Allahabad High Court
M/S Kay Pan Fragrances (P) Ltd. vs Union Of India And 4 Others on 23 May, 2022
Bench: Surya Prakash Kesarwani, Jayant Banerji
HIGH COURT OF JUDICATURE AT ALLAHABAD AFR Court No. - 03 Case :- WRIT TAX No. - 760 of 2022 Petitioner :- M/S Kay Pan Fragrances (P) Ltd. Respondent :- Union Of India And 4 Others Counsel for Petitioner :- Pooja Talwar,Sr. Advocate Counsel for Respondent :- A.S.G.I.,C.S.C.,Sanjay Kumar Om Hon'ble Surya Prakash Kesarwani,J.
Hon'ble Jayant Banerji,J.
1. Heard Sri Dhruv Agarwal, learned Senior Advocate assisted by Pooja Talwar, learned counsel for the petitioner, Sri S.P. Singh, learned Additional Solicitor General of India assisted by Sri Sanjay Kumar Om, learned Central Government Standing Counsel for the respondent No.1 and Sri M.C. Chaturvedi, learned Additional Advocate General assisted by Sri B.P. Singh Kachhwah, learned Standing Counsel for the respondent Nos.2 to 5.
2. This writ petition has been filed praying for the following reliefs:
"(a) issue a writ of declaration declaring Section 7 read with Schedule II of the Central 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;
(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 referred to as 'the CGST Act') and the U.P. Goods and Services Tax Act, 2017 (hereinafter referred to as 'the UPGST Act'), lacks legislative competence.
(ii) The word 'supply' does not mean sale. Therefore, sale could not fall within the meaning of the word 'supply'. Reliance is placed upon judgment of Hon'ble Supreme Court in the case of Southern Petrochemical Industries Co. Ltd. vs. Electricity Inspector & ETIO, (2007) 5 SCC 447 (Para-50) and Karnataka Power Transmission Corporation vs. Ashok Iron Works (P) Ltd. (2009) 3 SCC 240 (Para-28).
(iii) The words 'tax on the sale or purchase on goods' has been defined in Article 366(29A) and Entry 54, List-II of the VIIth Schedule of the Constitution of India provides for tax on sale of only petroleum crude, high speed diesel, motor spirit, natural gas, aviation turbine fuel and alcoholic liquor for human consumption. Therefore, by implication, no law can be legislated which may levy tax on sale of goods inasmuch as amended Entry 54 has narrowed down the field of legislation limited to petroleum crude etc. as aforementioned.
(iv) Opportunity of hearing as provided under Section 75(4) of the CGST/ UPGST Act has not been afforded to the petitioner.
(v) All relied upon documents have not been provided to the petitioner and thus, the assessment order suffers from breach of principles of natural justice.
4. Learned Additional Solicitor General and the learned Additional Advocate General support the impugned order and submit that the provisions of Section 7 of the CGST Act/ UPGST Act are valid and not ultra vires.
5. Sri M.C. Chaturvedi, learned Additional Advocate General has further submitted that challenge to the constitutional validity of a statutory provision can be entertained only if the petitioner is able to show, firstly, that there is lack of legislative competence to enact the impugned statutory provision and secondly, impugned provision infringes any of the fundamental rights of the petitioner guaranteed under the Constitution of India or any other constitutional provisions. He submits that neither the Parliament nor the State Legislature lacked legislative competence to enact Section 7 nor Section 7 infringes any of the fundamental 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 Republic of India as follows:--
Prefatory Note - Statement of Objects and Reasons-The Constitution is proposed to introduce the goods and services tax for conferring concurrent taxing powers on the Union as well as the States including on Union Territory with Legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both. The goods and services tax shall replace a number of indirect taxes being levied by the Union and the State Governments and is intended to remove cascading effect of taxes and provide for a common national market for goods and services. The proposed Central and State goods and services tax will be levied on all transactions involving supply of goods and services, except those which are kept out of the purview of the goods and services tax.
2. The proposed Bill, which seeks further to amend the Constitution, inter alia, provides for-
(a) subsuming of 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;
(b) subsuming 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 and services;
(c) dispensing with the concept of "declared goods of special importance" under the Constitution;
(d) levy of Integrated Goods and Services Tax on inter-State transactions of goods and services;
(e) levy of an additional tax on supply of goods, not exceeding one per cent in the course of inter-State trade or commerce to be collected by the Government of India for a period of two years, and assigned to the States from where the supply originates;
(f) conferring concurrent power upon Parliament and the State Legislatures to make laws governing goods and services tax;
(g) coverage of all goods and services, except alcoholic liquor 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) 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 meeting.
Illustration In terms of clause (9) of the proposed Article 279-A, the "weighted votes of the members present and voting" in favour of a proposal in the Goods and Services Tax Council shall be determined as under.-
WT = WC + WS Where WT = WC + WS = WST/SP x SF Wherein WT=Total weighted votes of all members in favour of a proposal.
WC=Weighted vote of the Union = 1/3 i.e., 33.33% if the Union is in favour of the proposal and be taken as "0 if, Union is not in favour of a proposal.
WS= Weighted votes of the States in favour of a proposal.
SP= Number of States present and voting.
WST= Weighted votes of all States present and voting i.e. 2/3, i.e., 66.67% SF = Number of States voting in favour of a proposal.
(j) Clause 20 of the proposed Bill makes transitional provisions to take care of any inconsistency which may arise with respect to any law relating to tax on goods or services or on both in force in any State on the commencement of the provisions of the Constitution as amended by this Act within a period of one year.
3. The Bill seeks to achieve the above objects.
1. Short title and commencement - (1) This Act may be called the Constitution (One Hundred and First Amendment) Act, 2016.
(2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint, and different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the commencement of that provision.
2. Insertion of new Article 246-A - After article 246 of the Constitution, the following article shall be inserted, namely:--
"246-A. Special provision with respect to goods and services tax.- (1) Notwithstanding anything contained in Articles 246 and 254, Parliament, and, subject to clause (2), 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.
(2) Parliament has exclusive 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 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 Article 269-A" shall be inserted.
9. Insertion of new Article 269-A.- After article 269 of the Constitution, the following article shall be inserted, namely:--
''269-A. Levy and collection of goods and services tax in course of inter-State trade or commence - (1) Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
Explanation.--For the purposes of this clause, supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce.
(2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India.
(3) Where an amount collected as tax levied under clause (1) has been used for payment of the tax levied by a State under article 246-A, such amount shall not form part of the Consolidated Fund of India.
(4) Where an amount collected as tax levied by a State under article 246-A has been used for payment of the tax levied under clause (1), such amount shall not form part of the Consolidated Fund of the State.
(5) Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.''.
10. Amendment of Article 270.- In article 270 of the Constitution,--
(i) in clause (1), for the words, figures and letter "articles 268, 268-A and 269", the words, figures and letter "Articles 268, 269 and 269-A" shall be substituted;
(ii) after clause (1), the following clauses shall be inserted, namely:--
''(1-A) The tax collected 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 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 the Council for such period as they may decide.
(4) The Goods and Services Tax Council shall make recommendations to the Union and the States on--
(a) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax;
(b) the goods and services that may be subjected to, or exempted from the goods and services tax;
(c) model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269-A and the principles that govern the place of supply;
(d) the threshold limit of turnover below which goods and services may be exempted from goods and services tax;
(e) the rates including floor rates with bands of goods and services tax;
(f) any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster;
(g) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and
(h) any other matter relating to the goods and services tax, as the Council may decide.
(5) The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.
(6) While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the need for a harmonised structure of goods and services tax and for the development of a harmonised national market for goods and services.
(7) One-half of the total number of Members of 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 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 or both" shall be substituted;
(ii) in clause (2), for the words "sale or purchase of goods takes place", the words "supply of goods or of services or both" shall be substituted;
(iii) clause (3) shall be omitted.
14. Amendment of Article366.- In article 366 of the Constitution,--
(i) after clause (12), the following clause shall be inserted, namely:--
'(12-A) "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;';
(ii) after clause (26), the following clauses shall be inserted, namely:--
'(26-A) "Services" means anything other than goods;
(26-B) "State" with reference to articles 246-A, 268, 269, 269-A and article 279-A includes a Union territory with Legislature;'.
15.Amendment of Article 368.- In Article 368 of the Constitution, in clause (2), in the proviso, in clause (a), for the words and figures "Article 162 or Article 241", the words, figures and letter "Article 162, Article 241 or Article 279-A" shall be substituted.
16.Amendment of Sixth Schedule.- In the Sixth Schedule to the Constitution, in paragraph 8, in sub-paragraph (3),--
(i) in clause (c), the word "and" occurring at the end shall be omitted;
(ii) in clause (d), the word "and" shall be inserted at the end;
(iii) after clause (d), the following clause shall be inserted, namely:--
"(e) taxes on entertainment and amusements.".
17. Amendment of Seventh Schedule.- In the Seventh Schedule to the Constitution,--
(a) in List 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 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 arises in giving effect to the provisions of the Constitution as amended by this Act (including any difficulty in relation to the transition from the provisions of the Constitution as they stood immediately before the date of assent of the President to this Act to the provisions of the Constitution as amended by this Act), the President may, by order, make such provisions, including any adaptation or modification of any provision of the Constitution as amended by this Act or law, as appear to the President to be necessary or expedient for the purpose of removing the difficulty:
Provided that no such order shall be made after the expiry of three years from the date of such assent.
(2) Every order made under sub-section (1) shall, as soon as may be after it is made, be laid before each House of Parliament."
(ii) Article 366(12A) of the Constitution of India:-
'(12A) "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;
(iii) Objects and Reasons of CGST Act, 2017:-
"The Central Goods and Services Tax Act, 2017 [No.12 of 2017] [12th April, 2017] An Act to make a provision for levy and collection of tax on intra-State supply of goods or services or both 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 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 abovementioned 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 and collect tax in the form of State goods and services tax on intra-State supply of goods or services or both.
4. In view of the above, it has become necessary to have a Central legislation, namely, the Central Goods and Services Tax Bill, 2017. The proposed legislation will confer power upon the Central Government for levying goods and services tax on the supply of goods or services or both which takes place within a State. The proposed legislation will simplify and harmonise the indirect tax regime in the country. It is expected to reduce cost of production and inflation in the economy, thereby making the Indian trade and industry more competitive, domestically as well as internationally. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of goods and services tax that would incentivise tax compliance by taxpayers. The proposed goods and services tax will broaden the tax base, and result in better tax compliance due to a robust information technology infrastructure.
5. The Central Goods and Services Tax Bill, 2017, inter alia, provides tor the following, namely-
(a) to levy tax on all intra-State supplies of goods or services or both except supply of alcoholic liquor for human 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 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, 20l7.
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 or agreed to be made for a consideration by a person in the course or furtherance of business;
(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.
Explanation.--For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;
(b) import of services for a consideration whether or not in the course or furtherance of business; [ and]
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; [xxx] [(d) the activities to be treated as supply of goods or supply of services as referred in Schedule II] [(1A) Where certain activities or transactions, constitute a supply in accordance with the provisions of sub-section (1), they 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 clause (2), the Legislature of every State, have been empowered to make laws with respect to goods 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 takes place in the course of inter-State trade or commerce.
10. Prior to 101st Amendment to the Constitution of India, Entry 52 of List II - State List of the Seventh Schedule of the Constitution of India provided for "taxes on entry of goods into a local area for consumption, use or sale therein". Entry 54 of List II provided for "taxes on sale or purchase of goods other than newspaper, subject to the provisions of Entry 92-A of List I. Entry 55 of List II provided for "taxes on advertisements other than advertisements published in the newspapers and advertisements broadcast by radio or television". Entry 62 of List II provided for "taxes on luxuries including taxes on entertainment, amusements, betting and gambling". That apart, Entry 84 of List I - Union List to the 7th Schedule of the Constitution provided for "Duties of excise on tobacco and other goods manufactured and produced in India except - (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance 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 providing for taxes on the purchase or sale was made limited to 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, 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 to levy tax on goods or services or both; with a provision of compensation to States for loss of revenue on account of implementation of the Goods and Services Tax Act, for a period of five years.
13. 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 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 of the Central Goods and Services Tax Act, 2017 and the U.P. Goods and Services Tax Act, 2017, leave no manner 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 Workers Union and another, [AIR 1969 SC 530 (para-2)], Dantuluri Ram Raju And Ors vs State Of Andhra Pradesh And Anr, [AIR 1972 SC 828 (para-4)], Narain Khamman Vs. Parduman Kumar Jain, [AIR 1985 SC 4 : 1985 1 SCC 1 (para-12)], State of H.P. Vs. Kailash Chand Mahajan, [AIR 1992 SC 1277 (para 77) : 1992 Suppl. (2) SCC 351 (para-82)], Devadoss vs Veera Makali Amman Koil Athalur, [AIR 1998 SC 750 : (1998) 9 SCC 286 (paras 20 & 21)], State (NCT of Delhi) Vs. Union of India, [(2018) 8 SCC 501 (Para 604.1)], Union of India and another Vs. Mohit Mineral Private Ltd., [(2019) 2 SCC 599 (Paras 50 and 51)], Council Of Architecture vs Mr. Mukesh Goyal, [(2020) 16 SCC 446 (para 43)], M. Ravindran vs. The Intelligence Officer, Directorate of Revenue Intelligence, [(2021) 2 SCC 485 (paras 17.10)], Ghanshyam Mishra and sons (P) Ltd. Vs. Edelweiss Asset Reconstruction Co. Ltd., [(2021) 9 SCC 657 (paras 80 to 84)], and Kshetrimayum Maheshkumar Singh vs The Manipur University, [(2022) 2 SCC 704 (para-33)].
16. In the case of State of Gujrat Vs. Mirzapur Moti Kureshi Kassab Jamat , JT 2005 (12) 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 to the reasonableness of the restriction imposed. State of West Bengal v. Union of India, (1964) 1 SCR 371, 431-32, approved 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. Mohit Mineral Private Ltd., (2019) 2 SCC 599 (Paras 51 and 56) and it has been held that the words "with respect to" used in Article 246-A of the Constitution of India are words of expansion. It has been further held that the power to make the laws under Article 246-A is not general power related to general entry rather it specifically relates to goods and services tax and the Constitution "101st Amendment" Act, 2017 was passed 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.
18. In the case of Union of India vs. VKC Footsteps (India)(P.) Ltd., (2022) 2 SCC 603 (para-88), Hon'ble Supreme Court has considered the concept of GST Legislation and held the goods and services tax to be destination-based tax and further held as under:-
"..................While adopting the constitutional framework of a GST regime, Parliament 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 goods or services takes place in the course of inter-State trade or commerce.
(iii) Article 246-A embodies the constitutional principle of simultaneous levy 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 legislatures. It is from that perspective that the role of the GST Council becomes relevant.
(v) One of the important features of Indian federalism is ''fiscal federalism'. A reading of the Statement of Objects and Reasons of the 2014 Amendment Bill, the Parliamentary reports and speeches indicate that Articles 246-A and 279A were introduced with the objective of enhancing cooperative federalism and harmony between the States and the Centre. However, the Centre has a one-third vote share in the GST Council. This coupled with the absence of the repugnancy provision in Article 246-A indicates that recommendations of the GST Council cannot be binding. Such an interpretation would be contrary to the objective of introducing the GST regime and would also dislodge the fine balance on which Indian federalism rests. Therefore, the argument that if the recommendations of the GST Council are not binding, then the entire structure of GST would crumble does not hold water. Such a reading of the provisions of the Constitution 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 246A 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 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.
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, as already observed, decided the matter merely on the basis of a presumption. It is, in our opinion, extremely hazardous to decide the question of the constitutional validity of a provision on the basis of the supposed existence of certain facts by raising a presumption. The facts about the supposed existence of which presumption was raised by the High Court were of such a nature that a definite averment could have been made in respect of them and concrete material could have been produced in support of their existence or non-existence. Presumptions are resorted to when the matter does not admit of direct proof or when there is some practical difficulty to produce evidence to prove a particular fact. When, however, the fact to be established is of such a nature that direct evidence about its existence or non- existence would be available, the proper course is to have the direct evidence rather than to decide the matter by resort to presumption. A pronouncement about the constitutional 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 State of Bihar and others Vs. Smt. Charusila Dasi, AIR 1959 SC 1002 (para 14), the Hon'ble Supreme Court has laid down the law that there is presumption that the legislature does not intend to exceed its jurisdiction. 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. Libery 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, (2007) 6 SCC 236 (paras 82 to 85), Hon'ble Supreme Court observed as under :
" 82 The constitutional validity of an Act 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. In State of A. P. & Ors. v. McDowell & Co. & Ors. [(1996) 3 SCC 709], this Court has opined that except the above two grounds, there is no third ground on the basis of which the law made by the competent legislature can be invalidated and that the ground of invalidation must necessarily fall within the four corners of the afore-mentioned two grounds.
83. Power to enact a law is derived by the State Assembly from List II of the Seventh Schedule of the Constitution. Entry 32 confers upon a State Legislature the power to constitute cooperative societies. The State of Maharashtra and the State of Andhra Pradesh both had enacted 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 fulfil. 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 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 Legislaturehad assumed to enact a law which is void, either for want of constitutional power to enact it or because the constitutional forms or conditions have not been observed or where the law infringes the fundamental rights 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 which would lean towards constitutionality albeit without departing from the material of which the law is woven. These principles have given rise to rule of "reading down" the provisions if it becomes necessary to uphold the validity of the law.
85. In State of Bihar & Ors. v. Bihar Distillery Ltd. & Ors. [(1997) 2 SCC 453], this Court indicated the approach which the Court should adopt while examining the validity/constitutionality of a legislation. It would be useful to remind ourselves of the principles laid down, which read: (SCC p.466, para 17):
"The approach of the court, while examining the challenge to the constitutionality of an enactment, is to start with the presumption of constitutionality. The court should try to sustain its validity to the extent possible. It should strike down the enactment only when it is not possible to sustain it. The court should not approach the enactment with a view to pick holes or to search for defects of drafting, much less inexactitude 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. 143 (para 9), Hon'ble Supreme Court has held that while exercising legislative function, unless unreasonableness and arbitrariness is pointed out it is not open for the Court to interfere.
Constitutional Validity:-
24. The constitutional validity of an Act 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 invalidity. Where a Statute is silent or is inarticulate, the Court would attempt to transmutate the inarticulate and adopt a construction which would lean towards constitutionality albeit without departing from the material of which the law is woven. These principles give rise to rule of "reading down" the provisions if it becomes necessary to uphold the validity of the law. While examining the challenge to the constitutionality of an enactment, the court is to start with the presumption of constitutionality and try to sustain its validity to the extent possible. The court cannot approach the enactment with a view to pick holes or to search for defects of drafting, much less inexactitude of language employed. An act made by the legislature represents the will of the people and that cannot be lightly interfered with. It is presumed that the legislature expresses wisdom of the community, does not intend to exceed its jurisdiction 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) Since the power conferred under Article 246-A is to legislate on the subject "with respect to goods and services tax", therefore, the Parliament is fully competent to enact The CGST Act and the State Legislature is fully competent to enact State GST Act with respect to goods and services tax which 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 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 Legislature to enact laws with respect to taxes on supply of goods and services.
(vi) 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. Mohit Mineral Private Ltd., (2019) 2 SCC 599 (Paras 51 and 56) and it has been held that the words "with respect to" used in Article 246-A of the Constitution of India are words of expansion. It has been further held that the power to make the laws under Article 246-A is not general power related to general entry rather it specifically relates to goods and services tax and the Constitution "101st Amendment" Act, 2017 was passed 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 supply of services and not as supply of goods. Thus, Section 7 of the CGST Act/ UPGST Act defines the word ''supply'' with a broad brush and provides an inclusive definition which includes ''sale'.
(viii) Article 246A 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 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 India.
26. The judgments relied by the learned counsel for the petitioners have no relevance on the facts of the present case and the constitutional and statutory provisions in question. Therefore, those judgments are of no help to the petitioners.
Natural Justice:-
27. So far as the challenge to the impugned assessment order is concerned, we find that the copies of all relied upon documents have been given by the Assessing Authority to the petitioner and he has also been allowed to inspect the records. Opportunity of hearing is also reflected from the notices including the notice dated 05.01.2022 in which the date, place and time for appearance has been informed to the petitioner by the Deputy Commissioner, Commercial Tax, Division-17, Ghaziabad (Annexure-25 to the writ petition). The petitioner submitted a detailed reply running in more than 100 pages which has been considered by the respondent No.4 and the impugned assessment order under Section 74 read with Section 122 of the UPGST Act has been passed which runs in about 163 pages. Against the impugned order, the petitioner has a right of appeal under Section 107 of the UPGST Act, 2017. Therefore, for all the reasons aforestated, we do not find any substance in challenge to the impugned assessment order on the ground of alleged breach of principles of natural justice or provisions of Section 75(4) of the CGST Act/ UPGST Act..
28. For all the reasons afore-stated, the writ petition is dismissed, leaving it open for the petitioner to challenge the impugned Assessment Order in appeal before the appellate authority, if so advised.
Order Date :- 23.05.2022 NLY