A. BRIEF BACKGROUND OF AMENDMENTS
1. Section 2(114) of the Central Goods and Services Tax Act, 2017 before amendment made under Article 240 of the Constitution read as under;
“Union territory” means the territory of—
(a) the Andaman and Nicobar Islands;
(b) Lakshadweep;
(c) Dadra and Nagar Haveli;
(d) Daman and Diu;
(e) Chandigarh; and
(f) other territory.
Explanation.––For the purposes of this Act, each of the territories specified in sub-clauses (a) to (f) shall be considered to be a separate Union territory;
2. Under Article 240 of the Constitution the Union Territory of Dadra and Nagar Haveli and Daman and Diu Goods and Services Tax (Amendment) Regulation, 2020 and The Union Territory of Dadra and Nagar Haveli and Daman and Diu Central Goods and Services Tax (Amendment) Regulation, 2020 was issued in The Gazette of India dated 24th January, 2020 to amend Section 2(114) of the Central Goods and Services Tax Act, 2017 and Section 2(8) of the UTGST Act, 2017 w.e.f. 26th January, 2020 as under,
(a) in sub-clause (c), after the words “Nagar Haveli”, the words “and Daman and Diu” shall be inserted;
(b) sub-clause (d) shall be omitted.
3. The Defination of ‘Union Territory’ under Section 2(114) of the CGST Act, 2017 has been proposed to be amended by Section 118 of The Finance Act, 2020, as per which for sub-clauses (c) and (d), the following sub-clauses shall be substituted, namely:—
“(c) Dadra and Nagar Haveli and Daman and Diu;
(d) Ladakh;”
As per Section 1(2)(b) of the Finance Act, 2020, Section 118 of the Finance Act, 2020 shall come into force on such date as the Central Government may by notification in the Official Gazette, appoint. Notification No. 49/2020 Central Tax dated 24th June, 2020 has been issued as per which provisions of Section 118 of Finance Act, 2020 shall come into force from 30th June, 2020.
4. The Defination of ‘Union Territory’ under Section 2 (8) of the UTGST Act, 2017 has been further proposed to be amended by Section 137 of The Finance Act, 2020, as per which for sub-clauses (iii) and (iv), the following sub-clauses shall be substituted, namely:—
“(iii) Dadra and Nagar Haveli and Daman and Diu;
(iv) Ladakh;”
It is not mentioned in Section 1(2) of the Finance Act, 2020 when Section 137 of the Finance Act, 2020 shall come into force.
5. In the above background, the Author is presenting his views on the following ;
a) Whether the President has powers under Article 240 to make amendment to the CGST Act, 2017 and UTGST Act, 2017 ?
b) Errors in Notification 10/2020-Central Tax dated 21st March, 2020 ?
c) Hardships being faced by the taxpayers.
d) Corrective Actions and Clarifications Required.
B. ARTICLE 240 OF THE CONSTITUTION OF INDIA
1. Article 240 of the Constitution gives right to the President for making Regulations for the Union Territories specified in the Schedule.
2. Article 240 of the Constitution is reproduced as under;
(1) The President may make regulations for the peace, progress and good government of the Union territory of— (a) the Andaman and Nicobar Islands; (b) Lakshadweep (c) Dadra and Nagar Haveli; (d) Daman and Diu; (e) Puducherry; Provided that when any body is created under Article 239A to function as a Legislature for the Union territory of Puducherry, the President shall not make any regulation for the peace, progress and good government of that Union territory with effect from the date appointed for the first meeting of the Legislature:]
[Provided further that whenever the body functioning as a Legislature for the Union territory of 1 [Puducherry] is dissolved, or the functioning of that body as such Legislature remains suspended on account of any action taken under any such law as is referred to in clause (1) of article 239A, the President may, during the period of such dissolution or suspension, make regulations for the peace, progress and good government of that Union territory.]
(2) Any regulation so made may repeal or amend any Act made by Parliament or any other law which is for the time being applicable to the Union territory and, when promulgated by the President, shall have the same force and effect as an Act of Parliament which applies to that territory.
3. The Rights given under the Article 240(1) are for issue of Regulation for reason of peace, progress and good government.
4. Acts and Regulations are quite different and it can be confusing as they often have similar titles and obviously deal with the same subject. However lets understand the finer aspects of difference between Act and Regulation.
An Act sets out the legal principles of the subject matter and is primary legislation that describes the applicability, definitions, governing provisions, fines and the way it is to be implemented. An Act is passed by both the Houses of the Parliament It will be approved by the President to become a law and then it is termed as Act. Act can only be amended by another Act of Parliament.
Regulations are always secondary legislation and commonly known as “subsidiary legislation” in the sense they don’t have an independent existence of their own. Most of the laws are not complete code in themselves i.e. certain provisions as to their application or procedure will be deliberately left out. That is where Regulations come into picture and help to govern the law. Hence Regulation is required to fine tune the operational aspects of the primary legislation and are guidelines that dictate how the provisions of the Act are to be applied. Regulations are made to make the parent Act work. However Regulations have to be within in the authority of the primary legislation and by no means can go beyond the power conferred by the Act, or extend the same.
5. In the English version of constitution, the conditions that have been prescribed for issue of Regulation under Article 240 are Peace, Progress and Good Government. Peace and Progress are commonly used words and the meaning of those terms is very well known in public domain. The Regulation currently issued for amending the definition of Union Territory under Article 240 does not mention any reason for which it has been issued, thereby providing that the basic conditions prescribed under Article 240 does not gets satisfied. The meaning of the term ‘Good Government’ is not available in the constitution and even the general meaning is not available. Hence, I referred the constitution in Hindi. In Hindi the term Good Government is defined as ‘Sushashan’. I referred the dictionary meaning of ‘Sushashan’, which means ‘Governance’.
The word “Governance” came from the Latin verb “gubernare” or more originally from the Greek word “kubernaein” which means “to steer.” Based on the study of origin of words and the way in which its meanings has changed over a period of time, governance refers to the manner of steering or governing or directing and controlling a group of people or a state. Governance is generally attached to the concept of democracy on how the government and the civil society arrive at a decision in meeting their needs. Hence the intention of Governance in Article 240 has more to do with the Public Administration and not with the amendment in tax laws.
Hence it can very well be concluded that the Regulation for amendment of CGST Act and UTGST Act is not required for Peace, Progress & Good Government.
6. As per Clause (2) of Article 246A of the Constitution;
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.
Now as a corollary the Parliament itself has the rights to make laws for reversal of transactions which would not fall under the inter-state trade or commerce. The President cannot issue a Regulation which takes away the legislature making powers of the Parliament.
The amendment under the CGST Act and UTGST Act which has been issued under Article 240 is overruling the exclusive legislative making powers of the parliament given under Article 246A of Constitution.
7. Based on above analysis and with due respect to the highest Chair of the Country, the Author is of the view that Article 240 does not gives a right to the President to issue Regulation for amendment of CGST and UTGST Act. Article 240 does not have an overriding powers for issue of Regulation amending the CGST Act & UTGST Act as such powers are not given under the Constitution (One Hundred and First Amendment) Act, 2016.
8. The CGST Act, 2017 & IGST Act, 2017 are applicable to the whole of India & the individual States & Union Territories cannot have a different provision in the same Act at the same time. The President has powers under Article 240 to make regulation only relating to the Union Territory. It cannot make Regulation amending an Act which is applicable to the whole of India since the powers are not given to make such amendment under Article 240 of the Constitution.
9. The belief of Author for Notification dated 24th January, 2020 under Article 240 being unconstitutional, becomes more stronger because amendments to the definitions of Union Territory have again been proposed in Section 118, Section 136 and Section 137 of the Finance Act, 2020. Though the Amendments are yet to be made effective.
10. An issue therefore arises that, if the Regulations issued under Article 240 of the Constitution were valid, what was the requirement to again propose amendment in the Finance Act, 2020, as the amendment under Article 240 was already effective.
C. ERRORS IN NOTIFICATION NO. 10/2020 – CENTRAL TAX DATED 21st MARCH, 2020
1. The name of New Union Territory proposed in the Notification dated 24th January, 2020 is ‘Dadra and Nagar Haveli and Daman and Diu’, whereas in the Notification No. 10/2020 the name of Union Territory is mentioned as ‘Daman and Diu and Dadra and Nagar Haveli’. Hence there is a divergence in the name of Union Territory.
2. The effective date of merger of Union territory of Daman and Diu with Dadra and Nagar Haveli in the Notification dated 24th January, 2020 is 26th January, 2020, whereas in the first para of the above referred Notification effective date is 27th day of January, 2020 and in point (i) of above referred Notification the effective date for the new tax period has been mentioned as 26th February, 2020. Hence there is a divergence in the effective date of merger.
3. In Point (iii) of the Notification the cutoff date has been mentioned as 25th January, 2019, which is in divergence to the tax period mentioned in point (i) of the Notification.
4. Hence a single Notification has different effective dates of merger of union territory. In such circumstances which date has to be followed by the Assessee needs to be clarified.
5. Further, the Notification has been issued after the due date of filing of the GSTR-1 and GSTR-3B and in many cases the Returns were already filed by the Assessee. Now there is no scope for amendment of such returns which are already filed before the issue of Notification.
D. DIFFICULTIES BEING FACED BY THE TAX PAYERS
To my knowledge the following difficulties are being faced;
1. Analyzing the transaction of supply between the UT of Daman and Diu and UT of Dadra and Nagar Haveli as Interstate transaction or Intrastate transaction ?
2. Treatment of Tax liability to be discharge under which head ?
3. TDS to be deducted and deposited under which head for the transaction of supply between the UT of Daman and Diu and UT of Dadra and Nagar Haveli ?
4. Whether New Registration is to be taken by the Dealers Registered in the erstwhile UT of Daman and Diu or by Dealers Registered in the erstwhile UT of Dadra and Nagar Haveli or both ?
5. The tax period mention in point (i) of Notification No. 10/2020 has been issued on 21st March, 2020, the date on which nation wide lockdown was imposed and the relevant returns were filed prior to the issue of Notification leaving no scope for making changes. Hence the compliance of tax period would be practically difficult/ impossible in majority of the cases.
There may be some additional hardships which may be faced by the Taxpayers.
E. CLARIFICATIONS REQUIRED
To my knowledge following clarifications are required;
1. Auto migration of existing registrations based on a future cutoff date may be made applicable directly through the GSTIN to avoid formalities of making application for new registration and auto carry-forward of input tax credit to avoid hassles of transition procedure.
2. Clarification may be issued stating that from 26th January, 2020 if tax has been paid treating the transaction between the Union Territories as Interstate or Intrastate both would be correct and no tax would be required to be paid again.
3. The Input Tax Credit claimed by the Recipient under both the circumstances i.e. treating the transaction between the Union Territories as Interstate or Intrastate would be correct and the ITC will not be required to be reversed.
4. The pending refund applications of the old Registrations can be filed in new Registration in view of the transfer of closing balance of ITC to the new Registration.
5. Procedure to be followed by taxpayer who are having GST Registration in both the Union Territory i.e. UT of Daman and Diu and also in UT of Dadra and Nagar Haveli and do not wish to obtain new Registration.
There may be some additional points where clarification may be required.
F. CONCLUSION
In view of the above issues, since the Union Territory is administered by the Central Government and the revenue generated are also under the administrative control of the Central Government the Author makes a humble submission for implementation of smooth transition plan by issue of fresh notifications/circulars/guidelines for safeguarding the acts and things done by the taxpayer in good faith.
Author Bio
I am happy to know that you have knowledge of Constitution also. It’s rarely seen that CA or CS possess knowledge of Constitution. They are well equipped with Taxation and Commercial Laws but as I have seen they do lack knowledge of Constitution. I am impressed with your article. It has inspired me to get knowledge about Constitution. Thank you for such a in-depth analysis!!!