TaxTMI 
TaxTMI 
2022 (5) TMI 1553
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....(b) issue a writ of declaration declaring Section 7 read with Schedule II of the U.P. Goods and Service Tax Act, 2017 in so far as it includes the transaction of sale within the scope of supply and levy tax on such sales as ultra vires the Constitution, null and void; (c) issue a writ, order or direction in the nature of Mandamus directing the respondent authorities not to take any coercive action against the petitioner in view of the impugned order dated 07.02.2022 passed by the respondent no. 4; (d) issue a writ, order or direction in the nature of certiorari quashing the impugned order dated 07.02.2022 passed by the respondent No. 4 (Annexure nos. 29); (e) issue a writ, order or direction in the nature of mandamus to waive off the mandatory 10% deposit for filing an Appeal under Section 107 of U.P. GST Act, 2017 by the petitioner against the order dated 07.02.2022; and (f) Award the costs of the petition to the petitioner." SUBMISSIONS:- 3. Sri Dhruv Agarwal, learned Senior Advocate submits as under:- (i) Article 246-A does not confer power to impose tax on sale of goods. Therefore, enactment of section 7 of the Central Goods and Services Tax Act, 2017 (hereinafter r....
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....n support of his submissions, he relied on several judgments, constitutional and statutory provisions and Statement of Objects and Reasons. Discussion and Findings:- 6. We have carefully considered the submissions of learned counsels for the parties and perused the records of the writ petition. 7. The entire submission of learned counsel for the petitioner so as to challenge the constitutional validity of Section 7 of the CGST Act/UPGST Act is that the Parliament and the State Legislature lacked legislative competence to enact Section 7. 8. Before we proceed to examine the rival submissions, it would be appropriate to note the relevant provisions of the Constitution of India, The CGST Act, The UPGST Act and Statement of Objects and Reasons, as under:- Relevant Provisions: (i) 101st Amendment to the Constitution of India:- "The Constitution (One Hundred and First Amendment) Act, 2016 [September 8, 2016.] An Act further to amend the Constitution of India. Be it enacted by Parliament in the Sixty-seventh Year of the Republic of India as follows:- Prefatory Note - Statement of Objects and Reasons-The Constitution is proposed to introduce the goods and services tax for conf....
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....ate notified on the recommendation of the Goods and Services Tax Council; (h) compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period which may extend to five years; (i) creation of Goods and Services Tax council to examine issues relating to goods and services tax and make recommendations to the non and the states on parameters like rates, exemption list and threshold limits. The Council shall function under the Chairmanship of the Union Finance Minister and will have the Union Minister of State in charge of Revenue or Finance as member, along with the Minister in-charge of Finance or Taxation or any other Minister nominated by each State Government. It is further provided that every decision of the Council shall be taken by a majority of not less than three-fourths of the weighted votes or the members present and voting in accordance with the following principles:- (A) the vote of the Central Government shall have a weightage of one-third of the total votes cast, and (B) the votes of all the State Governments taken together shall have a weightage of two-thirds of votes of the total votes cast in that m....
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....and Services Tax Council." 3. Amendment of Article 248.- In article 248 of the Constitution, in clause (1), for the word "Parliament", the words, figures and letter "Subject to article 246-A, Parliament" shall be substituted. 4. Amendment of Article 249.- In article 249 of the Constitution, in clause (1), after the words "with respect to", the words, figures and letter "goods and services tax provided under article 246-A or" shall be inserted. 5. Amendment of Article 250.- In article 250 of the Constitution, in clause (1), after the words "with respect to", the words, figures and letter "goods and services tax provided under article 246-A or" shall be inserted. 6. Amendment of Article 268.- In article 268 of the Constitution, in clause (1), the words "and such duties of excise on medicinal and toilet preparations" shall be omitted. 7. Omission of Article 268-A - Article 268-A of the Constitution, as inserted by section 2 of the Constitution (Eighty-eighth Amendment) Act, 2003 shall be omitted. 8. Amendment of Article 269. In article 269 of the Constitution, in clause (1), after the words "consignment of goods", the words, figures and letter "except as provided in Articl....
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....in the manner provided in clause (2). ' 11. Amendment of Article 271.- In Article 271 of the Constitution, after the words 'in those articles ', the words, figures and letter 'except the goods and services tax under article 246-A, ' shall be inserted. 12. Insertion of new Article 279-A - After Article 279 of the Constitution, the following Article shall be inserted, namely:- '279-A. Goods and Services Tax Council. - (1) The President shall, within sixty days from the date of commencement of the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services Tax Council. (2) The Goods and Services Tax Council shall consist of the following members, namely:- (a) the Union Finance Minister ..... Chairperson; (b) the Union Minister of State in charge of Revenue or Finance ..... Member; (c) the Minister in charge of Finance or Taxation or any other Minister nominated by each State Government ..... Members (3) The Members of the Goods and Services Tax Council referred to in sub-clause (c) of clause (2) shall, as soon as may be, choose one amongst themselves to be the Vice-Chairperson of t....
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....rds of the total votes cast, in that meeting. (10) No act or proceedings of the Goods and Services Tax Council shall be invalid merely by reason of- (a) any vacancy in, or any defect in, the constitution of the Council; or (b) any defect in the appointment of a person as a Member of the Council; or (c) any procedural irregularity of the Council not affecting the merits of the case (11)The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute- (a) between the Government of India and one or more States; or (b) between the Government of India and any State or States on one side and one or more other States on the other side; or (c) between two or more States, arising out of the recommendations of the Council or implementation thereof. '. 13. Amendment of Article 286.- In article 286 of the Constitution,- (i) in clause (1),- (A) for the words "the sale or purchase of goods where such sale or purchase takes place", the words "the supply of goods or of services or both, where such supply takes place" shall be substituted; (B) in sub-clause (b), for the word "goods", at both the places where it occurs, the words "goods or services....
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....rce of such goods."; (iii) entry 55 shall be omitted; (iv) for entry 62, the following entry shall be substituted, namely:- "62. Taxes on entertainments and amusements to the extent levied and collected by a Panchayat or a Municipality or a Regional Council or a District Council.". 18. Compensation to States for loss of revenue on account of introduction of goods and services tax.- Parliament shall, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for a period of five years. 19. Transitional provisions.- 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. 20. Power of President to remove difficulties.- (1) If any difficulty arise....
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....ents are not allowed as set off for payment of other taxes being levied by them; (iii) the variety of Value Added Tax Laws in the country with disparate tax rates and dissimilar tax practices divides the country into separate economic spheres, and (iv) the creation of tariff and non-tariff barriers such as octroi, entry tax, check posts, etc., hinder the free flow of trade throughout the country. Besides that, the large number of taxes create high compliance cost for the taxpayers in the form of number of returns, payments, etc. 3. In view of the aforesaid difficulties, all the above mentioned taxes are proposed to be subsumed in a single tax called the goods and services tax which will be levied on supply of goods or services or both at each Stage of supply chain starting from manufacture or import and till the last retail level. So, any tax that is presently being levied by the Central Government or the State Governments on the supply of goods or services going to be converged in goods and services tax which is proposed to be a dual levy where the Central Government will levy and collect tax in the form of central goods and services tax and the State Government will levy an....
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....bunal by the Central Government for hearing appeals against the orders passed by the Appellate Authority or the Revisional Authority: (i) to make provision for penalties for contravention of the provisions of the proposed Legislation; (j) to provide for an anti-profiteering clause in order to ensure that business passes on the benefit of reduced tax incidence on goods or services or both to the consumers; and (k) to provide for elaborate transitional provisions for smooth transition of existing taxpayers to goods and services tax regime. 6. The Notes on clauses explain in detail the various provisions contained in the Central Goods and Services Tax Bill, 2017. 7. The Bill seeks to achieve the above objectives." (iv) Section 7 of the CGST Act, 2017:- Section 7 of the CGST Act, 2017, which is para materia with Section 7 of the UPGST Act, is part of Chapter-III providing for Levy of Collection of Tax. Section 7 of the CGST Act provides for scope of supply as under:- "(1) For the purposes of this Act, the expression "supply" includes-- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made o....
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....or services tax imposed by the Union or by such State. Clause (2) has given exclusive powers to the Parliament to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce. Simultaneously, amendments were made in Articles 248, 249, 250, 268, 269, 270, 271, 279A, 286, 366 and 368 of the Constitution of India. Article 268A as existed prior to the 101st Amendment, was omitted. A new Article 269A was inserted. Clause (12-A) in Article 366 was inserted defining the words "goods and services tax" to mean any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption. Newly inserted Clause (26-A) of Article 366 defined the word 'services' to mean anything other than goods. Thus, Parliament, and, subject to clause (2) of Article 246-A, the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State and the Parliament has been conferred exclusive powers to legislate with respect to goods and services tax where the supply of goods, or of services, or both take....
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....t (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods, and Entry 62 also stood amended providing the field of legislation limited to taxes on entertainments and amusements to the extent levied and collected by a Panchayat or a Municipality or a Regional Council or a District Council. 12. Thus, on one hand the entire field of taxation on sale or purchase of goods, tax on entry of goods into a local area for consumption, use or sale therein except those provided by the amended provisions, taxes on luxuries including taxes on entertainments, amusements, betting and gambling except those provided under the amended provisions, taxes on services and taxes on sale or purchase of newspapers and on advertisements published therein and duties on excise except on those items as provided under amended Entry 84 were omitted and in place a comprehensive power of legislation has been conferred under Article 246-A of the Constitution of India empowering the Parliament and State Legislatures to enact law ....
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....of doubt that these Acts were enacted as per powers conferred under Article 246-A of the Constitution of India so as to levy tax on all goods or services or both in place of multiplicity of taxes provided under the erstwhile Central Acts and State Acts levying taxes on purchase or sale of goods, entry tax, entertainment tax and duties on excise etc. 15. It is well settled that the court can look into the Statement of Objects and Reasons for the purposes of deciphering the object and purposes of the Act. Reference to background and circumstances in which the Act was passed is permissible for appreciating the mischief, the legislature had in mind and the remedy which it wanted to provide for preventing that mischief. Reference to object and reasons is permissible for understanding the background, the antecedent state of affairs, the surrounding circumstances in relation to the statute, and the evil which the statute sought to remedy. Reference in this regard may be had to judgments of Hon'ble Supreme Court in State of West Bengal vs. Union of India, [AIR 1963 SC 1241], M/s. Sanghvi Jeevraj Ghewar Chand and others Vs. Secretary, Madras Chillies, Grains and Kirana Merchants Worker....
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....ed the use of Statement of Objects and Reasons for the purpose of understanding the background and the antecedent state of affairs leading upto the legislation. 76. The facts stated in the Preamble and the Statement of Objects and Reasons appended to any legislation are evidence of legislative judgment. They indicate the thought process of the elected representatives of the people and their cognizance of the prevalent state of affairs, impelling them to enact the law. These, therefore, constitute important factors which amongst others will be taken into consideration by the court in judging the reasonableness of any restriction imposed on the Fundamental Rights of the individuals. The Court would begin with a presumption of reasonability of the restriction, more so when the facts stated in the Statement of Objects and Reasons and the Preamble are taken to be correct and they justify the enactment of law for the purpose sought to be achieved." (Emphasis supplied by us) 17. The 101st Amendment to the Constitution of India and the CGST Act, 2017 including its Statement of Objects and Reasons have been well considered by Hon'ble Supreme Court in Union of India and another Vs. M....
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....as distinct from the principle of concurrence. Concurrence, which operated within the fold of the Concurrent List, was regulated by Article 254. (iv) Article 246-A provides Parliament and the State legislature with the concurrent power to legislate on GST. Article 246-A has a non-obstante provision which overrides Article 254. Article 246-A does not provide a repugnancy clause. Unlike Article 254 which stipulates that the law made by Parliament on a subject in the Concurrent list shall prevail over conflicting laws made by the State legislature, the constitutional design of Article 246-A does not stipulate the manner in which such inconsistency between the laws made by Parliament and the State legislature on GST can be resolved. The concurrent power exercised by the legislatures under Article 246-A is termed as a 'simultaneous power' to differentiate it from the constitutional design on exercise of concurrent power under Article 246, the latter being subject to the repugnancy clause under Article 254. The constitutional role and functions of the GST Council must be understood in the context of the simultaneous legislative power conferred on Parliament and the State legisl....
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....he Constitution of India, State Legislature does not lack legislative competence to enact Section 7 of the UPGST Act. Presumption of the Constitutional Validity:- 21. In the case of Anant Mills Vs. State of Gujarat reported in AIR 1975 SC 1234 (para 20), the Hon'ble Supreme Court has held that:- "20. There is a presumption of the constitutional validity of a statutory provision. In case any party assails the validity of any provision on the ground that it is violative of Article 14 of the Constitution, it is for that party to make the necessary averments and adduce material to show discrimination violative of Article 14. No averments were made in the petitions before the High Court by the petitioners that the assessments before the coming into force of Ordinance 6 of 1969 bad been made by taking into account the rent restriction provisions of the Bombay Rent Act. Paragraph 2B and some other paragraphs of petition No. 233 of 1970 before the High Court, to which our attention was invited by Mr. Tarkunde, also do not contain that averment. No material on this factual aspect was in the circumstances produced either on behalf of the petitioners or the Corporation. The High Court....
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....iction. In Kedar Nath Singh Vs. State of Bihar, AIR 1962 SC 955 (para 26), Hon'ble Supreme Court held that provision should be construed in the manner as will uphold its constitutionality. In Corporation of Calcutta Vs. Liberty Cinema, AIR 1965 SC 1107, Hon'ble Supreme Court has laid down the law that the provision should be read in the manner as will make it valid. Similar view has been expressed by the Constitution Bench of Supreme Court in Anandji Haridas and Co. (P) Ltd. Vs. S.P. Kasture and ors., AIR 1968 SC 565 (para 32). In Sunil Batra Vs. Delhi Administration and ors., AIR 1978 SC 1675, Hon'ble Supreme Court observed that the legislature expresses wisdom of community. In State of Bihar VS. Bihar Distilleries, AIR 1997 SC 1511 (para 18), Hon'ble Supreme Court observed that an Act made by legislature represents the will of people and cannot be lightly interfered with. In Zameer Ahmad Latifur Rehman Sheikh Vs. State of Maharashtra and ors., J.T. 2010 (4) SC 256 (para 34), Hon'ble Supreme Court observed that every legally possible effort should be made to uphold the validity. In Greater Bombay Co-operative Bank Ltd. Vs. United Yarn Tex (P) Ltd. and others, (....
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....hts enshrined and guaranteed in Part III of the Constitution. 84. As observed by this Court in CST v. Radhakrishnan in considering the validity of a Statute the presumption is always in favour of constitutionality and the burden is upon the person who attacks it to show that there has been transgression of constitutional principles. For sustaining the constitutionality of an Act, a Court may take into consideration matters of common knowledge, reports, preamble, history of the times, objection of the legislation and all other facts which are relevant. It must always be presumed that the legislature understands and correctly appreciates the need of its own people and that discrimination, if any, is based on adequate grounds and considerations. It is also well- settled that the courts will be justified in giving a liberal interpretation in order to avoid constitutional invalidity. A provision conferring very wide and expansive powers on authority can be construed in conformity with legislative intent of exercise of power within constitutional limitations. Where a Statute is silent or is inarticulate, the Court would attempt to transmutate the inarticulate and adopt a construction w....
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.... can be challenged only on two grounds, viz. (i) lack of legislative competence; and (ii) violation of any of the Fundamental Rights guaranteed in Part III of the Constitution or of any other constitutional provision. Except the above two grounds, there is no third ground on the basis of which the law made by a competent legislature can be invalidated. The ground of invalidation must necessarily fall within the four corners of the aforementioned two grounds. In considering the validity of a Statute the presumption is always in favour of constitutionality and the burden is upon the person who attacks it to show that there has been transgression of constitutional principles. For sustaining the constitutionality of an Act, Court may take into consideration matters of common knowledge, reports, preamble, history of the times, object of the legislation and all the other facts which are relevant. It must always be presumed that the legislature understands and correctly appreciates the need of its own people and that discrimination, if any, is based on adequate grounds and considerations. The courts will be justified in giving a liberal interpretation in order to avoid constitutional inva....
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....ch includes taxes on supply of goods or services or both. (v) The Statement of Objects and Reasons to the aforesaid 101st Amendment of the Constitution of India as aforequoted, clearly recorded that the 101st Amendment has been brought subsuming various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, Special Additional Duty of Customs, and Central Surcharges and Cesses so far as they relate to the supply of goods and services and of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, Taxes on lottery, betting and gambling; and State cesses and surcharges in so far as they relate to supply of goods or services. Thus, overall reading of 101st Amendment to the Constitution of India leaves no manner of doubt that Article 246-A and other relevant provisions were enacted by the Constitution (101st Amendment) Act, 2016 s....
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....upon the Parliament and State Legislatures to enact law to levy tax on supply of goods or services or both including sale of goods. The event of taxation under the Goods and Services Tax Act is the supply of goods or services or both. Section 7, 8 and 9 of the CGST Act/UPGST Act also show that the tax is to be levied on supply of goods or services or both. Discussions with respect to Article 246A of the Constitution of India, the provisions of Section 7, 8 and 9 of The CGST Act/UPGST Act, the Statement of Objects and Reasons of The Constitution (101st Amendment) Act, 2016 and the Statement of Objects and Reasons of the CGST/UPGST Act, leaves no manner of doubt that the word 'supply' includes sale also. Thus, the Parliament does not lack legislative competence to enact Section 7 of the CGST Act levying tax on supply of goods or services or both. Likewise, in view of Article 246-A of the Constitution of India, State Legislature does not lack legislative competence to enact Section 7 of the UPGST Act. (ix) The philosophy of GST is a consumption and destination-based tax. (x) The provisions of Section 7 of the CGST Act/UPGST Act is not ultra vires to the Constitution of Ind....