DECEMBER 14, 2020

By Dr G Gokul Kishore

STATUTORY provisions, in general, and definitions, in particular, can be provided with either "means" clause or "inclusive" clause or sometimes both "means and includes" clause. Use of "means" clause is interpreted as covering only those what follows such clause whereas "inclusive" clause is considered as expansive in nature and widens the scope of the provision. GST law, by including the inclusive clause at certain places, has sought to expand the net and maximize revenue. A few such provisions are highlighted in this 91st part so that the rigours are reduced and taxpayers perceive certain degree of neutrality.

Expanding business for revenue maximization

The first major provision to include an inclusive clause is the definition of business in Section 2(17) of CGST Act. This provision has 9 clauses which in itself indicates that the draftsman  was  not content with mere deployment of inclusive clause but  was also keen on plugging  any interpretational ambiguity as to the expansiveness of such definition. As per this provision, business includes any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not for a pecuniary benefit. The next clause seeks to cover within its ambit all activities which are undertaken in connection with or incidental or ancillary to such trade or manufacture. The definition expressly mentions that volume, frequency, continuity or regularity is not material which means even an isolated or solitary activity can well be considered as covered under business under GST law. While the definition in VAT law of certain States had a similar definition, the inclusion of activities which are incidental or ancillary to business has created confusion adversarial to taxpayers.

In advance rulings relating to the question as to whether a person engaged in the business of manufacture of motor vehicles can be said to be liable to GST for services provided in the canteen in factory, the answer in certain cases has been in the affirmative. The basis for arriving at such conclusion has been the wide nature of definition of business and the clause including activities incidental or ancillary also under such term. In the rulings in favour of taxpayers, the Authority for Advance Rulings (AAR) has held that the company is not in the business of providing transportation Tata Motors - 2020-TIOL-245-AAR-GST or insurance service Posco India - 2019-TIOL-25-AAR-GST and therefore, providing such facility is not a supply to attract GST. The wide and expansive nature of this definition is further amplified by use of "in connection with" the business of trading or manufacture.

Provision of facilities or benefits by a club or association to its members is covered under the term "business". This has added strength to the stand of the department that doctrine of mutuality is no more applicable and GST law will prevail even when the service is rendered by an association to its members. In order to mitigate the ambiguities and consequential uncertainties, the inclusive definition of business needs to be re-visited.

Liberal supply of inclusive definition

Definition of supply as provided in Section 7 of CGST Act is another inclusive definition. It contains three sub-sections and seven clauses in total. The legislative intention to widen the scope of supply and thus levy of GST is obvious from the initial word itself as it uses "all forms of supply". By illustrating through "such as" and including sale, transfer, barter, exchange, license, rental, lease or disposal, the objective of this provision is brought out clearly. These are the various forms of supply that are sought to be taxed and they are illustrative in nature as other forms of supply are also included for tax purpose, thus leaving the scope open-ended for any peculiar or strange transaction to be covered under this definition. The other sub-sections essentially intend to exclude those activities which are specified in Schedule-III from the ambit of supply and to empower the government to notify a particular transaction as supply of goods and not a supply of service and vice versa.

Because the definition is overarching, one is not surprised to see rulings like those in Apsara Cooperative Housing Society - 2020-TIOL-166-AAR-GST where the AAR has held "supply" has "wide connotation" as per Section 7 thus making members' cooperative society as liable to tax for common services provided to own members [Appeal rejected by AAAR - 2020-TIOL-65-AAAR-GST. If one looks at laws in other jurisdictions, supply under Indian GST law has drawn  more  from Canada but in terms of  inclusiveness, Australian  definition is also all-encompassing [See -  GST - Supplying clear definition  - 6 January 2015] . But the tax administration in these countries is not known for adopting narrow or pedantic interpretation of law and, therefore, disputes are also lesser in such jurisdictions. Even the issue of damages and penalties being treated as consideration by the department arises partly from the entry in Schedule-II on agreeing to tolerate an act while the main provision viz., Section 7 is interpreted as providing support to include such amounts as towards supply.

Another grey area on supply relates to compensation received when there is acquisition of a right from a person based on statutory mandate. It can be argued that such person is not in the business of giving away such right and, therefore, such transaction will not amount to supply. But, as noted above, combined with the definition of business which expressly ignores frequency, such activities may also be perceived as covered under supply. This is precisely the point at which such inclusive and unrestrained definitions lead to adverse consequences for the taxpayers.

These are early days of GST when it comes to disputes. In the years to come, the consequences of including inclusive definitions for important provisions will be more obvious and the same may lead to refinement and amendment, not to rule out even a retrospective one. Appropriate control over the unrestrained operation of such provisions needs to be placed by suitable amendment even if inclusive clause is retained.

[The author is an Advocate, Gokul & Subha Advocates, Chennai. Views expressed are personal.]

See Part 90