Goods and services tax (GST) collected, by the Union Government in any State, on any supply of goods or services or both, does not become part of Consolidated Fund of India. Goods and services tax, collected in a State by the Union Government under the law made by the Parliament in exercise of its powers under clause (1) of Article 246A of the Constitution, is to be shared in accordance with provisions of Article 270 of the Constitution with the State in which it is collected. Goods and services tax, collected in a State by the Union Government under the law made by the Parliament, in exercise of its powers under clause (2) of Article 246A and Article 269A of the Constitution, is first to be apportioned in between the Union and the States in accordance with the manner as may be provided by law by the Parliament, and thereafter, amount of tax apportioned to the Union is to be shared with the State in which it is collected in accordance with provisions of Article 270 of the Constitution.
Conjoint reading of clause (2) of Article 246A and clause (1) of Article 269A of the Constitution reveals that in respect of two supplies viz. (i) supply of goods or services or both which takes place in the course of inter-State trade or commerce, and (ii) supply of goods or services or both which takes in the course of import into the territory of India, the Parliament can make law to provide─
(a) levy and collection of goods and services tax on such supplies of goods or services or both; and
(b) the manner in which goods and services tax, collected by the Union Government on such supplies of goods or services or both, shall be apportioned in between the Union and the States.
Barring these two supplies, in respect of all other supplies of goods or services or both, the Parliament can make law to provide levy and collection of goods and services tax, in exercise of its powers under clause (1) of Article 246A of the Constitution. Clause (1) of Article 246A does not give power to the Parliament for providing manner for apportionment of goods and services tax collected on such other supplies of goods or services or both. Goods and services tax, collected in any State under law(s) made by the Parliament in exercise of its powers under clause (1) Article 246A, is to be shared with such State in the manner provided in Article 270 of the Constitution.
Article 270 of the Constitution of India, referred to in the earlier paragraph, run as follows:–
“270. Taxes levied and distributed between the Union and the States.—
(1) All taxes and duties referred to in the Union list, except the duties and taxes referred to in articles 268, 269 and article 269A, respectively, surcharge on taxes and duties referred to in article 271 and any cess levied for specific purposes under any law made by Parliament shall be levied and collected by the Government of India and shall be distributed between the Union and the States in the manner provided in clause (2).
(1A) The tax collected by the Union under clause (1) of article 246A shall also be distributed between the Union and the States in the manner provided in clause (2).
(1B) The tax levied and collected by the Union under clause (2) of article 246A and article 269A, which has been used for payment of the tax levied by the Union under clause (1) of article 246A, and the amount apportioned to the Union under clause (1) of article 269A, shall also be distributed between the Union and the States in the manner provided in clause (2).
(2) Such percentage, as may be prescribed, of the net proceeds of any such tax or duty in any financial year shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax or duty is leviable in that year, and shall be distributed among those States in such manner and from such time as may be prescribed in the manner provided in clause (3).
(3) In this article, “prescribed” means, — (i) until a Finance Commission has been constituted, prescribed by the President by order, and (ii) after a Finance Commission has been constituted, prescribed by the President by order after considering the recommendations of the Finance Commission.”
In addition to Article 270 of the Constitution, I will also refer to Article 246A and Article 269A of the Constitution in this article. For ready reference these Articles of the Constitution are being quoted hereunder as follows:–
Article 246A
“Special provision with respect to goods and services tax
246A. (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.
(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.
Explanation.—The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council.”
Article 269A.
“Levy and collection of goods and services tax in course of inter-State trade or commerce
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.
(2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India.
(3) Where an amount collected as tax levied under clause (1) has been used for payment of the tax levied by a State under article 246A, such amount shall not form part of the Consolidated Fund of India.
(4) Where an amount collected as tax levied by a State under article 246A has been used for payment of the tax levied under clause (1), such amount shall not form part of the Consolidated Fund of the State.
(5) Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.”
The Parliament, under clause (2) of Article 246A and Article 269A of the Constitution has made the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as the IGST Act). The said Act provides for levy and collection of integrated tax on all inter-State supplies of goods or services or both, except inter-State supply of goods which have been kept outside the goods and services tax. The IGST Act also provides law for apportionment of integrated tax in between the Union and the States. Section 7 of the IGST Act relates to “Inter-State Supply”. Sub-sections (1) to (4) of section 7 of the IGST Act are related to two supplies of goods or services or both in respect of which law can be made under clause (2) of Article 246A and Article 269A. These supplies are, ─
(i) supply of goods or services or both which takes place in the course of inter-State trade or commerce; and
(ii) supply of goods or services or both which takes place in the course of import into the territory of India.
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; or
(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.”
If we look at sub-section (5) of above quoted section 7 of the IGST Act, we find that ─
(i) supply of goods or services or both referred to in clause (a) of sub-section (5) of the IGST Act is an export supply of goods or services or both;
(ii) supply of goods or services or both made to or by Special Economic Zone developer or Special Economic unit may, depending on location of supplier and place of supply, be –
(a) a supply which takes place in the course of inter-State trade or commerce; or
(b) a supply which takes place in the course of import into the territory of India; or
(c) a supply which takes place in the course of export of goods or services or both out of the territory of India; or
(d) a supply in respect of which supplier and place of supply, both are located within the same State or same Union Territory.
(iii) supply referred to in clause (c) of sub-section (5) of section 7 of the IGST Act takes place in India but is not included in intra-State supply or in any other provision of section 7 of the IGST Act.
Here is noteworthy that supply referred to in sub-clause (a) of clause (ii) of the foregoing paragraph is already covered in sub-sections (1) and (3) of section 7 of the IGST Act, and supply referred to in sub-clause (b) of clause (ii) of the foregoing paragraph is already covered in sub-sections (2) and (4) of section 7 of the IGST Act. Supply referred to in sub-clause (c) of clause (ii) of foregoing paragraph is already covered in clause (i) of foregoing paragraph. Repetition of certain supplies of goods or services or both in clause (b) of sub-section (5) of section 7 of the IGST Act is a drafting error. Certain supplies have wrongly been classified in two different categories. If we remove such supplies from sub-section (5) of section 7 of the IGST Act, sub-section (5) of section 7 of the IGST Act will read as follows:–
(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 where the location of the supplier and the place of supply are in the same State or same Union territory; or
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section including clauses (a) and (b) of this sub-section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.
Sub-section (5) of section 7 of the IGST Act, after deletion of repeated supplies, will refer to supplies which do not fall under the category of supplies in respect of law can be made by the Parliament under clause (2) of Article 246A and Article 269A of the Constitution. Supplies of goods or services or both which will remain in the said sub-section (5) after deleting repeated supplies, will not fall in the category of supplies in respect of which law can be made by the Parliament in exercise law making powers under clause (2) of Article 246A and Article 269A of the Constitution. The Parliament can exercise goods and service tax law making powers provided under clause (1) of Article 246A of the Constitution. Such power does not include law making power of providing the manner in which goods and services tax collected on these supplies shall be apportioned in between the Union and the States.
I do not say that in respect of supplies of goods or services or both, in respect of which the Parliament can make law in exercise of its powers under clause (1) of Article 246A, it cannot make law in the statute book in which law is enacted in respect of the supplies in respect of which the Parliament can make law in exercise of its powers under clause (2) of Article 246A and Article 269A of the Constitution. But while doing so the Parliament cannot exceed its powers provided in clause (1) of Article 246A, read with Article 270 of the Constitution. It can make law for levy and collection of goods and services tax, but it cannot make law for apportionment, of tax collected on such supplies, in between the Union and the States.
Long Title of the IGST Act.
The Long Title of the Integrated Goods and Services Tax Act, 2017 runs as follows:–
“An Act to make a provision for levy and collection of tax on inter-State supply of goods or services or both by the Central Government and for matters connected therewith or incidental thereto.”
The Long Title as quoted above is too short. The stature book of the Integrated Goods and Services Tax Act, 2017 also makes law to provide ─
(i) manner in which goods and services tax collected on inter-State supply of goods or services or both shall be apportioned in between the Union and the States;
(ii) nature of supply;
(iii) the principles for determining the place of supply;
(iv) Zero rating of certain supplies of goods or services or both;
Even after including these provisions, Long Title will not be complete. The long title is used to describe the contents of the Act. There is no limit of length for Long Title. It may run even in several pages, if required. Long Title is treated part of the Act.
Chapter IV of the IGST Act relates to “Determination of Nature of Supply”. Section 7 of the said Chapter is related to “Inter-State supply” and Section 8 of the said Chapter is related to “Intra-State Supply”.
If from sub-section (5) of 7 of the IGST Act, we remove supplies of goods or services or both which are also included in some other sub-sections of section 7 of IGST Act, sub-section (5) will take the shape as below:–
(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 where the location of the supplier and the place of supply are in the same State or same Union territory; or
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section including this sub-section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.
For convenience, for the suggested sub-section (5) as above, we can use words “reduced sub-section (5)”. We have seen that supplies of goods or services or both referred to in clauses (a), (b) and (c) of reduced sub-section (5) of section 7 of the IGST Act are not the supplies which take place in between two States or two Union Territories, or in between a State and a Union Territory, and therefore, supplies referred to in all three said clauses of sub-section (5) of section 7 are not of inter-State nature in true sense. Similarly, supplies of goods or services or both referred to in clauses (a), (b) and (c) of reduced sub-section (5) of section 7 of the IGST Act are not the supplies which take place in the course of import into the territory of India. Therefore, in respect of supplies referred to in reduced sub-section (5) of section 7, the Parliament cannot make goods and services tax law in exercise of its powers under clause (2) of Article 246A and Article 269 of the Constitution. The Parliament can make goods and services tax law, in respect of these supplies, in exercise of its powers under clause (1) of Article 246A of the Constitution. But sub-section (5) of section 7 provides that such supplies shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.
Creation of fiction in sub-section (5) of section 7 of the IGST Act.
Section 7 of the IGST Act has five sub-sections. Sub-sections (1) and (3) of the said section 7, relate to supply of goods and supply of services, respectively, where such supply of goods or services takes place in between two States or two Union Territories, or in between a State and a Union Territory. In respect of supplies of goods or services, referred to in sub-sections (1) and (3), provision has been made that such supplies shall be treated as supply of goods or services or both in the course of inter-State trade or commerce. Sub-sections (2) and (4) of the said section 7, relate to supply of goods and supply of services, respectively, where such supply of goods or services takes place in the course of import into the territory of India. In respect of supplies of goods or services or both, referred to in sub-sections (2) and (4), provision has been made that such supplies shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce. In respect of supplies of goods or services or both mentioned in clauses (a), (b) and (c) of sub-section 5 of section 7 of the IGST Act, provision has been made that such supplies of goods or services or both shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce. One can notice the difference in between the expression “shall be treated as” and the expression “shall be treated to be”.
Clause (1) of Article 269A of the Constitution, with its explanation, 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.”
Here we see that the Constitution, for the purposes specified in clause (1) of Article 269A, creates fiction of treating a supply of goods or services or both in the course of import into the territory of India as supply of goods or services or both in the course of inter-State trade or commerce. In the Explanation, words “shall be deemed to be” have been used. If we look at sub-sections (2) and (4) of section 7 of the IGST Act, we find that in order to include supply of goods or services or both in the course of import into the territory of India in a supply of goods or services or both in the course of inter-State trade or commerce (inter-State supply), words “shall be treated to be” have been used in sub-section (2) and sub-section (4) of section 7 of the IGST Act. The Parliament has used same words in sub-section (5) of the same section 7 of the IGST Act. Therefore, we can safely infer that in sub-section (5) of section 7 of the IGST Act, words “shall be treated to be” have been used for creating fiction.
Fiction created without specifying purposes
Sub-section (5) of section 7 of the IGST Act provides that supplies of goods or services or both, mentioned or described in clauses (a), (b) and (c) of the said sub-section (5), shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce. Here fiction has been created without specifying the purpose(s). We can say that fiction has been created for all purposes of the IGST Act, including apportionment of integrated tax collected on supplies of goods or services or both mentioned in sub-section (5) of section 7 of the IGST Act.
Levy and Collection of Tax under IGST Act.
Clause (12) of section 2 of the IGST Act defines the expression “integrated tax” as follows:–
“(12) “integrated tax” means the integrated goods and services tax levied under this Act;”
Section 5 of the IGST Act provides for levy and collection of integrated goods and services tax on all inter-State supplies of goods or services or both, except inter-State supply of alcoholic liquor for human consumption, petroleum crude, high speed diesel oil, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel. The said section 5 of the IGST Act runs as follows:–
“ 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.
(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both.
(5) The Government may, on the recommendations of the Council, by notification, specify categories of services, the tax on inter-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:
Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax.”
A conjoint reading of clause (12) of section 2 of the IGST Act and section 5 of the IGST Act reveals that sub-section (1) of section 5 of the IGST Act provides levy and collection of integrated tax on “inter-State supply of goods or services or both” except on inter-State supply of non-GST goods.
Section 17 of the IGST Act relates to apportionment of integrated tax in between the Union and the States. The said section 17 of the IGST runs as follows:–
“Apportionment of tax and settlement of funds.
17. (1) Out of the integrated tax paid to the Central Government,—
(a) in respect of inter-State supply of goods or services or both to an unregistered person or to a registered person paying tax under section 10 of the Central Goods and Services Tax Act;
(b) in respect of inter-State supply of goods or services or both where the registered person is not eligible for input tax credit;
(c) in respect of inter-State supply of goods or services or both made in a financial year to a registered person, where he does not avail of the input tax credit within the specified period and thus remains in the integrated tax account after expiry of the due date for furnishing of annual return for such year in which the supply was made;
(d) in respect of import of goods or services or both by an unregistered person or by a registered person paying tax under section 10 of the Central Goods and Services Tax Act;
(e) in respect of import of goods or services or both where the registered person is not eligible for input tax credit;
(f) in respect of import of goods or services or both made in a financial year by a registered person, where he does not avail of the said credit within the specified period and thus remains in the integrated tax account after expiry of the due date for furnishing of annual return for such year in which the supply was received,
the amount of tax calculated at the rate equivalent to the central tax on similar intra-State supply shall be apportioned to the Central Government.
(2) The balance amount of integrated tax remaining in the integrated tax account in respect of the supply for which an apportionment to the Central Government has been done under sub-section (1) shall be apportioned to the,—
(a) State where such supply takes place; and
(b) Central Government where such supply takes place in a Union territory:
Provided that where the place of such supply made by any taxable person cannot be determined separately, the said balance amount shall be apportioned to,—
(a) each of the States; and
(b) Central Government in relation to Union territories,
in proportion to the total supplies made by such taxable person to each of such States or Union territories, as the case may be, in a financial year:
Provided further that where the taxable person making such supplies is not identifiable, the said balance amount shall be apportioned to all States and the Central Government in proportion to the amount collected as State tax or, as the case may be, Union territory tax, by the respective State or, as the case may be, by the Central Government during the immediately preceding financial year.
(3) The provisions of sub-sections (1) and (2) relating to apportionment of integrated tax shall, mutatis mutandis, apply to the apportionment of interest, penalty and compounding amount realised in connection with the tax so apportioned.
(4) Where an amount has been apportioned to the Central Government or a State Government under sub-section (1) or sub-section (2) or sub-section (3), the amount collected as integrated tax shall stand reduced by an amount equal
to the amount so apportioned and the Central Government shall transfer to the central tax account or Union territory tax account, an amount equal to the respective amounts apportioned to the Central Government and shall transfer to the State tax account of the respective States an amount equal to the amount apportioned to that State, in such manner and within such time as may be prescribed.
(5) Any integrated tax apportioned to a State or, as the case may be, to the Central Government on account of a Union territory, if subsequently found to be refundable to any person and refunded to such person, shall be reduced from the amount to be apportioned under this section, to such State, or Central Government on account of such Union territory, in such manner and within such time as may be prescribed.”
The above quoted section 17 of the IGST Act provides the manner in which integrated tax, collected by the Union, shall be apportioned in between the Union and the States. If we look at sub-section (1) of section 17 of the IGST Act, we find that clauses (a), (b) and (c) relate to apportionment of integrated tax collected on “inter-State supply of goods or services or both”. Clauses (d), (e) and (f) of sub-section (1) of section 17 of the IGST Act relate to integrated tax collected on import of goods or services or both. According to sub-sections (2) and (4) of section 7 of the IGST Act, import supply of goods or services or both is also an “inter-State supply of goods or services or both”. Manner of apportionment of integrated tax collected on import of goods or services or both is different from manner of apportionment of integrated tax collected on other inter-State supplies of goods or services or both. This is because clauses (a), (b) and (c) of sub-section (1) of section 17 of the IGST Act relate to outward inter-State supplies of goods or services or both made by a person and clauses (d), (e) and (f) relate to inward supplies received by a person. For these reasons manner for apportionment of integrated tax collected on import supply of goods or services or both has been provided in separate clauses (d), (e) and (f) of sub-section (1) of section 17 of the IGST Act.
In clause (a) to (c) of sub-section (1) of section 17 of the IGST Act, expression “inter-State supply of goods or services or both” has been used. It is the same expression which has been used in section 5 (tax levy and collection provision) of the IGST Act. Section 5 of the IGST Act provides levy and collection of integrated tax. This indicates that section 17 also provides apportionment of integrated tax collected on supplies referred to in reduced sub-section (5) of section 7 of the IGST Act. Such provision is beyond the scope of law making powers of the Parliament as provided in Article 269A of the Constitution. But at the same time, clause (b) of existing sub-section (5) of section 7 of the IGST Act also includes certain supplies of goods or services or both which take place either in the course of inter-State trade or commerce or in the course import into the territory of India. Integrated tax collected on such supplies requires apportionment of such tax in between the Union and the States. For this reason also it cannot be said that provision related to apportionment is not required in respect of all supplies of goods or services or both mentioned in existing sub-section (5) of section 7 of the IGST Act.
Another important aspect is that tax on supplies of goods or services or both, referred to in reduced sub-section (5) of section 7, can be levied under a law enacted by the Parliament in exercise of its powers under clause (1) of Article 246A of the Constitution. Under clause (1) of Article 246A, the Parliament is not empowered for making law to provide the manner for apportionment of goods and services tax, collected on supplies of goods or services or both, in respect of which law can be made under such provision of the Constitution. Goods and services tax collected by the Union in a State under the laws made under clause (1) of Article 246A is to be distributed in between the Union and such State, in accordance with provisions of clause (1A) of Article 270 of the Constitution.
To reiterate, I would say that the Parliament can make goods and services tax law in exercise of its powers under clause (1) of Article 246A in the same statute book in which it makes law in exercise of its powers under clause (2) of Article 246A and Article 269A of the Constitution. But while doing so, in my personal opinion, the Parliament cannot exceed its powers under clause (1) of Article 246A. Clause (1) of Article 246A does not give power of making law to provide for apportionment of goods and services tax collected on supplies of goods or services or both in respect of which it can make law under clause (1) of Article 246A.
From the facts mentioned hereinabove, inference can be drawn that section 17 of the IGST Act also provides the manner of apportionment of tax collected on all inter-State supplies of goods or services or both which are described or mentioned in existing sub-section (5) of section 7 of the IGST Act. Since sub-section (5) of section 7 also includes certain supplies of goods or services or both which do not take place in the course of inter-State trade or commerce, or in the course of import into the territory of India, therefore, in view of provisions of clause (1) of Article 269A, provision of apportionment of integrated tax collected on such supplies cannot be applied. I have mentioned such supplies in reduced sub-section (5) of section 7 of the IGST Act.
Article 246A (2) provides that the Parliament shall have 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. Article 269A relates to 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. Clause (1) of Article 269A gives powers to the Parliament to make law to provide –
(i) levy and collection of tax on supply of goods or services or both where such supply takes place in the course of inter-State trade or commerce; and
(ii) the manner in which tax collected, on supply of goods or services or both in the course of inter-State trade or commerce, shall be apportioned in between the Union and the States.
Explanation of clause (1) of Article 269A creates a fiction for the purposes referred to in clauses (i) and (ii) of the foregoing paragraph. Fiction provides that 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. Therefore, the Parliament, in exercise of its powers under clause (1) of Article 269A, read with its explanation, can make law to provide-
(i) levy and collection of tax on supply of goods or services or both where such supply takes place, in the course of inter-State trade or commerce, or in the course of import into the territory of India; and
(ii) the manner in which tax collected, on supply of goods or services or both in the course of inter-State trade or commerce, or in the course of import into the territory of India, shall be apportioned in between the Union and the States.
Other law making powers of the Parliament, in relation to levy and collection of goods and services tax on any supply of goods or services or both, except where such supply of goods or services or both which takes place in the course of inter-State trade or commerce, and a supply of goods or services or both which takes place in the course of import into the territory of India, are contained in clause (1) of Article 246A of the Constitution. The said provision runs as follows:–
“246A. (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.”
Clauses (1A) and (1B) of Article 270 refer to two types of amounts of goods and services tax as follows:–
(i) clause (1A) refers to amount of tax collected by the Union under clause (1) of article 246A; and
(ii) clause (1B) refers to the amount of tax apportioned to the Union out of the tax levied and collected by the Union under clause (2) of article 246A and article 269A. (emphasis supplied by me)
Amount of tax referred to in clause (1B) of Article 270 is the amount of tax apportioned to the Union out of the amount of tax that has been collected on supply of goods or services or both which takes place, in the course of inter-State trade or commerce, or in the course of import into the territory of India. Clause (1) of Article 269A provides that tax collected on such supplies of goods or services or both shall be apportioned in between the Union and the States in the manner provided in the law as may be made by the Parliament. Barring these two supplies, in respect of any other supply of goods or services or both (which inter alia includes supply of goods or services or both in the course of export of goods or services or both out of the territory of India), the Parliament can make law only for levy and collection of goods and services tax under clause (1) of Article 246A.Clause (1) of Article 246A does not give power to the Parliament to make law to provide manner in which tax collected shall be apportioned in between the Union and the States.
In view of the discussion above, in my opinion there are anomalies in sections 7 and 17 of the IGST Act. In order to remove such anomalies, I would like to suggest as follows:–
Existing sub-section (5) of section 7 of the IGST Act requires two changes, viz. ─
(i) removal of supplies of goods or services or both which are already covered in sub-sections (1), (2), (3) or (4) of section 7, and clause
(a) of sub-section (5) of section 7, of the IGST Act; and
(ii) amendment of clause “shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce”, in order to specify the purposes of creating fiction and to make the fiction legally valid. Amended clause may run as “shall, for the purpose of levy and collection of integrated tax, be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.
In my opinion, after incorporating suggested changes, sub-section (5) of section 7 of the IGST Act should look as provided below:–
(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, where location of the supplier and the place of supply are in the same State or same Union territory; or
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section including this sub-section,
shall, for the purpose of levy and collection of integrated tax, be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.
2. In sub-section (1) of section 17 of the IGST Act, opening clause “Out of the integrated tax paid to the Central Government,” clauses “Out of the integrated tax paid to the Central Government, except the integrated tax paid on supplies of goods or services or both included in sub-section (5) of section 7,” shall be substituted.
3. In clauses (a), (b) and (c) of sub-section (1) of section 17, in place of words “inter-State supply of goods or services or both”, words “inter-State supply of goods or services or both, except a supply of goods or services or both” shall be substituted.
4. sub-sections (1) and (2) of section 17 of the IGST Act should also cover a case in which a recipient of a supply of goods or services or both wrongly claims or is found to have wrongly claimed benefit of input tax credit of any amount and latter he makes payment of such amount of input tax credit or any part of it.
5. For the purpose of clause (1A) of Article 270, it is required that net proceeds of integrated tax collected on supplies included in sub-section (5) of section 7 of the IGST Act, and amounts of interest, penalty and compounding collected in relation to such supplies in any State or in a Union Territory, should be transferred to the central tax account of such State or the Union Territory Tax account of the Union Territory, as the case may be, in which such proceeds have been collected. For this purpose, new section may be added in the IGST Act, after section 17 of the said Act.
In my personal opinion, as in case of supply of goods or services in the course of international trade or commerce, goods or services move from one country to another, so in the case of supply of goods or services or both, goods move from one State to another State, or from one Union Territory to another Union Territory, or from a State to Union Territory or vice-versa. I mean to say that movement of goods or services is indispensible feature in inter-State trade or commerce. In reference to “sale of goods in the course of inter-State trade or commerce, the Law Commission has expressed this view and on the basis of the view, expressed by the Commission, section 3 of the Central Sales Tax Act, 1956 was enacted.
I am also of the view that exclusion of supply of goods or services or both where location of supplier and the place of supply are in the same State or same Union Territory, from “Intra-State supply”, in section 8 of the IGST Act and inclusion of such supply in clause (b) of sub-section (5) of section 7 does not seem to be justified, because, States lose part of their revenue.
Clause (1) of Article 286 of the Constitution runs as follows:–
“(1) 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; or
(b) in the course of the import of the 3[goods or services or both] into, or export of the 3[goods or services or both]out of, the territory of India.”
Here, following things are noteworthy.
(i) Clause (1) prohibits States from levying tax on supplies of goods or services or both where such supply takes place in any of the ways mentioned in clause (a) or clause (b) of the said clause.
(ii) In respect of an export supply of goods or services or both, or export of goods or services or both, in sub-clause (b) of the said clause (1), words “supply of goods or services or both in the course of export of the goods or services or both out of the territory of India” have been used.
(iii) In respect of import supply of goods or services or both, words “supply of goods or services or both in the course of import into the territory of India” have been used. Expressions used in sub-clause (b) of clause (1) of Article 286 of the Constitution have specific meaning. Words “export of goods or services or both out of India” used in sub-clause (b) of clause (1) mean that goods or services should be exported from within the territory of India.
(iv) Words “import of goods or services or both into the territory of India”, used in sub-clause (b) of clause (1), refer to receipt of goods or services or both into the territory of India from any place outside India.
(v) Words “in the course of” used in clause (1)(b) are of immense importance. They show relation in between the event of “supply of goods or services or both”, and event of “import of goods or services or both into the territory of India”, or event of “export of goods or services or both out of the territory of India”.
In my opinion, prohibition provided in clause (1) (a) of Article 286A of the Constitution does not mean that sub-clause (a) of clause (1) of Article 286 gives powers to States to make law to provide levy and collection of tax on intra-State supply of goods or services or both. States get their law making powers from clause (1) of Article 246A. Such law making powers are subject to clause (2) of Article 246A and clause (1) of Article 286, of the Constitution. My opinion is that for referring to an export supply, in clause (a) of sub-section (5) of section 7, and clause (a) of sub-section (1) of section 16, of the Integrated Goods and Services Tax Act, 2017, expression “supply of goods or services or both in the course of export of goods or services or both out of the territory of India” or “supply of goods or services or both in the course of export of goods or services or both out of India” should have been used. Every word used in a law counts.
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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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