Features of GST

- It is an indirect tax on supply of goods and service- destination based tax on service or
consumption
- It is levied on value-addition. Eg- A pays tax a first instance- already paid tax- input credit-
has to pay remaining output credit
- Credit of tax paid at earlier stage is available on next stage. Eg- 1st stage- tax paid on G &S;
2nd stage- if there is any value addition, tax on such value addition is to be paid
- Input tax credit can be adjusted against output tax
- Burden of tax is borne by final consumer. We have CGST & SGST but both have same
features and rates
- GST will replace Cen VAT and State VAT
- S.7 is imp- provides for details of supply
- Exports will be zero rated- GST is still applicable on imports
- It provides for a list of exempted goods and services, around 84 items (services) and 148
(goods) but this is subject to change based on decision of GST Council (remain updated).
Very minute items are also included in the list of G & S- well drafted
- To prevent fraud and determine tax credit, there is single registration for tax payer through
PAN- has potential to avoid double taxation if implemented well
- Procedure for tax collection, submitting returns etc is same for Centre and State. Common
tax return (for CGST and SGST) to be filed online only
- Art. 279A notifies rates of GST (subject to change as per council)- presently divided into
four slabs- 5%, 12%, 18% and 28%
- Limit on exemption- common threshold for Center and State for applicability of GST
o 20l annual turnover and more
o 10 lacs for special category states
15th Jan, 2020.
Trivia: Taxes can be classified as State[246(3)], Union(Art 246(1)), Residuary(248), Concurrent (Art 246A).
- General entries, 1-81(UL) provide for general law making power
- Entry 82-92 UL- speaks about tax entries. These are the entries under which union can have
tax legislations.
- SL- General entries 1-44, cannot be tax entries. Entry 45-63- provide for tax entries.
- Residuary tax- tax which cannot be made under SL or UL, could be a tax entry by virtue of
248 r/w entry 97.
- GST can be termed as concurrent tax.
- General entry cannot be used for tax legislation. Only on the basis of a tax entry can a tax
law be made.
- Specific entry – Entry 89 of UL where terminal tax is there. Under that tax, power is there.
- Entry 43 and 44 of UL covers companies law.
- Entry 85- Corporate Tax
RMDC v. State of Mysore and Synthetic Chemicals v. State of UP- decided that general entry
cannot be used for tax purposes and only tax entry can be used for making tax law.
CASE: Synthetic Chemicals v. State of UP
- State made tax provisions and imposed tax on industrial alcohol. (HC had OG said law is
constitutional)
- SC- Whether the state law is valid.
- Problem- State has the power to make production etc related to liquor. Under Entry 8 of SL,
state has such power. Entry 8 of SL was used and state imposed tax on industrial alcohol.
- Question- Whether this general entry can be used for taxation?
- SC
o Cannot do it. If there is no specific entry relating to taxation of liquor, will go to
Centre by virtue of being residuary tax.
o Tax entry should be a source for tax law. General entry cannot be interpreted to be
the source of tax law.
Union of India v. H.S Dhillon
- Question- Can agri land be considered for wealth tax?
- Entry of UL provides for express exclusion (Entry 86)
- Through the finance act, union came with a tax on agriculture tax. Agricultural land brought
within the purview of wealth tax.
- 7 judges bench of the SC (4:3)
o Do not have tool of interpretation, wherein they can limit the wide scope of
residuary tax entry under 248.
o Even if there is an express exclusion, parliament can make law under residuary
power.

International Tourist Corp v. State of Haryana

- State of Hary- imposed tax on goods and passengers carried through the highways (including
national highways) of Haryana. (Haryana Passengers and Goods Taxation Act).
- Q- Whether state has the power to carry goods and passengers carried through national
highway.
- Law was challenged on the grounds that states do not have the power to make laws on
national highways. Only union can. (Entry 23, UL)
- Entry 56, SL- states goods and passegners carried through road and highways, without any
mention of national highway.
- State of Har- passed a law through a tax entry, while NH a general subject matter in the UL.
- SC- Reliance on residuary entries should be the last resort.
o Cannot be claimed at the first instance.
o If it can be decided on other entries should be decided on other entries.
 o If states show legislative competence on a tax entry, then that power should survive.

CASE: Union of India v. Nitdip Textile Processors Pvt. Ltd. And ors. (2012) 1 SCC 226
- Questions of- Constitutionality of Tax law (indirect tax law); Disntinction between what is
tax and how other aspects such as cess, duties or the distinction b/w tax, cess, duties etc
- Resp is a textile industry in Gujarat. Engage in manufacturing of textile products.
- 5/9/1997- Preventive officers of Central Excise made an inspection into this textile and in
the inspection they found that a large quantity of product (39k l m) which they had cleared
for a consideration of 5,39,000. For this particular transaction, the excise duty payable was
85,000 and without paying the excise duty, they cleared the particular fabric and obtained the
consideration. This was identified from the excise records. Therefore, there was a tax arrear
which was due to be paid.
- The Finance Act, through section 87(m)(ii) introduced a scheme known as Kar Vivad
Samadhana Scheme. The scheme provides for a settlement of tax arrears.
- Under the scheme, it was provided that those assesses whose arrears as on 31/3/1998 AND
demand notice issues as on or before 31/3/1998, they can make a self declaration based on
that declaration, they can go for a settlement of tax arrears payable.
- Nitdips claim for settlement was rejected. According to tax authorities this scheme was not
applicable to Nitdip Textiles.
- All those who have tax arrears constitute to be a class on 31/3/98.
- Further classification based on demand notice and not arrears of tax.
- Demand notice was issued on 6/1/99, thus excluded.
- Scheme effective between 1/9/98 to 31/1/99.
- Nitdips Contention
o Nitdip’s contention was that tax arrears are there. As on the date , all arrear holders
are a class. Now there cannot be any further classification based on whether demand
notice has been issued or not. This classification is unreasonable and arbitrary. The
classification was made on the basis of demand notice and not arrears.
o During the said period, self declaration has to be made and then can claim
settlement. During the period the scheme was applicable, demand notice was issued.
This notice was in relation to arrears which were there as on the date specified in the
scheme.
- Revenue Authorities
o Demand notice is a substantial requirement. Arrears as well as demand notice are
requirement.
- High Court-
o Tax scheme was held to be unconstitutional by HC of Gujarat as the classification in
the act is unreasonable and violative of 14 and therefore liable to be struck down.
o The Classification present in the legislation s. 87(m)(ii) is a further classification of a
class already recognized. This amounts to be unreasonable.
o Assesses having arrears formed one class.
 o Classification on the basis of demand notice is unreasonable
o Art. 14 provides for doctrine of classification. It should be based on an intelligible
criteria and have a nexus with the object of the act.
o DN cannot be considered as an intelligible criteria as it is variable, uncertain and
fateful.
o Classification is a prerogative of the Parliament but it should not be like date of
issuance of notice.
- Supreme Court
o Tax is a broad power and they have a broader power of classification.
o Broader classification is permissible in taxation.
o Wisdom of the legislature in making classification, courts have a limited role in
determining classification of tax laws are limited. It is not like that of a normal
legislation.
o It is not reviewable unless it is palpably arbitrary.
o Not the concern of the courts, whether classification made is the wisest or the best.
o Reasons for distinction between tax law and other laws
▪ Tax laws are having inherent complexities. Tax laws present diverse elements.
There are different and distinct interpretations as compared to normal laws.
▪ Mere statement of arbitrariness is not sufficient. It has to be proved by the
person alleging without doubt that it is clearly arbitrary.
▪ In a modern state, while examining tax legislations, there are complex factors
to determine their validity- object to be taxed, amount to be levied,
conditions with regard to levy.
▪ Through tax legislation certain socio-economic tax policy are expected to be
achieved.
▪ Classifications are to be read with achieving socio-economic policy.
▪ Statement of J. Holmes in Bain Peanut Company v. Pinson
● We must remember that the machinery of the govt would not work if
it were not allowed a little play in its joints.
▪ Cooley
● Absolute equality is not possible. Practical equality is constitutional
equality.
▪ Art 14 does not prohibit reasonable classification
▪ It must not be arbitrary, artificial or evasive. Must be based on real and
substantial distinction.
▪ A tax law for reasons of functional expediency can pick and choose to some.
▪ Power of classification based on diverse consideration of executive
pragmatism
▪ Judiciary cannot rush into legislative functions
▪ Operational restraints/ limitations have to be considered in relation to
determining the classification.
 ▪ HC decision struck down, no discrimination.
▪ Duty is an indirect tax imposed on the importation or consumption of
goods.
▪ Indirect taxes are levied upon commodities before they reach the consumer.
Come as a market price of the commodity.
Tax should be based on law passed by legislature. Must have fixed rules.

CASE: Empire Industries v. Union of India (1985 SC)

- Two questions to be addressed
o To what extent can tax law be retrospective law?
o Can subject matter of law under one entry if not satisfied under that entry be
subjected to entry 97 in cases of Parliamentary law.
- Facts:
o Decision of HC of Guj in Vijay Textiles- held that cotton fabrics subjected to
process of bleaching, dying, printing could not be subjected to separate excise duty.
o Amendment was carried out to central excise and salt act. Through the amendment a
retrospective operation was given
o Amend- Excise duty could be levied separately.
o This amend was challenged in this case
o Empire industry take cotton fabric from other industries and based on market
demand transform it into a new product through the process of bleaching, dying etc.
- Whether manufacture include bleaching, dying, printing etc?
- SC
o Looked into the process and said that particular raw material on which human
activity is happening, human labour and human skill is used and the raw material is
transformed into a new good. When subjected to such transformation, such process
separately could be taxed/ excised duty could be levied.
o Even if the power to tax cannot be traced under Entry 84, it could be performed
under residuary entry of Entry 97.
o Tax law can have retrospective application provided prima facie it is not
unreasonable.

CASE: Union of India v. Mohit Mineral Private Ltd. (2019) SC

- Question
o Validity of GST (Compensation to States) Act, 2017.
▪ Act provides for cess in order to compensate states for the loss suffered by
states due to GST- period of 5 years.
o Scope of residuary tax in GST
 o What is cess? How far cess stand subsumed after GST.
- Facts
o Mohit Mineral est under Co’s Act
o Trader of Indian as well as foreign coal.
o Import coal from Indonesia and South Africa.
o W.e.f 1/7/10, cess was introduced known as Clean Energy Cess. The cess was in
relation to the trade of coal.
o Rs. 400/ton as cess.
- Mohit’s arg
o Have been paying clean energy cess. After GST no cess.
o GST made an end of cess.
o Set off of the cess already paid (around 7.68 cr)
o First approach GST council, nothing happened.
o Filed writ before HC of Del, wanted appropriate writ issued.
o Act be declared as unconstitutional and the rules also are unconstitutional.
o Notifications to also be declared unconstitutional.
o Declaration from HC that no power to levy or collect any cess after GST
- Del HC issued interim order. In the interm order, found that petitioner has prima facie
proved some merit in the claim made by the P regarding legislative competence of the
Parliament.
o Cess amounts to double tax and is levied on same taxable event over GST and IGST.
o Not to make payment of cess.
o Subject to the final conclusion of the Del HC, they will decide whether set off can be
ordered.
- At the same time, another case was filed by Hind Energy and Coal Beneficial India Ltd. on
the same point. Interim order was passed under that as well.
- Mohit Mineral interim order was challenged before the SC.
- Contentions of the Respondents
o Intention of the 101st Constitution Amendment- all cess/surcharges, all indirect taxes
stand subsumed. With the introduction of the GST, Parliament passed a law
subsequently (Taxation Law Amendment Act) wherein many laws stand repealed.
Such as Customs Tariff Act- some stand to be modified, some repealed. All direct
taxes including all types of cess and surcharges stand to be subsumed. Hence, only 1
tax is there- GST. How can Parliament subsequently make a law which provides for
cess?
o Taxation Amend Act repealed many cess- one of the cess which stands to be
repealed is the Clean Energy Cess.
o Compensation Act is repugnant to 101st Constitution Amendment Act. Parliament is
passing a law which is directly contrary to the Constitution Amendment Act. Hence,
direct conflict between 101st constitution amend and Compensation Act. Therefore,
Compensation Act is repugnant.
 o Colourable legislation-
o No power to levy cess- after new amendment.
o On same transaction, there cannot be two taxes.
- Arguments of AG
o Legislature is competent to pass GST under Art. 246A
o Cess is special kind of tax.
o Cess’s competence comes from Art. 246A
▪ Subsatntive article is sufficient to give competence to the legislature.
▪ Specific entry is not required.
o 246A has wide implications which includes cess also.
o Particular power even if not seen under any other entry, cess is still possible under
Art 270 r/w Art. 271.
o Residuary tax entry under Entry 97.
o Clean Energy Cess cannot be equated with Compensation Cess.
▪ Clean Energy Cess is an environmental cess. In relation to use/ biz of coal,
cess is made.
▪ Compensation cess is in relation to the tax revenue- States when losing
revenue due to GST, compensation has to be paid. For the compensation,
this cess has been imposed.
o Flow of tax credit is purely a policy decision, which has to be made by the executive,
wherein the Court cannot interfere.
o When legislative competence is proved, question of colourable legislation disappear.
- Issues-
o Whether GST Compensation Act is beyond the legislative competence of the
Parliament?
o Whether act is violative of the Constitutional Amend Act?
o Whether this is a colourable legislation?
o Whether compensation Cess and GST on the same taxable event is permissible?
o Whether setoff can be claimed for clean energy cess as against compensation cess?
- SC discussed the following provisions
o Statement of object and reasons for the amendment.
o General provisions regarding Art. 265 (tax law must be on the authority of the law
passed by the legislature)
o Art. 366- various definitions are provided.
o Referrer to amended articles (amended by GST)- 248, 249, 250, 268, 269 ,270, 271,
286, 366
o Insertion of new articles- 246A, 269A, 279A
o Looked into S.18 and 19 of the 101st Constitution Amendment.
▪ 18 and 19 provides for the basis for this Compensation Act.
 ▪ Difference between 18 and 19 of 122nd Constitutional Amendment Bill, and
101st Constitutional Amendment--- talks about additional duties and
compensation.
▪ How 18 and 19 of the Bill transformed into the Act- the changes made have
significance.
o Three legislations were looked into by the court
▪ CGST Act
▪ IGST Act
▪ GST (Compensation to States) Act
o Looked into Taxation Law Amendment Act
▪ Cess, IDT stand repealed.
- SC- Issue I (Whether GST Compensation Act is beyond the legislative competence of the
Parliament?
o Petitioners said
▪ Through cess what is imposed is tax. (Argued because for tax what you need
is legislative competence. For legislative competence look at UL)
▪ For tax law there should be legislative competence.
▪ Pith and substance not with the legislature.
▪ No legislative competence because this tax entry is not any entry.
● Requires a relevant tax entry
▪ Residuary Power is subject to Art. 246A
● 246A provides for GST and that GST eliminates cess.
o Referred to various dictionary meaning and case laws to determine the meaning of
cess and whether cess can be equated as tax.
▪ Blacks Law Dictionary- cess is an assessment or tax.
▪ Advance Law Lexicon- cess is an assessment tax levy and local tax etc etc.
o Court says in various other jurisdictions such as England and Ireland, such types of
taxes exist.
o Cases referred-
▪ Shinde Brothers v. Commissioner Raichur
▪ India Cement Ltd v. State of TN
▪ Vijaya Lakshmi Rice Mills v. CTO
o Based on these cases, court held that definition given was that cess is another form
of tax , but for certain administrative purposes.
o Legislative Competence- HS Dhillon Test
▪ When a Parliamentary law is under challenge, the only test which has to be
taken into consideration is that look at state list, if SL does not have power,
then no question to be asked. PL has to be declared valid.
o Similarly, here even if specific entry is not there, residuary tax entry can cover cess.
o Based on Entry 97, court said that the law is valid. Based on the same entry, no lack
of legislative competence.
 o Two Cases (Resp relied)- When compensation act is there, which must be based on a
specific entry. Both these cases, Court found that a general entry can make a general
law and a tax entry can make a tax law. Basic contention- for compensation act, there
should be legislative empowerment. Court said no relevance of these particular cases.
▪ Hoescht Pharmaceutical Ltd v. State of Bihar
▪ MPV Sundaramaniar co v. State of AP
o 246 is there, otherwise 270, otherwise Entry 97.
o SC Rejected the decision of the Delhi HC.
- Issue II- Whether GST (Compensation) Act is violative of 101st Constitutional
Amendment?
o Courts tries to make a distinction between the Bill (122nd Bill) and the Act.
o For the introduction of the GST, Section 18 of the Bill provided for additional tax of
1%. Additional tax was intended to provide compensation.
o When the Bill became the Bill, the additional tax was omitted. This shows that
Parliament did not intend to have any additional tax or cess. Had it been
implemented in the same manner, then there could have been a scope of this cess/
additional tax.
o 246A permits tax on GST
o Nothing in the article which prohibits cess in the future.
- Issue III- Whether the act is a colourable legislation?
o Resp tried to argue CL, bringing fee and cess difference into picture.
o Court said evident difference between the two. Fee does not include cess.
o Difference has no relevance.
o Though additional tax was removed, when it transformed into S. 18 and 19- that
provides for scope for the parliament to pass a legislation in order to compensate
states for the loss of revenue.
- Issue IV- Two taxes on same taxable event?
o S. 9 of the Compensation Act provides for compensation cess whereby transactions
specified under S 5 of IGST Act or S. 9 of GST Act, therein cess can be levied.
o Court relied on two cases and held that two taxes which are distinct or different or
separate are permissible. If separation, then permissible.
▪ Federation of Hotel and Restaurant Association of India v. Union of India
▪ Avinder Singh v. State of Punjab
● State sales tax on liquor. Municipal tax was imposed in addition to
state tax. Court held that these two taxes are for different purposes,
so permissible.
o Hence, it is permissible.
- Issue V- Whether set off can be claimed?
o No merit in this argument.
 o SC looked into the objective of the clean energy cess. It was introduced through S.
83, Finance Act, 2010. Energy Cess would be collected for the purpose of financing
and promoting clean energy initiatives.
o GST Compensation Cess is for States.
o No correlation between cess. Therefore, no cess can be granted.

CASE: Union of India v. Bengal Shrachi Housing Development Limited and ors (2017-SC)
- Questions
o Whether Service tax is indirect tax?
o Whether service tax has to be paid by the service provider or service recipient?
- Facts
o Lease deed b/w Uoi and Resp. As per the deed, the Resp which gave their property
to UoI, all rates, taxes, assessment charges under various statutes has to be paid by
the Resp and has to keep the premises free from encumbrances.
o Resp refused to pay stating that it is the liablity of the one who is getting the service.
The monthly rent came to 60L/month (2012)
o Resp approached Cal HC filed a writ seeking a direction that UoI is liable to pay this
service tax. Cal HC by referring to Del HC and Alld HC held that in relation to
rendered property has to be paid by the lessee i.e. UoI.
▪ Pyarelal Bhawan Association v. M/S Satya Developers Pvt. Ltd. (Del HC)–
service tax is essentially is an indirect tax. The user of the premise who
availed the service has to pay.
▪ M/S Bhagwati Security Services v. UoI (Alld HC)
o HC decision challeneged before SC
- Contention of UoI
o As per Service Tax Act and the Service Tax rules, it is provided that this particular
tax has to be paid by service provider.
o Under S65, Finance Act- assessee means a person liable to pay service tax.
o Clause 105 defines taxable service- any person rending immovable property or any
other service in relation to such rending for use in the course of or for furtherance of
biz or commerce.
o Unser S.66(b), provides for service tax whereby for the value of all services, 12% is
being determined as tax.
o Substantial reliance is based on s. 68, which provides for payment of service tax.
According to s.68, every person providing taxable service such pay service tax.
Further provided under the service rules. Tax has to be paid by service provider and
not service recipient.
- Contention of Resp
o It is an indirect tax on the consumption of service. Only comes into picture when
there is consumption of service.
 o It has to be passed onto the person getting the service.
o Mere service provider is not sufficient, the service provider should be able to provide
service to the receipient. When the consumption of service is there, service tax
comes into picture.
- SC relied on- two decision of the SC which explained service tax.
o TN Kalyanamandapam Association v. UoI – indirect tax on the service provider
and the service provider is collecting tax from the client. Indirect tax not on service
provider, service provider is collecting from the client. Taxable event is when
consumption is taking place.
o All India Federation of Tax Practioner v. UoI- UoI through Finance Act imposed
tax on tax practioners. Challenged before Bom HC. Bom HC rejected and went to
SC. It was claimed that Professional Tax could only be claimed by States and not
UoI. Ref: Entry 60 of State list. There is distinction between Professional tax (tax
paid by virtue of being a professional) whereas Service Tax is a tax on service
depending on the requirement, is provided to the client. Tax is collected from the
one who is receiving service. Collected by service provider and paid to the
government.
o Association of Leasing and Financial Service Co. v. Union of India- Tax event
happens on a tax activity. Distinguish between levy and collection. Levy and
assessment is on the activity concerned. Though it is collected by provider.
- The Resp when rends their property to the govt- that activity is the tax event. The taxable
person is the one who is liable to pay tax i.e tax provider.
- Primarily tax is leviable on the person levying the service. But whether passing that to the
recipient is a requirement or not?
- SC
o Tax activity is the service that is being rendering.
o Tax can be passed onto the recipient. Thereby making it an indirect tax.
o Under the law, it has to be passed onto the one receiving the service.
o Referred to some other indirect tax laws, eg. Central Excise Act. (Presumption that
duty has been passed onto the buyer)
o Distinction can be made on levy and collection. Levy is on the tax provider,
collection is from the person who receives the service.

COMPENSATION TAX
- Pre GST – Entry 52- now stands repealed.
- In relation to inter state sale, taxation could be done based on IGST
- Art 301- there cannot be a restriction on inter state trade and commerce.
- SC in Atyabari Tea Co- held that a tax law can restrict a freedom of trade but that tax law
cannot have direct immediate effect on inter-state trade and commerce
- Freedom under 301 is subject to various conditions
 o Non discriminatory restrictions imposed by parliament in pblic interest
o Discriminatory or preferential legislation by Parliament to deal with scarcity of goods
o Reasonable restrictions imposed by legislature of state in public interest.
- On one hand free flow of trade is there, however, on the other hand, reasonable restrictions
can be imposed on this freedom of trade
- How are can a law be a restriction on free flow of trade?
CASE: Atiabari Tea Co. Ltd v. State of Assam (1961- SC)
- Tea products brought from Assam to Kolkata. On that particular transportation of tea,
under the Assam law Assam Taxation (on Goods carried by Roads or In land water
way) Act 1954.
- Question whether this act is now in violation of Art. 301?
- State
o Tax law cannot be tested in the same manner as a tax law
o Tax law cannot be subject to restrictions under 301.
o Freedom of trade and commerce comes from another part (Part XIII) while tax law
comes from a different part (XII). Part XIII cannot restrict laws, specifically tax laws
coming under Part XII.
o Law is based on Entry 56 List II.
o Tax laws are governed by Art. 265.
- Supreme Court
o Restrictions directly or immediately imposed on free flow of trade through a law tax
will fall within Art. 301 and that is liable to be struck down.
o Assam Taxation Act was struck down.
o Hence, any tax law though under 265, but if it creates a restriction which is direct and
immediate under 301, it shall be struck down.

CASE:Automobile Corporation v. State of Rajasthan

- Regarding Rajasthan MV Act. Under the Act, tax was imposed on operators of vehicles who
used their vehicles in Rajasthan or those who kept their vehicles in Rajasthan, they are
subject to tax under Rajasthan MV Act.
- The Act was challenged.
- State of Rajasthan
o Tax which state levies, that tax revenue which is collected is directly beneficial to the
users of road.
o Came with studies and records in relation to the usage of the money collected
through this law. Money directly used for renovation, reconstruction , maintenance
etc of roads. Hence, direct benefit to the payers of tax.
 o Tax is compensatory in nature
- SC
o Accepted compensatory tax even though challenged on grounds of restriction to
freedom of trade.
o Tax since it is compensating the tax payer, it is justifiable.

- Based on these two cases, following position-

o Tax law is directly hitting trade and commerce, that law is liable to be struck down.
But if it is compensatory in nature then it shall be considered as valid.
o Both cases, lay down positions of law in distinct contexts.
- This position continued until 1995. In 1995, two decisions of the SC wherein the concept of
compensatory was rejected. However, Automobile could not be over-ruled, as the cases of
95 and 96 had a similar bench strength to that of Automobile.
o Bhagat Ram Rajeev Kumar v. Commissioner of Sales Tax (1995)
o State of Bihar v. Bihar Chamber of Commerce (1996)
- However, court held that Compensatory tax are restrictive in nature and hence ought to be
rejected.
- This conflicting opinion resulted in the creation of a Constitution Bench to decide the
validity of Compensatory Tax. It was decided in Jindal Stainless Ltd. v. State of Haryana
CASE: Jindal Stainless Ltd. v. State of Haryana
- Court provided 3 parametres in order to recognize compensatory tax.
o Compensatory tax is a compulsory contribution levied broadly in proportion to the
special benefits derived to defray the costs of regulation or to meet the outlay
incurrect for some special advantage to trade, commerce and intercourse. It may
incidentally bring in net revenue to the govt but that circumstance is not an essential
ingredient of compensatory tax.
o In the principle of equivalence, which is the foundation of a compensatory tax as
well as a fee, the value of the quantifiable benefit is represented by the costs incurred
in procuring the facility/services which sots in turn become the basis of
reimbursement/recompense for the provider for the services/facilities.
Compensatory tax is based on the principle of ‘pay for the value’. It is a sub-clause of
tax.
o If the provisions are ambiguous or even if the Act does not indicate facially the
quantifiable benefit, the burden will be on the State as a service/ facility provider to
show by placing the material before the Court, that the payment of compensatory tax
is a reimbursement/ recompense for the quantifiable/ measurable benefit provided
or to be provided to its payer(s). As soon as it is shown that the Act invades freedom
of trade, it ie necessary to enquire whether the State has proved that the restrictions
 imposed by it by way of taxation are reasonable and in public interest within the
meaning of Article 304(b).
- Can say SC rejected the 95 and 96 judgment and accepted Automobile.
- This 7 judge bench got over ruled by a 9 judge bench.

CASE: Jaiprakash Associates v. Union of India

- Jindal was doubted in this case.
- Matter was referred to 9 judge bench.
CASE: Jindal Stainless Steel Ltd. v. UoI (2016)
- Held
o Only taxes which are not discriminatory are valid.
o Discriminatory taxes are unconstitutional.
o The fact that whether entry tax is discriminatory or not should be decided on each
and every case. In a blanket manner, cannot declare it to be valid or invalid.
o Compensatory tax has no legal backing and thus it is liable to struck down.

Difference between Tax and Fee

CASE: Commissioner, Hindu Religious Endowments v.

TAX FEE
Compulsory exaction under authority of law Special charge for service rendered to
individuals
For a public purpose Payment for special purpose, special services

OWN DISTINCTION
Based on specific tax entries Tax entries- List 1 Entry 96, List II-Entry66,
List III- Entry 47
Compulsory Exaction Money Bill under Arts. 110(2) and 199(2)
cannot be for free, but it is for tax laws
Public purpose Payment for special purpose, special services
Exercise the power of tax An element of quid pro quo
Common burden
Regulated by general rules

TAXABLE EVENT IN GST

 - Prior to GST, the tax liability was on manufacture and sale of goods. Hence, the taxable
events were manufacture or sale of goods/service.
- Happening of an activity and event, and tax liability of the same
CASE: Goodyear India Ltd. and ors v. State of Karya and Ors. 1990 SC
- Haryana General Sales Tax (Amendment and Validation) Act, 1983 under challenge.
- Provisions providing for purchase tax, imposed on Goodyear and other companies.
- Goodyear is a regd dealer under the Haryana Sales Tax Act. Consequently, they had their
own production and manufacture of tyres. Purchased raw material from Haryana and outside
of Haryana. 10% from Haryana. Based on these raw materials, produced tyres and tubes.
Had their own institution in Faridabad where the tyres and tubes which they purchased
could be sold in Haryana and outside of Haryana. They dispatched goods to their own
branches outside of Haryana. So 10-12% sale was happening in Haryana and the rest outside
of Haryana. Can this dispatch of tyres and tubes be subject to purchase tax?
- Assessing authorities had imposed purchase tax on consignment of goods. HC quashed the
orders. Full bench of the HC over ruled the quashing and upheld the notification.
- After HC had held it invalid, state made an amendment to the act. Through the amendment,
they tried to over come the decision of the HC. The amendment was also challenged before
the HC. The HC struck down the amendment act. When HC struck down the Act, state
appealed to the SC.
- While appeal was pending, State authorities issued notification and asked dealers to pay
purchase tax. Directed dealers to pay purchase tax with penalty. The affected parties
approached Haryana HC. Full bench decided the matter again.
- Full Bench
o Amendment Act was held to be valid.
o This decision was also challenged before SC.
- Levy of purchase tax on the disposal of manufactured goods
o Can this now be levied on the same depots of the company, but merely dispatching
from one state to another.
o No substantive provision elaborating this.
- This was made as a substantive law but issuing a notification. The notification enabled the
tax authorities to impose purchase tax.
- Question- Whether dispatch of goods constitute to be taxable goods?
o Whether taxable event is on dispatch of goods.
- Haryana HC
o Mere dispatch of goods out of the state, merely to another branch by retaining
ownership and possession- does not fall within the scope of the phrase ‘disposes of
the manufactured goods in any manner otherwise than by way of sales’, as employed
in S. 9(1)(a)(ii) of the Act.
o Notification issued under S.9 was held to be ultra vires of S.9 of the Act. It was held
that whereas the section provided only for the levy of purchase tax on the disposal of
 manufactured goods, the impugned notification by making a mere dispatch of goods
to the dealers themselves taxable, in essence, legislates and imposes a substantive tax
which it obviously could not. It was held that this was contrary to and in conflict
with the provision of Section 9.
o Conflict with S.9 and hence liable to struck down.
o Parent act also does not provide for retrospective application while the notification
does. Liable to be struck down on this ground.
- After the notification got struck down. Haryana made an amendment to the act, and
brought specific provisions and whatever the effect was of the notification, that was brought
to the statute. The purpose was to have the same effect.
- Amendment was challenged in the case of Bata India Ltd v. State of Haryana before the HC.

CASE: Bata India Ltd v. State of Haryana

- Mere dispatch of goods in any other manner than sale, in the course of inter-state trade and
commerce, included within the ambit of the consignment of goods either er to the person
making it or to any other person In the course of inter- State trade or commerce as specified
in Art. 269(1)(h) and Entry No. 92-B of List 1 of the 7th Schedule.
o Essence: Legislative competence for this tax only with Parliament and not State.
Hence, liable to be struck down.
- Therefore, liable to be struck down.
- Not a purchase tax but rather a consignment tax.
- Haryana filed an appeal. After filing appeal, issued fresh notices and imposed purchase tax in
the same manner and directed these dealers to pay tax+ penalty. Again, got challenged
before HC.
- Challenged in the case Des Raj Pushp Kumar Gulati v. State of Punjab.
CASE: Des Raj Pushp Kumar Gulati v. State of Punjab
- Full bench of HC, held that
o Taxing event is the act of purchase and not dispatch of consignment as held in Bata.
Hence, amendment was held to be valid.
o Tax law providing for imposition of purchase tax on dispatch of goods from
Haryana to other States, is valid.
- Challenged before SC.
Appeal to SC (by Goodyear)
- Contention of the Appellant
o Dispatch or consignment ix taxable event. Legislative competence is with Parliament
and States do not have legislative competence.
- Contention of Respondent (State)
 o When we look into this particular law, have to look at the legislative history. Initially,
no law in this area. Taking advantage of this, manufacturers were avoiding tax. This
avoidance led to 9(1)(b).
o Not only a tax law but also a remedial provision. Relied on State of TN v.
Kandasawmi- SC already established that when a tax law is not only a tax law but
also a remedial legislation. It is to provide certainties, in such cases a different
approach has to be taken.
▪ When a taxing law’s main objective is to plug the evasion of tax, whereby if
that law could be found to be mere law but also remedial law.
o Strict interpretation and language used in the statute must be used to make that
interpretation.
o Court cannot make any presumption or implied understanding of that physical law,
specifically in relation to financial/ tax laws.
o Present case- taxable event is on purchase of goods. State law is valid as taxable event
is purchase of goods. Only difference is that, payment is delayed or postponed. If
payment is delayed or postponed, that wouldn’t make it a consignment tax.
- If no sale, then no question of purchase tax. Liability comes when sale happens, the dealer is
liable to pay tax. Here, a person manufacturing the goods, taking goods to another place, is
merely dispatch of consignment.
- Court
o Analyzed the test to determine tax.
o 3 stages-
▪ Levy
▪ Assessment
▪ Recovery
o TEST 1- Declaration of liability is provided.
▪ Declaration= part of the statute which determines which person or persons
in respect of what property are liable.
o TEST 2- Assessment
▪ Quantification of exact sum which is payable by a tax person.
o TEST 3- Method of recovery
▪ If person does not pay voluntarily, it has to be recovered.
o In the present case, the liability to pay tax under s. 9 does not accrue on purchase of
goods but only when these are dispatched outside the state.
o Under 9(1)(b), taxable event is provided and tax liability is determined. Two elements
in 9(1)- a) Purchase of goods in the state and b)Using them for manufacture of any
goods in State. When these two things are cumulatively happening outside state of
Haryana and dispatch happens purchase tax is levied.
o This becomes consignment tax. With regards to Haryana, purchase is mentioned and
collected. With regards to dispatch of goods, taxable event is dispatch. Dispatch of
goods outside and tax on it makes it a consignment of tax.
 o In a taxing provision, based on language provided, can determine taxable event.
When taxable event is dispatch of goods, that is whereby liability can be imposed
under the state law. Question then becomes whether legislative competence to charge
consignment tax.
o Taxable event is occurring on some activity, the activity in this case being dispatch. It
amount to be consignment tax and States do not have legislative competence to levy
consignment tax.
Section 9 GST Act, subject to clause 2, there shall be a tax levied called GST. The charging section
for GST is S. 9(1). According to S9, levy intra-state supply of goods and/or services or both.
Under S15 and rules made therein, value for GST can be determined.
U/s9 CGST Act, rate for GST should not exceed 20%. The rate for various goods and services will
be notified by the GoI based on the recommendation of GST Council. Section 5(1) of the IGST
provides for the charging section. In both these sections max tax is 20%.

SUPPLY
- Supply is defined u/s7, GST Act
- .

- Art 366, clause A, GST means a tax on supply of goods or service or both except on taxes
on supply of alcoholic liquor for human consumption.
 - Consideration is not an essential requirement for spply.
- In general have to see that S7 require consideration, i.e. any supply of goods and service or
both, where supply in relation to a consideration, where consideration is a required. But the
consideration u.s7 is not a requirement in all circumstances. There are circumstances where it
could be excluded.
- Supply- dictionary meaning general provides that it is to give, to contribute or provide. Based
on this general concept of supply, in general, we can identify supply where there are 3
elements which could be included within the meaning the of supply
o Some goods or service or both
o Two persons- one who is giving, and the other who is receiving
o Said goods or service or both are being given by one person to another person.

SECTION 7
- For the purpose of this act……. (Ref to bare act)
- Supply includes- all forms of supply of goods and/or services as ___ transfer, barter,
exchange, license, rental, lease or disposal- made or agreed to be made for a consideration by
a person in the course of furtherance of business.
- This concept of supply whereby two limitations are there
o Must be for a consideration
o By a person in the course of furtherance of business
- S7 list is not-exhaustive in nature.
CASE: CIT v. Taj Mahal Hotel (AIR 1972 SC 168)
- ‘Include’ is generally used to enlarge the meaning of something.
- Cannot have an unlimited expansive definition.
- Have to keep the object of the act into mind and based on the object of the act the
definition can be expanded. (Ramesh Mehta v. Sanwan Chand Singhvi- 2004 5 SCC 409)

CASE: Bharat Co-operative Bank Mumbai Ltd. v. Employees Union (2007 4 SCC 68)
- SC made distinction between the expression ‘means’ and ‘includes’
- When statute use the word ‘means’ it is a hard and fast definition whereby no meaning other
than what is provided in the definition can be assigned.
- On the other hand, when legislature uses the word ‘include’, shows that the words are
exclusive, merely enumerative and can expand the scope of the word.

CASE: Royal Hatcheries Pvt. Ltd. v. State of AP

 - ‘Such as’ is illustrative and not exhaustive.

GOODS
- S. 7 talks about goods and services both
- S. 2(52)- defines goods
o Means every kind of movable property other than money and securities
o But it includes actionable claims growing crops, grass……..
- No provision defines movable property, as a result, refer to GC Act s. 2(36)
o 2(36) also states that every description except immovable property
o Wide scope for the term movable property
- S. 2(26) defines immovable property
o States shall include land, benefits to arise out of land and things attached to earth or
permanently fastened to anything attached to earth.
- Things attached to the earth are immovable property, but in some cases can be considered as
movable as well. The test was laid down in Municipal Corporation Greater Bombay . IOCL
o Things which are attached or erected whether movable to any other place of use in
the same position or liable to be dismantled or re-erected at the later place, then it
can be held that it is not attached to the earth.
- Good can be tangible or intangible. Whether goods can be intangible for the purpose of this
section?
- Mobility of the goods is the primary test to determine whether something is goods or not.

CASE: State of Andra Pradesh v. NTPCL

- Effort made by the court to state that tangible and intangible both have to be considered as
goods
- Question was whether electricity can be constituted to be goods.
- Merely because electricity is not tangible that does not cease it as a good.
- Referring to 2(52) states that goods means all kinds of movable property, court said can a
narrow interpretation be taken when a general term for the same has been given.
- When a general term has been given, cannot take a narrow interpretation and have to take a
broad approach and interpretation.
CASE: Tata Consultancy Services v. State of AP
- Question was whether computer software was a good or not?
- Court laid down the test to determine whether something is a good or not (irrespective of
whether tangible or intangible)
o Utility
o Capable of being bought and sold
o Capable of being transmitted, transferred, delivered, stored, possessed

CASE: BSNL v. UOI

- Final position regarding tangible and intangible
- Goods can be tangible or intangible

- Things which could be to identified from case laws, goods when interpreted in the context
of GST,
o Movable
o Tangible or intangible
o Utility, marketability and transferability

SERVICES
- Art. 366(26A)- services means anything other than goods
- S. 2(102), CGST Act defines services
- Wef Feb 1, 2019 amendment was made to s. 2(102) where an explanation has been provided.
The explanation provides that services includes facilitating or arranging transactions in
securities.
- Generally securities are excluded from the purview of services
- According to Webster Concise Dictionary-
o Services means a useful result or product of a labour, which is not a tangible
commodity

CASE: Union of India v. Martin Lottery Agency

- SC laid down the explanation of the word ‘services’
- Service means a work done or duty performed for another or others.
- Service is an economic activity resulting in value addition which can be perceived but cannot
be seen as it is intangible.
- Service is that perishable instantly, and cannot be stored.
 - Benefit of service may last lost, but the act perishes when done.
- Goods can be returned but services cannot be returned

(TWO CLASSES MISSING)

CASE: Indian Express Ltd v. State of Tamil Nadu/ The Hindu v. State of Tamil Nadu
- Question- Sale of old and unsold copies of newspaper. Sale of newsprint. Whether the sale
of these things constitute to be business?
- Incidental activities are the ones mentioned above. Not the main business. But does these
incidental activities
- These ancillary or incidental sale also constitutes to be business and in order to determine
tax liability, they are subject to tax laws.

AAR CASE- Srimat Raj Chandra Adhyatmik Satsang Sadhana Kendra (Reference, decision in
2018 and 2019)
- Can spiritual institutions or religions institutions’ activities be termed as business? How far
charitable organizations be termed as business?
- The P was involved in selling charitable goods such as DVD, books, providing
accommodation and food.
- This constitute to be business, whereby they are liable to pay GST.
CASE: Sri Velur Devasthan v. State of Madras
- Whether distribution of food in a temple is a business?
- Whether Devasthan Board, which is selling gold which they receive through donation by
devotees, constitutes as business or trading activity?
- Mad HC
o Gold offered by devotees when it is subject to public auction, thereby the sale done
by the Devasthan does not constitute to be business as there is no trading activity.
o In relation to the religious function they are performing, whatever activity they carry
out does not constitute as business.
o To determine the nature of business, you have to identify that whether that
institution is primarily doing business or not. If the institution is doing other
activities, then it cannot be termed as business. (GR: If primary activity is biz,
becomes biz; if primary activitiy is not biz, anc cannot be termed as biz)
CASE: CST v. Sai Publication Fund (2002 4 SCC 57)
- Sai Trust is into selling of publications to spread the message of Sai baba of Shirdi.
- Whether this constitutes to be business?
- SC
o Trust is not a dealer. The activities of the trust does not amount to business.
o Trust is not primarily performing business.
o Cannot be termed as biz.

CASE: State of AP v. Sri Brahma Ramba

- Question- Religious institution conducting sale of food in canteen and transfer the same to
pilgrims in centers. Whether this constitutes to be biz?
- AP HC
o Sale of good and transport service does not constitute to be business because their
main activity is spiritual, religious or charity.
CASE: IIT v. State of UP
- Whether conducting educational programs is a biz?
- Alld Hc
o IIT is not a dealer as its principal activity is academic and not commercial.

CASE: Institute of Chartered Accountants of India v. DGIT (2013)

- Question- Whether ICAI’s programs including coaching classes and other education
programs amounts to business or not?
- Del HC
o Cannot be considered as biz as the ICAI is not carrying out any biz, trade or
commerce.

CASE: Manipal University v. State of Karnataka

- Question- Whether sales tax can be imposed on sale of prospectus and application forms.
- Kar HC
o Constitutes to be business.
o Did not make a reference to incidental or ancillary activity.
o Reason- Because these educational institutions are making a huge profit, out of the
sale, hence, it is indulging in biz so it is biz.
o (GR: Under the definition of biz, profit is not a consideration)
CASE: CTO v. Banasthali Vidyapeeth (2015)
 - Raj Hc
o Education is not a biz. Sale of prospectus cannot be subjected to sales tax.

CASE: Mahatma Gandhi Kashi Vidyapeeth v. State of UP

- Question- Whether publications made by educational institutions can be termed as biz?
- Allhd HC
o Univ is not a dealer and when publishes books primary function is education

CASE: Scholars Home Senior Secondary School v. State of Uttarakhand

- The principal activities of the school is predominantly academic.
- In relation to the ancillary activities such as selling food, cannot be termed as biz.

CASE: State of Haryana v. Govt. of India Press

- Question- Various forms etc printed by govt- whether that can be termed as trade?
- Held
o When govt is printing forms in their press, they are not into any commercial activity,
trade etc. Hence, it cannot be termed as biz.
Not a conclusive def
Profit motive is not relevant
Occasional transaction, or transaction which are not happening frequently.
By virtue of s.7 (2A) r/w sch. 3 , a list of goods are stipulated. That list of goods/items/activities, are
neither supply of goods nor supply of services.
- Services of employee to employer in relation to employment
- Services by any court of tribunal
- Functions performed by member of parliament, member of legislative assembly, local
authority, panchayat, municipality. These functions performed does not constitute to be
neither supply nor biz.
- Duties performed by any person who got any post according to the provisions of the
Constitution.
- Duties performed by any person as chairperson or member or director of a body established
by centre or any local authority.
- Services of funeral, burial, transportation of the deceased
- Sale of land and sale of building
 o Once completion certificate is granted or first occupation is there. At that stage GST
is not applicable
o Prior to that – i.e development stage, GST is applicable.
- Actionable claims, other than lottery, betting and gambling
- Supply of warehouse goods to any person before clearance to home consumption
- Import/export……..

CASE: PPD Leading Spaces Pvt. Ltd. (2018-AAR)

- Q- Sale of developed Plots by a developer, whether comes within the ambit of sale of land as
provided in the schedule.
- When a developer is developing a plot, constitutes service and cannot be brought within the
ambit of sch 3.
- Held
o If plots are sold after issuance of completion certificate, then would come within the
ambit of Schedule III. Till the time competition certificate is issued, it can be
brought within the ambit of Schedule II.
o Once competition certificate is issued, it comes within Schedule III.

Schedule II- deemed to be supply. Schedule III- would not be neither supply of goods nor of
services.
Schedule II
- Activities or transactions which are to be treated as supply of goods or services
o Transfer of title of goods
o Land and building – lease, tenancy, easement , license deemed to be supply
o Supply of services renting out of immovable property
o Construction of building, complex, civil structure except where competition
certificate is issued and where first occupation happens.
Exempt- Where there is no rate of tax. S 11, CGST and S6 of IGST- whereby CG based on the
recommendation of the GST Council can make a notification to that effect and categorize
something as exempt supply. Also known as non-taxable supply
Inward- In relation to a person, receipt of goods or services or both, whether by purchase,
acquisition or any other means with or without consideration is defined as inward supply
Non-taxable supply [s. 2(78)]- wherein supply of goods and services cannot be taxed.
In both composite and mixed supply, where more than one supply of service or goods, that supply
sometimes constitute to be composite and sometime mixed.
Composite Supply-

COMPOSITE MIXED
Supply comprising of two or more supplies, one
which shall be treated as principal supply and
the other will be treated as ancillary supply.
Tax determined is based on principal supply.
Both taxed on that basis

(one class missing)

CASE- Switching avo Electrial Pvt. Ltd. (AAR)

- AAR and AAAR both rules
 - Question- Supply of UPS along with battery. Whether this is mixed supply or composite
supply?
- AAR said constitute to be mixed supply. Appeal made to AAAR.
- Appellant contested
o UPS cannot function without battery and battery is an integral part of UPS. Bundled
together and supplied in conjunction with each other.
o Battery is natural part of the UPS
o Supply of convertor UPS with external battery should be considered as composite
supply and not as mixed supply
- (In Samsung, was held to be composite supply. Battery and charger is the naturally bundled
thing and is an ancillary. Even prior to GST, State of Punj v. Nokia is there)
- AAAR
o When UPS supplied with in-built battery, it constitutes to be composite supply under
s.2(30) and if it is sold separately, that is not inbuilt battery, then mixed supply.

CASE: Sandvik Asia Pvt. Ltd. (Reference- 2018 Raj AAR)

- Supply of maintenance services in relation to machines and supply of other goods and
services, in relation to machines.
- Principal supply- supply of maintenance, supply of goods/other services- ancillary services
are related to principal supply.
- One supply is primary and in relation to that primary supply, other could be naturally related.
- (When supply of goods and services takes place together, what is important is service taking
place)
- AAR
o Constitute to be composite supply
o GST will be determined based on principal supply.

CASE: Abbott Healthcare Pvt. Ltd. (Ref, 2018, AAR-)

- Question- Supply of medical instruments along with medicines- Whether constitute to be
mixed supply or composite supply?
- AAR
o In relation to supply of medicine, even if supplying instruments, that will be
considered as composite supply.
o Medicines, along with instruments, happen to be associated and ancillary products.
Composite/Mixed Supply
Step 1 – Whether more than 1 supply or not.
Step 2- Whether they are naturally bundled together or not.

PERSON (Section 7) AND TAXABLE PERSON

- All forms of supply of goods and/or services BETWEEN PERSONS gets taxed.
- S22-24 provides for taxable person.
- S. 2(84)- defines ‘person’.
o Individual can be a person
o HUF is a person
o Company is a person
o Firm
o LLP
o An association of persons or body of individuals, whether incorporate or not
constitute to be a person.
o Etc etc
- S.3(42), General Clauses Act defines person
- Whether a club or association unincorporated constitute to be a person?
o Decision in 2019 regarding sales tax, however, the same is applicable to the GST
regime as well.
CASE: Trivandrum Club v. Sales Tax Officer (Ker HC, 2012)
- Club letting out rooms and cottages to its members are liable to pay tax.
- Club as a person has different existence from its members.

CASE: Young Men Indians Association v. JCTO (1970, SC)

- Even though a club is acting as a distinct legal entity, it is only acting as an agent for its
members in matters of supply of various preparations of food and no sale would be in born
as the transfer would be completely absent.

- The 46th constitution amendment added 366 (29A) says taxes on supply of goods by any
unincorporated association or body of persons to members…….
- Concept of doctrine of mutuality ignored by the Constitution Amend. And through the
definition, the SC case was sought to be over-ruled.
- There were subsequent judgments wherein both sides were accepted.
 - Different approach- Fatek Maidan Club v. CTO (2008) and Cosmopolitian Club v. State of TN
(2017). Court said the relation between the members of the club and the club is governed by
doctrine of mutuality and thereby there is no sale or transfer, hence, no tax liability.
[Transaction which is there between an unincorporated club and its members, which can constitute
to be a situation wherein tax on purchase and sale of goods takes place. As stipulated in S. 29A 366
clearly says that it is in relation to a club which is unincorporated in relation to its members. Clear
that the amendment rejects doctrine.]
[The essence of the principle of mutuality lies in the commonality of the contributors and the
participants who are also the beneficiaries. The contributors to the common fund must be entitled
to participate in the surplus and the participators in the surplus are contributors to the common
fund.]
[In Fatek Maidan, reiterated the position in Young men’s Indian Association. IN Cosmopolitan Club
case- court retained the position of doctrine of mutuality and asked the assessing authority to look
into the relationship between the club and the members and directed the assessing authority to
compute tax liability on the basis of this relationship.]
CASE: State of Bengal v. Calcutta Club Ltd (AIR 2019 SC 5310)
Facts:
- Asst. CP of Commercial Taxes issued a notice to Cal Club on failure to make payment of
sales tax by sale of drinks etc to its members.
- The notice issued was challenged before Tribunal
Tribunal
- No sale between club and its members because what is existing is doctrine of mutuality. By
virtue of doctrine, there is no sale, club is an agent of its members and no tax could be levied
on the supply made by the club to its members
- Relied on the case of Automobile Association of Eastern India v. State of WB
o It was held in this case that an unincorporated club in relation to supply of foods,
beverages, drinks etc tax is not applicable as there is no transfer.
- Decision further challenged before HC
HC
- Upheld the decision
- Relied on the case Young men’s Indians Association (Doctrine of mutuality brought in
despite 46th Constitutional Amendment)
- Doctrine of mutuality is there and by virtue of the doctrine, the club in relation to its
members doesn’t have a different legal entity and it is acting as an agent of its members.
- Challenged before SC
SC
- In 2017, SC made a reference to a larger bench and consider 3 questions-
o Whether doctrine of mutuality is still applicable after Art. 366 (29A) and the 46nd
Constitution Amendment?
o Whether Cosmopolitan Club and Fatek Maidan Club which apply doctrine of
mutuality is correct?
o Whether supply of food, beverages by club to its members constitute to be a sale?
- Arguments of State of WB
o After 46th CA and 266(29A) there is no relevance of the doctrine of mutuality.
o Deputy Commercial Tax Officer v. Enfield India Ltd. (1968)- held that doctrine of
mutuality is based on a common law principal which is based on certain English case
laws. The English case laws are not based on taxing statute. It was in relation to
criminal liability and that particular doctrine does not have any relevance in the
context of taxing statutes.
o Walter Fletcher v. IT Commissioner- Doctrine of mutuality does not have universal
application across all issues. It has to have a limited use.
- Arguments of Resp
o Profit motive is a pre-requisite for taxation.
o Tax liability only comes when the club in a transaction, in relation to supply, sale or
transfer there is a profit motive.
o In a club, there is a contribution made by the members. In relation to what the
service makes to the members, there is no profit motive.
o Concept of profit motive was identified in some cases- State of Gujarat v. Raipur
Manufacturing Co. Ltd + (Ranchi HC) – to decide transfer as sale there must be profit
motive.
o 46th CA has not done away with doctrine of mutuality. Certain transactions and
activities between persons which were listed in Art. 366(29A) where in relation to
that activity happening tax liability was determined. This determination does not
mean the doctrine of mutuality was removed in its entirety.
- SC
o Relied on Graff v. Evans. According to SC, in this case transaction whereby a member
of a club acquired liquor which was the property of the club was not sale but merely
transfer.
o Referred to 61st Report of the Law Commission which was the basis for the 46th CA.
By looking at the Report, SC said that though LC Report resulting in 46th CA
whereby they wanted to plug certain tax evasions. In relation to plugging certain tax
evasions, and to bring certain transactions within the tax purview classification was
made in 366(29A). That particular classification whereby transaction were pu tin
366(29A) does not mean that LC recommended for abandoning the doctrine of
mutuality.
o Doctrine of mutuality was not abandoned nor was it recommended to be abandoned.
This is because the very purpose of the 46th CA based on 61th Report was on the
fact that there was tax evasion in relation to certain transaction and
o Looked into Young men’s Indian Association and the application of the Doctrine
o Relying on Trebanog Working Men’s Club and Institute Ltd v. Macdonald- SC said a club
holding property on behalf of its members doesn’t have a different legal entity in its
relation with its members. Doctrine of mutuality as application as the club does not
have a separate legal entity
o Referred to Bangalore Club v. CIT and said doctrine of mutuality was applied and is
still prevalent in many laws, including income tax laws. Hence, doctrine of mutuality
was never abandoned and never intended to be abandoned.
o Referred to Halsburys Laws of England, certain case laws of English Position (Silloth
Gold Club v. Smith) and Simon’s Taxes book and said that doctrine of mutuality is a
common law principal.
o (G: These cases and authorities were brought in because earlier it was contented by
State of WB that doctrine of mutuality is not something that is applicable to tax
statutes and originated for criminal law)
o Referred to ITO Mumbai v. Venkatesh Premises Cooperative Society Ltd (2018) and said
that it is already a decision that members perform activities of the club for
themselves and they create a legal entity. Case also said there is no sale between club
and its members as one person cannot sell goods to itself.