September 17, 2021
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Goods and Services Tax –A law mired in litigation and constitutional challenges- Sherry Oommen

       

Goods and Services Tax (GST) is undoubtedly the most dramatic taxation reform in the indirect tax system in the country. Ever since its introduction in July 2017, numerous issues have been raised before various High Courts including the High Court of Kerala. For instance, the Kerala High Court in the case of Eten Craft Holdings Private Limited (WPC 28801 of 2017) had directed the Government of Kerala to constitute the Authority of Advance Ruling having regard to the Section 96 of the Central Goods and Services Tax Act, 2017. In this article, I intend to capture some of the recent litigation that has come before the High Court of Kerala.

 

Transitional credit

Taxpayers who had issues with respect to filing the related forms for carry forward of transitional credit (that is, in Form GST TRAN 1) or were unable to file the same owing to a systemic error, have approached various High Court. For instance, the Kerala High Court in the cases of Cee Pee Marbles & Granites[2018] 96 Taxmann.com 463 and Lamit Tubes and Holdings LLP(2018-TIOL-100-HC-KERALA-GST) has directed the concerned assesses to approach the Nodal Officer and directed the latter to evaluate the claim of transitional credit and provide appropriate reliefs.

 

e-way bills

The Kerala High Court in the case of Messrs Indus Towers Limited (2018-TIOL-67-HC-KERALA-GST) has held that in the event of failure to comply with the provisions governing E-way bills, the related penal provisions would stand automatically attracted. Notably, the High Court held that such penalty would also be applicable in the case of a non-taxable supply. It may be noted that under Section 129 (that is, the provisions governing E-way bills), in the event of detention of goods, the related goods shall be released as follows:

 

  1. On payment of the applicable tax and penalty equal to one hundred per cent of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent of the value of goods or INR 25,000, whichever is less, where the owner of the goods comes forward for payment of such tax and penalty;

 

  1. On payment of the applicable tax and penalty equal to the fifty per cent of the value of the goods reduced by the tax amount paid thereon and, in case of exempted goods, on payment of an amount equal to five per cent of the value of goods or INR 25,000, whichever is less, where the owner of the goods does not come forward for payment of such tax and penalty;

 

  1. Upon furnishing of necessary security (for instance, bank guarantee) equivalent to the amount payable, as per (a) or (b) above.

 

a constitutional challenge – an emerging litigation

In a recent issue, now before the High Court of Kerala, various assesses have been filed writ petitions challenging the constitutionality of the section 174 of the Kerala Goods and Services Tax Act, 2017 (KGST Act) which grants saving to the Kerala Value Added Tax Act, 2003 or The Kerala Tax on Luxuries Act, 1976, etc. The challenge is inter-alia based on the fact that the Section 19 of the Constitution (One Hundred and First Amendment) Act, 2016 (“Amendment Act”) provides a lifeline of an outer limit of one year from the date of commencement of the Amendment Act (that is, one year from 16.09.2016) in respect of the various laws enacted on the basis of entries deleted by the said Act. For ease of reference, the provisions of the Section 19 of the Amendment Act are provided below:

““Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier.” [Emphasis supplied]

To illustrate, the entry relating to the levy of Luxury Tax (that is, the Entry 62 of the Constitution of India forming part of the State List) or relating to Value Added Taxes, (that is, that Entry 54 of the Constitution of India) has either been deleted or substituted in entirety. Accordingly, with effect from 15.09.2017 (that is, one year from 16.09.2016), at worst, the State would not have power to recover VAT or Luxury Tax, whether disputed or undisputed, as their powers have been denuded by the Amendment Act.  Hence, the saving provisions of the Section 174 of the KGST Act are ultra-vires the Amendment Act.

In this regard, it may also be noted that the Article 265 of the Constitution of India provides that “No tax shall be levied or collected except by authority of law.” The Honorable Supreme Court of India in various cases including in the case of Somaiya Organics (2002-TIOL-651-SC-STATE-CX-CB), which as by a Constitutional Bench, has held that the terms “levy” and “collection” as found in the Article 265 of the Constitution of India are not synonymous terms. Hence, there should be an authority of law or lawful enactment, which authorizes the related actions of the State both at the time of “levy” AND at the time of “collection” of tax. In the present case, while the levy may have been with the authority of law, the Petitioners have contended that there is no authority whatsoever for the collection of VAT or Luxury Tax post 01.07.2017 considering the Amendment Act. The Petitioners have also argued that the right to issue a show cause notice, being an inchoate in nature, cannot be construed as a “right” which would fall within the purview of the section 174 of the KGST Act. With respect to the contention of the section 19 of the Amendment Act, the State of Kerala has contended that the Section 6 of the General Clauses Act, 1897 (read in conjunction with the Article 367 of the Constitution of India) would apply, thereby conferring the Department, the right to proceed even after the limitation prescribed under the Amendment Act.

Sherry Oommen

 

 

 

 

                                                                                                  

Photo Courtesy : Google/ images are subject to copyright   

 

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