Service tax was levied in the year 1994 on three services which were positively defined and from time to time the list of positively defined services were expanded to approximately 124 services up to 1.07.2012. On and from 1.7.2012 based on the recommendations of the Kelkar Committee, the service tax dispensation based on negative list of services was brought into force. In other words services not liable to service tax were defined under the negative list and if not specifically exempted any activity for a consideration by one person to another was liable to service tax. This dispensation of negative list based taxation has not further undergone a change inasmuch as the charge which was earlier on the rendition of services which were taxable has shifted to the supply of services or goods under the Goods and Services Tax dispensation. Reference in this regard is invited to section 9 of the Central Goods and Services Tax Act, 2017 (CGST) read with section 7, 2 and Schedules I, II & III. Section 9 is the charging section which levies on the intra state supply of all goods & services a levy to be called the CGST. Section 7 of the CGST act defines the scope of the expression supply, section 2 defines important words and expressions used in the CGST and schedule I defines what is liable to GST without consideration, Schedule II – what is to be treated as supply of goods or supply of services (deemed supply of goods / services) and Schedule III – what is neither goods nor services. The entire enactment including the charge has to be understood as a whole in order to appreciate the scope and ambit of the levy i.e. supply of goods or services.

It is pertinent to understand what is a levy? In P Ramanatha Aiyar’s The Major Law Lexicon 4th Edition 2010 Revised and Enlarged at page 3907 it is stated “as applied to taxes, it sometimes means to raise and exact by authority of government, or to determine by vote the amount of tax to be raised. In Ashok Singh Vs. Asst. Controller of Estate Duty, AIR 1992 SC 1756 the word levy was held to include proceedings for assessment. In Mafatlal Industries Ltd., Vs. UOI, 1997 (5) SCC 536 – Para 160, it was held the expression levy may include both the process of taxation as well as the determination of the amount of tax or duty. Also refer S. K. Pattanaik Vs. State of Orissa, AIR 2000 SC 612. In the context of Article 265 of the Constitution of India it was held in Somaiya Organics (India) Ltd., Vs. State of UP, 201 (5) SCC 519 – para 29 that the word levy occurring in Article 265 would mean the assessment or charging or imposing tax. Also refer CCE Vs. Smith Kline Beecham Consumer Health Care Ltd., 2003 (2) SCC 169 – para 10. The Andhra Praqdesh High Court in Delta Paper Mills Vs. Collector, 1995 (77) ELT 544 (AP) held that the word levy covers imposition and assessment of tax but not collection. In Firm L Hazari Mal Kuthiala Vs. Income Tax Officer, AIR 1957 Pun 5, 10 it was held to levy a tax means to impose or assess or collect under the authority of law. It is a unilateral act of superior legislative power to declare the subjects, rates of taxation and to authorize the collector to proceed to collect the tax. In Ramprasad Vs. War Profits Tax Officer, AIR 1953 Madh. Bharat. 20, 25 in the context of Article 265 and 277 of the Constitution of India it was held there is a distinction between imposition and levy i.e. assessment and collection of a tax. The imposition of tax is by an act of the competent legislature and is purely a legislative Act. The levy and collection of a tax is a process subsequent to the imposition of the tax by the Statute. In the context of the Bombay Village Panchayats Act, 1959 levy means accrual of liability or creation of charge for the tax. The word imposition connotes the actual process of recovery. Assessment means the quantification or determination of the actual amount of tax.

On a slightly tangential note in the decisions to follow it was held that where the machinery to the levy section fails the levy also fails. Refer CIT v. Elphinstone Spinning and Weaving Mills Co Ltd., 1960 (40) ITR 142 (SC) affirming 1955 (28) ITR 811 (Bom.) and CIT v. B.C.Srinivasa Setty 1981 (128) ITR 294 (SC) followed by the Bombay High Court in CKP Mandal Vs. CCE, 2006 (4) STR 183 (Bom) as also in the case of  R&B Falcon (A) Pty Ltd. V. CIT, 2008 (301) ITR 309 (SC), PNB Finance Ltd., Vs. CIT, 2008 (13) SCC 94 (SC) =- 2008 (307) ITR 75 (SC) and Tata Sky Ltd., Vs. State of MP, 2013 (30) STR 337 (SC).

An interesting aspect to note in the context of valuation is the aspect of free of cost supplies which aspect came to be decided in decisions including but not limited to the following –  L & T case [2007-TIOL-176-HC-MAD-ST ], the Delhi High Court in Era Infra Engg Ltd’s case [2008-TIOL-386-HC-Del-ST] and the Calcutta High Court in Simplex Infrastructures Ltd’s case [ 2010-TIOL-899-HC-KOL-ST ] have taken a prima facie view that, the value of the FOC materials cannot be included under the ‘gross amount charged’, we also have the final decision of the CESTAT in the Jaihind Projects Ltd’s case [ 2010-TIOL-124-CESTAT-Ahm ], taking the view that service tax has to be paid on the free supply of materials. – overruled in Bhayana Builders (P) Ltd., Vs. CST, 2013 (32) STR 49 (T). Bhayana Builders (P) Ltd., Vs. CST, 2013 (32) STR 49 (T-LB), free supplies by construction service recipient, for incorporation in constructions would neither constitute non-monetary consideration paid by or flowing from the service recipient, accruing to the benefit of service provider, would be outside the taxable value or gross amount charged for services provided. Refer para 16 for conclusion and discussion at para 11 – 15.  Patel Engineering Works Vs. CC, CE & ST, 2014 (34) STR 789 (T) and HAL Vs. CCE, 2013 (32) STR 783 (T-LB).

It is imperative to note that the scope of the charging section cannot be expanded by way of an explanation or rules. The rules, notifications and circulars or departmental ukases have to toe the line of the levy section and cannot expand the same. An example of a valuation rule attempting to expand the scope of the charge is evident from the decision in Intercontinental Consultants and Technocrats Pvt., Ltd., Vs. UOI & Anr, 2013 (29) STR 9 (Del.) = 2012-TIOL-966-HC-Del-ST where under the valuation rule 5 the GOI attempted to charge / levy service tax on out of pocket expenses, which was negated by the Delhi High Court. The mater is now pending before the Apex Court.

Further the taxable event may occur at one time and the duty chargeable upon that event occurring may be quantified and collected at a later date but there is nothing which indicates that the chargeability itself is postponed to a later date. What is postponed is the quantification and collection and not chargeability. Reference is invited to the decisions in R C Jail Vs. UOI, AIR 1962 SC 128, Shinde Brothers Vs. Deputy Commissioner, AIR 1967 SC 1512 and UOI Vs. Bombay Tyre International Ltd., AIR 1984 SC 420.

The Constitutional validity of rents being taxed under Income-tax law was upheld by the apex court in East India Housing and Land Development Trust v. CIT, 1961 (42) ITR 49 (SC), Utkal Builders v. UOI, 2011 (22) STR 257 (Ori), Shubh Timb Steels Ltd v. UOI, 2010 (20) STR 737 (P&H), Retailers Association of India v. UOI, 2011 (23) STR 561 (Bom), Cinemax India Ltd. v. UOI, 2011 (24) STR 3 (Guj.), Home Solutions Retail India Ltd v. UOI, 2011 (24) STR 129 (Del).

With the above background in mind, for the levy of CGST to be attracted under section 9 there must be supply of goods or services for a consideration by a person in the course or furtherance of business unless such supplies are covered under Schedule I read with section 7 of the CGST.  Usage of the expression “supply of goods by a person for consideration and course of business or furtherance of business” entails mutuality since one cannot sell to one self for a profit and since the word business signifies an activity for profit. These are necessary concomitants of the charge of GST.  What follows thereafter is ascertaining whether the activity of supply is of goods or services. This is because Schedule II r/w section 7 of the CGST postulates on various activities to be construed as supply of goods or services. It is, in my view needless to examine the definition of goods since it is defined to mean every kind of moveable property including actionable claim. More information on the aspect of what is goods and what is service can be had from the decision of the Supreme Court in IOCL’s case AIR 1991 SC 686 which clarified on what can be held to be moveable and immoveable. This decision though not in the context of tax law gives an idea of how to understand the meaning of the words moveable or immoveable. In IOCL’s case AIR 1991 SC 686 the Supreme Court laid down two principles to determine whether anything is moveable or immoveable. The Court held that the object and mode of annexation will determine whether anything is immoveable or moveable. This decision assumes importance in examining whether an activity is goods or service. Services are defined to mean anything other than goods, money and securities. Therefore in order to ascertain whether the supply is a service one has to rule out the application of the definition of goods, money and securities. The latter two words are not discussed herein. The Court, in the IOCLs case held Permanency is the test. The chattel whether movable to another place of use in the same position or liable to be dismantled and re-erected at the later place? If the answer is yes to the former it must be a moveable property and thereby it must be held that it is not attached to the earth. If the answer is yes to the latter it is attached to the earth.

The next aspect to be comprehended due to use of words like “supply of goods by a person for consideration and in the course of business or furtherance of business” in the levy section 9 itself the principle of mutuality has been etched into the charging provision and the principle that one cannot sell to one self for a profit (exceptions being stock transfers, or transfers to related persons) and since the word business signifies an activity for profit, self-service cannot be taxed unless it is in the exception which is schedule I. These are necessary attendants of the charge of GST.

Merely because the levy is attracted it does not entail that payment of GST is mandatory. What has to be further examined in the context of the GST is whether such levy or part thereof is suspended by virtue of any exemption notification. If there are no entries in the exemption notification covering the activities undertaken payment of GST is inevitable and all other attendant procedures necessarily follow.


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Scope prior to 1.07.2012

          Service tax was levied on club or association w.e.f. 16.06.2005. The definition in section 65(105)(25aa) read as follows:

(25aa)          “club or association” means any person or body of persons providing services, facilities or advantages, primarily to its members, for a subscription or any other amount, but does not include —

(i)       any body established or constituted by or under any law for the time being in force; or

(ii)      any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry; or

(iii)     any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature; or

(iv)     any person or body of persons associated with press or media;’]

With effect from 1.5.2006 an explanation was inserted under the definition to the effect that the services under this entry would include services provided or to be provided by an unincorporated association or body of persons to a member thereof, for cash, deferred payment or any other valuable consideration. This amendment was a result of the following decisions amongst others:

  • Saturday Club Ltd., Vs. Asst Commr Service Tax Cell, 2006 (3) STR 305 (Cal.),
  • Dalhousie Institute Vs. Asst. Commr 2006 (3) STR 311 (Cal),
  • Dehradun Club Ltd., Vs. CCE, 2007 (7) STR 519 (T) etc.

The above decisions were rendered on the basis of a well settled principle in law that one cannot do business with oneself. That club and its members were one and the same and there could be no distinction drawn for the purposes of taxation. However, with the amendment referred to above in the year 2006, the above decisions were overcome and service tax continued to be levied on various clubs and associations across India. During Feb 2012 the government again amended the definition to cover services provided by a club or association to non-members.

The issue was again agitated before High Court and the decision in Ranchi Club Ltd., Vs. CCE & ST, 2012 (26) STR 401 (Jhar.) came to be passed. This decision again reiterated the well settled principle that one cannot do business with oneself by relying on the decision of the Supreme Court in JCTO Vs. The Young Men’s Indian Association, 1970 (1) SCC 462 (SC) wherein it was held that there was no service amongst members.

Scope post 1.07.2012

          The entire scheme of service tax law underwent a change given the shift from positively defined service taxation to a negative list based taxation. Post 1.07.2012 therefore what assumes importance is to examine whether club or association services of charitable nature or in the nature of public service would be excluded from the purview of service tax. The issue of mutuality subsisted after 1.07.2012 because of usage of the words one person to another in the definition of service in section 65B(44) of the Finance Act, 1994 (as amended).  The quandary continued into the dispensation after 1.07.2012. The taxability of clubs or associations would therefore not change even after 1.07.2012 on the principle of mutuality.

Be that as it may, the GOI issued a mega exemption in notification no.25.2012, dt.20.06.2012 wherein at serial number 28 (abstracted below) service by an unincorporated body or a non-profit entity registered under any law to its own members by way of reimbursement of charges or share of contribution up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex, was exempted. The words used in the exemption notification are up to 5000 which means that even if the contribution is 7000 the exemption will operate up to 5000. This is elementary. If any other construction of the exemption prevails then the words up to in the notification are rendered redundant, which cannot be permitted in tax statute. The entry of the notification 25/2012-ST is abstracted herein for ready reference:

“28.Service by an unincorporated body or a non-profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution –

(a)      as a trade union;

(b)      for the provision of carrying out any activity which is exempt from the levy of service tax; or

(c)       up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex”;

However, the CBEC in 2014 by its Circular No.175/1/2014-ST., dated 10.01.2014 issued from F.No.354/237/2013-TRU clarified that if the per member contribution exceeded five thousand rupees the entire contribution was liable to service tax. In other words if the contribution was 7000 the entire 7000 was liable to tax and the exemption of up to 5000 was not available to such contributor.

Presently because of the use of words like “supply of goods by a person for consideration and in the course of business or furtherance of business” in the levy section 9 itself the principle of mutuality has been etched into the charging provision and the principle that one cannot sell to one self for a profit and since the word business signifies an activity for profit, self-service cannot be taxed unless it is in the exception which is schedule I. These are necessary concomitants of the charge of GST.

Be that as it may, and assuming that GST is applicable on maintenance charges in housing complexes, the entire amount of the maintenance is not taxable. This is because as was the practice before 1.7.17 the Government of India in its wisdom has exempted from taxation a certain value of maintenance paid. The entry in notification no.12/2017-CT(Rate) is abstracted below for ease of comprehension:

“77. Service by an unincorporated body or a non- profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution –

(a) as a trade union;

(b) for the provision of carrying out any activity which is exempt from the levy of Goods and service

Tax; or

(c) up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex.”

However, the entry (c) above is interpreted in a manner as clarified by the CBEC in its Circular of 2014 which, in my view frustrates its objective. This is explained by way of an example. Two housing societies for non-profit managing its affairs are charging each of its members Rs.4999 and 5001 respectively. The Question is – In terms of the above entry how much of the value is exempted. In the first case i.e. 4999 it is fully exempted no doubts on this. In the second eventuality i.e. 5001, the question is whether the entire amount of Rs.5001 is taxable (which is the view propagated by some) or whether it is only Rs.1 which is taxable given the exemption.

The Government of India has by using the words “up to” indicated that even if the amount of maintenance collected is above 5000 say 6591 the exemption will work up to an amount of 5000 and only the balance 1591 will be taxable in the present GST dispensation. This is because if the entire 6591 is taxed the words up to loose their significance which in a tax statute cannot be permitted. This is called the rule of strict interpretation.

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Samuel Alito said – A judge can’t have any preferred outcome in any particular case. The judge’s only obligation – and it’s a solemn obligation – is to the rule of law.

Language is an imperfect medium of conveying intent is well documented. However, since no other means of communication exists, language is by default the means of communication. The impasse that we find ourselves today is not because of language though. The solution to the problem of pre deposit has proven to be more expensive than the problem due to application of unheard of principles of interpretation to various sub-clauses in one provision. Section 35F of the Central Excise Act, 1944 & 129E of the Customs Act, 1962 (CA) were amended w.e.f. 6.08.2014, where the fundamental purpose of the amendment, was “to reduce the burden of the Tribunals”. Whether the recent Larger Bench decision dated 20.04.2017 furthers this objective, is the topic of this paper.


The sections are not abstracted herein to reduce the size of an already lengthy paper. Readers may refer to the same separately. What emanates, for me, from a careful reading of the provisions of section 35F of the Central Excise Act, 1944 (CEA) and section 129E of the Customs Act, 1962 (CA) is –

The Commissioner (Appeals) shall not entertain an appeal:-

i. Where an order is passed by an officer lower in rank than a Principal Commissioner / Commissioner and the appeal lies before the Commissioner (Appeals) the Appellant has pre deposited 7.5% of the duty or penalty pursuant to a decision or order passed by an officer lower in rank than a Principal Commissioner / Commissioner

ii. Where the order is passed by Principal Commissioner / Commissioner and appeal lies before the Tribunal 7.5% of the duty or penalty pursuant to a decision or order appealed against

iii. Where the appeal lies to the Tribunal from the order at i above on payment of 10% of the duty or penalty pursuant to a decision or order appealed against.

The heading of section 35F & 129E of the CA read: – SECTION 35F. Deposit of certain percentage of duty demanded or penalty imposed before filing appeal. SECTION 129E.Deposit of certain percentage of duty demanded or penalty imposed before filing appeal. Though heading of a section cannot be used in interpreting the provision, it nevertheless sheds some light in the eventuality that the provision has to be interpreted.

The critical aspects which emerge from the above provision are that the appeal at above is a fall out of In other words is inaccessible unless is exhausted. I’m not getting into the concept of doctrine of merger of order’s here, though it is a relevant aspect which also has to be factored. Unless and until an Appellant exhausts, he cannot approach Both the sub-clauses i.e. section 35F & 129E (i) & (iii) are therefore linked and cannot be read de-hors each other. I note that this aspect of linkage between 35F & 129E (i) & (iii) does not find a mention in the LB order nor in the CBEC Circular or other relevant decisions cited in the LB decision. It is therefore possible that this aspect was missed out. The principle of law i.e. per-incurim and sub-silentio may be applicable to the decision of the LB since it has the possibility of being applied as a precedent. Which brings me to – Whether it is incumbent on judges to take cognizance of law / legal aspects which have not been brought to their notice?  As per Supreme Court decisions it is obligatory on the part of judges to take cognizance of aspects though not brought to their notice. This is not an issue under deliberation and hence not pursued.

I have no doubts in my mind about the % of pre deposit to be made when an appeal lies before the Tribunal arising out of an order of the Commissioner (Appeals). Section 35F of the CEA and 129E of the CA have no ambiguity whatsoever, if one attempts to understand the provision holistically given the entire circumference of the reason for the amendment and subsequent clarification by the CBEC. In short ambiguity is conspicuous in the sections by its absence.

The purpose of amending section 35F of the CEA and 129E of the CA arose because of the huge pendency before the Tribunals across the country and because main / regular appeals were not disposed off and stay matters kept piling up and the entire time of the Tribunals was gainfully employed in hearing the stay applications. The Finance Minister at paragraph 252 of Budget speech of 2014-15 has clarified on the purpose of the amendment to section 35F of the CEA and 129E of the CA – “To expedite the process of disposal of appeals, amendments have been proposed in the Customs and Central Excise Acts with a view to freeing appellate authorities from hearing stay applications and to take up regular appeals for final disposal”. The purpose of the amendment is therefore known and there can be no escaping this knowledge. How far this amendment has achieved the purpose ought to have been a question which the LB ought to have asked itself. In 2014 vide Circular No.984/8/2014-CX dated 16.09.2014 (which Circular was further clarified by another Circular) the CBEC in its usual wisdom on receipt of doubts clarified at Para 2.1 that “it is therefore, clarified that in the event of appeal against the order of Commissioner (Appeals) before the Tribunal, 10% is to be paid on the amount of duty demanded or penalty imposed by the Commissioner (Appeals).

Para 3.1 clarifies “3.1Payment made during the course of investigation or audit, prior to the date on which appeal is filed, to the extent of 7.5% or 10%, subject to the limit of Rs. 10 crores, can be considered to be deposit made towards fulfilment of stipulation under Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962

Para 3.2Since the amount paid during investigation/audit takes the colour of deposit under Section 35F of the Central Excise Act, 1944 or Section 129E of the Customs Act, 1962 only when the appeal is filed, the date of filing of appeal shall be deemed to be the date of deposit made in terms of the said sections.  

Interpretation of the amended section 35F of the CEA and 129E of the CA, if any, therefore ought to have adopted the above approach keeping within their sights the above background and backdrop of the clarification given by the Finance Minister on the floor of the Parliament and the clarification by the CBEC. Both these clarifications when read with the sections 35F & 129E and when the provisions including all sub-clauses are holistically appreciated (not independently but holistically) would bring out the aspect that firstly the amendment should not be interpreted so as to give rise to more litigation and that any interpretation to the provision should not fuel litigation but ought to reduce it and enable Tribunals to dispose of main appeals. Secondly that when the amount deposited during investigation is to be reckoned towards pre deposit, the amount of pre deposit made before the Commissioner (Appeals) also ought to be reckoned for the purpose of fulfilling the condition precedent of pre deposit in appeals before the Tribunals where the adjudication is by officers lower in rank than the Principal Commissioners / Commissioners.


The question now determined by the Larger Bench of the CESTAT in Order No.39/2017 dt.20.04.2017 is on the issue where appeal lies before the Tribunal when Commissioner (Appeals) has passed an order contested by the taxpayer. Whether on appeal to the Tribunal only the differential 2.5% (10% – 7.5% already pre deposited) is to be paid or an additional 10% ignoring the earlier pre deposit is to be paid ought not to have been an issue, given the speech on the floor of the Parliament by the Finance Minister as also the words employed in section 35F of the Central Excise Act, 1944 (CEA) or 129E of the Customs Act, 1962 (CA) as also the clarification given in the Circular of 2014 in Para 3.

The determination of the answer to this issue is factual because pre-deposit is a legislative prescription by the Parliament to exercise the right of appeal – it is not an absolute right i.e. reasonable restrictions can be placed on the exercise of this right, it being a statutory right. Section 35F of the CEA and 129E of the CA in the amended form were brought into force with effect from 6.08.2014 where the Finance Minister in the Budget of 2014-15 stated in his speech at paragraph- 252 “To expedite the process of disposal of appeals, amendments have been proposed in the Customs and Central Excise Acts with a view to freeing appellate authorities from hearing stay applications and to take up regular appeals for final disposal”.  Emphasis in bold supplied. The interested reader may refer to the decisions of the apex court in Vijay Prakash D. Mehta Vs. CC, 1989 (39) ELT 178 (SC) and Bhavya Apparels Pvt., Ltd., Vs. UOI, 2007 (216) ELT 347 (SC), for more insight on the aspect of pre deposit. Also to CC & E, Vs. A. S. Bava, 1978 (2) ELT J333 (SC).

This brings us to the next question – what happens to the pre-deposit made before the first appellate authority when the second appeal is to be preferred before the Tribunal? The Larger Bench in their wisdom have determined at Para 6.1 that pre deposit needs to be refunded in accordance with law. At Para 6.2 they state that the pre deposit needs to be decided in accordance with law.  Whether the Finance Minister’s speech and intent of bringing in mandatory pre-deposit vide ss. 35F of the CEA & 129E of the CA would be fulfilled given the LB’s approach, is a question best left unanswered. The propensity that the LB’s decision has to further lis interpreting a provision intended to reduce the existing burden of lis, is an example of paradox.

What is concerning is whether judges are aware of their mandate when they decide cases sitting on benches as “their lordships”, that they owe a responsibility to the litigating public as also to uphold the rule of law, the latter of which ought to be foremost on any judges mind as stated in the preamble to this paper.

The decision of the Larger Bench raises these three fundamental questions:-

  • Is the decision just?
  • Is the decision fair?
  • Is the decision judicious?

The above questions lead me to another issue – Should a decision be just, fair and judicious? To me personally, the answer is in the affirmative. This is because the judges are on the bench to render / deliver justice over everything else. In doing justice due care and attention ought to be given to the language and the letter of the law and the letter of the law ought to be interpreted keeping in mind the spirit of the law. However, the language and the letter of the law ought to be interpretationally guided by the spirit of the provision rather than the letter. The overwhelming sense of justice ought to be the pervasive factor in deciding cases, nothing else. Justice not only to the facts / litigating populace but also to the rule of law.

The LB decision advances a proposition that sub-clauses in s.35F of the CEA & 129E of the CA have to be independently interpreted. This statement in the LB order, in my opinion has no basis. The question – Why should these sub-clauses be independently interpreted? is left to the realms of imagination. There is no light thrown on this aspect in the LB decision. I was unaware that sub-clauses in one provision have to be interpreted as independent provisions. If this be so – why were they enacted as sub-clauses and not separate sections by themselves? I was under a belief, being a student of Interpretation of Statute that the question of interpretation arises only when there is an ambiguity on a plain reading of a provision, “a provision” being the operative word. The provision sought to be interpreted presently is section 35F of the CEA and 129E of the CA. On a plain reading of the provision there is no ambiguity therein which calls for interpretative skills to be deployed to reach a conclusion. There exists no impasse when one reads the provision as a whole. Reading a provision as a whole is one of the principles of statutory interpretation, which principle did not find favour with the LB.  The LB decision however with regard to the Circular of 2014 states that the same presents no ambiguity. I have never in my years of experience as a student and practitioner of law come across a principle of law laying down a principle that “created ambiguity” ought to be interpreted and a forced impasse resolved. The ambiguity may have been created by the CBEC by issuance of a Circular in 2014, but the LB states that the Circular did not create any ambiguity. This brings me to the principle of ex-abundant cautela – which may be the basis for issuance of Clarifications by way of Circulars where none are called for or required. Interpretation ought to be of a provision (provision being the operative word) irrespective of the number of sub-clauses.

The decisions cited in the LB decision may provide us with some answers. They therefore have to be carefully appreciated.

  • Balajee Structural (India) Pvt., Ltd., This is not a reported decision.
  • Hindalco Industries Ltd., & Ors Vs. CCE, 2016-TIOL-3050-CESTAT-KOL, the relevant part begins from Para 4 of the decision where the issue involved has been stated as whether Appellants are required to deposit an additional 10% of duty confirmed……….. This issue has been answered at Para 4.2 as neither section 35F(iii) of the CEA nor CBEC Circular dt.16.09.2014 specifically mention whether 10% deposit required before appeal is entertained should be inclusive of 7.5% deposit made before the first appellate authority………. After success at the level of the first appellate authority may be Legislature wants that the case has passed one test of first appeal successfully and Revenue deserves an additional 10% of the duty or penalty as deposit till the issue is finally decided in the second appellate stage. At Para 5 the conclusion – In view of the above Appellants were required to pay additional 10% deposit…………….
  • ASR Multimetals Pvt., Ltd., & Ors- 2016-TIOL-3154-CESTAT-Ahm, where the only reference to the saga of s.35F & 129E is in paragraph 3. Paragraph 3 nowhere brings out the ambiguity in section 35F of the CEA or 129E of the CA. Further, the fact that what is paid before the Commissioner (Appeals) before preferring a first appeal is an amount of pre-deposit of 7.5% has also not been appreciated as a fact.

Where is the justice or the rationale in not adjusting former pre-deposit against future pre-deposit when the deposit made at the time of investigation (as clarified in the Circular) is to be adjusted against pre deposit to be paid at any stage be it Commissioner (Appeals) or at the stage of the Tribunal? What is the difference between the pre-deposit made before preferring an appeal before the Commissioner (Appeals) and before preferring an appeal before the CESTAT?  Why is it that functionaries of our system don’t function with a sense of serving the public and always serve the mandarins in the North Block? Why is it that benefits never percolate to the deserving but always have the capability of working to the deleterious interest of the litigating public?

The why’s, it appears are mightier than any answers.

The informed reader would do well to know that in the decisions cited and referred to by the Larger Bench there is not an iota of space dedicated on the ambiguity in the law i.e. the ambiguity in the provisions of section 35F of the CEA and provisions of section 129E of the CA. There is much on “created ambiguity” i.e. Balajee Structural (India) Pvt., Ltd., Hindalco Industries Ltd., & Ors and ASR Multimetals Pvt., Ltd. If these decisions were to be carefully read, what follows is that there is an affirmation of an opinion without any deliberation on the process of arriving upon such an opinion. That the provision reads so and so and that the conclusion is so and so. There is no discussion on why such an opinion is arrived upon. The basis of entertaining the conclusion is unknown. There is no deliberation on why such a conclusion is warranted given the Budget speech of the FM at Para 252. There is no discussion on what are the differences between pre-deposit made before various appellate authorities in the hierarchy of one department and deposit which can be adjusted paid even before the lis can commence against pre deposit payable after commencement of the list at the stage of appeal. There is no discussion on how factually the pre-deposit made before the first appellate authority would lose its contour as a pre-deposit when the balance is paid before the CESTAT. All these and many more questions remain unanswered. The manner in which conclusions are formed to look as ratios (albeit ostensibly) is turning bizarre in these testing times. The so-called discussion in ASR’s case is an opinion. Not a decision.  The recent CBEC Circular on the process of adjudication and appeals may be gainfully referred to by the interested reader if justice is what is to be dispensed at the altar of the CESTAT. Reference to the following decisions of the apex court is invited to appreciate the meaning of a speaking decision – Kranti Associates P. Ltd., Vs. Masood Ahmed Khan, 2010 (9) SCC 496 also CIT Vs. Jagit Singh Chahal, 2014 (369) ITR 260 (P & H). Be that as it may, leaving aside the point that the order is not a speaking order, the question is whether the Larger Bench order is fair and judicious? Whether the order has done justice to the language employed in section 35F of the CEA and 129E of the CA?

In my opinion it has not. Now this is an opinion after due deliberation on the why and how of the process of decision making in the context of this deliberation. This is because, the LB order does not take cognizance of the fact that where a provision has been inserted in an enactment with a purpose – being reduction in litigation and pendency, the said provision ought to be interpreted (only if there is ambiguity) not otherwise and if interpreted ought not to have the capability of furthering the cause of litigation. What is not supposed to be done is exactly what has been done. The interpretative ingenuity in the decision of the LB is that where one section has various sub-clauses, the various sub-clauses (emphasis supplied in bold) have to be read as independent provisions and not as a whole. EUREKA! is the expression that comes to mind at this juncture. Such a reading and advancement of such a principle is ludicrous to say the least. It belies understanding of basics and fundamentals. The decision of the LB has shown us benchmarking of the depths to which one can delve not heights of judiciousness.

To examine whether there is any ambiguity in 35F or 129E some examples will prove useful – since examples are pictures in the context of words where a picture speaks a thousand words:

  1. A Joint Commissioner confirms a demand of 1,00,000. I prefer an appeal before the Commissioner (Appeals) on pre deposit of 7,500/- being 7.5% of the order impugned. The Commissioner (Appeals) reduces the demand to Rs.10,000/-. Do I need to pay an additional 1,000/- being 10% of 10,000 before preferring an appeal to the CESTAT? Here I have paid 7,500/- more than 7 times the requirement. The question therefore is – What will be just?
  2. (For the purpose of this example I have assumed that the Additional commissioner can adjudicate demands of 1000 crore). Assuming an Additional Commissioner demands 1000 crore, I prefer an appeal before the Commissioner (Appeals) on pre deposit of Rs.10 crore, 10 crore rupees being the maximum. Since 7.5% will be more than 10 crore. The demand of 1000 crore is confirmed by the appellate Commissioner. Do I have to pay an additional 10 crore as pre deposit on appeal to the Tribunal? What will be just?
  3. There is an investigation conducted during the course of which I pay 2 lakhs. The SCN raises a demand of 10 lakhs, which is confirmed. I prefer an appeal before the Commissioner (Appeals) citing payment of 2 lakhs in compliance with the requirement of pre deposit of 7.5% which actually works out to 75,000. The demand is reduced to 5 lakhs by the Commissioner (Appeals). Do I have to further pay 50,000 in compliance with 10% of pre deposit while an amount of 1,25,000 remains as deposit despite adjusting the 7.5% already paid. How should the section be interpreted in this context? What will be just?

I can go on with examples. However I think I have painted a detailed enough picture to make my point. If the decision of the LB of the Tribunal is to be given effect, the answer to all the above examples would be a resounding YES. Further pre deposit will have to be made irrespective of the fact that in two examples above an amount more than the prescription has already been deposited.  Thereby, resulting in pre depositing more than what is stipulated under the CEA / CA. This will lead to a situation which is not envisaged in the CEA section 35F or the CA section 129E. Such a supposition will be excessive exercise of power wouldn’t it? Being a creature of the statute the CESTAT cannot transgress into the domain of the legislature, in the name of interpretation. This is more-so because the Circular of 2014 clarifies on deposit made during investigation which graduates to a pre deposit on an appeal but a pre deposit made before the first appellate authority i.e. Commissioner (Appeals) will not be eligible to be adjusted as pre deposit before the CESTAT is a proposition which one may not be in a position to digest. The LB decision stultifies the intent, content, the letter and the spirit of section 35F of the CEA and 129E of the CA. The question that all of us have to therefore ask is – Whether deposit made prior to the process of adjudication and pre deposit made before preferring an appeal have to be treated differently?

Whether by adjusting the pre deposit made before the lower appellate authority in reckoning compliance with pre deposit to be made before the CESTAT the purpose for which section 35F & 129E were amended will be fulfilled or stultified?

Lastly – By adoption of which method will litigation reduce?

I leave these questions unanswered and in the good hands of the esteemed readers.

All in all “good judgment ought to come from experience a lot of which comes from bad judgment”. The present LB decision is therefore experience which when cannot be cured has to be endured.

Posted in Appeal, CESTAT, Excise, First appellate authority, pre-deposit, Tribunal;, Uncategorized | Tagged , , , , , , , , , , , , , , , , , , , , , | Leave a comment


The latest update on the world famous in India – GST on 3.11.2016 – is that the lowest tax slab will be 5% wherein items of mass consumption will be taxed. Emphasis on the words in bold. In the very next line what follows is confusion in vision and lack of clarity in thought Exemplified by the statement – “there will be two standard rates of 12% and 18% where a majority of the items used by the common man will be taxed”. The question which imperatively begs consideration is – What are these items of mass consumption?, What are the majority items used by the common man?, Who is a common man? and What is the difference between items of mass consumption & majority of items used by the common man? Time & tide will alone tell.

If the sincere attempt of the GOI were to actually simplify the rates for items of mass consumption and majority of items used by the common man, Should’nt the GOI have firstly included the product called petrol into the GST? and secondly imposed 5% on petrol? Is there any other item of mass consumption / majority of item used by the common man than petrol?

Be that as it may, stretching the concept of – items of mass consumption / majority of item used by the common man, Should’nt there be a tax on polluting the air? – Is’nt this an activity which is of supreme importance for the denizens of the world let apart items of mass consumption and majority of items used by the common man?

To conclude – the entire concept of GST is flawed in its design and structure. It is nothing but the old enactments in an avatar called GST with all their cons and aided by good measure of some more ills astutely thought of by the mandarins in the north block, which completely negate the very scheme and vision of bringing into India the GST. It is a shining example of an enactment which is regressive and lacking in vision. It is a shining example of bits and pieces borrowed from the existing laws (nothing new here in the so called draft GST). It is touted to be the paradigm shift in indirect taxes, which to a great extent will be true by the sheer mass of litigation it will fuel, if brought in as it is proposed. The industry can forget the ease of doing business and mentally prepare for the unease of doing business. In addition to increase in compliance costs, to filing everything online, you will be expected to give hard copies for refunds at the whims and fancies of the department.

From the word go in the proposed draft GST Organisations presently mandated to have one centralized registration will have to be decentralized and all such decentralized units will have to follow attendant compliance processes. To give a tad bit of insight, every unit will have to file not less than 48 returns a year, so much for simplicity so much for ease. Further, there are issues of dual control, mapping of Cenvat credit, denial of Cenvat credit etc., etc., etc.

Do tell me if the proposed GST is on supply, be it goods or services, where is the requirement to retain the differentiation between goods and services? What is the logic in such a vision, design and structure?

The jamboree called GST reminds me of the adage – It is the tail that wags the dog. May God help us all.


Posted in 122nd, GST, GST Update, Items used by the common man, Mass Consumption, Revenue Neutral Rate, RNR | Tagged , , , , , , , , , , | Leave a comment


Devil is in the detail is an adage which is apt in the context of Revenue Neutral Rate [RNR] proposed under GST. Reasons follow.

Constitutionally, the mandate is empowerment of the State & the Center separately. Achieved through specific aspects in List I & II in the VII schedule to the Constitution. This separation of power to tax various aspects/spheres is to secure to the States their independence to generate revenue so that dependency on the Center is reduced. This ensured that the federal structure enshrined under the Constitution, which structure is also stated to be the reason for adoption of dual rates under the GST, remained intact.

What is the requirement for a RNR? It has been answered that the expected loss to producing States. If this is a fact – pray, guide me, where is the empirical data which suggests the loss? Where is the empirical data depicting revenue streams to various States?

Be that as it may, the GST proposals in the 122 Constitutional amendment bill stipulates that fixation of rates under the GST dispensation is to be dependent on the recommendation of the GST Council. Pray tell me – Why is this so? When the States are empowered to fix rates as they desire – where is the requirement to give them a bandwidth within which they may exercise their power? That apart, the propriety of such recommendations and their binding capability on the States, is a matter in the realm of speculation. A thought to ponder is – Would the recommendation by the GST Council not be considered to be a fetter on the State Legislature in the discharge of its Constitutional prerogative? Will such recommendation by the GST Council not be a delegation of the exclusive powers of the States?

If power derived by the States under the Constitution is proposed to be exercised within a bandwidth, while all along I have been told that exclusive powers of the legislature cannot be delegated-directly or indirectly, it would result in a shaky foundation. The design and structure of the proposed GST itself is flawed.

Posted in 122nd, 122nd Constitutional Amendment Bill, Customs, Excise, GST, Revenue Neutral Rate, RNR | Tagged , , , , , , | Leave a comment



Progress is man’s ability to complicate simplicity – Thor Heyerdahl.

 Promise –  Information available in the public domain makes the following claims in respect of GST:

  • Broadening of tax base,
  • Reduction of distortions in economy through a more comprehensive input tax credit,
  • Enhancement of export competitiveness by comprehensively relieving domestic consumption taxes on exports,
  • Ensuring greater regional equity by getting rid of inter-state sales tax,
  • Having a destination-based tax,
  • Help creation of a seamless national market by removing inter-state trade barriers,
  • Reducing compliance costs for taxpayers by simplifying and harmonising tax structure and making administration uniform across states. (emphasis in italics and underling supplied)

A query in this regard – Whether the tax proposals are progressive?

Answer lies in the negative bringing me to – Why can’t we as Indians (I’m thinking of us as the race which had nuclear bombs, planes and all kinds of contraptions which are not fathomable today i.e. in the times of Ramayan / Mahabharat) come upon tax innovation?, set the pace for the rest of the world, set a benchmark in implementing innovative, transparent and efficient tax administration / system (emphasis supplied). I realize, on introspection, that the answer to this quandary lies in us, as people. The varied janata / population given India’s density of population and the challenges that this in itself brings, let apart business, putting in place complex tax structures involving a mix of free use and abuse of principles of interpretation of law, lacuna in legislation, vague policy which is miles apart from practice and lastly implementation which needs radical transformation of mindset and hence by necessary implication a radical tax policy, legislation and entire re-vamp of tax administration.

Why ape Europe / west and attempt to implement the ways in which they legislate, they administer and they make policies, in the Indian text, context and sub-text when experience advises that apples and oranges are not comparable. It’s as if we (Indian’s) for some strange reason which alludes me are in awe of what the gori chamdi does. It’s not as if India, in the past has had a dearth of SAVANTS or in the present will ever have a brain drain, that figuring out for ourselves innovative ways to manage our taxes better becomes an attempt to ape the west/east and the rest of the world. Some suggestions do follow in this deliberation It’s not all negative, as some may choose to call it.

Present – The existing condition of India’s economy, given the morality of the general public, businesses and tax administration is evident from the paradox which the above vision, if I may call it that – promises. The present dispensation of in-direct taxes when logically evaluated, what emanates is – Customs Act, 1962, Central Excise Act, 1944 and Finance Act, 1994 form the pool of Central in-direct taxes apart from Central / State Sales tax levied on inter/intra-state sale of goods. All these levies except for customs are to be subsumed in GST (CGST, SGST & IGST) in addition to other levies. Presently law relating to Central in-direct taxes have a semblance of being settled in the sense that the words, phrases, sections, etc., are in some state of inertia given decades of contentious litigation (most of which still finds place in Courts/Tribunals). Legislation is an exercise in which all and sundry are involved and pundits sitting in the north block ably added by the bureaucracy determine outcome of legislation. In other words lacuna in the name of certainty, deletion of benefit in the name of reducing distortions, insertions of more and more condition precedents for input tax credit, keeping refunds in a state of flux without appreciating that the interest cost would again fuel inflationary trends, distorting sectors by inadequate policies, legislation, and the like. All of the above are solely attributable to the skeptical mind-set of the tax administration who still believes that they collect tax for the British. Investigations are abandoned for gratification and where it ought to start it stops. Umpteen instances where the Government to save face has had to retrospectively amend laws to the detriment of business in India as also for MNCs bears witness to this averment. I’m not for a moment, stating that all tax ill’s are attributable solely to tax administration, businesses are also equally to blame, it’s not as if one can expect in India that there is a lacuna in law and the business community brings it to the fore and plugs it before damage is done. Though, some naysayers may point out recent controversies created by the legislature and judiciary-there is no denying that fact. Aberrations would always be a part of the larger picture of chaos. Point being, that existing machinery of in-direct tax laws can fairly be said to be well oiled capable of exacting taxes (legal or otherwise) from its tax-paying denizens. The going thus far is more or less good and the law more or less settled. Give or take about 10 percentile points either way.

The Government (In-direct tax department) has its own way of functioning – it’s like the rest of India where people cannot fathom the Goan way of life – “sushegath” which equals “aram se” in Hindi. The departmental officers are in a comfortable position where show cause (kas in kannada means money) notices (SCNs) are issued periodically without taking a stand on the legality/tenability of the demand. It’s as if the department at some point of time lost it’s spine. SCNs are issued for heck’s sake and the justification is “I don’t want anybody pointing fingers at me.” Despite the outcome which is in no way linked to the tenacious officer’s APRs. More-so, since the seniors writing the APRs have also gone through the same rigmarole.  No one takes a stand contrary to “higher powers.” Intellectual dis-honesty is the norm and justifications ample, lest, it’s a hindrance to one’s promotion. To put it plainly never have I seen some government officer who is expected to serve the public actually serving the public, what is happening in the name of service is self-service and dis-service.

I have never in my life seen class divide as I’ve seen in the GOI (any department) where even if the occasion is republic day or independence day, the tea and snacks served to Class I officers and so on and so forth has to be at a different venue albeit in the same premises when compared with Class IV officers. It some-how perpetuates an aura of they are more important – a paradox in itself. Lal-bathis are another case in point.

Coming back, the periodicity of issuance of the SCN does not in any manner improve the quality of the show cause and uses time, effort and money in a wasteful manner. Whose time, whose effort and whose money – ours as a nation. The efficiency is never measured, its managed. In management terms it’s a branch called perception management, which the department manages well at the cost of efficiency. The upholding of the demand by the highest court of the land is not the criteria for APRs. It is issuance and confirmation of demands at the adjudication levels, which as all of us know is a farce, which form the basis. Such measures, if perpetuated – can anyone expect it to be anything else but distortionary /far away from the truth as can be. I have appeared (in my professional capacity) before officers who choose to listen to music while purportedly listening to me argue the case and sway their heads to the tune of the music. Adjudication is a sham and ought to be done away with – why unnecessarily conduct a procedure when it ought to be done in spirit. Embellishments need to be done away with.

I may add here as an anecdote that the deliberation here does not include amongst others, monthly doles which service providers, manufacturers, CHA’s, importers, sellers and other business doing citizenery shell out for the personal betterment of the law enforcing officers and thus by analogy law abiding tax administrators. The figures would be capable of running a small nation. I’m not aware of any survey / sting operation being conducted in this regard. All of us as citizens have come to accept this as a part and parcel of doing business whether with or without ease.

Ground Reality – Any law cannot envisage all fact situations – is reality. Creases / lacunas / interpretational nuances, if any are ironed out by litigation. Under the four enactments referred to supra i.e. Central / State in-direct taxes the attendant procedures to be followed are varied. By procedures what I mean is once the levy stands attracted, the next issue is of valuing the levy in terms of the enactments, rules framed thereunder, notifications-circulars issued and impromptu fly by night circulars / dikats / ipse-dixit of the tax administrators who have not been given their dues sorry doles. The principles to be followed for valuation of the respective levies are dissimilar, the periodicity of filing various returns and attendant procedures are also unlike. Further, the Cenvat Credit scheme w.e.f. 2004 has been made applicable across the goods and services sectors, which move I doubt has eased any pressure for the assessees’. Further, the Cenvat Credit scheme which is purported to be simple is anything but simple. There are disputes galore attributable mostly to the irreverently invalid arguments propounded by self-proclaimed experts serving the department for eons. The disputes are clearly unwarranted. The statics of departmental wins at the higher levels of judiciary establish this point- Refer cbec website for more details on the stats. Such administrators, for the sake of convenience are referred to in this deliberation as revenue generating machines (RGMs).  Most in-direct tax practitioners, “consultants” / in house tax departments know extremely well of the how’s to deal with RGMs. Point being, however well-oiled a machine may be, it requires to be driven and when the drivers are RGMs, frivolous litigation mushrooms. Empirical studies on government website referred to supra proves this point. The latest Excise Law Times in its editorials pegs the figure of pending cases before the CESTAT at a whooping 100000/-. The existing mechanics of in-direct taxes has too much semantics built in necessitating lis bringing Courts / Tribunals / Quasi-judicial forums into picture. This is apart from the ADRs referred to above. The so-called settlement commission is an example in point. Practice is whosoever goes with howsoever clean hands they are all thieves. Most of us denizens have to pay for our sins (read taxes-legal or otherwise) and clear our dues before we can dream of taking one step in the direction of growth. The blame is not solely on the administrators it’s also the fraternity of professionals some of whom I have reason to believe (without cogent proof of course) since I’m no Snowden/Julian Assange, are instigators giving impetus to the law abiding efficient and diligent administrators to obtain some – how do we say, in diplomacy – leverage so that their lives are comfortable. What is the cause – the GOI pays the best brains who have cracked the civil services a pittance which cannot provide anything else but an ego boost, which is all lost after superannuation.

Cause –              Onus is a word which an interpreter of law comes across often. A synonym for which is responsibility not only moral or professional, but also intellectual. It is my view that unless and until onus / responsibility is cast on tax administrators for each of their acts / actions, discharged in the course of rendering government service, there cannot be a change in the manner in which business is done nor would there be any hope in ease of doing business. All promises would fade if onus / responsibility is not cast on administrators. I do not see any expert in their reports bringing out this aspect. Neither do any of the recommendations propose any kind of responsibility on the tax administrator. My guess is that, the powers that be in the bureaucracy thwart any recommendation / change in this regard, if any. However, this does not preclude them from seeking increase in their pay scales. The VII pay commission report is an example in this behalf.

India expects everything stated above to change overnight by the sleight of hand that by legislating a law to be called GST all the ills of tax administration would be done away with. This is akin to expecting local blended whiskey to taste like single malt. No mother’s son (to use Shri Aurobindo’s language) has even attempted to cast responsibility on the administrators. I do not see one word about responsibility in the public domain juxtaposed with what is out there as we (commoners) know of GST. It’s a misnomer i.e. the word responsibility when we think of tax administrators. This is despite the despicable litigation results of colossal cases built up by the efficient, diligent and ever so law abiding james bond wings of the revenue i.e. Anti-evasion / DRI etc. I think they teach them how not to get caught while making a pathetic case against the dole givers. Kindly do not think that I’m generalizing here. But a majority of the 007 division are dole takers not DHARMA following Dharmadhikaris rendering a service to their denizens or to our Nation.

Reason –            I think (and this is my conspiracy theory) that the first thing that BJP ought to have done once they were in power is to shuffle the entire Bureaucracy up in the North block. Theory being – governments come and governments go – who remain constant like fixtures in the North Block it’s the North Blockers. Hence, they (North Blockers) have become a parallel government and are the ones who have their say to the detriment of the public at large. Take the example of how they try to dictate to the business men how to do business when they have not an iota / ounce of experience in doing business. Of how they expect forecasts of growth every year from businesses, while having the largest ever imaginable data base on businesses. How the trained 007 division of the GOI directs assesses under investigation to provide information in simple formats dictated by them. How they hoist false cases against assesses who refuse doles and the list goes on. North blockers are good at getting pay commission recommendations passed for which all of us the commoners have to bleed / shell out so that they (North Blockers) can increase their emoluments /pays without increasing their responsibilities and travel in lal battis. They have no inkling of any responsibility. All they can do is expect to get paid irrespective of what time they come into office, how they discharge their duties, how intellectually honest they are in serving the public and without asking themselves how morally, intellectually and professionally they diligently (in fact) discharge their duty for which they are paid, get a car, get accommodation, get TA/DA in addition to getting the right of doing us the common denizens a favour.

I suggest a radical approach in making them fall in line or fall by the wayside,  take away all their perks, perks ought not to be dependent on their class / grade of pay etc., it ought to be based on merit and deserve and desire ought to be the mandate. That it should be made mandatory for all of them irrespective of their grades / class to travel by Government transport be it metro / buses. Imagine how much the country would save. Refer to the number of central government employees and do the math. Further, perks ought to be linked to cases built up by them being upheld in the highest court of the land / High Court/Supreme Court. How about their promotions are not based on seniority (how many years they have put in) but based on performance which is linked to professionalism, diligence and intellectual honesty. How about they are made accountable for their acts and there is a separate department in every administrative agency which consist of us common denizens (like a jury which takes stock on a monthly / bi-monthly / quarterly / half-yearly and yearly) basis and only thereafter their promotions / perks are decided upon. How about they do not get anything for granted just because they have reached a particular level. How about banning all Delhilites from being eligible for government jobs except if it is not in Delhi. I think it is time that there are radical changes made in the administrative set-up, since they like a party that ruled us for more than 60 years have had it good for aeons and they have taken us the common denizens for granted. I fail to understand how all so-called intellectuals, professionals and other commoners do not see the fact that our courts are burdened with humongous backlogs in cases which are all attributable to some north blocker / 007 divisioner who is not accountable for the sheer mass of lis creation. Of how nothing ever seems to happen to them irrespective of what decision they take – legal or illegal. On the contrary it is the common denizens who have to suffer for their faults in not being upright and following their DHARMA. Nay-sayers would argue that this is all wishful thinking, however, it may be borne in mind that whenever it is said that so and so is not possible, that so and so has always happened. History of the world bears witness to this fact.

Wish list –         What brings perspective is – GST proposes to integrate Cenvat across VAT & CEA / FA, which is welcome in an Utopian society not KALIUGA in India, where a person is expected (repeat expected) to look both ways while walking on a one way street. Where he is presumed guilty before a verdict and where the guilty go scot free and poor suffer for lack of a good counsel. Modalities and fine print by which integration is proposed / GST is to be administered / implemented is in the realm of one’s imagination (to the exclusion of bureaucrats) which latter creed of people seem to be dictating the GST model-my theory again. If experience is a teacher it ought to teach us not to depend on administrators to don all caps i.e. of administrators and also law makers. There are other means of devising / writing laws. Merely because it has never been done does not mean that it cannot be done. This is negativism to the core and needs to be nipped in the bud. Let us be a country where the commoners dictate the manner in which the country is run and not the so-called elected few who dictate, who get the right to splurge our monies on vastu, cars, de-notifying land, amassing enormous wealth which they or seven generations cannot expend. Let us at least try to get in a legislation which actually helps us bring down the inflation caused by the excesses of the government, politicians and bureaucrats. Why is it, that laws are so complex that there needs to be scores of judgments, clarifications and lis on one particular issue.  Why can’t laws be simple in fact. Why is there a need to exclude Cenvat to builders and give the same to contractors just because some big brain in the North block came up with a devise to save or rather do some jugglery with numbers and ostensibly show that some pittance money is saved. Why can’t refunds be refunded within the time limit so that interest burden does not again stoke inflationary trends. The 7th pay commission when implemented the Finance Minister has made a statement that he needs to find 1 lakh crore to fund the same. This is now a reality. All of us citizens are more in debt for paying the servicers more for ostensibly rendering is a service, while in reality they sit on our heads like masters. Exclusions are always in existence and are the ones who prove the rule. Now, since the FM is not Houdini or a Merlin to garner 1 lakh crore from thin air, my guess is that some big brain would again come up with some magic jugglery and think that he is a big brain. Why can’t all of the GOI bear in mind when they come into work that it is for INDIA that they are all working towards and have inbuilt mechanisms to negate lis between governments – imagine how much this would save the country in litigation costs and reduce pendency in Courts. Referring matters to the Committee of disputes has now been done away with. This entire paper can be on this topic, however not being the discussion on paper, it is not.

Suggestions –       GOI may choose to note the principle of legislation by incorporation / reference. That the exercise of power of legislation by incorporation / reference is well settled. There are innumerable examples where existing provisions of one enactment have been made applicable to provisions / parts of another enactment by incorporation / reference. Various cesses levied as a duty of excise under the CEA are examples of exercise of such power. Such legislation have been successful in implementing the levies sought to be levied. The administering of such levies has also been successful. The same power i.e. legislation by reference / incorporation can, in my view, be exercised in respect of subsuming various taxes / levies which are proposed to be subsumed under the GST. Such exercise of power would entail tinkering with another column or two in the periodical returns which would do the job. Rather than enacting a completely new levy with its challenges of re-defining words, phrases and expressions well settled. Why re-invent when tinkering can do the job. Keeping out goods from the purview of GST which garners almost 45% of the state revenues as per the whims of the States and stating again and again on paper that GST would reduce distortion etc., is not fact but an attempt to distort fact. Whether the exercise of introducing GST is what is stated to be in the first para supra or whether the introduction of GST is for garnering and cornering more revenue for the States is a question which deserves an answer. That, keeping out majority goods which garner if not more at least 45% of revenue for the States and expecting that there would be no distortion in addition to proposing 1% additional IGST for the origin state without first doing the math relating to consuming States and origin states and putting such data out in the public domain, would be nothing short of giving a not so pleasant surprise to the States and also public/assesses’. Such exercise of powers by the GOI and wasting immense time, effort and money of the public according to me is unwarranted if simplicity, transparency and ease of doing business are what is sought to be achieved. Further, what is the logic in making promises that GST is a destination based levy and that the monies ought to go to the consuming states – Why? What is the logic and what actual difference does it actually make? Is it not more pragmatic to promise that whichever state is garnering revenue would not garner less than that. Is the objective to make lives of denizens of India easier, cheaper or is it that the State governments ought to fill their coffers since no majority party has power in all states and the political parties who are in power ought to fill their quotas. Why does petrol need to be so expensive when the barrel has reached 35$ we are still paying through our noses, while when the cost of one barrel goes up the price of petrol again goes up – what is this logic? Is everybody sleeping and too busy fighting because the person behind him honked? This is more so because the goods being kept out of the purview of GST which garner 45% of the revenue have been given a constitutional guarantee of not being subsumed under the GST. Refer Article 246A and also 279A of the 122ndConstitutional Amendment Bill. Further there is also a constitutional guarantee given by the Center that it would compensate the States which garner a loss due to GST being destination based. The focus appears to be on how the States can make more revenue rather than the focus being on the intent of proposals of GST – remember the discussion on intellectual, professional and Dharmic honesty supra. That we are one country and all of us ought to work towards it’s betterment seems to be completely lost in the din of demarcating more and more States and how a few can garner and corner revenue belonging to the people of India. The above discussion drives home the point that there is a lot to be thought of before GST is introduced. The focus as stated in the first para in this paper is lost in the din of upholding a promise made by the ruling party without fully comprehending its results. I state this because the statistics of all the aspects detailed above are not in public domain. Issues like which States stand to gain due to their consumption and which States loose revenue and by how much compared with earlier records are not clear and are not in the public domain.

Another facet which merits appreciation by one and all is how would the States retain financial, administrative and political autonomy (which is the corner stone of our Constitution) when the Center proposes that they would first collect all the monies and thereafter distribute it to the States. That they would insert such a promise in the Constitution. Is this what the Constitution is reduced to be tinkered with as per the ipse-dixit of the ruling party. If this were to be prudent imagine a situation where after the introduction of GST the States consuming more would be comparatively richer since it is a State which consumes more than it produces and as such would have more monies in its coffers as compared to State which is a manufacturing hub. What would the incentive be for business houses to set up shop in States for manufacture and how would such a State, loosing revenue due to it being a producing State promote business or seek investments. How does the GST address this issue? There is no clarity on these aspects and the GOI would do well to put in the public domain some legitimate statistics on these aspects which would provide clarity on these issues. A mere cursory glance at industries in Kerala would answer this query.

It is further to be appreciated that the goods proposed to be kept out of the ambit of GST in quantum are about 45% (approximately on an average i.e. petroleum, petroleum products, alcohol, tobacco and cigarettes). Therefore, what follows is that the GST which purportedly is being implemented to broaden tax base, reduce distortions in the economy through a more comprehensive input tax credit, enhance export competitiveness by comprehensively relieving domestic consumption taxes on exports, ensure greater regional equity by getting rid of inter-state sales tax and having a destination-based tax, and help create a seamless national market by removing inter-state trade barriers, reduce compliance cost for taxpayers by simplifying and harmonizing the tax structure and making the administration uniform across states achieve such a tall objective. The objective therefore cannot be what it is stated to be. For if, GST is for only 55% of the goods what sense does it make to enact such a law or take up such a mammoth task for only 55% of the goods and burden the denizens with uncertainty, more expenditure in the face of huge backlog in Courts and a meager number of judges present to do the job. The topic of judges is again worthy of a thesis and is not attempted here. It is also unclear as to whether the collective impact of the GST would be more than what it is presently or would it be lesser. All of these issues are serious and need clarity. As of now there is nothing in the public domain which sheds any light on these issues.

The point being that various issues / concepts / aspects under the respective laws are settled and the industry is also more or less in sync with the laws and their attendant procedures to be followed. Now the proposal by the GOI to introduce a new enactment encompassing a host of levies under the GST and integrating the Cenvat mechanism across various levies would be in its conception stage. It is only once the enactment is made known and the fine print is out in the public domain that the questions raised in this deliberation would be capable of being answered.

However, I’m of the view that old wine in a new bottle and administration of such old wine by the same old bottle in addition to the corrupt department of VAT would only give impetus to corruption, disorder, frivolous disputes and chaos. This is because unless and until the mind-set of the people administering the laws is changed expecting that pouring new wine would mature it instantaneously / introduction of a new law would change the ease with which business is done in our country is a logical fallacy. That this is a fact is staring us in the face while we are busy checking our new idiot box the mobile. This is more-so because the Babu tradition has seeped into the DNA of the administrative officers to such an extent that unless this aspect is first addressed before introducing the GST nothing on the ground would in fact change. Expecting change while the administrators of the law remain the same is like expecting the old wine to taste like single malt whiskey when poured in a new bottle. Such an expectation is nothing short of expecting a miracle which in Kaliyuga is not possible since we have lost Merlin and Houdini and it is not Dwapara yuga anymore.

Facts –               I have noticed loads of hoopla around GST and various articles on the why’s and how’s of GST. There are also books running into thousands of pages which are available in the market. Of how much use these books are I cannot say for I have not wasted time in reading someone’s opinion on a law whose bolts and nuts are invisible. According to me there is nothing out in the public domain conclusively informing us of the modalities of GST as pointed out supra. What I’ve however, failed to appreciate in respect of GST are the following: –

  1. Why is it imperative to bring in a new law?
  2. Can’t the existing law be tinkered to subsume the other taxes like what is done with various cesses, levied as a duty of excise?
  3. Can’t one levy be incorporated at a time all the while assessing its effectiveness?
  4. Can’t the mechanism of collection of taxes be tinkered with?
  5. Can’t invoices raised under one law have interconnection with other in-direct tax laws?
  6. Is it not possible to have minimal State interference, given the state of administration and corruption in local VAT offices?
  7. What would a return under the new GST look like?
  8. What would the frequency of filing the same be? Central Excise has a number of forms to be filed one monthly, one quarterly, one half yearly etc?
  9. How would the GST address this issue?
  10. Would the dispute resolution system be the same as it is presently?
  11. Would appeals have to be filed before the State Appellate Tribunals in respect of services earmarked to the States?
  12. What would the credit system look like?
  13. Would there be identical blockages of Cenvat credit given the definitions of exempted services / goods, while proposing to do away with the distinction of goods and services?
  14. How would software be treated? Presently the software industry pays service tax and also VAT on the same value. Given this fact which authority (State or Centre) would give up its right to tax software, given the fact that it cannot be a service and goods at the same time on the same value.
  15. Would all appeals including refund, rebate and demands be filed before the CESTAT?
  16. Would CESTAT as a Tribunal function and have jurisdiction over services and goods?
  17. What are the measures to be taken to fix accountability on the administrator?
  18. Why is no accountability fixed as per law on Babus?
  19. Why keep 45% of revenue generating goods outside the ambit of GST?
  20. How would distribution of taxes collected by the Center be done?
  21. Would the costs involved in setting up all what is proposed to be set up justify the collections?
  22. Can’t the GOI give us a presumptive figure based on the statistics collected by it?
  • ……. many more

Such are the questions which loom large in my mind. I have no clarity given the present literature available to all, including myself, on GST on the above aspects. I for one am of the firm belief that the advent of GST would give rise to immense litigation and would only be a lawyer friendly affair. There would be no ease of doing business, or change in the mind-set of the tax administrator given that accountability is not a major and singular feature of the proposed levy.

I do not understand the logic that GST ought to be introduced after such a long time of having the presence of CEA, CA and FA. Given the fact that the principles and various facets and aspects under these laws are litigated and there is a certain level of certainty to the litigation process. However, under the GST how would all these aspects be dealt with? Why should an assessee who has been diligently paying taxes to the central government be made to necessarily go before the State authorities, which latter authorities are known to be far more corrupt than the former. This is an open secret. That the VAT authorities exercise discretionary powers in an arbitrary fashion is well known more-so because the appeal mechanism under most VAT laws require full pre-deposit i.e. 50% deposit of the adjudged dues and 50% bank guarantee. Now given such exercise of power by the VAT authorities is there hope for justice in tax laws? If yes how is this going to be tackled without first fixing accountability on the administrators of the GST?

I have always wondered why is it that in Bangalore it is the house which is first constructed and thereafter all measures for plumbing are undertaken. It’s like akin to the tail wagging the dog. As stated above it is the mindset of the existing tax administrators and their Sardars which has to undergo a sea change. They ought to stop being recovery agents acting like the British stooges collecting revenue and not thinking of the Indian well-being or acting as facilitators. I have had instances where the administrator is clueless of the law despite being in the department for 30 odd years, such is the state of affairs.

The GOI is also to blame to a certain degree in this approach being adopted, for it is the GOI which fixes targets to be achieved. I don’t understand whether the department is an insurance agent to achieve targets or is he there to levy, collect and recover taxes where they are due and to guide assessee’s when in doubt, in accordance with law. I do not understand why has the sanctity of the phrase in accordance with law lost its meaning and relevance in today’s day and age. Unless and until such mind-set is changed and accountability is brought into the picture there would in my mind, be no change whether it be introduction of GST or any other levy which purportedly subsumes various taxes and levies and which purports to be simple and purports to reduce distortions. A case in point is a well-known fact that – creation of the post of Principal Commissioner while there already exists the post of Chief Commissioner and Commissioner makes the administration top heavy. If everyone is of the rank of the Commissioner, who is responsible for ground work? How many amongst the department desire to actually work? How may do justice to their pay? How many are on their seat at the designated time of the day? How many introduce best practices? How many actually help assessees? How many are not drawing twin salaries one from the GOI & One from every registered assessee? What is done in the GST law to tackle such menace to the society which has eaten away the very fabric of our country? How is accountability fixed on every departmental officer to ensure that he is paid for what he deserves? Who in the GST scheme of things acts as a check and balance? Or would it be like the Anti Corruption Beareau (ACB) law in Karnataka where the Judge himself would act as a check and balance setting aside the principle that no man can be a judge in his own cause and bringing to naught the latin maxim hallowed by time and sanctified by hundreds of judicial decisions – nemo judex in causa sua.

None of the above questions are answered in the literature present on GST as of today. I am not aware if there exists such provisions in the GST which casts an obligation on the administrator to act judiciously. No one seems to be concerned on these aspects either. This is because all that I read in various web-sites and books is all relatable to the hoopla surrounding the introduction of GST and not one line has been dedicated on the above aspects, which according to me would have a far reaching effect than introducing GST without first addressing the root problem i.e. not the law its administrators.

I entreat the readers to appreciate the following anomalies between the reason for proposing and implementing GST and the manner in which there has been a compromise with various states (as collected from various journals like ELT, STR, TIOL, India Today etc). Tobacco & Cigarettes after the advent of GST would nevertheless be leviable to a separate central excise duty. Now if this be true what is the point of GST? Is’nt the point of levying GST totally defeated? It was the demand of most States to keep out of GST petroleum, petroleum products and alcohol. If this be true again statics as stated in various journals indicate that the States earn more than 50% of their revenue from petroleum, petroleum products and alcohol. Would’nt keeping 50% revenue earning goods outside the ambit of GST be against the grain of the reason for proposing GST? Imagine this if 50% revenue earning goods are kept out of the ambit of GST of every State what is the point of having GST for the remainder except tobacco & Cigarette (the percentage of revenue earning from these products being unknown). Further the fact that these goods would be out of the ambit of GST is strengthened from the proposal of Article 279A which postpones levy of GST on petroleum and petroleum products to a latter date. The fine print of Article 246A further leads me to believe that there is still scope for keeping other goods outside the levy of GST which is clear from the exception carved out in Article 246A by use of the words except those which are kept out of the purview of GST. It may also be appreciated that the Center has promised the States that they would compensate the States for any loss for five years. That the present state of GST is, thanks to negotiations which are on-going since 2009. That in six years our bureaucracy and the political establishment along with various committees have not been able to come up with a solution.

That tinkering the existing law would be sufficient to implement all that is proposed to be done under the GST, there only needs to be a will to do so. That introduction of GST would only distort and set to naught whatever little semblance of legality and parity has been achieved amongst various taxes levied. That a simple solution is plausible rather than keep 50% revenue earning goods outside the ambit of GST, keep tobacco and Cigarettes out of the ambit of GST, keep alcohol out of the ambit of tax and start implementation of an onerous tax regime all over again for maybe 20% of the goods. I implore all and sundry to appreciate the costs involved in implementation of the proposed GST and ask themselves the question – whether expending the taxpayers hard earned monies in a venture called GST for maximum 30% of goods apart from allowing every state to levy 1% additional IGST to be retained in the origin state over and above the IGST rate of GST is an exercise of logic and prudence given our economic situation. Should’nt the GOI be focused in cleaning all administrative systems first than proposing to do everything at all times. Kindly ask yourselves – If all of these distortions provide for economic balance and growth? These distortionist tactics ought to be nipped in the bud and GST ought to be scrapped. I’m of the firm opinion that tinkering with the existing laws would provide ample room for maneuvering all that is proposed under the GST. This entire exercise of GST would provide nothing but a big hole in our pockets, the burden of which would have to be carried by the common man as always. That it is high time that before introduction of any law public consensus be obtained and the fine print be available for detailed analysis and comments by experts. Distortions be reduced and all goods irrespective of their revenue earning capacity be subsumed within the GST or to tinker the existing laws without any separate GST enactment. The interested reader would do well to appreciate that I have not brought to the fore further distortions which would be created by the proposed Cenvat facility to be across the supply and services sectors.

In parting I leave the reader with the following:

  • business function not because of governments but in spite of governments;
  • a little experience upsets a lot of theory;
  • a good lie finds more believers than a bad truth;
  • things pass for what they seem, not for what they are. Few see inside, many get attached to appearances.

The comments made in this article are based on my experience and the views expressed herein are singularly mine. Errors may have crept in the draft, all of which are solely attributable to me. The views expressed are immensely personal. References to published texts are stated wherever applicable. Readers will do better by reading studies and papers conducted and published on the web site of National Institute of Public Finance and Policy.

As always, I’m interested to know errors which may freely be pointed out to further increase my efficiency.

References – Reports & working papers by 

  • PawanK Aggarwal, Pinaki Chakraborty & Jeejabai Manay, Sacchidananda Mukherjee & R. Kavita Rao, R. Kavita Rao & Pinaki Chakraborty – published on the website of National Institute of Public Finance & Policy,
  • website of CESTAT,
  • CBEC website,
  • Excise Law Times,
  • Taxindiaonline,
  • various news-paper articles,
  • news,
  • various periodicals like The Week, Open, India Today etc.


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