2020 (11) TMI 78 - HC - VAT and Sales Tax

Court denies timely compensation petition under GST Act, 2017, citing directory provision.

The court dismissed the writ petition seeking timely compensation under the Goods and Services Tax [Compensation to States] Act, 2017, emphasizing that ... Mandatory versus directory construction of statutory provisions - interpretation of the words 'shall' and 'may' - obligation to pay Goods and Services Tax compensation during the transition period - provisional two-monthly calculation and final annual adjustment of GST compensationMandatory versus directory construction of statutory provisions - interpretation of the words 'shall' and 'may' - obligation to pay Goods and Services Tax compensation during the transition period - provisional two-monthly calculation and final annual adjustment of GST compensation - Whether Section 7 of the Goods and Services Tax (Compensation to States) Act, 2017 imposes a mandatory obligation on the Union to make provisional two monthly payments and final annual adjustments of GST compensation such that the Court may issue positive directions for immediate payment. - HELD THAT: - The Court examined the language and scheme of Section 7 and the surrounding statutory scheme, and applied settled principles for construing auxiliary verbs such as 'shall' and 'may' as expounded by higher judicial authorities. Relying on established tests - including legislative intent, the object of the provision, the consequences of strict enforcement, and whether the statute prescribes consequences for non compliance - the Court held that the mere use of the word 'shall' is not decisive. Section 7(1) and (2), read in context, do not specify consequences for non observance of the timeline for provisional two monthly releases and final annual calculation; accordingly the timelines operate as directory directions rather than mandatory obligations that attract court enforceable positive relief compelling immediate disbursal. The Court noted that the Act provides for provisional release and subsequent adjustment but does not lay down penal or automatic consequences for any delay in provisional release, and observed that difficulties experienced by States (including those arising from the COVID 19 pandemic) may equally affect the Union's capacity to comply. For these reasons the writ petition seeking a positive direction for immediate payment was refused. [Paras 15, 16, 17, 18]The petition for a positive direction to compel immediate payment under Section 7 was rejected; the statutory timelines in Section 7 are to be construed as directory and not mandatory in the sense that would warrant mandamus.Final Conclusion: The writ petition was dismissed. The Court declined to issue a positive direction compelling immediate disbursal of GST compensation, holding that the timelines in Section 7 of the Act are directory rather than mandatory; the Court left the matter to the statutory scheme and hoped the Union would take note of the States' difficulties. Issues Involved:1. Obligation of the 1st respondent under Section 7 of the Goods and Services Tax [Compensation to States] Act, 2017.2. Interpretation of the words 'shall' and 'may' in statutory provisions.3. Consequences of non-compliance with the time frame stipulated under Section 7(2) of the Goods and Services Tax [Compensation to States] Act, 2017.Detailed Analysis:1. Obligation of the 1st Respondent under Section 7 of the Goods and Services Tax [Compensation to States] Act, 2017:The petitioner, a Graduate in Engineering and Managing Trustee of a Public Trust, argued that under Section 7 of the Goods and Services Tax [Compensation to States] Act, 2017, the 1st respondent is obligated to provide timely and speedy disbursal of compensation to the State of Tamil Nadu. The petitioner highlighted a Press Release dated 31.08.2020, which included a D.O. Letter from the Chief Minister of Tamil Nadu to the Prime Minister of India, outlining the financial difficulties faced by the state due to the COVID-19 pandemic and requesting the central government to raise funds as a loan to ensure full GST compensation to the states for the year 2020-21.The court noted the petitioner's argument that Section 7(1) of the Act mandates compensation to states during the transition period and that the 1st respondent must comply with this provision without delay, especially given the economic impact of the COVID-19 pandemic on Tamil Nadu.2. Interpretation of the Words 'Shall' and 'May' in Statutory Provisions:The court examined the interpretation of the words 'shall' and 'may' by referring to several precedents, including the Supreme Court judgments in Bachahan Devi and Another V. Nagar Nigam, Gorakhpur and Another, and Sharif-ud-Din V. Abdul Gani Lone. The court emphasized that the interpretation of these words depends on the legislative intent, the context, and the purpose of the statute. The court cited the principle that the word 'shall' is not always mandatory and that its interpretation can vary based on the statute's objectives and the consequences of non-compliance.The court also referred to the judgment in Bhavnagar University v. Palitana Sugar Mill [P] Ltd and Others, which discussed the importance of considering the subject-matter, the purpose of the provisions, and the overall scheme of the Act to determine whether a provision is mandatory or directory.3. Consequences of Non-Compliance with the Time Frame Stipulated under Section 7(2) of the Goods and Services Tax [Compensation to States] Act, 2017:The court noted that Section 7(2) of the Act stipulates that compensation should be provisionally calculated and released every two months and finally calculated at the end of the financial year. However, the Act does not specify the consequences of non-compliance with this timeline. Citing the judgment in Hyundai Motors Vs. Union of India, the court observed that when a statute does not indicate the consequences of non-compliance, the provision is generally considered directory rather than mandatory.The court concluded that the mere use of the word 'shall' in Section 7(1) does not make the provision mandatory. The absence of specified consequences for non-compliance in the Act suggests that the provision is directory. The court acknowledged the financial difficulties faced by Tamil Nadu due to the pandemic but noted that these challenges also apply to the Union of India.Conclusion:The court dismissed the writ petition, stating that the positive direction sought by the petitioner could not be granted. The court expressed hope that the 1st respondent would consider the difficulties faced by the states, particularly Tamil Nadu, as mentioned in the Press Release dated 31.08.2020. The petition was dismissed with no costs.