Hasty passage of GST Bills - Customs loses power to levy IGST on Import of Goods!!
TIOL - COB( WEB) - 548
APRIL 06, 2017
By Shailendra Kumar, Founder Editor
ON the GST legislation front, the Union Government has done pretty well so far. A part of the credit goes to the GST Council too. There is a deadline, and the Modi Sarkar does not want to be called a laggard. Thus it lost no time in pushing the FOUR Bills through the Lower House of the Parliament. I wish the Lok Sabha could have been given a little more time to debate and collect feedback from the industry experts about some of the amended provisions in the final Bills. It is true that the trade and industry was given adequate time to react or suggest but it should not be overlooked that those reactions were in relation to the provisions proposed. In the final Bills, many provisions have been amended to appease certain quarters which are parts of the decision-making apparatus.
There are many such amendments. One of the most controversial ones is the tinkering with the provisions of the Works Contract. Pained or perhaps 'insane-ed' by the growing graph of litigation particularly after service tax was imposed on the service component of such a contract, there was acute realisation at least in the Central Govt camp that the works contract imbroglio must be sorted out. And a sensible attempt was made to put it in the deeming category of Supply of Service. Now, as per the new provision, the dominant character of a transaction would decide its taxability. Similar tinkering has been done with the provision allowing provisional credit and also the Input Tax Credit rules.
There are many such changes but one oversight I would like to dwell upon in this column today can be found in the IGST Bill. One may recall that apart from many domestic indirect taxes, the GST is also going to subsume the Countervailing Duty and Special Additional Duty of Customs. What bears testimony to it is the Section 5(1) of the IGST Bill which provides that “integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of Section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of Customs are levied on the said goods under Section 12 of the Customs Act, 1962”.
Import of goods into India in Customs Act as well as GST law has been defined as bringing goods into India from a place outside India. It may be noted the scope of the words “supply of goods” is much narrower than the phrase “import of goods”. A transaction of goods in the course of import will qualify as a supply of goods only to the extent it is for a consideration and in the course or furtherance of business. Imports of goods without CONSIDERATION or NOT in furtherance of business have not been earmarked as a SUPPLY.
This is quite evident from the definition of the word supply in Section 7 of CGST Act -
• "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;
• import of services for a consideration whether or not in the course or furtherance of business;”
It is clear from the definition that it is not only the consideration but also 'in the course of or furtherance of business' is central for a transaction to be treated as Supply. Any transaction which falls short of the TWIN TEST cannot be termed as supply except those specified in Schedule I of the respective CGST or SGST and UTGST Acts. Imports of goods without consideration or not in furtherance of business have interestingly not been specified in Schedule I.
As per Article 366 (12A) of the Constitution “goods and services tax” means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption. Thus it is clear that both CGST and IGST are taxes on “supply”. The first one applies to intra-State supply and the latter to inter-State, including imports. There is no definition of the expression "supply" in our Constitution.
Going by the settled legal jurisprudence and also the tools of legal interpretations, wherever the Legislature has an intention to treat any such transaction as supply, it specifically provides so. For example, in case of import of services even if the transaction is not in the course or furtherance of business has been treated as supply. But in respect of import of goods there is no such provision. Thus a transaction of import, either without consideration or not in the course or furtherance of business e.g. personal imports or imports by defense establishments or NGOs may not be chargeable to IGST.
Any attempt to now bring such excluded imports under Section 3 of the Customs Tariff Act, 1975 (CTA) will be beyond the scope of the IGST Act besides violating the specific mandate of the Constitution too which has clearly specified in the Statement of Objects and Reasons that CVD and SAD are being subsumed in GST. Moreover, the CTA allows only levy of such taxes which can be imposed on like goods in India in accordance with the WTO’s mandate of providing “national treatment”. If a transaction does not qualify as a taxable supply under the domestic GST laws it cannot be liable to IGST under CTA. Any such levy directly under the CTA will amount to protective tariff subject to bound rates under WTO.
It appears that a specific provision under Section 5 of IGST Act or Section 7 of CGST Act is needed to include “import of goods without consideration or not in the course or furtherance of business” as supply to avoid any legal challenge about the vires of integrated tax on such imports. It may further be viewed that even if the integrated tax on import of goods is levied under CTA the legal provision in this regard may have to be recommended by the GST Council in accordance with the provisions of Article 279 of the Constitution.
As a passing reference it may also be noted that Article 269A of the Constitution interprets inter-State supply to include imports but not exports. A number of provisions have been made in the IGST Bill relating to exports outside India. These may have to be defended under the Central Government’s exclusive powers under Entry 83 of the List I of the relevant Schedule. To that extent it will be wrong to allow any meddling into the affairs of the Centre by the States.
In a nutshell, even if the Rajya Sabha does not get the privilege to discuss the provisions of the Money Bills at length, the growing feeling among the industries and trade is that the Union of India needs to go for at least ONE ROUND of Amendments in the GST laws before they are brought to life either from July 1 or September 1, 2017. Let's hope the custodians of the GST laws do not turn a Nelson's eye to all such flaws in the laws!