MARCH 11, 2019

By Dr G Gokul Kishore

WHEN a body owes its genesis and functioning to the Constitution, one can presume it to be very powerful and authorities concerned are bound by its decisions. One can cite bodies or institutions like Election Commission of India and Union Public Service Commission. GST Council, established as per Article 279A of the Constitution, can only make recommendations on the matters as listed in such provision. Surprisingly, even if it takes decision on any matter, the same is not binding on any CGST or SGST authority. We will try to understand this apparent paradox in 28th part besides discussing the latest circular on sales promotion scheme.

GST Council - Supreme body sans power to bind?

GST Council is a body established as per the mandate of the Constitution. According to Article 279A it is empowered to make recommendations on any of the items listed therein. Clause (4) of the above provision states that the GST Council ‘shall' make recommendations to the Union and the States on items like taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in GST, goods and services that may be subjected to or exempted from GST, threshold limit, GST rates and special provision for certain States. It has the power to determine own procedures for performing its functions. Because it is a body containing representatives from Centre and States, clause (9) provides for decisions to be taken by the GST Council in a meeting by specified majority.

It has been debated whether GST Council is a super-legislature with powers to decide on taxes which is within the domain of legislature. As the word used is ‘recommendations', the counter argument was that the GST Council does not take any decision which power is with the Parliament and State Legislatures and they may accept or reject the recommendations. Nevertheless, when the composition is of ministers holding important portfolio of finance and taxation and the office is derived from the Constitutional provisions, the ordinary expectation is that the recommendations will invariably be implemented by the governments concerned (at the Centre and States). If the same concerns amendments, then respective legislature will consider and pass the same.

One is compelled to think whether the exalted status of the GST Council gets eroded when someone says that the recommendations are not binding and, only when the government issues notification implementing the recommendation, the same can be taken into account. Strictly speaking, such view is correct as sought to be conveyed by Odisha Authority for Advance Rulings [In Re: Indian Institute of Science Education and Research, Ruling dated 13-2-2019] - 2019-TIOL-54-AAR-GST. The AAR was asked to issue ruling on whether the decision of the GST Council granting exemption was binding on the department in the absence of issuance of corresponding notification by the Centre / State. The AAR noted that decisions of the GST Council are binding on the governments, however, issues pertaining to rate of tax and tax concessions / exemptions had to be as per the statutory notifications. The AAR refused to answer the question on the ground that the issue was not within its competence.

In the absence of GST Council's recommendation, notifications cannot be issued on tax rate or exemptions. But the recommendations or decisions lack statutory force unlike the notifications. An officer cannot be compelled to act based on even minutes of the meeting of the GST Council but can be proceeded against if he fails to implement a notification issued based on such decisions. The teeth that an implementing notification as a piece of delegated legislation has, should not be confused with recommendations of a body, howsoever high-ranking it may be. This probably explains the point that the legislature is not denuded of its powers when it comes to the power to tax and power to grant exemption. One of the self-set objectives in this series is suggestion of appropriate solution for the issue highlighted and discussed. We beg to deviate. This subject requires further discussions.

Circular on sales promotion - Promoting EODB

In Part-XXVII, it was noted that ease of doing business (EODB) initiatives should be extended to GST also. Circular No. 92 has been issued on 7-3-2019 wherein GST treatment of sales promotion schemes and input tax credit admissibility in such situations have been clarified, in part. The clarifications are widely welcomed. CBIC has stated that distribution of free samples (and gifts) is not covered under ‘supply' as per GST law which means GST is not payable. The flip-side is ITC not being available in respect of inputs, input services and capital goods to the extent they are used for such free supplies. The circular further clarifies in respect of items given as free along with the goods sold as really not free as the same is a case of two or more supplies where a single price is charged. An additional offer in this part of the clarification is that ITC is protected in such cases. For post-supply discounts, the circular reiterates the provisions of Section 15 of CGST Act on linkage with invoice and proportionate ITC reversal by recipient.

The circular does not go far enough. It should have taken note of the advance ruling by Maharashtra Advance Ruling Authority wherein it was held that post-sale discount was not excludible when the same was not based on fixed parameter or criterion and when the same was open-ended [In Re: Ultratech Cement Ltd., 2018-TIOL-110-AAR-GST]. We had noted in Part-XII that Section 15(3) does not prescribe such conditions. CBIC should have considered such advance rulings and clarified that the department does not subscribe to such view.

Further, the issue as to liability or otherwise, based on specified situations, on point of sale materials like posters, danglers and other publicity materials along with ITC availability should have been clarified. The issues surrounding gift vouchers require clarification to the benefit of taxpayers. One may perceive some amount of avarice in such expectations considering the fact that such clarifications were hard to come by in the earlier regime and the department is at least coming out with such clarifications in GST regime. By adding to the deliverables by the department towards the taxpayers in the second and third years of GST, such expectations can only be legitimate.

(…To be continued)

(The author is an Advocate and Joint Partner, Lakshmikumaran & Sridharan, New Delhi. The views expressed are strictly personal.)

See Part XXVII