TaxTMI 
TaxTMI 
2020 (9) TMI 931
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....9) For the Respondents : Mr.R.Sankaranarayanan, ASGI, Assisted by Mr.Venkataswamy Babu, (For R1 in W.P.Nos.34221 and 34219 of 2019 and W.P.Nos.12037, 12040, 12041 and 12042 of 2020) (For R1 to R3 in W.P.Nos.32308, 32316, 32314, 32317 and 32327 of 2019), Mr.Mohammed Shaffiq, Spl.G.P.(Taxes) COMMON ORDER SENTHILKUMAR RAMAMOORTHY J., INTRODUCTION At the heart of this batch of writ petitions is the question whether the Petitioners are entitled to a refund of the entire unutilised input tax credit that each of them has accumulated on account of being subjected to an inverted duty structure. In certain cases, the constitutional validity of Section 54(3)(ii) of the Central Goods and Services Tax Act, 2017(the CGST Act) is impugned, whereas, in others, a declaration is prayed for that the amended Rule 89(5) of the Central Goods and Services Tax Rules,2017(the CGST Rules) is ultra vires Section 54 of the CGST Act and the Constitution of India. As a corollary, a declaration of entitlement to refund is also prayed for in some cases. 2. One of the issues that takes centre-stage in these cases is the correct meaning to be ascribed to the word "inputs" in Section 54(3)(ii) of t....
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....ub-section (10), a registered person may claim refund of any unutilized input tax credit at the end of any tax period: PROVIDED that no refund of unutilized input tax credit shall be allowed in cases other than- (i) Zero rated supplies made without payment of tax; (ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies(other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council: Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty: Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails drawback in respect of central tax or claims refund of the integrated tax paid on such supplies." Rule 89(5) of the CGST Rules deals with applications for refund of tax, interest, penalty, fees or any other amount. Sub-rule 5 thereof, as amended on 13.06.2018, with effect from 01.07.2017, reads as under: ....
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.... and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;" (59) "input" means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business; (60) "input service" means any service used or intended to be used by a supplier in the course or furtherance of business; (62) "input tax" in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes- (a) the integrated goods and services tax charged on import of goods; (b) the tax payable under the provisions of sub-sections (3) and (4) of section 9; (c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act; (d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or (e) the tax payable under the provisions of sub-sections (3)....
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....12028 of 2020 and R-3 in W.P.Nos.12037, 12040, 12041 and 12042 of 2020; Mr.A.P.Srinivas, the learned counsel for the GST Department in all cases and R3 and R5 in W.P.No.14799 of 2019, R-5 in W.P.No.32314 of 2019 and R1,R3 and R5 in W.P.No.32311 of 2019; M/s.Hema Murali Krishnan, the learned Central Government Standing Counsel for R1 and R2 in W.P.Nos.8596, 8597, 8602, 8603, 8605 and 8608 of 2019; and Mr.R.Sankaranarayanan, the learned Additional Solicitor General for R-1 in W.P.Nos.43221 of 2019 and 34219 of 2019 and W.P.Nos.12037, 12040, 12041, 12042 and 12028 of 2020 and R1 to R3 in W.P.Nos.32308, 32316, 32314, 32317 and 32327 of 2019. CONTENTIONS ON BEHALF OF THE PETITIONERS 5. Mr.Sujit Ghosh opened the submissions on behalf of the Petitioners. He pointed out that the Petitioner is a contractor providing services to the Chennai Metro Rail Limited and that in the course of business, the Petitioner uses both input goods and input services in its output supplies. Both the input goods and, particularly, the input services are subjected to a higher rate of tax than the rate of tax on output supplies of the Petitioner. Consequently, there is substantial accumulation of unutil....
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....sons who are entitled to refund. The first class is persons who have zerorated supplies, namely, exporters of goods and services. The second class is relevant for the purposes of this case and consists of persons who have accumulated unutilised credit on account of being subject to an inverted duty structure, i.e. the rate of tax on input goods and input services procured by them is higher than the rate of tax on their output supplies. According to Mr.Ghosh, this is the most natural and logical way of construing Section 54(3)(ii). For this purpose, he contends that the word "inputs" in Section 54(3)(ii) should be construed as per common parlance. If construed as per common parlance, the word "inputs" would mean both input goods and input services. He further submits that the meaning ascribed to the word "input" in Section 2(59) of the CGST Act should not be adopted to for the purpose of interpreting Section 54(3)(ii). In support of this contention, he points out that Section 54 (3)(ii) uses the words "output supplies" in juxtaposition with the word "inputs". The words "output supplies" are not defined in the CGST Act, whereas the words "outward supplies" are defined. Therefor....
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.... with all the provisions of a tax statute except the charging and exemption sections. The next contention of Mr.Ghosh was that unless Section 54(3)(ii) is read in the manner indicated by him, it would violate Article 14 of the Constitution. He substantiated this contention by pointing out that all contractors who avail input services and input goods constitute one class. Consequently, if Section 54(3)(ii) is construed as being applicable only to contractors who avail input goods and not to those who avail input services, it would amount to discrimination between persons who are similarly situated by making an invidious classification. For this proposition, he relied upon the judgment of the Hon'ble Supreme Court in Government of Andhra Pradesh and others v. Lakshmi Devi (2008) 4 SCC 720 (Lakshmi Devi). Therefore, he submitted that the word "inputs" in Section 54(3)(ii) should be interpreted in its wide, common parlance meaning so as to uphold the constitutional validity of the said provision. 9. The next contention of Mr.Ghosh was that the validity of the provision may also be upheld by resorting to reading down. For this purpose, he relied upon the judgment of the Hon....
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....identified, there should be no discrimination as between the different species in that genus/class. 11. Mr.Parthasarathy made submissions next in W.P. Nos.34219 and 34221 of 2019. He pointed out that his clients were manufacturers of foot wear and that both input goods and input services were utilized by his clients. Until the amendment to Rule 89(5) in April 2018, his clients applied for and received refunds both in respect of input goods and input services. In contrast to Mr.Ghosh, he submitted that he is not impugning the constitutional validity of Section 54(3). Instead, he contended that Section 54(3) sets out the general rule as to entitlement to refund in respect of any unutilised tax credit. The proviso thereto qualifies the principal sub-section by setting out the eligible classes and, in each class, the criteria for claiming refund. As per the proviso, the two classes of registered persons who are entitled to refund are those who have zero rated supplies, namely, exporters, and those who have accumulated credit on account of the fact that the rate of tax on the "inputs" procured by them is greater than the rate of tax on their "output supplies". Mr.Parthasarathy conten....
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....the eligibility conditions or entry barriers and that once such entry barriers are crossed, the quantum of refund would extend to the entire unutilised input tax credit of the registered person concerned. 13. Mr.P.B.Harish supplemented the submissions of Mr.Parthasarathy by drawing the attention of the Court to the use of the expression "in the cases" in the proviso to Section 54(3). The use of the said expression, according to him, indicates that the proviso is intended to specify the classes of registered persons who would be entitled to a refund of unutilised input tax credit and not to curtail the quantum or type of unutilised input tax credit in respect of which refund may be claimed. He further contended that when the statute does not curtail the quantum of refund, it cannot be curtailed by amending the relevant rules. He further submitted that the quantum is indicated under Section 54(3) itself by specifying that registered persons would be entitled to a refund of any unutilised input tax credit. CONTENTIONS ON BEHALF OF THE RESPONDENTS 14. Mr.Mohammed Shaffiq made submissions, in response, on behalf of the State Tax Department. He pointed out that he would first de....
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....of claiming a refund of unutilised input tax credit. On this issue, he pointed out that the critical question is whether Section 54(3)(ii) limits entitlement to refund to the accumulated credit on account of input goods or whether it extends such entitlement to input services. If Section 54(3)(ii) is interpreted as limited to credit accumulated out of input goods, Rule 89(5), including the amendment thereto, is valid. As regards rule making power, he pointed out that Section 164 is couched in extremely wide language, and that the only limitation is that the rules should be for fulfilling the purposes of the CGST Act. In that context, he also submitted that no restriction should be read into the rule making power. He relied upon the judgment in K. Damodarasamy Naidu v. State of Tamil Nadu and another 2000(1) SCC 521 wherein, in the context of a composite supply, the Hon'ble Supreme Court concluded that the differentiation between goods and service is valid. Thus, he contended that Rule 89(5) merely supplements Section 54(3)(ii) and that it fulfills the purpose of eliminating arbitrariness in determining the entitlement to refund on the basis of Section 54(3)(ii). 18. Mr.Sh....
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....ing to him, the two sub-clauses to Section 54(3) perform the function of curtailing the ambit of Section 54(3). If Section 54(3)(ii) is construed in the manner suggested by Mr.Parthasarathy, a person with unutilised input tax credit arising only on account of availing input services would be ineligible for a refund, whereas a person who accumulates unutilised input tax credit by procuring both input goods and input services would be entitled to a refund of the entire unutilised input tax credit, including the unutilised input tax credit accumulated as a result of availing input services. This is an absurd and anomalous situation, which Parliament did not intend to create while enacting Section 54 and the proviso thereto. Therefore, Mr.Shaffiq contended that Section 54(3)(ii) is intended to curtail not only the class of persons who are entitled to a refund of unutilised input tax credit but also the type, on the basis of source, of eligible unutilised credit and the quantum thereof. To put it differently, the expression "where the credit has accumulated on account of rate of tax on inputs" qualifies and curtails the expression "refund of any unutilised input tax credit" in Sectio....
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....xplanation, he pointed out that Parliament has consciously and intentionally used either the defined term "inputs" or "input services" as appropriate in Section 54. He also relied upon two judgments of the Hon'ble Supreme Court to substantiate the contention that a term defined in the statute should bear the meaning ascribed in such definition. The said judgments are CIT, NEW DELHI v. East West Import and Export (P) Ltd, (1989) 1 SCC 760(Para-7) and Commissioner of Sales Tax, State of Gujarat v. Union Medical Agency (1981) 1 SCC 51 (Para 14). The next contention of Mr.Shaffiq was that the Central Government is entitled to retrospectively amend the rules so as to bring the rules in line with Section 54(3). On this issue, he relied upon the judgment of the Hon'ble Supreme Court in Assistant Commissioner of Urban Land Tax and others v. Buckingham and Carnatic Co. Ltd. (1969) 2 SCC 55. 22. With regard to the nature of input tax credit, he relied upon the judgment of the Hon'ble Supreme Court in Jayam and Co. v. AC (CT) (2016) 15 SCC 125 (Jayam), wherein input tax credit was equated with a concession and, therefore, it was held that the terms and conditions relating to av....
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.... regard to rebate and pointed out that such rebate is applicable only in respect of input goods and not in respect of input services. He also referred to Section 17B of the Central Excise Act. On the above basis, he contended that even historically goods and services have been subjected to different treatment and merely because the GST Act deals with both goods and services, it cannot be concluded that all the benefits that are available to a person who avails input goods should be extended to those who avail input services. With this background, he turned his attention to Section 54 and pointed out that Section 54(3)(i) deals with zero-rated supplies made without payment of tax. This clause excludes registered persons who make zero-rated supplies after payment of tax. By way of explanation, he pointed out that exporters of goods and services fall under two categories, namely, those who make such supplies upon payment of tax and those who provide a bond or undertaking and make the supply without payment of tax. Out of the said two categories, only those who make supplies without payment of tax are entitled to refund under Section 54(3)(i). In order to substantiate the contention th....
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.... of payment of input tax in any of the five situations mentioned above. His next contention is that both Section 54(3)(ii) and Rule 89(5) use the expression "inputs". Therefore, the amended Rule 89(5) is in conformity with Section 54(3)(ii) of the CGST Act. In other words, the amendment was made so as to bring Rule 89(5) in line with Section 54(3)(ii). The next contention of Mr.Sankaranarayanan is that a proviso performs various functions such as curtailing, excluding, exempting or qualifying the enacted clause. In fact, the proviso may even take the shape of a substantive provision. On the interpretation of provisos, he referred to the judgment of the Hon'ble Supreme Court in S.Sundaram Pillai and others v. V.R.Pattabiraman and others (1985) 1 SCC 591. In particular, he referred to paragraphs 30, 37 and 43 thereof. He also referred to the judgment in the case of Laxminarayanan R. Bhattad v. State of Maharashtra (2003) 5 SCC 413. By relying upon the aforesaid judgments, he reiterated that the proviso to Section 54(3) has the effect of curtailing the refund of unutilised input tax credit to the credit accumulated on account of the difference between the rate of tax on input good....
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....aragraph 20) as well as the judgment in Kunnathat Thatehunni Moopil Nair v. State of Kerala, AIR 1961 SC 552. REJOINDER SUBMISSIONS OF THE PETITIONERS 26. Mr.Parthasarathy made submissions by way of rejoinder. In order to illustrate various scenarios in which there could be accumulation of unutilised input tax credit, he referred to a chart wherein these scenarios are set out. He pointed out that unless the rate of tax on input goods is higher than the rate of tax on output supply, a claim for refund cannot be made. Similarly, if the registered person procures only input services, even if there is unutilised input tax credit because the rate of tax is higher on such input services as compared to the rate of tax on output supplies of such registered person, refund cannot be claimed. On the other hand, if a person procures both input goods and input services, such person can claim a refund provided the rate of tax on input goods procured by such person is higher than the rate of tax on the output supplies. By drawing reference to the aforesaid chart, Mr.Parthasarathy reiterated that Section 54(3)(ii) only specifies the cases wherein a registered person is entitled to refund.....
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.... frame. He illustrated this contention with several examples. The first example was from the context of the Advocates Act 1961. He pointed out that advocates were legitimately classified into two classes, namely, senior advocates and advocates. However, the restriction imposed in the State of Andhra Pradesh by excluding advocates who were not practicing in the Courts in Andhra Pradesh was construed as violative of Article 14 in J.Pandurangarao v. Andhra Pradesh Public Service Commission, Hyderabad, AIR 1963 SC 268 (paragraphs 7,10 and 11). His next illustration was in the context of debts. While debts may be classified as debts due to the Government and private debts, in the specific context of debts due to a Jagir, as compared to debts due to the Government, the Hon'ble Supreme Court held that the classification is invalid. The third illustration was with regard to medicines. In Ayurveda Pharmacy and another v. State of Tamil Nadu (1989) 2 SCC 285, the Hon'ble Supreme Court held that the imposition of a higher rate of tax on certain Ayurveda medicines on the basis of alcohol content was in violation of Article 14. Similarly, in State of Uttar Pradesh and others v. De....
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....tax was levied during pre-GST era, under the Finance Act, by relying on Entry 97 of List - 1. Moreover, services are defined very broadly in such a manner as to include everything other than goods. It is for this limited purpose that the expression services is defined and not to indicate any material difference in the treatment of goods and services under GST laws. 31. With regard to the contention that the classification is valid, Mr.Ghosh contended that the burden of proof is on the Tax Department to establish validity, as held in Government of Andhra Pradesh v. Lakshmi Devi, and that the Tax Department had failed miserably in discharging this burden. By drawing reference to the judgment of the Hon'ble Supreme Court in C.B.Gautam v. Union of India (1993) 1 SCC 78 (C.B. Gautam), he contended that the Court struck down, read down, and interpreted provisions of the Income Tax Act in the said judgment. For this purpose, he referred to paragraph 6,14,19,22,25,26,28, etc. of the said judgment. 32. He rebutted the contention that a tax statute should always be construed strictly by drawing reference to the judgment in Dilip Kumar. In particular, he pointed out that strict inte....
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....istered person is entitled to avail input tax credit on both input services and input goods. Consequently, whenever the duty structure is inverted, there is accumulation of unutilised input tax credit. Only at the stage of granting refund, Section 54(3)(ii) arbitrarily discriminates against registered persons who procure input services. SUR-REJOINDER BY THE RESPONDENTS 35. Mr.Mohammed Shaffiq made submissions by way of surrejoinder. With regard to Mr.Ghosh's contention on severability, he relied upon paragraph 22.6 of the judgment in RMD Chaumbargwala v. Union of India, AIR 1957 SC 628, so as to contend that words cannot be added while resorting to the principle of severability. With regard to reading down, he relied upon the judgment of the Hon'ble Supreme Court in B.R.Kapur v. State of T.N. (2001) 7 SCC 231 (Para 39) and contended that the Hon'ble Supreme Court held categorically that reading-up is not permitted while resorting to the principle of reading-down. He further submitted that this is a judgment of a Constitution Bench and would therefore prevail over judgments of smaller benches to the contrary. On this issue, he also relied upon the judgment of the H....
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....trality, he pointed out that India is not a signatory to the OECD convention and therefore the OECD guidelines are not binding on India. Even otherwise, he pointed out that the European Community also permits differential treatment as between different suppliers. For this proposition, he relied upon the judgment of the European Court in Finanzamt Frankfurt v. Deutsche Bank, EU case C-44/11 and Her Majesty's Revenue and Customs v. Rank Group EU C-259/10. He also relied upon the judgment of the Hon'ble Supreme Court in Jindal Stainless Limited and another v. State of Haryana and others (2017) 12 SCC 1 (Para 28). He concluded his submissions by contending that on account of the differing nature of goods and services, tax evasion is for easier in respect of services. This is borne out by the available data and statistics and justifies the differential treatment as between goods and services when it comes to refund. Mr.Sujit Ghosh rebutted this contention by pointing out that tax evasion cannot be the basis to treat goods and services differently and that Section 132 of the CGST Act, which deals with evasion, applies equally to goods and services. He also relied upon Coca Cola I....
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.... credit is contrary to the provisions of Sub-section 3 of Section 54 of the CGST Act, 2017 which provides for claim of refund of "any unutilised input tax credit". The word "input tax credit" is defined in Section 2(63) means the credit of input tax. The word "input tax" is defined in Section 2(62), whereas the word "input" is defined in Section 2(59) means any goods other than capital goods and "input service" as per Section 2(60) means any service used or intended to be used by a supplier. Whereas "input tax" as defined in Section 2(62) means the tax charged on any supply of goods or services or both made to any registered person. Thus "input" and "input service" are both part of the "input tax" and "input tax credit". Therefore, as per provision of subsection 3 of Section 54 of the CGST Act, 2017, the legislature has provided that registered person may claim refund of "any unutilised input tax", therefore, by way of Rule 89(5) of the CGST Rules, 2017, such claim of the refund cannot be restricted only to "input" excluding the "input services" from the purview of "input tax credit". Moreover, clause (ii) of proviso to sub-section 3 of Section 54 also refers to both suppl....
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....ey define as under: ''the words of a governing text are of paramount concern, and what they convey, in their context, is what the text means''. If such approach is adopted as regards Section 54 of the CGST Act, it is evident that Section 54 is a generic refund provision. Section 54(3) is specific to refund of unutilised input tax credit. The proviso thereto qualifies Section 54(3) by confining the benefit of refund to the two cases specified in sub clauses (i) and (ii). We propose to examine Section 54(3) from a fair reading perspective, i.e. by subjecting it to both a textual and contextual analysis. Both Mr.Parthasarathy and Mr.P.B.Harish contended that Section 54(3) quantifies the amount of input tax credit, which may be claimed by way of refund by the registered person. Because Section 54(3) uses the words "a registered person may claim refund of any unutilised input tax credit at the end of any tax period", the learned counsel contended that the entitlement to a refund of the entire unutilised input tax credit is recognized and provided for in Section 54(3). According to them, if the intention of Parliament was to curtail the quantity of unutilised ....
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....is applied to religious or charitable purposes without the taxable territories. In that event, the Central Board of Revenue, by general or special order, may direct that it shall not be included in the total income. The proviso also throws light on the construction of the substantive part of clause (i) as the exception can be invoked only upon the application of the income to the said purposes outside the taxable territories. The application of the income in presentior in futuro for purposes in or outside the taxable territories, as the case may be, is the necessary condition for invoking either the substantive part of the clause or the proviso thereto.'' As is evident from the above, in H.E.H. Nizam, the Supreme Court held that a proviso performs the function of qualifying the substantive clause. In S. Sundaram Pillai v. V.R. Pattabiraman, (1985) 1 SCC 591(Sundaram Pillai), the Supreme Court delineated the multiple roles that a proviso could play and held that a proviso could even acquire the tenor and colour of a substantive enactment. Paragraphs 27 and 43 of the said judgment are extracted below: ''27. The next question that arises for consideration i....
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...., which is extracted above, and Kedarnath Jute Manufacturing Co. v. CTO, AIR 1966 SC 12 to contend that a proviso may perform the function of exempting, excluding or qualifying the enacting clause. The learned ASG relied upon the judgment of the Hon'ble Supreme Court in Sundaram Pillai, wherein it was held that a proviso could also perform the role of a substantive provision. In effect, the learned ASG contended that no limitation may be read into the scope of a proviso and that it should be interpreted based on the text of the proviso and its context. To the contrary, Mr. Sujit Ghosh contended that a proviso, as a rule, performs a qualifying function by relying on ICFAI. 42. Keeping in mind the scope, function and role of a proviso as adumbrated above, we closely examined the text of Section 54(3)(ii) in order to test the tenability of the rival contentions. We find that Section 54(3) undoubtedly enables a registered person to claim refund of any unutilised input tax credit. However, the principal or enacting clause is qualified by the proviso which states that "provided that no refund of unutilised input tax credit shall be allowed in cases other than". Parliament has u....
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....ax credit only to the extent that such credit has accumulated on account of the rate of tax on input goods being higher than the rate of tax on output supplies, it remains to be considered whether Rule 89(5) is ultra vires the rule making power and Section 54(3). Keeping in mind that Section 164 confers power on the Central Government to frame rules for carrying out the provisions of the CGST Act and no fetters are discernible therein except that the rules should be in furtherance of the purposes of the CGST Act, as held by this Court in P.R. Mani Electronics v. Union of India, W.P. No.8890 of 2020, Order dated 13.07.2020, Rule 89(5) would be intra vires the CGST Act and the rule making power if it is in line with Section 54(3)(ii) and ultra vires both Sections 54(3)(ii) and 164 if it is not. Hence, that issue should be examined. We note that Section 54(1) empowers the prescription of the form and manner of a claim for refund and Section 54(4) contains procedural requirements as regards the application for refund. Rule 89 deals with applications for refund of tax, interest, penalty, fees or any other amount. Sub-Rule 5 thereof was amended on two occasions. In the amended Rule....
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....sions in VKC Footsteps. In our view, the Gujarat High Court failed to take into consideration the scope, function and impact of the proviso to Section 54(3). THE CONSTITUTIONAL CHALLENGE MEANING OF INPUTS 46. We now proceed to deal with the question pertaining to the constitutionality of Section 54(3)(ii). The contention of Mr.Sujit Ghosh was that the said section would infringe Article 14 of the Constitution unless the word "inputs", as used therein, is read in such a manner as to include input services. This contention is premised on the ground that the classification of registered persons for purposes of entitlement to refund into two classes, namely, those who avail input tax credit on input goods and those who avail input tax credit on input services is an arbitrary and invidious classification. Mr. Ghosh contended that the word "inputs" in Section 54(3)(ii) should be read in its common parlance meaning so as to avert the eventuality of the provision being struck down as violative of Article 14. Although the word "input" is defined in Section 2(59) as "means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of....
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.... 29. Before considering the contextual aspect of the definition of "Tribunal", we may first consider its ordinary and simple meaning. A bare look at the definition indicates that the High Court and the Registrar, on their own, are not "Tribunal". They become "Tribunal" if "the proceeding concerned" comes to be pending before either of them. In other words, if "the proceeding concerned" is pending before the High Court, it will be treated as "Tribunal". If, on the contrary, "the proceeding concerned" is pending before the Registrar, the latter will be treated as "Tribunal". 30.. Since "Tribunal" is defined in Section 2 which, in its opening part, uses the phrase "Unless the context otherwise requires", the definition, obviously, cannot be read in isolation. The phrase "Unless the context otherwise requires" is meant to prevent a person from falling into the whirlpool of "definitions" and not to look to other provisions of the Act which, necessarily, has to be done as the meaning ascribed to a "definition" can be adopted only if the context does not otherwise require." 47.Thus, it is clear that Whirlpool Corporation dealt with the Trade Marks Act, 1958, which defined the....
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....ds but also to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning intended to be conveyed by the use of the words under the circumstances. Therefore, though ordinarily the word "insurer" as used in the Act would mean a person or body corporate actually carrying on the business of insurance it may be that in certain sections the word may have a somewhat different meaning.'' 48. By contrast, in the context of tax statutes, in Bakelite Hylam v. CCE, 1998 5 SCC 621, it was held as under: 7. The said finding recorded by the Tribunal has been assailed by Shri J. Vellapally, the learned Senior Counsel appearing for the appellant. Shri Vellapally has invoked the "common parlance test" and has submitted that in common parlance "Prepeg-F" cannot be regarded as cotton fabric. The learned counsel has placed reliance on the decision of this Court in Purewal Associates Ltd. v. CCE [(1996) 10 SCC 752] . We do not find any substance in the said contention of Shri Vellapally. In Purewal Associates Ltd.[(1996) 10 SCC 752] this Court has taken note of the earlier decision in Plasmac Machine Mfg. Co. (P) Ltd. v. CCE [....
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....nce meaning if the context clearly points away from the statutory definition. In a tax statute context, the requirement to stay true to the statutory definition is more compelling. The correct meaning of the word "inputs", as used in Section 54(3)(ii) of the CGST Act should be gleaned by applying the afore-stated principles. The text uses the word "inputs" and this word is defined in Section 2(59) as "any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business". Does the context indicate a departure from the meaning per definition and point toward adoption of the common parlance meaning? In our view, there are multiple factors that militate against reading the word "inputs" against the meaning per definition. The first is that the definition expressly excludes capital goods, whereas if the common parlance meaning, as advocated by Mr. Ghosh, is adopted, capital goods would be included and one would be drawing conclusions that are antithetical to the text. The second reason is that the immediate context, namely, Section 54 contains more than a few usages of the terms "inputs" and "input services" in other sub-sections. By way ....
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....umar, the Hon'ble Supreme Court was dealing with the interpretation of an exemption notification. In that context, the Hon'ble Supreme Court concluded that an exemption notification should be construed strictly and that any ambiguity should be decided in favour of the revenue. Paragraphs 53 and 66 are as under: "53. After thoroughly examining the various precedents some of which were cited before us and after giving our anxious consideration, we would be more than justified to conclude and also compelled to hold that every taxing statute including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case of ambiguity in charging provisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State. 66. To sum up, we answer the reference holding as under: 66.1. Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemptio....
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..... This issue can be approached from another perspective: would a registered person be entitled to such refund but for the statutory prescription in Section 54(3)(i) & (ii)? The answer is a resounding 'no'. THE VALIDITY OF THE CLASSIFICATION 53. We now proceed to deal with the rival contentions on classification. Mr. Ghosh contended that a person who avails input services at a rate of tax that is higher than the rate of tax on output supplies is also entitled to and, therefore, accumulates input tax credit. In other words, there is no restriction when it comes to the accrual or accumulation of input tax credit. The differential treatment is limited to entitlement to refund. According to him, the Parliament/legislature is entitled to make a classification provided such classification is not arbitrary and bears a rational nexus to the object of the enactment, and the GST laws were introduced so as to treat both goods and services alike and depart from the historical practice of treating goods and services differently. Mr.Ghosh contended that the charging provisions, the machinery provisions, the penal provisions, the enforcement provisions all apply equally to goods a....
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.... Hotel, the Hon'ble Supreme Court held as under: "46. It is now well settled that though taxing laws are not outside Article 14, however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy legislature enjoys a wide latitude in the matter of selection of persons, subject-matter, events, etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment what is looked into is not its phraseology, but the real effect of its provisions. A legislature does not, as an old saying goes, have to tax everything in order to be able to tax something. If there is equality and uniformity within each group, the law would not be discriminatory. Decisions of this Court on the matter have permitted the legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes. 47. But, with all this latitude certain irreducible desiderata of equality shall govern classifications for differential ....
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....tjacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature.The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud [1 L Ed 2d 1485 : 354 US 457 (1957)] where Frankfurter, J. said in his inimitable style: 'In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events'self-limitation can be seen to be the path to judicial wisdom and institutional prest....
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.... the constitutionality of the statute because the court does not consist of economic or administrative experts. It has no expertise in these matters, and in this age of specialisation when policies have to be laid down with great care after consulting the specialists in the field, it will be wholly unwise for the court to encroach into the domain of the executive or legislative (sic) and try to enforce its own views and perceptions." 57. The law on classification in taxation disputes was also discussed in Spences Hotel and Mr. Ghosh placed considerable emphasis on this judgment, wherein it was held as under: ''22. The intrinsic complexity of fiscal adjustments of diverse elements and wide discretion and latitude of the legislature in the matter of classification for taxation purposes was emphasised by Sabyasachi Mukharji, J. as he then was, in State of Maharashtra v. Madhukar Balkrishna Badiya [(1988) 4 SCC 290 : 1988 SCC (Tax) 506] which was a case under the Bombay Motor Vehicles Tax Act, 1958 (as amended by Maharashtra Act 14 of 1987). In para 14 of the report it was said : (SCC p. 298, para 14) "About discrimination it is well to remember that a taxation law ....
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....er others, provided of course they are not sought out for special treatment. It has repeatedly been held, for example, in Khyerbari Tea Co. [AIR 1964 SC 925, 941 : (1964) 2 SCA 319], Gopal Narain v. State of U.P. [AIR 1964 SC 370, 375 : (1964) 4 SCR 869 : 1964 All LJ 479] and Steelworth v. State of Assam[1962 Supp 2 SCR 589] and V. Venugopala Ravi Varma v. Union of India [(1969) 1 SCC 681 : AIR 1969 SC 1094 : (1969) 3 SCR 827] that as to what articles should be taxed is a question of policy and there cannot be any complaint merely because the legislature has decided to tax certain articles and not others. In D.S. Nakara v. Union of India [(1983) 1 SCC 305 : 1983 SCC (L&S) 145] , Desai, J. even expressed that too microscopic a classification may also be violative of Article 14. It was reiterated in Bank of Baroda v. Rednam Nagachaya Devi [(1989) 4 SCC 470] that the burden is always on the person alleging the violation of Article 14 of the Constitution of India to raise specific pleas and grounds and to prove it. 24. Whether a particular tax is discriminatory or not must necessarily be considered in light of the nature and incidence of that particular tax and cannot be judge....
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....nism: "Some people may think that they have rational insight into the truth of the proposition that men ought to be taxed equally, others that they have such insight into truth of the proposition that men ought to be taxed in proportion to what they earn, others that they have rational insight into the truth of the proposition that men ought to be taxed more than in proportion to what they earn. Can they be sure that in thinking this, they are not simply being influenced by the imaginative and quasi-aesthetic appeal of making the amount of payments proportionate to the number of people, or making it proportionate to their incomes?" 58. Upon considering the rival contentions on this issue, we note the following features of input tax credit and its refund: (i) Registered persons who utilise input services, in their output supplies, are permitted to avail input tax credit, which is reflected in their ledger. (ii) The unutilised input tax credit does not lapse if refund is not granted. However, it is possible that it may have to be written down on account of applicable accounting standards if the probability of utilization is low. (iii) The differ....
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....to make classification in matters related to taxation is wider than in other forms of legislation. This position is clear from judgments such as Federation of Hotel as well as Ambika Mills. In fact, in Ambika Mills, the Hon'ble Supreme Court held that discrimination as between large and small is permissible so as to carry out reforms on a step-by-step basis by adopting a piece-meal approach. In the context of the CGST Act, we note that the legislation is intended to consolidate the indirect taxes on goods and services under a common umbrella. There is no doubt that the object and purpose of the present GST laws is to avoid the cascading of taxes and to impose a tax on consumption, be it goods or services. Thus, the long term objective appears to be to treat goods and services, as far as possible, similarly. Nonetheless, it must be borne in mind that this is an evolutionary process. By way of illustration, we may draw reference to the fact that the concept of input tax credit was not originally available under sales tax law and central excise law. It was first introduced in the form of MODVAT credit. MODVAT credit was initially available only in respect of goods. After the in....
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....the contention of Mr.Ghosh that the non-conferment of the right of refund to the unutilised input tax credit from the procurement of input services violates Article 14. On the contrary, we conclude that the classification is valid, nonarbitrary and far from invidious. 62. Given the fact that we have concluded that Section 54(3)(ii), on a plain reading, does not violate Article 14, it is not necessary to draw definitive conclusions on the scope of reading down or to examine if the casus omissus rule should be deviated from in this case. Nonetheless, extensive submissions were advanced as regards reading down. While Mr.Ghosh contended that the principle of reading down may be resorted to so as to read the word input services into Section 54(3)(ii) by referring to judgments such as C.B. Gautam, Mr.Shaffiq contended that reading down may be resorted to only to curtail the scope of a provision and not to expand it. Indeed, he submitted that reading down does not mean reading up. For this proposition, he referred to the judgment in V.R.Kapur as well as the judgment in Cellular Operators Association. The ambit of reading down and the exceptions to the casus omissus rule would have to a....