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2022 (5) TMI 1553
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....as ultra vires the Constitution, null and void; (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. ....
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.... rights of the petitioner. He further submits that there is always presumption in favour of validity of a statutory provision. In 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 Republi....
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....or for human consumption, for the levy of goods and services tax. In case of petroleum and petroleum products, it has been provided that these goods shall not be subject to the levy of Goods and Services Tax till a date 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) th....
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.... power 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. Explanation.-The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279-A, take effect from the date recommended by the Goods 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 ....
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....ed by the Union under clause (1) of Article 246-A shall also be distributed between the Union and the States in the manner provided in clause (2). (1-B) The tax levied and collected by the Union under clause (2) of article 246-A and article 269-A, which has been used for payment of the tax levied by the Union under clause (1) of Article 246-A, and the amount apportioned to the Union under clause (1) of Article 269-A, shall also be distributed between the Union and the States 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....
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.... the Goods and Services Tax Council shall constitute the quorum at its meetings. (8) The Goods and Services Tax Council shall determine the procedure in the performance of its functions. (9) Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely:-(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 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 Go....
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....I-Union List,- (i) for entry 84, the following entry shall be substituted, namely:- "84. Duties of excise on the following goods manufactured or produced in India, namely:- (a) petroleum crude; (b) high speed diesel; (c) motor spirit (commonly known as petrol); (d) natural gas; (e) aviation turbine fuel; and (f) tobacco and tobacco products."; (ii) entries 92 and 92-C shall be omitted; 1. in List II-State List,- (i) entry 52 shall be omitted; (ii) for entry 54, the following entry shall be substituted, namely:- "54. Taxes on the sale of petroleum crude, high speed diesel, motor spirit (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."; (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 Re....
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....th by the Central Government and the matters connected therewith or incidental thereto Be it enacted by Parliament in the Sixty-eighth Year of the Republic of India as follows- Statement of Objects and Reasons.-- Presently, the Central Government levies tax on, manufacture of certain goods in the form or Central Excise duty, provision of certain services in the form of service tax, inter-State sale of goods in the form of Central Sales tax. Similarly, the State Governments levy tax on and on retail sales in the form of value added tax, entry of goods in the State in the form of entry tax, luxury tax and purchase tax, etc. Accordingly, there is multiplicity of taxes which are being levied on the same supply chain. 2. The present tax system on goods and services is facing certain difficulties as under- (i) there is cascading of taxes as taxes levied by the Central Government are not available as set off against the taxes being levied by the State Governments; (ii) certain taxes levied by State Governments 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 co....
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....man consumption at a rate to be notified, not exceeding twenty per cent as recommended by the Goods and Services Tax Council (the Council); (b) to broad base the input tax credit by making it available in respect of taxes paid on any supply of goods or services or both used or intended to be used in the course or furtherance of business; (c) to impose obligation on electronic commerce operators to collect tax at source, at such rate not exceeding one per cent of net value of taxable supplies, out of payments to suppliers supplying goods or services through their portals; (d) to provide for self-assessment of the taxes payable by the registered person; (e) to provide for conduct of audit of registered persons in order to verily compliance with the provision of the Act; (f) to provide for recovery of arrears of tax using various modes including detaining and sale of goods, movable and immovable property of defaulting taxable person; (g) to provide for powers of inspection, search, seizure and arrest to the officers; (h) to establish the Goods and Services Tax Appellate Tribunal by the Central Government for hearing appeal....
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....y shall be treated either as supply of goods or supply of services as referred to in Schedule II] (2) Notwithstanding anything contained in sub-section (1),-- (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. (3) Subject to the provisions of [sub-sections (1), (1A) and (2)], the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as- (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods." Legislative Competence:- 9. By 101st Amendment in Constitution of India, a new Article 246-A was inserted with overriding effect to Articles 246 and 254 of the Constitution of India. By Clause (1) of Article 246-A, the Parliament, and, subject to....
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....tance included in sub-paragraph (b) of this entry. Entry 92 of the List I - Union List provided for "taxes on the sale or purchase of newspapers and on advertisements published therein." Entry 92-C of the List I - Union List provided for "taxes on services." By 101st Amendment, Entries 92 and 92-C of List I - Union List, and Entries 52 and 55 of the List II - State List of the Seventh Schedule were omitted and Entry 84 of List I - Union List were amended as aforequoted. By 101st Amendment to the Constitution of India, the field of legislation under Entry 84 for duties of excise remained only on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and tobacco and tobacco products. 11. Thus, the field of legislation under Entry 92 of List I providing for taxes on the sale or purchase of newspapers and on advertisements published therein and Entry 92-C providing for taxes on services stood omitted. Likewise in the List II - State list, the Entry 52 providing for taxes on entry of goods into a local area for consumption, use or sale therein and Entry 55 providing for taxes on advertisements stood omitted and Entry 54 providi....
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....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 so as to bring the taxes on purchase and sale of goods, duties on excise and entertainment tax etc. under one umbrella by empowering the Parliament and the State Legislatures to enact laws with respect to taxes on supply of goods or services or both. 14. The Statement of Objects and Reasons of the Central Goods and Services Tax Act, 2017 also reveals that there is multiplicity of taxes which are being levied on the same supply chain prior to The Constitution (101st Amendment) Act, 2016 and so as to bring all these taxes under one umbrella, the Parliament and State Legislatures have been conferred with power to legislate for tax on goods or services or both. Accordingly, the Parliament enacted the Central Goods and Services Tax Act, 2017 and the State Legislatures have enacted the State Goods and Services Tax Act. Thus, Statement of Object and Reasons to the 101st Amendment to the Constitution of India and Statement of Object and Reasons o....
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....) SC 580 (Paras 74 and 76), a Constitution Bench of Hon'ble Supreme Court considered the importance and relevance of Statement of Object and reasons and held as under:- "74. Reference to the Statement of Objects and Reasons is permissible for understanding the background, antecedent state of affairs in relation to the statute, and the evil which the statute was sought to remedy. (See __ Principles of Statutory Interpretation by Justice G.P. Singh, 9th Edition, 2004, at p. 218). In State of West Bengal v. Subodh Gopal Bose and Ors., 1954 SCR 587, the Constitution Bench was testing the constitutional validity of the legislation impugned therein. The Statement of Objects and Reasons was used by S.R. Das, J. for ascertaining the conditions prevalent at that time which led to the introduction of the Bill and the extent and urgency of the evil which was sought to be remedied, in addition to testing the reasonableness of the restrictions imposed by the impugned provision. In his opinion, it was indeed very unfortunate that the Statement of Objects and Reasons was not placed before the High Court which would have assisted the High Court in arriving at the right conclusion as t....
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....liament in the exercise of its constituent power has had to make and draw balances to accommodate the interests of the States. Taxes on alcohol for human consumption and stamp duties provide a significant part of the revenues of the States. Complex balances have had to be drawn so as to accommodate the concerns of the states before bringing them within the umbrella of GST.................." (Emphasis supplied by us) 19. In a most recent judgment in Civil Appeal No. 1390 of 2022 and other connected Civil Appeals (Union of India and others vs. Mohit Minerals Pvt. Ltd.), decided on 19.05.2022, a three Judges Bench of Hon'ble Supreme Court explained Article 246-A of the Constitution of India (Paras-29, 30, 51, 101 and 119). Relevant portion of the law laid down therein are summarised as under:- (i) Article 246-A defines the source of power as well as the field of legislation (with respect to goods and services tax) obviating the need to travel to the Seventh Schedule. (ii) Provisions of Article 246-A are available both to Parliament and the State Legislatures, save and except for the exclusive power of Parliament to enact GST legislation where the supply of ....
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....onstitution diminishes the role of the GST Council as a constitutional body formed to arrive at decisions by collaboration and contestation of ideas. (vi) Section 7 of the CGST Act defines the term "supply" with a broad brush and provides for an inclusive definition. (vii) This conclusion comports with the philosophy of the GST to be a consumption and destinated based tax." 20. Article 246-A read with Article 366(12A) of the Constitution of India has conferred power 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....
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....tutional validity of a statutory provision affects not only the parties before the Court, but all other parties who may be affected by the impugned provision. There would, therefore, be inherent risk in striking down an impugned provision without having the complete factual data and full material before the court. It was therefore, in our opinion, essential for the High Court to ascertain and field out the correct factual position before recording a finding that the impugned provision is violative of article 14. The fact that the High Court acted on an incorrect assumption is also borne out by the material which has been adduced before us in the writ petitions filed under article 32 of the Constitution." (Emphasis supplied by us) 22. In Charanjit Lal Choudhary Vs. Union of India and others, AIR 1951 SC 41 (para 10), Hon'ble Supreme Court has held that there is presumption that the legislature understands and correctly appreciates the need of its people. In Union of India Vs. Elphinstone Spinning and weaving Co. Ltd. and Ors., AIR 2001 SC 724 (para 9), Hon'ble Supreme Court has held that there is presumption that the legislature does not exceed its jurisdiction. In Sta....
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.... the MCS Act 1960 and the APCS Act, 1964 in exercise of the power vested in them by Entry 32 of List II of the Seventh Schedule of the Constitution. Power to the enact would include the power to re-enact or validate any provision of law in the State Legislature, provided the same falls in an entry of List II of Seventh Schedule of the Constitution with the restriction that such enactment should not nullify a judgment of a competent court of law. In the appeals/SLPs/petitions filed against the judgment of the Andhra Pradesh High Court, the legislative competence of the State is involved for consideration. Judicial system has an important role to play in our body politic and has a solemn obligation to fulfill. In such circumstances, it is imperative upon the courts while examining the scope of legislative action to be conscious to start with the presumption regarding the constitutional validity of the legislation. The burden of proof is upon the shoulders of the incumbent who challenges it. It is true that it is the duty of the constitutional courts under our Constitution to declare a law enacted by Parliament or the State Legislature as unconstitutional when Parliament or the State ....
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....fects of drafting, much less in-exactitude of language employed. Indeed, any such defects of drafting should be ignored out as part of the attempt to sustain the validity/constitutionality of the enactment. After all, an Act made by the legislature represents the will of the people and that cannot be lightly interfered with. The unconstitutionality must be plainly and clearly established before an enactment is declared as void. The same approach holds good while ascertaining the intent and purpose of an enactment or its scope and application." In the same para, this Court further observed as follows: "The Court must recognize the fundamental nature and importance of legislative process and accord due regard and deference to it, just as the legislature and the executive are expected to show due regard and deference to the judiciary. It cannot also be forgotten that our Constitution recognizes and gives effect to the concept of equality between the three wings of the State and the concept of "checks and balances" inherent in such scheme." (Emphasis supplied by us) 23. In the case of Promoters and Builders Association Vs. Pune Municipal Corporation (2007) 6 SCC....
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....iction and correctly appreciates the need of its own people. In view of these settled principles and the discussions made above on legislative competence and presumption of constitutional validity, we hold that Section 7 of the CGST Act/UPGST Act does not suffer from lack of legislative competence. In other words, Section 7 of the CGST Act/UPGST Act is wholly valid. 25. Thus, in view of the forgoing discussions including the law laid down by Hon'ble Supreme Court in various judgments referred above, we do not find any merit in challenge to the constitutional validity of Section 7 of the CGST Act/UPGST Act. Therefore, the challenge to the constitutional validity of Section 7 of the CGST Act/UPGST Act is hereby rejected, and we hold as under:- (i) Article 246-A defines the source of power as well as the field of legislation with respect to goods and services tax obviating the need to travel to the 7th Schedule. (ii) The provisions of Article 246-A are available both to the Parliament and the State Legislature. (iii) Article 246-A embodies the constitutional principle of the simultaneous levy as distinct from the principle of concurrence. (iv....
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.... to subsume various taxes, surcharges and cesses into one tax. Thus, the 'scope of supply' as provided in Section 7 of the CGST Act which includes sale also, is well within the legislative power of the Parliament conferred under Article 246-A of the Constitution of India. (vii) The expression "supply" used in Section 7 of the CGST Act/UPGST Act includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. By Sub-section (2), which opens with a non-obstante clause, such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. Subject to the provisions of Sub-sections (1) and (2), the Government may on the recommendation of the Council specify by notification, the transactions which are to be treated as supply of goods and not as a supply of services or a....