Tuesday, 16 February

MODULE 1: INTRODUCTION TO INDIRECT TAXATION

Cascading Effect of Taxation

● Multiple different kinds of tax, which leads to great costs on the final consumer.
● To reduce this tax burden and ensure that lesser costs are incurred by the consumer, the
GST regime was brought in with the aim of introducing a single taxation system.
● The course will aim to give us an understanding of all the statutory provisions and legal
changes brought in by the regime. This requires conceptual understanding.
● It is a new regime, with limited judicial pronouncements from the Supreme Court.
Therefore, we will also be looking at principles that were developed pre-GST.

Custom Law
● In the scheme of the economy, customs duties are one of the most major sources of
governmental revenue (30% of total government revenue).

By understanding these two regimes’ significance, we are in a better position to understand

tax liability.

What is tax?
● Broadly, it is a compulsory payment made to the government without any expectation of
definite return or benefit to the tax payer.
● Important question for later: whether tax can be of a compensatory nature? The above
definition seems to suggest that it cannot, but this is to be discussed.
● In a Constitutional Bench (7) decision, the Supreme Court in Jindal Stainless Ltd. v. State
of Haryana, decided just before the GST regime came into play, this question was
decided.

Definitions of tax
● Article 366 (28) of the Constitution defines taxation as: “the imposition of any tax, or
impost, whether general, local or special.”
● More prominent definition found in Commissioner of Hindu Religious Endowments v.
Sri Lakshmindra Thirtha Swamiar of Shirar Mutt, the Supreme Court held that it is a
“compulsory exaction of money by public authority for public purposes enforceable by
law and it is not payment for services rendered.”
● Therefore, as per the Court, it must be for a public purpose, and could not be escaped
(compulsory). If a charge is levied on services rendered, it would then qualify as a fee.

How can a tax law be made? How is it valid?

● Initially, there were different taxes: Union and State, though they could also be
categorized under the head of residuary taxes (as per the Constitution).
● A Union tax is legitimized under Article 246(1) of the Constitution, and specifically
under Entries 82-92 of the Union List on the Seventh Schedule.
● State taxes come under Art. 246(3) and under Entries 45-63 of the State List.
● Residuary Taxes come under Art. 248 and under Entry 97 of the Union List. These,
though collected separately, are collected by the Union only. Though the nature of
the power is prima facie general, it can be used for taxation laws as well. This
covers taxes like gift tax and expenditure tax, and the power to make this kind of tax
 was upheld in Union of India v. HS Dhillon and International Tourist
Corporation v. State of Haryana.
● Most recently, a new form of tax called concurrent taxation has been brought into
effect, and this is legitimized under Art. 246A. This means that this is levied by both
the Union and State.
● Further, though the general law-making power may be under the State or Union List, the
corresponding taxation power may not necessarily correspond. For instance, Entry 8 of
the State List governs the States’ power to make laws regulating alcohol, but taxation of
alcohol happens under Entry 84 of the Union List.

Therefore, for a tax to be valid,

● First requirement is legislative competence under Article 246(1), 246(3), which must be
read with the Seventh Schedule (both the Union and State Lists). This means that
general entries cannot be relied on to levy taxes; they require reliance on the specific
entries.
● E.g.: Entry 22 of Union List – Railways. This cannot legitimize some sort of taxation
on railways. That would be dealt with by Entry 89 (terminal taxes).
● E.g.: Entries 43, 44 – Incorporation and Regulation of Companies. Companies Act
can be passed by relying on this, but not some legislation that levies tax on
companies. Rather, look at Entry 85 (Corporation tax).
● This point was upheld in RMDC v. State of Mysore and Synthetic Chemicals v.
State of UP.
● However, nothing can attract any prohibition under Articles 285 and 289. These
provisions exempt the property of the States and the Union from taxation by each other.
● Next, the law must not be in violation of any fundamental rights, in other words, must
pass the test of Article 13.
● It must also not be in violation of other constitution limitations, such as that guaranteed
by Article 301 (freedom of trade and commerce).
● A tax law cannot be based on an executive order. This was observed in the case of State
of Kerala v. Joseph by the Supreme Court. This is because Article 265 provides that tax
can only be levied by the authority of law.
● In the case of Ferreira v. Municipal Corporation of Greater Bombay, the Supreme
Court stated that for a tax statute to be valid:
● Legislative competence
● Public Purpose (controversial), but not difficult to prove, since revenue is used for the
public.
● Should not violate Fundamental Rights.
● It is subject to Article 14.
● Classification can be made at the discretion of the legislature.

Distinction between tax and fee

● In the case of Commissioner of Hindu Religious Endowments v. Sri Lakshmindra
Thirtha Swamiar of Shirar Mutt, the Supreme Court observed that to be a tax,
● It must be compulsorily extracted
● For a Public Purpose
● Part of the common burden, with the amount collectable being dependent on the
ability to pay.
Similarly, to be a fee,
● It must be a special charge for services rendered to individuals
● Does not vary with ability to pay.
 ● Depends on the service in question.
● Therefore, there is an element of quid pro quo, since it is for the benefit of a service
that is directly connected to payment.

On all matters under the Union List, Entry 96 of the Union List empowers the levy of a fee.
Similarly, Entries 66 of the State List and 47 of the Concurrent List states all the matters
therein on which a fee can be levied.

Kinds of tax
● Direct Tax – It is imposed on persons, and is really paid by the person on whom it is
legally imposed. The incidence and burden are on the same entity.
● They are occurred in a permanent and recurring fashion.
● They are levied directly on property and income.
● The direct tax regime in India is progressive, and therefore takes into account the
ability of the assessee to pay. Therefore, equity plays a role.
● Evasion possibility is high, and so is cost of imposition.
● Examples are gift tax, wealth tax, income tax.
● Indirect Tax – Levied on goods and services. The incidence of tax shifts and is ultimately
borne by an entity that is separate from who it was imposed on.
● They are imposed on the happening of specific events.
● Levied on goods and services, ultimately paid by the consumer.
● Equity does not play a role in the case of indirect tax.
● Evasion is lower, and so is the cost of imposition.
● Examples are GST, Entry Tax (pre-GST), Purchase Tax (pre-GST), Central Excise
Duty (pre-GST).
[Refer to Slides for a list of Central and State taxes that were imposed pre-GST and
post-GST.]

Broadly, regardless of whether it is a direct or indirect tax law, there is a broader power of
classification that is exercised by the legislature in formulating tax laws. However, this
would always be subject to judicial review. However, in determining the validity of a tax
legislation (and, therefore, the wisdom of the legislature), what should the attitude of the
courts be? What should the scope of JR be? The power of JR should be satisfied on the
satisfaction of certain conditions:
1. The arbitrariness must be easily felt. In other words, the legislation should be palpably
arbitrary.
2. The Court must construe the provisions of the legislation with reference to the
language used therein, to ascertain the true scope of the law. They must apply normal
rules of construction.
3. The Court must determine whether the classification purportedly made is reasonable
or not. This must be made on an intelligible differentia, whereby the constituents of
the group are adequately differentiated from those that are excluded.
4. The differentia should have a rational nexus to the object that is sought to be achieved
by the law.

Case Law: Union of India v. Nitdip Textile Processors Pvt. Ltd.

● This reached the Supreme Court in appeal against the decision of the Gujarat High Court.
This case dealt with the constitutionality of taxation laws, and distinguished between
taxes and duties.
● It had struck down Section 87(m)(ii) of the Finance Act, and had been accordingly
appealed by the Union of India.
● Nitdip was engaged in the manufacture of textile products. An inspection was carried out
in their premises by the preventive officers of Central Excise Dept [5/9/1997]. Goods had
been manufactured and conveyed before this date.
● 38726m of fabric that had been manufactured, which had been supplied for Rs. 5,38,449,
the tax liability was originally determined to be Rs. 84,290, and it had not been paid.
● On 6/1/1999, a show cause notice was issued and a demand notice for the outstanding
excise duty was circulated.
● In 1998, the Finance Act (S. 87) introduced a tax scheme called the Karb Vibhaag
Samdana Scheme, and it stipulated that those pending on 31/3/1998, could be settled
under this new scheme.
● Nitdip Textiles therefore could claim the benefit of this scheme. However, the authorities
rejected their claim.
● S. 87(m)(ii) made it very clear that the impugned tax arrears must have been due on
31/3/98 and a show cause notice had to have been made as of that date as well.
● Before the Gujarat High Court, the provision was found to be arbitrary and
unconstitutional. This was because it purported to discriminate on the basis of the demand
notice, and this was unreasonable. Alternatively, the legislation could have classified on
the basis of the status of dues alone.

Before the Supreme Court,

● The Authorities argued that the two essentials were both substantial requirements, and
there was no element of arbitrariness that plagued the provision.
● Nitdeep argued that the scheme became effective between 1/9/98 and 31/1/99. Those
filing for the benefit under S. 87 had to file a declaration between 1/9/98, and 31/12/98,
which was thereafter extended by a month. This was the effective period of the scheme.
● In their case, the demand notice had been issued on 6/1/1999, which was still within
the effective period of the scheme.
● Therefore, insisting on the demand notice being in existence earlier was arbitrary and
unreasonable.

Holding
● The Supreme Court upheld the holding of the High Court.
● They first discussed the objectives of the doctrine of classification:
● The most important thing is that unequals must not be treated equally.
● Classification in the iteration of Article 14 should be based on an intelligible
differentia and should have a rational nexus to the object of the Act.
● In this case, the creation of a class based on the criteria of the demand notice, and that
was arbitrary.
● Therefore, the Supreme Court made clear that the classification deliberated while
formulating tax law had to be something that wasn’t variable, uncertain and
unreasonable. It could not be prima facie unreasonable and had to pass the test of
Article 14.
● While the question of classification was the prerogative of the Legislature, it had to be
in consonance with Article 14.
● Further, after saying this, it elaborated the position of tax laws:
● In tax legislation, there is a broader power of classification vis-à-vis ordinary
legislation. As a corollary, the role of the Courts was limited. The wisdom of the
Legislature has to take precedence over the Court.
 ● Therefore, only in the circumstances where a tax law is palpably arbitrary can the
Courts look to interfere.
● The Courts should not look into whether the classification is either the best or the
wisest.
● After a review of relevant case law, the following observations were made:
1. There is an inherent complexity to tax legislation. In a modern state, while exercising
its sovereign power of taxation, the state has to consider a variety of complex factors
such as the object to be taxed, the amount to be levied, the atmosphere for taxation,
the conditions that determine the levy, prevalent socio-economic policy, etc. This
serves to further justify the limited role of the Courts.
2 The burden of proof is on the person who alleges that a particular law is arbitrary.
3. The Court referred to a statement made by Justice Holmes in Bain Peanut Co. v.
Pinson, where he had said that legislative machinery would fail if it was not allowed a
little movement in its joints. Essentially, he wanted them to have a little freedom.
After all, tax is not merely a way to amass revenue, but it is a social measure.
4. Further, the Court referred to Cooley’s writings and remarked that in matters of
taxation, absolute equality was not possible, practical equality was equivalent to
constitutional equality.
5. Under Article 14, reasonable classification is explicitly provided for. It must not be
arbitrary, artificial, or evasive. Rather, it should be based on real and substantial
grounds of distinction.
6. It was permissible where the considerations behind classification were diverse and
rooted in executive pragmatism.
7. The Judiciary should be careful not to rush into the realm of the legislature.

The Court intended that these operational restraints played on the mind of the Court when
hearing and dealing with matters pertaining to tax law. It underlined the scope and
relevance of taxation: It is the state-sanctioned mode of collecting public revenue for a
public purpose, by placing a particular burden on the public in a determined ratio.

The Concept of Duty, Customs, and Indirect Tax

● In this case, the Supreme Court also explained and went into the concept of duty. It is an
indirect tax imposed on the import or consumption of goods.
● Customs are duties charged upon commodities that are imported into or exported out of a
country.
● It also said that indirect taxes are those which are imposed on commodities before they
reach the consumer and paid by those upon whom they ultimately fall.

Case Law: Empire Industries v. Union of India

● This case dealt with the following broad questions:
1. Can a tax law be retrospective in nature?
2. In the case of parliamentary law, if the object of a law does not come within one entry,
can it be brought within the scope of Entry 97?

Facts
● In this case, there was an Amendment made to the Central Excise and Salt Act, which
was contested to be violative of Article 14, and Article 19(1)(g), therefore lying outside
the competence of the legislature under Entry 84 of the Union List.
● The amendment sought to change the meaning of the term “manufacture” under S. 2(f) of
the Act. It sought to bring the processes of bleaching, dying, printing, etc. within the
scope of the definition with retrospective effect.
● In the case of Vijay Textile Mills v. Union of India, it had been held that cotton fabrics
subject to bleaching, dying, and printing could not be the subject of excise duty.
● Therefore, the question here was whether “manufacture” could include these processes.
Along with this question, it also had to contemplate retrospective effect.

Holding
● The Supreme Court held that when there is an entirely new process that cotton fabrics are
subjected to, to yield a new product, those could be brought within the ambit of the term
“manufacture”. In the context of excise duty, this would attract levy since the entire duty
is on manufacturing processes. Therefore, since dying, bleaching, etc. had such a
transformative effect, they could be brought within the ambit of “manufacture” and would
be subject to excise duty.
● Second, the Court held that powers of taxation could be exercised under the residuary
scope of Entry 97 of List I, if it did not fall exactly within a specific entry.
● Third, tax laws could be retrospective in nature so long as it was not per se
unreasonable.

Union of India v. Mohit Mineral Private Ltd. [2019 SC case].

● This case decided the Constitutional Validity of the GST (Compensation to States) Act,
2017.
● Other than the obvious question of the Constitutional Validity of the Act itself, this case
also asked the question regarding the scope of residuary tax in the GST regime, and the
status of cess after the advent of the GST regime.
● The Supreme Court attempted to ensure that the sanctity of cess remained after the advent
of the GST regime, and it was defined as a “tax levied for some special purpose which
may be levied as an increment to any existing tax”.

Facts
● Mohit Mineral Pvt. Ltd., formed under the Companies Act, 2013, is a company that is
involved in the import and domestic purchase of coal.
● They were liable to pay Clean Energy Cess that had been introduced by way of the
Finance Act, 2010. It was to enter into effect on 1/7/2010. This was to apply to the
production and collection of coal.
● Prior to GST, they had paid 7.68 crores of CE cess.

101st Amendment to the Constitution

● The 122nd Constitutional Amendment Bill, and the subsequent 101st Amendment to the
Constitution, which introduced GST, had the effect of subsuming all the existing indirect
taxes, cess, surcharges, etc. on the State and Central level.
● On 4/5/17, the Taxation Laws (Amendment) Act was passed, which did just that:
repealing all the indirect taxes, surcharges, and cesses, including the Clean Energy cess.
● The CGST Act, the IGST Act, and the GST (Compensation to States) Act were then
brought into force to enforce this Amendment.
● Based on Section 18 of the Amendment Act, Parliament was empowered to levy cess for
5 years to compensate the States for the loss in revenue due to the introduction of the
GST regime, and the accompanying dip in public revenue.
● Under the provisions of the GST (Compensation to States) Act, a fee of Rs. 400 per tonne
of coal in possession had to be paid as an additional cess.
● Therefore, Mohit’s contention was that the additional cess liability was almost a double
levy for the same goods and was invalid. They approached the GST Council.
● They made an application and sought for the setting off of their liability under the
Compensation Act against the Clean Energy Cess that they had already paid. No decision
was made by the Council, so they approached the Delhi High Court.
● Now, they wanted a writ against the GOI, with 4 remedies:
1. Quash the GST Compensation Act.
2. The GST Compensation Rules, formed under the Act, were to be declared
unconstitutional.
3. The notification issued under the GST Compensation Act were unconstitutional.
4. After the commencement of GST, there was no authority to collect cess.

Delhi High Court – Interim Order

1. Prima facie, there was merit in the case of the petitioners, and the remedies sought.
2. Prima facie, on applying the rules of colorable legislation and the doctrine of pith and
substance, Parliament lacked the legislative competence to pass the GST
Compensation Act.
3. The cess under the Compensation Act is to be paid on the same taxable event as what
CGST and IGST are paid on. How was it possible to have two taxes on the same
taxable event? This would amount to double taxation.
4. After the introduction of GST, all cess was to be eliminated.
5. Mohit Mineral Pvt. Ltd. needn’t have made any payment of cess now, since they had
already paid the Clean Energy cess. They ordered Mohit not to pay until final
adjudication.

Similar to this, another interim order had been passed in the case of Hind Energy and Coal
Beneficiaries (India) Ltd. v. Union of India in 2017. Here too, the Delhi High Court had
taken a very similar stance. These interim orders were challenged by the Union of India
and the appeal was made to the Supreme Court. Accordingly, the SC transferred all
pending cases to be heard by the High Courts to it.

Before the Supreme Court

1. Arguments of the Appellants

a. Parliament was competent to levy GST under Art. 246A. While sub-clause (1) deals with
intra-state supply, (2) deals with inter-state supply.
b. Cess, a special kind of tax, also finds competence under this Article. While the provision,
prima facie, only discusses the question of tax, and not cess, the AG argued that the
meaning of the word “tax” under Article 246A included both GST and cess.
a. This was because cess was a special kind of tax, to be found within tax itself. It
did not have to be mentioned separately.
c. In a circumstance where cess cannot be brought within the meaning of “tax”, the levy of
cess could be found within Article 270, a provision that was substituted by the GST
Amendment to the Constitution.
d. It states that cess levied for specific purpose under any Parliamentary law can be levied
and collected by the Central Government and shall be distributed between the Union and
the States in accordance with 270(2). Therefore, it clearly provides for cess revenue and
how it is to be distributed, validating its existence.
e. If Art. 270 is disregarded as well on grounds that it is a distribution provision, cess can
still be levied due to the residuary taxation power under Entry 97 of the Union List.
f. The levy of Clean Energy Cess cannot be equated with the concept of compensation.
Therefore, the concept of set-off could not be applied.
g. Flow of credit of tax is a policy decision that lay exclusively within the sphere of
Executive control, immune to judicial intervention and interpretation.
h. On the question of colorable legislation, it was argued that competence was well and truly
present on all the above counts.

2. Arguments of the Respondents

a. Intention behind the Constitutional Amendment was to make sure that all indirect taxes,
including cess, surcharge, etc. were to be subsumed by the GST regime. It was to be the
sole indirect tax.
b. This Amendment Act repealed the Clean Energy Cess. The Compensation Act was
repugnant to the 101st Amendment in that it allowed for cess to be levied.
c. Lack of legislative competence meant that this was also a colorable legislation.
d. This was no power to levy cess under the new Amendment to the Constitution either. No
cess can therefore be levied.
e. On the same transaction, there cannot be levy of multiple indirect taxes. In this case, both
the compensation cess and the GST applied, and this was an instance of double taxation.
Therefore, it had to be struck down by the Court.

On this basis, the Supreme Court framed 5 issues for determination:

1. Is the GST Compensation Act beyond legislative competence of Parliament?
2. Whether the Compensation Act was repugnant to the 101st Constitutional
Amendment.
3. Whether the Compensation Act was a piece of colorable legislation.
4. Whether both compensation cess and GST were both permissibly applicable on the
same transaction.
5. Whether there can be a cess permitted now.

Lecture 10; 5th March 2021 (Friday):

SC Decision:
● SC looked into the constitutional amendment and looked into the statement and object
of the GST Bill. They also looked into the amended, repealed and newly inserted
articles. They looked into sec 18 and 19 of 101st constitutional amendment act. From
these two sections, it was stated under sec 18 that it provides for compensation to
states.
● Compensation to states was specifically bought through sec 18 of the 101st
amendment act. There was no doubt regarding the constitutional backing of
compensation of states act.
● Further, the court looked into sec 8 of the GST compensation act, which provides for
levy and collection of cess. GST Compensation rules were also made and also
provided for collection of cess.
● SC looked into the facts hereby how the taxation law amendment act repealed
previous laws. The specific question which SC Brought in was whether compensation
to state act is beyond the legislative competence.

Court looked into whether cess could be equated with tax?

 ● SC Made reference to certain case laws, which are Vijaya Lakshmi Rice Mills v. CTO
(2006; SC decision). In this case, the court answered whether cess and tax are the
same. SC made it clear that ordinarily cess is also a tax. This particular cess is levied
but for a special purpose and it is a special kind of tax. Distinction is that tax is used
for general purpose and cess is levied for specific purpose but cess is considered to be
tax and it can be equated with it.
● The contention by Mohit mineral was that through cess there was tax imposed and
that is why there should be different legislative competence. Mohit Minerals pvt ltd
contested that pith and substance is not with legislature or parliament. Since there is
no specific entry in the union or any other list which gives parliament competence,
hence it cannot be imposed. But, SC answered that such power is given to the
government by virtue of the entry of residuary tax.
● Further, they referred to black’s law dictionary, advanced law lexicon, shine brothers
v. commissioner of raichur and in all these SC said that cess is having
constitutionality and it cannot be doubted as cess is provided for administrative
expenses and this is for a specific purpose. By applying residuary power and test laid
down by SC in UOI v. SS Dhillon wherein it was held that if a subject matter for
which legislative competence is not expressly found with state then it will
automatically go to union irrespective of the fact that there is an express provision or
not. Hence, parliament had the legislative competence.
● Whether there should be a specific tax entry apart from residuary power? SC Said that
taxation is a distinct matter and it is distinct from normal legislative competence
however, the requirement if the specific tax entry could be found even in the residuary
tax entry, then it can be provided.

Whether cess is violative of the 101st Constitutional Amendment?

● This question was brought in because all cess surcharges were subsumed by virtue of
101st CA.
● Court said that, under art 246A (which provides for GST laws), there is no provision
which says that there cannot be subsequent cess. It does not prohibit cess which are
possible to be made in the future. Hence, subsequent cess could be imposed.
● Mohit mineral contested that when the 102nd amendment bill was brought in, sec 18
provided for an additional 1% tax. When this was passed, the provision for 1%
additional tax was DROPPED. Hence, the contention is that additional tax above GST
was not intended by parliament. SC answered that such intention cannot be traced and
such argument cannot be accepted as sec 19 of the CA, provided for GST
Compensation Act. Hence, the power to make law was expressly provided which gave
power to levy additional tax. Based on this, SC said there is no colourable legislation
either.

Whether compensation cess and GST at the same time is permissible, i.e., double taxation is
allowed?
● Under the GST Compensation act read with the GST compensation rules, you can
levy gst/cgst+sgst/igst.
● SC referred to Federation of Hotel and Restaurant Association of India v. UOI (1989)
3 SCC 634 and Avinder Singh v. State of Punjab, wherein it was held that two taxes
imposed which are separate and distinct will be permissible. In the Avinder Singh
case, there was a municipal tax and a sales tax which were imposed. Both were
separate and distinct, and hence SC allowed for the same. Same was held in the
Federation of Hotel case.
 ● SC in the current case said that levy of compensation to state cess is an increment of
goods and service tax which is permissible.

Whether there can be a set off permitted as against the cess already paid?
● The already paid cess was the clean energy cess. SC Said that set off is not permitted
as clean energy cess and compensation cess are distinct and cannot be set off.
● Clean energy cess was brought in the 2018 finance act for the purpose of financing
and promoting clean energy initiatives. This clean energy cess was specifically used
for union purpose. In Sec 83 (3) of finance act, 2018 the clean energy cess was
brought in for the purpose of financing and promoting clean energy initiatives, finding
research in this initiatives and was levied for the purpose of the environment.
● State compensation was a cess which was brought in after introduction of GST and
after having state inter tax laws subsumed. Whatever revenue loss which states were
facing by virtue of GST, for that a compensation would be paid through the
compensation cess.
● Compensation cess was meant for states, so there is no connection between clean
energy and compensation cess. Hence, there is no set off available.

Conclusion:
● SC validated the compensation act legislation and explained various parameters for
cess a stax and how they are allowed to continue even after commencement of GST
and how constitutional value is determined.

Union of India v. Bengal Shrachi Housing Development Limited (2017)

● We will discuss the concept of service tax and who will have the liability to pay
service tax. This case may not be specifically relevant in context of gst but the fact
that subsequent to gst, what could be seen is that the service tax which was there
earlier will stand subsumed and it was found within the GST regime. It does not stand
on service but on SUPPLY of service.
● Who has the tax liability? Whether the one who receives the service or the one who
provided the service?

Issues in the case:

1. Whether service tax is an indirect tax?
2. Whether service tax should be paid by service provider or service recipient?

Facts:
● UOI was a lessee and had a deal of lease with the lessor which was Bengal Shrachi
Housing development ltd. This particular lease agreement was for a period of 3 years
whereby the property with Bengal Shrachi was given on rent to UOI.
● The rent was decided based on the agreement and it was Rs. 16,35,000 per month.
● An important deed in the clause was: “The lessor shall pay all rates, taxes and
assessment charges under the statutes and shall keep premises free from all
encumbrances.”
● Question was, who is liable to pay service tax for the commercial premises?
● Bengal Shrachi filed a writ before Calcutta HC whereby they sought a remedy to have
a direction issued to UOI to make payment of the service tax.
● HC referred to a Delhi HC decision, that is Pearey Lal Bhavan Association v. M/S
Satya Development Pvt. Ltd wherein they held that service tax is essentially an
indirect tax and the user of the premise who avails service has to bear it.
 ● Also referred to M/s Bhagwati Security Service v. UOI, judgement of Allahabad HC.
● Calcutta HC decided that service tax is to be paid by UOI.

Lecture 11; 9th March 2021 (Tuesday):

● SC had the opportunity to look into the question of whether service tax is an indirect
tax? And whether it needs to be paid by a service provider or service recipient?
● When there is a statutory obligation which is contrary to another agreement will the
liability under the agreement or statute be followed?

Appeal before SC (2017):

● UOI contested that under the finance act of 1994 and further read with service tax
rules, the service tax has to be paid by service provider i.e. lessor in the present case.
Without any doubt, it is to be correctly decided that it is not the liability of UOI to pay
the tax.
● Respondents contested that a proper reading of the provision of the act makes it clear
that service tax is an indirect tax. It is a tax on consumption of service. They also
relied on many SC decisions and based on these decisions, it is the lessee who is
liable to pay.
● Under Sec 65(7) of the Finance Act, it is stated that an assessee is the person liable to
pay service tax.
● Under Sec 65(105) of the Finance Act, taxable service means any person renting
immovable property or any other service in relation to such renting for furtherance of
business or commerce.
● UOI based on the above section said that the respondent has to pay the tax.
● SC referred to sec 66(b) where the value of service tax is 12%. Sec 68 provides that
every person providing taxable service to any person shall pay service tax.
● SC analyzed Tamil Nadu Kalyana Mandapam Association v. UOI and All India
Federation of Tax Practitioners v. UOI wherein the SC made it clear that service tax is
indirect and is on the service and not service provider. Sec 68 r/w sec 65, it is on the
service, not on the service provider. Service provider collects the tax from the client
and that particular tax which was collected on that activity. The service provider then
pays that tax to the government.
● SC further raised a question: what is a taxable event in service tax?
● In a taxable event on service tax, tax is on an activity.
● In the case of Association of Leasing and FInancial Service v. UOI (2011), SC said
that taxable event in service tax is the provision of a service. That service of renting
out property is the taxable event. The person liable to pay tax is the provider of
service. Having examined the concept of indirect taxes/service duty etc. SC said that
in indirect taxes, the levy is on goods, service and SC made a distinction between levy
and collection.
● Once service is provided, the levy needs to be made and after collection, it needs to be
given to the government.
● Hence, SC said that it is an indirect tax and the tax liability falls on the lessee. The
contention of UOI was rejected and they accepted the decision of Calcutta HC.
● SC made it clear that the service provider is simply collecting the tax and giving to the
government. Since UOI is benefitting from the service, it is on the them to pay the
tax. Supply of goods or services or both create a taxable event.
● When there is a statutory liability which is contrary to an agreement made, then it was
decided that liability is decided based on statute only.
 ● To remember: manufacturing goods will not attract tax under GST, only when such is
sold will GST be attracted.

Taxable event determination prior to GST:

Goodyear India ltd. & Ors. v. State of Haryana & Ors. (1990)
● Under Sec 9(1) and 24 of Haryana General Sales Tax, 1973 - Assessing authority
imposed purchase tax on despatches made by Appellant on manufactures good to its
various depots outside State.
● HC quashed notification and set aside assessment orders
● However, the full bench of HC overruled this order and upheld notification. Hence,
this appeal.

Lecture 12; 10th March 2021 (Wednesday):

● Haryana brought this tax liability on dispatches through an executive order and
consequently issued a notification.
● Goodyear engaged in the manufacture and sale of automobile tyres and tubes. It
manufactures the said tyres and tubes in faridabad.
● Registered both under Haryana and the Central Sales Tax Act and had been
submitting its quarterly returns and paying the sales tax in accordance with law.
● In 1979, the assessing authority, faridabad, imposed upon the purchase tax under sec 9
of the Act for the assessment year 1973-74, 74-75 and 75-76 on the dispatches made
by the appellants on the manufactures goods to its various depots outside the State.
● This led to the filing of various writ petitions in the Punjab and Haryana HC.
● HC held that: a mere dispatch of goods out of the state by dealer to his own branch
while retaining both title and possession thereof does not come within the ambit of the
phrase “disposes of the manufacture goods in any manner otherwise than by way of
sales” as employed under Sec 9(1)(a)(ii) of the Act.
● Notification in July 19, 1974 issued under Sec 9 was held to be ultra vires of sec 9 of
the Ac, 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 a shield that this was contrary to
and in conflict with the provisions of sec 9.
● Sec 9 of the Act had been introduced by Haryana in 1976 after the aforesaid decision
of the HC, the Haryana Legislature intervened and enacted the Haryana General Sales
Tax (Amendment & Validation) Act, 1983 by which Sec 9 of the principal act was
amended.
● This amendment was challenged before HC by Bata India Ltd. v. State of Haryana
● The HC held that “mere dispatch of goods to a place outside the state in any manner
otherwise than by way of sale in the course of inter-state trade or commerce” included
within the ambit of the consignment of goods either to the person making it or to any
other person in the course of inter-state trade or commerce as specified in Art 269
(l)(h) and entry no 92B of List 1 of 7th Schedule.
● The levy of sales or purchases tax on such a despatch or consignment of goods and
matters ancillary or subsidiary thereto
● This power will be within the exclusion of the state legislature.
● Therefore, sec 9(1)(b) of the Haryana General Sales tax Act, 1973 as amended by the
Haryana General Sales Tax (Amendment & Validation) Act, 1983 insofar as ti lives a
 purchase tax on the consignment of goods outside the state in the course of inter state
trade or commerce is beyond legislative competence of the state of haryana is void.
● HC examined the real nature of business and found that a mere change in physical
situs of good without change in the incidents of control and ownership, thereby the
tax is invalid. Haryana issued notices and assessed the transactions and claimed tax
along with penalty.
● The Haryana legislation was there in Punjab by virtue of state reorganization act.
Thus HC of punjab and Harayan decided the matter on similar context
● Des Raj Pushap Kumar Gulati v. State of Punjab the court held that the taxing event is
the act of purchase not act of consignment and amendment was held to be valid.
● Appeal filed in SC.

Contentions of the appellant:

● Despatch or consignment in taxable event
● Power is beyond the legislative competence of state. If purchase of goods is taxable
then only the state has legislative competence. This case is only dispatch or
consignment.
● Purchase of goods is a taxable event then it will be the legislative competence.

Argument of State:
● Legislative history: earlier there was a purchase tax whereby if the goods are
manufactured in Haryana and if there is sale in Haryana then there is exemption of
service tax.
● Section is a taxation and remedial provision: State of TN v. Kandaswami - position
was relied where in this case, it was held that this particular sales tax is not only a
charging position but also a remedial position. So on many occasions, the tax
legislations can be interpreted not only as merely a taxing position but also a remedial
position. It was remedial because they were trying to plug the gap in the current
legislation of taxation.
● Fiscal laws must be strictly construed. Fiscal laws when interpreted by the law need to
be done strictly where court cannot imply/presume.
● Test must be language used in statute to decide the interpretation.
● Taxable event is the purchase of goods in Haryana - even if obligation to pay is
postponed. Good year had the raw material in haryana and manufactures in Haryana
itself. The goods that they dispatch can be possible to be brought within the purchase
tax.

Issue:
● Whether a good year ltd is liable to pay purchase tax?
● Whether the purchase tax is justifiable?

SC decision:
● SC said that the main test is to see the happening of certain events on charges fixed.
SC said that there is three stages of imposition of tax:
1. Declaration of liability: whereby part of the statute which declares what % with
respect to what property/transaction is liable
2. Assessment: whereby based on the legislation, it particularizes the extent of tax which
a person is liable to pay.
3. Method of recovery: if the person is not making payment voluntarily, then how
recovery is to be made?
 ● Based on this, SC said that taxable events are an occurrence of certain actions and
based on that, tax liability is attracted.
● Thus it is determined on two accounts - purchase of goods in state and using them for
manufacture of goods in state. These two actions when occurred, tax liability can be
imposed. If these two things are happening outside Haryana subsequent to the
dispatch, then liability cannot be determined under state law.
● Sale which happens as a taxable event within a state can be liable for tax by the state.
However, subsequent to the dispatch, when the goods are used for manufacture, there
you cannot have state legislation imposing tax liability as it happened in another
state and there is no state competence. Only parliamentary competence exists in such
a situation.
● Such tax which leads to consignment tax will not give Haryana the required
competence for collecting tax.

GST Background:
● Idea of GST was mooted by Kelkar Committee in 2006-2007 budget
● Proposed to be introduced on 1st April 2020. Empowered committee of state finance
ministers were asked to prepare a roadmap. Empowered committee of state finance
was set up on 17th July 2000 and this was established for the purpose of smooth
implementation of VAT and drafting the bill.
● 22nd March 2011, 115th Constitutional Amendment bill was introduced in Lok
Sabha. This was referred to the standing committee but subsequently it lapsed due to
dissolution of Lok Sabha.
● 122nd constitutional amendment - the bill was introduced on 19th December 2014
and was finally approved by both houses of the parliament and with the ratification of
states. On 1st Sept 2016, 16th States ratified the CA. State ratification was necessary
as it introduced changes in Art 246 and VIIth schedule. The President then notified
the commencement on 12 September 2016, whereby 101 Constitutional Amendment
came into force which established GST.
● On 12th Sept 2016, Art 279A was incorporated through the 101 CA and the GST
council was constituted. Striking feature is that the day it was introduced was the
same day the GST council was established. The secretariat released the GST model
laws and happened to be passed by RS and LS whereby CGST Bill, Integrated Goods
and Service tax bill, goods and service tax compensation to state bills were introduced
in parliament. LS passed the bill on 27th March 2017, RS passed the bill on 6th April
2017 and President Assent granted on 13th April, 2017 and on 30th June 2017, both
houses assembled for an emergency meeting and the introduction of GST bills from
midnight 1st July 2017 was notified.

Lecture 13; 12th March 2021 (Friday):

● Entry 84 of List I: taxable event of manufacture - central excise duty on goods that
were manufactured. There were a number of taxes on the first level of manufacture.
● Excise duty was another type of indirect tax prevalent.
● Service tax was introduced in 1994, the taxable event is supply of service. Till GST
was enforced, service tax was under entry 97.
● When we look into service tax, we find that service tax was around 15%.
● Third kind of indirect tax was the sales tax which was introduced under entry 56 of
List II. Under this entry, states had sales tax i.e. intra-state sales. With regard to
 inter-state sales, there was a tax levied by the union. The taxable event in intra-state
sales was levied on the occurrence on sale happening only within the sale.
● On sale and purchase of goods, there were two taxes, one by state and another by
center.
● The next important indirect tax was customs duty. Statutes were made under entry 83
of the union list. Certain customs duties were levied. Basic customs duty, additional
customs duty and special additional customs duty and some others were levied under
the Customs Act read with customs tariff act.
● Due to major indirect tax laws there were multiple taxes. There was cess, surcharges,
entertainment tax, stamp duty etc which created a situation where in the indirect tax
regime, in relation to supply of goods, services and manufacture, there were multiple
taxes and created a huge burden as well as created a complexity in the tax regime. To
avoid this, GST was brought in.
● So one reason to bring GST was to avoid the situation of multiple taxes.
● Cascading effect on multiple taxation: due to multiple taxes, there was no mechanism
for adjustment of this multiple tax paid. No set off, credit could be adjusted for the
previous tax thereby increasing the burden.
● The tax liability which you paid at first and second level with the cost, appreciation
etc has happened and on this, there is a new tax on stamp duty, luxury duty etc. Now
these taxes are not adjustable on the taxes that you paid. This is the cascading effect
where there is accumulation of tax which leads to a situation whereby the cost of
goods increases and ultimately consumers have to bear a lot of tax liability.
● This accumulated tax liability shifted on consumers. In GST, this is not happening
because there are no cascading effects of taxation in GST.
● Lack of uniformity in VAT and state taxes. Now for the same goods, different states
had different taxes and there were large amounts of tax evasions and loss of revenue
in states. Ex: VAT on mobiles in Maharashtra was 4% whereas in Delhi it was 12.5%.
● In the pre-GST era, there were many disputes which occurred in relation to
transactions. In pre-GST tax was imposed on many stages of the transaction.
Sometimes the nature of a transaction is purchase/manufacture and it was a big
question as to whom the tax liability will fall on and on which kind of transaction.
Hence, many disputes were there due to this.
● In the pre-gst era, states were not able to levy taxes on service. Taxes on service
outside the state, where on such transactions, states were not able to generate the
requisite revenue and were denied the scope to levy tax on it. Whereas in the GST era,
the denial of taxes on service could be plugged and states were getting additional
revenue in relation to levy of tax on services.
● Interpretation issues arose pre-GST era which led to many executive notifications
granting exemptions, etc. This led to executive dominance or empowerment in the tax
regime and it has a bad effect.
● Due to multiple taxes and authorities, there were administrative difficulties and lots of
confusion was created.

Lecture 14; 16th March 2021 (Tuesday):

Features of 101 CA:

● Concurrent taxing power on unions and states i.e. in relation to goods and services
tax, there is concurrent power on unions and states.
● Subsuming of central indirect taxes and levies.
● Subsuming of state taxes (purchase tax, entertainment tax, etc.).
 ● Elimination of declared goods of special importance.
● Inter-state transactions of goods and service were levied under integrated goods and
service tax having IGST.
● GST is levied on all goods and services, except alcohol for human consumption, and
petroleum and petroleum products.
● Compensation to states for loss of revenue [GST Compensation to States Act, which
would be in place for the first 5 years after the introduction of the GST]. It was
introduced in 2017.
● Creation of the GST Council. This body is instrumental in determining the working of
the GST regime.

Amendment and Insertion of new Articles

● Article 246(1) – 246(4): These provisions were not touched.

● Art. 246A is a special provision that aims to tackle GST specifically. It states that
notwithstanding anything contained in 246/254, but subject to 246A(2), Parliament
has the power to make laws with regards to GST that is imposed by either the Centre
or the States.
● 246A(2) gives Parliament exclusive power with regards to GST when the supply of
goods and services takes place in the course of inter-state trade and commerce.
● Residuary powers under Art. 248 were amended, and they were made subject to Art.
246A.
● Under Art. 249, Parliament can legislate on GST as well if it deems that it is in
national interest to do so.
● Per Art. 250, Parliament could do that if there was a Declaration of Emergency in
India too.
● Article 268 onwards, there are provisions that deal with the distribution of tax
between the Union and the States:
● Originally, Art. 268 provided that such stamp duties and such duties of excise on
medicinal and toilet preparations that are leviable under the Union List shall be
collected by the respective States if they are levied there, but if levied in a UT, then by
the Union.
● After Amendment, the specific words of medicinal and toilet preparations were
omitted.
● Art. 268A was omitted in its entirety. It dealt with service tax that was levied by the
Union, but which was appropriated and collected by the Union and the State. Since
service tax was omitted as a scheme, this too went.
● Art. 269A was introduced, which now deals with levy and collection of GST in
regards to inter-state trade and commerce.
● Art. 269, which deals with taxes that are levied and collected by the Union but
assigned to the States, is subject to 269A.
● 269A states that GST in the course of inter-state trade and commerce shall be levied
and collected and levied by the Union and shall be apportioned in accordance with
law, on the recommendations of the GST Council. This refers to the concept of IGST,
or integrated goods and services tax.
● Art. 270 deals with the method of apportionment of taxes that are specified in the
Union List, and levied and collected by the Union. However, it is now made clear that
this does not include any tax referred to under 268, 269, or 269A.
● Under this, clauses 1A and 1B were added and they both prescribe that inter and
intra-state GST collected would be shared according to the provisions of 270(2).
Therefore,
1. Intra State GST (CGST and SGST): Power comes from 246A(1) and 270(1).
2. Inter State GST (IGST): Art. 269A
Golden rule is that there is always adjustment. When there is a transaction that involves both
Inter and Intra state elements, both of the above regimes will apply. However, the net
proceeds will still have to be divided in accordance with Art. 270(2).

Lecture 15, 17th March 2021 (Wednesday)

● Art. 271 provides that Parliament continued to have the power to increase any duties
or taxes except those that are under 246A [GST]. So, while the Union can continue to
levy surcharges, they cannot apply to GST.
● Art. 279A – The GST Council.
● Came into force on 12/9/16.
● Art. 279A(2) makes clear that the Council shall be constituted of the Union FM as the
Chairman, the Union Minister of State in charge of Finance or Revenue as a member,
and Ministers of Finance or Taxation or any other minister nominated by the State
Governments as members too.
● The members nominated by the States will choose amongst themselves who can be
the Vice Chairman.
● Art. 279A(4) describes the role and functions of the GST Council:
● Deciding on taxes, surcharges, and cesses leviable by the Union and States.
● Deciding on exemptions and inclusion of Goods and Services for GST.
● Coming up with Model Laws on GST, and enunciating the principles of levy and
allocation of GST between the Union and the States.
● Determining the threshold limit of turnover, which would thereby influence who had
to be compulsorily registered. This includes the concept of a composition scheme.
This is usually resorted to by small to medium size enterprises who do not have the
technical understanding of the GST. Under this, the annual turnover of the enterprise
will be subject to GST at a fixed rate, taking into account the nature of the service
provided.
● Currently, there are different classifications that will attract differing levels of
taxation.
● Further, to avail of this, the annual turnover must be less than 1.5Cr (increased from 1
Cr. By the Central Board of Indirect Taxes and Customs.
● Determination of different rates of taxation that would apply under the GST regime.
● As per 2021, jute, fresh meat, fish, eggs, etc. are to be taxed at 0% GST. Hotels and
lodges where the tariff is less than 1000Rs are an example of a service that has 0 tax.
● Other slabs are 5%, 12%, 18% and 28%.
● Special rates of tax when to be applied, if special circumstances arise.
● COVID could form one of these events. However, this tax would be levied for a fixed
period and at a fixed rate.
● There are special states such as Arunachal Pradesh, Jammu and Kashmir, Manipur,
Meghalaya etc. which would attract special provisions as well from the GST Council.
● Additionally, they can deal with any other matter dealing with GST.

● Art. 279A(5) empowers the Council to decide the date on which GST will apply to
petroleum crude, high speed diesel, etc.
 ● Art. 279(A)(6) empowers the Council to be guided by the need for a harmonized
structure for GST and come up with a national market when formulating and
discharging its functions.
● Art. 279A(7) specifies that the quorum of the GST Council meetings shall be ½ of its
total members. Further, sub clause (8) empowers it to determine the procedure.
● Art. 279A(9) determines that the decision shall be taken by not less than ¾ of the total
weighed vote. Union vote is given weight of 1/3 of total votes cast but the States are
given 2/3 weightage of total votes cast. This ensures that no decision is taken
unilaterally.
● Art. 279(10) clarifies that defects in appointment, vacancies, and procedural
irregularities will not render meetings void.
● Finally, sub-clause (11) empowers the Council to come up with a mechanism to
resolve disputes that arise between Union and States, two different States, or any
combination thereof.

Further Administrative Framework of the GST Council

● GST Council Secretariat works as a permanent office in New Delhi and it is the
Executive Office of the GST Council.
● Additionally, 18 sectoral groups were created to help aid the smooth entry into force
of the GST regime.
● 8 Standing Committees have specific jobs assigned to them. For instance, the Law
Committee will prepare all laws and rules and will examine the representations made
by Indian stakeholders. Similarly, IT Committee and the Single Interface Committee
also exist and play an important role.

Amendments to Schedules by the 101st Amendment

● Assam, Mizoram, Tripura, Meghalaya will have special autonomous bodies created
for the administration of tribal areas. These are called District/Regional Councils, and
will be formed under para. 8 of the Sixth Schedule read with Art. 244(2). In these
specific states, the tribal areas governed by these Councils, taxes on
entertainment and amusement can be levied.
● In other areas of India, these taxes were subsumed by the GST Regime.

Lecture 16; 19th March 2021 (Friday):

● Prior to this, they already had the power to tax for maintenance of school, trade, etc.
Above that, para 8 got added which provided for taxes on entertainment and
amusement.
● Entry 84 of Union List: under this particular entry, there was a major change that
happened. Originally this entry 84 provided for duty of excise on tobacco and other
goods manufactured in India except alcohol, opium, narcotics etc. Excise duty
continued to be in force even after the introduction of GSt by virtue of entry 84. New
Entry no 84 will cover Excise duty on petroleum crude, high speed, petrol, natural gas
and aviation turbine fuel, tobacco and tobacco products. It means that even after
introduction of GST, Central Excise duty on above product shall remain in force till
the time as GST council thinks fit.
● Entry 92 & 92-C stood omitted: this entry 92 was with regard to taxes on sale and
purchase of newspaper and advertisement published therein. Entry 92-C was taxes on
service. They both merged into GST.
 ● Entry 52 of state list omitted: this entry provided for taxes on entry of goods into the
local area for consumption, use or sale. The possibility of having a state tax in this
light was omitted.
● Entry 55 of state list omitted: it provided for taxes on advertisement other than
advertisement published in newspaper and advertisement broadcasted on radio and
television. This was also omitted.
● Entry 54 substituted: this entry was tax on sale and purchase of newspaper subject to
entry 92. By removing this entry, they brought in a new entry. Hence it was
substituted by - the state government can only collect the taxes on sale of petroleum
crude, high speed, petrol, natural gas and aviation turbine fuel and alcoholic liquor for
human consumption.
● Entry 62 substituted: taxes on luxuries, entertainments, amusement, betting and
gambling. This was the scope of states where they could have taxes on these activities
prior to GST. This section stands amended as taxes on entertainment and amusement
can be levied by Panchayat, Municipalities, Regional or District council can levy and
collect taxes on entertainment and amusement under entry 62. So local bodies can
levy the tax and not states directly.
● Art 366: New clause Art 366(12-A) which defined goods and service tax. As per new
clause 12A to Article 366 “Goods & Service tax” means any tax on supply of Goods
or Services or both except taxes on supply of the alcoholic liquor for human
consumption.
● Art 366(26-A) Added: Definition of services. The term service is also defined by
inserting new clause 26A as anything other than goods.
● Art 366(26-B) added: In relation to articles related to GST, when the term state is
used, it refers to not only the legislature of the state but also the legislature of union
territories.
● Art 368: whereby under this article, it provides that any amendment in Art 279A
[GST Council] would require the ratification of states.

Random pointers about the CGST Act:

● Sec 2: definitions
● Sec 3: offices under GST. This is not significant as such.
● Sec 4: appointment of officers
● Sec 5: powers of officers
● Sec 6: authorization of officers.
● On 12th April 2017, the acts were given assent by presidents and the legislations are
CGST Act. The CGST Act, 2017 provides for levy, collection of taxes of intra state
supply of goods and services by the central government.
● States good and service tax (SGST) act have similar provisions, wherein every state
has their own state goods and service tax act which have similar provisions as the
CGST.
● Integrated Goods and service tax act (IGST), under this act, it is the union government
which levy and collect tax with regard to inter-state supply.
● For Union territories there was a UT Goods and Service tax act (UTGST), wherein it
is the equivalent of SGST.
● Goods and Service tax compensation act, that is the compensation payable to states
for the loss of revenue due to implementation of GST.

Important points of GST study:

● Taxable event in GST is supply.
 ● Sec 9 is the charging section.
● Sec 9 - subject to sec 9(2) of CGST Act provides that there shall be a tax levied called
Central Goods and Services Tax on all intra-State supplies of goods or services or
both, except on the supply of alcoholic liquor for human consumption, on the value
determined under section15 and at such rates, not exceeding twenty per cent., as may
be notified by the Government on the recommendations of the Council and collected
in such manner as may be prescribed and shall be paid by the taxable person.
● Sec 9(2): The central tax on the supply of petroleum crude, high speed diesel, motor
spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be
levied with effect from such date as may be notified by the Government on the
recommendations of the Council.
● Sec 9 says that there will be CGST on goods, services or both which are in relation to
supply except petroleum and petroleum products, and the value of such transactions
are determined according to sec 15 and you have to determine the value, place and
time of supply. Charge is levied under sec 9. The rate of charge will not exceed 20%
as decided by CGST Council.
● Sec 5 of IGST Act provided for similar provision. Similar provisions are in SGST act
also.
● Crux: understand the supply, how to determine value, then classification and then
rates.

Taxable event in GST is on Supply:

● If supply of goods or service is not there then GST is not attracted. Hence you have to
first prove the existence of supply. Of course, the exception of consumption of alcohol
subsists.
● Sec 2(52) Defines goods & Sec 2(102) defines service. These two definitions have to
be studied in the context of the definition of supply. Types of supply are also
important.
● Sec 2(74) provides the concept of mixed supply & Sec 2(90) provides the concept of
principal supply.
● Sec 7 is supply & sec 9 is the levy and collection of tax.
● Sec 11 provides the exemptions that may be given by the central government.
● Supply can happen without consideration; GST is still applicable on this. This is in
context of Sch I, II & III which lists the supplies which are taxable/not taxable.
● As per Art. 366(12A), the word “supply” is used. Therefore. It makes it clear that the
GST is to be levied on the supply of goods and services or both, establishing it as the
taxable event.

Supply – S. 7(1)(a)
● 7 (1)(a) of the CGST Act states that the term “supply” includes all forms of supply of
goods or services. It includes supply by way of sale, transfer, barter, exchange,
license, rental, lease, or disposal that is either made or agreed to be made.

Lecture 17; 20th March 2021 (Saturday):

● What is the significance of the word “includes”?

o Indicates that this is an inclusive definition. Therefore, not exhaustive.
o In the case of CCIT v. Taj Mahal Hotel, it was observed that this word was
used to enlarge the meanings of words of the statute.
 o However, in being expansive, it must keep the object of the Act in mind, as
per the judgement in Ramesh Mehta v. Sanwal Chand.
o The enumerative character of the term was also highlighted in the case of
Bharat Co-operative Bank (Mumbai) Ltd v. Employees Union, where the Court
clarified that the word “means” was intended to be exhaustive, while
“includes” denoted an enumerative intent.
o Finally, in the case of Royal Hatcheries (P)Ltd. v. State of A.P., the use of the
term “all forms of supply” was interpreted to denote an illustrative nature.
● What is denoted by the term “goods”?
o The former is defined in S. 2(52) of the CGST Act and the latter is defined in
S. 2(102).
o In the context of GST laws, goods mean “every kind of movable property
other than money and securities. This would include actionable claims,
growing crops, grass, and things attached to forming part of the land which are
agreed to be severed before supply, under a contract of supply. There is no
definition of “movable property” under the CGST Act.
o Accordingly, look at the definition of “movable property” under S. 2(36) of
the General Clauses Act. Further, S. 2(36) of the GCA defines immovable
property.
▪ It includes land, benefits arising out of land, things attached to earth,
and that which is permanently fastened to anything attached to earth.
▪ In the case of Municipal Corp of Greater Bombay v. IOCL, it was
clarified that immoveable property was to be tested on whether it was
attached to earth.
▪ However, it is moveable if it can be dismantled and
reassembled/re-erected.
▪ Therefore, immovable property cannot be goods.
o Look at the TPA for the definition of “actionable claims”.
o Further, goods can be either tangible or intangible.
▪ In the case of State of Andhra Pradesh v. NTPCL, it was observed that
just because electricity was not tangible, it did not stop being a “good”.
Even in the case of BSNL v. UOI, the Court observed that “goods”
could be either tangible or not.
▪ Article 366(12) defines goods to include all kinds of movable property.

▪ In the case of TCS v. State of Andhra Pradesh, the question was

whether computer software was to be termed as goods. In answering
this question, the Supreme Court laid down a three-pronged test to be
fulfilled.
▪ Utility of that particular thing must exist.

▪ The article should be capable of being bought and sold.

▪ The article should be capable of being transmitted, transferred,
delivered, stored, or processed.
● However, is there a need for consideration in “supply”? Not always. Therefore, this is
not an essential for the assessment of GST. Even though S. 7(1)(a) makes it seemingly
 clear that consideration is necessary, Schedule 1 must also be considered, and it
clarifies the point.
● Looking at the dictionary meaning of the term “supply”, it is clear that there must be
at least 2 persons involved, and there must be a good or service. Then, this good must
be given by one to another.
● Further, must this be done in the furtherance of business?

Lecture 18; 24th March 2021 (Wednesday)

“Service” under the CGST Act

● As per Article 366 (26A), the expression “service” means anything other than goods
● Defined in S. 2(102) of the CGST Act, services mean anything other than goods, money,
or securities, but include activities relating to the use of money or its conversion by cash
or by any other mode, from one form, currency or denomination to another form,
currency or denomination for which a separate consideration is charged.
● Essentially, anything other than goods, money or securities, but includes money changing
activities.
● Per the Explanation to this provision, which was introduced after the decision of the
Supreme Court in the case of SEBI v. Pan Asia, the expression “service” also includes the
facilitation or arrangement of transactions in securities.
● The sale, etc. of immoveable property is not a service.

Union of India v. Martin Lottery Agency

● Supreme Court observed that:
● Service is 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.
● Services are instantly perishable, and cannot be stored.
● Once availed, they cannot be returned.

Consideration under GST Law

● The term is defined in Section 2(31) of the CGST Act in relation to the supply of goods
and services.
● It consists of any payment made or to be made, whether made or to be made, whether in
money or otherwise.
● It is usually made by the recipient. Can be made by someone else, but there has to be a
connection or link.
● This consideration must be directly linked to the supply.
● It must be something which is given in respect of, in response to, or for inducement of,
supply.
● Subsidies from the government, deposits in respect of goods and services, and
donations/gifts/charitable contributions are excluded from the purview of
“consideration”.

Lecture 19; 30th March 2021 (Tuesday):

[discussion on S. 7 contd.]
● GST liability arises when there is a supply of goods or services for consideration.
● Under S. 7(1)(b) read with Schedule 1, there are certain activities that are made without
consideration, but which still constitute events that incur GST liability.
● Permanent transfer or disposal of business assets where input tax credit has been
availed of. Input tax credit means that when you pay tax on the output, you can subtract
that amount of tax that you have already paid on the input of the specific goods
concerned. Therefore, (tax collected-tax paid) is what will be collected by the
government.
● Now, when considering a case where this second transaction is made without any
consideration, the value of the goods there will be determined by looking at the value
of goods sold at a value (to get an idea of the value added, etc.).
● Another instance is the question of the supply of goods and services either between
related parties in the course of business. This has to be looked at in the context of the
Explanation to Section 15, paragraph (a). This lists out who is deemed to be a related
person under the Act. [READ THE ACT FOR THIS PROVISION]
● This point also covers the supply between branches that are distinctly registered under
Section 25 (where one is the branch of the other), when made in the course of business.
This interpretation of the second half of Schedule 1 para. 2 was given in Re: Columbia
Asia Hospitals (P) Ltd. by the Authority of Advances Ruling, Karnataka.
● The Authority ruled that the activities of the corporate office and the units must be
considered differently if they have different registration numbers. Therefore, when there
is supply without consideration, GST liability would arise.
● This also includes supply of goods by a principal to his agent or vice versa when the
recipient undertakes to receive it on the other’s behalf.

Therefore, what is the course of “business”?

● This is defined in S. 2(17) of the CGST Act. It gives an inclusive definition of the term
and includes: any trade, commerce, manufacture, profession, vocation, adventure, wager,
or any other similar activity {whether or not for pecuniary benefit} and any other
activity/transaction that is in connection to, or incidental to the above list.
● There is a long list of things included. Just read the provision.

Lecture 20, March 31 2021 (Wednesday)

● The relevance of understanding what business is, is because of how relevant it is in

determining GST liability. When we understand “business”, as defined in S. 2(17), we
must note that it is at the centre of the concept of “supply”, and therefore at the core of
GST.
● Looking at the definition, it is clear that it is not complete. It can go beyond the scope of
S. 2(17):
● To come within the definition of “business”, there is no necessity for there to be a profit
motive.
● Occasional transactions would still constitute business if they are dealt with in the
provision. Regularity is not a necessity.
● Ancillary or incidental activities are also part of “business”.

Governmental Activity as “business”

● When there is any activity that is carried out by either the Central Government, State
Government, or any local authority in the capacity of a public authority, such an activity
is “business” as per Section 2(17)(i) of the Act.
● However, based on the advice of the GST Council, the Central Government wanted to
exclude certain activities of public authorities from the purview of “business”.
● Therefore, there exists Section 7(2)(b), which states that the Central Government has the
power to notify certain activities carried out by any of the above authorities (in the
capacity of a public authority) which would then not be considered to be either a supply
of goods, or a supply of services.

Analysis of 2(17) through case-law

1. Member, Board of Revenue v. Controller of Stores

● Any activity that is ancillary to the act of business would also be business, since they are
associated with the business.
● For instance, take the example of the dealer of a car. Along with the main business of car
supply, he also supplies other ancillary goods such as tools and spare parts, and even the
supply of used cars. These are all constitutive of activities of “business” as well.
● The fact that the current law says so is a reflection of the Court’s holding in this case.

2. State of Tamil Nadu v. Binny Ltd.

● An employer who is, in relation to this employment, maintaining a store and making sales
to his employees. Does this constitute a “business”?
● The Supreme Court here held this to be an ancillary business, and therefore to be
“ancillary business” for the purpose of taxation law.

3. Federal Bank v. State of Kerala

● The Court had to answer the question as to whether the bank making a sale of pledged
goods constituted a “business”.
● The Supreme Court held this to be ancillary to the main business, and therefore, was
“business”.

4. Indian Express Ltd. v. State of TN

● Here, the question before the SC was whether the sale of old/unsold copies of newspapers
constituted “business”.
● The Court held that such newspapers constituted so since they were incidental and
ancillary to the main business.

5. Hindu v. State of Tamil Nadu

● Sale of news print/waste cuts of the news print was in question here.
● Here, the Supreme Court looked at the main activity, which was the sale of newspapers.
In relation to that, this was definitely ancillary. Therefore, this was also “business”.

These cases elucidate the point that along with the main business, all ancillary transactions
also constitute “business” as per GST law. Accordingly, we can understand that the really
important thing is whether the primary activity is “business” or not.

6. CST v. Sai Publication Fund (2002)

● In this decision, the Supreme Court had to decide whether the publication and sale of
books by the respondent to spread the message of Sai Baba of Shirdi (main business) was
“business”.
● The Court held that the Sai Baba Trust which was not a business per se, but was
established for purely a charitable purpose motivated by the spiritual motive of spreading
the faith of the Baba. Accordingly, this could not be a “business” as the main activity of
the fund was not “business”.
 7. Sri Vellur Devasthan v. State of Madras
● The case was concerned with whether the gold that was offered by the devotees, which
was then made subject of a public auction, constituted “business” on the part of the
temple.
● Here, it was held that the temple where the initial offering was made could not be said to
have a primary purpose of running any sort of “business”.
● Therefore, the public auction of the gold cannot be said to be “business” either.

8. Tirumala Tirupati Devasthana v. State of Madras

● The Supreme Court held that the activities of the temple trust were not commercial
activities. Therefore, they could not be said to be running a “business”. Accordingly, the
question of ancillary activities never arises.

9. In Re: Shrimad Rajchandra Adhyatmik Satsang Sadhana Kendra

● The question was whether “business” could include the sale of spiritual goods, provision
of food/accommodation by charitable organisations, sale of booklets by religious outfits,
etc. could constitute a business for the purpose of S. 2(17).
● The Authority of Advanced Ruling held that all this stuff constituted “business” in the
year 2018. Hereafter, the Appellate Authority upheld this finding in the year 2019.

Remember, the activity itself is not the matter. What is relevant is whether there is a
connection to the main business of the office/company.

Lecture 21, April 6 2021 (Tuesday)

Conducting Educational Programmes, a “business”?

1. Indian Institute of Technology v. State of UP; Institute of Chartered Accountants of

India v. DGIT
● In both these cases, it was held that there was to be no tax liability with regards to the
conducting of educational programmes.

2. DCCT v. South India Textile Research Association

● This concerned an institution that was exclusively formed to conduct research activity
(defendant).
● The Court held that such a case could not be considered to be “business”.

3. Gandhi Kashi Vidyapeet v. State of UP; University of Delhi v. Ramnath

● Both cases concerned whether the sale of publications by the university.
● While the sale was a transaction having an economic value, what was important is that the
university was not a “dealer” per the relevant taxation law.
● Ergo, the sale of the publications could not be a “business”.

4. CTO v. Banasthali Vidyapeeth

● Education is not a business; therefore, the sale of prospectus cannot be considered to
either. Ergo, it would be free from tax liability.
● However, a contradictory position was taken in the case of Manipal University v. State of
Karnataka, where the High Court stated that the sale of prospectus and application forms
 containing information of courses available constituted a “business” and therefore, could
be taxed.

Identification of different kinds of “supply” for the purpose of GST

From the definition under Section 7 of the CGST Act, different kinds can be identified:
a. Composite Supply
b. Mixed Supply
c. Inward Supply
d. Non-taxable Supply
e. Outward Supply

Here, while certain characteristics are similar, the different kinds can easily be differentiated
from one another.

A. Composite Supply
● This is a kind of supply which consists of two or more “supplies” which are naturally
bundled. In this relationship, the two cannot be separated from each other and they must
be in conjunction with each other in the natural course of business.
● In such cases, the principal supply will determine the tax liability. This requires an
examination of Section 7 along with S. 2(30), which defines “composite supply”. This
can also be read with S. 2(85)(h), which defines “principal supply” to be the predominant
element of supply in the case of a composite supply.
● Therefore, the rate of tax applicable to the principal supply will apply to the composite
supply.

Missed Lecture 22, April 9, Friday

Jurisprudential interpretation of the concept of composite supply

1. Samsung v. CCD
● The charger of a mobile phone was supplied along with the phone.
● It was held that the two were usually supplied together in the ordinary course of business,
where one is predominant supply and the tax would therefore be determined by the rate of
tax on the phone.

2. Re: IAC Electricians Pvt. Ltd. [AAR West Bengal].

● It was held that the loading and unloading is a composite service along with
transportation supply.

3. Re: Columbia Asia Hospital Pvt. Ltd. [Karnataka AAR]

● The question here was whether the supply of medicine and food along with healthcare
services was a composite supply.
● It was held that there are naturally bundled services and therefore, constituted “composite
supply”. Therefore, the rate of tax applicable to healthcare services would apply to this as
well.
● This was reiterated in the cases of Kims Healthcare Management [Kerala AAR], and
Terna Public Charitable Trust [Maharashtra AAR].
 4. Re: Paras Motor Industries [Haryana AAR]
● The activities of fabrication, fitting and mounting on the chassis of buses supplied by the
party is an instance of “composite supply”. The supply of the chassis is the principal
supply here.

5. Re: Sandvik Asia (P) Ltd. [Rajasthan AAR]

● Agreement 1: Supply of maintenance service of machines. Agreement 2: Supply of other
goods and services in relation to machines.
● Q: Is this a composite or mixed supply?
● It was held that the supply of maintenance services was the principal supply, and that
Agreement 1 constituted a “composite supply”. However, it was observed that Agreement
2 was a mixed supply.

B. Mixed Supply
● This is defined in S. 2(74). It too refers to a kind of supply where two or more “supplies”
are involved.
● These multiple “supplies” must be made in conjunction with each other and in any
combination with each other, but must not amount to a composite supply. In other
words, they must not depend on each other.
● Most importantly, they must be made by a taxable person for a single price.
● In these cases, in accordance with Section 8, the highest tax rate of all the applicable rates
will apply in determining the tax liability.
● For instance, in the supply of a package of food containing cured meats, dry fruits,
aerated drinks, etc., you have an instance of “mixed supply”. This is because each of
these articles can be supplied on their own, and there is no element that naturally binds
them together. Even if the prices of each article can be determined individually, they will
constitute a “mixed supply” since they are supplied in combination with one another.

Jurisprudential Analysis of the concept of Mixed Supply

1. In Re: Switching Avo Electro Power Ltd.

● This was originally heard by the AAR in West Bengal, before an appeal brought it before
the AAAR.
● The AAR had opined that when a UPS and the battery are supplied in a package, it would
be an instance of “mixed supply”, since they are not naturally bound to one another. The
battery can be used for other things.
● When appealed, the AAAR observed that:
● The UPS cannot function without the battery.
● Battery forms an integral part of the UPS.
● They are naturally bound and are supplied in conjunction with one another.
● Therefore, it was observed that when the UPS is supplied with the in-built battery, that
will be an instance of “composite supply.”
● However, if the battery was an external battery, then it would be a case of mixed supply,
since they are then not naturally blended.

Lecture 23, April 16 2021 [Friday]

CONCEPT OF ‘PERSON’ UNDER GST LAW.

● In Section 7, which deals with supply, it specifies that the supply has to be made by one
person to another person.

So, who is a person?

● Section 2(84) defines a person [read definition]. Includes individuals, HUF, AOP (inc. or
not), firm, company, trusts, local bodies, and any corporation statutorily established. Also
includes the State and Central Governments, and Government Companies as per S. 2(45)
of the Companies Act.
● The definition is wide, to include any juridical person not included strictly in the
definition.
● Therefore, to get a fuller understanding, we can look to Section 3(42) of the General
Clauses Act. This is also a wide definition, which lends to the theory that this provision is
very broad in its ambit.
● A person who is registered under the CGST Act, as per Sections 22-25, is taxable under
the CGST Act.

Is an unincorporated association/club a “person”?

● As per S. 2(84)(f), even this could be termed a person.
● This is also to be clarified in accordance with S. 2(17), where the term “business” is
defined. In sub-clause (e), this explicitly states that a club in its operation would
constitute a business.
● If we are to look under Schedule II to the Act as well, specifically under clause 7, it is
made clear that the supply of goods by an unincorporated body or association would
constitute a supply.
● Hence, we can conclude that it is a person.

How does the tax liability occur when there is a club that provides service?
● The Kerala High Court in Trivandrum Club v. STO, held that a club which lets out rooms
and cottages to guests, whether members or not, on rent, would be liable to pay tax. This
would be regardless of whether it was incorporated or not.
● This brought the question of whether a club lending out services to its members could be
considered to be incurring tax liability. The generality of the statement made by the HC
brought this confusion.
● In the 1970 SC decision of Young Men’s Indian Association v. JCTO, the Court held that a
club acted as a distinct legal entity, regardless of incorporation. In relation to its members,
it was only acting like an agent. The supply to its members, there was no sale involved,
with no transfer element. Therefore, any supply could not be taxable in its supply to its
members.
● Thereafter, in the case of Fateh Maidan Club v. CTO, the Supreme Court reiterated the
above position in YMIA. This is because of the Doctrine of Mutuality, which posits that an
entity cannot profit from itself.

In this context, we must look at the case of State of WB v. Calcutta Club Ltd.
● The Assistant Commissioner of Commercial Taxes issued a notice to the respondent club
in connection to a failure to pay sales tax on the sale of food and drink to the members of
the club.
● Now, with regards to the notice, the club approached the Tribunal, stating that there could
not be sale to its own members. The Tribunal agreed with this and, relying on the
 Supreme Court decision in Automobile Association of Eastern India v. State of WB, held
that no tax could be levied on the services and supply to a club’s own members.
● This decision was challenged before the High Court, where the Tribunal’s decision was
upheld.
● The matter then reached the Supreme Court in 2017. The Court referred this case to a
larger bench.
● Therefore, the present case was heard and decided in 2019 by a larger Bench.

SC Decision
● There were 3 questions that had to be decided by the Court:
● Whether the Doctrine of Mutuality was still applicable after the 46th Constitutional
Amendment and the introduction of Art. 366(29A)?
● Whether the Cosmopolitan Club and Fateh Maidan Club cases, where the Doctrine of
Mutuality had been applied, are valid?
● Whether supply of food, beverages, etc. by a club to its own members consisted of a
“sale”?
● The underlying idea to keep in mind is the legal precept that a person cannot make a
profit from himself. This is what the Doctrine of Mutuality says.
● Article 366(29A), specifically sub-clauses (e) and (f) have to be read. The presumption
was that once these clauses were inserted, the Doctrine of Mutuality was no longer a
thing. That stood useless.

Arguments of State of WB
● By virtue of the 46th CA, the Doctrine of Mutuality was not a thing.
● In the case of Deputy Commissioner of Commercial Tax v. Enfield India Ltd., it was held
that English decisions which dealt with the Doctrine of Mutuality had no application.
After all, this concept was one imported from English case law in relation to criminal
liability, like Graff v. Evans; Trebanog Working Men’s Club and Institute v. McDonald,
and not tax liability. Therefore, it could not be applied to taxing statutes.
● In the case of Walter Fletcher v. Income Tax Commissioner, it was held that the Doctrine
of Mutuality did not have universal application. Hence, it was not to apply in this case.

Arguments of the Respondents

● In the case of State of Gujarat v. Raipur Manufacturing Co. Ltd., it was observed that
profit motive was essential in determining whether there was a transfer was a sale or not.
Therefore, first consideration was the existence of a profit motive, and that was a
prerequisite for a valid levy of tax.
● In this case, there was no profit motive when the club supplied food and beverages to its
members. Hence, there was no question of there being tax liability.

Lecture 24, April 17, Saturday

● The 46th Constitutional Amendment Act did not have the effect of eliminating the
Doctrine of Mutuality, but rather sought to impose tax liability on unincorporated bodies
for transactions of sale that they entered into. Accordingly, even after it came into force,
the Doctrine of Mutuality continued to apply.

Holding
● In the case of Graff v. Evans, the transactions in question had been that of a member of a
club acquiring liquor which was the property of the club This was held not to constitute a
sale due to the Doctrine of Mutuality. Accordingly, there was no tax liability.
● The 6th Law Commission Report contemplated the application of this Doctrine, especially
in the context of determining the tax liability of unincorporated clubs. The Report
concluded that a club and its members constituted a single entity, and no tax evasion
would occur in the event no tax was not paid. Further, there were such few clubs like
this that it was not an issue to let the Doctrine of Mutuality continue to remain in
operation.
● The Court referred to the 46th Amendment and held that nowhere did the objects and
reasons indicate that the Act intended to preclude the application of this Doctrine.
● The Court placed reliance on the case of Young Men’s Indian Association, where it was
held that there had been no transfer as a club was merely an agent.
● Further, referring to the Trebanog case, the Court noted that the club merely held the
property on behalf of its members.
● Accordingly, it held that even after the 46th Amendment Act, the Doctrine of
Mutuality was to apply.
● Reliance was also placed on the case of Bangalore Club v. CIT, where it had been held
that there is a complete identity between contributors and participants in members’ clubs.
Further, as was observed in the case of ITO, Mumbai v. Venkatesh Premises Cooperative
Society Ltd., members perform the activities of the club for themselves and create a
separate legal entity.
● On referring to Halsbury’s Laws of England, Simon’s treatise on taxes, and the case of
Silboth Golf Club v. Smith, the Court observed that there was to be application of the
Doctrine in the context of tax laws.

Therefore, there could be no tax, as one could not sell goods to oneself. The Doctrine of
Mutuality was still in application in the Indian tax law context.

Note: In interpreting the terms Body of Individuals and Association of Persons in the context
of S. 2(84)(f) of the Act, a crucial difference must be kept in mind. While the two are
similar in all regards, the latter must be constituted of “persons” under the Act, whereas
the former can be constituted of solely individuals.

Lecture 25 April 20, Tuesday

Section 24, CGST Act

● Contains a list of people required to be registered. In this particular context we can make
a conclusive assertion that tax liability is on a taxable person.

Incidence of taxation and the Excise regime

● In the pre-GST era under the excise regime, it was collected from the manufacturer. It
was noted in the case of RC Jall v. Union of India that tax liability was imposed on
manufacture or production. On this stage tax liability comes.
● The quantum of tax liability is determined by the Legislature.
● Excise duty is imposed when the product is removed from the factory. It shall be paid by
the person who removes goods from the factory- it is not on a person but on the
manufacture or production.
● This particular rule was discussed in the case of Mohan Breweries & Distilleries v. CTO,
where it was held that this rule was held valid. The place where manufacture has
happened and the point from where liquor is removed is the point where tax liability is
incurred.
● In this particular case you have to remember that it is left to the legislature to decide. The
essential feature is that excise duty is levied where the point of production or
manufacture. The incidence of taxation on excise duty is at the time of production and on
manufacture.
● Though this particular tax liability is on manufacture or production that tax liability could
be shifted to the purchaser of the good. This was the position that was there under excise
law.

Incidence under the Service Tax regime, and under GST

● Whereas under Service tax was tested over Reverse Charge Mechanism – The concept
states that tax is collected from the person who is the service recipient. This is prevalent
in CGST.
● S. 115 and 116 – Under Service tax regime- the liability is on recipient of service –
Finance Act.
● To determine this tax liability prescribed on various person and circumstances, the key
determinant was the question of “supply”.
● This first-person having tax liability is supplier- the person has to pay tax to government.
The second person is recipient of goods/service can be taxable person.
● The question of reverse charge mechanism arises only in certain cases [the situation of
supply from unregistered dealer to registered dealer (S. 9(4))]. It means that the recipient
of the service is the one who has to pay the tax to the government, rather than the usual
circumstance of the supplier paying. In addition to this circumstance, the government can
notify other supplies which would be subject to the RCM, per S. 9(3).
● The question of e-commerce operators also arises as a sort of different application of the
general rule. Per S. 9(5), the Government can specify particular categories of intra-state
supply where the e-commerce operator will have to pay GST, if the service has been
supplied through them.
● Sections 51 and 52 deal with the concepts of TDS and Collection of taxes at source by
e-commerce operators, and form mandatory rules that are, again, slightly different from
the operation of the general rule of indirect tax.
● Except 4 categories we have listed, supplier is supposed to have tax liability.

MODES OF DETERMINING LIABILITY UNDER THE GST REGIME

2. Supplier (S. 2(105))
● Supplier of any goods or services, or both, or an agent acting on behalf of such supplier.
Provided supplier should be a registered person. By virtue of S. 22 every supplier shall
be liable to be registered where the turnover is more than exempted limit.
Annual turnover exemption-
o NE and J&K – 10 Lakhs exempted
o Other state is 20 Lakh
In this context, he mentioned the case of Paul Merchants v. CCE, which dealt with the
question of supply of services abroad. It was observed that when the recipient of the
service in question was outside India, then the particular service was an ‘export of
service’.
 3. Recipient [S. 2(93)]
● The recipient is when consideration is payable for the supply for goods, services, or both,
the person who is liable to pay that. If there is no consideration payable, sub-clause (b)
mentions that the person to whom the goods are delivered or to whom the service is
rendered shall be liable.
● This recipient is liable to pay tax in the event of RCM (Reverse Charge Mechanism)- On
a specified notified supply the tax liability is not on supply but on recipient the taxable
person – the concept is known as RCM.
● There are certain notifications issued-
● 28th June, 2017 Notification: S. 9(3) services supplier not taxable recipient is – s. 9(3)
when read with this notification allowed the certain services to be eligible for RCM, and
this one listed out certain goods. Also refer to this link to see what all services are eligible
for it right now.

Lecture 26, April 23, Friday

[Recipient and RCM contd.]
● This recipient must be registered under the CGST/SGST Act, and only then can they be
liable to pay tax.

4. Section 9(4)
● This provision makes clear the rule of supply being made by an unregistered person and
the recipient being a registered person leading to a case of RCM coming into effect.

5. Section 9(5) and Electronic Commerce Operators

● This provision mentions that the Central Government has the power, on the
recommendation of the Council, to specify categories of intra-state services the supply of
which would incur tax liability to land on the e-commerce operator, if the service has
been routed through them.
● Section 2(44) defines the term “electronic commerce”, while Section 2(45) defines who is
an “electronic commerce operator”. Per (44), it is the supply of goods or services or both,
including digital products over electronic/digital networks. (45) defines an “operator” to
be anyone who owns, manages, or operates the relevant digital network for e-commerce.
● The liability of the operator, therefore, arises only in these individual cases that are
enumerated and provided for under Section 9(5).
● A list of what is listed under this provision by the Government can be found here.

6. Section 51 – TDS
● When the value of supply is greater than Rs. 2L50k, in relation to that supply, and the
supplier and the recipient are in the same State/UT, then the competent
State/Union/department is empowered to deduct up to 1% tax on the amount received by
the supplier.
● The amount should exclude the payable taxes, cess, etc.

7. Section 52
● Every e-commerce operator has to collect 1% tax in collection to the aggregate supply
made in a month, where the consideration for all this supply is collected by it.

Section 85-7; 88-90 – Specific Transactions for determining liability

 1. Section 85 – Tax liability in the case of transfer of business
● In the circumstance where there is a transfer of business, either wholly or partly, the
person to whom the business is transferred and the transferor will have a joint and several
liability as to the tax liability due on the transferor up till the date of transfer.

2. S. 86 – Liability of Agent and Principal

● If the agent receives taxable goods on behalf of his principal, then they will both be
jointly and severally liable for the same.

3. S. 87 – Liability in the case of Merger/Amalgamation

● If there is a merger/amalgamation, and the date of taking effect of the order is earlier than
the date of the order itself, then all the goods/services that have been supplied and
received in that period shall be paid tax on accordingly by the companies themselves,
after being included in their respective turnovers.

4. S. 88 – Liability in the case of Liquidation

● In case of winding up, the liquidator/receiver of assets has to inform the Commissioner
within 30 days of appointment.
● Within three months, the Commissioner has to communicate the amount of tax payable
by the company to the liquidator.
● In the case of a private company, and where the amount is non-recoverable, the Directors
of the company who occupied the post during the tax being due shall be made to pay
jointly and severally, unless they can prove that the liability arose due to absolutely no
fault of their own.

5. S. 89 – Liability of Directors of a Company

● The rule is very similar to what has been mentioned above. Read the provision.

6. S. 90 – Liability to pay tax in a partnership firm

● The firm and the partners shall be jointly and severally liable.

Therefore, the scheme of the CGST Act ensures that someone will have to be registered to be
eligible for ITC, to collect tax, etc. It has made this a lot clearer and streamlined, since
registration means that one is recognized as a supplier of goods/services.

Lecture 27, May 4, Tuesday

Registration under CGST Act

● Registration under the Act is very important. As is made clear under Section 22 of the
Act, every supplier must be compulsorily registered if their aggregate turnover exceeds
Rs. 20L, to be calculated on an all-India basis. All supplies will be considered when
calculating the turnover.
● Those who were assessees under the previous regime had to register again.
● Under S. 22(3) and (4), the transferee of business and the resultant entity of a
merger/amalgamation must be separately and compulsorily registered.
● That having been said, there are certain states where the Annual Turnover Requirement is
10L instead. These are deemed to be subject to special treatment under Article
279A(4)(g) of the Constitution, and include Arunachal, Assam, J&K, Meghalaya,
Nagaland, Mizoram, Tripura, HP, Uttarakhand, Manipur and Sikkim.
● In 2019, however, this was extended to 20L for Arunachal, Meghalaya, Assam, HP and
Uttarakhand.
● As mentioned earlier, it has certain advantages:
● Legal recognition as a supplier of goods/services.
● Authorisation to collect GST.
● Legal authorization to pass on credit of taxes paid to the purchaser/recipient.
● Entitlement to claim ITC.

Place of Registration
● This should be done at the place from where the taxable supply is made [S. 22(1)]. For
instance, if the supply is in the state of Karnataka, then you would have to register in the
state of Karnataka. If the supply is made from different states, separate registrations are
required.

Section 23 – Persons not liable for registration

● Persons who are exclusively in the business of supplying goods/services/both that are
either not liable to be taxed or exempt under both this Act as well as the IGST Act.
● The Council can, under 23(2) recommend for the exclusion of anyone. The supply of
handicraft is one such exempted supply.
● Agriculturists, as defined in S. 2(7) of the Act.
● Any person or HUF who undertakes cultivation on land through either own labour, labour
of family, or through servants paid in cash or in kind/hired labour under personal
supervision.

Though they are not liable to be registered, these categories of persons can get themselves
voluntarily registered under S. 25(3).

Section 24 – Persons to be Compulsorily Registered

● Read the provision, very straightforward. In case you are confused by the expression
“casual taxable person”, read this. This is defined in S. 2(20) of the CGST Act. Basically,
means someone who occasionally undertakes transactions in furtherance of business. No
permanent place of business, but registration remains compulsory.
● Under sub-point (viii), the expression “Input Service Distributor” should be understood in
the context of S. 2(61) of the Act, S. 24(8) of the CGST Act, and the IGST Act.
● It refers to the office of a supplier which receives invoices issued under S. 31 towards the
receipt of input services and issues a document for distributing the credit of taxes
properly.
● Every e-commerce operator is required to be registered.

Section 25 – Procedure of Registration

● A person needs to be registered in their State/UT within 30 days of when they became
liable for registration.
● For casual taxable persons and non-resident taxable persons, they must register at least 5
days before to their commencement of business.
● As per Rule 1(1) of the GST Rules, the following documents have to be provided to be
registered:
● Aadhar authorization, from 2019, in place of PAN.
● Mobile No.
● Email address.
● GSTR-1 Form.
 ● Photograph of proprietors, partners, etc.
● Partnership Deed/AOA and MOA.
● Proof of Address, Principal place of business, property tax receipt, rent/lease deed.
● Bank A/c details, scanned copy of a cancelled cheque.

Rule 2
● Governs procedure after submission of documents.
● Within three working days, the proper officer/competent authority will verify the
documents and grant the registration certificate.
● Can ask for clarifications if necessary. After they have been issued, the certificate can be
granted within 7 days.
● A case of deemed registration would arise if within 3 days of the application being
submitted/7 days of clarification, there is no response.

Rule 3
● This is the issue of the certificate.
● A set of details will be published on the certificate, which are the principal and additional
places of business.
● In addition to this, the GSTIN will be issued, in the format that is specified under this
Rule.

Section 28 – Amendment of Registration

● Every registered person must inform the proper officer of any change of information that
was submitted at the time of registration.
● This, according to Rule 11, must be submitted within 15 days of the change in form GST
REG-13.
● Within 15 days, it has to be approved by the proper officer and the order must be passed
in form GST-REG 14.

Section 29 – Cancellation of Registration

● Relevant Rules are 13 and 14. READ.
● Per Rule 14, the first step when the authority feels like there ought to be a cancellation of
registration is a show cause notice in GST REG-16.
● The response is to be sent in GST REG-17. If this is satisfactory, then the proceedings
will be dropped.
● Per Section 29, this can be done in certain scenarios listed therein. For instance, if the
business has been discontinued, transferred fully for any reason, amalgamation, change in
the constitution of business, or if there are contraventions to the provisions of the Act.
● The Registration can be cancelled also if the supplier in question does not furnish returns
for 6 months, or, in the case of a Composition Scheme applicant, for three successive
periods.
● But in no circumstance can it be cancelled without an opportunity of hearing.
● 2019 Amendment to the provision states that during the pendency of cancellation of
registration, it may be suspended in a manner to be controlled by the competent authority.

On a separate note, there can also be cases where there is an application made for the
cancellation of Registration under Rule 12 of the Rules. You have to furnish GST
REG-14 with details of input in stock, details of capital goods in stock, liability of any
kind, and the payments made against such liabilities.
 Composition Scheme under GST – Section 10, CGST Act

● This is an alternative system of taxation that is available under the CGST Act, and is
aimed at targeting small taxpayers.
● The whole purpose behind it is that it aims to simplify the complex and convoluted GST
payment system for small taxpayers by fixing rates based on turnover, and payments are
to be made quarterly.
● Therefore, those who are eligible to opt under this scheme follow a different system to the
ordinary taxpayers under the GST regime.

Eligibility
● Suppliers of “goods” having annual turnover of up to 1.5 crores per annum.
● In the Special Category States, that are enumerated under Art. 279A of the Constitution,
75L.
● In J&K, 1 Crore.

Side note: I did my project on Eligibility for the Composition Scheme and I didn’t come
across this Kashmir thing anywhere. Ergo, I didn’t write it. But it is evidently a thing.
Let’s all take a moment to laugh at the marks I’m going to get. HAHA. PLOT TWIST!!
Made changes after we were told to resubmit and got away with this whole thing??!!

When the GST Act was first introduced, the threshold limit was Rs. 50L, and it remained so
until 31/3/2019. However, on the recommendation of the GST Council, in exercise of its
powers under Section 10, the CG increased it by way of notification to 1.5 Cr.
● Manufacturers of ice cream, tobacco products, and pan masala are not permitted to avail
of the Composition Scheme.
● Suppliers of “services” are not eligible, except:
a. Suppliers of food for human consumption.
b. Suppliers of goods, providing services in addition to supply where the value of
services is less than 10% of the total turnover in the State, or 5 Lakhs, whichever is
higher.
c. Supplier who is not making any supply of goods that are leviable under the Act.
d. Supplier who is not making any inter-state supply. Therefore, it is only an option for
those who are carrying on intra-state supplies.
e. Suppliers who are not casual taxable persons.
f. Suppliers who are not non-resident taxable persons.
g. Others who may be notified.
● Read Rule 3 of the Composition Levy Rules for further clarity on requirements and
compliances.
● Read the Act for the rates of taxation. Section 10.

Effect of Registering for the Scheme – S. 10(4)

● Once you have opted for the scheme,
● You are not allowed to charge GST in your invoices.
● GST cannot be shown in the respective invoices.
● No power to avail of ITC either.

Procedure to avail Composition Scheme

● Those who are migrating to the GST regime from the previous regime are required to, on
being granted a provisional registration under Rule 16 of the Registration Rules, give
intimation in form No. GST CMP-01.
● If it is a new registration, then form GST REG-01 has to be submitted.
● There is no requirement to make a fresh declaration under Form No. GST CMP-02 every
year. This is the form in which intimation has to be made of the intent to pay tax under the
Composition Scheme. It has to be submitted within 60 days of the commencement of the
relevant FY, and a separate statement must also be furnished in Form GST ITC-3.
● In the event of withdrawal, the application must be filed on the common portal through
Form No. GST CMP-04.
● Once an individual no longer pays tax under Section 10, they would be eligible to ITC
under the relevant rules [Section 18(1)(c)].

Procedure to Switch to Normal Scheme

● Intimation under Rule 6(2).
● Application for withdrawal under Rule 6(3), through the portal.
Both must be in Form No. GST CMP-04.
Cancellation of Registration under Composition Scheme
● Can be done by the concerned officer [either the Assistant Commissioner or the Deputy
Commissioner] if he is convinced that the entity concerned is either not eligible to pay
under the scheme, or that they have contravened provisions of the Act.
● Show cause notice to be sent under GST CMP-05, then reply to be sent in GST CMP-06.
Finally, the decision will be sent within 30 days of receipt of response in GST CMP-07.

Read Sections 73 and 74 for penalties.

 INPUT TAX CREDIT

● Relevant provisions are Sections 16-21 of the Act, Rules 36-45, and certain Forms as well
[ITC 01-04].
● The concept basically means that at the time of output, you can reduce the tax that has
already been paid on the inputs. For instance, if taxes paid on output is 450, and taxes
paid on inputs are 300, then that may be claimed as ITC and the tax payable now would
only be 150.
● Per Section 16(2), Proviso 3, the entitlement to ITC only arises on the payment of the
amount towards the value of supply of goods or services or both along with tax
payable thereon.
● Another example: Supply of steel worth Rs. 10000 from X to Y in Gujarat, at 18% [9%
CGST and 9% SGST]. Therefore, GST in total will be Rs. 1800. Therefore, Y pays 11800
of which X pays to the government Rs. 1800. Y uses the steel to make finished goods.
After adding value and making suitable improvements, Y supplies utensils worth Rs.
20000 to Z.
● On the 20000, the tax liability is determined again at 18%. Therefore, the tax payable
to Y is 3600.
● Rs. 23600 is paid. Now, 3600 has to be paid by Y to the government. However, the
1800 has already been paid by him to X. Therefore, that can be adjusted against the
output tax, i.e., 3600. Therefore, 1800 is payable.
● However, it is a very real scenario that the entirety of the amount is hardly ever
converted. In reality, due to processing and handling losses, only about Rs. 9000
worth of steel may be converted. In such a case, would Y be entitled to claim ITC
against the paid Rs. 10000, or the utilized Rs. 9000?
● Manufacturing loss forms part of the raw material, despite not being visible in the
final product.
In the pre-GST era, the position of law can be elucidated by way of two case laws:

Multi Metals Ltd. v. Assistant Collector Central Excise

● In the pre-GST era, it was observed here that manufacturing loss would form part of the
raw material.

Swadeshi Polytex Ltd. v. Collector, Central Excise

● Credit has to be given to the extent of the duty paid.
● Shifted to the GST era, this would mean that the focus would be on the GST paid, and not
the quantity of raw material used in the final product/output.

Eligibility [Section 16]

● Registration is a must.
● The supply of goods/services concerned must be used or intended to be used in the course
of business or the furtherance of business. ITC will not be available for goods used for
personal use.
● Read with S. 17(5), which specifies the list of activities which lists out supplies that
ITC cannot be claimed against.

Pre-requisites for availing ITC [Section 16(2)]

● The person must be in possession of the tax invoice, debit note, or any other tax paying
document from the registered supplier of the good/service used. [Read Rule 1 of the
 Revised Invoice Rules to see what is necessary to be included in a legit invoice.].
Only on the uploading of the invoice [for which registration is a must] can the ITC
be availed of.
● The supplier must upload the invoice before the tenth day of the next month [Details of
outward Supply – S. 36]. At the time of the recipient making an entry, he will get to know
if the supplier has complied or not. This matching mechanism is prescribed under Section
42.
● He must have received the goods and services.
● The taxes must have been paid by the ITC applicant. If not paid in 180 days of the receipt
being issued, then an amount equal to the ITC being claimed will be added to the output
tax liability.
● The return must be furnished under Section 39.
● If the goods were received in lots/instalments, then the credit will become due on the
receipt of the last lot/instalment.

Ineligible Supplies for ITC [Section 17(5)]

● This provision was inserted in 2019 by way of amendment to the legislation.
● The following supplies are ineligible:
● Motor vehicles for transportation of persons having approved seating capacity of not
more than 13 persons including the driver: Here, the input supply would be the
vehicle itself, and the output could be some service.
● Vessels and aircrafts. However, if such a vehicle/vessel/aircraft is used for the
following taxable supplies, ITC can be claimed:
● Further supply of such vehicles or conveyances/vessels/aircrafts
● Transportation of passengers
● Imparting of training for navigation, driving, or flying that particular vehicle.
● Transportation of goods.
● Please read the provision for the remainder of the exceptions. They are all straightforward
and there is not much understanding to be done. There was no other explanation either.
● Importantly, if there is an element of fraudulence, or anything is committed to attract the
application of Section 74, then ITC cannot be availed of. Even if tax is paid after an
allegation of fraud (once the tax liability is determined), then you cannot avail of ITC.
● Similarly, under Section 129 of the Act, there are provisions for the detention of goods. If
goods are so detained due to non-compliance with the Act or the Rules thereunder, then
the subsequent payment of tax to get them released cannot be used for ITC purposes.
● Confiscation of goods would also lead to this situation.
● Keep in mind that the Explanation to this provision makes clear that “plant and
machinery” is to have a specific and special meaning for the purpose of this provision.

Rulings on Eligibility and Ineligibility

● In re: YKK India (P) Ltd. [AAR Haryana; 2019]
● Issue: Whether motor vehicle supplied for the transportation of employees was eligible
for ITC.
● It was held to be ineligible for ITC under Section 17(5).
● This was overruled by the AAAR Haryana, which later held that they would be eligible to
take the benefit of ITC. There, it was observed that the use of buses for the transportation
of employees would be permitted vis-à-vis ITC, but the use of cars would not.

● In re: Chowgule Industries (P) Ltd. [AAR Maharashtra]

● The use of a motor vehicle as a demo vehicle for the purpose of promotional activity.
● The reasoning was that the use of promotional vehicles was an integral part of the
business, and was essential to the furthering of business as well.

● In re: Mohana Ghosh [AAR West Bengal]

● The question was whether the act of providing “rent-a-cab” services would entitle the
supplier and the recipient to the benefit of ITC.
● Originally, this was prevented under S. 17(5)(b)(iii) of the Act. After amendment, the
same restriction on the hiring/renting of motor vehicles is disallowed under S. 17(5)(b)(i).
● It had been argued that this was not a renting service, but a service of further carrying
passengers, which was allowed under S. 17(5)(a)(B).
● However, it was clarified that the nature of the service meant that the people who availed
of the service were not passengers since they paid for the duration of time that the vehicle
was allowed to them, taking into account the total distance travelled.
● This service is more akin to renting, and was therefore ineligible for ITC.

Meaning of Motor Vehicles per GST

● Defined in S. 2(76) of the CGST Act to have the same meaning as is assigned under the
Motor Vehicles Act [S. 2(28].
● There has been great jurisprudential development on whether or not various vehicles
constitute motor vehicles, for the purposes of ITC.

1. In re: Purewal Stone Crushers [AAR Uttarakhand]

● It was held that tippers, dumpers, road rollers are not motor vehicles, since they are not
enumerated under S. 2(28) of the Motor Vehicles Act.
● Therefore, since they were not a motor vehicle as per the MVA, they would not come
within the purview of S. 2(76) of the CGST Act either.
● Accordingly, they would not be subject to the restrictions of S. 17(5)(a), and the
purchasers of such equipment would be entitled to claim ITC.

Rulings on Eligibility (Contd.)

● In re: National Aluminum Co. Ltd. [AAR Orissa]
● The services of maintaining a guesthouse, for the purpose of residential accommodation,
for employees was in question, and it was argued that such a supply of service ought to be
eligible for ITC benefits.
● However, it was held by the AAR that such a service was not mandatory for the employer
to provide its employees under any law. Accordingly, the proviso to S. 17(5)(b)(iii) would
not enter the picture.
● This order was later upheld by the AAAR of Orissa as well, where it was observed that
these activities could not be said to be in the course or furtherance of business.

● In re: General Manager Ordinance Factory, Bhandra [AAR]

● Expenses pertaining to gardening, hospital expenses were held not to be in the furtherance
of business and therefore not eligible for the grant of ITC benefit.

● Essel Propack v. Commissioner, CGST, Bhiwandi [CESTAT, Mumbai]

● Held that input services used for CSR activities are eligible for ITC. This was decided
under the pre-GST era of CENVAT.
● Certain kinds of input services were held to be eligible. This was decided because CSR
was defined to not be in the nature of charity. Rather, it was essential and statutorily
mandated. Further, it was reiterated that the concept of CSR made it an “input service”
 (defined in S. 2(60)), which necessarily meant that it was used in the course/furtherance
of business.

● In re: Adwitya Spaces (P) Ltd. [AAR Tamil Nadu]

● In this case, it was decided that brokerage services that could be brought within the term
“supply” would be eligible for ITC.

● In re: GGL Hotel and Resort Co. Ltd. [AAR West Bengal]
● This company took certain land on lease for the construction of resorts.
● They were annually liable to pay lease rent.
● It was found that since the lease rent was in relation to land, i.e., immovable property.
This land was to be treated as part of the goods and services used for the construction of
immovable property.
● Construction of a hotel is impossible unless the Applicant enjoys uninterrupted right to
use the land. From the facts of this case, at least, the AAR was convinced that this was
impossible to guarantee without the payment of the lease rent.
● Therefore, by virtue of S. 17(5)(d), ITC could not be claimed.

● In re: Vindhya Telelinks Ltd. [AAR Uttarakhand]

● Whether ITC can be availed of in respect of the supply of goods/services that were
immovable in nature?
● In this case, the question revolved around the establishment of a telecommunications
tower.
● Under S. 17(5)(c), works contracts services for the construction of immovable property,
excepting “plant and machinery”, are also to be excluded from the purview of ITC. Per
the Explanation to Section 17, pipelines and telecommunication towers are to be excluded
from the purview of “plant and machinery”.
● However, in this case, it was held that movable goods supplied would be eligible to the
scope of ITC benefits. To adjudge what moveable goods were, they were to be understood
as those which could be dismantled and re-erected at a later place, or those that were
movable from one place to another in the same position.
● Therefore, ITC was eligible in respect of electronic panels, cables, radio transmission
equipment.

Topics to be read from the Other document:

1. ITC on Capital Goods: 45-47.

2. Classification of Goods and Services: 58-65.
3. Valuation: 66-70.
4. Place of Supply (Highly Unsure if Included; No Clarity): 71-74