JUNE 12,2020

By R K Singh

THE charging section of CGST Act, 2017 states as under:

"Section 9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent, as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person."

The presence of the words "or both" in the expression "goods or services or both" being part of the statute, and that too of the charging section cannot be dismissed as redundant and have to be given some meaning/relevance. The only meaning/relevance possible to be given to these words is that if goods and services are supplied for a single indivisible price and the charging section only stated that the tax shall be leviable on the 'supply of goods or services' then the tax would not have been leviable because what was supplied was neither goods nor services but a combination of the two. In other words, because of the presence of the words, "or both", combined supplies of goods and services for a single indivisible price would get covered under the scope of section 9 ibid for the purpose of levy of tax.

2. The definitions of composite supply, mixed supply and principal supply given in s. 2 ibid are reproduced below:

It is noteworthy that the words "or both" are conspicuous by their absence in the definitions of 'mixed supply' and 'principal supply'.

The absence of the words 'or both' in the definition of principal supply clearly means that principal supply can either be of goods only or of service only. In other words, principal supply cannot consist of both, goods AND services. This point is pretty obvious and, therefore, need not be belabored.

3. The definition of composite supply uses the expression 'goods or services or both' and, therefore, by virtue of the words 'or both', taxable supplies of goods and services supplied in conjunction with each other and having a principal supply would get covered in the definition of composite supply and get charged to tax at the rate applicable to the principal supply.

4. When it comes to the definition of mixed supply, as stated earlier, it is evident that the words "or both" are absent therein. It means that two or more individual supplies of goods OR two or more individual supplies of services or any combination of individual supplies of goods OR any combination of individual supplies of services [and never of (goods and services) both together] will be covered in the definition of mixed supply. It is tempting at a careless glance to counter-argue that the expression 'or any combination thereof' will cover individual supplies of goods and individual supplies of services together (in conjunction) but that counter-argument falls flat when the definition of composite supply is perused which also uses the expression 'or any combination thereof' in addition to the words 'or both'. If the said counter argument is accorded any credence or force, then it will render the words 'or both' in the definition of composite supply absolutely redundant. Redundancy in a statute is legally presumed to be absent and redundancy in a definition or charging section of a statute is an absolute NO.

5. Thus, in the absence of the words "or both", the only possible interpretation of the definition of mixed supply is that it is a non-composite supply of two or more individual supplies of goods OR a non-composite supply of two or more individual supplies of services OR any combination of the individual supplies of goods or any combination of individual supplies of services, made in conjunction with each other by a taxable person for a single price. The illustration given below the definition of mixed supply is supportive of this interpretation as that contains individual supplies of goods only.

6. In the preceding paragraphs it has been clearly demonstrated that as per the definition, a mixed supply can consist of only individual supplies of goods in any combination thereof in conjunction with each other made for a single price OR individual supplies of services in any combination thereof made in conjunction with each other for a single price. In other words, a combined supply comprising one or more individual supplies of goods AND one or more individual supplies of services [i.e. a combined supply comprising both, individual supply (or supplies) of goods and individual supply (or supplies) of services] for a single price goes out of the definition of mixed supply. Therefore, for such a combined supply, the rate of tax cannot be the highest of the rate applicable to any of the individual supplies contained therein because provisions of s. 8 Ibid stipulating that the applicable rate of tax will be the highest of all such rates applicable are applicable to mixed supply as defined above. In other words, for such combined supply having both, supplies of goods and supply of services (and hence falling outside the definition of mixed supply ), the law does not enable determination as to at what rate the tax will be leviable, the price being the indivisible single price.

7. It is settled law that if a taxing statute which inter alia does not provide a definite and unambiguous rate of tax applicable to a taxable event, the levy fails; in other words, no tax can be levied on such taxing event. As the non-composite combined supply of two or more individual supplies of goods AND services TOGETHER made in conjunction with each other by a taxable person for a single price does not fall in the definition of mixed supply, no tax can be levied thereon as the rate of tax cannot be ascertained therefor; the only possible exception being a case where all the individual supplies of goods AND services contained in such combined supply are chargeable to the same rate of tax.

8. At this juncture, a devil's advocate may argue that the expression 'in conjunction with each other' in the definition of mixed supply would mean in conjunction with supplies of goods and services and, therefore, the definition of mixed supply will also cover a combined supply comprising individual supplies of goods AND services. Without necessarily conceding this argument, let us examine its consequence. The words 'each other' are used in relation to only two people or things or two sets of entities and the words 'one another' are used for more than two. That being the case, the expression 'in conjunction with each other' in the given context can, at best, cover combined supply consisting of (i) only two supplies of goods or (ii) only two supplies of services OR (iii) a set of supplies of goods AND a set of supplies of services. In other words, the expression 'in conjunction with each other' will preclude a combined supply comprising several (more than two) individual supplies of goods only OR a combined supply comprising several (more than two) individual supplies of services only and consequently they will get out of the purview of both composite supply as well as mixed supply; hence no tax will be leviable on such combined supplies for the reason of non-ascertainability of applicable tax rate if the rate of tax on the individual supplies is not the same. This is an even bigger mischief than the mischief pointed out in para 7 above; but more on this, some other time, perhaps.

9. In the light of the foregoing, the conclusion is inescapable that a large part of the combined supplies will unwittingly escape the levy only because of the law-drafters' inadequacies or/and oversight.

[The author is Member CESTAT (Retd.) and Senior Partner, TLC Legal. The views expressed are strictly personal.]