and then.
Usually, such amendments are bereft of any solution or consideration of its impact on the taxpayers. It fails to assess and provide any solutions on the actions already initiated by them based on the law as it existed during the material time.
For example, After the recent amendment in Section 17, the ITC is not eligible if the Capital Goods satisfy the criteria of definition of ‘Plant’ alone (instead of Plant & Machinery). This amendment itself was triggered only after the Safari Retreats judgement by the Hon. Supreme Court. Hence, now the error of using ‘or’ instead of ‘and’ has been corrected.
But the most important point in the above ‘error’ is to ponder whether the mention of ‘or’ in the Section 17 was really an error or a conscious call because in model GST law there was no such mention of ‘or’ and we know that the entire GST law as is prevalent today was made on the basis of model GST law which was a sort blue print prior to launce of the GST regime.
Secondly, this is not routine clarification or a simple interpretation matter having a miniscule impact, but this has resulted in substantive change in law having far reaching revenue consequences for the taxpayers. So, ideally such an amendment should have been given effect prospectively. But it has been made in force right from the date of onset of GST, quite oblivious about the situation of the taxpayers who might have availed ITC going purely by the reasonable meaning of ‘plant’!
‘Plant’ is not defined in GST law. Hence, we need to rely on the definition as per various dictionaries as below:
Merriam-Webster:
a. the land, buildings, machinery, apparatus, and fixtures employed in carrying on a trade or an industrial business
b. a factory or workshop for the manufacture of a particular product
c. the total facilities available for production or service
d. the buildings and other physical equipment of an institution.
Cambridge:
a. Machines used in industry
b. a factory in which a particular product is made or power is produced
c. a large, heavymachine or vehicle used in industry, for building roads, etc.
Oxford:
Plant is a factory or place where power is produced, or an industrial process takes place
- a nuclear power plant
- a processing/manufacturing plant
- Japanese car plants
- a water treatment plant
- a chemical/steel/coal plant
As can be noted from the above definitions, the interpretation of the word ‘Plant’ is far wider than the definition of Plant and Machinery as defined in GST law. It appears many items which fills the criteria of Plant is now not allowed for ITC credit and that from 1st July 2017. It means that any such ITC will now be objected and reversed with interest and penalty !
The tax planning legitimately done based on the rule of law would go haywire due to retrospective amendments. If the govt believes that an error was made which needed to be corrected, then the same should be effective from the date of amendment. And if it was very necessary to make the same operative from a past date, then there must be specific discussion on the actions initiated by the taxpayers as per the earlier prevalent law to help the hapless law-abiding taxpayers who planned the future actions purely under the legal framework.
The action of retroactive legislation should not result in robbing Paul to pay Peter. The correction of one’s omission should not precipitate into a sort of commission against the other.
The third important point is there needs to be a parity and such genuine errors need to be put on equal pedestal. If a legislative error, though very necessary, is so benevolently forgiven and corrected, even at the cost of discomfiture to the govt, administrative bodies, having tremendous revenue risks to the Govt and at the cost of disruption of business/tax planning, a similar demeanor can be adopted in cases where the taxpayers faulted due to some genuine lapses on their part. It is ironical that they have to run from pillar to post to obtain relief and in many cases, the relief is not available and such taxpayers have to pay huge amounts of money in terms of interest and penalties. There are innumerable instances of time bar matters, be it refund or filing of return or appeals. It would be spectacularly unreasonable to allow correction of errors in one set of matters and penalize in the other. A benevolent approach will go a long way in making ease of business for taxpayers too.
Lastly, though amendments ex post facto is not bar under the law of land, but there is no harm in drawing parallel with the European Convention on such tax matters which appears to affirm that that there has to be fair balance while introducing retrospective legislations – “Though retrospective tax legislation is not, per se, a breach of the Convention. However, any such legislation is subject to scrutiny to ensure that there must be good reasons for the government concerned introducing retrospective legislation, and those reasons must respect a fair balance between the interest of the taxpayer and the general interest of the community. The legislation must also not be disproportionate in the sense of imposing an excessive burden on the taxpayers to whom the legislation applies. It can be said that where there has been an obvious and justified tax avoidance case, it may not be possible to challenge on grounds that it is unjustified. However, in the cases in which the taxpayer purely had initiated action (before change in the law) without any malafide intention or anything contrary to the law, such action has to be regarded as an unreasonable interference.”
Nonetheless, the larger question that remains to be resolved now is what will happen in those cases where ITC was availed against any goods which were found to satisfy the criteria of ‘Plant’? Are we in for another major litigations in the very near future involving hundreds of crores of ITC?
Vinod Bhagwati Yadav
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