SEPTEMBER 04, 2017

By Abhijit Saha

Central Goods & Services Tax Act, 2017 has introduced Anti-Profiteering provisions which are a first of its kind in India. Australia and Malaysia has introduced such an anti-profiteering clause in their GST Law. Indian version is modeled in line with the provisions introduced in above two countries.

As per the said provision, if there is any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit, then such benefit should be passed on to the recipient by way of commensurate reduction in prices.

In this respect, it is very important to understand the spirit behind such provision in tax law. Generally, the tax law stipulates the ways and means of levy and collection of taxes and the regulations in respect thereto. This is different. It is neither a method of imposition of taxes or collection of taxes nor is it considered as regulations pertaining thereto. It is based upon the Doctrine of Equity where the benefit of tax laws should be passed on to the recipient of goods or services. The question is whether such provision is constitutionally valid.

In this respect it needs mention that it is similar to the provision of unjust enrichment which is applied in the case of refund claim. There also it is provided that if the burden of tax has been passed on to the recipient then the refund claim would be rejected on the ground of unjust enrichment. The said provision was challenged regarding its constitutional validity. A Nine Member Bench of the Hon'ble Supreme Court in the case of Mafatlal Industries - 2002-TIOL-54-SC-CX-CB has by majority decision held that it is constitutionally valid. The Minority decision has stated that it is not constitutionally valid because it violates the provision of Article 265 of the Constitution which stipulates that the Government cannot collect tax without authority of law. Rejecting the refund claim and retaining the tax without authority of law in case of unjust enrichment violates the mandate of Article 265 of the Constitution.

The Majority decision held - Where any provision under which duty is levied is found to be unconstitutional, Article 265 steps in. In other words, the person who paid the tax is entitled to claim refund and such a claim cannot be governed by the provisions in Rule 11/Section 11B. The very collection and/or retention of tax without the authority of law entitles the person, from whom it is collected, to claim its refund. A corresponding obligation upon the State to refund it can also be said to flow from it. This can be called the right to refund arising under and by virtue of the Constitutional provisions, viz., Article 265. But, it does not follow from this that refund follows automatically. Article 265 cannot be read in isolation. It must be read in the light of the concepts of economic and social justice envisaged in the Preamble and the guiding principles of State Policy adumbrated in Articles 38 and 39. The very concept of economic justice means and demands that unless the claimant (for refund) establishes that he has not passed on the burden of the duty/tax to others, he has no just claim for refund. It would be a parody of economic justice to refund the duty to a claimant who has already collected the said amount from his buyers. The refund should really be made to the persons who have actually borne its burden - that would be economic justice.

Hence it may be stated that the economic justice which is founded on the principle of Equity is the principle on the basis of which the tax law is validated. In this respect it is pertinent to mention that Hon'ble Justice Rowlatt J in his celebrated dictum held "... in taxation you have to look simply at what is clearly said. There is no room for any intendment; there is no equity about a tax; there is no presumption as to a tax; you read nothing in; you imply nothing; but you look fairly at what is said and what is said clearly and that is the tax [Cape Brandy Syndicate v CIR (1921) 12 TC 358]

It is seen that because of the socialistic pattern of the society, Indian jurisprudence has gradually deviated from the above principles of no equity about a tax as mandated in Article 265 of the Constitution and moved towards the principles of Equity founded on the basis of Economic Justice. Anti-Profiteering clause is, therefore, a revalidation of the principles of Equity founded on Economic Justice.

(The views expressed are strictly personal.)