Article 246A of Constitution of India vis-à-vis Section 171 of CGST Act, 2017- 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.

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.

Article 20(2) of Constitution of India-“But possessing and selling are distinct offences. One may obviously possess without selling; and one may sell and cause to be delivered a thing of which he has never had possession; or one may have possession and later sell, as appears to have been done in this case”-Meaning of Same Offence and Concept of Double Jeopardy’; Applicability on criminal proceedings; How GST Law has incorporated that no penalty shall be levied for the same act or omission on the same person under any other provision of the GST Act

Article 20(2) of the Constitution of India is being reproduced hereinbelow for ready reference-

(2) No person shall be prosecuted and punished for the same offence more than once.

This article brings in the concept of double jeopardy. It was not that this principle was not in existence prior to Constitution of India. As per Section 26 of the General Clauses Act, 1857, it was incorporated within the legal framework but was given the colour of constitutional guarantee by Article 20(2) of the Constitution of India.

Section 26 of the General Clauses Act, 1857 is being reproduced hereinunder-

“Where an act or omission constitutes an offence under two or more enactments, then the offender shall be liable to be prosecuted and punished under either or any of those enactments, but shall not be liable to be punished twice for the same offence.”

Hon’ble Apex Court in The State Of Bombay vs S. L. Apte & Another on 9 December, 1960 Equivalent citations: 1961 AIR 578, 1961 SCR (3) 107 explained Article 20(2) vis-a-vis Section 26 of General Clauses Act, 1857 as follows

“The next point to be considered is as regards the scope of s. 26 of the General Clauses Act. Though s. 26 in its opening words refers to “the act or omission constituting an offence under two or more enactments”, the emphasis is not on the facts alleged in the two complaints but rather on the ingredients which constitute the two offences with which a person is charged. This is made clear by the concluding portion of the section which refers to “shall not be liable to be punished twice for the same offence,”. If the offences are not the same but are distinct, the ban imposed by this provision also cannot be invoked. It therefore follows that in the present case as the respondents are not being sought to be punished for “the same offence” twice but for two distinct offences constituted or made up of different ingredients the bar of the provision is inapplicable.

In passing, it may be pointed out that the construction we have placed on Art. 20(2) of the Constitution and s. 26 of the General Clauses Act is precisely in line with the terms of s. 403(2) of the Criminal Procedure Code..”

The background of Article 20(2) of the Constitution of India was explained by the Hon’ble Apex Court in the judgement of The State Of Bombay vs S. L. Apte & Another on 9 December, 1960 Equivalent citations: 1961 AIR 578, 1961 SCR (3) 107

The crucial requirement therefore for attracting the Article is that the offences are the same, i.e., they should be identical. If, however, the two offences are distinct, then notwithstanding that the allegations of facts in the two complaints might be substantially similar, the benefit of the ban cannot be invoked.

Applicability of Article 20(2) only on criminal proceedings

Reference-1- The very wording of Art. 20 and the words used therein….. “convicted”, “commission of act charged as an offence”, “be subjected to a penalty”, “commission of the offence”, “prosecuted and punished”, “accused of any offence”, would indicate that the proceedings therein contemplated are of the nature of criminal proceedings before a Court of law or a judicial tribunal and the prosecution in this context would mean an initiation or starting of proceedings of a criminal nature before a Court of law or a judicial tribunal in accordance with the procedure prescribed in the statute which creates the offence and regulates the procedure-Maqbool Hussain vs The State Of Bombay. Jagjit … on 17 April, 1953 (SC) Equivalent citations: 1953 AIR 325, 1953 SCR 730-

2. The words “before a Court of law or judicial tribunal” are not to be found in Art. 20(2). But if regard be had to the whole background indicated above it is clear that in order that the protection of Art. 20(2) be invoked by a citizen there must have been a prosecution and punishment in respect of the same offence before a Court of law or a tribunal, required by law to decide the matter in controversy judicially on evidence on oath which it must be authorised by law to administer and not before a tribunal which entertains a departmental or an administrative enquiry even though set up by a statute but not required to proceed on legal evidence given on oath. The very wording of Art. 20 and the words used therein….. “convicted”, “commission of act charged as an offence”, “be subjected to a penalty”, “commission of the offence”, “prosecuted and punished”, “accused of any offence”, would indicate that the proceedings therein contemplated are of the nature of criminal proceedings before a Court of law or a judicial tribunal and the prosecution in this context would mean an initiation or starting of proceedings of a criminal nature before a Court of law or a judicial tribunal in accordance with the procedure prescribed in the statute which creates the offence and regulates the procedure.

Reference-2- It has also been held by this court in Maqbool Hussain’s case(2) that the language of article 20 and the words actually used in it afford a clear indication that the proceedings in connection with the prosecution and punishment of a person must be in the nature of a criminal proceeding, before a court of law or judicial tribunal, and not before a tribunal which entertains a departmental or an administrative enquiry even though set up by a statute, but which is not required by law to try a matter judicially and on legal evidence– S.A. Venkataraman vs The Union Of India And Another on 30 March, 1954 Equivalent citations: 1954 AIR 375, 1954 SCR 1150

It has also been held by this court in Maqbool Hussain’s case(2) that the language of article 20 and the words actually used in it afford a clear indication that the proceedings in connection with the prosecution and punishment of a person must be in the nature of a criminal proceeding, before a court of law or judicial tribunal, and not before a tribunal which entertains a departmental or an administrative enquiry even though set up by a statute, but which is not required by law to try a matter judicially and on legal evidence. In that case the proceedings were taken under the Sea Customs Act before a Customs authority who ordered confiscation of goods. It was held that such proceedings were not “Prosecution”, nor the order of confiscation a “punishment” within the meaning of article 20(2) inasmuch as the Customs authority was not a court or a judicial tribunal and merely exercised administrative powers vested in him for revenue purposes.

Meaning of “Same Offence” –

Reference-1- The fact that the person sells the liquor which he possessed does not render the possession and the sale necessarily a single offence. There is nothing in the Constitution which prevents Congress from punishing separately each step leading to the consummation of a transaction which it has power to prohibit and punishing also the completed transaction-The State Of Bombay vs S. L. Apte & Another on 9 December, 1960 Equivalent citations: 1961 AIR 578, 1961 SCR (3) 107

The words of the Vth Amendment where this rule is to be found in the American Constitution are:

“Nor shall any person be subject, for the same offence, to be twice put in jeopardy of life or limb.” and it will be noticed that there as well, the ban is confined to a second prosecution and punishment for the same offence.

Willoughby after referring to the words quoted in the Fifth Amendment says:

“Cases may occur in which the same act may render the actor guilty of two distinct offences; In such cases the accused cannot plead the trial and acquittal, or the conviction and punishment for one offence in bar to a conviction for the other”(1).

In Albrecht v. Constitution of the United States, Vol.II.- p. 1158., United States (1) Brandeis, J., speaking for a unanimous Court said:

“There is a claim of violation of the Vth Amendment by the imposition of double punishment. This contention rests upon the following facts. Of the nine, counts in the information four charged illegal possession of liquor, four illegal sale and one maintaining a common nuisance. The contention is that there was double punishment because the liquor which the defendants were convicted for having sold is the same that they were convicted for having possessed. But possessing and selling are distinct offences. One may obviously possess without selling; and one may sell and cause to be delivered a thing of which he has never had possession; or one may have possession and later sell, as appears to have been done in this case. The fact that the person sells the liquor which he possessed does not render the possession and the sale necessarily a single offence. There is nothing in the Constitution which prevents Congress from punishing separately each step leading to the consummation of a transaction which it has power to prohibit and punishing also the completed transaction.”

If, therefore, the offences were distinct there is no question of the rule as to double-jeopardy as embodied in Art. 20(2) of the Constitution being applicable.

Reference-2- Where the same evidence suffices to prove both crimes hey are the same for double Jeopardy purposes and the clause forbids successive trials and cumulative punishment for the two crimes-State Of Bihar vs Murad Ali Khan, Farukh Salauddin & … on 10 October, 1988 Equivalent citations: 1989 AIR, 1 1988 SCR Supl. (3) 455

But difficulties are in the application of the principle in the context of what is meant by ‘ same offence”. The principle in American law is stated thus:

“…The proliferation of technically different offences encompassed in a single instance of crime behavior has increased the importance of defining the scope of the offense that controls for purposes of the double jeopardy guarantee.

Distinct statutory provisions will be treated as involving separate offenses for double jeopardy purposes only if each provision requires proof of an additional fact which the other does not” Blockburger v. United States, 284 U.S. 299, 304 1932 Where the same evidence suffices to prove both crimes hey are the same for double Jeopardy purposes and the clause forbids successive trials and cumulative punishment for the two crimes. The offenses must be Joined in one indictment and tried together unless the defendant requests that they be tried separately. Jeffers v. United States, 432 U.S. 137 1977.”

[See “Double Jeoparady” in the Encyclopedia of Crime and Justice vol. ‘, p. 630 1983 Edn. by Sanford H. Kadish: The Free Press, Collier Mac Millan Publishers, London]

The expressions “the same offence”, ‘substantially the same offence” in effect the same offence” or “practically the same”, have not done much to lessen the difficulty in applying the tests to identify the legal common denominators of “same offence”. Friedland in “Double Jeoparady” [Oxford 1969] says at page 108:

“The trouble with this approach is that it is vague and hazy and conceals the thought processes of the Court. Such an inexact test must depend upon the individual impressions of the judges and can give little guidance for future decisions. A more serious consequences is the fact that a decision in one case that two offences are ‘substantially the same’ may compel the same result in another case involving the same two offences where the circumstances may be such that a second prosecution should be permissible..

Reference-3-The offence of a conspiracy to commit a crime is a different offence from the crime–In Leo Roy Frey v. The Superintendent, District Jail, Amritsar, [ 1958J SCR 822

The question arose whether a crime and the offence of conspiracy to commit it are different offences. The Supreme Court held that

“The offence of a conspiracy to commit a crime is a different offence from the crime that is the object of the conspiracy because the conspiracy precedes the commission of the crime and is complete before the crime is attempted or completed, equally the crime attempted or completed does not require the element of conspiracy as one of its ingredients. They are, therefore, quite separate offences.

Prosecution and Punishment has to be read together

Reference-1- The words prosecuted and punished” are to be taken not distritbutively so as to mean prosecuted or punished. Both the factors must co-exist in order that the operation of the clause may be attracted–S.A. Venkataraman vs The Union Of India And Another on 30 March, 1954 Equivalent citations: 1954 AIR 375, 1954 SCR 1150

In order to enable a citizen to invoke the protection of clause (2) of article 20 of the Constitution, there must have been both prosecution and punishment in respect of the same offence. The words prosecuted and punished” are to be taken not distritbutively so as to mean prosecuted or punished. Both the factors must co-exist in order that the operation of the clause may be attracted.

Applicability on Taxation Laws-

Although Article 20(2) has no application in case of levy of penalty by way of civil proceedings. However, concept of protection from double jeopardy and same offence has been given legal share through the provision of Section 75(13) of CGST Act, 2017 which provides that where any penalty is imposed under section 73 or section 74, no penalty for the same act or omission shall be imposed on the same person under any other provision of this Act. The term same offence has discussed earlier as has been discussed would hold significance and can be referred in GST Law as well. Therefore, if penalty for any offence has been levied under section 73/74 then in such case penalty for the same act or omission cannot be imposed on the same person under any other provision of the Act. However, this principle comes with a rider that although no two penalties should be levied for same act or omission on same person but if the ingredient of two offences are different then the privilege is not applicable. Some of the decisions for principle of double jeopardy and same offence are as under-

Reference-1– Assistant Commissioner Of … vs Krishna Poduval on 20 October, 2005-Kerala High Court -Whether penalty for failure to pay Service Tax under Section 76 and Penalty for suppression of value of taxable service are same offence or different offences

11. The penalty imposable under Section 76 is for failure to pay service tax by the person liable to pay the same in accordance with the provisions of Section 68 and the Rules made thereunder, whereas Section 78 relates to penalty for suppression of the value of taxable service. Of course these two offences may arise in the course of the same transaction, or from the same act of the person concerned. But we are of opinion that the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act, the penalty is imposable for ingredients of both the offences. There can be a situation where even without suppressing value of taxable service, the person liable to pay service tax fails to pay. Therefore, penalty can certainly be imposed on erring persons under both the above Sections, especially since the ingredients of the two offences are distinct and separate. Perhaps invoking powers under Section 80 of the Finance Act, the appropriate authority could have decided not to impose penalty on the assessee if the assessee proved that there was reasonable cause for the said failure in respect of one or both of the offences. However, no circumstances are either pleaded or proved for invocation of the said Section also. In any event we are not satisfied that an assessee who is guilty of suppression deserves such sympathy. As such, we are of opinion that the learned Single Judge was not correct in directing the 1st appellant to modify the demand withdrawing penalty under Section 76. Therefore, the judgment of the learned Single Judge, to the extent it directs the first appellant to modify Ext.P1 by withdrawing penalty levied under Section 76, is liable to be set aside and we do so. The cumulative result of the above findings would be that the Writ Petitions are liable to be dismissed and we do so. However, we do not make any order as to costs.

Reference-2-Custom, Excise & Service Tax Tribunal M/S Safe & Sure Marine Services … vs Commissioner Of Service Tax, … on 31 August, 2013-Levy of Penalty under 76, 77 and 78

The last issue for consideration is regarding the penalties imposed on the appellant. Penalties have been imposed under Sections 76, 77 and 78 of the Finance Act, 1994. Penalty under Section 76 has been imposed for the default in payment of Service Tax and under Section 77 for delay in submission/non-submission of ST-3 Returns. Whenever there is default in payment of Service Tax or delay in payment of Service Tax, the provisions of Section 76 are automatically attracted. There is no mens rea is required to be proved for imposition of penalty under the said section as the language of the said section does not prescribe or stipulate any such requirement. Therefore, imposition of penalty under the said Section is sustainable in law. As regards the penalty under Section 77, same is for non-filing of returns and non-compliance to other statutory provisions. In this case also, no mens rea is required to be established and mere violation of the statutory provisions would suffice. Therefore, as held by the hon’ble Apex Court in the Gujarat Travancore Agency case [1989 (3) SCC 52] and Chairman, SEBI vs, Shriram Mutual Fund case [2006-TIOL-72-SC-SEBI], there cannot be any challenge to the imposition of penalties under these provisions. With regard to the penalty equivalent to the amount of Service Tax imposed under Section 78 of the Finance Act, 1994, in the present case as held by us in the preceding paragraphs, the appellant has suppressed the facts of rendering the service and collection of service tax in a few cases and even where they had collected the Service Tax, they did not remit the same to the exchequer. Therefore, there is suppression and willful mis-statement of facts on the part of the appellant with an intent to evade Service Tax. Hence, the mandatory penalty under Section 78 is justified. The hon’ble High Court of Kerala in Krishna Poduval case [2006 (1) STR 185 (Ker)] and the hon’ble Punjab & Haryana High Court in Pannu Property Dealers case [2011 (24) STR 173] have also held that penalties under section 76 and 78 can be imposed on the same transaction since the ingredients of the two offences which attract penalties under these provisions are distinct and separate. However, as per the amended provisions of Section 78 (w.e.f. 10.5.2008), penalty under Section 76 is not permissible when penalty has been imposed under section 78. Therefore for the period w.e.f 10.5.2008, penalty under section 76 will not sustain. To this extent, we modify the imposition of penalties

Reference-3-Shree Digvijay Cement Co Ltd vs Commissioner Of Service … on 9 August, 2016 (Custom, Excise & Service Tax Tribunal-Ahemdabad)-Levy of Penalty in section 76,77 and 78

Therefore, we uphold the penalties imposed under Section 76 of the Finance Act, 1994 on the appellant. Similarly, penalty under Section 77 is for non-compliance of the statutory provisions of filing of returns. Inasmuch as there is non-compliance, the same is also liable to be upheld. As regards the penalty under Section 78, we have already held that the appellant has suppressed facts and therefore, extended period of time has been rightly invoked. If that be so, penalty under Section 78 is imposable since it is mandatory. Apex Court decision in Rajasthan Spinning and Weaving Mills [2009 (238) E.L.T. 3 (S.C.)] refer. However, for the period w.e.f. 10-5-2008, only penalty under Section 78 is imposable and not that under Section 76 in view of the express provisions provided in that respect in the said Section 78. However, we observe that penalty under Section 78 is imposable equal to the unpaid quantum of service tax and any service tax paid and appropriated has to be excluded while determining the penalty under Section 78

7. In view of the above, we find that the contentions of the appellants are not maintained.

Reference-4-Balhar Chand and others v. State of Punjab and others, 2008 Crl.L.J. 4783-Imposition of Penalty under FEMA 1999 and Income Tax Act, 1961 does not amount to double jeopardy as they operate under different statutes

“8. Mr. O.P. Nagpal, learned counsel for the petitioners has contended before me that once the penalty had been imposed by the Enforcement Directorate, the order of the Court to deposit the amount was in violation of Article 20 of the Constitution of India and Section 300 of the Criminal Procedure Code as it will amount to double jeopardy. Therefore, order passed by Enforcement FAO No. 4458 of 2007 [14] Directorate Annexure P-5 has attained finality and the criminal court and the Income Tax Authorities have got no jurisdiction.

9. I am unable to accept this contention raised by the counsel for the petitioners. Enforcement Directorate, Income Tax Authorities and criminal court adjudicate in their own sphere . Accused have admitted that the amount recovered was sent by their brothers who were residing abroad. Therefore, there was a violation of provisions of FEMA Act and under Enforcement: Directorate had to act and penalty imposed by him was a consequence to the act of the petitioners who had received cash amount from abroad through channels which were not permissible, but it does not absolve petitioners as the amount so received was to be declared before the Income Tax Authorities. Non-declaration of the amount will amount to evasion of tax and Income Tax Authorities are within their right to proceed under Income -tax Act in accordance with the provisions of law.”

Reference-5- P.V. Mohammad Barmay Sons vs Director Of Enforcement on 20 August, 1992 Equivalent citations: 1993 AIR 1188, 1992 SCR (3) 960-Levy of Penalty under Customs Act 1962 and FEMA 1973

The further contention that under the Customs Act 1962 for the self same contravention, the penalty proceedings terminated in favour of the appellant, is of little avail to the appellant for the reason that the two Acts operate in different fields, one for Contravention of FERA and the second for evasion of customs duty. The mere fact that the penalty proceedings for evasion of the customs duty had ended in favour of the appellant, does not take away the jurisdiction of the enforcement authorities under the Act to impose the penalty in question. The doctrine of double Jeopardy has no application. The further contention that the offence is based on no evidence is devoid of any substance. Notice was given to the appellant. In the show-cause notice contravention was brought to its notice. The appellant gave the explanation. After consideration of the facts since there was no express permission granted by the Reserve Bank of India for the payments by the appellant to the agent outside India, the contravention was proved and penalty was imposed. It is the penalty under Sec. 5(1) (a) & (b) of the Repealed Act equivalent to Sec. 9(1)(a) of the Act. Therefore, the penalty imposed is based on material, valid reasons and proper findings.

Detailed Analysis on the concept of double jeopardy vis-à-vis GST Law can also be read at

Article -1- Levy of Penalty in GST and the privilege under Section 75(13) of CGST Act, 2017-Where any penalty is imposed under Section 73/74 of CGST Act, 2017 then no penalty for same act or omission to be imposed on the same person under any other provision of CGST Act, 2017

Article-2-Levy of Penalty in GST-Can Multiple penalties be levied under section 122 of CGST Act, 2017 for two offences which may arise in the course of the same transaction, or from the same act of the person

Article 20(1) of the Constitution of India-Whether a person can be convicted for an offence or subjected to a penalty by an expost facto law which retrospectively create offences and punish them; Impact of the term “conviction”, “offence” and law in force; Applicability of Article 20(1) on penalty in taxation laws

Today’s post will discuss about Article 20 of the Constitution of India and the same is being reproduced here under:-

(1) No person shall be convicted of any offence except for violation of a law in force at the time of the commission of the Act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence.

Th reason why the article is part of the Constitution of India has been explained by Hon’ble Apex Court in the matter of Rao Shiv Bahadur Singh And Another vs The State Of Vindhya Pradesh on 22 May, 1953 Equivalent citations: 1953 AIR 394, 1953 SCR 1188 wherein it was provided that

This article in its broad import has been enacted to prohibit convictions and sentences under expost facto laws and there can be no doubt as to the paramount importance of the principle that such ex Post facto laws, which retrospectively create offences and punish them are bad as being highly inequitable and unjust.

In Soni Devrajbhai Babubhai vs State Of Gujarat And Ors on 28 August, 1991 Equivalent citations: 1991 AIR 2173, 1991 SCR (3) 812 it was held that acceptance of the appellant’s contention would amount to holding that the respondents can be tried and punished for the offence of dowry death provided in section 304-B of the Indian Penal Code with the minimum sentence of seven years’ imprisonment for an act done by them prior to creation of the new offence of dowry death. Therefore, in the opinion of the hon’ble Apex Court this would have clearly denied to them the protection afforded by clause (1) of Article 20 of the Constitution and therefore protection given by Article 20(1) was a complete answer to the appellant’s contention.

In Hatisingh Mfg. Co. Ltd. v. Union of India, (1960) 3 SCR 528 It was held that the protection of Article, 20 (1) avails only against punishment for an act which in treated as an offence which when done was not an offence.

Before moving on to the relevant decisions, lets have reference to the following-

The article consists of two parts and how they have to be read

Part-I- No person shall be convicted of any offence except for violation of a law in force at the time of the commission of the Act charged as an offence.

Part II-No Person shall be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence.

How they have to be read has been a matter of debate and was settled by Hon’ble Apex Court in the matter of State of West Bengal v. S. K. Ghosh, (1963) 2 SCR III wherein it was held that Article 20(1) deals with conviction of persons for offences and for subjection of them to penalties. It provides firstly that “no person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence”. Secondly, it provides that no person shall be “subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence”. Clearly, therefore Art. 20 is dealing with punishment for offences and provides two safeguards, namely,

  • that no one shall be punished for an act which was not an offence under the law in force when it was committed, and
  • that no one shall be subjected to a greater penalty for an offence than what was provided under the law in force when the offence was committed.

In P. Ummali Umma v. Inspecting Assistant Commissioner of Income-tax [1967] 64 I.T.R. 669, K. K. Mathew, J. (as he then was), deciding about the violation of Article 20(1) of the Constitution with reference to the amendment made in Section 271 of the Income-tax Act, 1961, providing for imposition of penalty under that Act provided about the interpretation of two clause as follows:

A question has been raised in some cases as to whether the prohibition extends to penalties other than punishments awarded in judicial proceedings. No such question will arise if the word ‘penalty’ is read with the word ‘convicted’ in the earlier part of the clause. While the first part of the article bars a conviction, the second part relates to the punishment or sentence that may be inflicted upon such conviction. A penalty, therefore, would come within the purview of Article 20(1) only if the earlier part of the clause is attracted, i.e., there must have been a conviction for an offence. Unless there is a conviction, no question of the latter part of the article applying will arise.

Meaning of the term “offence”-

Since the term offence has not been defined under the Constitution of India, therefore reference would have to be drawn from the General Clauses Act, 1897 wherein clause 3(38) defines the term “offence” as follows:

(38) “offence” shall mean any act or omission made punishable by any law for the time being in force.

Therefore, the application of article 20 is upon any act or omission punishable by the law.

Meaning of the term “law in force”-

The term “Law in force” was explained by the Hon’ble Apex Court in the matter of Rao Shiv Bahadur Singh And Another vs The State Of Vindhya Pradesh on 22 May, 1953 Equivalent citations: 1953 AIR 394, 1953 SCR 1188 wherein it was provided that

Law in force” referred to therein must be taken to relate not to a law “deemed” to be in force and thus brought into force, but the law factually in operation at the time or what may be called the then existing law. Otherwise, it is clear that the whole purpose of article 20 would be completely defeated in its application even to ex post facto laws passed after the Constitution. Every such ex post facto law can be made retrospective, as it must be, if it is to regulate acts committed before the actual passing of the Act, and it can well be urged that by such retrospective operation it becomes the law in force at. the time of the commencement of the Act. It is obvious that such a construction which nullifies article 20 cannot possibly be adopted. It cannot therefore be doubted that the phrase “law in force” as used in article 20 must be understood in its natural sense as being the law in fact in existence and in operation at the time of the commission of the offence as distinct from the law “deemed” to have become operative by virtue of the power of legislature to pass retrospective laws. It follows that if the appellants are able to substantiate their contention that the acts charged as offences in this case have become such only by virtue, of Ordinance No. XLVIII of 1949 which has admittedly been passed subsequent to the commission thereof, then they would be entitled to the benefit of article 20 of the Constitution and to have their convictions set aside.

The questions which this today’s article will dwell upon is whether Article 20(1) is applicable upon civil liabilities as provided under the Taxation Law or is applicable upon the Criminal Proceedings and the impact of the term “convicted” and “offence”. The major landmark cases on the applicability of Article 20 of the Constitution of India are as follows:

Applicability of Article 20 on the penalty imposed under Taxation Laws-Judgement against the fact that penalty under Taxation statutes are also covered by Article 20

Reference-1- The presence of the words ‘conviction’ and ‘offences’, in the marginal note ‘convicted of an offence’, ‘the act charged as an offence’ and ‘commission of offence’ in Clause (1) of Article 20, Prosecuted and punished’ in Clause (2) of Article 2 and ‘accused of an offence’ and ‘compelled to be a witness against himself’ in Clause (3) of Article 20 clearly suggests that Article 20 relates to the constitutional protection given to persons who are charged with a crime before a Criminal Court-Shiv Dutt Rai Fateh Chand and others v. Union of India and another [(1983) 3 SCC 529

The contention of the petitioners is that any act or omission which is considered to be a default under the Act for which penalty is leviable is an offence, that such act or, omission was not an offence and no penalty was payable under the law in force at the time when it was committed and hence they cannot be punished by the levy of penalty under a law which is given retrospective effect. They principally rely on Article 20 (1) in support of their case. Article 20 (1) is modelled on the basis of Section 9 (3) of Article 1 of the Constitution of the United States of America which reads: “No bill of attainder or ex post facto law shall be passed”. This clause has been understood in the United States of America as being applicable only to legislation concerning crimes. (See Calder v. Bull, (1798) 3 Dall 386). The expression ‘offence’ is not defined in the Constitution. Article 367 of the Constitution says that unless the context otherwise provides for words which are not defined in the Constitution, the meaning assigned in the General Clauses Act, 1897 may be given. Section 3 (38) of the General Clauses Act defines ‘offence’ as any act or omission made punishable by any law for the time being in force. The marginal note of out Article 20 is ‘Protection in respect of conviction for offences’. The presence of the words ‘conviction’ and ‘offences’, in the marginal note ‘convicted of an offence’, ‘the act charged as an offence’ and ‘commission of offence’ in Clause (1) of Article 20, Prosecuted and punished’ in Clause (2) of Article 2 and ‘accused of an offence’ and ‘compelled to be a witness against himself’ in Clause (3) of Article 20 clearly suggests that Article 20 relates to the constitutional protection given to persons who are charged with a crime before a Criminal Court. (See H. M. Seervai: Constitutional Law of India (3rd Edition) Vol., 1, page 759). The word ‘penalty’ is a word of wide significance. Sometimes it means recovery of an amount as a penal measure even in a civil proceeding. An exaction which is not of compensatory character is also termed as a penalty even though it is not being recovered pursuant to an order finding the person concerned guilty of a crime. In Article 20 (1) the expression ‘penalty’ is used in the narrow sense as meaning a payment which has to be made or a deprivation of liberty which has to be suffered as a consequence of a finding that the person accused of a crime is guilty of the charge.

It was further concluded that

After giving an anxious consideration to the points urged before us, we feel that the word ‘penalty’ used in Article 20(1) cannot be construed as including a ‘penalty’ levied under the sales tax laws by the departmental authorities for violation of statutory provisions penalty imposed by the sales tax authorities is only a civil liability, though penal in character.

Reference-2- “convicted” “commission of the act charged as an offence”, “be subjected to a penalty”, “commission of the offence”, “prosecuted and punished”, “accused of any offence”, would indicate that the proceedings therein contemplated are of the nature of criminal proceedings, before a Court of law or a judicial tribunal-Maqbool Hussain v. State of Bombay, 1953 SCR 730

The very wording of Article 20 and the words used therein :- “convicted” “commission of the act charged as an offence”, “be subjected to a penalty”, “commission of the offence”, “prosecuted and punished”, “accused of any offence”, would indicate that the proceedings therein contemplated are of the nature of criminal proceedings, before a Court of law or a judicial tribunal and the prosecution in this context would mean an initiation or starting of proceedings of a criminal nature before a Court of law or a judicial tribunal in accordance with the procedure prescribed in the statute which creates the offence and regulates the procedure.

Reference-3- The Article 20 contemplates proceedings of the nature of criminal proceedings and the prosecution in this context means an initiation of proceedings of a criminal nature-Raghunandan Prasad Mohan Lal, … vs The Income Tax Appellate Tribunal … on 3 November, 1969 Equivalent citations: AIR 1970 All 620, 1970 75 ITR 741 All

The Supreme Court in Maqbool Hussain v. State of Bombay, AIR 1953 SC 325 held that the Article 20 contemplates proceedings of the nature of criminal proceedings and the prosecution in this context means an initiation of proceedings of a criminal nature. The first part of Article 20(1) prohibits a conviction while the second part deals with penalty that may be inflicted on conviction by way of punishment.

10. The first contention based on the alleged violation of Article 20 is accordingly) rejected.

Reference-4- With respect, we concur with the view taken by the Kerala and Allahabad High Courts which finds support from the above-quoted decision of the Supreme Court pointing out that imposition of penalty under a fiscal law is of the nature of recovery of additional tax only-Central India Motors vs C.L. Sharma, Assistant … on 7 December, 1979 Equivalent citations: 1980 46 STC 379 MP Equivalent citations: 1980 46 STC 379 MP

In Jawala Ram v. State of Pepsu A.I.R. 1962 S.C. 1246, it was held that the unauthorised use of canal water is not an “offence” and the imposition of enhanced water charge under the statutory rules is not a “penalty” for such an “offence”, since there is no law forbidding the unauthorised user of water. Dealing with the applicability of Article 20 of the Constitution in that context, it was held that the word “offence” in the several clauses of Article 20 must be understood to convey the meaning given to it in the definition contained in the General Clauses Act. This decision clearly shows that Article 20 applies only to offences properly so called, i.e., criminal offences and not to imposition of any penalty or an extra charge for any unauthorised act which is not forbidden by any law for the time being in force. The imposition of penalty under a fiscal law requiring payment of an extra sum of money is in reality a requirement of an additional tax imposed upon a person in view of his dishonesty and contumacious conduct: see C. A. Abraham v. Income-tax Officer [1961] 41 I.T.R. 425 at 430 (S.C.) and Commissioner of Income-tax v. Bhikaji Dadabhai & Co. [1961] 42 I.T.R. 123 at 128 (S.C.) The nature of penalty which is in reality only the requirement to pay additional tax under a fiscal law, as indicated by the Supreme Court itself, shows that the retrospective operation of a statutory provision imposing penalty under a fiscal law cannot attract the prohibition contained in Clause (1) of Article 20 of the Constitution.

8. In P. Ummali Umma v. Inspecting Assistant Commissioner of Income-tax [1967] 64 I.T.R. 669, K. K. Mathew, J. (as he then was), negatived a similar argument of violation of Article 20(1) of the Constitution with reference to the amendment made in Section 271 of the Income-tax Act, 1961, providing for imposition of penalty under that Act. While repelling the contention, Mathew, J., observed as follows: ;

Although the concealment of the particulars of the income was made an offence under Section 52 of the repealed Act and is also made an offence under Section 277 of the Act, I cannot say that the penalty imposed under Section 28 of the repealed Act or under Section 271 of the Act was or is imposed on the basis that it was or is an offence. For the offence punishment was or is prescribed such as imprisonment, fine or both. The imposition of penalty on the basis of an act or omission by an assessee is not because the act or omission constitutes an offence, but because that act or omission would constitute an attempt at evasion. Therefore penalty is exacted not because an act or omission is an offence but because it is an attempt at evasion of tax on the part of the assessee. Article 20(1) of the Constitution can have no application to a case where a penalty is imposed not as punishment for an offence but for some other collateral purpose. A heavier penalty for failure to pay tax would not have attracted the application of the corresponding article of the Constitution of the United States : see Banker’s Trust Co. v. Blodgett 260 U.S. 647. In that case, in answer to the contention that to reach into the past and provide greater punishment than what the law did when the crime was committed incurred the constitutional prohibition of an ex post facto law, the court said :

‘The penalty of the statute was not in punishment of a crime, and it is only to such that the constitutional prohibition applies.’ So, I take the view that, even assuming that the penalty has been enhanced under the Act, that would not attract the constitutional inhibition of Article 20(1) because the penalty is imposed not as punishment for the commission of an offence, even though the act for which the penalty is imposed is an offence liable to be punished. I, therefore, overrule this contention of the learned Advocate-General.

Similar was the view taken by a Full Bench of the Allahabad High Court in Raghunandan Prasad Mohan Lal v. Income-tax Appellate Tribunal [1970] 75 I.T.R. 741 (F.B.), with respect to penalty proceedings under the Income-tax Act, 1961, and it was held that Article 20 of the Constitution contemplates proceedings of the nature of criminal proceedings and the prosecution in this context means an initiation of proceedings of a criminal nature; and that the penalties imposed under the Income-tax Act cannot be regarded as punishment awarded for an offence. No decision of any court taking the contrary view and holding that Article 20 Of the Constitution is attracted to a provision providing for imposition of penalty under a fiscal law has been cited before us. With respect, we concur with the view taken by the Kerala and Allahabad High Courts which finds support from the above-quoted decision of the Supreme Court pointing out that imposition of penalty under a fiscal law is of the nature of recovery of additional tax only.

Applicability of Article 20 on the penalty imposed under Taxation Laws-Judgement in favour of the fact that penalty under Taxation statutes are also covered by Article 20

Reference-1- In the case of acts amounting to crimes the punishment to be imposed cannot be enhanced at all under our Constitution by any subsequent legislation by reason of Article 20 (1) of the Constitution which declares that no person shall be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence-Commissioner Of Wealth Tax, … vs Suresh Seth on 7 April, 1981 Equivalent citations: 1981 AIR 1106, 1981 SCR (3) 419

A liability in law ordinarily arises out of an act of commission or an act of omission. When a person does an act which law prohibits him from doing it and attaches a penalty for doing it, he is stated to have committed an act of commission which amounts to a wrong in the eye of law. Similarly, when a person omits to do an act which is required by law to be performed by him and attaches a penalty for such omission, he is said to have committed an act of omission which is also a wrong in the eye of law. Ordinarily a wrongful act or failure to perform an act required by law to be done becomes a completed act of commission or omission, as the case may be, as soon as the wrongful act is committed in the former case and when the time prescribed by law to perform an act expires in the latter case and the liability arising therefrom gets fastened as soon as the act of commission or of omission is completed. The extent of that liability is ordinarily measured according to the law in force at the time of such completion. In the case of acts amounting to crimes the punishment to be imposed cannot be enhanced at all under our Constitution by any subsequent legislation by reason of Article 20 (1) of the Constitution which declares that no person shall be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence.

Reference-2-Maya Rani Punj vs Commissioner Of Income Tax, Delhi on 11 December, 1985 Equivalent citations: 1986 AIR 293, 1985 SCR Supl. (3) 827

This was a decision wherein the bench held that the final decision regarding the continuing default decided in the Commissioner Of Wealth Tax, … vs Suresh Seth was not correct in law and held that

We are inclined to agree with counsel for the Revenue that the conclusion reached in Suresh Seth’s case is contrary to law. Jain Brother’s case was not referred to all in Suresh Seth’s case.

However, regarding the applicability of Article 20 of the constitution of India, it was observed that there can be no dispute regarding the conclusion reached for applicability of Article 20 of Constitution of India.

Reference-3-Moreover, as is clear from the decision of the Supreme Court in the case of Commissioner of Wealth-tax, Amritsar v. Suresh Seth, the question whether the liability imposed is civil or criminal would not make any difference to the application of the principles laid down by the Supreme Court in that case-Commissioner Of Sales Tax, … vs Rajendra Motors on 13 December, 1984 Equivalent citations: 1985 59 STC 155 Bom

In view of this, it appears clear to us that it is the provisions of sub-section (3) of section 36 of the Bombay Sales Tax Act, as it stood on that day, namely, 23rd April, 1973 which were applicable and the penalty had to be calculated at the rates as provided in sub-section (3) of section 36 as on that date. In this connection, it was urged by Mr. Jetly that although sub-section (3) of section 36 provided for a penalty, it was a penalty under a taxing statute and was not in the nature of a penalty under criminal law. In support of this contention, Mr. Jetly relied on the observations of the Supreme Court in Shiv Dutt Rai Fateh Chand v. Union of India, where it has been observed that the penalty imposed by the sales tax authorities is only a civil liability, though penal in character. In the first place, it must be remembered that this observation was made in connection with the question as to whether a penalty imposed by a sales tax authority can be equated with a penalty as contemplated under article 20(1) of the Constitution of India. Moreover, as is clear from the decision of the Supreme Court in the case of Commissioner of Wealth-tax, Amritsar v. Suresh Seth , the question whether the liability imposed is civil or criminal would not make any difference to the application of the principles laid down by the Supreme Court in that case. The principles laid down by the Supreme Court clearly apply to liabilities for civil wrongs as well as liabilities for criminal acts. In the present case it is clear, and no contrary argument has been advanced before us, that on the language of sub-section (3) of section 36 that is nothing to show that the penalty imposed was sought to be made retrospectively effective. Nor is there any necessary implication which would lead to this result. Conclusion-However, it seems that the issue which stand as on date is inclined in favour of applicability of Article 20(1) in respect of criminal offences and not in respect of civil liabilities as imposition of penalty under a fiscal law requiring payment of an extra sum of money is in reality a requirement of an additional tax imposed upon a person in view of his dishonesty and contumacious conduct and the  nature of penalty which is in reality only the requirement to pay additional tax under a fiscal law shows that the retrospective operation of a statutory provision imposing penalty under a fiscal law cannot attract the prohibition contained in Clause (1) of Article 20 of the Constitution Of India.

Amount held as Retention Money by the recipient-Reversal of Input Tax Credit for non-payment of consideration within 180 days from the date of Invoice

Analysis of Reversal of Input Tax Credit on retention money withheld against the Invoice in GST

The article throws light on the applicability of provisions of reversal of Input Tax Credit on account of non-payment of consideration to the supplier within 180 days of raising of the invoice in case of retention of money by the Recipient.

Second proviso to Section 16(2) of CGST Act, 2017 is being reproduced hereinbelow-

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:

Supposedly, a supplier has raised invoice of Rs 1 Lakh and the recipient while making the payment has withheld Rs 5000 on account of retention money to be paid after one year of completion of the contract. That the contention of the revenue in such cases is always that since the amount has been unpaid, therefore reversal of Input Tax Credit is required.

That it would be worthwhile to highlight that normally in such cases, there is an agreement between the supplier and the recipient regarding withholding the amount and to be paid later on.

Once the condition regarding the payment of the invoice has been waived by the supplier and has been agreed by him that he will receive the same subject to conditions of the contract, such waiver shall be deemed to be performance of the condition regarding payment of the due amount for the purpose of Second Proviso to Section 16(2) of the CGST Act, 2017

The Contract Act, has been enacted for defining the essential ingredients required to solidify private rights and obligations between the parties. Be that as it may, a right which has been conferred on an individual, either by legislation or contractual provisions, such a right can be waived off by the individual which might result in complete abandonment of legal privilege cast by such legal or contractual provision. According to the Black’s Law Dictionary, the term “Waiver” has been defined as the voluntary relinquishment or abandonment of a legal right or advantage. It is an act of surrender of benefit or privilege.

The Doctrine of Waiver finds its place under Section 63 of the Contract Act which provides for relinquishment of rights between the parties. Rights that may be relinquished include obligations as well as claims that had been earlier consented to be performed and exercised by the parties. Thus, the waiver of right under Section 63 of the Contract Act has to be a matter of mutual consensus. Once the right to waiver has been exercised then the promisor has no obligations with respect to the promise he had made to the promisee. The promise stands to be waived off in whole.

That provision of Section 63 of the Indian Contract Act, 1872 are being reproduced as under-

63. Promise may dispense with or remit performance of promisee.—Every promisee may dispense with or remit, wholly or in part, the performance of the promisee made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.

Illustrations

  • A promises to paint a picture for B. B afterwards forbids him to do so. A is no longer bound to perform the promise.
  • A owes B 5,000 rupees. A pays to B, and B accepts, in satisfaction of the whole debt, 2,000 rupees paid at the time and place at which the 5,000 rupees were payable. The whole debt is discharged.
  • A owes B 5,000 rupees. C pays to B 1,000 rupees, and B accepts them, in satisfaction of his claim on A. This payment is a discharge of the whole claim.
  • A owes B, under. a contract, a sum of money, the amount of which has not been ascertained. A, without ascertaining the amount, gives to B, and B, in satisfaction thereof, accepts, the sum of 2,000 rupees. This is a discharge of the whole debt, whatever may be its amount.

(e) A owes B 2,000 rupees, and is also indebted to other creditors. A makes an arrangement with his creditors, including B, to pay them a composition of eight annas in the rupee upon their respective demands. Payment to B of 1,000 rupees is a discharge of B‟s demand.

In the matter of Jagad Bandhu Chatterjee v. Smt. Nilima Rani & Ors. (1969) 3 SCC 445, the Supreme Court, while discussing waiver of a right under Section 63 of the Contract Act, has held that such waiver of right does not even require any consideration or an agreement. The Supreme Court also made a reference to the Waman Shriniwas Kini v. Ratilal Bhagwandas and Co. AIR 1959 SC 689 and held that waiver constitutes abandonment of a right and normally, everybody is at liberty to waive such a right.

Therefore, even for the sake of admission, if it is admitted that payment for the invoice gets due as soon as it is raised but the supplier waives of the right to receive the payment and agrees it to be treated as retention money, then it shall be treated as performance of payment obligation by the recipient.

By virtue of provision of Section 63 of the Indian Contract Act, 1872 supplier is entitled to dispense with or remit, wholly or in part, the performance of the recipient made to him, or supplier may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit. That, once this right to waive is exercised by the supplier then recipient has no obligation left with respect to payment of the invoice from the date of invoice until as per the terms of the contract the payment become due. The promise to pay the invoice until the condition as per the agreement is satisfied stands to be waived off in whole.

Therefore, once supplier has waived off his right to receive the payment until it become due as per the terms and conditions of the contract, the condition to pay stands satisfied from the point of the recipient and therefore, once is stands satisfied, there can be no reversal on account of non-payment of consideration by the recipient within 180 days from the date of invoice.

Once the supplier himself has waived off the right to receive the payment, then asking the recipient to pay the invoice within 180 days of the invoice is asking the recipient to do the impossible. That a condition of the statute asking the taxpayer to do the impossible cannot be enforced and should either be treated as complied with or should stand read down to the extent the taxpayer is not devoid of complying with the condition.

Proviso to Section 16(2) of CGST requires the taxpayer to make payment within 180 days of the date of invoice assuming that the payment for an invoice falls due on the same date when it has been issued by the supplier. It is pretty evident that as per the provisions of Section 63 of the Indian Contract Act, 1872 a supplier has the right to waive off the right to receive the payment upon a subsequent date. That now in the case of retention of money by recipient, supplier waives off the right to receive the payment immediately and agrees the same to be deferred to a future date. Now since the recipient is no longer required to make the payment until the due date as per the terms and conditions of the contract, therefore to treat the instant case as non-payment of consideration by the recipient is asking the taxpayer to do the impossible. It would be asking the recipient to do the impossible.

Hon’ble Apex Court in the matter of Cochin State Power And Light … vs State Of Kerala on 25 February, 1965 Equivalent citations: 1965 AIR 1688, 1965 SCR (3) 187 held that

“The performance of this impossible duty must be excused in accordance with the maxim, lex non cogitate ad impossible (the law does not compel the doing of impossibilities), and sub-s(4) of s.6 must be construed as not being applicable to a case where compliance with it is impossible.”

Further, Hon’ble Allahabad High Court in the matter of The Inter College, Through Its … vs The State Of U.P. Through … on 6 January, 2006 (All HC) held that where the law creates a duty and the party is disable to perform it without any default in him and has no remedy over there, the law will excuse him.

Hon’ble Apex Court in the matter of State Of Rajasthan &AnrvsShamsher Singh on 1 May, 1985 Equivalent citations: 1985 AIR 1082, 1985 SCR Supl. (1) 83 held that however mandatory the provision may be, where it is impossible of compliance that would be a sufficient excuse for non-compliance, particularly when it is a question of the time factor.

Therefore, in view of the above that since the supplier himself has waived off the right to receive the payment within a period of 180 days and this waiver either shall be treated as performance of the condition by the recipient or since the recipient has been prevented from a cause beyond his control to perform the condition, that condition be not being applicable in the instant case as its compliance is impossible.

Since the right to claim payment in case of retention arises at the time of satisfaction of the condition as per the contract and not from the date of raising of the invoices, therefore the period of 180 days shall be calculated from the date when the payment of retention money becomes due and not from the date of invoice.

Since the right to claim payment in case of retention arises at the time of satisfaction of the condition as per the contract and not from the date of raising of the invoices, therefore the period of 180 days shall be calculated from the date when the payment of retention money becomes due and not from the date of invoice.

That hon’ble Calcutta High Court in the matter of Commissioner Of Income-Tax vs Simplex Concrete Piles (India) … on 5 December, 1988 Equivalent citations: 1989 179 ITR 8 Cal held thatthe payment of retention money is deferred and is contingent on the satisfactory completion of the work and removal of defects and payment of damages, if any. Till then, there is no admission of liability and no right to receive any part of the retention money accrues to the assessee.

The Hon’ble Court thus held that

Having regard to the facts and circumstances of the case, we are of the view that on the terms and conditions of the contract as examined by the Tribunal, it cannot be held that either 10 per cent. or 5 per cent. as the case may be, being the retention money, became legally due to the assessee on the completion of the work. Only after the assessee fulfils the obligation under the contract, that the retention money would be released and the assessee would acquire the right to receive such retention money. Therefore, on the date when the bills were submitted, having regard to the nature of the contract, no enforceable liability has accrued or arisen and, accordingly, it cannot be said that the-assessee had any right to receive the entire amount on the completion of the work or on the submission of bills. The assessee had no right to claim any part of the retention money till the verification of satisfactory execution of the contract.

Further Similar view was taken by Hon’ble Gujrat High Court in Anup engineering Ltd. (247 ITR 457), wherein it held that looking to the facts of the case and in light of the law laid down by the Supreme Court, it is very clear that unless and until a debt is created in favour of the assessee, which is due by somebody, it cannot be said that the assessee has acquired a right to receive. A debt must have come into existence and the assessee must have acquired a right to receive the payment.

Hon’ble Bombay High Court in the matter of ClT v. Associated Cables P. Ltd. (286 ITR 596) held inter alia that the right to receive the retention money is accrued only after the obligations under the contract are fulfilled.

Therefore, in view of the above it is pretty clear that retention money does not gets due when the invoice is issued but the money gets due as per the stipulations in the terms of the agreement. The right to receive the amount is the paramount consideration for getting the amount recovered. Mere raising or submission of the invoice does not vest the supplier with right to receive the payment. Therefore, in view of the above calculation of one hundred eighty days should be done from the date when the retention money gets due rather than from the date of invoice.

Since the retention money has been withheld with the consent of the supplier and amount paid by recipient to the supplier is more than the entire tax amount of the entire invoice, therefore it should be treated that recipient has complied with the provision of payment to the supplier within 180 days of the issue of the invoice.

A similar provision for reversal of input tax credit for non-payment of consideration to the supplier existed in Cenvat Credit Rules, 2004, The provision was similar in erstwhile law however it was restricted to services only unlike under GST it is applicable to both goods and services. Third proviso to Rule 4(7) of the CENVAT Credit Rules, 2004 provided that in case the payment of the value of input service and the service tax paid (or payable) as indicated in the invoice is not made within 3 months from the date of the invoice then the manufacturer or the service provider shall pay an amount equal to the CENVAT credit so availed.

In this regard the Tribunal in the case of Hindustan Zinc Limited [(2014) 34 S.T.R. 440 (Tri-Del)] has held that Rule 4(7) would be applicable only in a situation where the service provider has issued the invoice but he has not paid the service tax. But where there is no dispute that service tax has been paid by the service provider on the full invoice value, even though he has not received full payment from the service recipient and part of the payment due to him has been withheld by the service recipient due to some reason, this rule would not be applicable.

If the recipient pays the tax amount to the suppliers and only amount which has been retained is with the consent of the supplier as retention money is the deposit amount which also would be refunded to the suppliers as and when they meet their obligation.

Therefore, in view of the above and following the judgement as laid down in the matter of Hindustan Zinc Limited [(2014) 34 S.T.R. 440 (Tri-Del)], input tax credit shall be allowed to the recipient as the retention money has been withheld with the consent of the supplier and amount paid by recipient to the supplier is more than the entire tax amount of the entire invoice.

The amount being retained be treated as deposit as once retained it loses the character of amount being retained for an invoice.

For start, the transaction of withholding can be seen from the point of view that the amount withheld as retention money is nothing but deposit.

What would have been the scenario, supposedly without retaining the amount as retention money, if entire amount would have been paid to the supplier and he would have deposited it again by way of remittance separately. Therefore, in the opinion of the author it would not have been treated as a case of non-payment of consideration.

It can be argued that it was open for supplier and the recipient to opt either of the method i.e. either against the invoice raised by the supplier, recipient could have made the payment for the entire invoice amount and then taken back the amount back from the supplier as retention money to be held as deposit or could have deducted the amount as retention money from the invoice. That either of the methods result in same end result and insistence on one method rather than the second is arbitrary and the nature of transaction should be looked into rather than merely looking to the nomenclature of the transaction.

The provisions of Second Proviso to Section 16(2) nowhere provides for the mode of payment that payment should be made through cheque only. That had the intention of the legislature been so, then they would have specifically so provided for in the statute. That the taxability or otherwise should be governed by the nature rather than nomenclature of procedural matter.

The transactions need to be viewed as two separate transactions one wherein the entire amount towards has been paid and second wherein subsequent to treating the invoice being paid by the recipient to the supplier, part of the amount of amount is repaid back/retained by the recipient for successful completion of the contract as deposit.

Once an amount is retained, it is not for the particular invoice but as a deposit with the consent of the supplier wherein he has treated that the amount due towards the individual invoice has been paid but the deposit has been kept for the successful completion of the contract. That further when a claim is made by the supplier for payment of retention money, it is not with respect to the individual invoice but with respect to entire amount retained.

Once an amount is retained it loses it connection with invoice as it is held in the nature of deposit thereafter. Therefore, cases regarding retention money shall not at all be treated as a case of non-payment for an invoice but it is holding of an amount towards completion of the contract as deposit treating that amount towards invoice being paid with the consent of the supplier and thus provisions of second proviso to Section 16(2) of CGST Act, 2017 being treated as complied.

Second Proviso to Section 16(2) is illegal and ultra vires as it forces the buyer to reverse the credit for non-payment of consideration to supplier and government itself get unjustly enriched when both the parties have agreed to defer the payment and the supplier by exercising the right as vested under Section 63 of the Indian Contract Act, 1872 has waived off the right to receive the payment until a future date. That the provision is ultra vires per se as tax in the instant case has already been deposited with the Government and the Government is disallowing the Input Tax Credit citing superficial reasons even in cases wherein both the supplier and recipient have agreed for a payment beyond the stipulated time period of 180 days.

Second Proviso to Section 16(2) is illegal and ultra vires as it forces the buyer to reverse the credit for non-payment of consideration to supplier and government itself get unjustly enriched when both the parties have agreed to defer the payment and the supplier by exercising the right as vested under Section 63 of the Indian Contract Act, 1872 has waived off the right to receive the payment until a future date.

That minutes of the 5th GST Council Meeting held on 2-3 December 2016 at New Delhi states the object of the provisions regarding reversal of input tax credit on non-payment for the reasons as under:

“XXI. Section 16(2) (Eligibility and conditions for taking input tax credit):

The minister from West Bengal raised a question in respect of the second proviso of the Section 16(2), as to why tax would be payable in a situation where a contract between two taxable persons could provide for period for making payment beyond three months and second question raised was as to why the same principle was not applied to goods. In response the of the same The Commissioner (GST Policy Wing), CBEC clarified that it was an anti-evasion measure and that the credit reversed after three months could be again taken once the recipient of the service had made payment to the suppler and for the second question the clarification presented that goods being tangible, there would be a proof of its receipt which was not the case in services, where there was only a book entry.

                                                                       Emphasis Supplied

The purpose behind insertion of the above said provision as insertion of anti-evasion measure. That provision was intended to be inserted initially only on services as an anti-evasion measure. That since the movement of the goods can be traced, therefore the fact that the goods have been received can be counter checked by its movement but since movement of the services cannot be traced therefore the provision for reversal of Input Tax Credit was sought to be inserted for services only to link the credit with the payment.

The business terms and conditions in our Country have always been a prerogative of the buyer and seller. The government cannot force any buyer or seller to choose a particular methodology for doing their business as long as they follow the other regulatory frameworks. In many situations, it is not always necessary that the buyer will make payment to the seller within 180 days. Rather, it also depends on nature of business, model of business, form of business and relationship between the parties. In practical scenario, there are many situations where higher credit period is necessary and allowed.

Through the insertion of the provision, government has entered itself into a position of unjust enrichment. The tax has already been deposited by the supplier to the Government and government in turn by not allowing the credit and retaining the money with itself has enriched itself unjustifiably. The provision on the face might seem that it favours the supplier but in effect, through this provision, government has entered into the field of unjust enrichment.

For Example, A has supplied services to B for Rs 100 and has charged tax of Rs 10. B does not pay to A part of the amount held as retention. B however further supplies services to C for Rs 150 and collects tax of Rs 15.

In a normal scenario, entire tax collection from the transaction would have been Rs. 15. However, since B has not paid any amount to A, therefore he would not be entitled for any credit of the tax paid and he would again deposit entire amount of Rs 15 charged from C. Therefore, government would get revenue of Rs 25 as against Rs 15 on account of non-payment value of services supplied alongwith tax by B to A and that too on account of their own disputes.

The government is indulging itself in unjust enrichment. The government has nothing to do in the matters between A and B. It’s just that A has deposited the tax and B claims it irrespective of fact whether he pays any amount to A or not. For, there may be “N” number of reasons that why B would not pay to A. If the intention of the government is fair, then it should collect the tax amount from B and remit the same to A. Holding on to the amount would be unjust enrichment.

That the provision is ultra vires per se as the mere fact that the legitimate credit is being denied to the recipient under the pretext of non-payment when the tax has already been deposited and the government is enriching itself with the money of the recipient.

Conclusion-That in the humble opinion of the author, therefore applicability of reversal of Input Tax Credit on retention money is not at all correct and the fact that right to receive has been waived off by the supplier should be treated as payment of consideration and recipient cannot be asked to do the impossible. In the alternative, it can be considered that the period of 180 days should start from the day when the retention money becomes due. Further, once tax has been deposited by the supplier, then government has no right to indulge itself into unjust enrichment in the name of welfare of SSI.

Amendment to Section 50 Prospective or Retrospective- Danger Signals for Taxpayers and Diverse Views in Council and Another matter for the Judiciary- GST Council Minutes-Meeting Dated-21st June 2019

Amendment to Section 50 Prospective or Retrospective- Danger Signals for Taxpayers and Diverse Views in Council and Another matter for the Judiciary- GST Council Minutes-Meeting Dated-21st June 2019

In the 35th GST Council Meeting Held on 21st June 2019, matter regarding prospective and retrospective impact of Amendment of Section 50 of CGST Act, 2017 was discussed and GST Council approved it as a prospective amendment. The matter of prospective/retrospective impact of is sub-judice to Telangana High Court.

Serial No.9: Section 50-Interest on delayed payment of tax

13.14. Shri H.K. Dwivedi, Additional Chief Secretary (Finance), West Bengal, stated that his State supported the proposed amendment and suggested that this should be given retrospective effect as it was a beneficial legislation. The Secretary enquired about the views of the Law Committee regarding enacting this provision with retrospective effect. The Principal Commissioner (GST Policy Wing), CBIC, stated that the Law Committee had considered this issue and they were of the view that since a large number of taxpayers would have paid interest on the full amount, a retrospective amendment could lead to a situation where the Government would be forced to pay large amounts of refund. It was, therefore, felt that it would be better to enact the legislation with prospective effect. The Secretary observed that given the financial outgo and complications in the IT system, enacting this amendment with retrospective effect could create problems.

13.15. The CST, Tamil Nadu, stated that the question of amendment had arisen due to the judgment of the Hon’ble High Court of Telangana. In his view, it was never the intention to levy interest on gross amount and the Hon’ble High Court judgement had resulted in it being interpreted as the gross amount. He added that there could be a few taxpayers who would have paid but the vast majority of taxpayers would have not paid. Therefore, if this provision was not enacted with retrospective effect, it would create problems for the taxpayers and would be a subject of lot of representations. Dr. P.O. Vaghela, Chief Commissioner, State Tax, (CCST), Gujarat, stated that when the law was framed, the intention of the law was clearly to pay interest on the delayed payment on the gross amount of the tax payable. If now a relaxation was being proposed and if it was done with retrospective effect, it would lead to floodgates of refund claims. The Hon’ble Deputy Chief Minister of Bihar stated that the amendment should be on prospective basis in order to avoid potential complications. The Secretary observed that in taxation matters, even the orders ofHon’ ble Courts were mostly with prospective effect and suggested that this provision should be enacted with prospective effect. The Council agreed to this suggestion.

So Amendment is Retrospective not because it should legally be so but because there would be many refund claims. Looks like another matter wherein we haven’t heard the last word. The above minutes may just have highlighted the basic reason behind Judgement of Hon’ble Madras High Court for holding Constitution of Tribunal as Unconstitutional in light of Technical Members exceeding Judicial Members.

Advisory group on GST submits report, suggests changes

An advisory group on GST has suggested several changes in the new indirect tax regime with a view to simplifying procedures and ensuring automatic refund of taxes, said CAIT General Secretary and member of the panel Praveen Khandelwal.

The six-member panel set up by the government last month, he said, has made over 100 recommendations regarding GST.

Refund process should be automated, return process should be simplified and rationalised, allowing revision in returns, an ..

Read more at:

Addressing a session on GST

The Clock has started reverse countdown…GST….Here it comes….

And the journey goes on……..Sessions are becoming more interactive…from a one sided communication to becoming two sided..have to admire how a reform has brought everyone on a common platform of sharing and moving together to adopt it with open arms…

GST- Compilation of Ruling by AAR Madhya Pradesh

Below is the compilation of Rulings by AAR Madhya Pradesh. The Compilation provides the subject of the Ruling along with the Date of Ruling. Link to Download has also been given alongwith the Ruling.

Case: Atriwal Amusement Park dated: 09.06.2020

Query: a) Whether we are eligible to take credit on Input Tax paid on Purchase of Water Slides? Water Slider are made up of Strong PVC.                          

b)Water Slider are installed on Steel and Civil Structure. Credit of Tax paid on Input goods and services used in construction of this support structure will be available or not?                            

c) Input Tax will be available or not on Goods and services used for area development and preparation of land on which water slides are erected.

d) Whether applicant will be eligible to take credit of Input Goods and Services used for construction of Swimming Pool/Wave Pool as water slides directly run into pools?

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Case: Agarwal Coal Corporation Pvt. Ltd. dated: 08.06.2020

Query: a) Whether the Applicant is liable to discharge tax liability @ 18% on coal handling and distribution charges wherever supply of such services is intended to be made expressly to a customer or will the Applicant be entitled to charge GST at the rate of 5% as applicable on supply of coal ?

b) Will the applicant be entitled to utilize the input tax credit availed for discharging liability towards supply of coal and supply of coal handling and distribution charges?

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Case: Jabalpur Hotels Private Limited dated: 08.06.2020

Query: Input credit on Purchase of Lift would be available to Hotel as it has been used in the course or for the furtherance of business.Input credit on Purchase of Lift would be available to Hotel as it has been used in the course or for the furtherance of business.

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Case: VE Commercial Vehicles Ltd dated: 02.06.2020

Query: The chassis is originally manufactured by one of the unit of the applicant registered separately as distinct person under GST Act and sold to provider of chassis receiving the chassis for fabrication of body?

The chassis is originally manufactured by some other OEM and sold to provider of chassis before receiving the chassis for fabrication of body?

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Case: M/s Alisha Foods dated: 28.11.2019

Query: What is the correct classification of Fried Fryums of differnt shapes, sizes and varieties which are ready to eat and What is the HSN Code and GST rate appicable on such goods manufactured.

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Case: M/s Anik Milk Products Private Limited dated: 18.10.2019

Query: Whether flavoured milk is taxable at the rate 5% under Schedule IV of the GST Act.

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Case: M/s Bhavika bhatia dated: 25.09.2019

Query:

(a) Applicability of serial no. 15(b)(HSN/SAC Code 9964) of exemption Notification No. 12/2017 (Rate) dated 28-06-2017 as amended, for said activity?

(b) If taxable, its rate of GST?

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Case: M/s Force Motors Limited dated: 25.09.2019

Query: Whether  to classify Utiltiy Van under chapter Heading 8703 or Chapter Heading 8704.

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Case: M/s Kalyan Toll Infrastructure Ltd. dated: 25.09.2019

Query:

(a) Whether  work constitutes composite contract or is it separate contract for each work under taken?

(b) What is the effective rate of tax in the given facts?

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Case: M/s World Researchers Associations dated: 25.09.2019

Query: Whether  the activities performed by the Association are covered under the definition of Charitable Activities as defined under clause 2(r) of Notification No. 12/2017- Central Tax(Rate) dated 28-06-2017, thereby covering its activities under SI. No 1 of the same notification, implying Nil Rate of GST on such activities.

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Case: M/s Madhya Pradesh Power Generating Company Limited dated: 25.09.2019

Query:

(a) Whether charging GST @5% of transportation services by Goods Transport Agency (GST) by road under RCM and 18% on coal beneficiation and loading charges (as stated in point no. 9 of Staement of Facts) is in compliance with the provisions of the GST Law?

(b) If the answer to Q-1 is negative, then waht should be the applicable GST rate on these services and who is liable to pay tax to the government?

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Case: Emrald Heights Interneational School dated: 20.08.2019

Query: Will the consideration received by the school form the praticipant school (s) for participation of their students and staff in the conference would be exempted under No. 66 or entry No. 1 or entry No. 80 or any other entry of the Notification No. 12/2017- Central Tax (Rate) or will be chargeable to GST under CGST Act, 2017 & MP GST Act, 2017 or IGST Act, 2017 ?

If not exempted then what would be the appropariate category of the service and the appropriate Tax Rate?

Wthat would be the Place of Supply for such services?

Whether exemption provided to service providers of catering, security. cleaning, house-keeping, transportation etc. to an educational institution upto higher secondary be available to the service providers of the Applicant for services related to such conference.

Whether ITC would be elighible of all the input services availed for the purpose of the above conference?

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Case: Madhya Pradesh Power Generating Company Limited dated: 26.07.2019

Query: Rate  of GST on contract for construction of building and structure for colony at village Siveria at 2×660 MW Shree Singaji Thermal Power Project Stage-II Khandwa. As per Notification No. 11/2017 as amended by Notification No. 24/2017 further amended vide Notification No. 31/2017.

Rate of GSt on construction contract of residential quarters at various power houses of MPPGCL as per Notification No. 11/2017 as amended by  Notification No. 24/2017 further amended vide Notification No. 31/2017.

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Case: Ravi Masand dated: 24.07.2019

Query: Applicant believes that the product “Agriculture Knapsack Spryer” is classified under HSN 8424 and applicable tax rate is 12%. Details as per Annexure.

Relevant extract of Notification No. 1/2017 dated 28-6-17 as amended vide Notification No. 6/2018-Integrated Tax (Rate) dt. 05-01-2018 is enclosed

What shall be GST rate on such product?

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Case: Directorate of Skil Development Global Skil Development dated: 18.07.2019

Query: The applicant desired to Know, whether the services received by it form a provider of service located in a non taxable territory would attract the provision of sec 5(3) read along with Notification No 10/2017 IT(R). In other words, whether applicant is liable to pay tax under reverse charge mechanism on the transaction mentioned above?

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Case: NMDC Limited dated: 18.07.2019

Query: Whether royalty paid in respect of Mining Lease can be classified under “Licensing services for the right to use minerals including its exploration and evaluation falling under the heading 9973 attracting GST at the same rate of tax as applicable on supply of like goods involving transfer of title in goods”?  Determination of the liability to pay tax on contribution made to District Mineral Foundation (DMF) and National Mineral Exploration trust (NMET) as per MMDR Act, 1957.

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Case: Sanghi Brothers (Indore) Prv. Ltd. dated: 03.05.2019

Query: Whether building of body after utilizing and consuming owned materials and providing labour and further amounting the same on chassis of the principal would amount to supply of Services

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Case: E-DP Marketing Prv. Ltd. dated: 02.05.2019

Query: Whether the applicant/importer is again required to pay IGST on the component of ocean freight under RCM mechanism on deemed amount which will amount to double taxation of IGST on the deemed component of ocean freight of the imported goods?

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Case: Network For Information & Computer dated: 10.04.2019

Query: Sr. No. 72 of Not. No. 12/2017 Central Tax(Rate), dated 28-06-17 issued by the Central Government under CGST Act, 2017 and exemption provided under Sr. No. 72 of Not. No. FA-3-42/2017-1-V(53) dated 30-06-2017  issued by the Madhya Pradesh Government under M.P. Goods & Services Act, 2017 is applicable for the applicant?

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Case: Rohan Coach Builders dated: 10.04.2019

Query: The applicant as whether the activity of building and mounting of the body by the applicant on the chassis provided by the Principle will result in supply of goods under HSN 8707 or supply of services under HSN 9988 taxable @ 18% irrespective of end use by the principle who shall effect the sale of Bus.

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Case: Narsingh Transport dated: 18.02.2018

Query: The applicant desire the advance ruling on the subject that whether the GST paid on these cars provided to their different customers on lease rent will be available to it as INPUT TAX CREDIT(ITC) in terms of Section 17(5) of Central Goods and Service Tax Act, 2017

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Case: J C Genetic India Private Limited dated: 21.01.2018

Query: Whether exemption provided under Sr No. 74 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 is applicable to the applicant?

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Case: Madhya Pradesh Pashchim Kshetra Vidyut Vitaran Company Limited dated: 22.11.2018

Query: Applicability of provisions of S.No. 3&3A of Table of Notification No. 12/2017 dtd. 28-06-2017 as amended from time to time on services supplied to the company (As mentioned in Sr. No. 14 of the Application)

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Case: Madhya Pradesh Poorv Kshetra Vidyut Vitaran Company Limited dated: 22.11.2018

Query: Taxability on energy charges and distribution charges and Non-Tariff Charges and others.

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Case: Vaau Energy Solutions Pvt. Limited dated: 31.10.2018

Query: The application for advance ruling filed by the applicant is dismissed as withdrawn at the behest of the applicant.

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Case: M/s Prem Ghan Products dated: 23.10.2018

Query: Rate of tax on food Products

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Case: Madhya Pradesh Madhya Kshetra Vidyut Vitaran Company Limited dated: 18.10.2018

Query: The applicant wishes to know whether clause(vi)(a) of Sr. No. 3 of table of Notification No. 11/2017-Central Tax(Rate) dated the 28th june, 2017 is applicable on the works contract services received by it. And determination of liability to pay tax.

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Case: M/s Shreeji Infrastructure India P. Ltd. dated: 18.10.2018

Query: Applicant of Notification no. 11/2017 Cebtrak Tax (rate) dated 28-06-2017

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Case: Madhya Pradesh Poorv Kshetra Vidyut Vitaran Company Limited dated: 18.09.2.018

Query: Applicability of notification & determination of liability to pay tax?

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Case: Italian Edibles Private Limited dated: 18.09.2018

Query: Classification or Tariff Heading Product of applicant?

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Case: Jabalpur Entertainment Complexes Pvt. Ltd. Khasara No. 36/4 Lower Ground Floor, Narmada Road, Jabalpur Madhya Pradesh, 482008 dated: 27.08.2018

Query: Multiplex, Mall, Food Court, SAM Retail,, Rate of tax on Snack bar & Food Court Eligibalty, ITC

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Case: Madhya Pradesh Paschim Kshetra Vidyut Vitran co.Ltd. O/o ChiF Financial Officer,Mppkvvcl,GPH Compound, Pologround,Indore (M.P.) 452003 dated: 27.08.2018

Query: Power distribution, Whether clause (vi)(a) of Sr.No. 3 of table of Notification No 11/2017-Central Tax(Rate) dated the 28th June, 2017 is applicable on the works contract undertaken by it. And determination of liability to pay Tax.

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Case: Indian Institute of Management Indore,Prabandh Shikhar, Rau Pithampur Road, Indore (M.P.) 453556 dated: 10.08.2018

Query: Education Institute, Whether the course Executive Post Graduate Programme in Managment. After enactment of IIM Act 2017 notified with from 31-01-2018 is exempted from GST

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Case: Ashok Kumar Patel dated: 25.07.2018

Query: Applicability of the notification number F-A-3-08-2018-1-V (43), DATED 24-4-2018 issued under MPGST Act/Rules on “unmanufactured tobacco” nuder CTH 2401.

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Case: Spentex Industries Ltd. dated: 19.07.2018

Query: Specify the complete procedure for S.No.1 & explanation 1 of the Notification No.48/2017-Central Tax dated 18.10.2017 for supplies by DTA to Advance Authorisation Holder?

Specify the applicability of foreign Trade Policy 2015-2020 Mid Term review and specify procedure for procuring goods from DTA against Advance Authorization.

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Case: KPH Dream Cricket Pvt Ltd. dated: 04.07.2018

Query: Whether free tickets given as ‘complimentary tickets’ falls within the definition of supply under the CGST ACT, and whether applicant is liable to pay GST on such free tickets?

Whether applicant is eligible to claim ITC in r/o complimentary tickets?

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Case: Arpijay Fabricators Pvt. Ltd. dated: 30.06.2018

Query: Classify supply of goods or supply of services;

Classify appropriate rate of supply of goods or supply of services.

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Case: Swati Dubey dated: 22.06.2018

Query: Classify the supply of services of constructions;

Clarify the applicable rate of CGST/SGST on the above services.

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Case: Egis India Consulting Engineers Pvt. Ltd. dated: 22.06.2018

Query: Applicability of a notification issued under the provisions of the Act; i.e. Eligibility of exemption of GST in r/o Consulting Services provided to assist the State/Urban Local Bodies, in implementation of Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Pradhan Mantri Awas Yojna (PMAY) in light of Notification No.12/2017-CT(Rate) dated 28.06.2017 as amended by Notification No.2/2018-CT(Rate) dated 25.01.2018 Notification No.FA-3-42/201711/V(53) dated 30.06.2017

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Case: Sasan Power Limited dated: 06.06.2018

Query: Whether applicant is entitled to carry forward the accumulated CENVAT Credit u/sec.140 of the GST Act?

Whether the accumulated CENVAT Credit so carry forward, not being credit availed under the GST regime is required to be adjusted / restricted in the manner prescribed under Rule 42 and 43 of the CGST Rules?

A Brief note on understanding the Scope of Service in GST Vis-à-vis Service under the Service Tax Regime

Service has been defined under Article 366(26A) of the Constitution of India as “Services” means anything other than goods.

The term “anything” holds importance here. The term has been defined by Hon’ble Apex Court in the matter of Tej Kiran Jain and Others vs N. Sanjiva Reddy and Others on 8 May, 1970 Equivalent citations: 1970 AIR 1573, 1971 SCR (1) 612 as follows:

The word ‘anything’ is of the widest import and is equivalent to ‘everything’.

This definition was inserted vide 101st Constitution Amendment Act. The reason why services have been so defined in the Constitution was discussed in the Report of Select Committee on the Constitution 122nd Amendment Bill.

The report of Select Committee on the 122nd Constitution Amendment bill provides the view of the Government as follows-

2.88 In this regard the Ministry of Finance, Department of Revenue has stated that term ‘services’ has been so defined in order to give it wide amplitude so that all supplies that are not goods can potentially be covered within the ambit of services and no activity remains outside the taxable net. This would also minimize disputes.

The Final Recommendation of the Select Committee for the definition of Service was in line with the view of the Government and accepted the view of the Government-

2.100 Endorsing the view of the Department, the Committee feels that ‘services’ has been so defined in order to give it wide amplitude so that all supplies that are not goods can potentially be covered within the ambit of services and no activity remains outside the taxable net. This would also minimize disputes.

Thus, it seems that rather than going for the conventional definition of “service” the intention of the lawmakers was to have a definition of service which is negatively worded to include everything other than goods.

As per 65B(44) of Finance Act, 1994, service was defined as follows-

(44) “service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—

(a) an activity which constitutes merely,—

(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or

(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or

(iii) a transaction in money or actionable claim;

(b) a provision of service by an employee to the employer in the course of or in relation to his employment;

(c) fees taken in any Court or tribunal established under any law for the time being in force.

The charging Section of Finance Act, 1994 which provided for levy of tax on service was after 1st July 2012 was Section 66B which provided as follows-

There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen percent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.

Finance Act, 1994 had two components for levy of Tax first that there should be service and second that the service should be provided or agreed to be provided.

In contrast to the above, Services have been defined under CGST Act, 2017 under Clause 2(102) of CGST Act, 2017 as follows-

(102) “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;

On a comparative study, it is seen that exclusion made from definition of services under the Finance act, 1994 have only been partly excluded from the definition of service under the CGST Act, 2017.

Further, there is a distinction under the CGST Act, 2017 between excluded from the scope of “Supply” and “Excluded from the “Scope of Service” as the CGST Act, 2017 first contemplates whether activity or transaction constitutes a “Supply” and once Constituting a “Supply”, thereafter it identifies whether it is a “Supply of Service” or “Supply of Goods” and that is equally important for levy as tax under Section 9 is only on “intra-State supplies of goods or services or both”.

A comparative chart between CGST Act, 2017 and Finance ACT, 1994 is as follows-

S. No.Finance Act 1994Brief comparative analysis of Finance Act, 1994 and CGST Act, 2017CGST Act, 2017
1.(a) an activity which constitutes merely—   (i) a transfer of title in goods by way of sale, gift or in any other manner. Goods excluded from the scope of service by definitionServices have been defined to mean anything other than goods. 
2.(a) an activity which constitutes merely— (i) a transfer of title in immovable property, by way of sale, gift or in any other mannerNot excluded from the scope of Service but Schedule III excludes sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building from the scope of SupplyIt is imperative to be seen that immovable property has not been excluded from the scope of service but Schedule III excludes sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building from the scope of Supply. This clearly shows the intent of the legislature that transaction of immovable property as per the legislature falls under the ambit of service and what has excluded from the supply is sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
3.(a) an activity which constitutes merely,—   (iii) a transaction in money; Excluded from the scope of Service“services” have been defined to means anything other than money.
4.(a) an activity which constitutes merely,—   (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution;Not excluded from the scope of service by way of an express exclusion but have been prescribed to be either supply of goods or supply of service by Schedule II.Not excluded from the scope of service by way of an express exclusion but have been prescribed to be either supply of goods or supply of service by Schedule II.
5.(a) an activity which constitutes merely,—   (iii) a transaction in actionable claim;Excluded from the scope of service as included in the scope of goodsService means anything other than goods and definition of goods includes actionable claim.
6.(b) a provision of service by an employee to the employer in the course of or in relation to his employment;Excluded by Schedule III from the scope of Supply but not from the scope of ServiceIt is imperative to be seen that service by employee to the employer has not been excluded from the scope of service but has been excluded by way of Schedule III from the scope of supply of service which clearly shows the intent of the legislature that service by employee to employer as per the legislature falls within the ambit of service.
7.(c) fees taken in any Court or tribunal established under any law for the time being in force.Excluded by Schedule III from the scope of Supply but not from the scope of ServiceIt is imperative to be seen that service any Court or tribunal established under any law for the time being in force has not been excluded from the scope of service but has been excluded by way of Schedule III from the scope of supply of service which clearly shows the intent of the legislature that service by any Court or tribunal established under any law for the time being in force as per the legislature falls within the ambit of service.

Even though an activity might be “Supply” as per Section 7(1) but if it is neither classified as “goods” nor as “service”, then it cannot be held to be leviable to tax under Section 9 of CGST Act. That’s how Section 7(2) of CGST Act, 2017 works when even though the activity or transaction constitutes a “Supply” under Section 7(1) of CGST Act, 2017 but the mere fact that it is held to be neither supply of goods nor supply of service, that activity although constituting supply is taken out of the ambit of CGST Act, 2017.

#GSTCase-91-No TDS liable to be deducted U/Sec 51 of CGST Act, 2017 on Exempt Supply of goods or services or both

Indrajit Singh [2019] 106 taxmann.com 109 (AAR-WEST BENGAL)

 1. Query

Whether supply of providing conservancy/solid waste management service to Conservancy Department of the Howrah Municipal Corporation is exempted in terms of Sl. No. 3 or 3A of Notification No. 12/2017 – Central Tax (Rate) dated 28-6-2017, as amended from time to time, and if so, whether the notifications regarding TDS are applicable in this case?

2. Facts

Applicant is providing conservancy/solid waste management service to Conservancy Department of Howrah Municipal Corporation. Howrah Municipal Corporation is however deducting TDS while paying consideration for the above supply in terms of Notification No. 50/2018 – Central Tax dated 13-9-2018.

3. Contention by Appellant

The Applicant submits that the recipient, being a municipal corporation, is a local authority. He submits copies of the work orders issued, specification and terms and conditions of the work etc. to establish that he supplies pure service and, therefore, the exemption under Sl. No. 3 of the Exemption Notification applies to his supplies.

 4. Observation by AAR

 Scope of Entry No. 3 and 3A of Notification No. 12/2017 – Central Tax (Rate) dated 28-6-2017

Sl. No. 3 of the Exemption Notification exempts from payment of GST any “pure service” (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution or in relation to any function entrusted to a Municipality under Article 243W of the Constitution. Sl. No. 3A of the Exemption Notification extends it to a “composite supply of goods and services” in which the value of supply of goods constitutes not more than 25 per cent of the value of the said composite supply.

These functions are in the nature of public welfare service that the governments on their own, and sometimes through governmental authorities/entities, do provide to the citizens. When the activity is in relation to any such function, the supply to the governments or governmental authorities/entities or local authorities is exempt from paying GST under Sl. No. 3 or 3A of the Exemption Notification, provided it is either a pure service or a composite supply, where supply of goods does not constitute more than 25% of the value.

Applicant’s service to HMC, therefore, is exempt under Sl. No. 3 of the Exemption Notification.

Condition 1:-Recipient is Local Authority: The recipient is a municipal corporation, which is a local authority as defined under section 2(69) of the GST Act.

Condition 2:- Nature of Work is pure Service-In Work Orders issued to Applicant, recipient describes nature of work as lifting and removing of daily garbage etc. accumulated from the vats, dumping yards, containers and other places on the roads, lanes and bye-lanes of HMC area. In the Specification and Terms and Conditions of Work it is further specified that the Applicant must provide vehicles suitable for removal of garbage including payloaders with drivers, labours, unloading equipment, machinery, fuel/lubricants etc. and shall be responsible for repair and maintenance of the vehicles. There is, however, no reference to any supply of goods in the course of executing the work. The vehicles used and the fuel consumed and the machinery used do not result in any transfer of property in goods to HMC. The consideration to be paid measures the work only in terms of the quantity of the garbage lifted and removed. Based on the above documents, it may, therefore, be concluded that the Applicant’s supply to HMC is a pure service.

Condition 3:- Activity Falls under the Scope of Article 243W of Constitution- Article 243W of the Constitution that discusses the powers, authority and responsibilities of a Municipality, refers to the functions listed under the Twelfth Schedule as may be entrusted to the above authority. Sl. No. 6 of the Twelfth Schedule refers to public health, sanitation, conservancy and solid waste management. The Applicant’s supply to HMC is a function mentioned under Sl. No. 6 of the Twelfth Schedule.

Since Applicant Service is Exempt from GST, therefore no TDS is liable to be deducted under Section 51 of CGST Act, 2017

Section 51(1) of the Act provides that the Government may mandate inter alia a local authority to deduct TDS while making payment to a supplier of taxable goods or services or both. As the Applicant is making an exempt supply to HMC the provisions of section 51 and, for that matter, the TDS Notifications do not apply to his supply.

5. Held

Applicant’s supply to Howrah Municipal Corporation, is exempt from the payment of GST under Sl. No. 3 of Notification No. 12/2017 – Central Tax (Rate) dated 28-6-2017 as amended from time to time.

As Applicant is making an exempt supply, the provisions of section 51 and, for that matter, Notification No. 50/2018 – Central Tax dated 13-9-2018, to the extent they mandate and deal with the mechanism of TDS, do not apply to his supply.

 6. Comment

The Judgement lays down the fact clearly that no TDS is liable to be deducted on exempt supply. TDS is required to be deducted only on supply of taxable goods or services or both.