Recently AAR Uttarakhand in the matter of IT Development Agency, Government of Uttarakhand, Dehradun held that that IIT is considered to be Government under CGST Act, 2017.Let’s try to analyse the decision whether IIT could be considered in the status of Government for the purpose of CGST Act, 2017 and why the decision of AAR requires reconsideration.
- Definition of Government:
Section 2(53) of CGST Act, 2017 defines Government as
(53) “Government” means the Central Government
- Definition of Central Government: The term “Central Government” has not been defined under the CGST Act, 2017 and therefore meaning of Central government as defined woUld have to be taken for reference purpose. The relevant extract of sub-clause (b) of clause (8) of Section 3 of General Clauses Act, 1897 is as follows:
(8) “Central Government” shall,—
(b) in relation to anything done or to be done after the commencement of the Constitution, mean the President; and shall include,—
(i) in relation to functions entrusted under clause (1) of article 258 of the Constitution, to the Government of a State, the State Government acting within the scope of the authority given to it under that clause;
Thus, it can be seen from the above that Central Government has been defined to mean President. Article 53 of the Constitution of India provides that the executive power of the union shall be vested in the president and shall be exercised by him either directly or through officers subordinate to him in accordance with the constitution. Therefore, functions of Union are exercised directly by the president or the officers subordinate to him.
- Decision of Allahabad High Court in the matter of Banaras Hindu University, Varanasi…Petitioner Versus State of UP and another …Respondents dated 23rd September 2010
The Hon’ble High Court held that
- The BHU as well as IIT-K are statutory bodies incorporated under the Central Government Act. They have right to sue and can be sued in their own name.
- The IIPR is the branch of ICAR that is a registered society under the Societies Registration Act. It can also sue and be sued in its own name.
- A statutory corporation, or a society or a company, even if it is State within the meaning of Article 12 of the Constitution or an instrumentality of the Union, are not synonymous with it. They have different identity and cannot be treated to be Union.
- Hon’ble Apex Court in the matter of Municipal Commissioner Of Dum … vs Indian Tourism Development … on 1 August, 1995 Equivalent citations: 1995 SCC (5) 251, JT 1995 (5) 610
The question before the Hon’ble Apex Court was:
“The question arising in this batch of appeals is whether the properties vested in the International Airport Authority of India under the provisions of International Airports Authority Act, 1971 can yet be called the properties of the Union within the meaning of Article 285 of the Constitution of India and, therefore, exempt from all taxes imposed by a State or by any authority within a State”
One significant observation which might help us in understanding the nature of governmental entity or government authority and why autonomous Institutions are not Government is the observation made by Hon’ble Apex Court in the matter of Municipal Commissioner Of Dum … vs Indian Tourism Development … on 1 August, 1995 Equivalent citations: 1995 SCC (5) 251, JT 1995 (5) 610
“Even before the advent of the constitution, the State had been carrying on several activities which were in the nature of commercial/trading/manufacturing activity but with the advent of the constitution introducing the concept of a welfare State – or a socialist State, as the case may be – both the State and Central Governments embarked upon an extensive and systematic course of activity where under several business ventures were commenced and in many cases taken over. Within a few years, however, it was realised that a business is to be carried on as a business and not in the manner of governmental activity. Accordingly, the Central and State Governments started creating corporations for carrying on these activities. In the case of major public utilities, statutory corporations were created under different enactments. For example, Road Transport Corporations under Road Transport Corporations Act, Electricity Boards under the Electricity Supply Act, 1948, Air India and Indian Airlines under the Airlines Corporation Act, Life Insurance Corporation under the Life Insurance Corporation Act and so on. In respect of several undertakings, companies were registered under the Companies Act. With a view to anable these statutory corporations and companies to carry on the activity which was hitharto carried on by the governments, the relevant properties assets and liabilities were transferred to such new corporations They were supposed to operate on business lines, pay taxes and justify their creation and constitution. These corporations, whether created under the statute or registered under the Companies Act are distinct juristic entities owning their own properties having their own fund, capable of borrowing and lending monies and entering into contracts like any other corporation. In many cases the entire share capital of these corporations is owned by the Government whether Central or State. In some cases, the major share holding is of the Government with some private share holding as well. In case of some statutory corporations, the enactment creating them did not provide for any share capital, though it was made a body corporate with all the necessary and incidental powers that go with such concept. The International Airports Authority is one such corporation created under the Act with no share capital but which has its own properties, its own fund, accounts, employees and capable of lending and borrowing and entering into contracts. The properties held by it can be categorised into two, viz., (1) those that were transferred to it under Section 12 of the Act at the time of its inception and (2) those that have been acquired by it subsequent to its constitution. There is no dispute about the second category of properties. Admittedly they are the properties of the Authority and not the properties of the Union. The only controversy is with respect to the first kind of the properties.”
The Hon’ble Apex Court finally held that
For all the above reasons, we are of the opinion that the International Airports Authority of India is a statutory corporation distinct from the Central Government and that the properties vested in it by Section 12 of the Act cannot be said to have been vested in it only for proper management. After the date of vesting, the properties so vested are no longer the properties of the Union of India for the purpose of and within the meaning of Article 285. The vesting of the said properties in the Authority is with the object of ensuring better management and more efficient operation of the airports covered by the Act. Indeed that is the object behind the very creation of the Authority. But that does not mean that it is a case of limited vesting for the purpose of better management. The Authority cannot, therefore, invoke the immunity created by Article 285(1) of the Constitution. The levy of property taxes by the relevant Municipal bodies is unexceptionable.
- Comparative analysis of provisions of IIT Act, 1961 and International Airport Authority Act, 1971:-
A Comparative analysis of the provisions of IIT Act, 1961 and International Airport Authority Act, 1971 is as follows:
|IIT Act, 1961
|International Airport Authority Act, 1971
|An Act to declare certain institutions of technology to be institutions of national importance and to provide for certain matters connected with such institutions and the Indian Institute of Technology, Kharagpur.
|an Act to provide for the constitution of an authority for the management of certain aerodromes whereat international air transport services are operated or are intended to be operated and for matters connected therewith.
|Applicability of the Act
|Whereas the objects of institutions known as the Indian Institute of Technology, Bombay, *the college of Engineering and Technology, Delhi;* the Indian Institute of Technology, Kanpur and the Indian Institute of Technology, Madras are such as to make them institutions of national importance, it is hereby declared that each such institution is an institution of national importance.
|the Act shall apply in the first instance to the aerodromes of Bombay (Santa Cruz), Calcutta (Dum Dum). Delhi (Palam) and Madras (Meenambakkam) and to such other aerodromes as the Central Government may notify in that behalf
|Nature of Authority
|Each of the Institutes mentioned in section 2 shall be a body corporate having perpetual succession and a common seal and shall, by its name, sue and be sued
|The authority shall be a body corporate by the name aforesaid having perpetual succession and a common seal, with power, subject to the provisions of this Act, to acquire, hold and dispose of property both movable and immovable, and to contract and shall by the said name sue and be sued”
|Vesting of Property
|5. On and from the commencement of this Act;- (a) any reference to a society in any law (other than this Act) or in any contract or other instrument shall be deemed as a reference to the corresponding Institute; (b) all property, movable and immovable; of or belonging to a society shall vest in the corresponding institute; (c) all the rights and liabilities of a society shall be transferred to, and be the rights and liabilities of the corresponding Institute; and (d) every person employed by a society immediately before such commencement shall hold his office or service in the corresponding, Institute by the same tenure, at the same remuneration and upon the same terms and conditions and with the same rights and privileges as to pension, leave, gratuity, provident fund and other matters as he would have held the same if this Act had not been passed, and shall continue to do so unless and until his employment is terminated or until such tenure, remuneration and terms and conditions are duly altered by the Statutes: Provided that if the alteration so made is not acceptable to such employee, his employment may be terminated by the Institute in accordance with the terms of the contract with the employee or, if no provision is made therein in this behalf, on payment to him by the Institute of compensation equivalent to three months’ remuneration in the case of permanent employees and one month’s remuneration in the case of other employees.
|“12.(1) Save as otherwise provided in sub-section (2), as from such date as the Central Government may appoint by notification in the Official Gazette in relation to any airport,– (a) all properties and other assets vested in the Central Government for the purposes of the airport and administered by the Director-General of Civil Aviation immediately before such day shall vest in the Authority; (b) all debts, obligations and lialibities, all contracts entered into and all matters and things engaged to be done by, with, or for the Central Government immediately before such day for or in connection with the purposes of the airport shall be deemed to have been incurred, entered into and engaged to be done by, with, or for the Authority; (c) all non-recurring expenditure incurred by the Central Government for or in connection with the purposes of the airport up to such day and declared to be capital expenditure by the Central Government shall, subject to such terms and conditions as may be determined by the Central Government, be treated as the capital provided by the Central Government to the Authority; (d) all sums of money due to the Central Government in relation to the air port immediately before such day shall be deemed to be due to the Authority; (e) all suits and other legal proceedings instituted or which could have been instituted by or against the Central Government immediately before such day for any matter in relation to the airport may be continued to instituted by or against the Authority; (f) every employee holding any office under the Central Government immediatelybefore such day solely or mainly for or in connection with such affairs of the airport as are relevant to the functions of the Authority under this Act shall be treated as on deputation with the Authority but shall hold his office in the Authority by the same tenure and upon the same terms and conditions of service as respects remuneration, leave, provident fund, retirement or other terminal benefits as he would have held such office, if the Authority had not been constituted and shall continue to do so until the Central Government, either on its own motion or at until the Authority, with the concurrence of the Central Government, duly absorbs such employee in its regular service, whichever is earlier; Provided that during the period of deputation of any such employee with the Authority, the Authority shall pay to the Central Government, in respect of every such employee, such contribution towards his leave salary, pension and gratuity as the Central Government may, by order, determine: Provided further that any such employee, who has, in respect of the proposal of the Authority to absorb him in its regular service, intimated within such time as may be specified in this behalf by the Authority his intention of not becoming a regular employee of the Authority, shall not be absorbed by the Authority in its regular service.”
- Interestingly in the case of Ramana Dayaram Shetty vs The International Airport … on 4 May, 1979 Equivalent citations: 1979 AIR 1628, 1979 SCR (3)1014, for the same International Airport Authority the question before the Apex Court was whether International Airport Authority is an instrumentality or agency of the Central Government and falls within the definition of State and the Hon’ble Apex Court held that a conspectus of the provisions of the Act clearly shows that every test laid down by this Court in deciding whether a statutory authority comes within the purview of Article 12 of the constitution is satisfied in the case of the first respondent and they leave no room for doubt that it is an instrumentality or agency of the Central Government and falls within the definition of State.
7. Did Hon’ble Apex Court in the matter of Municipal Commissioner of Dum municipality And Ors. Etc. vs Indian Tourism Development Corporation And Ors. Etc. in the judgement given in the year 1995 did not follow the decision laid down by Hon’ble Apex Court in the matter of Ramana Dayaram Shetty vs The International Airport Authority of India (a Judgement delivered in the year 1979).
In Municipal Commissioner of Dum Municipality and ors. etc. Vs Indian Tourism Development Corporation and ors. etc., Hon’ble Apex Court after referring to the provisions of International Airports Authority Act, 1971 held that
“For all the above reasons, we are of the opinion that the International Airports Authority of India is a statutory corporation distinct from the Central Government.”
In the matter of Ramana Dayaram Shetty vs The International Airport Authority of India held that International Airport Authority, Hon’ble Apex Court after referring to the provisions of International Airports Authority Act, 1971 held that it is an instrumentality or agency of the Central Government and falls within the definition of State and the Hon’ble Apex Court held that a conspectus of the provisions of the Act clearly shows that every test laid down by this Court in deciding whether a statutory authority comes within the purview of Art. 12 of the constitution is satisfied in the case of the first respondent and they leave no room for doubt that it is an instrumentality or agency of the Central Government and falls within the definition of State.
The question now arises that whether the later decision of the Hon’ble Apex Court was against the principles laid down by Apex Court earlier. That is not the case.
We have to see the context of the decision. The decision of Ramana Dayaram Shetty vs The International Airport Authority of India was given in the context of Article 12 and Article 14 of the Constitution of India. Constitution of India has been divided into 22 Parts and Articles 1 to 395. Part III of the Constitution of India relates to “Fundamental Rights”. This part consists of Articles 12 to 35. Of these Articles, Article 12 is related to definition for Part III. Article 12 of the Constitution of India is being reproduced herewith:
Article 12 of the Constitution of India provides as follows:
12. Definition In this part, unless the context otherwise requires, the State includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India.
If we refer to the start of the Article 12, it starts with “Definition in this Part, unless context otherwise requires”. Therefore, this clearly means that Article 12 contains definition for Part III of the constitution of India only and cannot be extended beyond this part. The same can also be observed from the Article 14 of the Constitution of India which refers to “Equality before Law” and contains the word “State”
Article 14 of the Constitution of India provides as follows:
14. Equality before law: The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India Prohibition of discrimination on grounds of religion, race, caste, sex or place of birth.
The relevant extract of the decision Dayaram Shetty vs The International Airport Authority of India is as follows:
Now this rule, flowing as it does from Article 14, applies to every State action and since “State” is defined in Article 12 to include not only the Government of India and the Government of each of the States, but also “all local or other authorities within the territory of India or under the control of the Government of India”, it must apply to action of “other authorities” and they must be held subject to the same constitutional limitation as the Government. But the question arises what are the “other authorities” contemplated by Article 12 which fall within the definition of ‘State’ ?
The authority “International Airport Authority” was sought to be included under the term “other authority” by this decision for the purpose of Article 14 of the Constitution of India read with Article 12 of the Constitution of India. Hon’ble Apex Court then also referred to the reasoning of holding International Airport Authority as “State” for the purpose of Chapter III of the Constitution of India which is as follows:
“The Government which represents the executive authority of the State may act through the instrumentality or agency of natural persons or it may employ the instrumentality or agency of Juridical persons to carry out its functions. With the advent of the welfare state the civil service, which traditionally carried out functions of Government through natural persons, was found inadequate to handle the new tasks of specialised and highly technical character. To fill the gap it became necessary to forge a new instrumentality or administrative device for handling these new problems and that is done by public corporations which has become the third arm of the Government. They are regarded as agencies of the Government. In pursuance of the industrial policy resolution of the Government of India corporations were created by the Government for setting up and management of public enterprises and carrying out public function. The corporations so created, acting as instrumentality or agency of Government, would obviously be subject to the same limitations in the field of constitutional and administrative law as Government itself though in the eye of law they would be distinct and independent legal entities. It Government acting, through its officers is subject to certain constitutional and public law limitations, it must follow a fortiori that Government, though the instrumentality or agency of corporations, should equally be subject to the same limitations.”
Thus, it was a completely different context that the judgement in the matter of Dayaram Shetty vs The International Airport Authority of India was given. It was more of a kind of breaking the corporate veil for the protection of fundamental rights of the people of India. Therefore, definition of State as given in Article 12 cannot be stretched beyond Part III of the Constitution of India.
Further even if refer to the report of Law Commission of India released in the month of April 2018, Chapter III of the report relates to Concept of State in Article 12 of the Constitution of India. It has to be borne in mind that Article 12 is relevant for the purpose of Chapter III of Constitution of India and has no relevance at other places for the purpose of definition of “Government” unless until specifically referred to. Therefore, Part III of the Law Commission of India is also not applicable in the given case.
The judgement of Ajay Hasia v. Khalid Mujib Sehravardi primarily relied upon in the report of the law commission for defining the term state was with reference to Article 32 of the Constitution of India. It may be apt here to emphasize again that Article 32 falls under the Part III of the Constitution of India and definition given in Article 12 of the Constitution of India would be applicable in that matter. Therefore the ration laid down by Hon’ble Apex Court in the matter of Dayaram Shetty vs The International Airport Authority of India was followed in that matter. The relevant extract of Law Commission Report is as follows:
“In the case of Ajay Hasia v. Khalid Mujib Sehravardi,42 (Ajay Hasia case) where a Regional Engineering College whose administration was carried on by a society registered under the Societies Act 1898, question arose as to whether it could fall under the definition of ‘State’ and thus be amenable to the writ jurisdiction of the Supreme Court under Article 32. It was held by the Court that a society is not on the same footing as the Government of India or the Government of any State, so what remains to be seen is whether it would fall under the ambit of ‘other authorities’. The Court emphasised that the concept of agency or instrumentality of the Government is not limited to a corporation created by a statute but is equally applicable to a company or a society and in each individual case it would have to be decided, on a consideration of relevant factors. The Court laid down the relevant tests to determine the existence of State agency or instrumentality, relying on the International Airport Authority…”
- Relevant extract of the minutes of IIT Bhuvneshwar alongwith the reply received from Department of Revenue for whether IIT Employees are Employees of Central Government under Income Tax Act, 1961:
Section 17(2) of the Income Tax Act provides for valuation of perquisites in case of rent free accommodation and clause (ii) of Section 17(2) of the Income Tax Act provides for valuation of perquisites where a furnished accommodation is provided by Central Government or any State Government. In this regard, a clarification was sought by IIT that whether rent free accommodation provided by it to its employees would be covered under the valuation mechanism for rent free accommodation provided by Central Government. IIT Bhuvaneshwar specifically asked for the clarification. The relevant extract of the minutes alongwith the reply received from Department of Revenue is as follows:
“INDIAN INSTITUTE OF TECHNOLOGY BHUBANESWAR Minutes of the 26th meeting of the Board of Governors (BoG) held on 25.02.2017 at 12 Noon in the Meeting Room of the Institute Guest House.
To report that the Ministry of Human Resource Development vide its letter F.No.3-19/2015-T.S.-I dated 29.11.2016 informed the Institute that the issue of valuation of rent free accommodation of employees of the IITs for the purpose of calculation of income tax at par with the Central Govt. employees has been examined in consultation with the Department of Revenue, Ministry of Finance, Govt. of India, and it has been observed that employees of autonomous organizations do not fall within the definition/ ambit of ‘Government’ for the purpose of Rule 3(I) in all CBDT’s circulars on TDS under section 192 of the Income Tax Act, 1961.Accordingly, the issue of rent free accommodation of the employees of IIT for the purpose of calculation of income tax at par with the Central Govt. employees has not been agreed to. The Board noted the above.”
Conclusion: IIT is not Government for the purpose of CGST Act, 2017 and the AAR decision requires reconsideration to that effect. Further, we cannot apply the meaning assigned to State under Article 12 of the Constitution of India. The clarification issued by the Government to IIT Bhuvneshwar, although under the Income Tax Act, 1961 and decision of Hon’ble Allahabad High Court also seems to hold the same view that statutory bodies are distinct from Central Government.