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Part-6-Whether Development Authority are Local Authority under GST vis-a-vis Income Tax, Service Tax, General Clauses Act, AAR Ruling on JDA and clarification issued by CBEC

What’s the big point in whether development Authorities like Delhi Development Authority, Jaipur Development Authority are “Local Authority or not. Amongst the other issues, the biggest issue is about their status of taxability as Entry No. 6 of the Notification No. 12/2017 exempts “Services by the Central Government, State Government, Union territory or local authority excluding the following services…”. There are other issues as well worth contemplating and therefore lets analyses whether these Institutions fall under the definition of “Local Authority” or not vis-a-vis Income Tax Act, General Clauses Act, Service Tax Regime and impact of decision of AAR of Rajasthan in the matter of Tata Projects Ltd and clarification issued by CBEC.

Let’s set the ball rolling with the clarification issued by CBEC wherein they have categorically held that these Institutions are not Local Authority.

Clarification issued by CBEC under Sectoral FAQ:

The clarification issued by CBEC in Sectoral FAQ of Government Services is reproduced herein below:

Question 5: Are all local bodies constituted by a State or Central Law regarded as local authorities for the purposes of the GST Acts?

Answer: No. The definition of ‘local authority’ is very specific and means only those bodies which are mentioned as ‘local authorities’ in clause (69) of section 2 of the CGST Act, 2017. It would not include other bodies which are merely described as a ‘local body’ by virtue of a local law. For example, State Governments have setup local developmental authorities to undertake developmental works like infrastructure, housing, residential & commercial development, construction of houses, etc. The Governments setup these authorities under the Town and Planning Act. Examples of such developmental authorities are Delhi Development Authority, Ahmedabad Development Authority, Bangalore Development Authority, Chennai Metropolitan Development Authority, Bihar Industrial Area Development Authority, etc. Such developmental authorities formed under the Town and Planning Act are not qualified as local authorities for the purposes of the GST Acts.

It has been clearly provided that Authorities like Delhi Development Authority, Ahemdabad Development Authority, Bangalore Development Authority, Chennai Metropolitan Development Authority, Bihar Industrial Area Development Authority are not local authority under CGST Act, 2017. Now we take a look at the relevant acts under which each of the above referred Institutions have been set up

Particular	Act
Delhi Development Authority	Delhi Development Act, 1957
Ahemdabad Development Authority	Gujarat Town Planning and Urban Development Act, 1976
Bangalore Development Authority	Bangalore Development Authority Act, 1976
Chennai Metropolitan Development Authority	Tamil Nadu Town and Country Planning Act, 1971

Definition of “Local Authority” was introduced in Section 10(20) of Income Tax Act, 1961 w.e.f. 1^st April 2003 and prior to that Definition of “Local Authority” as provided under General Clauses Act, 1897 prevailed.

It would be apt here to refer that Ahemdabad Development Authority was enjoying exemption under Section 10(20A) of the Income Tax Act till 31^st March 2002. However, subsequently Section 10(20A) of the Act came to be deleted/omitted by the Finance Act, 2002 w.e.f. 1.4.2003. That simultaneously, exemption granted under Section 10(20A) of the Income Tax Act also came to be withdrawn by Finance Act, 2002. The same was the fate for Delhi Development Authority. Therefore, it became apt to analyse that whether these authorities were Local Authority under Income Tax.

Alongwith deletion of Section 10(20A) of the Income Tax Act, definition of local authority was also introduced for the purpose of 10(20) of the Income Tax Act w.e.f. 1^st April 2003. Prior to that there was no definition of local authority under the Income Tax and reference was made to definition of local authority under the General Clauses Act, 1897.

Had such definition not been inserted w.e.f. 1^st April 2003, such institution would have been classified as “Local Authority” under Income Tax Act, 1961 referring to the definition of “Local Authority” under General Clauses Act, 1897. It was in the case of Union of India & Ors vs R. C. Jain & Ors on 17 February, 1981 that while refereeing to the decision of general Clauses Act, 1897, Hon’ble Apex Court held that Delhi Development Authority is a Local Authority under General Clauses Act, 1897. Thus, as per the definition as provided under the General Clauses Act, 1897, Delhi Development Authority and Authorities having similar characteristics are Local Authority.

Why Delhi Development Authority is not a Local Authority under the Income Tax Act, 1961:

It’s the word “any other authority” which plays a significant role in interpreting which institutions are local authority covered by this clause and which institutions fall out of the same. Explanation to Section 10(20) of Income Tax Act, 1961 defines local authority as follows:

Explanation.—For the purposes of this clause, the expression “local authority” means—

(i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or

(ii) Municipality as referred to in clause (e) of article 243P of the Constitution; or

(iii) Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or

(iv) Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924);

Now if we compare the definition of “Local Authority” under the General Clauses Act, 1897 vis-a vis definition of Local Authority under Income Tax, it would be clear that why such Institutions have fallen out of the purview of Local Authority under the Income Tax Act and still are Local Authority under the General Clauses Act, 1897. This comparison of the two definitions has been made by the Hon’ble Apex Court in the matter of Agricultural Produce Market Committee Narela Vs. Commissioner of Income Tax and Another :: (2008) 305 ITR 1(SC).Hon’ble Apex Court in the given matter was faced with the issue that

“Whether Agricultural Market Committee (“AMC”, for short) is a “local authority” under the Explanation to Section 10(20) of the Income-tax Act, 1961 (“1961 Act”, for short)”.

The Hon’ble Apex Court then provided a comparative chart of the definition of local authority under Income Tax Act and General Clauses Act as follows:

Before analyzing the above question, we quote herein below a comparative chart containing the Explanation to Section 10(20) of the 1961 Act on one hand in juxtaposition to Section 3(31) of the General Clauses Act, 1897:

Explanation to Section 10(20) of the 1961 Act

Section 3(31) of the 1897 Act

“Explanation.- For the purposes of this clause, “local authority” means – (i) Panchayat as referred to in clause (d) of article 243 of the Constitution; or (ii) Municipality as referred to in clause (e) of article 243P of Constitution; or (iii)Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund; or (iv)Cantonment Board as defined in section 3 of the Cantonments Act, 1924 (2 of 1924)

3. DEFINITIONS.- In this Act, and in the expression all Central Acts and Regulations made after the commencement of this Act, unless there is anything repugnant in the subject or context, – (31). “local authority” shall mean a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted the by the Government with, the control or management of a municipal or local fund.

Hon’ble Apex Court then held that

Certain glaring features can be deciphered from the above comparative chart. Under Section 3(31)of the General Clauses Act, 1897, “local authority” was defined to mean “a municipal committee, district board, body of port commissioners or other authority legally entitled to the control or management of a municipal or local fund. The words “other authority” in Section 3(31)of the 1897 Act has been omitted by Parliament in the Explanation/definition clause inserted in Section 10(20)of the 1961 Act vide Finance Act, 2002. Therefore, in our view, it would not be correct to say that the entire definition of the word “local authority” is bodily lifted from Section 3(31) of the 1897 Act and incorporated, by Parliament, in the said Explanation to Section 10(20) of the 1961 Act. This deliberate omission is important. It may be noted that various High Courts had taken the view prior to Finance Act, 2002 that AMC(s) is a “local authority”. That was because there was no definition of the word “local authority” in the 1961 Act. Those judgments proceeded primarily on the functional tests as laid down in the judgment of this Court vide para `2′ in the case of R.C. Jain (supra). We quote hereinbelow para `2′ which reads as under:

One more aspect needs to be mentioned. In the case of R.C. Jain (supra) the test of “like nature” was adopted as the words “other authority” came after the words “Municipal Committee, District Board, Body of Port Commissioners”. Therefore, the words “other authority” in Section 3(31)took colour from the earlier words, namely, “Municipal Committee, District Board or Body of Port commissioners”. This is how the functional test is evolved in the case of R.C. Jain (supra). However, as stated, earlier Parliament in its legislative wisdom has omitted the words “other authority” from the said Explanation to Section 10(20)of the 1961 Act. The said Explanation to Section 10(20) provides a definition to the word “local authority”. It is an exhaustive definition. It is not an inclusive definition. The words “other authority” do not find place in the said Explanation. Even, according to the appellant(s), AMC(s) is neither a Municipal Committee nor a District Board nor a Municipal Committee nor a Panchayat. Therefore, in our view functional test and the test of incorporation as laid down in the case of R.C. Jain (supra) is no more applicable to the Explanation to Section 10(20) of the1961 Act. Therefore, in our view the judgment of this Court in the case of R.C. Jain (supra) followed by judgments of various High Courts on the status and character of AMC(s) is no more applicable to the provisions of Section 10(20) after the insertion of the Explanation/definition clause to that sub- section vide Finance Act, 2002.

Hon’ble Allahabad High Court in the matter of New Okhla Industrial Development Authority V/s Chief Commissioner Of Income Tax, Meerut Camp & Others following the above decision held that after 1.4.2003, New Okhla Industrial Development Authority (Noida) is not a local authority within the meaning of section 10(20) of the Income Tax Act, 1961.

The above two definitions clearly highlight that why the development authority are not local authority in terms of Definition provided under the Income Tax Act w.e.f. 1^st April 2003 and why they were Local Authority under the Income Tax Act prior to 1^st April 2003 when “Local Authority” was not defined under the Income Tax Act and reference had to be made to the definition of “Local Authority” provided under General Clauses Act, 1897.

Definition of Local Authority under Service Tax

If we analyses the definition of “Local Authority” under the Service Tax Regime, the definition of “Local Authority” as provided under clause (31) of section 65B of Finance Act 1994 was as follows:

“local authority” means—

(a) a Panchayat as referred to in clause (d) of article 243 of the Constitution;

(b) a Municipality as referred to in clause (e) of article 243P of the Constitution;

(c) a Municipal Committee and a District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund;

(d) a Cantonment Board as defined in section 3 of the Cantonments Act, 2006 (41 of 2006);

(e) a regional council or a district council constituted under the Sixth Schedule to the Constitution;

(f) a development board constituted under article 371 of the Constitution; or

(g) a regional council constituted under article 371A of the Constitution;

The words “any other authority” under sub-clause (c) of clause 31 of section 65B was not present and the situation was to the similar which is present under Income Tax Act, 1961. Therefore, such Institutions would never have been classified as “Local Authority” under the Service Tax Regime.

Similarity of the Definition of Local Authority as provided under Section 3(31) of General Clauses Act, 1897 and sub-clause(c) of Section 2(69) of the CGST Act, 2017

Sub-clause(c) of Section 2(69) of the CGST Act, 2017	Section 3(31) of the General Clauses Act, 1897
(69) “local authority” means–– (c) a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund;	“local authority” shall mean a municipal committee, district board, body of port commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund.

“Emphasis Supplied”

The above two definitions as provided in juxtaposition clearly highlight that the words used “other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund” in the definition of “Local Authority” under General Clauses Act, 1897 are similar to the words used in CGST Act, 2017. Upon these terms only Hon’ble Apex Court held that Delhi Development Authority is local authority under the General Clauses Act, 1897. Thus, there should not be any other interpretation of the similar words used in other Statute i.e. CGST Act, 2017 and development authorities fulfilling the conditions laid down by Hon’ble Apex Court should also be local authority under GST.

Impact of Decision of AAR-Rajasthan in the matter of Tata Projects Limited 94 taxmann.com 86

In the given case, Jaipur Development Authority has been held to be covered under the status of Government Authority. However on going through the order, it seems that there was never a question before the AAR by the applicant that JDA is a Local Authority. The relevant extract of the judgement is as follows:

Issues to be decided :

The issue involved in this case is, whether Jaipur Development Authority is covered under the status of Government Authority/Entity or not?

Thus, issue that whether JDA is a Local Authority or not under CGST Act, 2017 was not raised before the AAR, therefore the said decision is not applicable on the matter. Further, it is possible that an Institution might fall under two limbs of different provisions and the most beneficial one can be opted by them.

Conclusion: In my humble view Development Authority satisfying the conditions as laid down by Hon’ble Apex Court in the matter of Union of India & Ors vs R. C. Jain & Ors on 17 February, 1981should be treated as “Local Authority” under the CGST Act, 2017 and the Sectoral FAQ as detailed out by the CBEC on this issue requires reconsideration and as this issue was not raised before the AAR Rajasthan therefore said decision is not entirely applicable on the issue.

Part-5: Which Institutions are included in Local Authority in GST-“Municipal Committee, a Zilla Parishad, a District Board, and any other authority”

Today’s update would discuss about Institutions included in the definition of Local Authority vide “Municipal Committee, a Zilla Parishad, a District Board, and any other authority.Sub-clause (c) of clause (69) of Section 2 of CGST Act, 2017 which defines “Local Authority” is as follows:

(c) a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund;

The definition covers four Institutions i.e.

a Municipal Committee,
a Zilla Parishad,
a District Board,
and any other authority

legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund.

Let’s try to decipher Individual Institution and the scope thereof of each of the Entry provided:

Institution Covered under Municipal Committee, District Board:-

The Institutions Municipal Committee and District Board are not followed by the reference of the statute under which they are formed. Hon’ble Apex Court in the matter of Agricultural Produce Market Committee Narela Vs. Commissioner of Income Tax and Another :: (2008) 305 ITR 1(SC) deliberated on the issue and clarified which institutions are covered under Municipal Committee and District Board with reference to Definition of Local Authority given under explanation to section 10(20) of the Income Tax Act, 1961:-

The question still remains as to why Parliament has used the words “Municipal Committee” and “District Board” in Item (iii) of the said Explanation. In our view, Parliament has defined “legal authority” to mean – a Panchayat as referred to in clause (d) of Article 243 of the Constitution of India, Municipality as referred to in clause (e) of Article 243P of the Constitution of India. However, there is no reference to the Article 243 after the words “Municipal Committee” and “District Board”. In our view, the Municipal Committee and District Board in the said Explanation are used out of abundant caution. In 1897 when General Clauses Act was enacted there existed in India Municipal Committees and District Boards. They continued even thereafter. In some remote place it is possible that there exists a Municipal Committee or a District Board. Therefore, in our view, apart from a Panchayat and Municipality, Parliament in its wisdom decided to give exemption to Municipal Committee and District Board. Earlier there were District Board Acts in various States. Most of the States had repealed those Acts. However, it is quite possible that in some remote place District Board may still exists. Therefore, Parliament decided to give exemption to such Municipal Committees and District Boards. Therefore, in our view, advisedly Parliament has retained exemption for Municipal Committee and District Board apart from Panchayat and Municipality. Our view finds support from the provisions contained in Part IX of the Constitution of India. Article 243N provides for continuance of existing laws and Panchayats. It states, inter alia, that notwithstanding anything in Part IX, any law relating to Panchayats in a State immediately before commencement of the Constitution (Seventy-third Amendment) Act, 1992, which is inconsistent with the provisions of Part IX, shall continue to be in force until repealed by a competent Legislature. Similarly, under Part IXA there is Article 243ZFwhich refers to the “Municipalities”. This Article, inter alia, states that notwithstanding anything in Part IXA, any provision of any law relating to Municipalities in force in a State immediately before the commencement of the Constitution (Seventy-fourth Amendment) Act, 1992, which is inconsistent with the provisions of Part IXA, shall continue to be in force until amended or repealed by a competent Legislature. In our view, Article 243N and Article 243ZF indicates that there could be enactments which still retain the entities like Municipal Committees and District Boards and if they exist, Parliament intends to give exemption to their income under Section 10 (20) of the 1961 Act.

Thus, these are Institutions which might exist somewhere in India and as per the legislative wisdom, these Institutions have been included in the definition of local authority under 2(69) of CGST Act, 2017 just as they have been included in definition of local authority as provided in explanation to section 10(20) of the Income Tax Act, 1961.

Zila Parishad:

It is not very clear that why Zila Parishad have been specified when they are covered under Panchayat under sub-clause(a) of clause (69) of section 2 of CGST Act under the entry:

a “Panchayat” as defined in clause (d) of article 243 of the Constitution;

It would be apt to refer to the judgement of Andhra Pradesh High Court in the matter of A.P. Sarpanches Association and ors. Vs. Union of India (Uoi) and ors.- AIR2007AP273; 2007(4)ALD783; 2007(5)ALT707 wherein differences between Municipality, Municipal Corporations, Gram Panchayats and Zila Parishad was elaborated and held that Zila Parishad are “Panchayats”.

The petitioner’s plea of discrimination vis-a-vis other local authorities is based on a misconceived assumption of similarity between the municipal bodies operating in the urban areas and Zilla Parishads etc., operating in the rural areas. The Municipal Corporations owe their existence to two legislative instruments i.e., Hyderabad Municipal Corporation Act, 1955 and the Andhra Pradesh Municipal Corporations Act, 1994. The Municipalities and Nagar Panchayats owe their existence to the Andhra Pradesh Municipalities Act, 1965, the Cantonment Boards owe their existence to the Cantonments Act, 1924(The 1924 Act has been repealed by the Cantonments Act, 2006), and Zilla Parishads and Mandal Parishads owe their existence to the Andhra Pradesh Panchayat Raj Act, 1994. Section 5 of the 1955 Act provides that the Corporation shall consist of such number of elected members as may be notified from time to time by the Government of Andhra Pradesh and other persons specified in Sections 1A, 1B and 1C. Sections 8 to 12 of the 1955 Act contain the procedure for holding election of members by dividing the city into Single Member Wards on the basis of population. Similar provisions are contained in the Municipal Corporations Act, 1994. Elections to the Nagar Panchayats and Municipalities are held in accordance with the provisions contained in Sections 8 to 12 of the 1965 Act. It is thus, evident that voters list for election of members of the Hyderabad Municipal Corporation, other Municipal Corporations, Municipalities and Nagar Panchayats are different because these bodies operate in different geographical areas and represent different compartments of people living in the urban areas. There cannot be a Municipal Corporation and Municipality for the same urban area. This is not true of the villages. In terms of Article 243(d), ‘Panchayat’ is an institution of self-government constituted for the rural areas. Article 243-B mandates the constitution of Panchayats at the village, intermediate and district levels. Gram Panchayat is the body constituted for local administration of a village. Mandal Parishad is a body constituted for each Mandal, which is defined as an area in a district declared by the State Government to be a Mandal under Section 3 of the Andhra Pradesh Districts (Formation) Act, 1974 (for short, ‘the 1974 Act’). Zilla Parishad is a body constituted by the Government for a district which necessarily comprises Mandals notified by the State Government under Section 3 of the 1974 Act and the villages. To put it differently, the Gram Panchayat administers a smaller rural area, which is declared as a village under the 1994 Act. The Mandal Parishad is a Panchayat at intermediate level. It exercises power and discharges functions qua villages included within the Mandal and defined under Section 222 of the 1994 Act. Within a district, there are more than one Mandal and each Mandal has a Mandal Parishad. Zilla Parishad is a Panchayat at the district level. It is the representative of the entire population of the rural area of the district.

“Emphasis Supplied”

The most significant difference between the local bodies operating in the urban areas i.e., Municipal Corporations, Municipalities and Nagar Panchayats and similar bodies operating in the rural areas i.e., Gram Panchayats, Mandal Parishads and Zilla Parishads is that the geographical areas of urban bodies as well as their electors are distinct and separate whereas the area of the Mandal Parishads is inclusive of various villages for which separate Gram Panchayats are constituted and the area of every Zilla Parishad is a district, which comprises of the villages of different Mandals constituted in the particular district. The Electoral College which elects the members of the Gram Panchayat and the Sarpanch and Members of the Mandal Parishads and Zilla Parishads is the same. This is clearly evinced from a bare reading of Sections 8, 11, 12, 140, 151 and 179 of the 1994 Act. It is, thus, evident that while the Municipal Corporations, Municipalities and the Nagar Panchayats are representative of different segments of the urban area and different sets of people living in those geographical constituencies, the Gram Panchayats, Mandal Praja Parishads and Zilla Praja Parishads represent the same set of people.

Thus, reference to Zila Parishad Separately in this sub-clause (c) of section 2(69) of CGST Act, 2017 when it is already covered under sub-clause (a) of section 2(69) of CGST Act, 2017 requires clarification and what purpose it serves. Further it would be apt to highlight that sub-clause similar to the sub-clause (c) of section 2(69) of CGST Act, 2017 founds mention in the definition of local authority under the Income Tax Act, 1961 but there it does not contain any reference to Zila Parishad. However, still Zila Parishad falls under the definition of Local Authority.

Institution covered under the clause “any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund”

It would be apt here to refer to the decision of Hon’ble Apex Court in the matter of Union of India & Ors vs R. C. Jain & Ors on 17 February, 1981 wherein Hon’ble Apex Court while deliberating on the definition of “Local Authority” under General Clauses Act, provided guidelines for the classification of Institutions under “any other authority” as provided under this clause.

Before referring to the decision, definition of local authority under General Clauses Act is being reproduced herein below for ready reference and to highlight the fact that definition of “Local Authority” under clause (c) of section 2(69) of CGST Act, 2017 and Section 3(31) of General Clauses Act, 1897 is broadly on similar lines. The definition of local authority under Section 3(31) of the General Clauses Act 1897 is as follows:

“Local Authority shall mean a Municipal Committee, District Board, Body of Port Commissioners or other authority legally entitled to, or entrusted by the Government with the control or management of a municipal or local fund”.

The Hon’ble Apex Court in the landmark decision in the matter of Union of India & Ors vs R. C. Jain & Ors on 17 February, 1981 provided that

A proper and careful scrutiny of the language of Sec.3(31) suggests that an authority in order to be a local Authority, must be of like nature and character as a Municipal Committee, District Board or Body of Port Commissioners, possessing, therefore, many, if not all, of the distinctive attributes and characteristics of a Municipal Committee, District Board, or Body of Port Commissioners, but, possessing one essential feature, namely, that it is legally entitled to or entrusted by the Government with, the control and management. Of a municipal or local fund. What then are the distinctive attributes and characteristics, all or many of which a Municipal Committee, District Board or Body of Port Commissioners shares with any other local authority?

The Hon’ble Apex Court then listed out following distinctive attributes and characteristics as follows:

The authorities must have separate legal existence as Corporate bodies. They must not be mere Governmental agencies but must be legally independent entities.
They must function in a defined area and must ordinarily, wholly or partly, directly or indirectly, be elected by the inhabitants of the area.
They must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them. The autonomy may not be complete and the degree of the dependence may vary considerably but, an appreciable measure of autonomy there must be.
They must be entrusted by Statute with such Governmental functions and duties as are usually entrusted to municipal bodies, such as those connected with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services etc. etc. Broadly we may say that they may be entrusted with the performance of civic duties and functions which would otherwise be Governmental duties and functions.
They must have the power to raise funds for the furtherance of their activities and the fulfillment of their projects by levying taxes, rates, charges, or fees. This may be in addition to moneys provided by Government or obtained by borrowing or otherwise. What is essential is that control or management of the fund must vest in the authority.

Thus, before any institution falls under the definition of Local Authority under sub-clause (c) of section 2(69) of CGST Act, it must satisfy the conditions as laid down by Hon’ble Apex Court in the above decision. After referring to the above conditions, Hon’ble Apex Court provided that

We see that the Delhi Development Authority is constituted for the specific purpose of ‘the development of Delhi according to plan’. Planned development of towns is a Governmental function which is traditionally entrusted by the various Municipal Acts in different States to municipal bodies. With growing specialisation, along with the growth of titanic metropolitan complexes, legislatures have felt the need for the creation of separate town-planning or development authorities for individual cities. The Delhi Development Authority is one such. It is thus an authority, to which is entrusted by Statute a Governmental function ordinarily entrusted to municipal bodies. An important feature of the entrustment of Governmental function is the power given to the Authority to make regulations (which are required to be laid before Parliament). The power to make regulation is analogous to the power usually given to municipalities to frame bye-laws.

The activities of the Authority are limited to the local area of the Union Territory of Delhi. The High Court appears to have assumed that the Delhi Development Authority has extra-territorial powers extending to peripheral areas in the adjoining States. There is no basis in the Statute for the assumption made by the High Court.

There is then an element of popular representation in the constitution of the Authority. Representatives of the inhabitants of the locality, three elected from among the members of the Delhi Municipal Corporation and two elected from among the members of the Delhi Metropolitan Council, figure among its members.

What of autonomy? The Master Plan and the Zonal plans prepared by the Authority have to be approved by the Central Government, the budget has to be forwarded to the Central Government, annual returns have to be submitted to the Government and the directions that the Central Government may give have to be carried out. But within these bounds, the Authority enjoys a considerable degree of autonomy, as is seen from the summary of the provisions of the Act which has been set out by us. The powers of the Central Government over the Delhi Development Authority are the usual supervisory powers which every State Government exercises over municipalities, district boards etc. Such powers of supervision do not make the municipalities disautonomous and mere satellites.

We finally come to the important question whether the legislature has vested any power of taxation in the Authority.

One of the submissions of the learned counsel for the respondent was that the fund of the Authority, required to be maintained by Sec. 23 of the Delhi Development Act, was not a local fund as no part of it flowed directly from any taxing power vested in the Delhi Development Authority. The submission of the learned counsel was that the fees collected under Sec. 12 of the Act and the charges levied under Sec. 37 of the Act did not part-take the character of tax but were mere fees which were the quid pro quo for the services which were required to be performed by the Delhi Development Authority under the Act. We were referred to Hingir-Rampur Coal Co. Ltd. & Ors. v. The State of Orissa & Ors. We are unable to agree with the submission made on behalf of the respondents. In the first place when it is said that one of the attributes of a local authority is the power to raise funds by the method of taxation, taxation is to be understood not in any fine and narrow sense as to include only those compulsory exactions of money imposed for public purpose and requiring no consideration to sustain it, but in a broad generic sense as to also include fees levied essentially for services rendered. It is now well recognised that there is no generic difference between a tax and a fee; both are compulsory exactions of money by public authority. In deciding the question whether an authority is a local authority, our concern is only to find out whether the public authority is authorised by Statute to make a compulsory exaction of money and not with the further question whether the money so exacted is to be utilised for specific or general purposes. In the second place the Delhi Development Authority is constituted for the sole purpose of the planned development of Delhi and no other purpose and there is a merger, as it were, of specific and general purposes. The statutory situation is such that the distinction between tax and fee has withered away. In the third place we see no reason to hold that the charge contemplated by Sec. 37 is a fee and not a tax.

Hon’ble Apex Court finally concluded that

On a consideration of all the aspects of the matter placed before us we are of the opinion that the Delhi Development Authority is a Local Authority and therefore, the provision of the Payment of Bonus Act are not attracted.

Thus, any Institution which satisfies the conditions laid down the Hon’ble Apex Court in the matter of in the matter of Union of India & Ors vs R. C. Jain & Ors on 17 February, 1981 would fall under the definition of “any other authority”. Some of the relevant citations are as follows:

In Valjibhai Muljibhai Soneji and Anr. v. The State of Bombay (Now Gujarat) & Ors. one of the questions was whether the State Trading Corporation was a local Authority as defined by Sec. 3(31) of the General Clauses Act, 1897. It was held that it was not, because it was not an authority legally entitled to or entrusted by the Government with, control or management of a local fund. It was observed that though the Corporation was furnished with funds by the Government for commencing its business that would not make the funds of the Corporation ‘local funds’.

Hon’ble Apex Court in the matter of The Commissioner Of Income Tax, … vs U.P. Forest Corporation on 2 March, 1998 held that U.P. Forest Corporation is not a local authority under the Income Tax Act. It would be apt here to clarify that definition of local authority under section 10(20) of the Income Tax Act has been inserted with effect from 01.04.2003 for that section. Prior to that the term “local authority” was not defined under Income Tax Act and reference had to be made to definition as provided under the General Clauses Act, 1897.

Hon’ble Apex Court in the matter of Calcutta State Transport … vs Commissioner Of Income-Tax, West … on 4 April, 1996 following the decision of Apex Court in the matter of R.C. Jain held that Calcutta State Road Transportation is not a local authority under the Income Tax Act referring to the definition of “Local Authority” under the General Clause Act.

Next Update would discuss that whether authorities like the Delhi Development Authority can fall under the definition of “Local Authority or not” in CGST Act, 2017 vis-a-vis Income Tax Act, General Clauses Act, Service Tax Regime and impact of decision of AAR of Rajasthan in the matter of Tata Projects Ltd and clarification issued by CBEC.

Part-4-Which Institutions are included in Local Authority in GST-Regional Council, District Council and Development Board

Today’s update would discuss about the three Institutions which are covered under the Ambit of Local Authority by sub-clause (e), (f) and (g) of Section 2(69) of CGST Act, 2017:-

Regional Council or a District Council constituted under the Sixth Schedule to the Constitution,
Development Board constituted under article 371 of the Constitution, and
Regional Council constituted under article 371A of the Constitution.

These institutions are more of a kind of Regional Institutions created for specific territory or a region and are not formed across the country as was the case with the Institutions like Panchayat and Municipality.

Regional Council or a District Council constituted under the Sixth Schedule to the Constitution

Article 244 of the Constitution of India pertains to Administration of Scheduled Areas or Tribal Areas. Article 244(2) of the Constitution of India provides for administration of Tribal Areas. The relevant extract is being reproduced herewith:-

Administration of Scheduled Areas and Tribal Areas

(2) The provisions of the Sixth Schedule shall apply to the administration of the tribal areas in the States of Assam, Meghalaya, Tripura and Mizoram.

Sixth Schedule of the Constitution relates to administration and control of States of Assam, Meghalaya, Tripura and Mizoram. Sixth Schedule to the Constitution contains provisions for constitution of district and regional councils for the administration of tribal areas. The relevant extract is being reproduced herewith:

Constitution of District Councils and Regional Councils.— (1) There shall be a District Council for each autonomous district consisting of not more than thirty members, of whom not more than four persons shall be nominated by the Governor and the rest shall be elected on the basis of adult suffrage.

(2) There shall be a separate Regional Council for each area constituted an autonomous region under sub-paragraph (2) of paragraph 1 of this Schedule.

Development Board constituted under article 371 of the Constitution

The provision relates to establishment of separate development boards for Vidarbha, Marathwada, and the rest of Maharashtra or, as the case may be, Saurashtra, Kutch and the rest of Gujarat. The provisions of Article 371(2) are being reproduced herewith:

(2) Notwithstanding anything in this Constitution, the President may by order made with respect to the State of Maharashtra or Gujarat, provided for any special responsibility of the Governor for

(a) the establishment of separate development boards for Vidarbha, Marathwada, and the rest of Maharashtra or, as the case may be, Saurashtra, Kutch and the rest of Gujarat with the provision that a report on the working of each of these boards will be placed each year before the State Legislative Assembly;

(b) the equitable allocation of funds for developmental expenditure over the said areas, subject to the requirements of the State as a whole; and

(c) an equitable arrangement providing adequate facilities for technical education and vocational training, and adequate opportunities for employment in services under the control of the State Government, in respect of all the said areas, subject to the requirements of the State as a whole.

The provision for constitution of development boards in area of Vidarbha, Marathwada, Saurashtra and Kutch had been inserted to cater to the specific development needs of these areas. These areas have been given a preferential states in terms of allocation of resources and facilities vis-a-vis- the rest of the state.

Regional Council constituted under Article 371A of the Constitution

Article 371A of the Constitution of India pertains to formation of regional council for the Tuensang district of Nagaland. The relevant extract of the provision is being reproduced herewith:

(d) as from such date as the Governor of nagaland may by public notification in this behalf specify, there shall be established a regional council for the Tuensang district consisting of thirty five members and the Governor shall in his discretion make rules providing for

(i) the composition of the regional council and the manner in which the members of the regional council shall be chosen:

Article 371A further lists that notwithstanding anything contained in any other provisions of Constitution of India, provisions contained in Article 371A(2) would be operative for Tuensang district for a period of 10 years, from the formation of the state of Nagaland or for a further period as specified by Governor, on recommendations of the regional council. Some of the provisions include for the Governor to carry out the administration of Tuensang district and the he shall according to his discretion arrange for equitable distribution of money provided by the center, between Tuensang district & Rest of Nagaland . Final decision on all matters relating to Tuensang district shall be made by Governor. Members in Nagaland assembly from the Tuensang district would not be elected directly by the people but would be elected by the regional council.

Next update would discussing about the clause wherein a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund is treated as Local Authority.

Issues in filing of GSTR -9/9C for 18-19- CA Dr. Arpit Haldia

Varanasi Branch of CIRC of ICAI is organizing Virtual CPE meeting -Issues and Compliances in filing of GSTR-9/9C for 2018-19”

Date: 26/06/2020

Time: 04:00 PM to 06:00 PM

Special Address by Guest of honour: CA. Uttamprakash Agarwal, Past President, ICAI

Speaker-CA Arpit Haldia

Levy of Tax under Reverse Charge on Ocean Freight-Judgement of Hon’ble Gujarat High Court in Mohit Minerals and Agenda to 39th GST Council Meeting and observation in the Agenda about the Judgement that “The judgment is based on sound legal reasoning. It will be difficult to succeed in appeal against the same in Hon’ble Supreme Court and succeed in appeal.”

The post is only the summary of relevant extract of Agenda to 39^th GST Council Meeting in Part A and the relevant extract of Minutes of GST Council Meeting Part-B.

Part A-The relevant Extract of the Agenda to 39th GST Council Meeting is as follows:

Agenda Item 4(ii): Agenda for GST Council Meeting on 14th March, 2020- in relation to supply of services Recommendations made by the Fitment Committee in the meeting held on 6th March, 2020 in relations to services.

3. Judgment of High Court of Gujarat in the case of M/s. of Mohit Minerals Pvt. Ltd

In the order dated 23.1.2020 of the High Court of Gujarat in the case of M/s. of Mohit Minerals Pvt. Ltd. it has been held that Notification No. 8/2017 – Integrated Tax (Rate) dated 28th June 2017 and the Entry 10 of the Notification No.10/2017 – Integrated Tax (Rate) dated 28th June 2017 which require the importer to pay IGST on ocean freight in respect to CIF consignment under RCM are ultra vires the law. The High Court has given the judgment on the following grounds:

a) The charging section provides for payment of GST by person who is making supplies and in certain notified cases, by the recipient of supply. Thus, GST is not payable by a person who is neither a supplier nor a recipient. The provisions of section 5(3) of IGST Act does not provide for fixing the liability on any person other than the recipient.

b) Importer has neither availed the ocean freight service nor is he liable to pay the consideration. Hence, he is not the recipient. If the importer is held to be recipient of supply of ocean freight service, then he shall also be the recipient of various other inward supply of goods and services received by the exporter of goods with regard to said imported goods. Importer can’t be made to pay tax on the supposed theory that he is directly or indirectly recipient of the service. Such interpretation is unwarranted.

c) Tax can be levied only on intra-State supplies and inter-State supplies. Provision of ocean freight service by a non-resident person to another non-resident person is neither an intraState supply nor an inter-State supply. Therefore, notification entries taxing the said service are beyond the scope of the Act.

4. Analysis of the judgment:

4.1 The judgment is based on sound legal reasoning. It will be difficult to succeed in appeal against the same in Hon‟ble Supreme Court and succeed in appeal.

4.2 The immediate consequence of this judgment is that the level playing field, which was given to Indian Shipping Lines by making importer liable to pay GST on ocean freight charged by foreign shipping lines from foreign exporter under RCM, is no longer available to Indian Shipping lines. Therefore, there is a need to find out a way to continue to provide level playing field to Indian Shipping lines despite the judgment. The issue has been examined with this view in the following paragraphs.

6. Proposal:

The objective of providing level playing field to Indian Shipping Lines can be achieved by changing the place of supply of goods transport service from the place of destination of goods to the location of recipient. This would ensure that both Indian Shipping Lines and Foreign Shipping Lines have identical liability to pay or not pay IGST on transportation of goods by vessel (inward, outward or coastal) in both CIF and FOB contracts.

Part B-Relevant Extract of 39^thGST Council Meeting

12. For Agenda Item 4, the Council recommended the following: –

(iv) To defer the decision with respect to levy of IGST on Ocean freight payable by importer under reverse charge mechanism.

Conclusion-The significant thing coming from the above agenda is that subsequent to analysing the decision of Hon’ble Gujarat High Court in the case of Mohit Minerals Limited; Para 4 of the Agenda provides that “It will be difficult to succeed in appeal against the same in Hon’ble Supreme Court and succeed in appeal” and further an amendment in the provision was suggested looking to best International Practice and OECD Guidelines. However, GST Council deferred the decision.

Although the decision on the proposal is yet to be made but the observation of succeeding in appeal before the Hon’ble Supreme Court against the decision of Hon’ble Gujarat High Court and proposed amendment in the provision depicts that it would be tough road ahead for the revenue in the case of challenge against the levy of tax on Ocean Freight under Reverse Charge Mechanism.

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

Can Penalty under Section 122 be levied for same offence alongwith the penalty under Section 73/74 CGST Act, 2017. Section 75(13) of CGST Act, 2017 is at times lost sight of 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. 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.

If proceedings initiated under Section 73/74 for recovery of tax and interest then penalty has to be recovered under section 73/74 only

If proceedings are initiated under Section 73/74 then penalty has to be levied as per the provisions prescribed under the respective sections. There cannot be a case wherein tax and interest are recovered under Section 73/74 and penalty is recovered under section 122.

It would be apt to highlight recent judgement of High Court of Kerala in the matter of Muhammed Kochukudiyil Ishabeevi Alias Isha Shaefi v. State Tax Officer (Intelligence)-[2020] 121 taxmann.com 265 wherein the matter was whether taxpayer has the right to opt for payment of tax under section 74 and at the same time not to opt for penalty under the Section 74. The High Court held that If option to pay tax is acted upon under Section 74, then penalty under section 74 has also to be paid. Th relevant Extract of the decision of the Hon’ble High Court is as under-

On a consideration of facts and circumstances of the case and the submissions made across the Bar, I find that the contention of the petitioner that she should be exempted from the requirement of paying interest and penalty while availing the option of payment of tax for the purposes of avoiding the show cause notice cannot be accepted. The scheme of making a payment of tax together with interest and 15% of the amount as penalty envisaged under section 74 is for the purposes of enabling an assessee to avoid the show cause notice contemplated under the said provision. What is offered to the petitioner under the provision is an option of either (i) paying the tax intimated by the statutory authorities, together with interest thereon and a fixed amount towards penalty, in which event a show cause notice would not follow or (ii) denying her liability to tax, interest and penalty and contest the show cause notice that would follow. The petitioner, however, wants to get the best of both worlds by opting for the former course and simultaneously obtaining an exemption from the requirement of payment of interest and penalty amounts intimated to her by the Department. In my view, such an exercise is not permissible in terms of the Statute. When the scheme under section 74 for avoiding a show cause notice is one that is optional to an assessee, the assessee has either to opt for it or look away from it. If she opts for the scheme, she has to comply with the terms under which the option is made available under the statute. She cannot seek a variation of the said scheme.

This also applies for the revenue that once they opted for proceedings under Section 73/74 then they cannot provide that they would recover tax and interest under section 74 and penalty under section 122 of CGST Act, 2017. Once the provisions of Section 74 have been opted for then in such case penalty under section 74 would be automatic and penalty under any other section for same offence and on the same person cannot be levied.

No Two penalties for same act or omission on same person but if the ingredient of two offences are different then the privilege not applicable –

However, this principle comes with a rider that 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. The relevant cases giving an understanding of the above principle are as follows:

Case-1-Meaning of “Same Offence”-Principle in American Law

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

Distinct statutory provisions will be treated as involving separate offences for double jeopardy purposes only if “each provision requires proof of an additional fact which the other does not” (Blockburger v. United States, (1931) 284 US 299, 304). Where the same evidence suffices to prove both crimes, they are the same for double jeopardy purposes and the clause forbids successive trials and cumulative punishments for the two crimes. The offences must be joined in one indictment and tried together unless the defendant requests that they be tried separately. (Jeffers v. United States, (1977) 432 US 137).” (See “Double Jeopardy” in the Encyclopedia of Crime and Justice vol. 2 (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 Jeopardy” (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 consequence 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……”

Case-2-Ranjit Singh Alias Jeeta vs Union Of India And Another on 11 December, 2009 Punjab-Haryana High Court-Same act should constitute an offence having the same ingredients whether in the same statute or different statute

8. In order that the prohibition is attracted the same act must constitute an offence under more than one Act. If there are two distinct and separate offences with different ingredients under two different enactments, a double punishment is not barred.

On the face of it, both the statutes and the provisions thereof operate in different fields. Different ingredients have been provided for levy of penalty for different offences, which do not over-lap each other, even if the facts emanating the proceedings under the two statutes may be common.

If the facts of the present case are considered in the light of enunciation of law on the principles of double jeopardy, as referred to above, the only conclusion which can be arrived at is that the levy of penalty on the appellant under the 1973 Act cannot be said to be barred on account of principle of double jeopardy, as the proceedings initiated either by the authorities under the 1962 Act or under the 1973 Act cannot be held to be on account of prosecution and conviction by a court of law, as is required to be established and further the same being under two different statutes, where ingredients for levy of penalty are altogether different

Case-3-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.

Case-4-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

Case-5- 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.

Case-6-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.”

Case-7- 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.

Case-8-Maqbool Hussain vs The State Of Bombay.Jagjit … on 17 April, 1953 (SC) Equivalent citations: 1953 AIR 325, 1953 SCR 730- Theory of Double Jeopardy and Guarantee of fundamental right given in Art. 20 (2) circumscribed by providing that there should be not only a prosecution but also a punishment in the first instance in order to operate as a bar to a second prosecution and punishment for the same offence, thus applicable only on criminal proceedings

“7. The fundamental right which is guaranteed in Art. 20(2) enunciates the principle of “autrefois convict” or “double jeopardy”. The roots of that principle are to be found in the well established rule of the common law of England “that where a person has been convicted of an offence by a Court of competent jurisdiction the conviction is a bar to all further criminal proceedings for the same offence”. [Per Charles J. in Reg. v. Miles (1890) 24 Q. B.D. 423(A). To the same effect is the ancient maxim “Nimo Bis Debet Puniri Pro Uno Delicto”, that is to say that no one ought to be twice punished for one offence or as it is sometimes written “Pro Eadem Causa” that is for the same cause.

8. This is the principle on which the party pursued has available to him the plea of “autrefois convict” or “autrefois acquit”.

“The plea of `auterfois convict’ or `autrefois acquit’ avers that the defendant has been previously convicted or acquitted on a charge for the same offence as that in respect of which he is arraigned…. The question for the jury on the issue is whether the defendant has previously been in jeopardy in respect of the charge on which he is arraigned, for the rule of law is that a person must not be put in peril twice for the same offence. The test is whether the former offence and the offence now charged have the same ingredients in the sense that the facts constituting the one are sufficient to justify a conviction of the other, not that the facts relied on by the Crown are the same in the two trials. A plea of “autrefois acquit” is not proved unless it is shown that the verdict of acquittal of the previous charge necessarily involves an acquittal of the latter”. (Vide Halsbury’s Laws of England-Hailsham Edition- Vol. 9, Pages 152 and 153, Para 212.)

10. The Fifth Amendment of the American Constitution enunciated this principle in the manner following:

“….. nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled, in any criminal case, to be witness against himself….. Willis in his Constitutional Law, at page 528 observes that the phrase ” `jeopardy of life or limb’ indicates that the immunity is restricted to crimes of the highest grade and this is the way Blackstone states the rule. Yet, by a gradual process of liberal construction the Courts have extended the scope of the clause to make it applicable to all indictable offences, including misdemeanors”…… “Under the United States rule, to be put in jeopardy there must be a valid indictment or information duly presented to a Court of competent jurisdiction, there must be an arraignment and plea, and a lawful jury must be impaneled and sworn. It is not necessary to have a verdict. The protection is not against a second punishment but against the peril in which he is placed by the jeopardy mentioned”.

12. 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.

Case-9- State Of Punjab And Anr. vs Dalbir Singh And Ors. on 19 July, 2000 Equivalent citations: JT 2000 (10) SC 456, (2001) ILLJ 46 SC, (2001) 9 SCC 212

Civil Appeal Nos. 5386-5389/1997 and 5390/1997 are directed against the Division Bench Judgment of the Punjab and Haryana High Court, which took the view that initiation of a departmental proceedings for the alleged misconduct would tantamount to double jeopardy and prohibited under Article 20 of the Constitution, as for the same misconduct under the provisions of Motor Vehicles Act, certain fine has been levied. This judgment of the Division Bench of Punjab and Haryana High Court has later been reversed by the Full Bench of the same High Court against which concerned employee has moved this Court in C.A. No. 6071/1997. The question that arises for consideration, therefore, is whether the levy of penalty under the provisions of Motor Vehicles Act would absolve the concerned employee from all liabilities and would debar the disciplinary authority to initiate disciplinary proceedings. In other words, the question would be whether initiation of a departmental proceedings would tantamount to violation of provision contained in Article 20(2) of the Constitution. Having examined the relevant facts involved in these appeals and having examined the judgment of the Full Bench of Punjab and Haryana High Court, we have no hesitation to come to the conclusion that the Full Bench rightly interfered with the judgment of the Division Bench of Punjab and Haryana High Court. In our view, the payment of penalty under the provisions of Motor Vehicles Act would not absolve the employee fully from all other liabilities nor would it debar the employer from initiating a departmental proceedings for the alleged misconduct of the concerned delinquent employee. Such initiation of a departmental proceedings by no stretch of imagination, can be held to be a violation of provision of Article 20 of the Constitution of India. In this view of the matter, we uphold the Full Bench judgment of the Punjab and Haryana High Court, and necessarily therefore, the Civil Appeals filed by the State Government are allowed and the Civil Appeal filed by the delinquent is dismissed.

Levy of Interest in GST-Whether Interest is Payable at 24% as per the provisions of Section 50(3) wherein due to error while filling in figures in GSTR-3B, higher credit was availed by the Taxpayer but the same was not utilized-Part-3

One very common issue is whether interest is payable under Section 50(3) on ITC wrongly availed but not utilized for making payment of output liability. Today’s article would discuss scenario wherein due to error while filling in figures in GSTR3B, higher credit was availed by the Taxpayer but the same was not utilized. Since the Input Tax Credit was wrongly availed due to clerical error therefore the same was not reflecting in GSTR-2A. The issue is whether interest is payable on such wrong availment of Input Tax Credit under Section 50(3) at the rate of 24%. The article restricts itself to cases wherein the GST Credit has been wrongly availed but not utilzed.

The article would briefly discuss the issue vis-à-vis provisions of CGST Act, 2017 without going into the aspect that levy of interest is compensatory in nature and therefore if the Input Tax credit has not been utilized, then why at all levy of interest is there. The article restricts itself to Section 50(3) read with Section 42(10) and Section 38 of CGST Act, 2017 and Rule 69 of CGST Rules, 2017.

Applicability of Section 50(3) of CGST Act, 2017

Before moving ahead, Provision of Section 50(3) is being reproduced herewith for your ready reference-

(3) A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council.

Therefore, Provisions of Section 50(3) of CGST Act, 2017 are applicable in cases wherein undue or excess claim of input tax credit has been made under sub-section (10) of section 42 of CGST Act, 2017.

Provisions of Section 42 are applicable only in cases for matching, reversal and reclaim of Credit and are based on details of inward supply filed by the registered person

The provisions of section 42 are applicable for matching, reversal and reclaim of input tax credit. The relevant provision of Section 42 are as follows:-

42. Matching, reversal and reclaim of input tax credit.— (1) The details of every inward supply furnished by a registered person (hereafter in this section referred to as the ―recipient‖) for a tax period shall, in such manner and within such time as may be prescribed, be matched––

Thus, it can be observed that Section 42(1) provides that details of every inward supply furnished by a registered person for a tax period shall be matched for the parameters as provided there in.

Details of Inward Supply in GSTR-2 were required to be filed under Section 38 of CGST Act, 2017

That for applicability of provision of Section 42, details of inward supply had to be furnished. That detail of inward supply had to be furnished under Section 38 of CGST Act. Further provision of Section 38 of the CGST Act, 2017 is being reproduced herein under:

(5) Any registered person, who has furnished the details under sub-section (2) for any tax period and which have remained unmatched under section 42 or section 43, shall, upon discovery of any error or omission therein, rectify such error or omission in the tax period during which such error or omission is noticed in such manner as may be prescribed, and shall pay the tax and interest, if any, in case there is a short payment of tax on account of such error or omission, in the return to be furnished for such tax period:

It can be observed from the above that Section 38 which provided for filing of GSTR-2 also provided that if recipient has furnished return in Form GSTR-2 and amounts have remained unmatched under Section 42 and 43, then in such case interest would be payable for short payment of tax on account of such error and omission. Therefore, the basic premises of Section 42 rested upon the details of inward supply furnished under Section 38. The return to be furnished under Section 38 was GSTR-2.

That the time limit for furnishing GSTR-2 in Section 38 has not been notified till date

That Form GSTR-2 for the period till date has not been notified till date. Para 2 of Notification No. 32/2018-Central Tax Dated 10^th August 2018 for July 2018 to March 2019 for specimen reference is being as follows:-

2. The time limit for furnishing the details or return, as the case may be, under subsection (2) of section 38 and sub-section (1) of section 39 of the said Act, for the months of July, 2018 to March, 2019 shall be subsequently notified in the Official Gazette.

Emphasis Supplied

It is pretty clear from the above that return under section 38 have not been notified in official gazette till date and since the returns have not been notified till date therefore Section 42 itself cannot be used until then since the very basis of Section 42 is the details of inward supplies furnished under Section 38 and matching of the same in the manner as provided therein. Since GSTR-2 itself has not been brought in place therefore its matching procedure and implications of non-matching of the credit as provided under section 42 (8) and 42(10) cannot also be implemented.

Rule 69 of CGST Rules provide that matching under Section 42 of CGST Act, 2017 of Details of Inward Supply should be extended if the due date of filing of GSTR-2 under section 38 has been extended

Relevant Extract of Rule 69 is being reproduced hereunder:

69. Matching of claim of input tax credit .-The following details relating to the claim of input tax credit on inward supplies including imports, provisionally allowed under section 41, shall be matched under section 42 after the due date for furnishing the return in FORM GSTR-3-

(a) Goods and Services Tax Identification Number of the supplier;

(b) Goods and Services Tax Identification Number of the recipient;

(c) invoice or debit note number;

(d) invoice or debit note date; and

(e) tax amount:

Provided that where the time limit for furnishing FORM GSTR-1 specified under section 37and FORM GSTR-2 specified under section 38 has been extended, the date of matching relating to claim of input tax credit shall also be extended accordingly:

That it can be clearly seen that the rule provides that if the time limit for furnishing of GSTR-2 under section 38 has been extended then the date of matching relating to claim of input tax credit shall also be extended accordingly. Since Form GSTR-2 for the period till date has not been notified till date and Para 2 of Notification No. 32/2018-Central Tax Dated 10^th August 2018 being reproduced herein below for specimen reference for July 2018 to March 2018 is as follows:

That since till date due date for filing of details of inward supply has not been notified till date, therefore matching as per the provisions of Section 42(1) read with Rule 69 is not required to be done till date. The date has automatically been extended until the date of filing of GSTR-2 for the relevant period.

That since the matching under Section 42 is only possible on filing of details of inward supplies under Section 38 and date of filing of Return under GSTR-2 under section 38 has not been notified till date, therefore the date of matching by virtue of First Proviso to Rule 69 has also been extended. Once the date of matching under Section 42 read with Rule 69 has been extended then any interest to be leviable on account of non compliance of discrepancies as highlighted under the provision of Section 42 cannot be levied. It was held by Hon’ble Bombay High Court in the matter of Municipal Council Morshi vs Tulsiram on 10 March, 1977 Equivalent citations: AIR 1978 Bom 92 that

24. In my judgment, there is considerable force in this contention urged on behalf of the petitioner and it must be upheld, and in view of the circumstances pointed out above it must be held that the law would excuse non-performance of an act which became impossible of performance on account of reasons beyond the control of the landlord. The maxim lex non cogit ad impossioilia (the law does not compel impossibilities) would govern the circumstances of the case on point. Maxwell on Interpretation of Statutes, 10th Edition observed at p. 373 as follows :

‘Enactments which impose duties on conditions are, when these are not conditions precedent to the exercise of a jurisdiction, subject to the maxim lex non cogit ad impossibilia aut inutilia. They are understood as dispensing with the performance of what is prescribed when performance of it is idle or impossible. In such cases, the provision or condition is dispensed with when compliance is impossible in the nature of things. It would seem to be sometimes equally so where compliance was, though not impossible in the sense, yet impracticable without any default on the part of the person on whom the duty was thrown’.

It was further held that

29. Thus according to the maxim when doing of some positive act, doing of which is required to be done within the prescribed time and according to the manner indicated by the rules, is made impossible of performance, the penalty for non-performance cannot be reasonably attracted and the non-performance will be excused. Even in a proceeding for mandamus, a return which is shown to be legally impossible of performance is a good return. (See Tapping on Mandamus, page 359).”

Emphasis Supplied

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 wherein it as 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.”

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) wherein it was 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 & Anr vs Shamsher Singh on 1 May, 1985 Equivalent citations: 1985 AIR 1082, 1985 SCR Supl. (1) 83 wherein it was 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, since provisions of Section 42 were to be made applicable and are based upon the mechanism which would have been brought into place provided GSTR-1/2 and 3 would have been brought in place and without the same being brought in place, provisions of Section 42 lacks applicability. Manual Matching as being done today is not something which has been envisaged in Section 42 and neither the required amendments have been made in Rule 69 till date, therefore in the authors opinion, GSTR-2A/GSTR2B might be there but Section 42 provided for entire process and mehanism of matching vis-avis Rule 69. It has to be borne in mind that provision of Section 42 is a complete code in itself for the purpose of levy of interest other than the rate of interest being referred from Section 50. Once the section is complete code in itself and it provides a manner and the procedure for doing the things and if the system itself is not in place for compliance of provisions of that section, then in such case there cannot be a case for non-compliance of the provisions contained in the section itself.

That provisions of Section 50(3) are not applicable in cases where excess credit has been claimed inadvertently but it is applicable on the credit once reversed but reclaimed in contravention of the procedure as mentioned in Section 42(7)

That, Section 42(7) provides that when amount once reversed by the recipient in his return could be reclaimed by him as credit if supplier has declared the details of the invoice or debit note in his valid return within the time specified in sub-section (9) of section 39. In case, the said credit once reversed would have been reclaimed in contravention of the procedure as mentioned in Section 42(7), then interest on such excess claim of credit would have been liable at the rate provided under Section 50(3) of CGST Act, 2017.

In the cases wherein inadvertently higher credit has been claimed, there is no such scenario wherein the credit has been reclaimed after reversal. In the given case, it is an inadvertent error for the purpose of claim of input tax credit. Thus, the given case is not covered by the provisions of Section 50(3) of CGST Act.

If the mechanism as envisaged been in place contravention to provisions of Section 42 would not have occurred since the system itself would have blocked availment of excess credit inadvertently and since the mechanism itself is not in place, therefore there can be no non-compliance of provision of Section 42

That if the claim of input tax credit would have been based upon filing of details of inward supply, then such error could not have occurred. That since credit would not have been claimed there would have been no contravention of provisions of Section 42 and thus no interest payable due to contravention of Section 42. Since credit is only based upon claim of a manual figure in GSTR-3B without the system as envisaged in Section 38 read with Section 42 brought in place, therefore in the absence of such system in place there cannot be a case of levy of interest under section 42 for its non-compliance.

It has to be borne in mind that provision of Section 42 is a complete code in itself for the purpose of levy of interest other than the rate of interest being referred from Section 50. Once the section is complete code in itself and it provides a manner and the procedure for doing the things and if the system itself is not in place for compliance of provisions of that section, then in such case there cannot be a case for non-compliance of the provisions contained in the section itself.

Before levy of interest under Section 50(3) of CGST Act, 2017 there was an entire mechanism in place wherein eligibility of the recipient would have been checked and verified. A Brief description of the same is as follows:

Particulars	Form
Furnishing of outward supplies by Supplier	GSTR-1
Reflection of the entries uploaded by the Supplier to the recipient	GSTR-2A
Acceptance of the entries by the Recipient and updation of such accepted entries	GSTR-2
Communication of Finally Accepted Credit to the recipient	MIS-1
Communication of Credit previously found mis-matched but subsequently matched after rectification either by the supplier or recipient	MIS-1
Discrepancy to be communicated to the recipient about the credit claimed	MIS-1
Discrepancy to be communicated to the supplier about the details of the invoices uploaded	MIS-2

It can be observed from the above that Form GSTR-2A and GSTR-2 were supposed to be dynamic forms wherein entries first would have been reflected in GSTR-2A and then upon acceptance would have the data flown into GSTR-2. Now although the Credit is being reflected in GSTR-2A however GSTR-3B is not linked with GSTR-2A. The two forms are separate and are not linked to each other therefore even if the credit of Rs 1 Lakh is being reflected in GSTR-2A, by human error the same might be entered as 1 Crore in GSTR-3B with no restriction as such. Furthermore, apart from GSTR-2A being not linked with GSTR-3B as would have been the case between GSTR-2A and GSTR-2, there is no form MIS-1 and MIS-2 which would have communicated the finally accepted Input Tax Credit to the Recipient or would have been a tool to communicate discrepancy to the supplier and the recipient.

Further, there was a particular timeline wherein the discrepancies would have been communicated between the recipient and the supplier and if the discrepancy would not have been rectified by the supplier or the recipient, then in such case within the specified time limit the discrepancy as persisting would have been added to the output liability of the recipient. The time line as provided is as follows:

Step	Process of Communication, Rectification and Addition to Output Liability
1	The discrepancy was to be communicated in Form GST MIS-1 and Form GST MIS-2 to the recipient and supplier respectively through common portal on or before the last date of the month in which the matching was carried out alongwith details of output tax liable to be added
2	A supplier to whom any discrepancy was made available was entitled to make suitable rectifications in the statement of outward supplies to be furnished for the month in which the discrepancy is made available. A recipient to whom any discrepancy was made available was entitled to make suitable rectifications in the statement of inward supplies to be furnished for the month in which the discrepancy is made available.
3	Where the discrepancy would not have been rectified, an amount to the extent of discrepancy would have be added to the output tax liability of the recipient in his return to be furnished in FORM GSTR-3 for the month succeeding the month in which the discrepancy was made available.

Further, a recipient would have been able to claim provisional credit of the inward supplies, details of which have been uploaded by the supplier only upon including the same by himself by providing Invoice-wise details and the same being communicated to the supplier for approval. A detailed process for the same was provided under Section 38 read with Rule 59 of the CGST Rules which broadly provided as under-

Recipient was required to perform actions as listed below on details submitted and communicated to him.
- Verify
- Validate
- Modify
- Or if require, delete

Once the above actions were performed, GSTR-2 of the recipient of the supply was to be prepared. The recipient of the supply was entitled to include details of the inward supplies and credit or debit note received by him in respect of such supplies that have not been declared by the outward supplier in his GSTR-1.

Communication was to be sent to the supplier for Supplies which were deleted or modified by the recipient or Supplies which were not declared by the supplier but were included in the return by the recipient.
The details of inward supplies added, corrected or deleted by the recipient in his FORM GSTR-2 under section 38 or FORM GSTR-4 or FORM GSTR-6 under section 39 was to be made available to the supplier electronically in FORM GSTR-1A through the common portal. Supplier would have either accepted or rejected modifications made by recipient. The action of accepting or rejecting the details communicated to the outward supplier was to be done on or before seventeenth day but not before the fifteenth day of the month succeeding the tax period. FORM GSTR-1 furnished earlier by the supplier was to be stood as amended to the extent of modifications accepted by him.

The above mechanism shows that there was an entire system in place for the two way communication between the supplier and the recipient for the claim of credit. There is no such system of communication in place and the forms are also not interlinked with each other. In case such systems would have been in place, the recipient would have been alerted at first at many places for the discrepancy and secondly would not have been able to claim credit in respect of the missing invoices otherwise than by uploading the invoice-wise details. Further, the forms would have been interlinked with each other and last but not the least any credit in respect of missing invoice would have been subject to approval by the supplier and if there would not have been any acceptance by the supplier, provisions al claim of credit by the recipient would have been added back to the output liability of the recipient in a time bound manner. That since there was a detailed process in place, therefore there was a need to have separate provisions for levy of interest for wrong availment. However since the system it self is not in place then in such case, there cannot be a case for levy of interest in such cases. Section 42 provided that once a credit has been reversed but again reclaimed by the recipient but such claim is found to be invalid then such credit would have been reversed and interest would have been payable at the rate of 24% p.a.

Since the process as envisaged in Section 42 has not been brought in place, therefore the following procedure relating to reflection of the input reversed in Output Liability and being debited to Electronic Credit ledger too has not been brought in place

That entire mechanism as provided under Section 42 read with Section 50 and Rule 69 to 72 made thereunder provide that the input tax credit was to be added to the output liability. Further the return prescribed under GSTR-3 was so designed that Input Tax Credit reversed as mismatch in Input Tax Credit was required to be added to the output liability vide Table 6 and Table 8 of Form GSTR-3. Further Rule 85(2) of CGST Rules, 2017 provides that

(2) The electronic liability register of the person shall be debited by-

the amount payable towards tax, interest, late fee or any other amount payable as per the return furnished by the said person;
the amount of tax, interest, penalty or any other amount payable as determined by a proper officer in pursuance of any proceedings under the Act or as ascertained by the said person;
the amount of tax and interest payable as a result of mismatch under section 42 or section 43 or section 50; or
any amount of interest that may accrue from time to time.

It is pretty evident from the above that as per Rule 85(2)(c) of CGST Rules, 2017 it was electronic liabilty register which was required to be debited with the tax and interest payable as a result of mismatch under Section 42 or Section 43 or Section 50. Further Table 8 of GSTR-3 also reflect that Total Tax Liability consisted of Para 8C which provided for Liability on account of ITC Recredit and Reclaim. Further Table 8C was to be prepared on the basis of Input Tax Credit reversal and reclaim.

That presently the Reversal on account of excess Credit claimed is to be made in Table 4B(2). Further, the reversal made in Table 4B(2) is only debited from the Credit ledger. The Input Tax Credit is not added to the output liability under the Credit Ledger.

Conclusion-The mechanism which was set in place at the time of applicability of GST has not been implemented till date and therefore since the mechanism as required for the applicability of interest under section 42 has not been implemented till date then there cannot be applicability of interest under section 42 read with Section 50(3) itself since provision of Section 42 is a complete code in itself for the purpose of levy of interest other than the rate of interest being referred from Section 50. Once the section is complete code in itself and it provides a manner and the procedure for doing the things and if the system itself is not in place for compliance of provisions of that section, then in such case there cannot be a case for non-compliance of the provisions contained in the section itself.

The link to our previous two articles are as follows:

Is Section 50(1) applicable and Interest to be paid on ITC Wrongly availed but not utilized for making payment of output liability-Part-1-What does the Statute provides-https://gst-online.com/is-section-501-applicable-and-interest-to-be-paid-on-itc-wrongly-availed-but-not-utilized-for-making-payment-of-output-liability-what-does-the-statute-provides/Section 50-Payment of Interest in GST- Subtle differences in the language being used in the Statue regarding Interest Payable-Part-2-https://gst-online.com/section-50-payment-of-interest-in-gst-subtle-differences-in-the-language-being-used-in-the-statue-regarding-interest-payable-part-2/

Legislative Background-Why Entry Relating to “Land and Building” was inserted in Schedule III and Taxability of Immovable Property in GST

This brief presentation contains legislative background behind insertion of entry Entry No. 5 in Schedule III-“Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building”. This presentation also sheds light on what was the initial intention of the law makers and how the taxation of immovable property has been thought be evolved over the period going ahead. This presentation refers to Article 366(26A)-Definition of Services, Government View in the Report Of The Select Committee On the 122nd Constitution Amendment Bill, Agenda to 5th GST Council Meeting, Minutes to 7th GST Council Meeting and Finally the 10th GST Council Meeting wherein it was decided to insert entry relating to “Land and Building” in Schedule III.

Legislative-Background..How-Entry-relating-to-Land-was-inserted-in-Schedule-III

#LearningtheLaw-44-Article 265 of Constitution of India- The only epitaph we may inscribe is: Rest in peace and don’t be re- born ! If on the same subject-matter the legislature chooses to levy tax twice over there is no inherent invalidity in the fiscal adventure save where other prohibitions exist, There is no collection of tax by the authority of law when assessments are made in this arbitrary fashion; If the legislation can provide for a measure of tax on subject of tax by substituting any notional value, which at no point of time becomes part of or related to subject of tax viz. sale of goods, then the fact that it is related to MRP loses its significance altogether-Part I

Article 265 States that No tax shall be levied or collected except by authority of law. Here are few decisions on the subject of Article 265

Case-1- If the legislation can provide for a measure of tax on subject of tax by substituting any notional value, which at no point of time becomes part of or related to subject of tax viz. sale of goods, then the fact that it is related to MRP loses its significance altogether-State Of Rajasthan And Anr vs Rajasthan Chemist Association on 24 July, 2006 (SC)

Issue before the Hon’ble Court-The pivotal question, therefore, which needs to be considered is whether the measure to which rate of tax is to be applied on single point transaction of sale of any formulation by the wholesaler to the retailer can be something notional which is not related to subject of tax or to say in other words, whether MRP to be chargeable subsequent to taxing event by a retailer when he sells the same goods to consumer can provide a basis which has a nexus with taxable event to provide a valid measure to which rate of tax can be applied.

Hon’ble Apex Court referred to the decision in the matter of Union of India v. Bombay Tyre International Ltd. (AIR 1984 SC 420) the expressions subject of tax, the measure of tax and nexus between the two have been succinctly analysed.

The decision arose in the context of Central Excise and Salt Act, 1944 (in short ‘Excise Act’). The controversy was what should be included in the measure of computation of liability and what fell outside the scope of measure to be excluded from consideration. Referring to a large number of decisions of different courts, including some of the decisions we have referred to above, the principle succinctly stated in Seervai’s Constitutional Law was approved by observing as follows:-

“Another principle for reconciling apparently conflicting tax entries follows from the fact that a tax has two elements, the person, things or activity on which the tax is imposed, and the amount of the tax. The amount may be measured in many ways, but decided cases establish a clear distinction between the subject matter of a tax and the standard by which the amount of tax is measured. These two elements are described as the subject of a tax and the measure of a tax.”

The Court also held that the measure of tax though not always essential but is often a relevant consideration to judge the nature of levy. Following passage from R.R. Engineering Company v. Zila Parishad Bareilly (AIR 1980 SC 1088) was approved:

“It may be and is often so, that the tax on circumstances and property is levied on the basis of income which the assessee receives from his profession, trade, calling or property.Therefore, while determining the nature of a tax, though the standard on which the tax is levied may be a relevant consideration, it is not a conclusive consideration”.

This Court recognised greater freedom in adopting measure of the tax to be assessed by its own standard and administrative convenience and other factors may influence the stage at which the levy may be collected and there may be deviation in contours of measure of tax, but did not countenance it to be divorced from the nature of tax, by observing as follows:

“Any standard which maintain a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy”.

State Legislature does not have power to enlarge the definition of sales by creating a legal fiction and levy tax on a sale which has not come into existence-Hon’ble Apex Court referred to the decision in Sales Tax Office, Pilibhit v. M/s Budh Prakash Jai Prakash (AIR 1954 SC 459) and observed that

The State Legislature cannot, by enlarging the definition of “sale” by including forward contracts arrogate to itself a power which is not conferred upon it by the Constitution, and the definition of “sale” in Section 2(h) of the Act XV of 1948 must, to that extent, be declared ultra-vires.

The aforesaid decision makes it clear that subject ‘tax on sales of goods’ in Entry 48 of List II of the Seventh Schedule of the 1935 Act providing for legislative field of sale of goods ought to be confined to levy of tax on sales of goods as defined in the Sales Act and in substance, it is a levy on price of goods and the State Legislature does not have power to enlarge the definition of sales by creating a legal fiction and levy tax on a sale which has not come into existence.

State Legislature does not have legislative competence to enlarge its legislative field to cover those transactions for taxing which do not properly conform to elements of sale of goods within the Sales Act –Hon’ble Apex Court also referred to the decision in the matter of State of Madras v. Gannon Dunkerley & Co (AIR 1958 SC 560)-

The State Legislature does not have legislative competence to give the expression “sale of goods” extended meaning and to enlarge its legislative field to cover those transactions for taxing which do not properly conform to elements of sale of goods within the Sales Act. Tax on value of the material used in construction of building was held to be ultra-vires.

Sub-clause (b) of Article 366(29-A) should be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the States to levy tax on sales and purchases independent of Entry 54 thereof-Hon’Ble Apex Court also referred to the case of Builders’ Association of India and Ors. v. Union of India and Ors.

We do not accept the argument that sub-clause (b) of Article 366(29-A) should be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the States to levy tax on sales and purchases independent of Entry 54 thereof. As the Constitution exists today the power of the States to levy taxes on sales and purchases of goods including the “deemed” sales and purchases of goods under clause (29-A) of Article 366 is to be found only in Entry 54 and not outside it. We may recapitulate here with observations of the Constitution Bench in the case of Bengal Immunity Company Ltd. v. State of Bihar (1955 (2) SCR 603) in which this Court has held that the operative provisions of the several parts of Article 286 which imposes restrictions on the levy of sales tax by the States are intended to deal with different topics and one could not be projected or read into another and each one of them has to be obeyed while any sale or purchase is taxed under Entry 54 of the State List

Consumption by an owner of goods in which he deals is therefore not a sale within the meaning of the Sale of Goods Act and therefore it is not ‘sale of goods’ within the meaning of Entry 54, List II, Schedule VII of the Constitution–Hon’Ble Apex Court also referred to the decision in the case of Bhopal Sugar Industries v. D.B. Dube (AIR 1964 SC 1037)

Consumption by an owner of goods in which he deals is therefore not a sale within the meaning of the Sale of Goods Act and therefore it is not ‘sale of goods’ within the meaning of Entry 54, List II, Schedule VII of the Constitution. The legislative power for levying tax on sale of goods being restricted to enacting legislation for levying tax on transactions which conform to the definition of sale of goods within the meaning of the Sale of Goods Act, 1930, the extended definition which includes consumption by a retail dealer himself of motor spirit or lubricants sold to him for ‘retail sale’ is beyond the competence of the State Legislature. But the clause in the definition in Section 2(1) “and includes the consumption by a retail dealer himself or on his behalf of motor spirit or lubricant sold to him for retail sale” which is ultra vires the State Legislature because of lack of competence under Entry 54 in List II, Schedule VII of the Constitution is severable, from the rest of the definition, and that clause alone must be declared invalid.”

Having identified tax event, tax cannot be levied on a person unconnected with event, nor the measure or value to which rate of tax can be applied can be altogether unconnected with the subject of tax, though the contours of the same may not be identified-Hon’ble Apex Court also referred to the decision in the case of M/s Govind Saran Ganga Saran v. Commissioner of Sales Tax & Ors. (AIR 1985 SC 1041) on analyzing Article 265 wherein following observation was made:

“The components which entered into tax are well known. The first is the character of the imposition known by its nature which transpires attracting the levy. The second is a clear communication of the person on whom the levy is imposed and which is obliged to pay the tax. The third is rate at which the tax is imposed and the fourth is the measure or value to which the rate is applied for computing the tax liability”.

Obviously, all the four components of a particular concept of tax has to be inter related having nexus with each other. Having identified tax event, tax cannot be levied on a person unconnected with event, nor the measure or value to which rate of tax can be applied can be altogether unconnected with the subject of tax, though the contours of the same may not be identified.

In the case of tax on sale, price on which transaction took place and not the value of goods is relevant criterion to hold nexus between measure of tax and the taxing event-Hon’ble Apex Court referred to the decision in the case of Hotel Balaji & Ors v. State of Andhra Pradesh and Ors and observed as follows-

In Hotel Balaji’s case (supra) levy of purchase tax at the last point sale within the State by a dealer/manufacturer who has sold the goods manufactured by him in the course of inter state trade and commerce, on the purchase price of the raw materials, was the subject of challenge. The contention has been raised before this Court that since tax was leviable in cases where the goods manufactured were not sold in the State, it amounted to levy of Excise Duty on manufacture though named as purchased tax. In holding that levy was essentially a tax on purchase of goods within the State, one of the factors which weighed with this Court was that the levy was upon the purchase price of the raw material and not upon the value of the manufactured products. That is to say when the tax was levied at the transaction of purchase, notwithstanding it was leviable in case of goods manufactured by the dealer and were sold in a manner not taxable within the State is nonetheless tax leviable at purchase price and not on the value of the manufactured products. So it was held that the essential character of tax on purchase was retained and consequently it did not lose its character as a tax on purchase of goods. The Court obviously indicated that in the case of tax on sale, price on which transaction took place and not the value of goods is relevant criterion to hold nexus between measure of tax and the taxing event.

The position would have been different had the tax on taxable transaction of purchase have been levied with reference to price relatable to subsequent transaction of sale. In that event, the price forming part of subsequent sale would have lost nexus with the transaction that become taxable in the State.

Hon’ble Apex Court IN State Of Rajasthan And Anr vs Rajasthan Chemist Association on 24 July, 2006 (SC) finally held as follows-

In the context of meaning assigned to expression ‘sale of goods’ or price or consideration element of such ‘sale of goods’ as taxable event, the conclusion that can fairly be reached is that for the taxing event of sale, if the price is to be the basis for measuring tax, it must relate to actual transaction of sale that become subject of tax and not to a different transaction that may take place in future at a price.

The charging Section 4 stipulates that the tax payable by a dealer under the Act shall be at single point in the series of sales by successive dealers, as may be prescribed and shall be levied at such rates not exceeding fifty per cent on the taxable turnover, as may be notified by the State Government in the Official Gazette. This shows that there is no scope for multi point levy of tax and the tax is levied on the first point sale within the State in a series of sales and tax is leviable at rate applied to aggregate of price received or receivable by the dealer on such sales.

If the legislation can provide for a measure of tax on subject of tax by substituting any notional value, which at no point of time becomes part of or related to subject of tax viz. sale of goods, then the fact that it is related to MRP loses its significance altogether. If this is permitted to be done the legislation can provide for any measure the purpose of applying the rate of tax, whether it is founded on MRP or any other fixed value which legislature may provide will make little difference. It is not contended by appellant that even if the measure is not relatable to MRP, it can substitute any value as a measure of tax. Subject of tax is not the goods or goods sold, but a transaction of ‘sale of goods’ as defined under the Sales Act.

Case-2- Whether the assessment be one relating to income-tax, agricultural income-tax or sales-lax, the process of best judgment assessment is a quasi-judicial process, an honest and bona fide attempt in a judicial manner to determine the tax liability of a person. And such determination must be related to the materials before the authority- M. Appukutty vs Sales Tax Officer, Spl. Circle I, … on 23 December, 1964 Equivalent citations: AIR 1966 Ker 55, 1966 17 STC 380 Ker

19. It is too well established a principle to be sought to be supported by decisions that the rejection of the account books does not give the Taxing Authority a right to make any assessment in any way it likes without any reference to the materials before him. Whether the assessment be one relating to income-tax, agricultural income-tax or sales-lax, the process of best judgment assessment is a quasi-judicial process, an honest and bona fide attempt in a judicial manner to determine the tax liability of a person. And such determination must be related to the materials before the authority.

20. I do not find even the slightest judicial approach to the question in this case. There was no material before the authority which would in any manner justify the addition of 27,60,000 and odd Rupees to the turnover. The addition made is arbitrary and capricious and is even mala fide in the sense that there has been no application of the mind to the question involved.

21. When tax is imposed illegally in such a fashion, I think, there is an infringement of the fundamental right of a person like the petitioner before me to curry on his trade or business. It was held by this Court in Aluminium Industries Ltd. v. Agricultural Income Tax and Rural Sales-tax Officer, 1961 Ker LJ 1336 that collecting tax not legally due infringes the right to carry on business guaranteed by the Constitution. No doubt quasi-judicial authorities have jurisdiction to decide rightly as well as wrongly. But no judicial or quasi-judicial authority has the right to decide in an arbitrary manner and if it so decides, I think, this Court is not helpless to safeguard the interests of the victim of such decision by interfering under Article 226 of the Constitution. Further I am of the view that in such cases Article 265 of the Constitution “No tax shall be levied or collected except by authority of law,” is also violated. There is no collection of tax by the authority of law when assessments are made in this arbitrary fashion.

Case-3-There is nothing in Art. 265 of the Constitution from which one can spin out the constitutional vice called double taxation- Avinder Singh Etc vs State Of Punjab & Anr. Etc on 19 September, 1978 Equivalent citations: 1979 AIR 321, 1979 SCR (1) 845

There is nothing in Art. 265 of the Constitution from which one can spin out the constitutional vice called double taxation. (Bad economics may be good law and vice versa). Dealing with a somewhat similar argument, the Bombay High Court gave short shrift to it in Western India Theatres(1). Some undeserving contentions die hard, rather survive after death. The only epitaph we may inscribe is: Rest in peace and don’t be re- born ! If on the same subject-matter the legislature chooses to levy tax twice over there is no inherent invalidity in the fiscal adventure save where other prohibitions exist.

Case-1-Use of Words “Such as” is only illustrative- Good Year India Limited v. Collector of Customs, Bombay (SC)

“The words “such as stainless steel, nickel monel, incoloy, hastelloy” in sub-heading (2) are only illustrative of the various metals from which valves can be made but the said description is not exhaustive of the metals. If the material from which the valves are made is a corrosion-resisting material then the valves would fall under sub-heading (2) of Heading 84.61.”

Emphasis Supplied

Case-2-Use of Words “such”-Commissioner of Income-tax, Punjab, Himachal Pradesh and Bilaspur, Simla v. Jagan Math Maheshwary (P & H HC)

In its grammatical usage, and in its natural and ordinary sense, the word ‘such’ is understood to refer to the last antecedent, unless the meaning of the sentence would thereby be impaired, which does not seem to be the case here. The word ‘such’ indicates something just before specified, or spoken of, that is proximalely, and not merely previously. It particularises that immediately preceding antecedent, and not everything that has gone before. It signifies what has preceded proximately and not just previously or formerly.

Thus, it is clear that the expression, ‘such revocation or renunciation” occurring in! Section 206 will refer only to the “re-vocation and renunciation” dealt with in] Section 205.

Emphasis Supplied

Case-3- Meaning of Erroneous-M/S. The Malabar Industrial Co. vs Commissioner Of Income-Tax, … on 10 February, 2000 (SC)

An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law.

Emphasis Supplied

Case-4-Meaning of the Word “Sufficient cause”- Basawaraj & ANR. Vs. The Special Land Acquisition Officer [Civil Appeal No. 6974 of 2013] (SC)

Sufficient cause is the cause for which defendant could not be blamed for his absence. The meaning of the word “sufficient” is “adequate” or “enough”, inasmuch as may be necessary to answer the purpose intended. Therefore, the word “sufficient” embraces no more than that which provides a platitude, which when the act done suffices to accomplish the purpose intended in the facts and circumstances existing in a case, duly examined from the view point of a reasonable standard of a cautious man. In this context, “sufficient cause” means that the party should not have acted in a negligent manner or there was a want of bona fide on its part in view of the facts and circumstances of a case or it cannot be alleged that the party has “not acted diligently” or “remained inactive”.

However, the facts and circumstances of each case must afford sufficient ground to enable the Court concerned to exercise discretion for the reason that whenever the Court exercises discretion, it has to be exercised judiciously. The applicant must satisfy the Court that he was prevented by any “sufficient cause” from prosecuting his case, and unless a satisfactory explanation is furnished, the Court should not allow the application for condonation of delay. The court has to examine whether the mistake is bona fide or was merely a device to cover an ulterior purpose. (See: Manindra Land and Building Corporation Ltd. v. Bhootnath Banerjee & Ors., AIR 1964 SC 1336; Lala Matadin v. A. Narayanan, AIR 1970 SC 1953; Parimal v.Veena @ Bharti AIR 2011 SC 1150; and Maniben Devraj Shah v. Municipal Corporation of Brihan Mumbai AIR 2012 SC 1629.)

10. In Arjun Singh v. Mohindra Kumar, AIR 1964 SC 993 this Court explained the difference between a “good cause” and a “sufficient cause” and observed that every “sufficient cause” is a good cause and vice versa. However, if any difference exists it can only be that the requirement of good cause is complied with on a lesser degree of proof that that of “sufficient cause”.

11. The expression “sufficient cause” should be given a liberal interpretation to ensure that substantial justice is done, but only so long as negligence, inaction or lack of bona fides cannot be imputed to the party concerned, whether or not sufficient cause has been furnished, can be decided on the facts of a particular case and no straitjacket formula is possible. (Vide: Madanlal v. Shyamlal, AIR 2002 SC 100; and Ram Nath Sao @ Ram Nath Sahu & Ors. v. Gobardhan Sao & Ors., AIR 2002 SC 1201.)Emphasis Supplied

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#LearningtheLaw-42-Meaning of the terms “Such as”, “Such, “Erroneous” and “Sufficient cause”

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