AUGUST 04, 2017

By R K Singh

WHILE addressing a conference of Chief Justices and Chief ministers, the Prime Minister pointed out that a lot of litigation was a result of complex/ambiguous language of the statutes and stressed the need for better drafting of laws to ensure clarity and unambiguity. Given the far reaching reformatory and transformational potential of the GST laws, there was no better occasion to pay greater heed to the advice of the Prime Minister than while drafting these laws. However, perusal of the GST enactments reveals that these laws are anything but simple and unambiguous. It is almost ironical that while the task of drafting these momentous legislations unarguably required a very high (if not the highest) degree of drafting skills to ensure clarity and unambiguity, so necessary for taxing statutes, such skills do not seem to have been adequately marshalled.

2. While any number of illustrations can be cited to demonstrate unnecessary complexities, elementary grammatical and syntactical errors and avoidable ambiguities in the language of these enactments, the limited purpose of this article is to point out certain fundamental infirmities, namely, the infirmity in the section defining "supply" (Section 7 of the CGST Act) and also in the charging section (Section 9 ibid). It is trite to say that such fundamental infirmities are totally unacceptable in any taxing statute.

3. GST regime is 'supply' based taxation regime but the definition of 'supply' itself (as contained in Section 7 ibid) is merely an 'inclusive' one. Section 7(1)(a) ibidis reproduced below:

S. 7(1). For the purpose of this Act, the expression "supply" includes-

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business";

An inclusive definition of 'supply' in a taxing statute which levies tax on 'supplies of goods or services or both' is totally unacceptable simply because an inclusive definition axiomatically can never delineate the exact contours of its coverage and as a necessary consequence gives rise to unavoidable uncertainty.

What makes it even worse is the charging section (S. 9 ibid). As per Section 9(1),"there shall be levied a tax called the central goods and services tax on all intra-state supplies of goods or services or both…". Thus as per the charging section 9(1), CGST is leviable on all intra-state supplies of goods or services or both regardless of whether or not such supplies are made in the course or furtherance of business. It is arguably so because the inclusive definition of supply in subsection (1) of section 7 ibid does not exclude all forms of supply of goods or services or both which are not made in the course or furtherance of business.

As if this much confusion was not bad enough, Schedule II of CGST Act makes it excruciating. For example as per Sr no. 1(a) of that Schedule, "any transfer of the title in goods isa supply of goods" regardless of whether or not such transfer is in the course or furtherance of business.

Similarly as per Sr. no. 2(a) of the said Schedule, "any lease, tenancy, easement, license to occupy land is supply of services" regardless of whether or not such lease , tenancy …… is in the course or furtherance of business. ( It is pertinent to note that Sr no.2(b) of the said schedule specifically mentions "for business or commerce' with regard to lease of buildings and Sr nos. 2 and 4 of Schedule-I specifically mention 'in the course or furtherance of business', while conspicuously no such qualification exists in Sr no.1(a) or 2(a) of the said Schedule II). Section 9(1) levies CGST on all intra-state supplies of goods or services or both (the exceptions contained therein are being ignored, not being germane for our purpose) and does not contain any qualification to the effect that such supplies have to be made in the course or furtherance of business (and as stated earlier, inclusive definition of supply in Section 7 does not exclude from its scope 'supplies' made 'not' in the course or furtherance of business).

3. Indeed, the hurriedly-withdrawn clarification given by the Secretary (Revenue) that selling of old jewellery by an individual will be liable to GST was totally in conformity with the language of the law and, as is evident from the above analysis, its withdrawal was on a legally shaky, nay invalid, ground that such sale was not in the course or furtherance of business.

3. In this context, it is also pertinent to refer to section 9 (4) ibid which stipulates that CGST on supplies obtained by registered person from an unregistered person shall be discharged by the recipient. The underlying assumption perhaps was that the person supplying is unregistered because he is not required/liable to be registered under CGST Act.But the wordings of S.9(4)clearly mean/imply that even if the person making supplies is required/liable to be registered but has not taken registration, in such a situation also, the registered recipient will have to discharge CGST on such supplies. It does not seem to be problematic at first glance but on careful analysis, it is fraught with untenable consequences. For example, if at a later date it is found that the unregistered person which made the supplies was actually liable to be registered as per law, then he would also be ab initio rendered liable to pay CGST on the supplies made by him and the provisions regarding demand and recovery contained in Chapter XI of the CGST Act would come into full play against him. In such a scenario, when the liability to pay CGST turns out to be of the person who evaded paying CGST by not taking registration, can such a person escape his liability to pay CGST merely because as a consequence of his illegal action of not taking registration, CGST liability was discharged by the recipient of supplies and if recoveries are effected from him as per law (or even if no such recoveries are effected), will the recipient who paid CGST be refunded the amount because as it turned out it (i.e. the recipient) was arguably ab initio not liable to pay –and what if the refund is time-barred by then?Also it is settled principle of law that in the case of disputes whether (and at what rate and value) a certain supply is leviable to CGST is to be determined by the jurisdictional CGST authorities and it is entirely possible that the jurisdictional authorities of the supplier and the recipient may not be the same which will further compound this complication.

4. While one can generally empathise with the drafters of the GST laws given the tight timelines they had to adhere to, the above fundamental deficiencies/infirmities relating to levy itself can hardly be empathised on that ground. While the GST initiative has been widely well received, the enactments per se have hardly received any kudos and, as is evident from the preceding paras, the reasons are easy to fathom.

(The author is Retired Member CESTAT and the views expressed are strictly personal.)