November 22, 2023
By Vijay Kumar
ON 31st December, 2018, Circular No.80/54/2018-GST was issued by the
Tax Research Unit (TRU)
Department of Revenue
Ministry of Finance
Government of India
Please note that the Central Board of Indirect Taxes (CBIC) does not figure in the above hierarchical list.
Anyway, the TRU in the Department of Revenue under the Ministry of Finance of the Government of India (CBIC not figuring anywhere) in the abovementioned circular clarified certain issues on classification of goods for levy of GST. The TRU Circular does not state the authority/power/duty under which the TRU issued such clarifications.
Can TRU issue clarifications? What is TRU?
As per Section 168 of the Central Goods & Services Tax Act, 2017 [CGST Act],
The Board may, if it considers it necessary or expedient so to do for the purpose of uniformity in the implementation of this Act, issue such orders, instructions or directions to the central tax officers as it may deem fit, and thereupon all such officers and all other persons employed in the implementation of this Act shall observe and follow such orders, instructions or directions.
So, the Board can issue orders, instructions or directions which are binding on the GST officers. But what is this TRU and can the TRU issue orders, instructions or directions and are they binding on the GST officers?
In a recent case decided last week by the Delhi High Court in "Association of Technical Textiles Manufacturers and Processors"- 2023-TIOL-1586-HC-DEL-GST, this was answered.
The Counsel for the petitioner submitted that as would be evident from the above provision, the power to issue orders, instructions or directions to Central Tax Officers stands vested exclusively in the Central Board of Indirect Taxes and Customs [the Board]. He contended that no power stands conferred upon the TRU. According to him, even if a clarification pertaining to classification were to be issued under the CGST Act, the same could have been achieved only by way of a directive issued by the Board and none other.
The High Court observed,
We note that learned counsels for the respondents could not draw our attention to any provision of the CGST Act, in terms of which the TRU could be said to have been clothed with the authority or jurisdiction to render a clarification with respect to classification of goods and articles. That power clearly appears to stand conferred upon the Board exclusively. We are thus of the considered opinion that no authority (is) vested in the TRU to issue the clarification impugned before us.
We have for reasons afore noted come to conclude that in the absence of a conferral of any power upon the TRU, or it being recognized as being statutorily enabled to issue any clarification or directive under Section 168 of the CGST Act, the circular is liable to be quashed and set aside on this ground alone.
The impugned circular dated 31 December 2018 is hereby quashed.
Thus, the High Court has held that TRU has no power to issue such directions and circulars and so the impugned circular is quashed.
Now, what happens to the hundreds of circulars and directions and clarifications issued by TRU all these years? Were they all illegal? And what about the future? Will TRU stop issuing directions and clarifications?
What then is TRU? TRU is treated like God in the Board and so they have the final word. At least it is the Oracle of the Board.
TRU is a part of the Board, like many other sections in the Board, but over the years, because of its proximity to the Revenue Secretary and the Finance Minister, it has outgrown the Board and all neighbourhood. Working in the TRU became a status symbol as the best officers with the highest legal acumen and capacity for hard work with hardly any rewards except of course fame and associated power, were selected. Over the years, TRU came to be headed by a Joint Secretary to the Government of India and so attained a sort of independent status. A Commissioner is almost equal to a Joint Secretary, but in the Board, there are several Commissioners and Joint Secretaries and the TRU Joint Secretary was a kind of super secretary. The CBIC website mentions at least 15 joint secretary/commissioner level officers working in the Board.
In Circular No. 27/90-CX.3, dated 24-5-1990, Board mentioned, Tax Research Unit when consulted in this matter, has stated that there was no intention of granting credit of duty.
Does it mean that TRU was not part of the Board?
In Circular No. 37/90-CX.8, dated 3-7-1990, the Board stated,
The matter has been examined by the Board in consultation with the Tax Research Unit.
So, is the TRU outside the Board?
Circular No. 71/71/94-CX, dated 27-10-1994 [From F.No. 341/45/94-TRU] was issued by the TRU, but it stated that The matter has been examined in the Board.
Does it men that TRU was communicating the decision of the Board?
In Circular No. 1025/13/2016-CX, dated 22-4-2016, Board mentioned that Shri Alok Shukla, Joint Secretary [Tax Research Unit, Central Board of Excise and Customs, Department of Revenue] will be a Member of a Committee. Board recognised that TRU is a part of the Board. But did TRU recognise the Board?
After every budget, it has become customary for the Joint Secretary, TRU to issue a D.O letter to the Commissioners and Chief Commissioners. In his letter D.O.F.No.334/1/2001-TRU, dated February 28, 2001, the then Joint Secretary (TRU)T.R. Rustagi wrote:
The Explanatory Notes prepared by the TRU explain the details of individual changes. Any errors or omissions that might have crept in the Finance Bill or any of the notifications may kindly be brought to my notice urgently. Doubts on any matter requiring clarification may be referred to me by E-Mail or otherwise. We shall try to respond as early as possible.
All TRU officers and I shall be looking forward to know your comments and reactions on the budgetary changes.
With warm personal regards,
No reference to the Board at all!
Twenty years later in his letter D.O. F. No. 334/02/2020-TRU, dated 1st February 2021, the TRU Joint Secretary GD Lohani wrote,
In case of any doubt or difficulty, I would request you to kindly bring it to my notice immediately.
To conclude, my team and I would like to express our gratitude to you for the valuable suggestions, feedback and support and would look forward to your comments/suggestions.
Again, no reference to the Board.
But in his D.O.F.No.334/3/2004-TRU Dated: July 8,2004, the then JS TRU Gautam Ray wrote:
The Board would like to have a feedback from the Commissioners by the 26th July at the latest about the revenue estimated from various new services/expansion …..and also suggest as to how best the input tax credit across goods and services may be implemented .
I would take this opportunity to thank all of you, on my behalf and on behalf of the officers of the Tax Research Unit for the valuable suggestions you made in response to my earlier communication.
Though there was a passing reference to the Board, the thanks were on behalf of the TRU and not the Board.
The latest Circular - Circular No.206/18/2023-GST Dated the 31st October 2023 - TRU has clarified applicability of GST on certain services. Is the Circular valid?
Is there a TRU in CBDT? There is - it is called TPL - Tax Policy and Legislation.
The 'Tax Administration Reform Commission' in its First Report recommended:
Another dimension that needs to be addressed at the structural level is about the handling of tax policy and related legislation. Currently, this is handled in the two Boards, independently in the Tax Research Unit (TRU) and Tax Policy and Legislation (TPL) wings. These work in silos. The proposals of the Boards reach the finance minister in separate channels. This cannot be considered to be a consistent and coherent approach to issues of tax policy. Very often, they are also short on adequate research, analysis of data and multidisciplinary inputs. Currently, TPL and TRU have become virtual legal repositories devoid of careful analysis, market surveys or use of macro-fiscal models.
Keeping in view the above, a Tax Council supported by a common tax policy, analysis and legislation unit should be established to cater to the needs of both direct and indirect taxes. The unit would be responsible for all three major components of tax policy formulation - policy development, technical analysis, and statutory drafting.
The existing TPL in CBDT and TRU in CBEC should be subsumed in the common TPA. TPA will report to the Tax Council through the concerned member of each Board. TPA will be responsible for all three major components of tax policy formulation - policy development, technical analysis, and statutory drafting.
Based on this report, the Government has created a Tax Policy Research Unit (TPRU) and Tax Policy Council.
Are these functioning? Not much is heard from them.
We are yet to fully get over the power of DRI to issue show cause notices and now we have this judgement that TRU is not authorised to issue orders, instructions or directions.
The instructions issued by the TRU would have been perfectly legal if only they were issued in the name of the Board instead of TRU.
As Finance Minister Pranab Mukherjee was going to Parliament to reply to the discussion on the Finance Bill 2009, he asked the Joint Secretary TRU to suggest to him an exemption which will be very popular without losing much revenue. The JS TRU suggested that there have been persistent demands from State Governments and other stakeholders to exempt road repair from service tax as road laying was already exempted. The Finance Minister was pleased and told the Lok Sabha:
Roads serve as a lifeline in the country. Therefore, the Government has accorded the highest priority in developing and maintaining roads across the country. This is adequately reflected in our expenditure allocation. On the tax front, construction or laying of the new road is excluded from the service tax. However, repairs and maintenance of the roads are chargeable to service tax. Several requests have been received to exempt the repairs and maintenance of roads from the service tax. Therefore, I propose to remove this anomaly by also exempting repairs and maintenance of roads from the service tax with immediate effect.
That is TRU!
Until Next week