MAY 20, 2019

By Dr G Gokul Kishore

GST was meant to absorb within itself all taxes which were being levied on goods and services before 1 st July, 2017. Being a grand bargain to accommodate diverse interests, eventually, one or two levies have remained outside the GST net. With the support of saving clause, proceedings under pre-GST tax laws continue. In certain instances, pre-GST levy is sought to be imposed. In this 38th part, we look at three judgments dealing with different situations.

Mandi fee after GST - Time to abolish

Agricultural produce bought and sold in market area attracts market fee or mandi fee or mandi tax. Such levy is governed by State enactments and the objective of such statute is to establish regulated market for purchase and sale of agricultural produce so as to eliminate middlemen. At the time of implementation of GST, there was no clarity on whether such market fee has been subsumed in GST or it will continue to be levied separately. As the relevant statute was not part of list of Acts repealed as per Section 174 of relevant SGST Act, the prevalent view was that market fee is leviable in GST-era as well.

Trade was, however, not convinced and the issue was taken to Rajasthan High Court by timber merchants. It was argued that all cesses and surcharges were stated as abolished with the advent of GST. The High Court noted that the Rajasthan Agricultural Produce Markets Act, 1961 was not mentioned in the enactments which were repealed as per Section 174 of RGST Act Imarti Lakdi Vyapari Sansthan v. State of Rajasthan - 2019-TIOL-1082-HC-RAJ-GST. It further noted that market fee is leviable under the statute enacted by the State deriving power from Entry 66 of List-II of Seventh Schedule of the Constitution. Though the judgment does not say, it is relevant to note that the above said entry was not omitted by Constitution (One Hundred and First Amendment) Act, 2016. This entry reads 'Fees in respect of any of the matters in this List, but not including fees taken in any court.'.

It has been reported this week that Law Ministry has expressed the view that market fee or mandi tax can continue in response to a query from Finance Ministry. The rate of such fee differs from item to item and from State to State. When the stage is being set for inclusion of petroleum products starting with natural gas in the coming year(s), it may give a big push to GST per se if the Centre impresses upon the States to amend their GST law so that the statute on market fee is repealed. The economic rationale of ensuring better returns for the farmers by having a regulated market can well be achieved by brain-storming on alternative solutions instead of levy-based system. If abolition is seen as difficult, it should be levied uniformly by all States at fixed rate which should not be more than one percent. Let us hope the coming year(s) are used to deliberate on such issue.

Advertisement tax not leviable post-GST

Local bodies like municipalities do not have large revenues generally. They do not have many options either to increase revenues except revising property tax rates. One of the municipal corporations levied advertisement tax post-GST and the same was challenged in Allahabad High Court. The High Court noted that relevant provision of UP Municipal Corporation Act has been omitted by Section 173 of UP GST Act and therefore, State or the municipal corporation does not have power to impose tax on advertisement Selvel Media Services v. State of UP - 2019-TIOL-1034-HC-ALL-GST. Tax on advertisements is (was) a State subject and the relevant entry (Entry 55 of List II of Seventh Schedule) was omitted by the amendment to Constitution on GST. This judgment represents the second category where taxes are sought to be levied despite being subsumed in GST. Levying tax under a law which has not been repealed and imposing tax under repealed provision do not pose significant challenge as to validity. However, the third category as discussed below is more complicated.

VAT demand post-GST - Is it valid?

Section 19 of the Constitution (One Hundred and First Amendment) Act, 2016 contains the marginal heading 'Transitional provisions'. According to it, any provision of law relating to tax on goods or services before commencement of GST which is inconsistent with the provisions of the Constitution (as amended) shall continue to have force till it is amended or repealed by State legislature or till expiry of one year (from implementation of GST), whichever is earlier. Therefore, if a pre-GST law like VAT Act has certain provisions which are inconsistent with the amendments to the Constitution, such conflicting provision will be in force till the inconsistency is removed by amendment or the law is repealed within one year from commencement of such amendments to the Constitution. If the State legislature does not take any action, then after one year, such VAT law will have no force.

Action was proposed against certain dealers in Kerala under Kerala VAT Act. While some of them had to face re-opening of assessment or inquiry relating to past assessment, one of the petitioners was issued with notice afresh after 16-9-2017 when the above said one year period got over. In the writ petitions filed by these dealers, it was contended that once Section 19 (as above) itself provides for repeal and savings, the State legislature was denuded of its power to legislate a provision like Section 174 of SGST Act as the same also deals with repeal and savings. It was argued that Section 174 of SGST Act cannot travel beyond Section 19 of Constitution Amendment Act. There were several other contentions like applicability or otherwise of General Clauses Act in respect of effect of repeal of statutes [ Sheen Gold Jewels v. State Tax Officer - 2019-TIOL-441-HC-KER-GST.

The High Court elaborately and eloquently discussed the issues with copious references from various texts and held that under Section 174 of Kerala GST Act, KVAT Act stood repealed except in respect of goods included in Entry 54 of State List of Seventh Schedule to the Constitution. Such action (repeal / amendment) was taken by the State before one year as provided in the above-mentioned Section 19 of Constitution Amendment Act. The Court rejected the question raised on legislative competence to enact a provision like Section 174 in State GST Act when Section 19 of Constitution Amendment Act itself provided sunset date for pre-GST State law. Section 174 is the typical repeal and savings provision whereby rights, privileges, obligations or liabilities accrued or acquired or incurred under the repealed statute are saved and protected. But it goes beyond and protects investigation, assessment proceedings and adjudication that may be instituted under the repealed Act. It is obvious that this will be subject to limitation.

Does Section 174 have the effect of resurrecting a dead law? If the answer is in the affirmative, will it stand the scrutiny of Supreme Court? Probably, these complicated legal issues are avoided by providing for settlement of arrears under earlier laws and such other amnesty schemes by various States. An eligible agenda item for the next meeting of GST Council can be issuance of instructions to tax administration at the Centre and States so that legacy law issues are closed expeditiously. But this will lead to another question - whether Article 279A(4) empowers the GST Council to recommend on pre-GST laws?

(…To be continued)

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

See Part 37.