The short post today tries to put in the background limited to the extent of seeking whether Section 171 of the CGST Act, 2017 passes the test of Constitutional Validity vis-à-vis Article 246A of the Constitution of India.
Article 246A of Constitution of India
It is understood that by insertion of Article 246A resulted in insertion of special provision with respect to GST and empowered both Parliament and State Legislature to enact legislations for imposition of Goods and Services Tax. The relevant extract of the Article 246A is as follows:
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.
Relevant Extract of Statement of Objects and Reasons of 122nd Constitutional Amendment Bill, 2014
The relevant extract of the 122nd Constitutional Amendment Bill, 2014 is being reproduced herewith-
The Constitution is proposed to be amended to introduce the goods and services tax for conferring concurrent taxing powers on the Union as well as the States including Union territory with Legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both. The goods and services tax shall replace a number of indirect taxes being levied by the Union and the State Governments and is intended to remove cascading effect of taxes and provide for a common national market for goods and services. The proposed Central and State goods and services tax will be levied on all transactions involving supply of goods and services, except those which are kept out of the purview of the goods and services tax.
Article 246A of Constitution of India and Enactment of CGST/SGST/UTGST Act, 2017
Exercising the power under clause (1) of Article 246A of the Constitution of India, Parliament enacted Central Goods and Services Tax Act, 2017 and State Legislatures enacted the respective “State Goods and Services Tax Act” and Parliament enacted “Union Territory Goods and Service Tax Act”. The CGST Act, 2017 provides for
“An Act to make a provision for levy and collection of tax on intra-State supply of goods or services or both by the Central Government and for matters connected therewith or incidental thereto”
Whether insertion of Section 171 satisfies the test of “levy and collection of tax” or “for matters connected therewith or incidental thereto”
CGST Act, 2017 makes provision for Levy and collect of tax on intra-state supply of goods or services or both by the Central Government and for matters connected therewith or incidental thereto. Whether the words “for matters connected therewith or incidental thereto” covers within them the power to provide for insertion of provisions of Section 171.
The determination whether the benefit has been passed on or not is not a matter relating to levy and collection of tax. The same is also not covered by the Charging Section 9 of CGST Act, 2017. The statement of objects and reasons for 122nd Constitutional Amendment Bill, 2014 did not provide for establishing any such authority. It is the statement of objects and reasons of CGST Bill, 2017 which provided that
“(j) to provide for an anti-profiteering clause in order to ensure that business passes on the benefit of reduced tax incidence on goods or services or both to the consumers;”
The moot question is whether in light of Article 246A; can CGST Act, 2017 which has been enacted to provide for levy and collection of tax provide for determining whether any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit has been passed on to the recipient by way of commensurate reduction in prices. Whether such activity falls within the ambit of the purpose for which the “statute” has been enacted or whether charity is being sought to carried out through a taxation legislation which can at best be part of some other statute but not atleast a taxation statute. Can the scope of levy and collection be enlarged to such an extent to provide for determining whether any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit has been passed on to the recipient by way of commensurate reduction in prices.
If Input Tax Credit is a benefit or a concession to be given by the statute and a person has fulfilled the criteria, whether passing of the benefit of input tax credit be made mandatory for the registered person when such passing of the benefit does not fall within the ambit of “levy and collection” of tax.