GST Updates

Circular No. 76/2018 dated 31st December 2018- Adds to the Confusion and seeks to overturn Principle laid down by Decision of High Court

There seems to be a new rule coming to the fore wherein CBIC Circulars are ruling the roast and major policy decisions are being brought into the public through CBIC Circulars. The present example is a case wherein Patna High Court had specifically set out a decision on the basis of Rules of Interpretation and the same was accepted by CBIC for service tax regime but has been sought to be negated through the Issue of Circular Now.

 

  1. Bone of controversy:

 Notification No. 50/2018 dated 13th September 2018 notified following person for the clause (d) of sub-section (1) of section 51 of the said Act, namely:-

(a) an authority or a board or any other body, –

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by any Government,

with fifty-one per cent. or more participation by way of equity or control, to carry out any function;

 

The issue was whether the condition of fifty one percent attached itself with both the items (i) and (ii) of clause (a) or is required only for item (ii) and item (i) is an independent condition. The entire thing boiled down to the use of “;” in the entry.

 

  1. Decision of Patna High Court in the matter of Shapoorji Paloonji & Company Pvt. vs CCE

This issue has been dealt in the judgment dated 03.03.2016 in Civil Writ Jurisdiction Case No. 16965 of 2015 of Hon’ble High Court of Patna in the case of Shapoorji Paloonji & Company Pvt. vs CCE. The relevant portion of the said judgment is extracted below:

  1. ——————– in the said notification, in the paragraph 2, for clause(s), the following shall be substituted, namely:-

(s) “governmental authority” means an authority or a board or any other body;-

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established, by Government, with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution;”

  1. The provisions contained in sub-clause (i) and sub-clause (ii) of Clause 2(s) are independent dis-conjunctive provisions and the expression “90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution” is related to sub-clause (ii) of Clause 2(s) alone. The clause (i) is followed by “;” and the word “or”. Therefore each of the sub-clauses is independent provision. The condition of 90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution is relatable to only sub-clause (ii) of Clause 2(s). 

                                                                                                                           “Emphasis Applied”

 

  1. Decision of AAR Uttarakhand in respect of definition of Government Entity following the principle laid down by Patna High Court

“Government Entity” has been defined in the Notification No. 12/2017 Dated 28th June 2017as follows:

 

“Government Entity” means an authority or a board or any other body including a society, trust, corporation,-

(i) set up by an Act of Parliament or State Legislature; or

(ii) established by any Government,

 

with 90 per cent or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority.”.

 

The question before AAR Uttarakhand in the matter of NHPC Ltd [2018] 100 taxmann.com 16 (AAR- UTTARAKHAND) was whether condition of 90 per cent or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority” as provided in definition of Government Entity attaches itself with both item (i) and (ii) of the definition or is required only for item (ii).

 

AAR following judgment dated 03.03.2016 in Civil Writ Jurisdiction Case No. 16965 of 2015 of Hon’ble High Court of Patna in the case of Shapoorji Paloonji & Company Pvt. vs CCE held that condition of 90% or more participation by way of equity or control to carry out a function entrusted by the Central Government, State Government , Union Territory or a local authority is relatable to only sub-clause (ii) of the definition of “Government Entity”. 

 

Emphasis Applied

 

  1. Circular No. 76/2018 Dated 31st December 2018-Ignores the Judgement of High Court and sets out its own principle

 

  1. A doubt has arisen about the applicability of long line mentioned in clause (a) of notification No. 50/2018- Central Tax dated 13.09.2018.

 

  1. It is clarified that the long line written in clause (a) in notification No. 50/2018- Central Tax dated 13.09.2018 is applicable to both the items (i) and (ii) of clause (a) of the said notification. Thus, an authority or a board or any other body whether set up by an Act of Parliament or a State Legislature or established by any Government with fifty-one per cent or more participation by way of equity or control, to carry out any function would only be liable to deduct tax at source.

 

  1. In other words, the provisions of section 51 of the CGST Act are applicable only to such authority or a board or any other body set up by an Act of parliament or a State legislature or established by any Government in which fifty one per cent or more participation by way of equity or control is with the Government.

 

Emphasis Applied

 

The circular provides that the condition “with fifty-one per cent or more participation by way of equity or control, to carry out any function” is relatable to both item (i) and (ii) and not only with item (i). This is purely against the decision of Patna High Court wherein they had laid down the principle that wherein both the entries are separated by use of “;” and “or”, entry (i) would be an independent entry and any subsequent condition would be relatable to entry (ii) only.

 

Comment: Circulars in GST Regime have been coming thick and fast and some the major decisions have been brought into the public domain through the issue of the circular. The present clarification goes against the principle laid down by the High Court and needs to be relooked otherwise we are entering into a regime wherein old settled principles have sought to be negated purely on the premises to cover the gaps which have been left while drafting and circular seems to be the easiest way to plug the gap. This circular would be having a huge impact over the definition and claim of exemption through Circular No. 12/2017 in case of Government Entity and Government Authority.

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