Doing and Being in GST - Reclaiming the First Principles of Taxable Supply By Adv. G. Jayaprakash(former central excise officer)

The scheme of the CGST Act, 2017 is founded on a simple but rigorous premise: only a 'supply' is taxable. Yet, a discernible shift in adjudication shows a tendency to tax status, entitlement, or consequence rather than activity. This paper restores doctrinal clarity by drawing a sharp distinction between 'doing' and 'being', supported by authoritative case law-including recent GST-era rulings.

I. Section 7: Supply as a Taxable Act

Section 7 defines supply as an activity for consideration in the course or furtherance of business. Even in its widest formulation, the provision presupposes conduct.

The Constitution Bench in State of Madras v. Gannon Dunkerley & Co. laid down that taxation must attach to a discernible transaction, not an abstract concept.

In Union of India v. Martin Lottery Agencies Ltd., the Supreme Court reiterated that service tax is a tax on an activity, requiring a clearly identifiable service.

More recently, the Supreme Court in Mohit Minerals Pvt. Ltd. v. Union of India held that GST cannot be imposed in the absence of a legally sustainable taxable event, striking down levy on ocean freight under reverse charge due to lack of statutory coherence.

These authorities reaffirm:
GST is a tax on 'doing.'

II. 'Being' - Status Outside the Charging Provision

'Being' represents passive existence:

• Ownership of property
• Institutional or legal status
• Mere holding of rights

In Bharat Sanchar Nigam Ltd. v. Union of India, the Supreme Court emphasized that taxation must be based on the true nature of the transaction, not on status or incidental attributes.

Similarly, the Gujarat High Court in Torrent Power Ltd. v. Union of India underscored that tax liability must arise strictly within the statutory framework, and cannot be inferred merely from economic consequences.

Thus, mere existence or ownership does not amount to supply.

III. JDAs: The Core Battlefield of Doing vs Being

The doctrinal confusion is most visible in Joint Development Agreements (JDAs).

Revenue often argues that:

Receipt of flats by landowner = supply of development rights

However, this ignores the principle that:

• Rights often crystallised pre-GST
• Receipt of flats is merely realisation, not a fresh activity

In Larsen & Toubro Ltd. v. State of Karnataka, the Supreme Court held that composite contracts cannot be artificially dissected.

Further, in Shree Dipesh Anilkumar Naik v. Union of India, the Bombay High Court recognized the complex nature of development rights under GST, granting interim protection and implicitly acknowledging that taxability must be carefully aligned with statutory provisions.

These decisions reinforce:
Without a fresh post-GST activity, there is no 'doing,' and hence no supply.

IV. Government Institutions: Substance Over Appearance

In disputes involving government bodies, the Department often treats functional resemblance as commercial activity.

In Commissioner v. Gujarat State Fertilizers & Chemicals Ltd., the Supreme Court stressed that the character of activity must be judged contextually.

More recently, the Bombay High Court in Gulermak TPL Pune Metro Joint Venture v. Union of India granted interim relief against coercive GST measures, reiterating that statutory limits and taxable events must be strictly adhered to.

Thus, being a government institution is irrelevant; only doing business activity matters.

V. Reverse Charge: Tax on Receipt, Not Status

Under Section 66A (service tax), liability arose only upon receipt of service.

In Indian National Shipowners Association v. Union of India, the Bombay High Court held that tax liability arises only when the taxable event is clearly identified.

The Supreme Court in Mohit Minerals Pvt. Ltd. v. Union of India reaffirmed this principle in GST context, rejecting levy where no independent taxable event existed.

Thus, taxation is triggered by doing (receipt of service), not being (existence of contract or status).

VI. Consideration: The Real Nexus

GST requires consideration-a real quid pro quo.

In CCE v. Bhayana Builders (P) Ltd., the Supreme Court held that free supplies cannot be included in taxable value, as they are not consideration.

Similarly, the Supreme Court in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd. struck down inclusion of reimbursable expenses, holding that valuation must reflect actual consideration for the service rendered.

These rulings prevent taxation of notional or inferred supplies, reinforcing the centrality of real activity linked to real consideration.

VII. The Doctrinal Formulation

From the statutory scheme and case law emerges a coherent principle:

GST taxes 'becoming through doing,' not 'being in itself.'

Or more precisely:

Taxability arises not from what a person is, but from what a person does in law.

VIII. The Cost of Ignoring First Principles

Failure to maintain this distinction leads to:

• Taxing pre-GST rights under GST (violating Section 142)
• Mischaracterising governmental or non-commercial functions
• Artificial valuation detached from real consideration
• Increased litigation driven by conceptual error

The system risks degenerating into a tax on status, rather than transactions.

IX. Conclusion

GST was designed as a transaction-based tax system. Its integrity depends on adherence to a foundational rule:

No tax without a taxable act.

To impose tax without identifying a clear act of supply is to move beyond statutory boundaries. The distinction between doing and being is therefore not merely theoretical-it is jurisdictional.

Reasserting this boundary is essential to preserve the coherence, legitimacy, and constitutional integrity of GST.