FEBRUARY 26, 2018

By Vishwanath K, Advocate

OF the four components which enter into the concept of a tax - Govind Saran Ganga Saran v. Commissioner of Sales Tax - 2002-TIOL-589-SC-CT, the second component is that there must a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax. The other three components are taxable event, rate of tax and measure or value for which the rate is to be applied.

If any one of the 4 components are not clearly ascertainable, then the levy will be fatal to its validity.It can also be said that tax cannot be levied on a person unconnected or having no nexus with the taxable event.

The purpose of this article is to analyse the legal intricacies involved in the second component which enter the net of Goods and Service Tax (GST) .In this context, the charging section i.e. Section 9 of Central Goods and Service Tax Act, 2017 (CGST) requires a closer analysis.

A closer look into charging section reveals the following aspects.

The charging section under CGST Act casts the obligation to pay CGST on 3 persons namely, taxable person, recipient and ECO or its representative. Unlike service tax regime, where the expression "person liable for paying service tax" was defined in the service tax rules, in GST regime the same is canvassed through the definition of "Reverse charge" in CGST Act.

* The expression "reverse charge" has been defined to mean the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act (IGST).

Section 5(3) and 5(4) of IGST Act are akin to Section 9(3) and 9(4) of CGST Act.

The moot question which requires attention is on whom the levy of GST is imposed under the CGST Act - 'Supplier" or "Taxable Person"?

It is worth noting here that both the expressions i.e. Supplier and Taxable person are defined under the CGST Act.

Who is a Supplier?

'Supplier' is defined in relation to any goods or services or both to mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied.

Hence, supplier refers to a 'person' who supplies goods or services or both. Person as defined under CGST Act includes even a body corporate incorporated outside India within its ambit.

Thus, a plain reading provides that the scope of supplier cannot be said to be limited to a person located in the taxable territory as it can also have extra-territorial reach(i.e. outside the taxable territory).

Who is a taxable person?

"Taxable person" has been defined to mean a person who is registered or liable to be registered under section 22 or section 24. Here, though the expression 'person' finds its place, the scope is narrowed down to a person who is registered or liable to be registered under CGST Act.

Under GST regime, the concept of taxable person is linked to the aspect of registration.

Whether all taxable person are suppliers?

As discussed above, registration aspects qua a taxable person covers two categories:

1. Persons who are registered under CGST Act and

2. Persons who are liable to be registered under CGST Act

As far as category one is concerned, section 22(1) of CGST Act provides that every supplier shall be liable be registered in the State /Union Territory from where he makes a taxable supply of goods or services or both.

In case of services, to comprehend from where the supplier makes a taxable supply, a comprehensive analysis of 'Place of business'- in general, and 'Location of supplier of services' and 'Fixed establishment'- in particular is warranted. As far as goods is concerned, the situs coincides with the situs of goods.

For second category, CGST Act provides a list of persons who are liable to be registered which, interalia includes Input service distributor, non-resident taxable person, ECO and even a recipient who is liable to pay tax under reverse charge basis .

En masse taxable person connotes a supplier, in the eyes of GST law to qualify as a taxable person, such person need not always has to be a supplier.

The Sparkle...

Given the charging section clearly and unambiguously manifests that the tax shall be paid by the taxable person, the question that emerges is whether the levy of GST is on the Supplier? Whether such levy can be imposed on the Supplier who is located outside the taxable territory?

It is constitutionally restricted from enacting legislation with extra-territorial aspects or causes that do not have, nor expected to have any, direct or indirect, tangible or intangible impact/effect/consequences for territory of India, or any part of India. Any laws enacted by Parliament with respect to extra-territorial aspects or causes that have no impact on or nexus with India would be ultra vires [GVK Inds Ltd & Anr Vs. ITO - 2011-TIOL-128-SC-IT-CB.

Though the aforesaid judgement is given in the context of the Income tax matters, in case the supply has no impact or nexus with the taxable territory, the law so enacted can be subject to judicial scrutiny.

Thus, a charging section should not artificially impose GST levy on two different persons, i.e. on taxable person and supplier at any given point in time. If such a situation arises, then the levy can be fatal to its validity.

(The views expressed are strictly personal.)