Delhi High Court
Interglobe Aviation Ltd vs Principal Commissioner Of Customs Acc … on 4 March, 2025
Author: Yashwant Varma
Bench: Yashwant Varma
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 12 November, 2024
Judgment pronounced on: 04 March, 2025
+ W.P.(C) 934/2023
INTERGLOBE AVIATION LTD .....Petitioner
Through: Mr. V. Lakshmikumaran, Ms.
Jyoti Pal, Mr. Yogendra Aldak,
Mr. Agrim Arora, Ms. Anjali
Singh and Ms. Anjali Singh and
Ms. Aditi Sharma, Advs.
versus
PRINCIPAL COMMISSIONER OF CUSTOMS ACC
(IMPORT) NEW CUSTOM HOUSE NEW DELHI &
ORS. .....Respondents
Through: Mr. Anurag Ojha, SSC along
with Mr. Subham Kumar, Adv.
for R-1.
Ms. Sonu Bhatnagar, SSC for
CBIC along with Ms. Apurva
Singh and Ms. K.S. Mary Jonet,
Adv. for R-2.
Mr. Niraj Kumar, Sr. CGC for R-
3/UOI.
Ms. Avshreya Pratap Singh
Rudy, SPC along with Ms. Usha
Jamnal and Ms. Harshita
Chaturvedi, Advs.
+ W.P.(C) 7845/2023
INTERGLOBE AVIATION LTD .....Petitioner
Through: Mr. V. Lakshmikumaran, Ms.
Jyoti Pal, Mr. Yogendra Aldak,
Mr. Agrim Arora, Ms. Anjali
Singh and Ms. Anjali Singh and
Ms. Aditi Sharma, Advs.
versus
PRINCIPAL COMMISSIONER OF CUSTOMS ACC
(IMPORT) NEW CUSTOM HOUSE NEW DELHI &
ORS. .....Respondents
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 1 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
Through: Mr. Anurag Ojha, SSC along
with Mr. Subham Kumar, Adv.
for R-1.
Mr. Niraj Kumar, Sr. CGC for R-
2/UOI.
+ W.P.(C) 4673/2024
INTERGLOBE AVIATION LTD .....Petitioner
Through: Mr. V. Lakshmikumaran, Ms.
Jyoti Pal, Mr. Yogendra Aldak,
Mr. Agrim Arora, Ms. Anjali
Singh and Ms. Anjali Singh and
Ms. Aditi Sharma, Advs.
versus
PRINCIPAL COMMISSIONER OF CUSTOMS ACC
(IMPORT) NEW CUSTOM HOUSE, NEW DELHI,
& ORS. .....Respondents
Through: Mr. Anurag Ojha, SSC along
with Mr. Subham Kumar, Adv.
for R-1.
Ms. Avshreya Pratap Singh
Rudy, SPC with Ms. Usha
Jamnal, Ms. Harshita Chaturvedi
& Mr. Siddhant Nagar, Advs.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE RAVINDER DUDEJA
JUDGMENT
YASHWANT VARMA, J.
TABLE OF CONTENTS
PRELUDE …………………………………………………………………………………. 3
FACTUAL NARRATIVE ………………………………………………………….. 5
CONSTITUTIONAL AMENDMENT: LEGISLATIVE
OBJECTIVES……………………………………………………………………………. 7
CGST, IGST, CUSTOMS ACT, AND CTA: AN OVERVIEW ….. 27
SCHEME OF THE IMPUGNED NOTIFICATIONS ……………….. 58
RIVAL SUBMISSIONS……………………………………………………………. 68
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 2 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
THE INTERSTATE LEVY ON SUPPLY OF GOODS, SERVICES
OR BOTH ……………………………………………………………………………… 108
SECTION 5 AND ITS PROVISO …………………………………………… 141
THE ARGUMENT ON ASPECT THEORY …………………………… 152
DISCERNING THE INTENT OF AN „EXPLANATION‟……….. 153
ORDERS OF THE COMMISSIONER OF CUSTOMS
(APPEALS) ……………………………………………………………………………. 171
SUMMATION ……………………………………………………………………….. 182
DISPOSITION……………………………………………………………………….. 184
PRELUDE
1. These three writ petitions bid us to traverse the unchartered and
untested territory of the interplay between the Customs Act, 19621, and
the Customs Tariff Act, 19752 on one side of the scale when pitted
against the Central Goods and Services Tax Act, 20173 and the
Integrated Goods and Services Tax Act, 20174. They pose two
fundamental questions for our consideration: –
(A) Whether the duty leviable under Section 3(7) of the CTA is
independent of the impost created by Section 5 of the IGST?
(B) Whether a supply of service conferred that character by virtue of
Schedule II of the CGST would remain unimpeded by the concept of
import of goods as ordinarily understood?
2. These questions themselves arise in the backdrop of the
paradigm shift which was ushered in by the One Hundred and First
Constitution Amendment Act, 20165 and which brought in a sea
1
Customs Act
2
CTA
3
CGST Act
4
IGST Act
5 Constitution Amendment Act
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 3 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
change with respect to the power to levy taxes by the Union and the
States and the distribution of taxes and duties amongst the constituents
of the Union.
3. The challenge itself emanates from the petitioners having moved
aircraft engines and aircraft parts [hereinafter for the sake of brevity to
be referred to as “the subject goods”] for repair and service outside the
territory of India and the levies which could be imposed at the time of
their reimport. The petitioners would contend that since the export of
the subject goods for repair outside India and their subsequent reimport
would fall in the category of a ―supply of service‖, no further impost as
envisaged under Section 3(7) of the CTA would stand attracted. It is
contended that once a transaction is conferred the character of a supply
of service, it would be impermissible for the respondents to bring those
transactions to tax by treating them as an import of goods and articles.
4. Undisputedly, the CTA is not concerned with the import or
export of services. That statutory instrument stands confined to articles
and goods only. A supply of service is a concept which came to be
introduced by the CGST and IGST enactments and which owes its
genesis to the Constitution Amending Act. It is thus contended that the
integrated tax which is spoken of in the CTA can only be construed to
be a reference to the tax imposed by the IGST and Section 3(7) being
merely a collection mechanism placed at the point of reimport.
5. The respondents, on the other hand, would argue that Section
3(7) of the CTA is an independent charging provision levying an
additional duty of customs. According to them, that levy does not stand
effaced consequent to the promulgation of IGST. They would
commend for our acceptance the principles underlying the ―aspect
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 4 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
theory‖ of taxation which envisages a tax being validly imposed upon
two aspects forming part of the same transaction. It was thus argued
that notwithstanding the levy of a tax under the principal provision of
Section 5(1) of the IGST, the petitioner does not stand absolved of the
liabilities created by Section 3(7) of the CTA.
FACTUAL NARRATIVE
6. For the purposes of appreciating the rival contentions which were
addressed, we propose to take note of the following principal facts. As
we gather from the disclosures made in the writ petitions, the petitioner
is principally engaged in the activity of transportation of passengers and
goods by air from various places in and outside India. During the
course of its business, the petitioner sends the subject goods to
Maintenance, Repair and Overhaul Service6 providers. These
MROs’ are located outside India and the goods so consigned to them
post repair and overhaul are reimported. According to the writ
petitioners at the time of physical reimport of the subject goods, while a
Basic Customs Duty7 would be attracted, the same is exempt by virtue
of Notification No. 50/2017 dated 30 June 2017.
7. The writ petitioners assert that the reimport is liable to be treated
as a transaction of supply of service or import of service in terms of
Section 5(1) of the IGST read along with Entry 3 comprised in
Schedule II of the CGST. The IGST component of tax is duly
discharged by the writ petitioners. The respondents, however, assert
that IGST is payable at the time of import of the subject goods since
they are after all goods which are being reimported into the territory of
India. According to them, it is at this stage that Section 3(7) of the CTA
6
MROs”
7 BCD
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 5 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
gets attracted along with the Proviso to Section 5(1) of the IGST.
8. It is the case of the writ petitioner that it had been claiming
exemption from IGST by paying tax at a lower rate by virtue of
Notification No. 45/2017 which obligates them to pay only so much of
the duty of customs which would be leviable treating the value of the
reimported goods after repair as made up of its repair value. The
position and stand taken by the writ petitioners came to be accepted by
the Customs, Excise and Service Tax Appellate Tribunal8 by virtue
of its final orders dated 02 November 2020 and 15 January 2021. The
CESTAT had held that the phrase ‗duty of customs’ as appearing in
Notification No. 45/2017 would only mean BCD and not include IGST
and compensatory cess. Those final orders of the CESTAT presently
form the subject matter of challenge before the Supreme Court in Civil
Appeal No. 1853-2198 of 2021 and 5160-5574 of 2021. However, it is
pertinent to note that no interim orders operate on those civil appeals.
Notification 45/2017 came to be amended on 19 July 2021 by
Notification No. 36/2021 in terms of which the phrase ‗duty of
customs’ came to be substituted with the phrase ‗said duty, tax or cess’.
The issuance of that notification also saw the insertion of an
explanation, which essentially held that IGST would be leviable on
goods reimported post repairs. This was followed by Circular No.
16/2021 dated 19 July 2021. The aforenoted Circular specifically
alludes to the orders of the CESTAT noted above and declares that the
amendments were prompted by the felt need for all doubts being
allayed and laid to rest insofar as an IGST liability on reimported goods
was concerned. The said Circular thus refers to the aforesaid
amendments as being clarificatory in nature.
8
CESTAT
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 6 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
9. As a result of the above, while the petitioners continue to remain
exempt from the payment of BCD in terms of Notification No. 50/2017,
they now face an additional level of IGST in light of the amendments
which have come to be introduced by virtue of Notification 36/2021
read along with Section 3(7) of the CTA.
10. We have had the benefit of hearing elaborate and erudite
submissions which were advanced by Mr. Lakshmikumaran, learned
counsel who appeared for the writ petitioners and Mr. Ojha, who
represented the respondents. However, before we proceed to notice the
contentions that were advanced, it would be apposite to take note of the
statutory scheme as well as the principal provisions made in the subject
notifications which would enable us to appreciate and evaluate the
questions which stand posited for our consideration.
CONSTITUTIONAL AMENDMENT: LEGISLATIVE OBJECTIVES
11. Our discussion would necessarily have to be prefaced by taking
note of the seminal amendments which came to be introduced by the
Constitution Amendment Act. The Constitution Amendment Act came
to be passed on 08 September 2016. For the purposes of appreciating
the broad objectives underlying the various amendments introduced by
virtue of that enactment, it would be pertinent to refer to its Statement
of Objects and Reasons as well as the salient parts of the Bill as
introduced and which are reproduced hereinbelow: –
― 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:–
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 7 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
Statement of Objects and Reasons.– The Constitution is
proposed to be amended to introduce the goods and services tax for
conferring concurrent taxing powers on the Union as well as the
States including 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;
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 8 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(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 Union 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 of 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 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,Wherein–
WT = Total weighted votes of all members in favour of a
proposal.
WC = Weighted vote of the Union = ⅓ 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. ⅔,
i.e., 66.67%
SF = Number of States voting in favour of a proposal.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 9 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(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.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 10 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
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 commerce.– (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;
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 11 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(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 … Member;
of Revenue or Finance
(c) the Minister in charge of Finance or … Members.
Taxation or any other Minister
nominated by each State Government
(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;
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 12 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(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
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 13 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(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 Article 366.– 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;’.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 14 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
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;
(b) 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;
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 15 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(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.
——
1.
Received the assent of the President on September 8, 2016 and
published in the Gazette of India, Extra., Part II, Section 1, dated 8th
September, 2016, pp. 1-6, No. 55 ‖
12. Article 246 of the Constitution postulates that Parliament would
have exclusive power to make laws with respect to any of the matters
enumerated in List I of the Seventh Schedule. A similar reservation is
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 16 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
made with respect to the power of the Legislature of States in terms of
Article 246(3) thus conferring exclusive power upon the States to
legislate on matters enumerated in List II in the Seventh Schedule.
Article 246(2) is the repository of the concurrent power that the
Constitution vests in Parliament and Legislatures of States over subjects
enumerated in List III which is commonly termed as the concurrent list.
13. The Constitution Amending Act sought to introduce the concept
of a concurrent taxing power vesting in the Union as well as States thus
enabling them to levy a goods and services tax on every transaction
concerned with a supply of goods or services or both. The principal
objective was declared by Parliament to be the need for the replacement
of the innumerable indirect taxes which were at that time being levied
by the Union and State Governments and thus the imperative to
overcome the ―cascading effect of taxes‖ and the creation of a common
―national market‖ for goods and services. It was with the aforesaid
objective that the Constitution Amending Act sought to introduce
amendments in the Constitution which were intended to ultimately lead
to the levy of an integrated goods and services tax on all inter-state
transactions and such a tax subsuming various Union taxes and levies
as well as those being imposed by individual States.
14. It was with that avowed objective that Article 246A came to be
introduced in the Constitution. That Article reads as follows: –
―[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
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 17 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
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.] ‖
15. On a plain reading of that provision, it becomes apparent that
both Parliament and the Legislature of a State came to be conferred
with the power to make laws for the imposition of a goods and services
tax, notwithstanding the inhibitions comprised in Articles 246 and 254
of the Constitution. However, and by virtue of Article 246A(2),
Parliament came to be vested with the exclusive power to make laws
with respect to the levy of a goods and services tax, where the supply of
goods or services or both were to take place in the course of inter-state
trade or commerce.
16. Yet another significant provision that came to be included in the
Constitution was Article 269A and which reads thus:
―[269-A. Levy and collection of goods and services tax in course
of inter-State trade or commerce.–(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
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 18 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
both takes place in the course of inter-State trade or commerce.] ‖
17. As per the aforesaid constitutional provision, a goods and
services tax on supplies in the course of inter-state trade or commerce
would be levied and collected by the Union Government and such tax
thereafter to be apportioned between the Union and the States in
accordance with a legislation to be framed and on the recommendation
of the Goods and Services Tax Council. Of significance is the
Explanation occurring at the end of Article 269A(1) and which declares
that the supply of goods or services or both in the course of import into
the territory of India shall be deemed to be a supply in the course of
inter-state trade or commerce. Article 269 A thus left it to Parliament to
formulate principles not only for the determination of the place of
supply but also to prescribe instances which would be deemed to be a
supply in the course of inter-state trade or commerce.
18. The GST Council, which was spoken of in Article 269A, was
given shape by Article 279A. The said Article reads as follows: –
― [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 ... Member;
charge of Revenue or Finance
(c) the Minister in charge of Finance ... Members.
or Taxation or any other Minister
nominated by each State
Government
(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,Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 19 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
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
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 20 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
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.] ‖
19. Corresponding amendments were also introduced in Article 366.
For our purposes, it would be apposite to extract sub-articles 12, 12A,
26A, and 26B of Article 366 hereunder: –
―366. Definitions.–In this Constitution, unless the context
otherwise requires, the following expressions have the meanings
hereby respectively assigned to them, that is to say–
…………….
(12) ―goods‖ includes all materials, commodities and articles;
[(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;]
xxx xxx xxx
(26) ―securities‖ includes stock;
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 21 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
[(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;]‖
20. As per Article 366(12A), a goods and services tax was defined to
mean any tax on the supply of goods, services or both except for taxes
on the supply of alcoholic liquor for human consumption. The
expression ‗goods’ was defined in Article 366(12) to include all
materials, commodities and articles. This, however, was a clause that
existed even prior to the introduction of the Constitution Amendment
Act. The expression ‗service’ was defined by Article 366(26A) to mean
anything other than goods. Article 366(26B) clarified that the word
‗State’ appearing in Articles 246A, 268, 269, 269A and 279A would
include a ‗union territory’.
21. Of equal significance are the following amendments which came
to be made in the three legislative lists placed in the Seventh Schedule:-
Entry Provision prior to Amended Entry
amendment
Entry 84 Duties of excise on tobacco Duties of excise on the
and other goods following goods
manufactured or produced manufactured or
in India except: produced in India,
namely:
(a) alcoholic liquors for
human consumption; (a) petroleum crude;
(b) opium, Indian hemp and (b) high speed diesel;
other narcotic drugs and (c) motor spirit
narcotics, but including (commonly known as
medicinal and toilet petrol); (d) natural gas;
preparations containing (e) aviation turbine
alcohol or any substance fuel; and
included in subparagraph (f) tobacco and tobacco
(b) of this entry products."
Entry 92 Taxes on sale or purchase of Omitted
newspaper and
advertisements published
therein
Entry 92 C Taxes on services Omitted
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 22 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
Entry 92A Taxes on the sale or No Change
purchase of goods other
than newspapers, where
such sale or purchase takes
place in the course of inter-
State trade or commerce.
Entry 92B Taxes on the consignments No Change
of goods (whether the
consignment is to the person
making it or to any other
person), where such
consignment takes place in
the
course of inter-State trade or
commerce.
Entry 52 Taxes on the entry of goods Omitted
into a local area for
consumption, use or sale
therein. (Octroi / Entry Tax)
Entry 55 Taxes on advertisements Omitted
other than advertisements
published in the newspapers
[and advertisements
broadcast by radio or
television].
Entry 54 Taxes on the sale or Taxes on the sale of
purchase of goods other petroleum crude, high
than newspapers, subject to speed diesel, motor
the provisions of entry 92A spirit (commonly
of List I. 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
Entry 62 Taxes on luxuries, including Taxes on
taxes on entertainments, entertainments and
amusements, betting and amusements to the
gambling. extent levied and
collected by a
Panchayat or a
Municipality or a
Regional Council or a
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 23 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
District Council.
22. Apart from the notable amendments, Entry 84 of List I came to
be amended to read as follows: –
― [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.]‖
23. Entries 92 and 92C which dealt with the subject of taxes on sale
or purchase of newspapers and services, came to be omitted.
The amendments so ushered in also saw the insertion of Entry 92A in
List I which defined the legislative field to be with respect to the levy
of taxes on the sale or purchase of goods, other than newspapers and
where such sale or purchase were taking place in the course of
interstate trade or commerce. Entry 92B which was concerned with
taxes on consignment of goods remained untouched. Of equal import
was the omission of Entries 52 and 55 in List II which pertained to the
levy of a tax on the entry of goods into a local area for consumption,
use or sale as well as on advertisements other than those published in
newspapers.
24. Originally, Parliament stood conferred a residuary and exclusive
power to make laws with respect to any matter not enumerated in the
State or the Concurrent Lists. By virtue of the Constitution Amendment
Act, that power was made subject to Article 246A. Thus, the broad
residuary power which otherwise stood conferred was restricted so as to
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 24 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
not affect or impact the authority of States to levy a goods and services
tax under Article 246A. Similarly, Article 268A had conferred authority
upon the Union to levy a tax on services. However, since the
Constitution Amending Act was principally concerned with
overcoming the multitude of taxes which were at that time being levied
to be substituted by a goods and services tax, the said Article came to
be omitted.
25. Following that broad pattern, Article 269 which envisaged that a
tax on the sale or purchase of goods as well as on consignment would
be levied and collected by the Union and thereafter assigned to States,
the same came to be amended to specifically exclude taxes as provided
in Article 269A and thus removed the levy of a goods and services tax
in the course of inter-state trade or commerce from its sweep. Similar
amendments came to be introduced in Article 270 so as to ensure that
its provisions coalesced with the new regime of distribution of taxes
collected under Article 246A amongst the Union and the States. We
deem it apposite to reproduce some of the Article noticed above
hereinbelow:
Sl No. Article Provision it stood Amendment
prior to 101st
Constitutional
Amendment
1. 248 Parliament has
The Power of the
exclusive power to Parliament has
make been made subject
any law with respect
to Article 246A. In
to any matter not other words,
enumerated in the residuary power of
Concurrent List or the Parliament will
State List. not affect the
State's power to
levy Goods and
Service Tax under
Article 246A.
2. 249 If Rajya Sabha has The resolution of
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 25 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
declared by resolution Rajya Sabha can
in national interest mandate the
that Parliament should Parliament to make
make laws with laws with respect
respect to any matter to GST as provided
enumerated in the in Article 246A
State List, Parliament also and not just
can make laws for the restrict the same to
whole or any part of matters specified in
the territory of India State List.
with respect to that
matter while the
resolution remains in
force.
3. 250 Parliament shall, This Power of the
while a Proclamation Parliament has
of Emergency is in been extended to
operation, have power Goods and Service
to make laws with Tax under Article
respect to any of the 246A
matters enumerated in
the State List
4. 268 Stamp duties and Duties of excise on
excise duty on medicinal and toilet
medicinal and toilet preparations has
preparations shall be been deleted from
levied by the this Article as GST
Government of India subsumes the same
but shall be collected
by states where such
duties are levied
within a state
5. 268A Taxes on services Service tax
shall be levied by the subsumed under
Government of India GST and so Article
268A Omitted
6. 269 Taxes on the sale or This Article has
purchase of goods / been amended to
consignment of goods exclude Goods on
in the course of inter- which is GST will
state trade shall be be levied under
levied and collected Article 269A in the
by Central course of inter-state
Government but shall trade or commerce.
be assigned to the Thus this Article
States. will be effective for
goods kept out of
GST viz. crude,
Petrol, HSD, ATF
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 26 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
etc.
7. 270 Article 270 provides This article has
that a portion of all been amended to
taxes and surcharges provide that the
on such taxes that taxes collected by
are levied and the Central
collected by the Government under
Central Government Article 246A(1)
shall be distributed to [CGST] shall also
the states in the be distributed
manner that is between the states
prescribed. in the manner
prescribed.
Further, the taxes
collected IGST
which has been
used in payment of
CGST and the
amount
apportioned to
central government
in IGST shall also
be distributed to
the states.
8. 271 Parliament has been The power to levy
provided with the a surcharge has not
power to levy been extended to
surcharge on any of GST levied under
taxes and duties levied Article 246A.
by it.
9. 368 Any amendment to the Article 279-A has
Constitution that seeks been inserted
to make any changes in the proviso.
that will affect the Thus, any change
rights of states as that is sought to be
enumerated in Proviso made in relation to
to Article 368(2) shall GST Council will
require ratification of require the
state assemblies of not ratification of not
less that 50% of the less than 50% of
states. the states.
CGST, IGST, CUSTOMS ACT, AND CTA: AN OVERVIEW
26. We then proceed to examine and take note of the following
salient provisions comprised in the CGST and the IGST statutes. The
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 27 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
CGST, as its Preamble proclaims, is an enactment promulgated to make
appropriate provisions for the levy and collection of taxes on intrastate
supply of goods, services or both and for matters connected therewith
or incidental thereto. Section 2, which constitutes the definition clause,
incorporates the following significant provisions: –
― 2. Definitions.–In this Act, unless the context otherwise
requires,–
(17) ―business‖ includes–
(a) any trade, commerce, manufacture, profession, vocation,
adventure, wager or any other similar activity, whether or not it is
for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or
ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether
or not there is volume, frequency, continuity or regularity of such
transaction;
(d) supply or acquisition of goods including capital goods and
services in connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a
subscription or any other consideration) of the facilities or benefits
to its members;
(f) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has
been accepted by him in the course or furtherance of his trade,
profession or vocation;
xxx xxx xxx
(21) ―central tax‖ means the central goods and services tax levied
under Section 9;
xxx xxx xxx
(30) ―composite supply‖ means a supply made by a taxable person to
a recipient consisting of two or more taxable supplies of goods or
services or both, or any combination thereof, which are naturally
bundled and supplied in conjunction with each other in the ordinary
course of business, one of which is a principal supply;
Illustration.–Where goods are packed and transported with
insurance, the supply of goods, packing materials, transport and
insurance is a composite supply and supply of goods is a principal
supply;
xxx xxx xxx
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 28 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(32) ―continuous supply of goods‖ means a supply of goods which is
provided, or agreed to be provided, continuously or on recurrent
basis, under a contract, whether or not by means of a wire, cable,
pipeline or other conduit, and for which the supplier invoices the
recipient on a regular or periodic basis and includes supply of such
goods as the Government may, subject to such conditions, as it may,
by notification, specify;
(33) ―continuous supply of services‖ means a supply of services
which is provided, or agreed to be provided, continuously or on
recurrent basis, under a contract, for a period exceeding three months
with periodic payment obligations and includes supply of such
services as the Government may, subject to such conditions, as it
may, by notification, specify;
xxx xxx xxx
(36) ―Council‖ means the Goods and Services Tax Council
established under Article 279-A of the Constitution;
xxx xxx xxx
(47) ―exempt supply‖ means supply of any goods or services or both
which attracts nil rate of tax or which may be wholly exempt from
tax under Section 11, or under Section 6 of the Integrated Goods and
Services Tax Act, and includes non-taxable supply;
xxx xxx xxx
(52) ―goods‖ means every kind of movable property other than
money and securities but includes actionable claim, growing crops,
grass and things attached to or forming part of the land which are
agreed to be severed before supply or under a contract of supply;
xxx xxx xxx
(57) ―Integrated Goods and Services Tax Act‖ means the Integrated
Goods and Services Tax Act, 2017;
(58) ―integrated tax‖ means the integrated goods and services tax
levied under the Integrated Goods and Services Tax Act;
xxx xxx xxx
(64) ―intra-State supply of goods‖ shall have the same meaning as
assigned to it in Section 8 of the Integrated Goods and Services Tax
Act;
(65) ―intra-State supply of services‖ shall have the same meaning as
assigned to it in Section 8 of the Integrated Goods and Services Tax
Act;
xxx xxx xxx
(70) ―location of the recipient of services‖ means,–
(a) where a supply is received at a place of business for which the
registration has been obtained, the location of such place of business;
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 29 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(b) where a supply is received at a place other than the place of
business for which registration has been obtained (a fixed
establishment elsewhere), the location of such fixed establishment;
(c) where a supply is received at more than one establishment,
whether the place of business or fixed establishment, the location of
the establishment most directly concerned with the receipt of the
supply; and
(d) in absence of such places, the location of the usual place of
residence of the recipient;
(71) ―location of the supplier of services‖ means,–
(a) where a supply is made from a place of business for which the
registration has been obtained, the location of such place of business;
(b) where a supply is made from a place other than the place of
business for which registration has been obtained (a fixed
establishment elsewhere), the location of such fixed establishment;
(c) where a supply is made from more than one establishment,
whether the place of business or fixed establishment, the location of
the establishment most directly concerned with the provisions of the
supply; and
(d) in absence of such places, the location of the usual place of
residence of the supplier;
xxx xxx xxx
(74) ―mixed supply‖ means two or more individual supplies of
goods or services, or any combination thereof, made in conjunction
with each other by a taxable person for a single price where such
supply does not constitute a composite supply.
Illustration.–A supply of a package consisting of canned foods,
sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices
when supplied for a single price is a mixed supply. Each of these
items can be supplied separately and is not dependent on any other.
It shall not be a mixed supply if these items are supplied separately;
xxx xxx xxx
(78) ―non-taxable supply‖ means a supply of goods or services or
both which is not leviable to tax under this Act or under the
Integrated Goods and Services Tax Act;
xxx xxx xxx
(102) ―services‖ means anything other than goods, money and
securities but includes activities relating to the use of money or its
conversion by cash or by any other mode, from one form, currency
or denomination, to another form, currency or denomination for
which a separate consideration is charged;
[Explanation.–For the removal of doubts, it is hereby clarified that
the expression ―services‖ includes facilitating or arranging
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 30 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
transactions in securities;
xxx xxx xxx
(104) ―State tax‖ means the tax levied under any State Goods and
Services Tax Act;
xxx xxx xxx
(111) ―the State Goods and Services Tax Act‖ means the respective
State Goods and Services Tax Act, 2017; ‖
27. Chapter III of the CGST deals with the levy and collection of
taxes and incorporates the following provisions:-
” Chapter III
LEVY AND COLLECTION OF TAX
7.Scope of Supply.–(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; [* * *]
[* * *]
[(1-A) 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),–
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 31 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(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), (1-A) 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.
8. Tax liability on composite and mixed supplies–The tax
liability on a composite or a mixed supply shall be determined in the
following manner, namely:–
(a) a composite supply comprising two or more supplies, one
of which is a principal supply, shall be treated as a supply
of such principal supply; and
(b) a mixed supply comprising two or more supplies shall be
treated as a supply of that particular supply which attracts
the highest rate of tax.
9. Levy and collection.–(1) Subject to the provisions of sub-
section (2), there shall be levied a tax called the central goods and
services tax on all intra-State supplies of goods or services or both,
except on the supply of alcoholic liquor for human consumption
[and un-denatured extra neutral alcohol or rectified spirit used for
manufacture of alcoholic liquor, for human consumption], on the
value determined under Section 15 and at such rates, not exceeding
twenty per cent, as may be notified by the Government on the
recommendations of the Council and collected in such manner as
may be prescribed and shall be paid by the taxable person.
(2) The central tax on the supply of petroleum crude, high speed
diesel, motor spirit (commonly known as petrol), natural gas and
aviation turbine fuel shall be levied with effect from such date as
may be notified by the Government on the recommendations of the
Council.
(3) The Government may, on the recommendations of the
Council, by notification, specify categories of supply of goods or
services or both, the tax on which shall be paid on reverse charge
basis by the recipient of such goods or services or both and all the
provisions of this Act shall apply to such recipient as if he is the
person liable for paying the tax in relation to the supply of such
goods or services or both.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 32 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
[(4) The Government may, on the recommendations of the
Council, by notification, specify a class of registered persons who
shall, in respect of supply of specified categories of goods or
services or both received from an unregistered supplier, pay the tax
on reverse charge basis as the recipient of such supply of goods or
services or both, and all the provisions of this Act shall apply to such
recipient as if he is the person liable for paying the tax in relation to
such supply of goods or services or both.]
(5) The Government may, on the recommendations of the
Council, by notification, specify categories of services the tax on
intra-State supplies of which shall be paid by the electronic
commerce operator if such services are supplied through it, and all
the provisions of this Act shall apply to such electronic commerce
operator as if he is the supplier liable for paying the tax in relation to
the supply of such services:
Provided that where an electronic commerce operator does not
have a physical presence in the taxable territory, any person
representing such electronic commerce operator for any purpose in
the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce operator
does not have a physical presence in the taxable territory and also he
does not have a representative in the said territory, such electronic
commerce operator shall appoint a person in the taxable territory for
the purpose of paying tax and such person shall be liable to pay tax.‖
28. Of significance are Schedules I, II and III of the CGST which
broadly classify activities that would constitute a supply of goods or a
supply of services as well as composite supply and thereafter enumerate
activities that would be liable to be treated as either a supply of goods
or a supply of services. Schedules I, II and III are extracted
hereinbelow:-
―SCHEDULE 1
[See Section 7]
Activities to be treated as supply even if made without
consideration
1. Permanent transfer or disposal of business assets where input tax
credit has been availed on such assets.
2. Supply of goods or services or both between related persons or
between distinct persons as specified in Section 25, when made in
the course or furtherance of business:
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 33 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
Provided that gifts not exceeding fifty thousand rupees in value in a
financial year by an employer to an employee shall not be treated
as supply of goods or services or both.
3. Supply of goods–
(a) by a principal to his agent where the agent undertakes to supply
such goods on behalf of the principal; or
(b) by an agent to his principal where the agent undertakes to
receive such goods on behalf of the principal.
4. Import of services by a [person] from a related person or from
any of his other establishments outside India, in the course or
furtherance of business.
SCHEDULE II
[See Section 7]
Activities [or Transactions] to be treated as supply of goods or
supply of services
1. Transfer
(a) any transfer of the title in goods is a supply of goods;
(b) any transfer of right in goods or of undivided share in goods
without the transfer of title thereof, is a supply of services;
(c) any transfer of title in goods under an agreement which
stipulates that property in goods shall pass at a future date upon
payment of full consideration as agreed, is a supply of goods.
2. Land and Building
(a) any lease, tenancy, easement, licence to occupy land is a
supply of services;
(b) any lease or letting out of the building including a
commercial, industrial or residential complex for business or
commerce, either wholly or partly, is a supply of services.
3. Treatment or process
Any treatment or process which is applied to another person’s
goods is a supply of services.
4. Transfer of business assets
(a) where goods forming part of the assets of a business are
transferred or disposed of by or under the directions of the
person carrying on the business so as no longer to form part of
those assets, [* * *] such transfer or disposal is a supply of
goods by the person;
(b) where, by or under the direction of a person carrying on a
business, goods held or used for the purposes of the business are
put to any private use or are used, or made available to any
person for use, for any purpose other than a purpose of the
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 34 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
business, [* * *] the usage or making available of such goods is
a supply of services;
(c) where any person ceases to be a taxable person, any goods
forming part of the assets of any business carried on by him
shall be deemed to be supplied by him in the course or
furtherance of his business immediately before he ceases to be a
taxable person, unless–
(i) the business is transferred as a going concern to another
person; or
(ii) the business is carried on by a personal representative
who is deemed to be a taxable person.
5. Supply of services
The following shall be treated as supply of services, namely:–
(a) renting of immovable property;
(b) construction of a complex, building, civil structure or a part
thereof, including a complex or building intended for sale to a
buyer, wholly or partly, except where the entire consideration
has been received after issuance of completion certificate, where
required, by the competent authority or after its first occupation,
whichever is earlier.
Explanation.–For the purposes of this clause–
(1) the expression ―competent authority‖ means the Government or
any authority authorised to issue completion certificate under any
law for the time being in force and in case of non-requirement of
such certificate from such authority, from any of the following,
namely:–
(i) an architect registered with the Council of Architecture
constituted under the Architects Act, 1972 (20 of 1972); or
(ii) a chartered engineer registered with the Institution of
Engineers (India); or
(iii) a licensed surveyor of the respective local body of the city
or town or village or development or planning authority;
(2) the expression ―construction‖ includes additions, alterations,
replacements or remodelling of any existing civil structure;
(c) temporary transfer or permitting the use or enjoyment of any
intellectual property right;
(d) development, design, programming, customisation,
adaptation, upgradation, enhancement, implementation of
information technology software;
(e) agreeing to the obligation to refrain from an act, or to tolerate
an act or a situation, or to do an act; and
(f) transfer of the right to use any goods for any purpose
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 35 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(whether or not for a specified period) for cash, deferred
payment or other valuable consideration.
6. Composite supply
The following composite supplies shall be treated as a supply of
services, namely:–
(a) works contract as defined in clause (119) of Section 2; and
(b) supply, by way of or as part of any service or in any other
manner whatsoever, of goods, being food or any other article for
human consumption or any drink (other than alcoholic liquor for
human consumption), where such supply or service is for cash,
deferred payment or other valuable consideration.
7. [* * *]
SCHEDULE III
[See Section 7]
Activities or transactions which shall be treated neither as a supply
of goods nor a supply of services
1. Services by an employee to the employer in the course of or in
relation to his employment.
2. Services by any court or Tribunal established under any law for
the time being in force.
3. (a) the functions performed by the Members of Parliament,
Members of State Legislature, Members of Panchayats, Members
of Municipalities and Members of other local authorities;
(b) the duties performed by any person who holds any post in
pursuance of the provisions of the Constitution in that capacity; or
(c) the duties performed by any person as a Chairperson or a
Member or a Director in a body established by the Central
Government or a State Government or local authority and who is
not deemed as an employee before the commencement of this
clause.
4. Services of funeral, burial, crematorium or mortuary including
transportation of the deceased.
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule
II, sale of building.
6. Actionable claims, other than [specified actionable claims].
[7. Supply of goods from a place in the non-taxable territory to
another place in the non-taxable territory without such goods
entering into India.
8. (a) Supply of warehoused goods to any person before clearance
for home consumption;
(b) Supply of goods by the consignee to any other person, by
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 36 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
endorsement of documents of title to the goods, after the goods
have been dispatched from the port of origin located outside India
but before clearance for home consumption.]
[9. Activity of apportionment of co-insurance premium by the lead
insurer to the co-insurer for the insurance services jointly supplied
by the lead insurer and the co-insurer to the insured in co-insurance
agreements, subject to the condition that the lead insurer pays the
central tax, the State tax, the Union territory tax and the integrated
tax on the entire amount of premium paid by the insured.
10. Services by insurer to the reinsurer for which ceding
commission or the reinsurance commission is deducted from
reinsurance premium paid by the insurer to the reinsurer, subject to
the condition that the central tax, the State tax, the Union territory
tax and the integrated tax is paid by the reinsurer on the gross
reinsurance premium payable by the insurer to the reinsurer,
inclusive of the said ceding commission or the reinsurance
commission.]
Explanation [1].–For the purposes of paragraph 2, the term
―court‖ includes District Court, High Court and Supreme Court.
[Explanation 2.–For the purposes of paragraph 8, the expression
―warehoused goods‖ shall have the same meaning as assigned to it
in the Customs Act, 1962.] ‖
29. The IGST, on the other hand, is a statute that deals with the levy
and collection of taxes on the inter-state supply of goods, services or
both. Section 2 defines the following pertinent words and expressions
appearing in different parts of that statute in the following manner: –
“2. Definitions.–In this Act, unless the context otherwise
requires,–
(1) ―Central Goods and Services Tax Act‖ means the Central
Goods and Services Tax Act, 2017;
(2) ―central tax‖ means the tax levied and collected under the
Central Goods and Services Tax Act;‖
xxx xxx xxx
(4) ―customs frontiers of India‖ means the limits of a customs area
as defined in Section 2 of the Customs Act, 1962 (52 of 1962);
(5) ―export of goods‖ with its grammatical variations and cognate
expressions, means taking goods out of India to a place outside
India;
(6) ―export of services‖ means the supply of any service when,–
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 37 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the
supplier of service in convertible foreign exchange 3[or in
Indian rupees wherever permitted by the Reserve Bank of
India]; and
(v) the supplier of service and the recipient of service are not
merely establishments of a distinct person in accordance with
Explanation 1 in Section 8;
xxx xxx xxx
(10) ―import of goods‖ with its grammatical variations and cognate
expressions, means bringing goods into India from a place outside
India;
(11) ―import of services‖ means the supply of any service, where–
(i) the supplier of service is located outside India; (ii) the recipient
of service is located in India; and (iii) the place of supply of service
is in India;
(12) ―integrated tax‖ means the integrated goods and services tax
levied under this Act;
xxx xxx xxx
(14) ―location of the recipient of services‖ means,–
(a) where a supply is received at a place of business for which the
registration has been obtained, the location of such place of
business;
(b) where a supply is received at a place other than the place of
business for which registration has been obtained (a fixed
establishment elsewhere), the location of such fixed establishment;
(c) where a supply is received at more than one establishment,
whether the place of business or fixed establishment, the location
of the establishment most directly concerned with the receipt of the
supply; and
(d) in absence of such places, the location of the usual place of
residence of the recipient;
(15) ―location of the supplier of services‖ means,–
(a) where a supply is made from a place of business for which the
registration has been obtained, the location of such place of
business;
(b) where a supply is made from a place other than the place of
business for which registration has been obtained (a fixed
establishment elsewhere), the location of such fixed establishment;
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 38 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(c) where a supply is made from more than one establishment,
whether the place of business or fixed establishment, the location
of the establishment most directly concerned with the provision of
the supply; and
(d) in absence of such places, the location of the usual place of
residence of the supplier;
xxx xxx xxx
(21) ―supply‖ shall have the same meaning as assigned to it in
Section 7 of the Central Goods and Services Tax Act;
(22) ―taxable territory‖ means the territory to which the provisions
of this Act apply;‖
30. The tax envisaged under the IGST is levied in terms of Section 5
and reads thus:-
―Chapter III
LEVY AND COLLECTION OF TAX
5. Levy and collection.–(1) Subject to the provisions of sub-
section
(2), there shall be levied a tax called the integrated goods and
services tax on all inter-State supplies of goods or services or both,
except on the supply of alcoholic liquor for human consumption
7[and undenatured extra neutral alcohol or rectified spirit used for
manufacture of alcoholic liquor, for human consumption], on the
value determined under Section 15 of the Central Goods and
Services Tax Act and at such rates, not exceeding forty per cent., as
may be notified by the Government on the recommendations of the
Council and collected in such manner as may be prescribed and
shall be paid by the taxable person:
Provided that the integrated tax on goods 8[other than the goods as
may be notified by the Government on the recommendations of the
Council] imported into India shall be levied and collected in
accordance with the provisions of Section 3 of the CTA, 1975 (51
of 1975) on the value as determined under the said Act at the point
when duties of customs are levied on the said goods under Section
12 of the Customs Act, 1962 (52 of 1962).
(2) The integrated tax on the supply of petroleum crude, high speed
diesel, motor spirit (commonly known as petrol), natural gas and
aviation turbine fuel shall be levied with effect from such date as
may be notified by the Government on the recommendations of the
Council.
(3) The Government may, on the recommendations of the Council,
by notification, specify categories of supply of goods or services or
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 39 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
both, the tax on which shall be paid on reverse charge basis by the
recipient of such goods or services or both and all the provisions of
this Act shall apply to such recipient as if he is the person liable for
paying the tax in relation to the supply of such goods or services or
both.
[(4) The Government may, on the recommendations of the Council,
by notification, specify a class of registered persons who shall, in
respect of supply of specified categories of goods or services or
both received from an unregistered supplier, pay the tax on reverse
charge basis as the recipient of such supply of goods or services or
both, and all the provisions of this Act shall apply to such recipient
as if he is the person liable for paying the tax in relation to such
supply of goods or services or both.]
(5) The Government may, on the recommendations of the Council,
by notification, specify categories of services, the tax on inter-State
supplies of which shall be paid by the electronic commerce
operator if such services are supplied through it, and all the
provisions of this Act shall apply to such electronic commerce
operator as if he is the supplier liable for paying the tax in relation
to the supply of such services:
Provided that where an electronic commerce operator does not
have a physical presence in the taxable territory, any person
representing such electronic commerce operator for any purpose in
the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce operator does
not have a physical presence in the taxable territory and also does
not have a representative in the said territory, such electronic
commerce operator shall appoint a person in the taxable territory
for the purpose of paying tax and such person shall be liable to pay
tax.‖
31. The subject of inter-state supply is elaborated in Section 7 and
which is framed in the following words:-
― Chapter IV
DETERMINATION OF NATURE OF SUPPLY
7. Inter-State supply.–(1) Subject to the provisions of Section 10,
supply of goods, where the location of the supplier and the place of
supply are in–
(a) two different States;
(b) two different Union territories; or
(c) a State and a Union territory, shall be treated as a supply of
goods in the course of inter-State trade or commerce.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 40 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(2) Supply of goods imported into the territory of India, till they
cross the customs frontiers of India, shall be treated to be a supply
of goods in the course of inter-State trade or commerce.
(3) Subject to the provisions of Section 12, supply of services,
where the location of the supplier and the place of supply are in–
(a) two different States;
(b) two different Union territories; or
(c) a State and a Union territory, shall be treated as a supply of
services in the course of inter-State trade or commerce.
(4) Supply of services imported into the territory of India shall be
treated to be a supply of services in the course of inter-State trade
or commerce.
(5) Supply of goods or services or both,–
(a) when the supplier is located in India and the place of supply is
outside India;
(b) to or by a Special Economic Zone developer or a Special
Economic Zone unit; or
(c) in the taxable territory, not being an intra-State supply and not
covered elsewhere in this section, shall be treated to be a supply of
goods or services or both in the course of inter-State trade or
commerce. ‖
32. Intra-state supply, on the other hand, is regulated by Section 8 in
the following terms:-
―8. Intra-State supply.–(1) Subject to the provisions of Section
10,
supply of goods where the location of the supplier and the place of
supply of goods are in the same State or same Union territory shall
be treated as intra-State supply:
Provided that the following supply of goods shall not be treated as
intra-State supply, namely:–
(i) supply of goods to or by a Special Economic Zone developer or
a Special Economic Zone unit;
(ii) goods imported into the territory of India till they cross the
customs frontiers of India; or
(iii) supplies made to a tourist referred to in Section 15.
(2) Subject to the provisions of Section 12, supply of services
where the location of the supplier and the place of supply of
services are in the same State or same Union territory shall be
treated as intra-State supply:
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 41 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
Provided that the intra-State supply of services shall not include
supply of services to or by a Special Economic Zone developer or a
Special Economic Zone unit.
Explanation 1.–For the purposes of this Act, where a person
has,–
(i) an establishment in India and any other establishment outside
India;
(ii) an establishment in a State or Union territory and any other
establishment outside that State or Union territory; or
(iii) an establishment in a State or Union territory and any other
establishment 11[* * *] registered within that State or Union
territory, then such establishments shall be treated as
establishments of distinct persons.
Explanation 2.–A person carrying on a business through a branch
or an agency or a representational office in any territory shall be
treated as having an establishment in that territory. ‖
33. Sections 10 and 11 introduce provisions which enable one to
ascertain the place of supply of goods when imported into or exported
from India as well as otherwise. Those sections read as under:-
― Chapter V
PLACE OF SUPPLY OF GOODS OR SERVICES OR BOTH
10. Place of supply of goods other than supply of goods imported
into, or exported from India.–(1) The place of supply of goods,
other than supply of goods imported into, or exported from India,
shall be as under,–
(a) where the supply involves movement of goods, whether by the
supplier or the recipient or by any other person, the place of supply
of such goods shall be the location of the goods at the time at which
the movement of goods terminates for delivery to the recipient;
(b) where the goods are delivered by the supplier to a recipient or
any other person on the direction of a third person, whether acting
as an agent or otherwise, before or during movement of goods,
either by way of transfer of documents of title to the goods or
otherwise, it shall be deemed that the said third person has received
the goods and the place of supply of such goods shall be the
principal place of business of such person;
(c) where the supply does not involve movement of goods, whether
by the supplier or the recipient, the place of supply shall be the
location of such goods at the time of the delivery to the recipient;
12[(ca) where the supply of goods is made to a person other than a
registered person, the place of supply shall, notwithstanding
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 42 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
anything contrary contained in clause (a) or clause (c), be the
location as per the address of the said person recorded in the
invoice issued in respect of the said supply and the location of the
supplier where the address of the said person is not recorded in the
invoice.
Explanation.–For the purposes of this clause, recording of the
name of the State of the said person in the invoice shall be deemed
to be the recording of the address of the said person;]
(d) where the goods are assembled or installed at site, the place of
supply shall be the place of such installation or assembly;
(e) where the goods are supplied on board a conveyance, including
a vessel, an aircraft, a train or a motor vehicle, the place of supply
shall be the location at which such goods are taken on board.
(2) Where the place of supply of goods cannot be determined, the
place of supply shall be determined in such manner as may be
prescribed.
11. Place of supply of goods imported into, or exported from
India.–
The place of supply of goods,–
(a) imported into India shall be the location of the importer;
(b) exported from India shall be the location outside India.‖
34. The determination of the place of supply of services where either
the location of the supplier or the recipient of service is in India is
governed by Section 12 and reads thus:-
―12. Place of supply of services where location of supplier and
recipient is in India.–(1) The provisions of this section shall
apply to determine the place of supply of services where the
location of supplier of services and the location of the recipient of
services is in India.
(2) The place of supply of services, except the services specified in
sub-sections (3) to (14),–
(a) made to a registered person shall be the location of such person;
(b) made to any person other than a registered person shall be,–
(i) the location of the recipient where the address on record exists;
and
(ii) the location of the supplier of services in other cases.
(3) The place of supply of services,–
(a) directly in relation to an immovable property, including services
provided by architects, interior decorators, surveyors, engineers and
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 43 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
other related experts or estate agents, any service provided by way
of grant of rights to use immovable property or for carrying out or
co-ordination of construction work; or
(b) by way of lodging accommodation by a hotel, inn, guest house,
home stay, club or campsite, by whatever name called, and
including a house boat or any other vessel; or
(c) by way of accommodation in any immovable property for
organising any marriage or reception or matters related thereto,
official, social, cultural, religious or business function including
services provided in relation to such function at such property; or
(d) any services ancillary to the services referred to in clauses (a),
(b) and (c), shall be the location at which the immovable property
or boat or vessel, as the case may be, is located or intended to be
located:
Provided that if the location of the immovable property or boat or
vessel is located or intended to be located outside India, the place
of supply shall be the location of the recipient.
Explanation.–Where the immovable property or boat or vessel is
located in more than one State or Union territory, the supply of
services shall be treated as made in each of the respective States or
Union territories, in proportion to the value for services separately
collected or determined in terms of the contract or agreement
entered into in this regard or, in the absence of such contract or
agreement, on such other basis as may be prescribed.
(4) The place of supply of restaurant and catering services, personal
grooming, fitness, beauty treatment, health service including
cosmetic and plastic surgery shall be the location where the
services are actually performed.
(5) The place of supply of services in relation to training and
performance appraisal to,–
(a) a registered person, shall be the location of such person;
(b) a person other than a registered person, shall be the location
where the services are actually performed.
(6) The place of supply of services provided by way of admission
to a cultural, artistic, sporting, scientific, educational, entertainment
event or amusement park or any other place and services ancillary
thereto, shall be the place where the event is actually held or where
the park or such other place is located.
(7) The place of supply of services provided by way of,–
(a) organisation of a cultural, artistic, sporting, scientific,
educational or entertainment event including supply of services in
relation to a conference, fair, exhibition, celebration or similar
events; or
(b) services ancillary to organisation of any of the events or
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 44 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
services referred to in clause (a), or assigning of sponsorship to
such events,–
(i) to a registered person, shall be the location of such person;
(ii) to a person other than a registered person, shall be the place
where the event is actually held and if the event is held outside
India, the place of supply shall be the location of the recipient.
Explanation.–Where the event is held in more than one State or
Union territory and a consolidated amount is charged for supply of
services relating to such event, the place of supply of such services
shall be taken as being in each of the respective States or Union
territories in proportion to the value for services separately
collected or determined in terms of the contract or agreement
entered into in this regard or, in the absence of such contract or
agreement, on such other basis as may be prescribed.
(8) The place of supply of services by way of transportation of
goods, including by mail or courier to,–
(a) a registered person, shall be the location of such person;
(b) a person other than a registered person, shall be the location at
which such goods are handed over for their transportation:
13[* * *]]
(9) The place of supply of passenger transportation service to,–
(a) a registered person, shall be the location of such person;
(b) a person other than a registered person, shall be the place where
the passenger embarks on the conveyance for a continuous journey:
Provided that where the right to passage is given for future use and
the point of embarkation is not known at the time of issue of right
to passage, the place of supply of such service shall be determined
in accordance with the provisions of sub-section (2).
Explanation.–For the purposes of this sub-section, the return
journey shall be treated as a separate journey, even if the right to
passage for onward and return journey is issued at the same time.
(10) The place of supply of services on board a conveyance,
including a vessel, an aircraft, a train or a motor vehicle, shall be
the location of the first scheduled point of departure of that
conveyance for the journey.
(11) The place of supply of telecommunication services including
data transfer, broadcasting, cable and direct to home television
services to any person shall,–
(a) in case of services by way of fixed telecommunication line,
leased circuits, internet leased circuit, cable or dish antenna, be the
location where the telecommunication line, leased circuit or cable
connection or dish antenna is installed for receipt of services;
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 45 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(b) in case of mobile connection for telecommunication and
internet services provided on post-paid basis, be the location of
billing address of the recipient of services on the record of the
supplier of services;
(c) in cases where mobile connection for telecommunication,
internet service and direct to home television services are provided
on pre-payment basis through a voucher or any other means,–
(i) through a selling agent or a re-seller or a distributor of
subscriber identity module card or re-charge voucher, be the
address of the selling agent or re-seller or distributor as per the
record of the supplier at the time of supply; or
(ii) by any person to the final subscriber, be the location where
such prepayment is received or such vouchers are sold;
(d) in other cases, be the address of the recipient as per the records
of the supplier of services and where such address is not available,
the place of supply shall be location of the supplier of services:
Provided that where the address of the recipient as per the records
of the supplier of services is not available, the place of supply shall
be location of the supplier of services:
Provided further that if such pre-paid service is availed or the
recharge is made through internet banking or other electronic mode
of payment, the location of the recipient of services on the record
of the supplier of services shall be the place of supply of such
services.
Explanation.–Where the leased circuit is installed in more than
one State or Union territory and a consolidated amount is charged
for supply of services relating to such circuit, the place of supply of
such services shall be taken as being in each of the respective
States or Union territories in proportion to the value for services
separately collected or determined in terms of the contract or
agreement entered into in this regard or, in the absence of such
contract or agreement, on such other basis as may be prescribed.
(12) The place of supply of banking and other financial services,
including stock broking services to any person shall be the location
of the recipient of services on the records of the supplier of
services:
Provided that if the location of recipient of services is not on the
records of the supplier, the place of supply shall be the location of
the supplier of services.
(13) The place of supply of insurance services shall,–
(a) to a registered person, be the location of such person;
(b) to a person other than a registered person, be the location of the
recipient of services on the records of the supplier of services.
(14) The place of supply of advertisement services to the Central
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 46 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
Government, a State Government, a statutory body or a local
authority meant for the States or Union territories identified in the
contract or agreement shall be taken as being in each of such States
or Union territories and the value of such supplies specific to each
State or Union territory shall be in proportion to the amount
attributable to services provided by way of dissemination in the
respective States or Union territories as may be determined in terms
of the contract or agreement entered into in this regard or, in the
absence of such contract or agreement, on such other basis as may
be prescribed.‖
35. Similar corresponding provisions are made to deal with situations
where the supplier of service or recipient thereof is seated outside India.
This becomes evident from a reading of Section 13 which is extracted
hereinbelow: –
―13. Place of supply of services where location of supplier or
location of recipient is outside India.–(1) The provisions of this
section shall apply to determine the place of supply of services
where the location of the supplier of services or the location of the
recipient of services is outside India.
(2) The place of supply of services except the services specified in
sub-sections (3) to (13) shall be the location of the recipient of
services:
Provided that where the location of the recipient of services is not
available in the ordinary course of business, the place of supply
shall be the location of the supplier of services.
(3) The place of supply of the following services shall be the
location where the services are actually performed, namely:–
(a) services supplied in respect of goods which are required to be
made physically available by the recipient of services to the
supplier of services, or to a person acting on behalf of the supplier
of services in order to provide the services:
Provided that when such services are provided from a remote
location by way of electronic means, the place of supply shall be
the location where goods are situated at the time of supply of
services:
[Provided further that nothing contained in this clause shall apply
in the case of services supplied in respect of goods which are
temporarily imported into India for repairs or for any other
treatment or process and are exported after such repairs or
treatment or process without being put to any use in India, other
than that which is required for such repairs or treatment or
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 47 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
process;]
(b) services supplied to an individual, represented either as the
recipient of services or a person acting on behalf of the recipient,
which require the physical presence of the recipient or the person
acting on his behalf, with the supplier for the supply of services.
(4) The place of supply of services supplied directly in relation to
an immovable property, including services supplied in this regard
by experts and estate agents, supply of accommodation by a hotel,
inn, guest house, club or campsite, by whatever name called, grant
of rights to use immovable property, services for carrying out or
co-ordination of construction work, including that of architects or
interior decorators, shall be the place where the immovable
property is located or intended to be located.
(5) The place of supply of services supplied by way of admission
to, or organisation of a cultural, artistic, sporting, scientific,
educational or entertainment event, or a celebration, conference,
fair, exhibition or similar events, and of services ancillary to such
admission or organisation, shall be the place where the event is
actually held.
(6) Where any services referred to in sub-section (3) or sub-section
(4) or sub-section (5) is supplied at more than one location,
including a location in the taxable territory, its place of supply shall
be the location in the taxable territory.
(7) Where the services referred to in sub-section (3) or sub-section
(4) or sub-section (5) are supplied in more than one State or Union
territory, the place of supply of such services shall be taken as
being in each of the respective States or Union territories and the
value of such supplies specific to each State or Union territory shall
be in proportion to the value for services separately collected or
determined in terms of the contract or agreement entered into in
this regard or, in the absence of such contract or agreement, on
such other basis as may be prescribed.
(8) The place of supply of the following services shall be the
location of the supplier of services, namely:–
(a) services supplied by a banking company, or a financial
institution, or a non-banking financial company, to account holders;
(b) intermediary services;
(c) services consisting of hiring of means of transport, including
yachts but excluding aircrafts and vessels, up to a period of one
month.
Explanation.–For the purposes of this sub-section, the
expression,–
(a) ―account‖ means an account bearing interest to the depositor,
and includes a non-resident external account and a non-resident
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 48 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
ordinary account;
(b) ―banking company‖ shall have the same meaning as assigned to
it under clause (a) of Section 45-A of the Reserve Bank of India
Act, 1934 (2 of 1934);
(c) ―financial institution‖ shall have the same meaning as assigned
to it in clause (c) of Section 45-I of the Reserve Bank of India Act,
1934 (2 of 1934);
(d) ―non-banking financial company‖ means,–
(i) a financial institution which is a company;
(ii) a non-banking institution which is a company and which has as
its principal business the receiving of deposits, under any scheme
or arrangement or in any other manner, or lending in any manner;
or
(iii) such other non-banking institution or class of such institutions,
as the Reserve Bank of India may, with the previous approval of
the Central Government and by notification in the Official Gazette,
specify.
(9) [* * *]
(10) The place of supply in respect of passenger transportation
services shall be the place where the passenger embarks on the
conveyance for a continuous journey.
(11) The place of supply of services provided on board a
conveyance during the course of a passenger transport operation,
including services intended to be wholly or substantially consumed
while on board, shall be the first scheduled point of departure of
that conveyance for the journey.
(12) The place of supply of online information and database access
or retrieval services shall be the location of the recipient of
services.
Explanation.–For the purposes of this sub-section, person
receiving such services shall be deemed to be located in the taxable
territory, if any two of the following non-contradictory conditions
are satisfied, namely:–
(a) the location of address presented by the recipient of services
through internet is in the taxable territory;
(b) the credit card or debit card or store value card or charge card or
smart card or any other card by which the recipient of services
settles payment has been issued in the taxable territory;
(c) the billing address of the recipient of services is in the taxable
territory;
(d) the internet protocol address of the device used by the recipient
of services is in the taxable territory;
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 49 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(e) the bank of the recipient of services in which the account used
for payment is maintained is in the taxable territory;
(f) the country code of the subscriber identity module card used by
the recipient of services is of taxable territory;
(g) the location of the fixed land line through which the service is
received by the recipient is in the taxable territory.
(13) In order to prevent double taxation or non-taxation of the
supply of a service, or for the uniform application of rules, the
Government shall have the power to notify any description of
services or circumstances in which the place of supply shall be the
place of effective use and enjoyment of a service.‖
36. Section 20 reads as follows: –
―CHAPTER IX
MISCELLANEOUS
20. Application of provisions of Central Goods and Services
Tax Act.–Subject to the provisions of this Act and the rules made
thereunder, the provisions of Central Goods and Services Tax Act
relating to,–
(i) scope of supply;
(ii) composite supply and mixed supply;
(iii) time and value of supply;
(iv) input tax credit;
(v) registration;
(vi) tax invoice, credit and debit notes;
(vii) accounts and records;
(viii) returns, other than late fee;
(ix) payment of tax;
(x) tax deduction at source;
(xi) collection of tax at source;
(xii) assessment;
(xiii) refunds;
(xiv) audit;
(xv) inspection, search, seizure and arrest;
(xvi) demands and recovery;
(xvii) liability to pay in certain cases;
(xviii) advance ruling;
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 50 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(xix) appeals and revision;
(xx) presumption as to documents;
(xxi) offences and penalties;
(xxii) job work;
(xxiii) electronic commerce;
(xxiv) transitional provisions; and
(xxv) miscellaneous provisions including the provisions relating to
the imposition of interest and penalty,
shall, mutatis mutandis, apply, so far as may be, in relation to
integrated tax as they apply in relation to central tax as if they are
enacted under this Act:
Provided that in the case of tax deducted at source, the deductor
shall deduct tax at the rate of two per cent. from the payment made
or credited to the supplier:
Provided further that in the case of tax collected at source, the
operator shall collect tax at such rate not exceeding two per cent, as
may be notified on the recommendations of the Council, of the net
value of taxable supplies:
Provided also that for the purposes of this Act, the value of a
supply shall include any taxes, duties, cesses, fees and charges
levied under any law for the time being in force other than this Act,
and the Goods and Services Tax (Compensation to States) Act, if
charged separately by the supplier:
Provided also that in cases where the penalty is leviable under the
Central Goods and Services Tax Act and the State Goods and
Services Tax Act or the Union Territory Goods and Services Tax
Act, the penalty leviable under this Act shall be the sum total of the
said penalties:
[Provided also that a maximum amount of forty crore rupees shall
be payable for each appeal to be filed before the Appellate
Authority or the Appellate Tribunal.]‖
37. This would constitute an appropriate juncture to now notice some
of the salient provisions contained in the Customs Act and the CTA.
The expressions ‗customs area’, ‗dutiable goods’, ‗duty’, ‗export’,
‗export of goods’, ‗import’ and ‗imported goods’ are defined by Section
2 in the following terms: –
― 2. Definitions.–In this Act, unless the context otherwise
requires,–
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 51 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(11) ―customs area‖ means the area of a customs station [or a
warehouse] and includes any area in which imported goods or
exported goods are ordinarily kept before clearance by Customs
authorities;
xxx xxx xxx
(14) ―dutiable goods‖ means any goods which are chargeable to
duty and on which duty has not been paid;
(15) ―duty‖ means a duty of customs leviable under this Act;
xxx xxx xxx
(18) ―export‖ with its grammatical variations and cognate
expressions, means taking out of India to a place outside India;
(19) ―export goods‖ means any goods which are to be taken out of
India to a place outside India;
xxx xxx xxx
(23) ―import‖, with its grammatical variations and cognate
expressions, means bringing into India from a place outside India;
xxx xxx xxx
(25) ―imported goods‖ means any goods brought into India from a
place outside India but does not include goods which have been
cleared for home consumption;‖
38. Section 12 of the Customs Act constitutes the charging section
and reads thus:-
―Chapter V
LEVY OF, AND EXEMPTION FROM, CUSTOMS DUTIES
12. Dutiable goods.
1) Except as otherwise provided in this Act, or any other law for
the time being in force, duties of customs shall be levied at such
rates as may be specified under the [CTA, 1975 (51 of 1975)], or
any other law for the time being in force, on goods imported into,
or exported from India.
[(2) The provisions of sub-section (1) shall apply in respect of all
goods belonging to Government as they apply in respect of goods
not belonging to Government.] ‖
39. Since the arguments addressed by respective sides pivoted and
revolved majorly around Section 3 of the CTA, the same is reproduced
hereunder in its entirety: –
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 52 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
― [3. Levy of additional duty equal to excise duty, sales tax,
local taxes and other charges.
1) Any article which is imported into India shall, in addition, be
liable to a duty (hereafter in this section referred to as the additional
duty) equal to the excise duty for the time being leviable on a like
article if produced or manufactured in India and if such excise duty
on a like article is leviable at any percentage of its value, the
additional duty to which the imported article shall be so liable shall
be calculated at that percentage of the value of the imported article:
Provided that in case of any alcoholic liquor for human
consumption imported into India, the Central Government may, by
notification in the Official Gazette, specify the rate of additional
duty having regard to the excise duty for the time being leviable on
a like alcoholic liquor produced or manufactured in different States
or, if a like alcoholic liquor is not produced or manufactured in any
State, then, having regard to the excise duty which would be
leviable for the time being in different States on the class or
description of alcoholic liquor to which such imported alcoholic
liquor belongs.
Explanation.–In this sub-section, the expression ―the excise duty
for the time being leviable on a like article if produced or
manufactured in India‖ means the excise duty for the time being in
force which would be leviable on a like article if produced or
manufactured in India or, if a like article is not so produced or
manufactured, which would be leviable on the class or description
of articles to which the imported article belongs, and where such
duty is leviable at different rates, the highest duty.
(2) For the purpose of calculating under sub-sections (1) and (3),
the additional duty on any imported article, where such duty is
leviable at any percentage of its value, the value of the imported
article shall, notwithstanding anything contained in section 14 of
the Customs Act, 1962 (52 of 1962), be the aggregate of.–
(i) the value of the imported article determined under sub-section
(1) of section 14 of the Customs Act, 1962 (52 of 1962) or the tariff
value of such article fixed under sub-section (2) of that section, as
the case may be; and
(ii) any duty of customs chargeable on that article under section 12
of the Customs Act, 1962 (52 of 1962), and any sum chargeable on
that article under any law for the time being in force as an addition
to, and in the same manner as, a duty of customs, but does not
include–
[(a) the duty referred to in sub-sections (1), (3), (5), (7) and (9)];
(b) the safeguard duty referred to in sections 8B and 8C;
(c) the countervailing duty referred to in section 9; and
(d) the anti-dumping duty referred to in section 9A:
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 53 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
[Provided that in case of an article imported into India,–
(a) in relation to which it is required, under the provisions of the
[Legal Metrology Act, 2009 (1 of 2010)] or the rules made
thereunder or under any other law for the time being in force, to
declare on the package thereof the retail sale price of such article;
and
(b) where the like article produced or manufactured in India, or in
case where such like article is not so produced or manufactured,
then, the class or description of articles to which the imported
article belongs, is–
(i) the goods specified by notification in the Official Gazette under
subsection (1) of section 4A of the Central Excise Act, 1944 (1 of
1944), the value of the imported article shall be deemed to be the
retail sale price declared on the imported article less such amount
of abatement, if any, from such retail sale price as the Central
Government may, by notification in the Official Gazette, allow in
respect of such like article under sub-section (2) of section 4A of
that Act; or
*****
Explanation–Where on any imported article more than one retail
sale price is declared, the maximum of such retail sale price shall
be deemed to be the retail sale price for the purposes of this
section.]
[Provided further that in the case of an article imported into India,
where the Central Government has fixed a tariff value for the like
article produced or manufactured in India under sub-section (2) of
section 3 of the Central Excise Act, 1944 (1 of 1944), the value of
the imported article shall be deemed to be such tariff value.]
Explanation.–Where on any imported article more than one retail
sale price is declared, the maximum of such retail sale price shall
be deemed to be the retail sale price for the purposes of this section.
(3) If the Central Government is satisfied that it is necessary in the
public interest to levy on any imported article [whether on such
article duty is leviable under sub-section (1) or not] such additional
duty as would counter-balance the excise duty leviable on any raw
materials, components and ingredients of the same nature as, or
similar to those, used in the production or manufacture of such
article, it may, by notification in the Official Gazette, direct that
such imported article shall, in addition, be liable to an additional
duty representing such portion of the excise duty leviable on such
raw materials, components and ingredients as, in either case, may
be determined by rules made by the Central Government in this
behalf.
(4) In making any rules for the purposes of sub-section (3), the
Central Government shall have regard to the average quantum of
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 54 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
the excise duty payable on the raw materials, components or
ingredients used in the production or manufacture of such like
article.
(5) If the Central Government is satisfied that it is necessary in the
public interest to levy on any imported article [whether on such
article duty is leviable under sub-section (1) or, as the case may be,
sub-section (3) or not] such additional duty as would counter-
balance the sales tax, value added tax, local tax or any other
charges for the time being leviable on a like article on its sale,
purchase or transportation in India, it may, by notification in the
Official Gazette, direct that such imported article shall, in addition,
be liable to an additional duty at a rate not exceeding four per cent.
of the value of the imported article as specified in that notification.
Explanation.–In this sub-section, the expression ―sales tax, value
added tax, local tax or any other charges for the time being leviable
on a like article on its sale, purchase or transportation in India‖
means the sales tax, value added tax, local tax or other charges for
the time being in force, which would be leviable on a like article if
sold, purchased or transported in India or, if a like article is not so
sold, purchased or transported, which would be leviable on the
class or description of articles to which the imported article
belongs, and where such taxes, or, as the case may be, such charges
are leviable at different rates, the highest such tax or, as the case
may be, such charge.
(6) For the purpose of calculating under sub-section (5), the
additional duty on any imported article, the value of the imported
article shall, notwithstanding anything contained in sub-section (2),
or section 14 of the Customs Act, 1962 (52 of 1962), be the
aggregate of–
(i) the value of the imported article determined under sub-section
(1) of section 14 of the Customs Act, 1962 (52 of 1962) or the tariff
value of such article fixed under sub-section (2) of that section, as
the case may be; and
(ii) any duty of customs chargeable on that article under section 12
of the Customs Act, 1962, (52 of 1962), and any sum chargeable on
that article under any law for the time being in force as an addition
to, and in the same manner as, a duty of customs, but does not
include–
[(a) the duty referred to in sub-sections (5), (7) and (9);]
(b) the safeguard duty referred to in sections 8B and 8C;
(c) the countervailing duty referred to in section 9; and
(d) the anti-dumping duty referred to in section 9A.
[(7) Any article which is imported into India shall, in addition, be
liable to integrated tax at such rate, not exceeding forty per cent. as
is leviable under section 5 of the Integrated Goods and Services
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 55 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
Tax Act, 2017 on a like article on its supply in India, on the value
of the imported article as determined under sub-section (8) [or sub-
section (8A), as the case may be].
(8) For the purposes of calculating the integrated tax under sub-
section (7) on any imported article where such tax is leviable at any
percentage of its value, the value of the imported article shall,
notwithstanding anything contained in section 14 of the Customs
Act, 1962 (52 of 1962), be the aggregate of–
(a) the value of the imported article determined under sub-section
(1) of section 14 of the Customs Act, 1962 (52 of 1962) or the tariff
value of such article fixed under sub-section (2) of that section, as
the case may be; and
(b) any duty of customs chargeable on that article under section 12
of the Customs Act, 1962 (52 of 1962), and any sum chargeable on
that article under any law for the time being in force as an addition
to, and in the same manner as, a duty of customs, but does not
include the tax referred to in sub-section (7) or the cess referred to
in sub-section (9).
[(8A) Where the goods deposited in a warehouse under the
provisions of the Customs Act, 1962 (52 of 1962) are sold to any
person before clearance for home consumption or export under the
said Act, the value of such goods for the purpose of calculating the
integrated tax under sub-section (7) shall be,–
(a) where the whole of the goods are sold, the value determined
under sub-section (8) or the transaction value of such goods,
whichever is higher; or
(b) where any part of the goods is sold, the proportionate value of
such goods as determined under sub-section (8) or the transaction
value of such goods, whichever is higher:
Provided that where the whole of the warehoused goods or any part
thereof are sold more than once before such clearance for home
consumption or export, the transaction value of the last such
transaction shall be the transaction value for the purposes of clause
(a) or clause (b):
Provided further that in respect of warehoused goods which remain
unsold, the value or the proportionate value, as the case may be, of
such goods shall be determined in accordance with the provisions
of sub-section (8).
Explanation.–For the purposes of this sub-section, the expression
―transaction value‖, in relation to warehoused goods, means the
amount paid or payable as consideration for the sale of such
goods.]
(9) Any article which is imported into India shall, in addition, be
liable to the goods and services tax compensation cess at such rate,
as is leviable under section 8 of the Goods and Services Tax
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 56 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(Compensation to States) Cess Act, 2017 on a like article on its
supply in India, on the value of the imported article as determined
under sub-section (10) [or sub-section (10A), as the case may be].
(10) For the purposes of calculating the goods and services tax
compensation cess under sub-section (9) on any imported article
where such cess is leviable at any percentage of its value, the value
of the imported article shall, notwithstanding anything contained in
section 14 of the Customs Act, 1962 (52 of 1962), be the aggregate
of–
(a) the value of the imported article determined under sub-section
(1) of section 14 of the Customs Act, 1962 (52 of 1962) or the tariff
value of such article fixed under sub-section (2) of that section, as
the case may be; and
(b) any duty of customs chargeable on that article under section 12
of the Customs Act, 1962, and any sum chargeable on that article
under any law for the time being in force as an addition to, and in
the same manner as, a duty of customs, but does not include the tax
referred to in sub-section (7) or the cess referred to in sub-section
(9).
[(10A) Where the goods deposited in a warehouse under the
provisions of the Customs Act, 1962 (52 of 1962) are sold to any
person before clearance for home consumption or export under the
said Act, the value of such goods for the purpose of calculating the
goods and services tax compensation cess under sub-section (9)
shall be,–
(a) where the whole of the goods are sold, the value determined
under sub-section (10) or the transaction value of such goods,
whichever is higher; or
(b) where any part of the goods is sold, the proportionate value of
such goods as determined under sub-section (10) or the transaction
value of such goods, whichever is higher:
Provided that where the whole of the warehoused goods or any part
thereof are sold more than once before such clearance for home
consumption or export, the transaction value of the last of such
transaction shall be the transaction value for the purposes of clause
(a) or clause (b):
Provided further that in respect of warehoused goods which remain
unsold, the value or the proportionate value, as the case may be, of
such goods shall be determined in accordance with the provisions
of sub-section (10).
Explanation–For the purposes of this sub-section, the expression
―transaction value‖, in relation to warehoused goods, means the
amount paid or payable as consideration for the sale of such
goods.]
(11) The duty or tax or cess, as the case may be, chargeable under
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 57 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
this section shall be in addition to any other duty or tax or cess, as
the case may be, imposed under this Act or under any other law for
the time being in force.
[(12) The provisions of the Customs Act, 1962 (52 of 1962) and all
rules and regulations made thereunder, including but not limited to
those relating to the date for determination of rate of duty,
assessment, non-levy, short-levy, refunds, exemptions, interest,
recovery, appeals, offences and penalties shall, as far as may be,
apply to the duty or tax or cess, as the case may be, chargeable
under this section as they apply in relation to duties leviable under
that Act or all rules or regulations made thereunder, as the case
may be.]‖
SCHEME OF THE IMPUGNED NOTIFICATIONS
40. Having noticed the salient provisions of the Constitution as well
as the CGST and IGST, we then proceed further to take note of the
principal notifications pertinent to the question that stands raised. As
noted hereinabove, the petitioner claims exemption from the payment
of BCD by virtue of the provisions contained in Notification 50/2017.
The exemptions with respect to aircrafts and parts thereof stand
comprised in entries 279, 540, 543, 544 and 546 read along with notes
26 and 27. The relevant parts of the said General Exemption, as well as
the Explanatory Notes are extracted hereinbelow:
“MINISTRY OF FINANCE
(Department of Revenue)
NOTIFICATION
Notification No. 50/2017-Customs
G.S.R. 785(E).– In exercise of the powers conferred by sub-section
(1) of Section 25 of the Customs Act, 1962 (52 of 1962) and sub-
Section (12) of Section 3, of CTA, 1975 (51 of 1975), and in
supersession of the notification of the Government of India in the
Ministry of Finance (Department of Revenue), No. 12/2012-
Customs, dated the 1[17th March, 2012] published in the Gazette of
India, Extraordinary, Part II, Section 3, Sub-Section (i), vide number
G.S.R. 185(E) dated the 17th March, 2017, except as respects things
done or omitted to be done before such supersession, the Central
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 58 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
Government, on being satisfied that it is necessary in the public
interest so to do, hereby exempts the goods of the description
specified in column (3) of the Table below or column (3) of the said
Table read with the relevant List appended hereto, as the case may
be, and falling within the Chapter, heading, sub-heading or tariff
item of the First Schedule to the said CTA, as are specified in the
corresponding entry in column (2) of the said Table, when imported
into India,–
(a) from so much of the duty of customs leviable thereon under the
said First Schedule as is in excess of the amount calculated at the
standard rate specified in the corresponding entry in column (4) of
the said Table; and
(b) from so much of integrated tax leviable thereon under sub-
Section (7) of Section 3 of said CTA, read with Section 5 of the
Integrated Goods and Services Tax Act, 2017 (13 of 2017) as is in
excess of the amount calculated at the rate specified in the
corresponding entry in column (5) of the said Table, subject to any
of the conditions, specified in the Annexure to this notification, the
condition number of which is mentioned in the corresponding entry
in column (6) of the said Table.
S. Chapter or Description of goods Standard Integrate Condition
No. Heading or rate d Goods No.
sub- and
heading or Services
tariff item Tax
(1) (2) (3) (4) (5) (6)
XXXX
279. 40 New or retreaded Nil -- 26
Pneumatic tyres of
rubber of a kind used
in aircrafts of heading
8802
540. 8802 All goods Nil -- 79
(except
8802 60 00)
XXXX
543. 8802 All goods 2.5% -- 81
(except
8802 60 00)
[544 Any Chapter Components or parts -- 5% --]
-A. which are prescribed in
any of the following
manuals--
i. Aircraft Maintenance
Manual (AMM);
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 59 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
ii. Component
Maintenance Manual
(CMM);
iii. Illustrated Parts
Catalogue (IPCL);
iv. Structural Repair
Manual (SRM); or
v. Standard Procedure
Manual (SPM) of the
OEMs, when imported
into India for servicing,
repair, maintenance or
overhauling, subject to
fulfilling respective
conditions, the
condition number of
which is mentioned in
the corresponding entry
in column (6) against
the Serial Number 536,
538 or 544.
XXXX
546. Any Chapter Parts (other than rubber Nil -- 27
tubes), of aircraft of
heading 8802
Condition Condition
No.
26. If,--
(i) imported for servicing, repair or maintenance of aircraft,
which is used for operating scheduled air transport service or
the scheduled air cargo service, as the case may be; or
(ii) the parts are brought into India for servicing, repair or
maintenance of an aircraft mentioned in clause (ii) of
[Condition No. 79] Explanation.– The expressions
―scheduled air transport service‖ and ―scheduled air
cargo service‖ shall have the meanings respectively
assigned to them in Condition No.[79]
27. If,–
(i) imported for servicing, repair or maintenance of aircraft
imported or procured by Aero Club of India; or
(ii) imported for servicing, repair or maintenance of
aircraft, which are used for flying training purposes
or for operating non-scheduled (passenger) service or
non-scheduled (charter) services;
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 60 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(iii)imported for servicing, repair or maintenance of aircraft
imported or procured by the Airports Authority of India
for flight calibration purposes
(iv) the importer furnishes an undertaking to the Deputy
Commissioner of Customs or the Assistant Commissioner
of Customs, as the case may be, at the time of
importation that:–
(a) the imported goods shall be used for the specified
purpose only; and
(b) he shall pay on demand, in the event of his failure to
use the imported goods for the specified purpose, an
amount equal to the duty payable on the said goods but
for the exemption under this notification.
Explanation.– The expressions, ―Aero Club of India‖,
―operator‖, ―non- scheduled (passenger) services‖ and
―non-scheduled (charter) services‖ shall have the meanings
respectively assigned to them in 167[Condition No. 80 or 81].
41. Reverting then to the IGST component, the petitioner treats the
consignment of the subject goods to MROs’ as amounting to a supply
of services, by virtue of Schedule II, and more particularly Entry 3
thereof which speaks of any treatment or process which is applied to
another person’s goods as constituting a supply of services. This the
petitioner seeks to co-relate with the principal part of Section 5(1) of
the IGST which is concerned with a tax on the supply of services.
Insofar as the liability flowing under Section 5(1) of IGST is
concerned, according to the writ petitioner, the same is governed by
Notification 45/2017. It is here that the respondents had provisioned
for a levy of a duty of customs made up of the fair cost of repairs
carried out in respect of goods exported for repairs abroad. Serial No. 2
of the General Exemptions which forms part of Notification 45/2017 is
reproduced hereinbelow:
―MINISTRY OF FINANCE
(Department of Revenue)
NOTIFICATION
Notification No. 45/2017-CustomsSignature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 61 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
G.S.R. 780(E).– In exercise of the powers conferred by sub-
section (1) of Section 25 of the Customs Act, 1962 (52 of 1962) the
Central Government, on being satisfied that it is necessary in the
public interest so to do, hereby exempts the goods falling within
any Chapter of the First Schedule to the CTA, 1975 (51 of 1975)
and specified in column (2) of the Table below when re-imported
into India, from so much of the duty of customs leviable thereon
which is specified in the said First Schedule, and the 1[* * *]
integrated tax, compensation cess leviable thereon respectively
under sub-section (7) and (9) of Section 3 of the said CTA, as is in
excess of the amount indicated in the corresponding entry in
column (3) of the said Table.
SL Description of goods Conditions
No.
2. Goods, other than those Duty of customs which
falling under Sl. No. 1 would be leviable if the
exported for repairs abroad value of re-imported
goods after repairs were
made up of the fair cost
of repairs carried out
including
cost of materials used in
repairs
(whether such costs are
actually
incurred for not),
insurance and freight
charges, both ways.
It is on the basis of the provisions comprised in Notification No.
50/2017 and Notification 45/2017 that the petitioner was claiming
exemption from the payment of BCD and confining the IGST liability
to the fair cost of repairs actually incurred in the course of repair of
aircrafts and aircraft parts.
42. Notification 45/2017 thereafter came to be amended by
Notification No. 36/2021 dated 19 July 2021. It is this Notification that
is primarily challenged in the writ petition. In view of the above, it
would be apposite to extract that Notification in its entirety
hereinbelow:
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 62 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
―[TO BE PUBLISHED IN THE GAZETTE OF INDIA,
EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION
(i)]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE)Notification No. 36/2021-Customs
New Delhi, the 19th July, 2021
G.S.R…..(E)- In exercise of the powers conferred by sub-section
(1) of section 25 of the Customs Act, 1962 (52 of 1962), the
Central Government, on being satisfied that it is necessary in the
public interest so to do, hereby makes the following amendments
in the notification of the Government of India, in the Ministry of
Finance (Department of Revenue), No. 45/2017- Customs, dated
the 30th June, 2017, published in the Gazette of India,
Extraordinary, Part II, Section 3, Sub-section (i), vide number
G.S.R. 780(E), dated the 30th June, 2017, namely: –
In the said notification, –
(i) in the Table, against serial numbers 2 and 3, in column (3), for
the words ‘Duty of customs”, the words “Said duty, tax or cess”
shall be substituted;
(ii) in the Explanation, after clause (c), the following clause shall
be inserted, namely: –
“(d) on recommendation of the GST Council, for removal of
doubt, it is clarified that the goods mentioned at serial numbers 2
and 3 of the Table, are leviable to integrated tax and cess as
leviable under the said CTA, besides the customs duty as
specified in the said First Schedule, calculated on the value as
specified in column (3), and the exemption, under said serial
numbers, is only from the amount of said tax, cess and duty over
and above the amount so calculated.”.
[F.No. CBIC-190354/96/2021-TO(TRU-I)-CBEC]
(Rajeev Ranjan)
Under Secretary to the Government of India
Note: The principal notification No. 45/2017-Customs, dated the
30th June, 2017 was published in the Gazette of India,
Extraordinary vide number G.S.R. 780(E), dated the 30th June,
2017.‖
43. As is apparent from a reading of Notification 36/2021, there were
two principal amendments which came to be introduced. Firstly, in
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 63 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
serial no. 2 of the original Notification 45/2017, the expression ―duty of
customs‖ was substituted by the words ―said duty, tax or cess‖. By the
very same Notification, an Explanation also came to be inserted which
clarified that goods mentioned at serial nos. 2 and 3 of the table would
also be exigible to an integrated tax and cess as leviable under the CTA
besides BCD to be calculated on the value as specified and thus holding
out that the levy would include the amount of tax as well as cess and
duty. It is this Notification which has given rise to the controversy
which arises in the instant writ petitions.
44. Notification 36/2021 was followed by the issuance of Circular
No.16/2021 of the same date in terms of which the CBIC accorded the
following clarification:
―Circular No. 16/2021-Customs
F. No. CBIC-190354/96/2021-TO(TRU-I)-CBEC
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Indirect Taxes & Customs)
*****
Room No.156, North Block, New Delhi.
New Delhi, dated 19th July, 2021
To,
All Principal Chief Commissioners/ Chief Commissioners of
Customs/ Customs (Preventive),
All Principal Chief Commissioners/ Chief Commissioners of
Customs & Central tax,
All Principal Commissioners/ Commissioners of Customs/
Customs (Preventive),
All Principal Commissioners/ Commissioners of Customs &
Central TaxMadam/Sir,
Subject: Clarification regarding applicability of IGST on
repair cost, insurance and freight, on goods re-imported after
being exported for repairs, on the recommendations of the
GST Council made in its 43rd meeting — reg.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 64 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
References have been received seeking clarification on the
issues of the applicability of IGST on repair cost, insurance and
freight, on goods re-imported after being exported abroad for
repairs.
2. Notification Nos. 45/2017-Customs and 46/2017-Customs,
both dated 30th June, 2017, issued at the time of implementation
of GST, prescribe certain concession from duty/taxes on re-
import of goods exported for repair outside India. These
notifications, specifically serial No. 2 ibid, clearly specify that
goods exported (other than those exported under claim of benefits
listed), when re-imported into India, are exempt from so much of
the duty of customs leviable thereon which is specified in the said
First Schedule of the Customs Act, 1962, and the integrated tax,
compensation cess leviable there on respectively under sub-
section (7) and (9) of section 3 of the said CTA, 1975 as is in
excess of the duty of customs which would be leviable if the
value of re-imported goods after repairs were made up of the fair
cost of repairs carried out including cost of materials used in
repairs (whether such costs are actually incurred for not),
insurance and freight charges, both ways.
3. Therefore, the said notification prescribes that duties or taxes
(including BCD, IGST, etc) at the applicable rates will be
payable on such imports, calculated on the value of repairs,
insurance and freight, instead of the value of the goods itself.
Similar concession existed in pre-GST period too, vide
notification No. 94/96-Customs, whereby, the customs duty
(BCD, additional duty of customs under section 3 of CTA, 1975,
etc.) were payable on the value of repairs instead of the entire
value of goods in such imports.
4. GST rate and exemptions are prescribed on the
recommendation of the GST Council. The Council, at the time of
roll out of GST decided to continue the concession as were
available under the said notification No. 94/96-Cus, with only
consequential amendment, i.e, replacing additional duties of
customs with IGST and Compensation cess, as discussed in the
14th Meeting of the GST Council. Accordingly, under GST,
IGST and Compensation cess were made applicable on the value
of repairs, insurance and freight on re-import of goods sent
abroad for repair.
5. Again, during the 37th GST Council Meeting, while
examining the request to make available the credit of ITC paid on
aircraft engines and parts exported for repairs and later re-
imported, the leviability of IGST on such imports, on the cost of
repairs, insurance and freight charges, was affirmed. In fact, this
was never disputed in first place and the request was to allow
credit of the IGST so paid. Similarly, while examining the
question of GST rate on maintenance, repair and overhauling
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 65 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(MRO) services in respect of aircraft, aircraft engines and other
components and parts, the leviability of IGST on such re-imports
was again affirmed by the GST Council in its 39th meeting,
making it explicitly clear that such goods reimported after repair
from outside India attract IGST on the repair, freight and
insurance value. In the said discussion, the IGST levied on such
goods re-imported after being exported abroad for repairs was a
significant factor considered by the GST Council while deciding
the rate on MRO services. The above deliberations of the GST
Council leave no doubt that the Council had consciously
recommended for levy of IGST and cess, albeit at the repair,
insurance and freight cost instead of the entire value of goods
imports, on the basis of which the said notifications No. 45/2017-
Cus and 46/2017-Cus were issued.
6. Recently, in the matter of M/s Interglobe Aviation Limited
versus Commissioner of Customs, in its Final Order Nos. 51226-
51571/2020 dated the 2nd November, 2020 {2020 (43) G.S.T.L.
410 (Tri. – Del.)}, the Hon’ble CESTAT Principal Bench, New
Delhi on analysis of notification No. 45/2017-Customs, has
interpreted that intention of legislation was only to impose BCD
on the fair cost of repair charges, freight and insurance charges
on such imports of goods after repair. The Hon’ble CESTAT has
thus concluded that integrated tax and compensation cess on such
goods would be wholly exempt. An appeal has been preferred by
the Department before the Hon’ble Supreme Court against the
said Order.
7. In the above background, the matter was placed before the
GST Council in its 43rd Meeting held on the 28th May, 2021. The
GST Council deliberated on the issue and recommended that a
suitable clarification, including any clarificatory amendment, if
required, may be issued for removal of any doubt, to clarify the
decision of the GST Council that re-import of goods sent abroad
for repair attracts IGST and cess (as applicable) on a value equal
to the repair value, insurance and freight.
8. Accordingly, as recommended by the GST Council, it is
clarified that notification Nos. 45/2017-Customs and 46/2017-
Customs, both dated the 30th of June, 2017 were issued to
implement the decision of the GST Council taken earlier, that re-
import of goods sent abroad for repair attracts IGST on a value
equal to the repair value, insurance and freight. Further, in the
light of the recommendations of the GST Council in its 43rd
Meeting, a clarificatory amendment has been made in the said
notifications, vide notification Nos. 36/2021-Customs and
37/2021-Customs, both dated 19th July, 2021, without prejudice
to the leviability of IGST, as above, on such imports as it stood
before the amendment.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 66 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
9. The contents of this circular may please be brought to the
notice of trade and industry through issue of Trade/ Public
notices. The field formations may also be suitably sensitized in
this regard. Difficulty, if any, in the implementation of this
Circular may be brought to the notice of this office.
Yours faithfully,
(Gaurav Singh)
Deputy Secretary to the Government of India‖
45. As was noticed in the preceding parts of this decision, the CBIC
had while issuing that Circular explicitly alluded to the judgment of the
CESTAT rendered in the case of the writ petitioner itself and which had
held that only BCD could have been imposed on the fair cost of repair
charges. The matter also appears to have engaged the attention of the
GST Council which in its 43rd meeting held on 28 May 2021 had
recommended that a suitable clarification may be issued reiterating its
decision that the re-import of goods sent abroad for repairs, would also
attract IGST and cess on a value equal to the repair value along with
insurance and freight. It is the aforesaid notification read along with the
clarification issued by the CBIC which led to the institution of these
writ petitions.
46. For purposes of clarity, it may be noted that while WP(C)
934/2023 assails the levy of IGST on the subject goods upon re-import
into India as well as the validity of Notification 36/2021 and the
Circular of the CBIC referred to above, WP(C) Nos. 7845/2023 and
4673/2023 impugn orders in appeal passed by the Commissioner of
Customs (Appeals) vide which numerous appeals instituted by the
petitioner in respect of various Bills of Entries have come to be
disposed of in light of the Notification 36/2021 and the Circular No.
16/2021 referred to above. It is in the aforesaid backdrop that we are
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 67 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
called upon to answer the challenge which stands raised.
RIVAL SUBMISSIONS
47. Appearing for the writ petitioners, Mr. Lakshmikumaran, learned
counsel canvassed the following submissions. It was firstly submitted
that the authority to levy IGST is traceable to Article 246A of the
Constitution which confers exclusive power upon Parliament to make
laws with respect to GST on the supply of goods or services where such
supply takes place in the course of inter-state trade or commerce. It was
thus submitted that the levy of IGST cannot partake the character of an
impost, which is envisaged under Entry 83 of List I and which is
concerned with duties of custom. According to Mr. Lakshmikumaran,
the power of the Union to make laws by virtue of Entry 83 stands
confined to the imposition of a duty of customs as well as export duties
on goods. Contrasted with the above, learned counsel submitted that
IGST is a tax which comes to be levied by the Union on the supply of
goods by virtue of an independent authority conferred by Article
246A(2). It is in the aforesaid backdrop that learned counsel submitted
that it would be wholly incorrect to equate IGST with a duty of
customs.
48. It was then submitted that undisputedly, the export of aircraft
engines or parts for repair is liable to be classified as a supply of service
since it would necessarily entail those goods being subjected to a
treatment or process and those articles concedely being the property of
the petitioner. It was thus contended that once the said transaction came
to be characterized as a supply of services in terms of Entry 3 of
Schedule II of the CGST, it would be wholly impermissible for the
respondents to treat the same transaction as a supply of goods.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 68 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
49. Mr. Lakshmikumaran argued that if the stand as taken by the
respondents were to be accepted, it would clearly amount to the
imposition of a ―double levy‖, with a tax firstly being imposed on a
supply of services and the very same transaction thereafter being taxed
as an import of goods. According to learned counsel, if the stand of the
respondents were to be countenanced, it would inevitably result in the
petitioner firstly paying BCD on the import of goods by virtue of
Section 12 of the Customs Act, an integrated tax on import of goods
under Section 3(7) of the CTA and thirdly an integrated tax on the
inter-state supply of goods as envisaged under Section 5(1) of the
IGST.
50. It was pointed out that the import of goods is undisputedly
deemed to be an inter-state supply by virtue of the Explanation
contained in Article 269A read along with Sections 7(2) or 7(4) of the
IGST. It would be pertinent to recall that the Explanation to Article
269A of the Constitution postulates that a supply of goods, services or
both in the course of import into the territory of India would be deemed
to be a supply of goods, services or both in the course of inter-state
trade or commerce. Undisputedly, a tax on the supply of goods or
services in the course of inter-state trade or commerce falls within the
exclusive province of the Union. In fact, it is this subject which forms
the central piece of the IGST legislation. The position as explained by
Article 269A stands reflected in Section 7(2) of the IGST when it
stipulates that the supply of goods imported into the territory of India is
liable to be treated as being in the course of inter-state trade or
commerce. Similarly, sub-section (4) of Section 7 declares that a
supply of services imported into the territory of India would also be
treated as a supply pertaining to services rendered in the course of inter-
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 69 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
state trade or commerce.
51. It was in the aforesaid light that Mr. Lakshmikumaran had
submitted that Section 3(7) of the CTA can neither be construed as
being the source of an independent levy of an integrated tax on the
import of goods nor can such a dual levy be sustainable in law. The
submission in essence was that once the transaction had come to be
characterized as a supply of services and taxed as such under Section
5(1), the same transaction could not have been subjected to yet another
levy on a perceived reading of Section 3(7) of the CTA or by extension
of the Proviso to Section 5(1).
52. Mr. Lakshmikumaran then contended that the duty which is
envisaged under the Customs Act or the CTA is one which is defined
by Section 2(15). Learned counsel submitted that admittedly, Section
12 of the Customs Act constitutes the charging provision and thus
provides for the levy of duties of customs. Rates of duties of customs,
learned counsel submitted, are to be derived from the appropriate
provisions made in the CTA. This would lead one to refer to the First
and Second Schedules of the CTA in order to ascertain and compute the
additional duties which are leviable under that statute.
53. According to Mr. Lakshmikumaran, while Section 12 is thus the
repository of the power of the respondent to levy a BCD, the CTA is
concerned with additional duties which are leviable in accordance with
Section 3. However, according to Mr. Lakshmikumaran, once the
transaction had been subjected to a levy by treating it to be a supply of
services, an additional tax or duty cannot be validly imposed by an
exercise of re-characterization or by viewing the very same transaction
as amounting to an import of goods.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 70 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
54. Our attention in this respect was also drawn to the provisions
contained in Section 13 of the IGST which reads as follows:
―13. Place of supply of services where location of supplier or
location of recipient is outside India–(1) The provisions of this
section shall apply to determine the place of supply of services
where the location of the supplier of services or the location of the
recipient of services is outside India.
(2) The place of supply of services except the services specified in
sub-sections (3) to (13) shall be the location of the recipient of
services:
Provided that where the location of the recipient of services is not
available in the ordinary course of business, the place of supply shall
be the location of the supplier of services.
(3) The place of supply of the following services shall be the
location where the services are actually performed, namely:–
(a) services supplied in respect of goods which are required to be
made physically available by the recipient of services to the supplier
of services, or to a person acting on behalf of the supplier of services
in order to provide the services:
Provided that when such services are provided from a remote
location by way of electronic means, the place of supply shall be the
location where goods are situated at the time of supply of services:
[Provided further that nothing contained in this clause shall apply in
the case of services supplied in respect of goods which are
temporarily imported into India for repairs or for any other treatment
or process and are exported after such repairs or treatment or process
without being put to any use in India, other than that which is
required for such repairs or treatment or process;]
(b) services supplied to an individual, represented either as the
recipient of services or a person acting on behalf of the recipient,
which require the physical presence of the recipient or the person
acting on his behalf, with the supplier for the supply of services.
(4) The place of supply of services supplied directly in relation to an
immovable property, including services supplied in this regard by
experts and estate agents, supply of accommodation by a hotel, inn,
guest house, club or campsite, by whatever name called, grant of
rights to use immovable property, services for carrying out or co-
ordination of construction work, including that of architects or
interior decorators, shall be the place where the immovable property
is located or intended to be located.
(5) The place of supply of services supplied by way of admission to,
or organisation of a cultural, artistic, sporting, scientific, educational
or entertainment event, or a celebration, conference, fair, exhibition
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 71 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
or similar events, and of services ancillary to such admission or
organisation, shall be the place where the event is actually held.
(6) Where any services referred to in sub-section (3) or sub-section
(4) or sub-section (5) is supplied at more than one location,
including a location in the taxable territory, its place of supply shall
be the location in the taxable territory.
(7) Where the services referred to in sub-section (3) or sub-section
(4) or sub-section (5) are supplied in more than one State or Union
territory, the place of supply of such services shall be taken as being
in each of the respective States or Union territories and the value of
such supplies specific to each State or Union territory shall be in
proportion to the value for services separately collected or
determined in terms of the contract or agreement entered into in this
regard or, in the absence of such contract or agreement, on such
other basis as may be prescribed.
(8) The place of supply of the following services shall be the
location of the supplier of services, namely:–
(a) services supplied by a banking company, or a financial
institution, or a non-banking financial company, to account holders;
(b) intermediary services;
(c) services consisting of hiring of means of transport, including
yachts but excluding aircrafts and vessels, up to a period of one
month.
Explanation.–For the purposes of this sub-section, the
expression,–
(a) ―account‖ means an account bearing interest to the depositor, and
includes a non-resident external account and a non-resident ordinary
account;
(b) ―banking company‖ shall have the same meaning as assigned to
it under clause (a) of Section 45-A of the Reserve Bank of India Act,
1934 (2 of 1934);
(c) ―financial institution‖ shall have the same meaning as assigned to
it in clause (c) of Section 45-I of the Reserve Bank of India Act,
1934 (2 of 1934);
(d) ―non-banking financial company‖ means,–
(i) a financial institution which is a company;
(ii) a non-banking institution which is a company and which has as
its principal business the receiving of deposits, under any scheme or
arrangement or in any other manner, or lending in any manner; or
(iii) such other non-banking institution or class of such institutions,
as the Reserve Bank of India may, with the previous approval of the
Central Government and by notification in the Official Gazette,
specify.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 72 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(9) [* * *]
(10) The place of supply in respect of passenger transportation
services shall be the place where the passenger embarks on the
conveyance for a continuous journey.
(11) The place of supply of services provided on board a conveyance
during the course of a passenger transport operation, including
services intended to be wholly or substantially consumed while on
board, shall be the first scheduled point of departure of that
conveyance for the journey.
(12) The place of supply of online information and database access
or retrieval services shall be the location of the recipient of services.
Explanation.–For the purposes of this sub-section, person receiving
such services shall be deemed to be located in the taxable territory, if
any two of the following non-contradictory conditions are satisfied,
namely:–
(a) the location of address presented by the recipient of services
through internet is in the taxable territory;
(b) the credit card or debit card or store value card or charge card or
smart card or any other card by which the recipient of services
settles payment has been issued in the taxable territory;
(c) the billing address of the recipient of services is in the taxable
territory;
(d) the internet protocol address of the device used by the recipient
of services is in the taxable territory;
(e) the bank of the recipient of services in which the account used
for payment is maintained is in the taxable territory;
(f) the country code of the subscriber identity module card used by
the recipient of services is of taxable territory;
(g) the location of the fixed land line through which the service is
received by the recipient is in the taxable territory.
(13) In order to prevent double taxation or non-taxation of the
supply of a service, or for the uniform application of rules, the
Government shall have the power to notify any description of
services or circumstances in which the place of supply shall be the
place of effective use and enjoyment of a service.‖
55. While we had an occasion to notice that provision in the earlier
parts of this decision alongside Sections 11 and 12, suffice it to note
that the designation of the place of supply of services or goods is
undoubtedly a power exclusively conferred upon the Union. It is in the
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 73 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
exercise of the aforenoted powers that the Union stands statutorily
empowered to notify the description of services and the place of supply
of those services. As is manifest from a reading of Section 13(2), the
place of supply of services is declared to be the location of the recipient
of services, except in respect of those categories which fall within the
ambit of sub-section (3) to (13).
56. However, Mr. Lakshmikumaran laid stress on the underlying
legislative objective of the Union exercising its powers bearing in mind
the imperative of preventing double taxation. It was in this context that
learned counsel also alluded to Notifications No.4/2019 and 2/2020.
The relevant parts of those two notifications are reproduced
hereinbelow:
―NOTIFICATION NO. 04/2019- CENTRAL TAX (RATE)
New Delhi, the 29th March, 2019 G.S.R
(E).- In exercise of the powers conferred by sub-section (1) of
section 11 of the Central Goods and Services Tax Act, 2017 (12 of
2017), the Central Government, on being satisfied that it is
necessary in the public interest so to do, on the recommendations of
the Council, hereby makes the following further amendments in the
notification of the Government of India, in the Ministry of Finance
(Department of Revenue), No.12/2017- Central Tax (Rate), dated
the 28th June, 2017, published in the Gazette of India,
Extraordinary, Part II, Section 3, Sub-section (i), vide number
G.S.R. 691(E), dated the 28th June, 2017, namely:-
In the said notification, –
(i) in the opening paragraph, for the word, brackets and figures
―sub-section (1) of section 11‖ the word, brackets and figures ―,
sub-section (3) and sub-section (4) of section 9, sub-section (1) of
section 11,sub-section (5) of section 15 and section 148,‖ shall be
substituted;
(ii) in the Table, –
(a) after serial number 41 and the entries relating thereto, the
following serial numbers and entries shall be inserted, namely: –
(1) (2) (3) (4) (5) Signature Not Verified Digitally Signed W.P.(C) 934/2023 & connected matters Page 74 of 184 By:KAMLESH KUMAR Signing Date:04.03.2025 18:12:15 ―41A Heading Service by way of Nil Provided that the promoter 9972 transfer of development shall be liable to pay tax at rights (herein refer the applicable rate, on TDR) or Floor Space reverse charge basis, on Index (FSI) (including such proportion of value of additional FSI) on or development rights, or FSI after 1st April, 2019 for (including additional FSI), construction of or both, as is attributable to residential apartments the residential apartments, by a promoter in a which remain un- booked project, intended for sale on the date of issuance of to a buyer, wholly or completion certificate, or partly, except where the first occupation of the entire consideration has project, as the case may be, been received after in the following manner - issuance of completion certificate, where [GST payable on TDR or required, by the FSI (including additional competent authority or FSI) or both for after its first occupation, construction of the whichever is earlier. residential apartments in the project but for the The amount of GST exemption contained exemption available for herein] x (carpet area of the construction of residential apartments in residential apartments in the project which remain the project under this un- booked on the date of notification shall be issuance of completion calculated as under: certificate or first [GST payable on TDR occupation ÷ Total carpet or FSI (including area of the residential additional FSI) or both apartments in the project) for construction of the Provided further that tax project] x (carpet area of payable in terms of the first the residential proviso hereinabove shall apartments in the project not exceed 0.5 per cent. of ÷ Total carpet area of the value in case of the residential and affordable residential commercial apartments apartments and 2.5 per in the project) cent. of the value in case of residential apartments other than affordable residential apartments remaining un- booked on the date of issuance of completion certificate or first occupation The liability to pay central Signature Not Verified Digitally Signed W.P.(C) 934/2023 & connected matters Page 75 of 184 By:KAMLESH KUMAR Signing Date:04.03.2025 18:12:15 tax on the said portion of the development rights or FSI, or both, calculated as above, shall arise on the date of completion or first occupation of the project, as the case may be, whichever is earlier. 41B Heading Upfront amount (called Nil Provided that the promoter 9972 as premium, salami, cost, shall be liable to pay tax at price, development the applicable rate, on charges or by any other reverse charge basis, on name) payable in respect such proportion of upfront of service by way of amount (called as premium, granting of long term salami, cost, price, lease of thirty years, or development charges or by more, on or after any other name) paid for 01.04.2019, for long term lease of land, as construction of residential is attributable to the apartments by a residential apartments, promoter in a project, which remain un- booked intended for sale to a on the date of issuance of buyer, wholly or partly, completion certificate, or except where the entire first occupation of the consideration has been project, as the case may be, received after issuance of in the following manner - completion certificate, where required, by the [GST payable on upfront competent authority or amount (called as premium, after its first occupation, salami, cost, price, whichever is earlier. development charges or by any other name) payable The amount of GST for long term lease of land exemption available for for construction of the construction of residential residential apartments in apartments in the project the project but for the under this notification exemption contained shall be calculated as herein] x (carpet area of the under: residential apartments in the project which remain [GST payable on upfront un- booked on the date of amount (called as issuance of completion premium, salami, cost, certificate or first occupation ÷ Total carpet Signature Not Verified Digitally Signed W.P.(C) 934/2023 & connected matters Page 76 of 184 By:KAMLESH KUMAR Signing Date:04.03.2025 18:12:15 price, development area of the residential charges or by any other apartments in the project); name) payable for long term lease of land for Provided further that the construction of the tax payable in terms of the project] x (carpet area of first proviso shall not the residential apartments exceed 0.5 per cent. of the in the project ÷ Total value in case of affordable carpet area of the residential apartments and residential and 2.5 per cent. of the value in commercial apartments case of residential in the project). apartments other than affordable residential apartments remaining un- booked on the date of issuance of completion certificate or first occupation. The liability to pay central tax on the said proportion of upfront amount (called as premium, salami, cost, price, development charges or by any other name) paid for long term lease of land, calculated as above, shall arise on the date of issue of completion certificate or first occupation of the project, as the case may be.
(iii) after paragraph 1, the following paragraphs shall be inserted,
namely, –
―1A. Value of supply of service by way of transfer of development
rights or FSI by a person to the promoter against consideration in the
form of residential or commercial apartments shall be deemed to be
equal to the value of similar apartments charged by the promoter from
the independent buyers nearest to the date on which such development
rights or FSI is transferred to the promoter.
1B. Value of portion of residential or commercial apartments
remaining un-booked on the date of issuance of completion certificate
or first occupation, as the case may be, shall be deemed to be equal to
the value of similar apartments charged by the promoter nearest to the
date of issuance of completion certificate or first occupation, as the
case may be.‖
(iv) in paragraph 3 relating to Explanation, after clause (iv),
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 77 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
the following clause shall be inserted, namely: –
―(v) The term ―apartment‖ shall have the same meaning as assigned to
it in clause (e) under section 2 of the Real Estate (Regulation and
Development) Act, 2016 (16 of 2017).
(vi) The term ―affordable residential apartment‖ shall have the
same meaning as assigned to it in the notification No. 11/2017-Central
Tax (Rate), published in the Gazette of India, Extraordinary, Part II,
Section 3, Sub-section (i) dated 28th June, 2017 vide GSR number
690(E) dated 28th June, 2017, as amended.
(vii) The term ―promoter‖ shall have the same meaning as
assigned to it in clause (zk) under section 2 of the Real Estate
(Regulation and Development) Act, 2016 (16 of 2017).
(viii) The term ―project‖ shall mean a Real Estate Project or a
Residential Real Estate Project.
(ix) the term ―Real Estate Project (REP)‖ shall have the same
meaning as assigned to it in clause (zn) under section 2 of the Real
Estate (Regulation and Development) Act, 2016 (16 of 2017).
(x) The term ―Residential Real Estate Project (RREP)‖ shall
mean a REP in which the carpet area of the commercial apartments is
not more than 15 per cent. of the total carpet area of all the apartments
in the REP;
(xi) The term ―carpet area‖ shall have the same meaning as
assigned to it clause (k) under section 2 of the Real Estate (Regulation
and Development) Act, 2016 (16 of 2017).
(xii) ―an apartment booked on or before the date of issuance of
completion certificate or first occupation of the project‖ shall mean an
apartment which meets all the following three conditions, namely-
(a) part of supply of construction of the apartment service has
time of supply on or before the said date; and
(b) consideration equal to at least one instalment has been
credited to the bank account of the registered person on or before
the said date; and
(c) an allotment letter or sale agreement or any other similar
document evidencing booking of the apartment has been issued
on or before the said date.
(xiii) ―floor space index (FSI)‖ shall mean the ratio of a building’s
total floor area (gross floor area) to the size of the piece of land upon
which it is built.‖.
2. This notification shall come into force with effect from the 1st day
of April, 2019.
[F. No.354/32/2019 -TRU]
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 78 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(Pramod Kumar) Deputy Secretary to the Government of India‖
―[TO BE PUBLISHED IN THE GAZETTE OF INDIA,
EXTRAORDINARY, PART II, SECTION
3, SUB-SECTION (i)]
Government of India
Ministry of Finance
(Department of Revenue)
Notification No. 02/2020- Integrated Tax (Rate)
New Delhi, the 26th March, 2020
G.S.R……(E).- In exercise of the powers conferred by sub-section
(1), (3) and sub-section (4) of section 5, sub-section (1) of section
6 and clauses (iii) and (xxv) of section 20 of the Integrated Goods
and Services Tax Act, 2017 (13 of 2017), read with sub-section
(5) of section 15 and section 148 of the Central Goods and
Services Tax Act, 2017 (12 of 2017), the Central Government, on
the recommendations of the Council, and on being satisfied that it
is necessary in the public interest so to do, hereby makes the
following further amendments in the notification of the
Government of India, in the Ministry of Finance (Department of
Revenue) No. 8/2017-Integrated Tax (Rate), dated the 28th June,
2017, published in the Gazette of India, Extraordinary, Part II,
Section 3, Sub-section (i) vide number G.S.R. 683 (E), dated the
28th June, 2017, namely:-
In the said notification, in the Table, against serial number 25,
(a) after item (i) and entries relating thereto, in columns (3), (4)
and (5), the following items and entries shall be inserted, namely,
–
(3) (4) (5)
―(ia) Maintenace, repair or 5 -
ov erhaul services in
respect of aircrafts, aircraft
engines and other aircraft
components or parts
(b) in item (ii), in column (3), after the brackets and figures ―(i)‖,
the word, brackets, and figures ―and (ia)‖ shall be inserted.
2. This notification shall come into force with effect from the 1st
day of April, 2020.
[F. No. 354/32/2020- TRU]
(Pramod Kumar)
Director to the Government of India
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 79 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
Note: -The principal notification No. 8/2017- Integrated Tax
(Rate), dated the 28th June, 2017 was published in the Gazette of
India, Extraordinary, vide number G.S.R. 683 (E), dated the 28th
June, 2017 and was last amended by notification No. 25/2019-
Integrated Tax (Rate), dated the 22nd November, 2019 vide
number G.S.R. 871(E), dated the 22nd November, 2019.‖
57. As is evident from a reading of the entries forming parts of those
notifications, insofar as the subject transaction pertaining to the supply
or maintenance, repair or overhaul service in respect of aircraft, aircraft
engines, components or parts is concerned, the place of supply is
declared to be the location of the recipient of service. As a consequence
of the above, learned counsel submitted that services procured by the
petitioners from MROS’ located outside India are thus liable to be
treated and taxed as import of services in terms of Section 2(11) of the
IGST read along with Section 5(1) of that enactment. As noted above,
Section 2(11) defines the expression ―import of services‖ to mean the
supply of any service where the supplier is located outside India, the
recipient is located within and the place of supply of service is within
the country.
58. Proceeding then to explain when IGST could be levied on goods,
Mr. Lakshmikumaran submitted that import of goods in terms of
Section 2(10) of the IGST has been defined to mean the bringing of
goods into India from a place outside. According to learned counsel,
the Proviso to Section 5(1) applies only to contingencies where goods
are being imported into India. Insofar as the import of services was
concerned, Mr. Lakshmikumaran submitted that the same would be
governed exclusively by the principal part of Section 5(1) and to which
the Proviso would clearly have no application.
59. It was then submitted that from the plain language in which the
Proviso stands constructed, it is apparent that the integrated tax
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 80 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
becomes leviable on goods imported into India. According to learned
counsel, the only correlation between the Proviso to Section 5(1) and
the CTA is the point at which the integrated tax may be levied and
collected. This, according to Mr. Lakshmikumaran, becomes evident in
light of the Proviso using the phrase “shall be levied and collected in
accordance with the provisions of” Section 3 of the CTA. It was in
view of the above that Mr. Lakshmikumaran had submitted that Section
3(7) of the CTA is merely intended to designate a collection point of
the integrated tax as opposed to a provision contemplating an
independent levy of IGST. It was thus submitted that it would be
wholly incorrect for Section 3(7) of the CTA being viewed or
countenanced as constituting an independent charging provision.
60. According to Mr. Lakshmikumaran, the acceptance of the
position as advocated by the respondents would not just lead to evident
absurdities but also give rise to a wholly incongruous situation.
According to learned counsel, if Section 3(7) of the CTA were to be
construed as a provision authorizing an independent levy of an
integrated tax, it would travel far beyond the scope of Entry 83 of List I
and impinge upon the legislative field reserved by Article 246A. This,
according to learned counsel, would clearly infringe the power of
levying a GST where the supply of goods or services takes place in the
course of inter-state trade or commerce.
61. Acceptance of a stand to the contrary, learned counsel argued,
would compel one to hold and acknowledge the levy under Section 3(7)
of the CTA as being referable to the legislative field reserved by Entry
83. However, Mr. Lakshmikumaran pointed out that Entry 83 cannot,
by any stretch of imagination, be read as envisaging the levy of an
integrated tax. It was in the aforesaid background that Mr.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 81 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
Lakshmikumaran had submitted that Section 3(7) of the CTA was
merely introduced in the statute book for the purposes of convenience
and designation of the point at which the integrated tax leviable on
imported goods classified as such may be collected.
62. It was further submitted that Section 3(7) uses the words
―integrated tax‖ and which expression owes its genesis solely to the
IGST. It was in this connection submitted that undisputedly, it is
Section 2(12) of the IGST that defines the expression ―integrated tax‖.
Mr. Lakshmikumaran submitted that integrated tax finds no mention
otherwise either under the Customs Act or the CTA. This too,
according to learned counsel, is clearly suggestive of the fact that
Section 3(7) of the CTA was solely intended to be the demarcation of a
point where a tax under the IGST may be collected.
63. On a more fundamental plane, learned counsel submitted that
GST undisputedly is a tax on the supply of goods or services as
opposed to one leviable on goods or services per se. The term ‗supply’,
Mr. Lakshmikumaran pointed out, stands duly defined in the IGST,
which refers one back to the CGST and thus derives its content from
the manner in which it stands defined therein. Supply, as was noted
above, is to be understood in accordance with Section 7 of the CGST.
That provision defines that expression to include all forms of supply of
goods or services, including the import of services for consideration as
well as activities specified in Schedule 1.
64. This, according to Mr. Lakshmikumaran, is the activity that
becomes the subject matter of a tax under Section 5(1) of the IGST. It
was in the aforesaid light that Mr. Lakshmikumaran also questioned the
correctness of the stand of the respondents who had sought to invoke
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 82 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
the Proviso to Section 5(1) of the IGST as also being applicable to a
supply of services. It was submitted that the contention addressed at
the behest of the respondents in this respect fails to bear in mind the
well-settled principle of the Proviso to a section merely carving out an
exception to the general rule or extracting a subject which may have
otherwise fallen within the province of the former. However, learned
counsel submitted that the operation of a proviso cannot be
countenanced as travelling beyond the main section itself. It was thus
submitted that it would be wholly incorrect to view the Proviso to
Section 5(1) as authorizing the levy of a tax on an import of goods even
where no supply thereof may have occurred. In any case, according to
learned counsel, an integrated tax is solely concerned with supply and
that, too an inter-state supply of goods or services. It was thus reiterated
that once the transaction in question had come to be classified as a
supply of services it would clearly fall beyond the scope of the Proviso
to Section 5(1) of the IGST and thus clearly not exigible to tax under
Section 3(7) of the CTA.
65. Mr. Lakshmikumaran also questioned the invocation of the
aspects theory by the respondents and submitted that the arguments
addressed on that score were clearly misconceived. Learned counsel
contended that while the aspects theory, as was explained by the
Supreme Court in Gujarat Ambuja Cement vs. Union of India &
Anr9 as well as in Federation of Hotel and Restaurants Association
vs. Union of India10, has been recognised as propounding a general
rule that the same transaction may involve two or more taxable events,
the same would clearly have no application in the facts of the present
9 (2005) 4 SCC 412
10
(1989) 3 SCC 634
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 83 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
case. According to learned counsel, the aspects theory would have had
relevance provided there were two taxable events that could have been
identified. Learned counsel submitted that undisputedly the solitary
transaction with which we are concerned was a re-import of aircraft
engines and parts which had been sent overseas for repairs. According
to Mr. Lakshmikumaran, the said activity already stood classified as a
supply of services. In view of the above, it would be wholly
impermissible for the respondents to seek to discover or bifurcate one
composite taxable event.
66. Mr. Lakshmikumaran explained that two taxable events could
have come into being only if it were possible to isolate and identify
distinct aspects under different fields of tax legislation. In any case,
according to learned counsel, the aspects theory does not sanction the
levy of a tax twice over on the same transaction. Mr. Lakshmikumaran
in this regard also sought to draw sustenance from the following
observations as appearing in the judgment of the Supreme Court in
Union of India & Anr vs. Mohit Minerals Pvt Ltd11 and where the
respondent’s submission of a supply of goods being yet again liable to
be taxed as a supply of service came to be negated in the following
words:
“168. This Court is bound by the confines of the IGST and the
CGST Acts to determine if this is a composite supply. It would not
be permissible to ignore the text of Section 8 of the CGST Act and
treat the two transactions as standalone agreements. In a CIF
contract, the supply of goods is accompanied by the supply of
services of transportation and insurance, the responsibility for
which lies on the seller (the foreign exporter in this case). The
supply of service of transportation by the foreign shipper forms a
part of the bundle of supplies between the foreign exporter and the
Indian importer, on which the IGST is payable under Section 5(1)
of the IGST Act read with Section 20 of the IGST Act, Section 811 2022 SCC Online SC 657
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 84 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
and Section 2(30) of the CGST Act. To levy the IGST on the
supply of the service component of the transaction would
contradict the principle enshrined in Section 8 and be in violation
of the scheme of the GST legislation. Based on this reason, we are
of the opinion that while the impugned notifications are validly
issued under Sections 5(3) and 5(4) of the IGST Act, it would be in
violation of Section 8 of the CGST Act and the overall scheme of
the GST legislation. As noted earlier, under Section 7(3) of the
CGST Act, the Central Government has the power to notify an
import of goods as an import of services and vice versa:
―7. Scope of supply.–(1)-(2) * * *
(3) Subject to the provisions of [Subs. for ―sub-sections (1) and
(2)‖ by Act 31 of 2018, Section 3(c) (w.r.e.f. 1-7-2017).] [sub-
sections (1), (1-A) 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.‖
No such power can be noticed with respect to interpreting a
composite supply of goods and services as two segregable
supply of goods and supply of services.
169. The High Court in the impugned judgment [Mohit Minerals (P)
Ltd. v. Union of India, 2020 SCC OnLine Guj 49] has observed that:
(Mohit Minerals case [Mohit Minerals (P) Ltd. v. Union of India,
2020 SCC OnLine Guj 49], SCC OnLine Guj paras 133-35 & 216)
―What has led to the present day problems in the implementation of
the GST
133. The GST is implemented by subsuming various
indirect taxes. The difficulty which is being experienced today
in proper implementation of the GST is because of the
erroneous misconception of law, or rather, erroneous
assumption on the part of the delegated legislation that service
tax is an independent levy as it was prior to the GST and it go
vivisect the transaction of supply to levy more taxes on certain
components completely overlooking or forgetting the basic
concept of composite supply introduced in the GST legislation
and the very idea of levying the GST. Prima facie, it appears
that while issuing the impugned notification, the delegated
legislature had in mind the provision of the Finance Act, 1994,
rather than keeping in mind the object of bringing the GST by
making the Constitution (101st) Amendment Act, 2016 to
merge all taxes levied on the goods and services to one tax
known as the GST.
134. It appears that despite having levied and collected the
integrated tax under the IGST Act, 2017, on import of goods
on the entire value which includes the ocean freight through
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 85 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
the impugned notifications, once again the integrated tax is
being levied under an erroneous misconception of law that
separate tax can be levied on the services components (freight),
which is otherwise impermissible under the scheme of the GST
legislation made under the CA Act, 2016.
135. All the learned Senior Counsel are right in their
submission that if such an erroneous impression is not
corrected and if such a trend continues, then in future even the
other components of supply of goods, such as, insurance,
packaging, loading/unloading, labour, etc. may also be
artificially vivisected by the delegated legislation to once again
levy the GST on the supply on which the tax is already
collected.
***
216. Thus, having paid the IGST on the amount of freight
which is included in the value of the imported goods, the
impugned notifications levying tax again as a supply of
service, without any express sanction by the statute, are illegal
and liable to be struck down.‖
(emphasis supplied)‖
170. We are in agreement with the High Court to the extent that a
tax on the supply of a service, which has already been included by
the legislation as a tax on the composite supply of goods, cannot be
allowed.
E. Conclusion
171. Based on the above discussion, we have reached the following
conclusion:
171.1. The recommendations of the GST Council are not binding
on the Union and States for the following reasons:
171.1.1. The deletion of Article 279-B and the inclusion of Article
279(1) by the Constitution Amendment Act, 2016 indicates that
Parliament intended for the recommendations of the GST Council
to only have a persuasive value, particularly when interpreted along
with the objective of the GST regime to foster cooperative
federalism and harmony between the constituent units.
171.1.2. Neither does Article 279-A begin with a non-obstante
clause nor does Article 246-A state that it is subject to the
provisions of Article 279-A. Parliament and the State Legislatures
possess simultaneous power to legislate on GST. Article 246-A
does not envisage a repugnancy provision to resolve the
inconsistencies between the Central and the State laws on GST.
The ―recommendations‖ of the GST Council are the product of a
collaborative dialogue involving the Union and the States. They are
recommendatory in nature. To regard them as binding edicts would
disrupt fiscal federalism, where both the Union and the States are
conferred equal power to legislate on GST. It is not imperative that
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 86 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
one of the federal units must always possess a higher share in the
power for the federal units to make decisions. Indian federalism is a
dialogue between cooperative and uncooperative federalism where
the federal units are at liberty to use different means of persuasion
ranging from collaboration to contestation.
171.1.3. The Government while exercising its rule-making power
under the provisions of the CGST Act and the IGST Act is bound
by the recommendations of the GST Council. However, that does
not mean that all the recommendations of the GST Council made
by virtue of the power Article 279-A(4) are binding on the
legislature’s power to enact primary legislations.
171.2. On a conjoint reading of Sections 2(11) and 13(9) of the
IGST Act, read with Section 2(93) of the CGST Act, the import of
goods by a CIF contract constitutes an ―inter-State‖ supply which
can be subject to IGST where the importer of such goods would be
the recipient of shipping service.
171.3. The IGST Act and the CGST Act define ―reverse charge‖
and prescribe the entity that is to be taxed for these purposes. The
specification of the recipient–in this case the importer–by
Notification No. 10 of 2017 is only clarificatory. The Government
by notification did not specify a taxable person different from the
recipient prescribed in Section 5(3) of the IGST Act for the
purposes of reverse charge.
171.4. Section 5(4) of the IGST Act enables the Central
Government to specify a class of registered persons as the
recipients, thereby conferring the power of creating a deeming
fiction on the delegated legislation.
171.5. The impugned levy imposed on the ―service‖ aspect of the
transaction is in violation of the principle of ―composite supply‖
enshrined under Section 2(30) read with Section 8 of the CGST
Act. Since the Indian importer is liable to pay IGST on the
―composite supply‖, comprising of supply of goods and supply of
services of transportation, insurance, etc. in a CIF contract, a
separate levy on the Indian importer for the ―supply of services‖ by
the shipping line would be in violation of Section 8 of the CGST
Act.
172. For the reasons stated above, the appeals are accordingly
dismissed. Pending application(s) if any, stand disposed of.‖
67. Questioning the correctness of the view canvassed for our
consideration by Mr. Lakshmikumaran, Mr. Ojha, learned counsel
representing the respondents submitted that the stand taken by the writ
petitioners is fundamentally flawed since it seeks to confuse the
distinction which must be borne in mind between a supply of service
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 87 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
and the import of repaired parts. Mr. Ojha contended that the import of
goods constitutes a taxable event under Section 3(7) of the CTA and
consequently results in duties being levied thereunder. Learned counsel
argued that the IGST is solely concerned with the imposition of a tax on
a supply of service or goods as opposed to import. It was submitted that
one cannot possibly contend that Section 3(7) of the CTA does not
constitute an independent provision envisaging the levy of an additional
duty of customs on imported articles and goods. It was his submission
that the controversy of the CTA not providing for an independent
charge is no longer res integra and stands conclusively settled by the
Supreme Court in its decision in Hyderabad Industries vs. UOI12.
68. Learned counsel drew our attention, in this respect, specifically
to paras 14 to 17 and 19 of the report and which are repeoduced below:-
―****14. Section 12 of the Customs Act levies duty on goods
imported into India at such rates as may be specified in the CTA,
1975. When we turn to CTA 1975, it is Section 2 which states that
the rates at which duties of customs are to be levied under Customs
Act 1962 are those which are specified in the First and Second
Schedules of the CTA, 1975. In Section 12 of the Customs Act there
is no reference to any specific provision of the CTA 1975. In other
words for the purpose of determining the levy of customs duty on
goods imported into India what is relevant is Section 12 of the
Customs Act read with Section 2.
15. On the other hand levy of additional duty under Section 3 is
equal to the excise duty for the time being leviable on the like article
which is imported into India if produced or manufactured in India.
The rate of additional duty under Section 3(1) on an article imported
into India is not relatable to the First and the Second Schedule of the
Customs Act but the additional duty if leviable has to be equal to the
excise duty which is leviable under the Excise Act. This itself shows
that the charging section for the levy of additional duty is not
Section 12 of the Customs Act but is Section 3 of the CTA, 1975.
This apart Sub-sections (3), (5) and (6) of Section 3 refer to
additional duty as being leviable under Sub-section (1). In Sub-
section (5), for instance, it is clearly stated that the duty chargeable
under Section 3 shall be in addition to any other duty imposed under
12
1999 SCC OnLine SC 569
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 88 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
this Act or under any other law for the time being in force.
16. There are different types of customs duty levied under different
Acts or Rules. Some of them are; (a) a duty of customs chargeable
under Section 12 of the Customs Act, 1962; (b) the duty in question,
namely, under Section 3(1) of the CTA; (c) additional duty levied on
raw-materials, components and ingredients under Section 3(3) of the
CTA; and (d) duty chargeable under Section 9A of the CTA, 1975.
Customs Act 1962 and the CTA, 1975 are two separate independent
statutes. Merely because the incidence of tax under Section 3 of the
CTA, 1975 arises on the import of the articles into India it does not
necessarily mean that the CTA cannot provide for the charging of a
duty which is independent of the customs duty leviable under the
Customs Act.
17. The CTA, 1975 was preceded by the Indian Tariff Act, 1934.
Section 2A of the Tariff Act, 1934 provided for levy of
countervailing duty. This section stipulated that any article which
was imported into India shall be liable to customs duty equal to the
excise duty for the time being leviable on a like article if produced
or manufactured in India. In the notes to clauses to the Customs
Tariff Bill 1975 with regard to Clause 3 it was stated that “Clause 3
provides for the levy of additional duty on an imported article to
counter-balance the excise duty leviable on the like article made
indigenously, or on the indigenous raw materials, components or
ingredients which go into the making of the like indigenous article.
This provision corresponds to Section 2A of the existing Act, and is
necessary to safeguard the interests of the manufacturers in India”.
Apart from the plain language of the CTA, 1975 even the notes to
clauses show the legislative intent of providing for a charging
section in the Tariff Act 1975 for enabling the levy of additional
duty to be equal to the amount of excise duty leviable on a like
article if produced or manufactured in India was with a view to
safeguard the interests of the manufacturers in India. Even though
the impost under Section 3 is not called a countervailing duty there
can be little doubt that this levy under Section 3 is with a view to
levy additional duty on an imported article so as to counter-balance
the excise duty leviable on the like article indigenously made. In
other words Section 3 of the CTA has been enacted to provide for a
level playing field to the present or future manufacturers of the like
articles in India.
xxxx xxxx xxxx
19 . The decision in Khandewal Metal & Engineering Works case to
the effect that additional duty of customs is leviable merely on the
import of the article even if it is not manufactured or produced in
India does not appear to be correct inasmuch as the said conclusion
is based on the premise that Section 12 of the Customs Act, and not
Section 3(1) of the Tariff Act, is the charging section. As we have
already observed on a correct interpretation of the relevant
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 89 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
provisions of the two Acts there can be no manner of doubt that
additional duty which is levied under Section 3(1) of the Tariff Act
is independent of the customs duty which is levied under Section 12
of the Customs Act. Secondly, it has been held by the Three Judge
Bench in this case that excise duty is leviable if the article has
undergone production or manufacture. The observation in
Khandelwal Metal & Engineering Works case which seems to
suggest that even if no process of manufacture or production has
taken place the imported articles can still be subjected to the levy of
additional duty does not appear to be correct inasmuch as the
measure for levy of additional duty is the quantum of excise duty
leviable on a similar article under the Excise Act. Duty under the
Excise Act can be levied, as has been held earlier, if the article has
come into existence as a result of production or manufacture. In
other words when articles which are not produced or manufactured
cannot be subjected to levy of excise duty then on the import of like
articles no additional duty can be levied under the CTA. The levy of
additional duty being with a view to provide for counter balancing
the excise duty leviable, we are clearly of the opinion that additional
duty can be levied only if on a like article excise duty could be
levied. The decision in Khandelwal Engineering Works case to the
extent it takes a contrary view, does not appear to lay down the
correct law. Sh. Vaidyanathan contended that this Court should be
reluctant to reconsider a judgment which has held the field for a long
time, but in our opinion public interest requires that law be correctly
interpreted more so in a taxing statute where the ultimate burden
may fall on the common man. We hasten to add that we are not
over-ruling the Khandelwal Metal & Engineering Works case in its
entirety because the Court also held in that case that brass scrap was
in any case an item which was manufactured and, therefore, excise
duty was leviable. We have not examined, in the present cases,
whether brass scrap can or cannot be regarded as a manufactured
item for that question does not arise in the present cases.‖
69. Mr. Ojha submitted that on a plain textual reading of Section
3(7), it is apparent that the following three significant expressions stand
embodied therein: ‗any article which is imported into India’, ‗in
addition’ and ‗be liable’. These three expressions, according to learned
counsel, when read together give a clear indication of the taxable event
and the charge which that statute seeks to create. Mr. Ojha submitted
that the import of an article into India manifests the taxable event while
the expression ‗be liable’ underlines the corresponding liability which
comes to be statutorily created. It is this according to Mr. Ojha which
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 90 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
leads to the imposition of an additional duty of customs.
70. More fundamentally, Mr. Ojha would contend that the import of
goods is not the subject matter of IGST at all. It was his submission that
the said statute is merely concerned with the inter-state supply of
goods, services or both as distinct from the import of goods. Learned
counsel thus sought to draw a distinction between the ―import of
goods‖ and a ―supply of goods imported into India‖. Both of those,
according to Mr. Ojha, are liable to be viewed as two separate and
distinct taxable events.
71. Mr. Ojha further submitted that the use of the expression
―integrated tax‖ in Section 3(7) is not liable to be confused with that
expression as it appears in the IGST. According to learned counsel, the
phrase ―integrated tax at such rate‖ as occurring in Section 3(7) is
merely a measure of tax. It was submitted that this well-known and
accepted distinction between a measure of tax and the character of the
levy was succinctly explained by the Supreme Court in Mineral Area
Development Authority vs. M/S Steel Authority of India & Anr.
Etc.13 and where the Constitution Bench had held as follows:-
―***284. It now a well-settled principle that the determination of
the principles for assessing the amount of tax is within the legislative
domain. The quantification or measurement of liability is done on
the basis of the procedures laid down by the competent legislature.
In situations where the legislature selects one method out of the
many available for assessing tax, the courts should not strike down
the levy on the ground that the legislature should have adopted
another method unless the method is capricious, fanciful, arbitrary or
clearly unjust. Although the liability may be quantified or measured
in many ways, there is a clear distinction between the subject matter
of a tax and the standard by which the amount of tax is measured.
285. The pith and substance or true nature and character of the
legislation must be determined with reference to the legislative
subject matter and the charging section. The charging section13
2024 SCC OnLine SC 1796
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 91 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
levying a tax and defining the persons who are liable to pay the tax
constitute the core of a taxing statute. The distinction between the
nature of tax and measure of tax can be gathered from the decision
of this Court in Sainik Motors, Jodhpur v. State of Rajasthan. In
that case, the petitioners challenged the levy of taxes on passengers
and goods by the State legislature. The charging section provided
that the tax was ―in respect of all passengers carried and goods
transported by motor vehicles at such rate not exceeding one-eight of
the value of the fare or freight.‖ This Court held that the tax was on
passengers and goods which could be traced to Entry 56 of List II of
the Seventh Schedule. As regards the measure of the levy, it was
held that that the measure was furnished by the amount of the fare
and freight charged.
286. It is a settled position that the measure of tax is not a true test of
the nature of tax. The standard adopted as a measure of tax may be a
relevant consideration in determining the nature of tax, but is not
conclusive. In Sir Byramjee Jeejeebhoy v. The Province of
Bombay, the Bombay Provincial Legislature levied ‗urban
immovable property tax’ at ten percent of the annual letting value of
lands and buildings. The Bombay High Court upheld the validity of
the levy. Justice Broomfield observed that the power to impose taxes
on lands and buildings meant the power to impose taxes on persons,
owners, or occupiers as the case may be in respect of these
properties. Justice Harilal Kania (as the learned Chief Justice then
was) observed that the adoption of the annual letting value as the
standard for fixing the tax rate did not necessarily make it a tax on
income. The learned Judge further observed that the standard on
which the tax is levied does not determine the nature of the tax.
287. In Ralla Ram v. The Province of East Punjab, the issue that
fell for consideration of the Federal Court was whether the
provisions of the Punjab Urban Immoveable Property Tax Act 1940
were ultra vires the legislative powers of the Provincial Legislature.
Section 3 of the legislation levied a tax on lands and buildings at a
rate not exceeding twenty percent of the annual value. It was
contended that the levy was in substance a tax on income since the
measure adopted, that is the annual value of lands and buildings, was
also used to calculate income from property. Justice Fazl Ali
observed that annual value is not necessarily actual income, but only
a standard by which income may be measured. The learned Judge
analysed the substance of the impugned levy to observe that the
legislation used annual value merely for the purpose of determining
the value of the property to be taxed. The Court observed that if a
tax is levied on property, it would not be irrational to correlate it to
the value of the property and to make some kind of annual value the
basis of the tax without intending to tax income. The levy was held
to be in pith and substance a tax on land and buildings even though
the basis of the tax was similar to the one adopted to measure
income.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 92 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
288. From the above discussion, we can derive the following
principles: (i) the incidence of a tax on lands and buildings will
likely be on the owner or occupier, as the case may be; (ii) the
legislature may adopt a suitable measure for levying the tax on lands
and buildings under Entry 49 of List II; and (iii) the measure adopted
by legislature does not determine the nature of the tax.
289. In recent decades, this Court has held that there ought to be a
―nexus‖ between the nature of tax and the measure of tax. In Union
of India v. Bombay Tyre International Ltd., the issue before a
three-Judge Bench of this Court was whether the value of an article
for the purposes of excise duty must be determined exclusively with
reference to the manufacturing cost and manufacturing profit of the
manufacturer or the entire wholesale price charged by the
manufacturer. The assesses contended that only the measure of
manufacturing cost and profit create a direct and immediate nexus
between the levy and the manufacturing activity. It was further
urged that the post manufacturing expenses and profits ought to be
necessarily excluded to preserve the nexus between the nature of tax
and the assessment of tax. This Court traced the line of precedent on
the measure of tax to observe that a broad standard of reference may
be adopted for the purpose of determining the measure of the levy. It
was held that any standard which maintains a nexus with the
essential character of the levy can be regarded as a valid basis for the
measure of the levy. In CCE v. Grasim Industries Ltd., a
Constitution Bench reiterated that there must be a ―reasonable
nexus‖ between the nature of tax and the measure of the levy. It was
further observed that the measure cannot be controlled by the rigors
of the nature of tax.
290. The discussion above indicates that the nexus between the
measure and levy of tax need not be ―direct and immediate‖. The
nexus has to be ―reasonable‖ and must have some relationship with
the nature of levy. The reasonability of the nexus will largely depend
upon the nature of the tax and the means available with the
legislature to design the measure of the tax. Since the measure of the
levy is a matter of legislative policy and convenience, the
reasonability of the nexus between the measure and tax has to be
determined by the courts on a case-to-case basis. While doing so, the
Court will bear in mind the fundamental principle that the legislature
possesses a broad discretion in matters of fiscal levies.
******‖
72. It was Mr. Ojha’s submission that the phrase ―integrated tax‖
came to be employed as a compendious expression to deal with the
subject of an additional duty of customs. Hence, according to learned
counsel, the mere use of that expression would not change the character
of the levy. It was thus contended that the descriptive words used by the
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 93 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
Legislature for additional duty of customs on imported articles are only
clarificatory and seek to underscore the legislative objective of
imported goods being subject to an additional duty of customs under
the CTA alongside the incidence of IGST. Mr. Ojha also sought to
highlight the perceived significance of the usage of the words ―duty‖
and ―integrated tax‖ on goods as those expressions appear in different
parts of the CTA. This too, according to learned counsel, would lead
one to the inevitable conclusion that the phrase integrated tax was used
solely for the purposes of compendiously describing the duties of
customs which would get attracted at the time of import of goods.
73. Proceeding further Mr. Ojha submitted that the levy under
Section 3(7) is liable to be appreciated with reference to the source of
power to legislate itself. The submission was based on the tax on the
supply of goods or services being referable to Article 246A while a
duty of customs owing its genesis to the plenary powers of legislation
comprised in Article 246 of the Constitution read along with Entry 83
contained in List-I of the Seventh Schedule. It was thus submitted that
the Court must discern the true character of the levy and the taxable
event, both of which are traceable to separate powers of legislation
comprised in the Constitution.
74. In order to lend credence to the aforesaid contention, Mr. Ojha
also relied upon the following passages as they appear in the judgment
of the Constitution Bench in Godfrey Philips vs. State of U.P14.
―*** In our opinion to read Entry 62 List II as including articles of
luxury cannot allow all these constitutional restrictions to be by-
passed allowing States to levy tax on the supply of goods by
describing them as luxury goods. As has been rightly contended by
Mr. Parasaran appearing for the Union of India, the supply of luxury
is nothing but the supply of goods since the goods themselves
14
(2005) 2 SCC 515
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 94 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
constitute the luxury. So even if tobacco is an article of luxury, a tax
on its supply is within the exclusive competence of the State but
subject to the constitutional curbs prescribed under Article 286 read
with Sections 14 and 15 of the Central Sales Tax Act, 1956 and most
importantly the ADE Act of 1957 under which no sales tax can be
levied on tobacco at all if the State was to take the -“” benefits under
that Act. Despite the subtraction of the rights to levy excise or
customs duties and the restraint on the States to levy sales tax in
cases when the states can levy tax on goods we still have to
determine whether Entry 62 of List II covers taxes on goods at all. In
view of the decision in the Sea Customs Act case, the second
premise propounded by Mr. Salve is unacceptable. As we have seen,
in that case this Court held that the taxable event of ownership is
implicit in the concept of taxes on goods. That the entries on taxable
events in the legislative lists are not exhaustive is also recognised
and provided for in Art. 248 (2) which provides for the power of
Parliament to make any law imposing a tax not mentioned in either
the Concurrent or State lists. This residuary power is reflected in
Entry 97 of List. Furthermore, if an article or goods are taxable only
with respect to a taxable event, and if, as contended by Mr. Salve, all
taxable events have been provided for in the different legislative
heads, then by that token no object or goods could be taxable. This
would render the various entries in the State List including entries 57
and 58 contentless. As we cannot accept that the taxation entries
exhaustively enumerate all taxable events, it does not follow that
Entry 62 of List II does not cover goods. It is not possible therefore
to hold merely on such a construction of the legislative lists and the
taxation entries therein, that Entry 62 List II does not permit the
States to levy tax on articles of luxury. Having rejected the second
premise contended for by Mr. Salve, the next question is whether the
language of Entry 62 List II would resolve the issue. The
juxtaposition of the different taxes within Entry 62 itself is in our
“‘view of particular significance. The entry speaks of “taxes on
luxuries including taxes on entertainments, amusements, betting and
gambling”. The word “including” must be given some meaning. In
ordinary parlance it indicates that what follows the word “including”
comprises or is contained in or is a part of the whole of the word
preceding. The nature of the included items would not only partake
of the character of the whole, but may be construed as clarificatory
of the whole. It has also been held that the word ‘includes’ may in
certain contexts be a word of limitation (South Gujarat Roofing Tiles
Manufacturers v. State of Gujarat, [1976] 4 SCC 60 I. In the context
of Entry 62 of List II this would not mean that the word ‘luxuries’
would be restricted to entertainments, amusements, betting and
gambling but would only emphasise the attribute which is common
to the group. If luxuries is understood as meaning something which
is purely for enjoyment and beyond the necessities of life, there can
be no doubt that entertainments, amusements, betting and gambling
would come within such understanding. Additionally,
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 95 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
entertainments, amusements, betting and gambling are all activities.
‘Luxuries’ is also capable of meaning an activity and has primarily
and traditionally been defined as such. It is only derivatively and
recently used to connote an article of luxury. One can assume that
the coupling of these taxes under one entry was not fortuitous but
because of these common characteristics. Where two or more words
are susceptible of analogous meaning are clubbed together, they are
understood to be used in their cognate sense. They take, as it were,
their colour from and are qualified by each other, the meaning of the
general word being restricted to a sense analogous to that of the less
general. As said in Maxwell on the Interpretation of Statues 12th
Edn. P.289. “Words, and particularly general words, cannot be read
in isolation; their colour and their content are derived from their
context .1” Put in other words the included words may be
clarificatory or illustrative of the general word. Thus in UP. State v.
Raja Anand, [1967] I SCR 362, while construing Art. 31A (2) as
enacted by the Constitution (Seventeenth Amendment ) Act, 1964
the relevant excerpt of which read as:-
“31 A(2) In this article –
(a) the expression ‘estate’ shall in relation to any local area, have
the same meaning as that expression or its local equivalent has in
the existing law relating to land tenures in force in that area and
shall also include –
(i)xxx xxx xxx xxx xxx
(ii) xxx xxx xxx xxx xxx
(iii) any land held or let for purposes of agriculture or for
purposes ancillary thereto, including waste land, forest land, land
for pasture or sites of buildings and other structures occupied by
cultivators of land, agriculture labourers and village artisans;
this Court said:-
“In our opinion the word “including” is intended to clarify or
explain the concept of land held or let for purposes ancillary to
agriculture. The idea seems to be. to remove any doubts on the
point whether waste land or forest land could be held to be
capable of being held or let for purposes ancillary to agriculture.”
In the present context the general meaning of ‘luxury’ has been
explained or clarified and must be understood in a sense analogous
to that of the less general words such as entertainments,
amusements, gambling and betting, which are clubbed with it. This
principle of interpretation known as ‘noscitur a sociis’ has received
approval in Rainbow Steels Ltd v. C.S.T., [1981] 2 SCC 141,145
although doubted in its indiscriminate application in State of
Bombay v. Hospital Mazdoor Sabha, AIR (1960) SC 610. In the
latter case this Court was required to construe Section 2(j) of the
Industrial Disputes Act which read:
“Section 2(j) provides that ‘industry’ means any business, trade,
undertaking, manufacture or calling of employers and includes
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 96 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
any calling, service, employment, handicraft or industrial
occupation or avocation of workmen”.
It was found that the words in the definition were of very wide and
definite import. It was suggested that these words should be read in a
restricted G sense having regard to the included items on the
principle of ‘noscitur a sociis’. The suggestion was rejected in the
following language:
“It must be borne in mind that noscitur a sociis is merely a rule of
construction and it cannot prevail in cases where it is clear that
the wider words have been deliberately used in order to make the
scope H of the defined word correspondingly wider. It is only
where the intention of the Legislature in associating wider words
with words of A narrower significance is doubtful, or otherwise
not clear that the present rule of construction can be usefully
applied. It can also be applied where the meaning of the words of
wider import is doubtful; but, where the object of the Legislature
in using wider words is clear and free of ambiguity, the rule of
construction in question cannot be B pressed into service.‖
We do not read this passage as excluding the application of the
principle of noscitur a sociis to the present case since it has been
amply demonstrated with reference to authority that the meaning of
the word “luxury” in Entry 62 is doubtful and has been defined and
construed in a different sense.
In Black Diamond Beverages v. Commercial Tax Officer, [I998]
SCC 458, the definition of ‘sale price’ with respect to notified
commodities under Section 2(d) of the West Bengal Sales Tax Act, I
954 was sought to be restricted with reference to the specific
inclusion of sums charged for containers etc. The argument was that
since freight charges were not expressly included they must be taken
to have been excluded from the ‘sale price’. In that context this Court
said that the inclusive part of the definition cannot prevent the main
provision from receiving its natural meaning and that according to
the natural meaning ‘sale price’ included freight charges. It was said
that by the inclusion sale price was extended to mean something
which would not ordinarily come within its definition. The decision
is not of relevance as it is nobody’s contention that luxuries in the
sense of enjoyment would not naturally cover entertainments,
amusements, betting and gambling.
We are aware that the maxim of noscitur a sociis may be a
treacherous one unless the ‘societas’ to which the ‘socii’ belong, are
known. The risk may be present when there is no other factor except
contiguity to suggest the ‘societas’. But where there is, as here, a
term of wide denotation which is not free from ambiguity, the
addition of the words such as ‘including’ is sufficiently indicative of
the ‗societas’. As we have said the word ‘includes’ in the present
context indicates a commonality or shared features or attributes of
the including word with the included. Furthermore where articles
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 97 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
have been made the object of taxation, either directly or indirectly,
the entries in the legislative lists have specifically said so or the
impost is such that the subject matter of tax follows by necessary
implication. In List II itself, the State legislature has been given the
right to levy taxes on the entry of goods under Entry 53, on ‘carriage
of goods and passengers’ under Entry 56, on ‘vehicles’ under Entry
57 and on ‘animals and boats under Entry 58. There is no instance in
any of the legislative lists of a tax being leviable only with reference
to an attribute. An attribute as an object of taxation without reference
to the object it qualifies would lead to legislative mayhem, blur the
careful demarcation between taxation entries and upset the elaborate
scheme embodied in the Constitution for the collection and
distribution of revenue between the Union and the States. For
example would a luxury vehicle be subjected to tax under Entry 62
or Entry 57 of List II? In the latter case, the levy would be subject to
provisions of Entry 35 of List III and hence capable of being over-
ridden by Parliament. If it is referable to Entry 62 there would be no
such concurrent power in Parliament.
Hence on an application of general principles of interpretation, we
would hold that the word ‘luxuries’ in Entry 62 of List II means the
activity of enjoyment of or indulgence in that which is costly or
which is generally recognized as being beyond the necessary
requirements of an average member of society and not articles of
luxury.
******‖
75. It was thus submitted that the transaction in question and which
are sought to be taxed under the CTA can be broken down into three
principal taxable events: (a) supply of repaired goods, (b) supply of
services on carrying out repairs in re-imported goods and (c) import of
repaired goods. According to Mr. Ojha while aspects (a) and (b) would
be governed by IGST, insofar as (c) is concerned, since the same relates
to the import of an article or goods, it would clearly be regulated by the
Customs Act and the CTA.
76. Mr. Ojha then alluded to the well-known aspects theory and the
precept of a tax being validly imposed on two aspects forming part of
the same transaction. It was his submission that a singular transaction
may itself be comprised of two different taxable events. According to
Mr. Ojha, as per the aspects theory, both of those could be validly
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 98 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
subjected to a tax. Learned counsel first referred to the following
observations as appearing in the Federation of Hotel & Restaurant
Association of India vs. Union of India15.
―***14. In Lefroy’s ‘Canada’s Federal System’ the learned author
referring to the “aspects of legislation” under Sections 91 and 92 of
the Canadian Constitution i.e., British North America Act 1867
observed that “one of the most interesting and important principles
which have been evolved by judicial decisions in connection with
the distribution of Legislative Power is that subjects which in one
aspect and for one purpose fall within the power of a particular
legislature may in another aspect and for another purpose fall within
another legislative power. Learned author says:
…that by ‘aspect’ must be understood the aspect or point of
view of the legislator in legislating the object, purpose, and
scope of the legislation that the word is used subjectively of
the legislator, rather than objectively of the matter legislated
upon.
In Union Colliery Co. of British Columbia v. Bribery Sec. 1899 AC
580 at 587, Lord Haldane said:
It is remarkable the way this Board has reconciled the
provisions of section 91 and section 92, by recognizing that
the subjects which fall within section 91 in one aspect, may,
under another aspect, fall under section 92.
Indeed, the law ‘with respect to’ a subject might incidentally ‘affect’
another subject in some way; but that is not the same thing as the
law being on the latter subject. There might be overlapping; but the
overlapping must be in law. The same transaction may involve two
or more taxable events in its different aspects. But the fact that there
is an overlapping does not detract from the distinctiveness of the
aspects, Lord Simonds in Governor General in Council v. Province
of Madras MANU/FE/0008/1945 : [1945] FCR 179 P.C. at 193 in
the context of concepts of Duties of Excise and Tax on Sale of
Goods said:
…The two taxes the one levied on a manufacturer in respect of
his goods, the other on a vendor in respect of his sales, may, as
is there pointed out, in one sense overlap. But in law there is
no overlapping. The taxes are separate and distinct imposes. If
in fact they overlap, that may be because the taxing authority,
imposing a duty of excise, finds it convenient to impose that
duty at the moment when the excisable article leaves the
factory or workshop for the first time on the occasion of its
sale….
15
(1989) 3 SCC 634
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 99 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
15. Referring to the “aspect” doctrine Laskin’s “Canadian
Constitutional Law” states:
The ‘aspect’ doctrine bears some resemblance to those just noted but,
unlike them, deals not with what the ‘matter’ is but with what it
‘conies within’….
…it applies where some of the constitutive elements about
whose combination the statute is concerned (that is, they are
its ‘matter’), are a kind most often met with in connection with
one class of subjects and others are of a kind mostly dealt with
in connection with another. As in the case of a pocket gadget
compactly assembling knife blade, screwdriver, fishscaler,
nailfile, etc., a description of it must mention everything but in
characterizing it the particular use proposed to be made of it
determines what it is.
…I pause to comment on certain correlations of operative
incompatibility and the ‘aspect’ doctrine. Both grapple with the
issues arising from the composite nature of a statute, one as
regards the precursory impact of federal Jaw on provincial
measures bearing on constituents of federally regulated
conduct, the other to identify what parts of the whole making
up a ‘matter’ bring it within a class of subjects…
The distinction between what is “ancillaries” and what “incidentally
affecting” the treatise says:
…There is one big difference though it is little mentioned.
ancillaries is usually associated with an explicit ‘statutory
provision of a peripheral nature; talk about ‘incidentally
affecting’ crops up in connection with the potential of a non-
differentiating statute to affect indiscriminately in its
application matters asserted immune from control and others.
But it seems immaterial ready whether it is its words or its
works which draw the flotsam within the statute’s wake.
****‖
Equally profitable would be to place following Excerpt from A.H. F
Lefroy‟s Treatise on Canadian Constitutional Law under the
British North American Act:
―We shall find when we proceed to consider how these and
other cases illustrate the principle thus expressed, that by ‘
aspect ‘ must be understood the aspect or point of view of the
legislator in legislating–the object, purpose, and scope of the
legislation : that the word is used subjectively of the legislator,
rather than objectively of the matter legislated upon.‖
77. In this connection, Mr. Ojha also relied upon the following
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 100 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
passages from Gujarat Ambuja Cement vs. Union of India & Anr.16
while seeking to espouse the core principles which form part of the
aspects theory as commonly understood in tax jurisprudence:
“24. Undisputedly, Chapter V of the Finance Act, 1994 was
enacted with reference to the residuary power defined in Entry 97 of
List I. But as has been held in International Tourist Corpn. v. State
of Haryana [(1981) 2 SCC 318 : 1981 SCC (Tax) 103] : (SCC pp.
325-26, para 6-A)
―Before exclusive legislative competence can be claimed for
Parliament by resort to the residuary power, the legislative
incompetence of the State Legislature must be clearly established.
Entry 97 itself is specific in that a matter can be brought under
that entry only if it is not enumerated in List II or List III and in
the case of a tax if it is not mentioned in either of those lists.‖
25. In that case Section 3(3) of the Punjab Passengers and Goods
Taxation Act, 1952 was challenged by transport operators. The Act
provided for the levy of the tax on passengers and goods plying in
the State of Haryana. According to the transport operators, the State
could not levy tax on passengers and goods carried by vehicles
plying entirely along the national highways. According to them this
was solely within the power of the Centre under Entry 23 read with
Entry 97 of List I. The submission was held to be patently fallacious
by this Court. It was held that Entry 56 of List II did not exclude
national highways so that the passengers and goods carried on
national highways would fall directly and squarely within Entry 56
of List II. It was said that the State played a role in the maintenance
of the national highway and there was sufficient nexus between the
tax and passengers and goods carried on the national highway to
justify the imposition.
26. The writ petitioners in this case have, relying on this
judgment, argued that the Act falls squarely within Entry 56 of List
II and therefore could not be referred to Entry 97 of List I. We do
not agree.
27. There is a distinction between the object of tax, the incidence
of tax and the machinery for the collection of the tax. The distinction
is important but is apt to be confused. Legislative competence is to
be determined with reference to the object of the levy and not with
reference to its incidence or machinery. There is a further distinction
between the objects of taxation in our constitutional scheme. The
object of tax may be an article or substance such as a tax on land and
buildings under Entry 49 of List II, or a tax on animals and boats
under Entry 58 List II or on a taxable event such as manufacture of
goods under Entry 84 of List I, import or export of goods under16
(2005) 4 SCC 214
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 101 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
Entry 83 of List I, entry of goods under Entry 52 of List II or sale of
goods under Entry 54 List II to name a few. Theoretically, of course,
as we have held in Godfrey Phillips India Ltd. v. State of
U.P. [Godfrey Phillips India Ltd. v. State of U.P., (2005) 2 SCC 515
: (2005) 1 Scale 465] ultimately even a tax on goods will be on the
taxable event of ownership or possession. We need not go into this
question except to emphasise that, broadly speaking the subject-
matter of taxation under Entry 56 of List II are goods and
passengers. The phrase ―carried by roads or natural waterways‖
carves out the kind of goods or passengers which or who can be
subjected to tax under the entry. The ambit and purport of the entry
has been dealt with in Rai Ramkrishna v. State of Bihar [(1964) 1
SCR 897 : AIR 1963 SC 1667] where it was said in language which
we cannot better: (SCR p. 908)
―Entry 56 of the Second List refers to taxes on goods and
passengers carried by road or on inland waterways. It is clear that
the State Legislatures are authorised to levy taxes on goods and
passengers by this entry. It is not on all goods and passengers that
taxes can be imposed under this entry; it is on goods and
passengers carried by road or on inland waterways that taxes can
be imposed. The expression ‗carried by road or on inland
waterways’ is an adjectival clause qualifying goods and
passengers, that is to say, it is goods and passengers of the said
description that have to be taxed under this entry. Nevertheless, it
is obvious that the goods as such cannot pay taxes, and so taxes
levied on goods have to be recovered from some persons, and
these persons must have an intimate or direct connection or nexus
with the goods before they can be called upon to pay the taxes in
respect of the carried goods. Similarly, passengers who are
carried are taxed under the entry. But, usually, it would be
inexpedient, if not impossible, to recover the tax directly from the
passengers and so, it would be expedient and convenient to
provide for the recovery of the said tax from the owners of the
vehicles themselves.‖
28. Having determined the parameters of the two legislative
entries the principles for determining the constitutionality of a
statute come into play. These principles may briefly be summarised
thus:
(a) The substance of the impugned Act must be looked at to
determine whether it is in pith and substance within a particular
entry whatever its ancillary effect may be [Prafulla Kumar
Mukherjee v. Bank of Commerce Ltd. [AIR 1947 PC 60 : 74 IA
23] , AIR at p. 65, A.S. Krishna v. State of Madras [1957 SCR
399 : 1957 Cri LJ 409] , State of Rajasthan v. G. Chawla [1959
Supp (1) SCR 904 : 1959 Cri LJ 660] , Katra Educational
Society v. State of U.P. [(1966) 3 SCR 328 : AIR 1966 SC 1307]
, D.C. Johar & Sons (P) Ltd. v. STO [(1971) 27 STC 120 (SC)]Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 102 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
and Kannan Devan Hills Produce v. State of Kerala [(1972) 2
SCC 218] ].
(b) Where the encroachment is ostensibly ancillary but in
truth beyond the competence of the enacting authority, the statute
will be a colourable piece of legislation and constitutionally
invalid (A.S. Krishnav. State of Madras [1957 SCR 399 : 1957
Cri LJ 409] , A.B. Abdul Kadir v. State of Kerala [(1976) 3 SCC
219 : 1976 SCC (Tax) 270] , SCC at p. 232 and Federation of
Hotel & Restaurant Assn. of India v. Union of India[(1989) 3
SCC 634] , SCC at p. 651). If the statute is legislatively
competent the enquiry into the motive which persuaded
Parliament or the State Legislature into passing the Act is
irrelevant (Dharam Dutt v. Union of India [(2004) 1 SCC 712 :
(2003) 10 Scale 141] ).
(c) Apart from passing the test of legislative competency, the
Act must be otherwise legally valid and would also have to pass
the test of constitutionality in the sense that it cannot be in
violation of the provisions of the Constitution nor can it operate
extraterritorially. (See Poppatlal Shah v. State of Madras [(1953)
1 SCC 492 : 1953 SCR 677] .)
29. The provisions relating to service tax in the Finance Act,
1994 make it clear under Section 64(3) that the Act applies only to
taxable services. Taxable services have been defined, as we have
already noted, in Section 65(41). Each of the sub-clauses of that
clause refers to the different kinds of services provided. Most of the
taxable services cannot be said to be in any way related to goods or
passengers carried by road or waterways. For example, Section
65(41)(g) provides for service rendered to a client by a consulting
engineer, Section 65(41)(k) refers to service to a client by a
manpower recruitment agency, Section 65(41)(o) refers to service by
pandal or shamiana contractors and so on. The rate of service tax has
been fixed under Section 66. Section 67 provides for valuation of
taxable service for the purposes of charging tax. The provision for
valuation of service rendered by clearing and forwarding agents has
been dealt with under clause (j) and service provided by goods
transport operators has been provided under clause (l) [subsequently
renumbered as clause (m-a)]. These clauses read respectively as
under:
―67. (j) in relation to service provided by a clearing and
forwarding agent to a client, shall be the gross amount charged
by such agent from the client for services of clearing and
forwarding operations in any manner;‖
―67. (m-a) in relation to service provided by a goods
transport operator to a customer, shall be the gross amount
charged by such operator for services in relation to carrying
goods by road in a goods carriage and includes the freight
charges but does not include any insurance charges;‖
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 103 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
30. As far as clause (j) is concerned it does not speak of goods or
passengers, nor of carriage of goods nor is it limited to service by
road or inland waterways. Clause (m-a) shows that the valuation of
the service tax includes the freight charges, but is not limited to it.
31. It is clear therefore that Section 66 read with Sections
65(41)(j) and 67(m-a) in Chapter V of the Finance Act, 1994 do not
seek to levy tax on goods or passengers. The subject-matter of tax
under those provisions of the Finance Act, 1994 is not goods and
passengers, but the service of transportation itself. It is a levy
distinct from the levy envisaged under Entry 56. It may be that both
the levies are to be measured on the same basis, but that does not
make the levy the same. As was held in Federation of Hotel and
Restaurant Assn. of India v. Union of India [(1989) 3 SCC 634] :
(SCC pp. 652-53, paras 30-31)
― ‗… subjects which in one aspect and for one purpose fall
within the power of a particular legislature may in another aspect
and for another purpose fall within another legislative power’. …
Indeed, the law ‗with respect to’ a subject might incidentally
‗affect’ another subject in some way; but that is not the same thing
as the law being on the latter subject. There might be overlapping;
but the overlapping must be in law. The same transaction may
involve two or more taxable events in its different aspects. But the
fact that there is an overlapping does not detract from the
distinctiveness of the aspects.‖
32. Since service tax is not a levy on passengers and goods but
on the event of service in connection with the carriage of goods, it is
not therefore possible to hold that the Act in pith and substance is
within the States’ exclusive power under Entry 56 of List II. What
the Act ostensibly seeks to tax is what it, in substance, taxes. In the
circumstances, the Act could not be termed to be a colourable piece
of legislation. It is not the case of the petitioners that the Act is
referable to any other entry apart from Entry 56 of List II. Therefore
the negation of the petitioners’ submission perforce leads to the
conclusion that the Act falls within the residuary power of
Parliament under Entry 97 of List I.‖
78. Mr. Ojha submitted that in the facts of that case, the Supreme
Court had found that the transport of goods and passengers by road or
inland waterways was based on two separate aspects which had led to
the imposition of a tax by both the State as well as the Union. It was
submitted that the Supreme Court had held that while Parliament had
the legislative competence to tax the service aspect of that transaction,Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 104 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
the States were empowered to legitimately impose a tax by virtue of
Entry 56 of List-II falling in the Seventh Schedule.
79. Mr. Ojha then submitted that the contention of the writ
petitioners based on Section 5 of the IGST is also clearly misconceived.
It was argued that Section 5(1) merely relates to a tax on the inter-state
supply of services. The submission was that it is not a charging
provision in respect of the import of goods. The aforesaid submission
was in essence a reiteration of the distinction which Mr. Ojha bids us to
bear in mind between an inter-state supply of imported goods and the
import of goods itself. It was then submitted that the mere treatment of
the transaction as a supply of service would have no bearing on the
liability that stands cast upon the petitioner to pay the additional duty of
customs under Section 3(7) of the CTA. It was in this connection
argued that undisputedly, the subject goods are sent to MROs’ located
outside India who undertake the requisite repairs and whereafter the
goods are re-imported. It was submitted that as long as a re-import of
goods has occurred, the petitioner cannot seek exemption from the
payment of an additional duty of customs since the import of goods is
not concerned with the supply of services at all. It was thus reiterated
that the mere inclusion of import within the scope of inter-state supplies
does not absolve the petitioner from the incidence of tax under the
CTA.
80. Mr. Ojha also questioned the argument of hardship and double
taxation by submitting that as long as a transaction can be said to fall
within the ken of a particular tax statute, courts would not be boggled
by a perceived hardship that the assessee may assert or allege. Learned
counsel in this regard referred to the following celebrated passage from
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 105 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
the Bank of Chettinad Ltd. vs. CIT17:-
“**19. A passage from the opinion of Lord Russell of Killowen at
page 24 may usefully be cited. It is as follows:
I confess that I view with disfavour the doctrine that in taxation
cases the subject is to be taxed if, in accordance with a Court’s view
of what it considers the substance of the transaction, the Court thinks
that the case falls within the contemplation or spirit of the statute.
The subject is not taxable by inference or by analogy, but only by
the plain words of a statute applicable to the facts and circumstances
of his case. As Lord Cairns said many years ago in Partington v. The
Attorney-General (1869) L.R. 4 H.L. 100 : ‘As I understand the
principle of all fiscal legislation it is this: If the person sought to be
taxed comes within the letter of the law he must be taxed, however
great the hardship may appear to the judicial mind to be. On the
other hand, if the Crown, seeking to recover the tax, cannot bring the
subject within the letter of the law, the subject is free, however
apparently within the spirit of the law the case might otherwise
appear***‖
81. While on Section 5(1), Mr. Ojha submitted that the fallacy of the
argument addressed on that score is manifest from Section 5(1) itself
embodying the phrase “levied and collected in accordance with Section
3 of Customs Tariff Act”. According to learned counsel, there could be
no starker manifestation of a legislative intent to preserve the additional
duty which gets attracted by virtue of Section 3(7) of the CTA.
According to Mr. Ojha, the only significance of the Proviso to Section
5 is its objective to indicate that the levy of an additional duty under
Section 3(7) would be over and above the tax which comes to be
attracted on the supply component of the transaction. This too was thus
an extension of Mr. Ojha’s principal argument of the import of goods
being a separate and distinct taxable event.
82. It was further argued that the treatment of a transaction under the
GST regime which purports to classify supplies in the distinctive
categories of goods or services cannot be stretched to the extent of
17
1940 SCC OnLine PC 29
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 106 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
wiping out a charge that is created and a tax which becomes imposable
under a plenary statute. The submission was that merely because the
CGST and the IGST describe activities or transactions as a supply of
goods, services or both, the same cannot apply to all legislations
universally. In view of the above, it was his submission that while the
transaction would be liable to be treated as a supply of services insofar
as IGST is concerned, the same would not wipe out the liability of the
petitioner of the tax which gets attracted on the import of goods.
83. Turning then to the merits of the challenge which pertained to the
Notifications so issued, Mr. Ojha submitted that if the contention of the
petitioner that the respondents have no power to levy an additional duty
of customs were to be accepted, then Notification no. 45/2017 would be
liable to be struck down in its entirety. The submission was that if the
petitioner’s challenge were to be accepted at face value, then the entire
exemption itself would vanish since the arguments addressed impact
the very foundation of the exemption notification.
84. Learned counsel submitted that the power to partially quash or
sever applies only within the limited possibility of such a direction not
impacting the foundation of the order itself. Learned counsel in this
regard cited for our benefit the following observations appearing in Dy.
CIT Central Circle vs. ASM Traxim Pvt. Ltd. And Others18:
“28. Mr. Menon had commended for our consideration the
invocation of the principle of severability. The power to sever and to
disgorge a part which is offending and unsustainable could be
wielded, provided it does not impact the very foundation of an order.
However, and as we had noticed hereinabove, the considerations for
the framing of an order under Section 245D(4) and 245H do not
proceed on a consideration of factors which may be said to be
distinct or independent. Both are informed by and founded upon
cooperation and full and true disclosure and which are the essential18
2024 SCC OnLine Del 7509
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 107 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
prerequisites for computation of the settlement amount as well as
consideration of grant of immunity. The aforenoted two factors thus
constitute the very substratum of an application for settlement.
29. Interfering with the grant of immunity on grounds as suggested
by the writ petitioner would essentially amount to the Court
questioning the validity of the acceptance of the application itself by
the ITSC. That is not even the suggestion of the writ petitioner in
these proceedings. If the twin statutory conditions were found to be
satisfied and thus meriting an order of settlement under Section
245D(4) being rendered, the position would not vary or undergo a
change when it come to the question of grant of immunity. We thus
find ourselves unable to countenance the challenge as raised.
30. Accordingly, and for all the aforesaid reasons, the writ petition
fails and shall stand dismissed.‖
85. Mr. Ojha lastly sought to distinguish the judgment of the
Supreme Court in Mohit Minerals by submitting that unlike the facts as
they obtained in that case, here we are concerned with a transaction in
respect of a single supply albeit having two aspects. According to Mr.
Ojha, Mohit Minerals was concerned with a CIF contract and thus the
principal question was the service element involved in the case of
transportation. However, according to learned counsel, unlike what
would obtain in a CIF contract where the obligation to transport goods
up to the port is on the supplier and which in the facts of that case was
the foreign exporter, here the repair services have been received
directly by the petitioner. Therefore, according to Mr. Ojha, the
decision in Mohit Minerals has no application. It is the aforenoted rival
submissions which fall for determination.
THE INTERSTATE LEVY ON SUPPLY OF GOODS , SERVICES OR BOTH
86. From a constitutional standpoint, it becomes pertinent to note
that for 75 years post the formation of the Republic, the power of the
Union and the States to legislate was regulated by Article 246 of the
Constitution. In terms of Article 246(1), Parliament stood conferred
with the exclusive power to make laws with respect to matters
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 108 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
enumerated in List I of the Seventh Schedule commonly known as the
Union list. Subject to clauses (1) and (2) of Article 246, Legislatures of
State are granted the exclusive power to make laws with respect to
matters set out in List II of the Seventh Schedule and which we
generally refer to as the State List. Article 246(2) constituted the source
of the concurrent powers which the Constitution conferred upon
Parliament and Legislatures of States to make laws with respect to
matters enumerated in List III of the Seventh Schedule- the Concurrent
List.
87. Thus the source of the power to legislate as conferred upon
Parliament and States was Article 246 of the Constitution. Apart from
the above, Article 248 clothed Parliament with a residuary power of
legislation thus enabling it to make laws with respect to matters which
may not have been enumerated in either the Concurrent or the State
Lists. Sub-article (2) thereof further expanded the residuary power
vested in Parliament by providing that the same would include an
authority to make a law imposing a tax not otherwise enumerated in
either the State or the Concurrent List.
88. Article 254 of the Constitution embodies the principles of
repugnancy and guides us in resolving questions which may arise when
the law made by the Legislature of a State comes in conflict with a
provision of a law which Parliament would have promulgated. Article
254 of the Constitution, however, was principally concerned with
legislation which Parliament or the Legislature of a State may come to
promulgate in respect of matters falling in the Concurrent List by virtue
of sub-article (2) of Article 254. Thus while the Constitution
undoubtedly recognizes the preeminence of laws made by Parliament, it
incorporated appropriate covenants in terms of which notwithstanding
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 109 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
the law made by a State being repugnant to the provisions of an earlier
law framed by Parliament, the former would prevail provided it had
been reserved for the consideration of the President and had received its
assent. The set of constitutional provisions noticed above thus sought to
strike a just balance between the powers of the Union and the States
and built a foundation for the broad federal structure which the
Constitution intended to espouse. The Articles noticed above were thus
intended to act in furtherance of the constitutional goal of fiscal
federalism.
89. The Constitution Amending Act and the paradigm shift that it
introduced cannot possibly be overemphasized. In 2016, amendments
came to be introduced in the Constitution which ushered in seminal
changes in the distribution of taxing powers between Parliament and
Legislatures of individual States. Article 246A thus ordains that both
Parliament as well as the Legislature of every State would have the
power to make laws in respect of a goods and services tax that may be
imposed either by the Union or a State. Article 246A(2), however,
reserves exclusive power in Parliament to make laws with respect to the
levy of a goods and services tax where the supply of goods, services or
both were to take place in the course of interstate trade or commerce. It
is also pertinent to note that Article 246A itself came to be introduced
in the Constitution by way of a non-obstante clause which thus
accorded primacy to its provisions over and above those contained in
Articles 246 and 254.
90. Part XII of the Constitution deals with the subject of finance,
property contracts and suits. We are in the present batch concerned
primarily with Chapter I as placed in Part XII. For our purposes, it
would be Article 269 which would be relevant and which deals with the
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 110 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
distribution of revenues between the Union and States and taxes levied
on the sale or purchase of goods as well as consignment thereof. Here
too, the tax was to be levied and collected by the Union Government
and thereafter assigned to respective States in accordance with the
formula set out in sub-article (2).
91. By virtue of the Constitution Amendment Act, Article 269A
came to be inserted in Chapter I comprised in Part XII, and it is this
Article which principally constitutes the machinery provision for the
purposes of levy of a goods and services tax. It thus declares that a
goods and services tax on supplies in the course of interstate trade or
commerce would be levied and collected by the Union Government and
apportioned amongst the Union and the States in a manner that
Parliament may by law prescribe based on the recommendation of the
Goods and Services Tax Council.
92. Of significance is the Explanation which appears in Article
269A(1) which embodies a deeming fiction to the effect that a supply
of goods, services, or both in the course of import into the territory of
India would be deemed to be a supply in the course of interstate trade
or commerce. The Explanation thus stretched the levy of a goods and
services tax not just to supply of goods or services within the
constituent States of the Union but also brought within its ambit the
supply of goods or services which may have occurred in the course of
import. Of equal importance is Article 269A(5) which confers
exclusive authority upon Parliament to, by law formulate principles for
determining not just the place of supply but also when a supply of
goods, services, or both could be said to have taken place in the course
of interstate trade or commerce. Article 269A thus constitutes the
repository of the power of Parliament to regulate the levy of a goods
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 111 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
and services tax on all supplies which may occur in the course of
interstate trade or commerce and with the latter expression being liable
to be read as including imports into the territory of India.
93. The Constitution Amendment Act also saw various amendments
which came to be introduced in Article 270. As that Article originally
stood, it had provided that taxes on income other than agricultural
income, though levied and collected by the Union Government, would
be distributed between the Union and the States in the manner provided
in that provision. That Article had initially undergone amendments by
virtue of the Constitution Eightieth Amendment Act, 2000 and
whereafter the words ―income‖ and other than ―agricultural income‖
were substituted by the employment of the phrase ―all taxes and duties
referred to in the Union List‖. The distribution of taxes and duties
which Article 270 sought to regulate was however subjected to the
sweep of Articles 268, 269 and 269A post the promulgation of the
Constitution Amendment Act. Similar and corresponding provisions
which were intended to give effect to the insertion of Articles 246A and
269A came to be inserted with the addition of sub-articles (1A) and
(1B) therein. The broad subject of distribution of the goods and services
tax amongst the Union and the States came to be made the subject of
consideration of the Goods and Services Tax Council which was
envisaged by Article 279A.
94. In order to give effect to the shift from a tax imposable on the
sale or purchase of goods, which was the major field of taxation under
the Constitution as it stood prior to the Constitution Amendment Act,
Articles 246A and 269A introduced a significant shift in terms of which
the supply of goods or services became the basis for the levy of tax.
This necessarily required appropriate amendments being also made in
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 112 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
the three lists that form part of the Seventh Schedule and demarcate the
fields of legislation.
95. The underlying intent of the Constitution Amendment Act is
evident from a plain reading of its SOR which explains its principal
purpose as being the various indirect taxes and levies which were till
then being imposed by States as well as the Union in the exercise of the
broad division of legislative power which had existed in the
Constitution coming to be subsumed in a singular levy, namely, the
goods and services tax. The Bill explained the adoption of the goods
and services tax as being aimed at ensuring the removal of the
―cascading effect‖ of taxes and for the creation of a ―national market‖
for goods and services. It also explicitly alluded to the intent of
Parliament to do away with the innumerable individual taxes and levies
which were to include amongst others, central excise duties, additional
excise duties, additional customs duties, as well as special additional
duties of customs, central surcharges and cesses. It was thus the avowed
and stated objective of the Constitution Amendment Act to do away
with those individual levies and submerge them in the goods and
services tax. The Constitution Amendment Act also represented the
clear and stated intent of Parliament to do away with various value-
added taxes, sales taxes, entertainment taxes, central sales tax and a
host of other taxes which were till then being imposed by individual
States. After so expressing the broad intent, the Constitution
Amendment Act in unequivocal terms provided for the substitution of
those levies with the imposition of a goods and services tax alongside
the levy of an integrated goods and services tax on all interstate
transactions.
96. For the purposes of lending clarity to some of the principal words
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 113 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
and phrases connected with the goods and services tax regime which
was proposed to be promulgated post the Constitution Amendment Act,
parallel amendments also came to be inserted in Article 366. For
instance, the expression ―goods‖ came to be defined in Article 366(12)
as including all materials, commodities and articles. The expression
―goods and services tax‖ was explained by Article 366(12)(a) to mean a
tax on the supply of goods, services or both but to the exclusion of
taxes on the supply of alcoholic liquor for human consumption. The
word ―services‖ was succinctly defined by Article 366(26)(a) as
meaning anything ―other than goods‖.
97. Post the fundamental alternation of the landscape pertaining to
taxation, Parliament then took upon itself the task of framing an
appropriate legislation to deal with the levy and collection of a goods
and services tax which was envisioned under the prominent Articles of
the Constitution noted hereinabove. However, before we proceed to
notice some of the salient provisions forming part of the CGST and
IGST, it would also be pertinent to briefly take note of some of the
amendments which came to be made in the three legislative lists placed
in the Seventh Schedule to the Constitution.
98. As was noticed in the preceding parts of this decision, List I saw
the omission of Entries 92 and 92C which had dealt with taxes on the
sale or purchase of newspapers and advertisements as well as services.
The aforesaid omissions clearly were in implementation of the avowed
objective of the Constitution Amendment Act which was principally
aimed at the elimination of multiple levies and the taxation regime itself
transforming into a uniform levy on the supply of goods, services or
both. Entry 92A comprised in List 1, however, was retained and saw no
significant changes. Similarly, a tax on the consignment of goods which
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 114 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
constituted the subject of Entry 92B, was also omitted. This since both
those Entries were concerned with a tax on the sale or purchase of
goods as well as consignment thereof where such events were to take
place in the course of interstate trade or commerce.
99. Since the provisions of Article 246A read along with 269A now
envisioned a simultaneous or contemporaneous power being conferred
upon Parliament and the Legislature of States to levy a goods and
service tax, Entries 52 & 55 falling in List II were omitted. These were
concerned with the taxes which the States could impose on the entry of
goods into a local area as well as on advertisements other than those
which may be published in newspapers. Entry 54 which constituted the
principal provision governing the authority of States to impose a tax on
the sale or purchase of goods, however, was significantly amended and
the power of States was restricted to a levy on the sale of petroleum,
crude, high-speed diesel, motor spirit, natural gas, aviation turbine fuel
and alcoholic liquor for human consumption. Of significance, however,
was the carve-out with respect to sales in the course of the interstate
trade or commerce including sales in the course of international trade
and commerce of such goods. Entry 62, which enabled States to tax
luxuries including entertainments, amusements, betting and gambling
also came to be amended with a power to levy a tax on entertainments
and amusements alone being retained and that too to the extent that
those imposts were levied and collected by local bodies and authorities.
100. This would then constitute an appropriate juncture to notice some
of the salient provisions made in the CGST and IGST enactments
which came to be promulgated by Parliament in terms of the authority
to legislate as conferred by the aforenoted Articles of the Constitution.
While we have extracted most of the provisions of the CGST and IGST
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 115 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
which in our opinion would have a bearing on the principal issues that
are posited for our consideration, we for the purposes of sketching a
backdrop for the discussion which follows and to lend context to the
same deem it appropriate to briefly revisit some of those provisions.
101. The CGST, as is evident from its Preamble, was envisaged to be
a legislation which would make appropriate provisions for a levy and
collection of tax on all intra-state supply of goods, services or both.
This legislation essentially represented the essay of Parliament in
extension of the power conferred by Article 246A(1) which enabled it
to levy a goods and services tax on supplies. From out of the various
expressions and words which came to be defined by Section 2 of the
CGST, it would be pertinent to recall how that provision defines and
assigns a meaning to expressions such as composite supply, continuous
supply of goods, continuous supply of services, goods, integrated tax,
intra-state supply of goods or services, fixing location of the recipient
of services, recipient of supply of goods or services, the word services
itself taxable supply. From the meaning assigned to the aforesaid
expressions, we gather that the statute understood a composite supply to
mean one which may consist of two or more taxable supplies of goods
or services or both including any combination thereof and which would
have been either naturally bundled or supplied in conjunction with each
other. Goods were defined to mean every kind of immovable property
including actionable claims and other tangible articles. The definition
of goods only excludes money and securities. An integrated tax was
defined by Section 2(58) to mean the tax levied under the IGST. For
purposes of gathering the meaning to be assigned to the expression
intra-state supply of goods, the CGST bids one to look at Section 8 of
the IGST. Sub-sections (70) and (71) of Section 2 laid out principles for
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 116 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
the location of the supplier or recipient of services.
102. Apart from the concept of composite supply, which was
introduced by Section 2(30), Section 2(74) of the CGST defined mixed
supply as being two or more individual supplies of goods or services or
any combination thereof made in conjunction with each other for a
single price and where such supply may not constitute a composite
supply. Thus the definition clause not only came to assign a meaning
to goods and services, but it also introduced the concepts of composite
and mixed supply which we would have an occasion to examine in
greater detail in the subsequent parts of this decision.
103. The scope of supply is explained and defined by Section 7 which
stipulates that the said expression would include all forms of supply of
goods, services or both made for consideration by a person in the
course or furtherance of business. Included within the scope of supply
are activities undertaken by a person when provided to its members or
constituents for cash, deferred payment or other valuable consideration.
The expression supply was also defined to include the import of
services as well as activities specified in Schedule I when made or
agreed to be made without consideration. Of seminal importance is
Section 7(1A) which stipulates that where certain activities or
transactions constitute a supply in terms envisaged under sub-section
(1), they would be treated either as a supply of goods or a supply of
services in terms thereof and the manner in which they may be so
classified in the Schedule to the CGST. By virtue of sub-section (3) the
Union Government was statutorily empowered to specify transactions
which would either be treated as a supply of goods as opposed to a
supply of service and vice versa on the recommendation of the GST
Council.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 117 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
104. Sections 8 and 9 are the charging sections which speak of the tax
which would be leviable and attracted on all intra-state supply of goods
and services as well as the manner in which the tax liability of a
composite or mixed supply would be determined. By virtue of Sections
12 and 13 the statute fixed a steady point at which a liability to pay
taxes on goods or services would arise.
105. This then takes us to the Schedule appended at the end of the
CGST Act and which broadly classifies activities and transactions and
guides us in determining which would constitute a supply of goods, a
supply of services or a mixed supply. Schedule I lists out activities
which would be liable to be treated as supplies even if made without
consideration. Included within this Schedule is the subject of import of
services by a person from a related entity or from any of its other
establishments outside India in the course or furtherance of business.
Relevant for our purposes is, however, Schedule II which in terms of
Entry 3 classifies treatments or processes applied to another person’s
goods as a supply of services. Supply of services is thereafter also dealt
with in Entry 5 which sets out various activities and transactions which
would amount to a supply of services. Composite supplies is a subject
which is dealt with in Entry 6 and which specifies a certain genre of
supplies that are liable to be treated as a supply of services. The
classification of supply within the sub-category of goods or services
thus is in extension of the power conferred by sub-section (1A) as well
as sub-section (3) of Section 7. On a more fundamental plane, the
aforesaid classification flows from the provisions comprised in Article
269A(5) itself.
106. While the CGST is concerned with the supply of intra-state
supplies, the IGST constitutes an enactment pertaining to the levy and
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 118 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
collection of a tax on the interstate supply of goods or services. What
needs to be borne in mind is that while a tax on supplies of goods or
services intra-state is one which can now and under the constitutional
scheme be levied by both the Union as well as individual States, a tax
on inter-state supply, be it of goods or services, is one which can only
be imposed by the Union. This flows directly from the broad division of
the taxing power which is recognized by Article 246A of the
Constitution.
107. From the preceding discussion and on a consideration of the
significant constitutional amendments which came to be promulgated
followed by the rollout of the goods and services tax regime the key
takeaways would appear to be the following. The distribution of the
legislative power, including that of imposition of a tax which was
otherwise regulated by Articles 246, 269 and the three lists which stand
placed in the Seventh Schedule to the Constitution, the Constitution
now envisions a contemporaneous and simultaneous vesting of
authority in the Union and the State Legislatures to impose a tax in
terms envisaged under Article 246A. The said tax is not one related to
the sale, purchase or consignment but to the supply of goods and
services.
108. Article 246A as noticed above, commences with a non obstante
clause and is thus clearly intended to be accorded primacy over the
traditional powers of legislation including the power to impose a tax
which would flow from Article 246 of the Constitution. It is equally
important to bear in mind the indubitable fact that since the Union, as
well as the States, came to be empowered to levy a goods and services
tax, and what the Supreme Court has aptly chosen to describe as the
exercise of simultaneous power, the non-obstante was also ordained to
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 119 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
override Article 254 of the Constitution. Article 246A thus represents
and acknowledges the authority of both constituents to have the
authority to levy a goods and services tax notwithstanding anything
contained in the Seventh Schedule and which in any case saw suitable
amendments being introduced to synchronize with the amendments
made in the various covenants of the Constitution noticed above.
109. The second key point that merits notice is the treatment of inter-
state trade and commerce which was a subject that came to be placed
solely in the province of the Union and liable to be regulated by
parliamentary legislation. By virtue of Article 269A a goods and
services tax which becomes leviable in the course of interstate trade and
commerce thus came to be placed in the exclusive domain of the Union
which now stands enabled not only to levy that tax but also formulate
and determine the principles for identifying the place of supply as well
as when a transaction would constitute a supply of goods, services or
both when effected in the course of interstate trade or commerce.
110. Equally important is the Explanation which forms part of Article
269A and which introduces a legal fiction to the effect that supplies of
goods, services or both in the course of import into the territory of India
shall be deemed to be a supply which occurs in the course of interstate
trade or commerce. The Explanation assumes significance since the
phrase import into the territory of India when viewed from a plain
textual angle would ordinarily not be liable to entail the movement of
goods or the provision of supplies within States of the Union. This thus
undoubtedly represents the objective of levying a goods and service tax
on the import of goods and services.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 120 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
111. Regard must also be had to the fact that neither the Customs Act
nor for that matter the CTA at any point of time envisioned a levy of
duty on services per se. The two legislations were and continue to be an
impost on goods. They thus remain confined to Entry 83 falling in List
I of the Seventh Schedule. It is this aspect which constitutes one of the
principal questions for our consideration and that being whether the
levy of an import duty on a transaction which comes to be classified as
a supply of services under the IGST would be sustainable and whether
it would be open for the respondent to either re-characterise that
transaction as that of goods.
112. Undisputedly, insofar as BCD is concerned, the physical re-
import of goods stands exempted by virtue of Notification 50/2017.
Turning then to IGST, the petitioner was discharging the liability which
accrued in accordance with Notification 45/2017 which valued the re-
imported goods after repairs at the fair cost of repair. It is this
notification which came to be amended by Notification 36/2021 and
saw the substitution of the words ―duty of customs‖ with ―Said duty,
tax or cess….‖ Of equal import is the Explanation which came to be
inserted and which makes an unambiguous reference to the integrated
tax referred to in Section 3(7) of the CTA as being leviable “…besides
the customs duty as specified….”. It is these amendments that led to the
institution of the present writ petitions.
113. However, reverting back to our review of the constitutional
amendments, we find upon a consideration of the SOR of the
Constitution Amendment Act that its cornerstone was the avowed
objective of replacing a multitude of indirect taxes being imposed by
the Union and the States. Parliament thus deemed it appropriate to
adopt measures which would enable trade and commerce to overcome
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 121 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
the “cascading effect” of innumerable individual levies, dismantle the
barriers to the free flow of goods and services and the creation of a
common market for goods and services. While introducing the
amendments, the SOR further explains that the goods and services tax
would subsume the various Union and State levies which were
otherwise being imposed. These were spelt out to include indirect taxes
and levies such as the additional duty of excise, service tax as well as
the additional/special additional duties of customs, surcharges and
cesses “so far as they relate to the supply of goods and services”. It
was thus clearly envisaged that all of the aforenoted levies and taxes
would get submerged in and replaced by the common goods and
services tax.
114. The mandate of Articles 246, and 269A and the corresponding
constitutional amendments saw the promulgation of the CGST and the
IGST thereafter. The SOR of the IGST in unambiguous terms speaks of
the tax introduced by that legislation as being imposable on the import
of goods as well as on services albeit on a reverse charge basis. The
SOR also adverts to the power sought to be conferred for the
determination of the nature of supply which would indubitably include
the authority to classify a supply as being either of goods or services. It
is this central theme and avowed objective of that legislation which
then stands mirrored in the provisions noticed above.
115. The IGST at the very outset borrows the concept of supply from
Section 7 of the CGST, adopts principles governing the export and
import of services and defines what would constitute an ―integrated tax.
That expression, as noticed above, is defined to mean the tax imposable
under that statute. Section 7 of the CGST assumes significance since it
not only sketches out the scope of supply as being applicable to all
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 122 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
forms of goods and services, but it also includes within its ambit the
import of services and explains with sufficient clarity what would
constitute mixed or composite supplies. We are thus not left to grapple
with the discernment of the nature of a transaction, of hybrid contracts,
transactions constituting more than one element and thus avoid
recalling the whole body of precedent which Article 366(29A)
spawned.
116. Section 7(1A) then stipulates that once a supply falls within the
ambit of sub-section (1) thereof, it shall be treated ―either as‖ a supply
of goods or services as specified in Schedule II to that enactment.
Schedule II to the CGST then proceeds to arrange and place
transactions in different categories as being either a supply of goods or
of services which would constitute composite supplies. Suffice it to
note that it was not the case of the respondents that the transaction of
repair of the subject goods would fall in the category of a composite
supply. The assertion of the writ petitioners of the transaction clearly
falling within the ambit of Clause 3 of Schedule II was also not
questioned.
117. Before proceeding ahead to notice the salient provisions of the
IGST, it becomes important to note that the characterization of the
nature of a supply under the CGST Act by virtue of Section 7(1A) and
Schedule II is adopted and embraced by the IGST in terms of Section
20 of that statute. This exercise of a statutory classification and
characterization of the genre of supply is clearly in accordance with the
mandate of Articles 246A and 269A of the Constitution. Although
Sections 7 and 8 of the IGST thereafter proceed to declare when a
supply of goods or services would be treated as a supply in the course
of interstate trade or commerce or intra-state, these provisions do not
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 123 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
undertake a de novo classification or categorization of supplies between
that of goods or services. Section 7 thus and insofar as imports are
concerned, confines itself to specifying when an import of goods or
services would be treated as in the course of interstate trade or
commerce.
118. What thus emerges from the aforesaid discussion is the
following. The goods and services tax is clearly intended to wipe away
the erstwhile regime of multiple taxes and levies and replace it with the
imposition of a common levy which could be simultaneously levied by
both the Union and the States. The Constitution thereafter proceeds to
lay in place an elaborate machinery for the apportionment of those
levies amongst the constituents of the Union. The SOR of the
Constitution Amendment Act as well as of the IGST at more than one
place speaks of the multiple levies which would get submerged and
absorbed in the goods and services tax and thus replace all erstwhile
and existing taxing regimes. These were spelt out as including
additional duties of excise, additional and special additional duties of
customs and a host of other surcharges and levies.
119. Of equal significance is the constitutional reservation with
respect to the subject of interstate trade or commerce in favour of the
Union. This is further explained to include the import of goods, services
or both. The power to classify a supply between that of goods or
services also came to be contemporaneously reserved in favour of the
Union and subject to parliamentary legislation exclusively. In
implementation of the broader constitutional theme, Parliament came to
enact the CGST and IGST. On a conjoint reading of those two statutes,
we further find that the categorization of supplies and whether they
would constitute a supply of goods or of services or both comes to be
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 124 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
conclusively settled and attains finality in terms of the Schedules
appended to the CGST and which are thereafter adopted under the
IGST.
120. For the sake of completeness of the narrative and in order to
chronicle the statutory changes which followed this would be an
appropriate stage to briefly notice the amendments which came to be
made to the Customs Act and which were ushered in by virtue of the
Taxation Laws (Amendment) Act, 2017. The amendments which came
to be inserted in Section 3 of the CTA owe their genesis to this
legislation. From the SOR of that Amending Act, we find that the
principal objectives underlying those amendments were the following: –
―STATEMENT OF OBJECTS AND REASONS
As the goods and services tax is to be introduced with effect from
the 1st day of July, 2017, the following four legislations are in the
process of being enacted, namely:–
(a) the Central Goods and Services Tax Bill, 2017;
(b) the Integrated Goods and Services Tax Bill, 2017;
(c) the Union Territory Goods and Services Tax Bill, 2017;
(d) the Goods and Services Tax (Compensation to the States) Bill,
2017.
2. Consequently, the central excise duty on excisable goods [other
than Petroleum Crude, Motor Spirit (Petrol), High Speed Diesel,
Aviation Turbine Fuel and Natural Gas], the service tax on taxable
services, the value added tax on sale or purchase of goods and
certain other taxes shall be subsumed in the goods and services
tax.Therefore, it requires certain consequential amendments in the
Customs Act, 1962, the Customs Tariff Act, 1975, the Central
Excise Act, 1944, the Finance Act, 2001 and the Finance Act, 2005
and repeal of certain enactments.
3. The Customs Act, 1962 provides for removal of goods from a
customs station to a warehouse without payment of duty. It is
proposed to amend the said Act to include ‘warehouse’ in the
definition of “customs area” to ensure that an importer would not
be required to pay the proposed integrated goods and services tax at
the time of removal of goods from a customs station to a
warehouse. It is also proposed to amend the said Act to insert new
provisions therein so as to provide for furnishing of information by
specified persons in respect of import or export of goods, on the
lines of the Income-tax Act, 1961, the Central Excise Act, 1944,
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 125 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
Chapter V of the Finance Act, 1994 and the legislations referred to
in paragraph 1.
4. The Customs Tariff Act, 1975 is proposed to be amended to
provide for levy of integrated goods and service tax and goods and
services tax compensation cess on imported goods, including
valuation thereof, so as to provide a level playing field to the
domestic industry vis-à-vis imported goods.
5. Consequent to the proposed repeal of the Central Excise Tariff
Act, 1944 vide the Central Goods and Services Tax Bill, 2017, a
new Schedule, namely, the Fourth Schedule is proposed to be
inserted in the Central Excise Act, 1944 to provide for
classification and duty rates for excisable goods, namely,
Petroleum Crude, Motor Spirit (Petrol), High Speed Diesel,
Aviation Turbine Fuel and Natural Gas, Tobacco and Tobacco
products, which are presently covered under Chapter 24 and
Chapter 27 of the Central Excise Tariff Act, 1985, so that the said
Schedule will continue to attract central excise duty even after the
commencement of the legislations referred to in paragraph 1.
Certain consequential amendments are proposed to be made in the
Central Excise Act, 1944 also relating to certain definitions,
charging sections, provisions of deemed manufacture and insertion
of emergency powers to increase the rate of duty, on the same lines
as are presently provided in the Central Excise Tariff Act, 1985.
6. Consequent to the introduction of goods and services tax, the
cesses or surcharges levied or collected as duties of central excise
on excisable goods or as service tax on taxable services would
become irrelevant, as the supplies of such goods [except Petroleum
Crude, Motor Spirit (Petrol), High Speed Diesel, Aviation Turbine
Fuel and Natural Gas, Tobacco and Tobacco products] and such
services would be chargeable to goods and services tax.The
proposed Bill seeks to abolish certain cesses or surcharges which
are levied or collected as duty of excise or service tax under various
Acts. The proposed Bill also seeks to abolish the cess levied on
water consumed by certain industries and by local authorities under
the Water (Prevention and Control of Pollution) Cess Act, 1977.
7. The Bill seeks to achieve the above objectives.
NEW DELHI; ARUN JAITLEY
The 27th March, 2017."
121. The text of the enactment, insofar as it is relevant for our
purposes is reproduced below:-
“Taxation Laws (Amendment) Act, 2017
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 126 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
[Act 18 of 2017] [4th May, 2017]An Act further to amend the Customs Act, 1962, the Customs
Tariff Act, 1975, the Central Excise Act, 1944, the Central Sales
Tax Act, 1956, the Finance Act, 2001 and the Finance Act, 2005
and to repeal certain enactments.
Be it enacted by Parliament in the Sixty-eighth Year of the
Republic of India as follows:–
1. Short title and commencement.– (1) This Act may be
called the Taxation Laws (Amendment) Act, 2017.
(2) It shall come into force on such date as the Central
Government may, by notification in the Official Gazette, appoint:
Provided that 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.
CHAPTER I
Customs
2. Amendment of section 2.– In the Customs Act, 1962 (52
of 1962) (hereinafter referred to as the Customs Act), in section 2,
in clause (11), after the words ―the area of a Customs station‖, the
words ―or a warehouse‖ shall be inserted.
3. Insertion of new sections 108A and 108B.– In the
Customs Act, after section 108, the following sections shall be
inserted, namely:–
―108A. Obligation to furnish information.– (1) Any person,
being–
(a) a local authority or other public body or association; or
(b) any authority of the State Government responsible for the
collection of value added tax or sales tax or any other tax
relating to the goods or services; or
(c) an income-tax authority appointed under the provisions of the
Income-tax Act, 1961 (43 of 1961);
(d) a Banking company within the meaning of clause (a) of
section 45A of the Reserve Bank of India Act, 1934 (2 of
1934); or
(e) a co-operative bank within the meaning of clause (dd) of
section 2 of the Deposit Insurance and Credit Guarantee
Corporation Act, 1961 (47 of 1961); orSignature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 127 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(f) a financial institution within the meaning of clause (c), or a
non-banking financial company within the meaning of clause
(f), of section 45-I of the Reserve Bank of India Act, 1934 (2
of 1934); or
(g) a State Electricity Board; or an electricity distribution or
transmission licensee under the Electricity Act, 2003, (36 of
2003) or any other entity entrusted, as the case may be, with
such functions by the Central Government or the State
Government; or
(h) the Registrar or Sub-Registrar appointed under section 6 of
the Registration Act, 1908 (16 of 1908); or
(i) a Registrar within the meaning of the Companies Act, 2013
(18 of 2013); or
(j) the registering authority empowered to register motor vehicles
under Chapter IV of the Motor Vehicles Act, 1988 (59 of
1988); or
(k) the Collector referred to in clause (c) of section 3 of the Right
to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Act, 2013 (30 of 2013); or
(l) the recognised stock exchange referred to in clause (f) of
section 2 of the Securities Contracts (Regulation) Act, 1956
(42 of 1956); or
(m) a depository referred to in clause (e) of sub-section (1) of
section 2 of the Depositories Act, 1996 (22 of 1996); or
(n) the Post Master General within the meaning of clause (j) of
section 2 of the Indian Post Office Act, 1898 (6 of 1898); or
(o) the Director General of Foreign Trade within the meaning of
clause (d) of section 2 of the Foreign Trade (Development
and Regulation) Act, 1992 (22 of 1992); or
(p) the General Manager of a Zonal Railway within the meaning
of clause (18) of section 2 of the Railways Act, 1989 (24 of
1989); or
(q) an officer of the Reserve Bank of India constituted under
section 3 of the Reserve Bank of India Act, 1934, (2 of 1934)
who is responsible for maintaining record of registration or
statement of accounts or holding any other information under any
of the Acts specified above or under any other law for the time
being in force, which is considered relevant for the purposes of this
Act, shall furnish such information to the proper officer in such
manner as may be prescribed by rules made under this Act.
(2) Where the proper officer considers that the information
furnished under sub-section (1) is defective, he may intimate the
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 128 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
defect to the person who has furnished such information and give
him an opportunity of rectifying the defect within a period of seven
days from the date of such intimation or within such further period
which, on an application made in this behalf, the proper officer
may allow and if the defect is not rectified within the said period of
seven days or, further period, as the case may be, so allowed, then,
notwithstanding anything contained in any other provision of this
Act, such information shall be deemed as not furnished and the
provisions of this Act shall apply.
(3) Where a person who is required to furnish information has
not furnished the same within the time specified in sub-section (1)
or sub-section (2), the proper officer may serve upon him a notice
requiring him to furnish such information within a period not
exceeding thirty days from the date of service of the notice and
such person shall furnish such information.
108B. Penalty for failure to furnish information return.–
Where the person who is required to furnish information under
section 108A fails to do so within the period specified in the notice
issued under sub-section (3) thereof, the proper officer may direct
such person to pay, by way of penalty, a sum of one hundred
rupees for each day of the period during which the failure to furnish
such information continues.‖.
CHAPTER II
Customs Tariff
4. Amendment of section 3.– In the Customs Tariff Act,
1975, (51 of 1975) in section 3,–
(a) in sub-section (2),–
(i) in clause (ii), for item (a), the following item shall be
substituted, namely:–
―(a) the duty referred to in sub-sections (1), (3), (5), (7) and
(9);‖;
(ii) in the proviso, in sub-clause (b), item (ii) shall be omitted;
(b) in sub-section (6), in clause (ii), for item (a), the following
item shall be substituted, namely:–
―(a) the duty referred to in sub-sections (5), (7) and (9);‖;
(c) for sub-sections (7) and (8), the following sub-sections shall be
substituted, namely:–
―(7) Any article which is imported into India shall, in addition,
be liable to integrated tax at such rate, not exceeding forty per cent.
as is leviable under section 5 of the Integrated Goods and Services
Tax Act, 2017 on a like article on its supply in India, on the value
of the imported article as determined under sub-section (8).
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 129 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(8) For the purposes of calculating the integrated tax under sub-
section (7) on any imported article where such tax is leviable at any
percentage of its value, the value of the imported article shall,
notwithstanding anything contained in section 14 of the Customs
Act, 1962, (52 of 1962) be the aggregate of–
(a) the value of the imported article determined under sub-section
(1) of section 14 of the Customs Act, 1962 (52 of 1962) or the
tariff value of such article fixed under sub-section (2) of that
section, as the case may be; and
(b) any duty of customs chargeable on that article under section 12
of the Customs Act, 1962, (52 of 1962) and any sum
chargeable on that article under any law for the time being in
force as an addition to, and in the same manner as, a duty of
customs, but does not include the tax referred to in sub-section
(7) or the cess referred to in sub-section (9).
(9) Any article which is imported into India shall, in addition,
be liable to the goods and services tax compensation cess at such
rate, as is leviable under section 8 of the Goods and Services Tax
(Compensation to States) Cess Act, 2017 on a like article on its
supply in India, on the value of the imported article as determined
under sub-section (10).
(10) For the purposes of calculating the goods and services tax
compensation cess under sub-section (9) on any imported article
where such cess is leviable at any percentage of its value, the value
of the imported article shall, notwithstanding anything contained in
section 14 of the Customs Act, 1962, (52 of 1962) be the aggregate
of–
(a) the value of the imported article determined under sub-section
(1) of section 14 of the Customs Act, 1962 or the tariff value of
such article fixed under sub-section (2) of that section, as the
case may be; and
(b) any duty of customs chargeable on that article under section 12
of the Customs Act, 1962, and any sum chargeable on that
article under any law for the time being in force as an addition
to, and in the same manner as, a duty of customs, but does not
include the tax referred to in sub-section (7) or the cess
referred to in sub-section (9).
(11) The duty or tax or cess, as the case may be, chargeable
under this section shall be in addition to any other duty or tax or
cess, as the case may be, imposed under this Act or under any other
law for the time being in force.
(12) The provisions of the Customs Act, 1962 (52 of 1962) and
the rules and regulations made thereunder, including those relating
to drawbacks, refunds and exemption from duties shall, so far as
may be, apply to the duty or tax or cess, as the case may be,
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 130 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
chargeable under this section as they apply in relation to the duties
leviable under that Act.‖.
122. The Notes on Clauses which accompanied the Bill explained the
amendments being made in Section 3 of the CTA to provide for a levy
of integrated goods and services tax as well as to provision for the
imposition of goods and services tax compensation cess on ―imported
goods and/or services‖. The relevant part of those notes is extracted
hereinbelow:
―Clause 4 of the Bill seeks to amend section 3 of the Customs
Tariff Act, 1975 so as to levy Integrated Goods and Service Tax
and Goods and Services Tax Compensation Cess on imported
goods and/or services.
xxx xxx xxx
Clause 6 of the Bill seeks to amend section 3, the charging section,
so as to replace the reference to the First Schedule and the Second
Schedule to the Central Excise Tariff Act, 1985, with the reference
to the proposed Fourth Schedule to the Central Excise Act, 1944,
and to delete the provision for levy of special duty of excise
provided under clause (b) of sub-section (1) of section 3.‖
123. It would also be pertinent to bear in mind the significant textual
amendments as a result of which sub-section (7) of Section 3 came to
be completely recast. In order to compare how it read pre and post its
amendment by the Taxation Laws (Amendment) Act, 2017 we place
below the following table: –
PRE- AMENDMENT POST- AMENDMENT
3(7)The duty chargeable under 3(7) Any article which is
this section shall be in addition imported into India shall, in
to any other duty imposed under addition, be liable to integrated
this Act or under any other law tax at such rate, not exceeding
for the time being in force forty per cent. as is leviable
under section 5 of the Integrated
Goods and Services Tax Act,
2017 on a like article on its
supply in India, on the value of
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 131 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
the imported article as
determined under sub-section
(8)[or sub-section (8A), as the
case may be].
124. The stage now stands set for us to examine Section 5 of the IGST
alongside Section 3(7) of the CTA. However, before we proceed to
commence down that path, we deem it apposite to render the following
prefatory remarks which would guide us in appreciating the interplay
between the different Articles of the Constitution and the entries
comprised in the three legislative lists placed in the Seventh Schedule.
Undisputedly, Article 246 constitutes the source of the legislative power
and embodied the broad distribution of subjects between Parliament
and the State Legislatures. It is this scheme which also informs Article
246A and which now enables both Parliament and the State
Legislatures to frame laws with respect to the levy of a goods and
service tax. That power, however, is made subject to the primacy
accorded to Parliament insofar as supplies made in the course of
interstate trade or commerce are concerned.
125. It is also pertinent to bear in consideration that in the present
case, we are not concerned with a conflict arising between competing
legislations framed by Parliament and a State Legislature but the
claimed right to tax by the Union itself albeit flowing from two separate
and distinct sources which the Constitution creates. As was noticed in
the preceding parts of this decision, while the authority of the Union to
levy a goods and services tax or for that matter, an integrated tax on the
import of goods or services is not really questioned, the contestation
pivots upon whether Entry 83 enables it to tax the same transaction
notwithstanding it having been subjected to a levy under the IGST.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 132 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
126. Reverting then to the issue of the interplay between the primary
provisions contained in the Constitution and the various entries
appearing in the three legislative lists placed in the Seventh Schedule,
one may usefully refer to the following passages from the decision of
the Supreme Court in Calcutta Gas Co. (Proprietary) Ltd. vs. State
of W.B.19
―8. At this stage it would be convenient to read the relevant
articles of the Constitution.
―246. (1) Notwithstanding anything in clauses (2) and (3)
Parliament has exclusive power to make laws with respect to any of
the matters enumerated in List I in the Seventh Schedule (in this
Constitution referred to as the ‗Union List’).
(3) Subject to clauses (1) and (2), the legislature of any State has
exclusive power to make laws for such State or any part thereof with
respect to any of the matters enumerated in List II in the Seventh
Schedule (in this Constitution referred to as the ‗State List’).
List I–Union List
Entry 7. Industries declared by Parliament by law to be
necessary for the purpose of defence or for the prosecution of war.
Entry 52. Industries, the control of which by the Union is
declared by Parliament by law to be expedient in the public interest.
List II–State List
Entry 24. Industries subject to the provisions of Entries 7 and 52
of List I.
Entry 25. Gas and gas-works.
Entry 26. Trade and commerce within the State subject to the
provisions of Entry 33 of List III.
Entry 27. Production, supply and distribution of goods subject to
the provisions of Entry 33 of List III.‖
Before construing the said entries, it would be useful to notice some
of the well settled rules of interpretation laid down by the Federal
Court and this Court in the matter of construing the entries. The
power to legislate is given to the appropriate legislatures by Article
246 of the Constitution. The entries in the three Lists are only
legislative heads or fields of legislation : they demarcate the area
over which the appropriate legislatures can operate. It is also well
settled that widest amplitude should be given to the language of the
entries. But some of the entries in the different Lists or in the same
19 AIR 1962 SC 1044
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 133 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
List may overlap and sometimes may also appear to be in direct
conflict with each other. It is then the duty of this Court to reconcile
the entries and bring about harmony between them. When the
question arose about reconciling Entry 45 of List I, duties of excise,
and Entry 18 of List II, taxes on the sale of goods, of the
Government of India Act, 1935, Gwyer, C.J., in In re Central
Provinces and Berar Act 14 of 1938 [(1939) FCR 18, 42, 44]
observed:
―A grant of the power in general terms, standing by itself,
would no doubt be construed in the wider sense; but it may be
qualified by other express provisions in the same enactment, by
the implication of the context, and even by considerations arising
out of what appears to be the general scheme of the Act.‖
The learned Chief Justice proceeded to state:
―… an endeavour must be made to solve it, as the Judicial
Committee have said, by having recourse to the context and
scheme of the Act, and a reconciliation at empted between two
apparently conflicting jurisdictions by reading the two entries
together and by interpreting, and, where necessary, modifying the
language of the one by that of the other. If indeed a reconciliation
should prove impossible, then, and only then, will the non
obstante clause operate and the federal power prevail.‖
The Federal Court in that case held that the entry ―taxes on the sale
of goods‖ was not covered by the entry ―duties of excise‖ and in
coming to that conclusion, the learned Chief Justice observed:
―Here are two separate enactments, each in one aspect
conferring the power to impose a tax upon goods; and it would
accord with sound principles of construction to take the more
general power, that which extends to the whole of India, as
subject to an exception created by the particular power, that
which extends to the province only. It is not perhaps strictly
accurate to speak of the provincial power as being excepted out of
the federal power, for the two are independent of one another and
exist side by side. But the underlying principle in the two cases
must be the same, that a general power ought not to be so
construed as to make a nullity of a particular power conferred by
the same Act and operating in the same field, when by reading the
former in a more restricted sense effect can be given to the latter
in its ordinary and natural meaning.‖
The rule of construction adopted by that decision for the purpose of
harmonizing the two apparently conflicting entries in the two Lists
would equally apply to an apparent conflict between two entries in
the same List. Patanjali Sastri, J., as he then was, held in State of
Bombay v. Narothamdas Jethabai [(1951) SCR 51] that the words
―administration of justice‖ and ―constitution and organization of all
courts‖ in Item 1 of List II of the Seventh Schedule to the
Government of India Act, 1935, must be understood in a restricted
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 134 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
sense excluding from their scope ―jurisdiction and powers of courts‖
specifically dealt with in Item 2 of List II. In the words of the
learned Judge, if such a construction was not given ―the wider
construction of Entry 1 would deprive Entry 2 of all its content and
reduce it to useless lumber‖. This rule of construction has not been
dissented from in any of the subsequent decisions of this Court. It
may, therefore, be taken as a well settled rule of construction that
every attempt should be made to harmonize the apparently
conflicting entries not only of different Lists but also of the same
List and to reject that construction which will rob one of the entries
of its entire content and make it nugatory.‖
127. In State of A.P. vs. National Thermal Power Corpn. Ltd.20, an
interesting question cropped up before the Supreme Court and that
being whether States could tax an interstate sale of electricity
notwithstanding the restrictions imposed by Articles 269 and 286.
Answering that question, the Supreme Court pertinently observed thus:-
―25. Having seen the properties of electricity as goods and what is
inter-State sale, let us examine the effect of Entry 53 List II, having
been left unamended by the Sixth Amendment from another angle.
The Sixth Amendment did not touch Entry 53 in List II and so the
contents of Entry 53 were not expressly made subject to the
provisions of Entry 92-A of List I and arguments were advanced,
with emphasis, on behalf of the States of Andhra Pradesh and
Madhya Pradesh contending that such omission was deliberate and
therefore the restriction which has been placed only in Entry 54 by
making it subject to the provisions of Entry 92-A of List I should
not be read in Entry 53. It was submitted that so far as sale of
electricity is concerned, even if such sale takes place in the course
of inter-State trade or commerce the State can legislate to tax such
sale if the sale can be held to have taken place within the territory
of that State or if adequate territorial nexus is established between
the transaction and State legislation. For the several reasons stated
hereinafter, such a plea cannot be countenanced.
26. The prohibition which is imposed by Article 286(1) of the
Constitution is independent of the legislative entries in the Seventh
Schedule. After the decision of the larger Bench in Bengal
Immunity Co. Ltd. [AIR 1955 SC 661 : (1955) 2 SCR 603] and the
Constitution Bench decision in Ram Narain Sons Ltd. v. CST [AIR
1955 SC 765 : (1955) 2 SCR 483] there is no manner of doubt that
the bans imposed by Articles 286 and 269 on the taxation powers
of the State are independent and separate and must be got over20
(2002) 5 SCC 203
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 135 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
before a State Legislature can impose tax on transactions of sale or
purchase of goods. Needless to say, such ban would operate by its
own force and irrespective of the language in which an entry in List
II of the Seventh Schedule has been couched. The dimension given
to the field of legislation by the language of an entry in List II of
the Seventh Schedule shall always remain subject to the limits of
constitutional empowerment to legislate and can never afford to
spill over the barriers created by the Constitution. The power of the
State Legislature to enact law to levy tax by reference to List II of
the Seventh Schedule has two limitations : one, arising out of the
entry itself, and the other, flowing from the restriction embodied in
the Constitution. It was held in Tata Iron and Steel Co. Ltd. v. S.R.
Sarkar [AIR 1961 SC 65 : (1961) 1 SCR 379] (SCR at pp. 387 and
388) that field of taxation on sale or purchase taking place in the
course of inter-State trade or commerce has been excluded from the
competence of the State Legislature. In 20th Century Finance
Corpn. Ltd. [(2000) 6 SCC 12] the Constitution Bench (majority)
made it clear that the situs of the sale or purchase is wholly
immaterial as regards the inter-State trade or commerce. In view of
Section 3 of the Central Sales Tax Act, 1956, all that has to be seen
is whether the sale or purchase (a) occasions the movement of
goods from one State to another; or (b) is effected by a transfer of
documents of title to the goods during their movement from one
State to another. If the transaction of sale satisfies any one of the
two requirements, it shall be deemed to be a sale or purchase of
goods in the course of inter-State trade or commerce and by virtue
of Articles 269 and 286 of the Constitution the same shall be
beyond the legislative competence of a State to tax without regard
to the fact whether such a prohibition is spelled out by the
description of a legislative entry in the Seventh Schedule or not.
27. It is well settled, and hardly needs any authority to support the
proposition, that several entries in the three lists of the Seventh
Schedule are legislative heads or fields of legislation and not the
source of legislative empowerment. (To wit, see Calcutta Gas Co.
Ltd. v. State of W.B. [AIR 1962 SC 1044 : 1962 Supp (3) SCR 1] )
Competence to legislate has to be traced to the Constitution. The
division of powers between Parliament and the State Legislatures
to legislate by reference to territorial limits is defined by Article
245. The subject-matters with respect to which those powers can be
exercised are enumerated in the several entries divided into three
groups as three lists of the Seventh Schedule. Residuary powers of
legislation are also vested by Article 248 in Parliament with respect
to any matter not enumerated in any of the lists in the Seventh
Schedule. This residuary power finds reflected in Entry 97 of List
I. If an entry does not spell out an exclusion from the field of
legislation discernible on its apparent reading, the absence of
exclusion cannot be read as enabling power to legislate in the field
not specifically excluded, more so, when there is available a
specific provision in the Constitution prohibiting such legislation.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 136 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
28. It is by reference to the ambit or limits of territory by which the
legislative powers vested in Parliament and the State Legislatures
are divided in Article 245. Generally speaking, a legislation having
extraterritorial operation can be enacted only by Parliament and not
by any State Legislature; possibly the only exception being one
where extraterritorial operation of a State legislation is sustainable
on the ground of territorial nexus. Such territorial nexus, when
pleaded, must be sufficient and real and not illusory. In Burmah
Shell Oil Storage & Distributing Co. of India Ltd. [AIR 1963 SC
906 : 1963 Supp (2) SCR 216] which we have noticed, it was held
that sale for use or consumption would mean the goods being
brought inside the area for sale to an ultimate consumer i.e. the one
who consumes. In Entry 53, ―sale for consumption‖ (the meaning
which we have placed on the word ―sale‖) would mean a sale for
consumption within the State so as to bring a State legislation
within the field of Entry 53. If sale and consumption were to take
place in different States, territorial nexus for the State, where the
sale takes place, would be lost. We have already noticed that in
case of electricity the events of sale and consumption are
inseparable. Any State legislation levying duty on sale of
electricity, by artificially or fictionally assuming that the events of
sale and consumption have taken place in two States, would be
vitiated because of extraterritorial operation of State legislation.‖
128. It is thus manifest that one cannot lose sight of the pre-eminence
which the Constitution accords upon positive covenants enshrined
therein and the various entries in the three legislative lists merely
intended to broadly delineate and demarcate fields of legislation. An
entry in those lists, however, cannot be read or construed as either
restricting or impinging upon the primary power to legislate which the
body of the Constitution positively confers.
129. Way back in 1952, Patanjali Shastri, the learned Chief Justice, in
the State of Bihar vs. Kameshwar Singh21 pithily observed: –
―16. It is true that under the common law of eminent domain as
recognised in the jurisprudence of all civilized countries, the State
cannot take the property of its subject unless such property is
required for a public purpose and without compensating the owner
for its loss. But, when these limitations are expressly provided for
and it is further enacted that no law shall be made which takes
away or abridges these safeguards, and any such law, if made, shall21
(1952) 1 SCC 528
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 137 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
be void, there can be no room for implication, and the words
―acquisition of property‖ must be understood in their natural sense
of the act of acquiring property, without importing into the phrase
an obligation to pay compensation or a condition as to the
existence of a public purpose. The Entries in the Lists of the
Seventh Schedule are designed to define and delimit the respective
areas of legislative competence of the Union and State
Legislatures, and such context is hardly appropriate for the
imposition of implied restrictions on the exercise of legislative
powers, which are ordinarily matters for positive enactment in the
body of the Constitution.‖
130. This conceptual precept though well settled came to be reiterated
by the Supreme Court in Union of India vs. Shah Goverdhan L.
Kabra Teachers College22 when their Lordships observed: –
―6. In view of the rival submissions at the Bar, the question that
arises for consideration is whether the impugned legislation can be
held to be a law dealing with coordinated development of
education system within Entry 66 of List I of the Seventh Schedule
or it is a law dealing with the service conditions of an employee
under the State Government. The power to legislate is engrafted
under Article 246 of the Constitution and the various entries for the
three lists of the Seventh Schedule are the ―fields of legislation‖.
The different entries being legislative heads are all of enabling
character and are designed to define and delimit the respective
areas of legislative competence of the Union and the State
Legislatures. They neither impose any restrictions on the legislative
powers nor prescribe any duty for exercise of the legislative power
in any particular manner. It has been a cardinal principle of
construction that the language of the entries should be given the
widest scope of which their meaning is fairly capable and while
interpreting an entry of any list it would not be reasonable to
import any limitation therein. The rule of widest construction,
however, would not enable the legislature to make a law relating to
a matter which has no rational connection with the subject-matter
of an entry. When the vires of enactment is challenged, the court
primarily presumes the constitutionality of the statute by putting
the most liberal construction upon the relevant legislative entry so
that it may have the widest amplitude and the substance of the
legislation will have to be looked into. The court sometimes is
duty-bound to guard against extending the meaning of the words
beyond their reasonable connotation in anxiety to preserve the
power of the legislature.
22
(2002) 8 SCC 228
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 138 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
7. It is further a well-settled principle that entries in the different
lists should be read together without giving a narrow meaning to
any of them. Power of Parliament as well as the State Legislature
are expressed in precise and definite terms. While an entry is to be
given its widest meaning but it cannot be so interpreted as to
override another entry or make another entry meaningless and in
case of an apparent conflict between different entries, it is the duty
of the court to reconcile them. When it appears to the court that
there is apparent overlapping between the two entries the doctrine
of ―pith and substance‖ has to be applied to find out the true nature
of a legislation and the entry within which it would fall. In case of
conflict between entries in List I and List II, the same has to be
decided by application of the principle of ―pith and substance‖. The
doctrine of ―pith and substance‖ means that if an enactment
substantially falls within the powers expressly conferred by the
Constitution upon the legislature which enacted it, it cannot be held
to be invalid, merely because it incidentally encroaches on matters
assigned to another legislature. When a law is impugned as being
ultra vires of the legislative competence, what is required to be
ascertained is the true character of the legislation. If on such an
examination it is found that the legislation is in substance one on a
matter assigned to the legislature then it must be held to be valid in
its entirety even though it might incidentally trench on matters
which are beyond its competence. In order to examine the true
character of the enactment, the entire Act, its object, scope and
effect, is required to be gone into. The question of invasion into the
territory of another legislation is to be determined not by degree
but by substance. The doctrine of ―pith and substance‖ has to be
applied not only in cases of conflict between the powers of two
legislatures but in any case where the question arises whether a
legislation is covered by particular legislative power in exercise of
which it is purported to be made.‖
131. Therefore, and at the outset, our answer to the question which
stands posited would have to be answered from a constitutional
standpoint bearing in mind the major and formative changes which
Articles 246A and 269A heralded in 2016. Those two Articles of the
Constitution, as noticed above, made supplies in the course of interstate
trade or commerce subject to the levy of a goods and services tax. They
simultaneously empowered Parliament to frame laws to give effect to
the proposed changes in the tax structure which in turn came to vest
power in the Union to not only levy such a tax on supplies occurring in
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 139 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
the course of interstate trade or commerce but also brought within the
fold of interstate trade and commerce the import of goods or services as
the case may be.
132. More importantly, the Constitution simultaneously empowered
Parliament to classify and categorise supplies as either constituting a
supply of goods, services or both. It is this constitutional conferment of
power that stands embodied in Section 7(1A) of the CGST and the
Schedules forming part of that statute. The provision notably uses the
expression “either as” a supply of goods or a supply of services. The
classification of a supply in accordance with and under the Schedule to
the CGST constitutes the basis for its treatment under the IGST.
133. It would consequently and on a fundamental plane be wholly
impermissible to attempt to alter or recharacterize the character so
accorded from a supply of service to one being a supply of goods. The
conferment of character, its placement as a supply of goods or
alternatively as a service and how a particular supply is liable to be
viewed for purposes of taxation falls within the exclusive domain of
Parliament. By virtue of the Constitution, all interstate supplies affected
in the course of interstate trade or commerce, and which would include
import thereof, thus come to be classified either as a supply of goods or
of services. This exercise of classification is embossed with a stamp of
finality by virtue of the provisions of the CGST which is then embraced
by the IGST without any further modification or amendment. This
exercise of classification is neither random nor unregulated nor left to
the vagaries of individual perception. The statutory structure with
sufficient clarity classifies and categorises supplies between those
relating to goods and those pertaining to services.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 140 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
134. The view that we take in this regard is further fortified by bearing
in mind the underlying scheme of the CGST and IGST which
principally approaches the issue of supply of goods or services as being
subjects which are mutually exclusive. The legislation pertaining to the
levy of an integrated tax does not envisage both elements, namely, the
supply of goods and services forming part of the same transaction. This
is subject to the solitary caveat of those transactions which are treated
as composite or mixed supplies under those enactments itself.
135. Therefore, and in our considered opinion, it would be
fundamentally impermissible and contrary to the underlying scheme of
those statutes to treat a singular transaction as embodying an element of
supply of goods as well as services. It is this foundational theme which
imbues the provisions of the CGST and IGST which convinces us to
hold against the respondents on the question of recharacterization of
supply. We are convinced with respect to the correctness of the view
that we have expressed above additionally in light of the Customs Act
incorporating no provision which could be read as empowering the
authorities administering that statute to undertake a fresh rendition of a
particular transaction.
SECTION 5 AND ITS PROVISO
136. Let us then move to the core question which is posited for our
consideration and which leads us to Section 5 of the IGST. Section 5(1)
embodies the statutory mandate for the levy of an integrated tax on
interstate supply of goods, services or both to be collected in such
manner as may be prescribed. An interstate supply of goods, services or
both would undoubtedly include an import of goods or services
dependent upon how that transaction would have been classified as per
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 141 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
the provisions of the CGST and the Schedules forming part of that
enactment. If the levy as envisaged were to be deconstructed for
purposes of clarity it would entail the following steps.
137. One would have to first classify the supply dependent on whether
it would be liable to be viewed as one pertaining to goods or services or
one constituting an amalgam of both. The second step would involve
evaluating whether it is liable to be treated as a supply in the course of
interstate trade or commerce in accordance with the principles
stipulated by Section 7 of the IGST. Once the aforesaid exercise is
completed, the tax would be collected “in such manner as may be
prescribed”.
138. Significantly, however, while Section 5(1) speaks of goods,
services or both, the levy of integrated tax which forms the heart of its
Proviso speaks only of goods imported into India. This assumes
significance since both the CGST as well as the IGST envisage the levy
of a tax on both goods as well as services. What we seek to lay
emphasis upon is the existence of a conspicuous, pronounced and
critical omission of services in the Proviso to Section 5(1). The
Legislature has thus deliberately refrained from providing for the levy
of an integrated tax on the import of services into India as part of an
additional levy as contended by the respondents.
139. It would be pertinent to recall that Article 366(12) defines goods
to include all materials, articles or commodities. The word ―services‖ is
however defined by Article 366(26A) as meaning anything other than
goods. We would thus necessarily have to bear in mind the distinction
in which the Constitution itself creates goods and services. It would be
well neigh impossible for one to contend that Parliament was either
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 142 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
unaware of this distinction or that this was a case of a legislative
omission or accidental slip. At least this was not even the case of the
respondent.
140. It is thus manifest that what the Proviso seeks to regulate is the
import of goods alone and is clearly not concerned with the subject of
the import of services. The other notable facet of the Proviso is it
proclaiming that the integrated tax on the import of goods “shall be
levied and collected in accordance with the provisions of Section 3 of
the…” CTA. It is pertinent to note that it is the integrated tax which
Section 5 creates and imposes which is ordained to be levied and
collected as per Section 3 of the CTA. It is this facet which lends
credence to the submission of Mr. Lakshmikumaran of Section 3(7)
constituting a collection mechanism as opposed to an independent levy.
141. As was noticed in the preceding parts of this decision, the
expression ―integrated tax‖ stands defined only in the IGST. Although
that expression finds space in Section 3(7) of the CTA, the said statute
admittedly does not accord an independent or corresponding meaning
to the same. We have therefore no hesitation in holding that the phrase
―integrated tax‖ has to necessarily be countenanced and understood as
referring to the levy which Section 5(1) creates and imposes. We thus
find ourselves unable to construe the words ―…levied and collected in
accordance with the provisions of …‖ the CTA as contemplative of a
separate or independent levy referrable to the provisions of that statute.
All that the phrase appears to convey is that the tax imposable by virtue
of Section 5(1) shall be collected in accordance with Section 3 of the
CTA.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 143 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
142. One cannot possibly lose sight of the fact that the amendments in
Section 3(7) of the CTA were made contemporaneously, and as is
manifest from a reading of the SOR of the Taxation Laws
(Amendment) Act, 2017, necessitated by the advent of the CGST as
well as the IGST and the impending roll out of those statutes. The
amendments were tabled bearing in mind the indubitable fact of the
goods and services tax regime likely to come into effect from 01 July
2017. It would therefore be wholly incorrect to even assume that the
amendments made in Section 3(7) were either guided by or predicated
upon an independent review of the CTA. We thus come to the
irresistible conclusion that Section 3(7) came to be amended solely to
bring it in sync with the goods and services tax regime which was
looming on the horizon.
143. As noticed hereinabove, prior to its amendment in 2017, the levy
of an additional duty in terms of Section 3(7) was statutorily ordained
to be a duty chargeable in addition to any other duties imposable either
under the CTA or under any other law for the time being in force. It was
this part which was deleted completely and Section 3(7) was recast to
essentially mirror and complement the Proviso to Section 5(1). This
becomes even more evident from the language in which that provision
stands cast and when it uses the expressions “integrated tax” and “as is
leviable under Section 5 of the Integrated Goods and Services Tax Act,
2017……‖. Of equal import is the employment of the words ‗any
article’, ‗like article’ and ‗imported article’. The word article would
undoubtedly have to draw colour from Article 366(12) when it defines
goods. We are fortified in the view that we take in light of the
indubitable fact of neither the Customs Act nor for that matter the CTA
being even remotely concerned with the levy of a duty on services. We
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 144 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
are thus of the firm opinion that it would be wholly incorrect to view or
recognise Section 3(7) as either contemplating or sanctioning an
additional levy on the import of services which have already suffered
taxation by virtue of Section 5(1).
144. This leads us to examine the scope of the Proviso to Section 5(1)
and to discern the true extent of its application. As is manifest upon a
reading of Section 5(1), the said provision levies a tax on all interstate
supplies of goods or services or both. The only exception to the extent
of imposition of that levy is with respect to the supply of alcoholic
liquor for human consumption. Section 5(1) however, compendiously
speaks of both supply of goods as well as services including
transactions which may have been placed in the category of a mixed or
composite supply. The Proviso, however, alludes to the integrated tax
which would be imposable when goods are imported into India. It is
thus, apparent that the proviso is solely concerned with imported goods
and the levy of an integrated tax thereon. It is in the aforesaid context
that it stipulates that the integrated tax on imported goods would be
levied and collected in accordance with the provision of Section 3 of
the CTA. It therefore becomes evident that the proviso essentially seeks
to only regulate the import of goods under Section 3 of the CTA. It thus
creates an exception and provides for the collection of an integrated tax
in accordance with Section 3 solely on goods as opposed to an import
of services which would form part of Section 5(1).
145. As is well settled the primary function of a proviso is to carve out
from the ambit of the principal provision a subject or a facet which
would otherwise fall within its ambit. The purpose, as has been
repeatedly and consistently explained, is to exclude something which
would otherwise fall within the sweep of the general language of the
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 145 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
principal provision. Mr. Lakshmikumaran had in this regard relied upon
the following passages as they appear in the decision of the Supreme
Court in Rohitash Kumar vs. Om Prakash Sharma23.
― 20. The normal function of a proviso is generally to provide
for an exception i.e. exception of something that is outside the ambit
of the usual intention of the enactment, or to qualify something
enacted therein, which, but for the proviso would be within the
purview of such enactment. Thus, its purpose is to exclude
something which would otherwise fall squarely within the general
language of the main enactment. Usually, a proviso cannot be
interpreted as a general rule that has been provided for. Nor it can be
interpreted in a manner that would nullify the enactment, or take
away in entirety, a right that has been conferred by the statute. In
case the language of the main enactment is clear and unambiguous, a
proviso can have no repercussion on the interpretation of the main
enactment, so as to exclude by implication, what clearly falls within
its expressed terms. If, upon plain and fair construction, the main
provision is clear, a proviso cannot expand or limit its ambit and
scope. [Vide CIT v. Indo Mercantile Bank Ltd. [AIR 1959 SC 713]
, Kush Saigal v. M.C. Mitter [(2000) 4 SCC 526 : AIR 2000 SC
1390] , Haryana State Coop. Land Development Bank
Ltd. v. Employees Union [(2004) 1 SCC 574 : 2004 SCC (L&S)
257], Nagar Palika Nigam v. Krishi Upaj Mandi Samiti [(2008) 12
SCC 364 : AIR 2009 SC 187] and State of Kerala v. B. Six Holiday
Resorts (P) Ltd. [(2010) 5 SCC 186] ]
21. The proviso to a particular provision of a statute, only
embraces the field which is covered by the main provision, by
carving out an exception to the said main provision. (Vide Ram
Narain Sons Ltd. v. CST [AIR 1955 SC 765] , AIR p. 769, para 10
and A.N. Sehgal v. Raje Ram Sheoran [1992 Supp (1) SCC 304 :
1993 SCC (L&S) 675 : (1993) 4 ATC 559 : AIR 1991 SC 1406] ,
SCC p. 315, para 14.)
22. In a normal course, a proviso can be extinguished from an
exception for the reason that exception is intended to restrain the
enacting clause to a particular class of cases while the proviso is
used to remove special cases from the general enactment provided
for them specially. ‖
146. As Rohitash Kumar explains the principal purpose of a proviso is
to exclude and remove from the sweep of the main provision a subject
which may otherwise be controlled and regulated by the latter. The
23
(2013) 11 SCC 451
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 146 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
Proviso to Section 5(1) thus in unequivocal terms embodies the intent
of the Legislature of imported goods being subjected to an integrated
tax which would be levied and collected in accordance with Section 3
of the CTA and thus be in addition to what is conceived under Section
5(1). Since the proviso speaks only of imported goods, we would be
wholly unjustified in seeking to read or construe that provision as also
applying to an import of services. At the cost of repetition, it may only
be noted that while Section 5(1) envisages the levy of a tax on all
interstate supplies of goods, services or both, and which would as a
necessary corollary also include the import of goods or services, the
proviso makes an exception only in respect of imported goods. We are
thus of the firm opinion that the levy and collection of a tax under
Section 3 of the CTA would only apply to imported goods and would
have no application whatsoever to the import of supplies.
147. This then takes us to consider the submission of the respondents
that Section 3(7) constitutes a provision in terms of which an
independent and separate levy can be imposed on all goods that may be
imported into India irrespective of them having for the purposes of the
IGST been classified as an import of services. While we had an
occasion to dwell upon that issue briefly hereinabove and had negated
this submission for reasons assigned above, we find ourselves unable to
sustain this submission for the following additional reasons.
148. As was noted in the previous parts of this decision, Section 3(7)
speaks of the levy and collection of an integrated tax which is an
expression which is not found in any other provision of either the
Customs Act or the CTA. The amendment itself and by virtue of which
the expression ―integrated tax‖ came to be inserted in sub-section (7)
was contemporaneously moved and promulgated in anticipation of the
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 147 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
CGST and IGST being energised. We had also in the previous parts of
this decision had an occasion to notice that the SOR of the Taxation
Laws (Amendment) Act, 2017 had in unequivocal terms alluded to the
aforenoted developments. It would thus be wholly incorrect to view
Section 3(7) as envisaging the levy of a tax independent of the liability
that Section 5 creates under the IGST. Both the Proviso to Section 5(1)
as well as Section 3(7), in our considered opinion, are liable to be read
in conjunction since both parallelly speak of the levy of an integrated
tax on imported goods. While Section 5(1) speaks of that tax being
levied and collected in accordance with Section 3 of the CTA, Section
3(7) of the latter uses the expression ―as is leviable under Section 5‖.
The plain language in which these two provisions stand cast and placed
in the statute leaves us in no doubt that Section 3(7) merely constitutes
the point at which the integrated tax alluded to in Section 5(1) would be
levied and collected.
149. The contention of the respondents, however, was that once the
imported articles or goods arrive at the customs frontiers of India, any
classification that may have been undertaken or rendered under the
IGST would be wholly irrelevant and in any case would not detract
from the right of the respondents to acknowledge the import as being
that of goods per se for the purposes of treatment and taxation under the
Customs Act read along with the CTA.
150. The aforesaid submission proceeds on the wholly untenable
assumption that Section 3(7) was intended to be the repository of an
independent levy of tax thus enabling the respondents to levy a tax
separate and independent of that envisaged under Section 5(1) as well
as to ignore the classification of such a supply. Undisputedly, the
subject goods are exported to MROs and they return to and arrive at the
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 148 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
customs borders of India after undergoing repairs and refurbishment.
This transaction is conferred the character of a supply of services under
Entry 3 of Schedule II of the CGST. This transaction would
undoubtedly constitute an import of services as contemplated under
Section 7 of the IGST. Suffice it to note that it was not the case of the
respondents that the transaction relating to the subject goods amounted
to a composite or a mixed supply. Consequently, it would have to be
viewed as being either a supply of goods or a supply of services. In our
considered opinion, the respondents proceed on the wholly
unsustainable premise of a supply or import or services being capable
of being recharacterized as a supply of imported goods. This
submission proceeds in ignorance of the indubitable fact that the
service rendered on the subject goods comes to be indelibly embedded
therein. It would consequently be wholly impermissible for the
respondents to either review or revisit the characterization of the
subject transaction which in any case is conferred a finality.
151. In our considered opinion, this aspect is no longer res integra and
stands conclusively answered by the Supreme Court itself in Mohit
Minerals. While we had an occasion to extract the relevant passages
from that decision of the Supreme Court previously, for the sake of
continuity, we deem it apposite to revisit the following pertinent
observations which appear in that decision:-
― 163. There is no doubt that different aspects of a transaction
can be taxed through separate provisions. However, this Court
in BSNL [BSNL v. Union of India, (2006) 3 SCC 1] observed that the
aspect theory does not allow the value of goods to be included in
services and vice versa. In BSNL [BSNL v. Union of India, (2006) 3
SCC 1] , this Court dealt with the question of whether provision of
telephone services involved a transfer of goods which would be
amenable to sales tax. In this context, the Court observed : (SCC p.
42, para 88)Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 149 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
―88. No one denies the legislative competence of the States to
levy sales tax on sales provided that the necessary concomitants
of a sale are present in the transaction and the sale is distinctly
discernible in the transaction. This does not however allow the
State to entrench upon the Union List and tax services by
including the cost of such service in the value of the goods. Even
in those composite contracts which are by legal fiction deemed to
be divisible under Article 366(29-A), the value of the goods
involved in the execution of the whole transaction cannot be
assessed to sales tax.‖
164. In the present case, the question is whether the imposition
of IGST on supply of services can be sustained when there is a
concomitant imposition of IGST on supply of goods. However, we
must first analyse the context in which the IGST is levied on the
import of goods in this case.
165. The provisions of composite supply in the CGST Act (and
the IGST Act) play a specific role in the levy of GST. The idea of
introducing ―composite supply‖ was to ensure that various elements
of a transaction are not dissected and the levy is imposed on the
bundle of supplies altogether. This finds specific mention in the
illustration provided under Section 2(30) of the CGST Act, where
the principal supply is that of goods. Thus, the intent of Parliament
was that a transaction which includes different aspects of supply of
goods or services and which are naturally bundled together, must be
taxed as a composite supply.
166. It is true that in this case, the first leg of the transaction
between the foreign exporter and the Indian importer is a composite
supply, while the second leg, between the foreign exporter and the
shipping line may, from a perspective, be regarded as a standalone
transaction. Both of them are independent transactions and
ordinarily, the IGST could be levied on both sets of transactions–
one as supply of goods (under the ambit of composite supply) and
the other as supply of services. However, the impugned notifications
seek to tax the importer as the deemed recipient of the supply of
service. The ASG has advanced an interpretation of Sections 5(3)
and 5(4) of the IGST Act, read with Section 2(93) of the CGST Act
to contend that the importer can be classified as the ―recipient‖ of
the services. On this interpretation, we have upheld the validity of
the impugned notifications under Sections 5(3) and 5(4) of the IGST
Act in Parts D.2-D.5 of this judgment (see paras 89 to 152). The
respondents as a matter of fact urged that (i) the Indian importer is
not privy to the contract between the foreign exporter and the
foreign shipping line; (ii) the Indian importer does not pay
consideration to the foreign shipping line; and (iii) the Indian
importer does not receive any services from the foreign shipping line
since the transportation services are provided by the foreign shipping
line to the foreign exporter. The ASG, while advancing arguments
on behalf of the Union Government, has opposed these submissions.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 150 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
167. The Union Government has urged that this Court must look
beyond the text of the contract between the foreign shipping line and
the foreign exporter to identify the Indian importer as the recipient
of the services. This Court has upheld the validity of the impugned
notifications on this ground. The Union Government is contradicting
the main plank of its submission now by contending that the two
legs of the transaction are separate standalone agreements. That
would imply, that while on the one hand the Union Government
seeks to levy tax on the Indian importer by going beyond the text of
the contract between the foreign shipping line and foreign exporter
(for the purpose of identifying the Indian importer as the recipient of
services), on the other hand, as far as the submissions on composite
supply are concerned, the Union Government urges that the
contracts must be viewed as separate transactions, operating in silos.
We are unable to subscribe to this view. The Union of India cannot
be heard to urge arguments of convenience–treating the two legs of
the transaction as connected when it seeks to identify the Indian
importer as a recipient of services while on the other hand, treating
the two legs of the transaction as independent when it seeks to tide
over the statutory provisions governing composite supply. ‖
152. As the Supreme Court pertinently observed in Mohit Minerals,
the underlying objective of a composite supply being introduced in the
CGST was essentially to ensure that separate elements of a transaction
are not ―dissected‖ and the levy being imposed treating the transaction
as a composite whole. It was, however, observed that once the
transaction had come to be taxed as a supply of goods, it would be
wholly impermissible for the respondents to tax the very same supply
treating it to be one relating to service. As in Mohit Minerals, we are in
the facts of the present case not concerned with a composite supply,
which would in turn be regulated by Section 8 of the CGST but a
supply/import of service. It is this transaction of supply which has been
subjected to a tax under Section 5(1). As was pertinently observed by
the Supreme Court, the supply of goods under a CIF contract is
inclusive of a supply of services of transportation which forms a part of
a ―bundle of supplies‖.
153. It is in the aforesaid light that we had observed that the
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 151 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
respondents have clearly failed to bear in consideration the indubitable
fact of the rendering of services being embedded in the reimported
goods and thus there being no dichotomy which could have been
possibly introduced. The Supreme Court in Mohit Minerals had
ultimately upheld and affirmed the view taken by the High Court which
had held that once IGST had been paid on the amount of freight which
was included in the value of the imported goods, no further tax could
have been legally imposed treating it again as a supply of service. The
Supreme Court in Mohit Minerals thus pertinently observed that a tax
on a supply of service which already stands included by legislation as a
component of a composite supply of goods would not be sustainable.
THE ARGUMENT ON ASPECT THEORY
154. While Mr. Ojha had addressed elaborate submissions based on
the aspects theory, suffice it to note that the same would have had a
bearing provided it was possible to countenance the existence of two
separate and distinguishable taxable events. As was succinctly observed
in the Federation of Hotel and Restaurants Association, a levy of a tax
which might appear to overlap is not considered as abhorrent to the
constitutional scheme. However, it is pertinent to note that, that very
decision recognized the application of the aspect theory being
dependent on whether the transaction could be said to involve two or
more taxable events.
155. We fail to appreciate how the transaction in respect of the subject
goods could possibly be construed as giving birth to two separate and
divisible taxable events. The transaction remained that of supply of
services in the shape of repair or refurbishment. It clearly did not
constitute a supply of goods. The entire edifice of this argument of the
respondents based on the aspects theory is itself dependent upon the
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 152 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
premise that Section 3(7) constituted an independent levy of tax. This
as held hereinabove, cannot possibly be sustained or countenanced in
law. As observed earlier, the transaction remained an import of service
with no discernible break in the chain connected with the movement of
the articles and their departure from Indian shores. The service rendered
upon those articles came to be indelibly embedded in those goods and it
was the work expended by the MROs’ on those goods which
constituted the principal purpose of their movement and imbued the
articles. This was, therefore, not a case where one could legitimately
assume or perceive the existence of two separate or disconnected
taxable events.
156. We are also of the firm opinion that the mere delineation of the
field of legislation by Entry 83 would neither overshadow nor eclipse
the constitutional command embodied in Articles 246 and 269A. The
precedents rendered on this subject, and which we had an occasion to
review hereinbefore, clearly command us to bear in mind that an Entry
in the Seventh Schedule would not control the extent of the legislative
power that stands conferred by virtue of the principal provision in the
Constitution itself. More over if the contention of the respondent were
to be accepted, it would travel far beyond the ambit of Entry 83 itself.
This since we would then have to read the power to levy an integrated
tax on supply of services as being an ingredient of Entry 83 and falling
within the field of a duty of customs. We have thus no hesitation in
holding that the contention of the respondents is clearly untenable.
DISCERNING THE INTENT OF AN „EXPLANATION‟
157. Turning then to Notification 36/2021 and the clarification by way
of Circular No.16/2021 which was issued by the CBIC on 19 July 2021,
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 153 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
we are of the firm opinion that the addition of the words ―tax‖ and
―cess‖ over and above the duty of customs which was originally
conceived and provisioned for in Notification no. 45/2017 is clearly
ultra vires and liable to be declared as an intent to levy an impost which
is without authority of law.
158. We also find ourselves unable to sustain the further insertions
which were made in Notification No. 45/2017 by Notification No. 36/
2021 in terms of which an ‗Explanation’ had come to be inserted in the
shape of Clause (d). In our considered opinion, the characterization of
that amendment as an ‗Explanation’ and a provision concerned with the
―removal of doubts‖ is clearly misleading. An ‗Explanation’ or a
removal of doubts provision can be countenanced as such provided it
were established that the language of a statute or a notification had
clearly conceived of the position which was sought to be advocated.
This since that legislative device comes to be deployed primarily to
allay doubts and clarify ambiguities. A legislative body adopts those
remedies where it finds that its avowed intent has been misinterpreted
or misconstrued. An ‗Explanation’ or the usage of the expression for
―removal of doubt‖ could be validly employed provided it was manifest
that the position which is sought to be clarified was inherent and
existed in the statute from its very origin.
159. As has been repeatedly explained by our courts, the mere usage
of the title ‗Explanation’ or the phrase ‗removal of doubt’ is neither
conclusive nor determinative of the question of whether the
clarification really amounts to an explanation of a position which was
implicit and duly recognized by the statue or a notification as it
originally stood. This position in law becomes apparent upon a review
of the following precedents which we find are pertinent to the issue
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 154 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
which is raised.
160. The true nature of an ‗Explanation’ was lucidly explained by the
Supreme Court in S. Sundaram Pillai vs. V.R. Pattabiraman 24 where
their Lordships had held as under:
―46. We have now to consider as to what is the impact of the
Explanation on the proviso which deals with the question of wilful
default. Before, however, we embark on an enquiry into this difficult
and delicate question, we must appreciate the intent, purpose and
legal effect of an Explanation. It is now well settled that an
Explanation added to a statutory provision is not a substantive
provision in any sense of the term but as the plain meaning of the
word itself shows it is merely meant to explain or clarify certain
ambiguities which may have crept in the statutory provision. Sarathi
in Interpretation of Statutes while dwelling on the various aspects of
an Explanation observes as follows:
(a) The object of an Explanation is to understand the Act in
the light of the explanation.
(b) It does not ordinarily enlarge the scope of the original
section which it explains, but only makes the meaning clear
beyond dispute.
(p. 329)
47. Swarup in Legislation and Interpretation very aptly sums up the
scope and effect of an Explanation thus:
―Sometimes an Explanation is appended to stress upon a
particular thing which ordinarily would not appear clearly from
the provisions of the section. The proper function of an
Explanation is to make plain or elucidate what is enacted in the
substantive provision and not to add or subtract from it. Thus an
Explanation does not either restrict or extend the enacting part; it
does not enlarge or narrow down the scope of the original section
that it is supposed to explain…. The Explanation must be
interpreted according to its own tenor; that it is meant to explain
and not vice versa.‖ (pp. 297-98)
xxx xxx xxx
49. The principles laid down by the aforesaid authors are fully
supported by various authorities of this Court. To quote only a few,
in Burmah Shell Oil Storage and Distributing Co. of India
Ltd. v. CTO [(1961) 1 SCR 902 : AIR 1961 SC 315 : (1960) 11 STC
764] a Constitution Bench decision, Hidayatullah, J. speaking for the
Court, observed thus:
24 (1985) 1 SCC 591
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 155 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
―Now, the Explanation must be interpreted according to its
own tenor, and it is meant to explain clause (1)(fl) of the Article
and not vice versa. It is an error to explain the Explanation with
the aid of the Article, because this reverses their roles.‖
50. In Bihta Cooperative Development Cane Marketing Union Ltd.
v. Bank of Bihar [(1967) 1 SCR 848 : AIR 1967 SC 389 : 37 Com
Cas 98] this Court observed thus:
―The Explanation must be read so as to harmonise with and
clear up any ambiguity in the main section. It should not be so
construed as to widen the ambit of the section.‖
51. In Hiralal Rattanlal case [(1973) 1 SCC 216 : 1973 SCC (Tax)
307] this Court observed thus: [SCC para 25, p. 225: SCC (Tax) p.
316]
―On the basis of the language of the Explanation this Court
held that it did not widen the scope of clause (c). But from what
has been said in the case, it is clear that if on a true reading of an
Explanation it appears that it has widened the scope of the main
section, effect be given to legislative intent notwithstanding the
fact that the Legislature named that provision as an Explanation.‖
52. In Dattatraya Govind Mahajan v. State of Maharashtra [(1977) 2
SCC 548 : (1977) 2 SCR 790 : AIR 1977 SC 915] Bhagwati, J.
observed thus: (SCC p. 563, para 9)
―It is true that the orthodox function of an Explanation is to
explain the meaning and effect of the main provision to which it
is an Explanation and to clear up any doubt or ambiguity in it….
Therefore, even though the provision in question has been called
an Explanation, we must construe it according to its plain
language and not on any a priori considerations.‖
53. Thus, from a conspectus of the authorities referred to above, it is
manifest that the object of an Explanation to a statutory provision
is–
―(a) to explain the meaning and intendment of the Act itself,
(b) where there is any obscurity or vagueness in the main
enactment, to clarify the same so as to make it consistent with the
dominant object which it seems to subserve,
(c) to provide an additional support to the dominant object of
the Act in order to make it meaningful and purposeful,
(d) an Explanation cannot in any way interfere with or change
the enactment or any part thereof but where some gap is left
which is relevant for the purpose of the Explanation, in order to
suppress the mischief and advance the object of the Act it can
help or assist the Court in interpreting the true purport and
intendment of the enactment, and
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 156 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
(e) it cannot, however, take away a statutory right with which
any person under a statute has been clothed or set at naught the
working of an Act by becoming an hindrance in the interpretation
of the same. ‖
161. Reiterating the legal position as enunciated therein, the Supreme
Court in State of A.P. vs. Corporation Bank25 pertinently observed
that a label or a title accorded by the Legislature would neither be
sufficient nor determinative of the ‗Explanation’ being either
clarificatory or one which could be viewed as attempting to explain
away an ambiguity in the principal provision. In Corporation Bank, the
Supreme Court observed that ultimately it would be for courts on a true
reading of the ‗Explanation’ to form an opinion whether it was an
attempt to expand the scope of the main section or truly intended to
explain away a doubt that could have been harboured. This becomes
evident from the following observations appearing therein:-
―12. In construing a statutory provision, the first and foremost
rule of construction is the literal construction. If the provision is
unambiguous and if from that provision, the legislative intent is
clear, we need not call into aid the other rules of construction. The
other rules of construction are invoked when the legislative intent is
not clear. In Bihta Co-op. Development and Cane Marketing Union
Ltd. v. Bank of Bihar [AIR 1967 SC 389] this Court was called upon
to consider Explanation to Section 48(1) of the Bihar and Orissa
Cooperative Societies Act, 1935. This Court observed that the Court
should not go only by the label. The Court observed that an
explanation must be read ordinarily to clear up any ambiguity in the
main section and it cannot be construed to widen the ambit of the
section. However, if on a true reading of an Explanation it appears to
the Court in a given case that the effect of the Explanation is to
widen the scope of the main section then effect must be given to the
legislative intent. It was held that in all such cases the Court has to
find out the true intention of the legislature. Therefore, there is no
single yardstick to decide whether an Explanation is enacted to
clarify the ambiguity or whether it is enacted to widen the scope of
the main section. On the facts it was held that before the 1948
Amendment to the Bihar and Orissa Cooperative Societies Act,
1935, there was an Explanation on the statute-book and the25 (2007) 9 SCC 55
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 157 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
subsequent Explanation was only to clarify the earlier Explanation
and, therefore, the Court held that the purpose of the subsequent
Explanation was not to enlarge the scope of Section 48(1)(e) in the
Bihar and Orissa Cooperative Societies Act, 1935. In the present
case prior to amending Act 27 of 1996, there was no Explanation
covering banks, LICs, etc. As stated above, Explanation IV was
added for the first time by the said amending Act 27 of 1996. The
definition of the word ―dealer‖ thus stands expanded by the said
amending Act 27 of 1996. In our view, therefore, Explanation IV
was not to clear any doubt or ambiguity. It has been enacted in order
to expand the definition of the word ―dealer‖ in Section 2(1)(e) of
the 1957 Act.‖
162. This question again cropped up for consideration in Union of
India vs. Martin Lottery Agencies Ltd.26 The Court in Martin Lottery
Agencies was concerned with an ‗Explanation’ appended to Section
65(19) of the Finance Act, 1994 which was asserted to be an expansion
of the levy of service tax on various forms of entertainment which had
come to be included by way of that ‗Explanation’. Upholding the
challenge that was raised by the assessees’, the Supreme Court held that
the ‗Explanation’ could not be viewed as being a mere clarification
since it had introduced a novel concept and an activity to constitute
entertainment. We deem it appropriate to extract the following passages
from that decision:-
―30. Keeping in view the aforementioned backdrop, it has to be
determined as to whether the ―Explanation‖ is declaratory or
clarificatory in nature. Clause (19) was inserted in Section 65 of the
Act in the year 2003. The notice dated 30-4-2007 shows that
according to the authorities sub-clause (i) was attracted and not sub-
clause (ii) of the said provision. The Board issued a clarification on
17-1-2007 which is in the following terms:
―Decision.–The Commissioner (ST) explained the issue of
service tax liability on promotion, marketing, distribution of
paper lottery. Under the contractual arrangement, the State
Government print lottery tickets and deliver them to the
distributor. The distributor is free to publicise for promotion,
marketing of the lottery tickets received and distribute the same
through sub-distributors. The State Governments do not receive
back the unsold lottery tickets and the prizes, if any, on such
26
(2009) 12 SCC 209
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 158 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
unsold tickets could be collected by the distributor. The draws are
held by the State Governments.
The Board noted that the Lotteries (Regulation) Act, 1998,
governs the activity of organising, conducting or promoting a
lottery. As per clause (c) of Section 4, ‗the State Government
shall sell the tickets either itself or through distributors or selling
agent’. This provision thus forbids resale of tickets that have been
sold by the State Government. Accordingly, the nature of
transaction between the State Government and the distributor is
not in the nature of sales. The activities of the distributor are that
of promotion or marketing of lottery tickets for their clients i.e.
the State Governments. Hence, the Board decided that the
services of the distributor fall under the ‗business auxiliary
service’ and, therefore, be chargeable to service tax. The value of
taxable service shall be taken into account as the total face value
of the tickets sold minus (a) the total cost of the tickets paid by
the distributor to the State Government, and (b) the prize money
paid by the distributor. In other words, the value is the mark up
between the buying and selling of lottery tickets.‖
(emphasis supplied)
A bare perusal of the said circular letter would clearly show that
lottery tickets were considered to be goods. It is with that mindset,
the circular was issued. However, it must have been realised that
resale of lottery tickets by the distributor or by others is not
permissible.
31. Whether sub-clause (ii) of clause (19) of Section 65 had been
applied in case of any other distributor or agent of such lottery
tickets is not known. If the assertion of Mr Salve that nobody had
demanded tax under the second clause is correct, we do not know
why the principle of ―small repairs‖ by inserting an Explanation was
taken recourse to. The Explanation, in our opinion, cannot be said to
be a simple clarification as it introduces a new concept stating that
organising of the lottery is a form of entertainment. Introduction of
such new concept itself would have a constitutional implication.
xxx xxx xxx
33. The Explanation so read appears to be a charging provision. It
states about taxing need. It can be termed to be a sui generis tax. If it
is a different kind of tax, the same may be held to be running
contrary to the ordinary concept of service tax. It may, thus, be held
to be a stand alone clause. A constitutional question may have to be
raised and answered as to whether the taxing power can be
segregated. If by reason of the said Explanation, the taxing net has
been widened, it cannot be held to be retrospective in operation.
34. No doubt, the Explanation begins with the words ―for removal of
doubts‖. Does it mean that it is conclusive in nature? In law, it is not.
It is not a case where by reason of a judgment of a court, the law was
found to be vague or ambiguous. There is also nothing to show that
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 159 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
it was found to be vague or ambiguous by the executive. In fact, the
Board circular shows that invocation of sub-clause (ii) had never
been in contemplation of the taxing authorities.‖
163. We in this context deem it equally beneficial to notice two recent
decisions rendered by the Supreme Court which have lucidly explained
the interpretative rules which would apply to explanations in general as
well as the phrase ―removal of doubts‖. The first decision that we
propose to consider is that of Sree Sankaracharya University of
Sanskrit vs. Dr. Manu27. The issue which arose for consideration
therein was whether the Government Order of 29 March 2001 could be
said to be clarificatory and promulgated for the purposes of removal of
ambiguities purportedly existing in an earlier order. A reading of the
report establishes that it was contended that since the clarificatory order
itself contained recitals to the effect that it was being issued for
purposes of rendering clarity and removing ambiguities, it was not
liable to be viewed as an amendment or a modification and would apply
retrospectively. This argument came to be stoutly rejected with the
Supreme Court holding thus:-
― 45. It is trite that any legislation or instrument having the
force of law, which is clarificatory or explanatory in nature and
purport and which seeks to clear doubts or correct an obvious
omission in a statute, would generally be retrospective in operation,
vide Ramesh Prasad Verma. Therefore, in order to determine
whether the Government Order dated 29th March, 2001 may be
made applicable retrospectively, it is necessary to consider whether
the said order was a clarification or a substantive amendment.
46. In order to effectively deal with the aspect as to
retrospective operation of the Government Order dated 29th March,
2001 it may be useful to refer to the following extract from the
treatise, Principles of Statutory Interpretation, 11th Edition (2008)
by Justice G.P. Singh on the sweep of a
clarificatory/declaratory/explanatory provision:
27 2023 SCC OnLine SC 640
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 160 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
―The presumption against retrospective operation is not
applicable to declaratory statutes. As stated in Craies and
approved by the Supreme Court : For modern purposes a
declaratory Act may be defined as an Act to remove doubts
existing as to the common law, or the meaning or effect of any
Statute. Such acts are usually held to be retrospective.
[…] An explanatory Act is generally passed to supply an
obvious omission or to clear up doubts as to the meaning of the
previous Act. It is well settled that if a statute is curative or
merely declaratory of the previous law, retrospective operation
is generally intended. The language ‗shall be deemed always to
have meant’ or ‗shall be deemed never to have included’ is
declaratory and is in plain terms retrospective. In the absence of
clear words indicating that the amending Act is declaratory, it
would not be so construed when the amended provision was
clear and unambiguous. An amending Act may be purely
clarificatory to clear a meaning of a provision of the principal
Act which was already implicit. A clarificatory amendment of
this nature will have retrospective effect and, therefore, if the
principal Act was existing law when the constitution came into
force, the amending Act also will be part of the existing law.‖
[Emphasis by us]
47. This Court in Commissioner of Income Tax,
Bombay v. Podar Cement Pvt. Ltd., (1997) 226 ITR 625 (SC)
noted that circumstances under which an amendment or
modification was introduced and the consequences thereof would
have to be borne in mind while deciding the issue as to whether the
amendment was clarificatory or substantive in its nature and
whether it would have retrospective effect or not.
48. In Allied Motors Pvt. Ltd. v. Commissioner of Income Tax,
Delhi, (1997) 224 ITR 677 (SC), this Court found that certain
unintended consequences flowed from a provision enacted by the
Parliament. There was an obvious omission. In order to cure the
defect, a proviso was sought to be introduced through an
amendment. The Court held that literal construction was liable to
be avoided if it defeated the manifest object and purpose of the
Act. This Court held that if the amendment was not read into the
relevant provision retrospectively, it would be impossible to
reasonably interpret the said provision. That since there was an
obvious omission in the provision, an amendment was necessitated
which would clarify/declare the law retrospectively.
49. The proposition of law that a clarificatory provision may be
made applicable retrospectively is so well established that we do
not wish to burden this judgment by referring to rulings in the same
vein. However, it is necessary to dilate on the role of a
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 161 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
clarification/explanation to a statute and how the same may be
identified and distinguished from a substantive amendment.
50. An explanation/clarification may not expand or alter the
scope of the original provision, vide Bihta Cooperative
Development Cane Marketing Union Ltd. v. Bank of Bihar, AIR
1967 SC 389. Merely describing a provision as an ―Explanation‖ or
a ―clarification‖ is not decisive of its true meaning and import. On
this aspect, this Court in Virtual Soft Systems Ltd. v. Commissioner
of Income Tax, Delhi, (2007) 289 ITR 83 (SC) observed as under:
―Even if the statute does contain a statement to the effect that
the amendment is declaratory or clarificatory, that is not the end
of the matter. The Court will not regard itself as being bound by
the said statement in the statute itself, but will proceed to analyse
the nature of the amendment and then conclude whether it is in
reality a clarificatory or declaratory provision or whether it is an
amendment which is intended to change the law and which
applies to future periods.‖
51. This position of the law has also been subscribed to
in Union of India v. Martin Lottery Agencies Ltd., (2009) 12 SCC
209 wherein it was stated that when a new concept of tax is
introduced so as to widen the net, the same cannot be said to be
only clarificatory or declaratory and therefore be made applicable
retrospectively, even though such a tax was introduced by way of
an explanation to an existing provision. It was further held that
even though an explanation begins with the expression ―for
removal of doubts,‖ so long as there was no vagueness or
ambiguity in the law prior to introduction of the explanation, the
explanation could not be applied retrospectively by stating that it
was only clarificatory.
52. From the aforesaid authorities, the following principles
could be culled out:
i) If a statute is curative or merely clarificatory of the previous
law, retrospective operation thereof may be permitted.
ii) In order for a subsequent order/provision/amendment to be
considered as clarificatory of the previous law, the pre-
amended law ought to have been vague or ambiguous. It is
only when it would be impossible to reasonably interpret a
provision unless an amendment is read into it, that the
amendment is considered to be a clarification or a declaration
of the previous law and therefore applied retrospectively.
iii) An explanation/clarification may not expand or alter the
scope of the original provision.
iv) Merely because a provision is described as a
clarification/explanation, the Court is not bound by the said
statement in the statute itself, but must proceed to analyse the
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 162 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
nature of the amendment and then conclude whether it is in
reality a clarificatory or declaratory provision or whether it is
a substantive amendment which is intended to change the law
and which would apply prospectively.
53. Applying the law as discussed hereinabove to the facts of
the present case, we are of the view that the subsequent
Government Order dated 29th March, 2001 cannot be declared as a
clarification and therefore be made applicable retrospectively. The
said order has substantively modified the Government Order dated
21st December, 1999 to the extent of stating that teachers who had
already got the benefit of advance increments for having a Ph.D.
degree, would not be eligible for advance increments at the time of
their placement in the selection grade. As noted above, the law
provides that a clarification must not have the effect of saddling
any party with an unanticipated burden or withdrawing from any
party an anticipated benefit. However, the Government Order dated
29th March, 2001 has restricted the eligibility of lecturers for
advance increments at the time of placement in the selection grade,
only to those who do not have a Ph.D. degree at the time of
recruitment and subsequently acquire the same. ‖
164. In Kirloskar Ferrous Industries Ltd. vs. Union of India28, the
Supreme Court reiterated the aforenoted precepts in the following
words:-
―66. What can be discerned from the above is that an explanation
must be read so as to harmonise with and clear up any ambiguity in
the main section. It should not be so construed as to widen the
ambit of the section. An explanation does not enlarge the scope of
the original section that it is supposed to explain. It is axiomatic
that an explanation only explains and does not expand or add to the
scope of the original section. The purpose of an explanation is,
however, not to limit the scope of the main provision. The
construction of the explanation must depend upon its terms, and no
theory of its purpose can be entertained unless it is to be inferred
from the language used. An ―explanation‖ must be interpreted
according to its own tenor. Sometimes an explanation is appended
to stress upon a particular thing which ordinarily would not appear
clearly from the provisions of the section. The proper function of
an explanation is to make plain or elucidate what is enacted in the
substantive provision and not to add or subtract from it. Thus, an
explanation does not either restrict or extend the enacting part; it
does not enlarge or narrow down the scope of the original section
that it is supposed to explain. The Explanation must be interpreted
according to its own tenor; that it is meant to explain and not vice
versa. Explanation added to a statutory provision is not a28
(2025) 1 SCC 695
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 163 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
substantive provision in any sense of the term but as the plain
meaning of the word itself shows it is merely meant to explain or
clarify certain ambiguities which may have crept in the statutory
provision. ‖
165. The underlying principle which would govern the interpretation
liable to be accorded to a subsequent statutory rule or order which
purports to be clarificatory or in the nature of a removal of doubts
provision arose before this Court in the context of the Income Tax Act
in Commissioner of Income Tax vs. Rajasthan Mercantile
Company29 In Rajasthan Mercantile, we were concerned with an
‗Explanation’ which came to be appended to Section 37 of that Act.
Quite apart from the Court noting that the ‗Explanation’ itself came to
be introduced by an amending legislation which was to come into effect
from a particular date and thus dislodging any presumption of
retrospectivity, the Court on an independent review of whether the
‗Explanation’ could, in fact, be accepted as one seeking to expound
upon the true import of that provision held as follows:
―29. In the instant case, the Explanation 2 in question, actually
purports to be a provision defining the concept of entertainment
expenditure, by including a few kinds of expenditures within its
scope. Only because a provision attached to a section bears the
nomenclature, as ‗Explanation’, it cannot always be considered as
conveying the true and natural meaning of the words or the
provisions of the Act. The meaning attributable to the relevant
provisions of the Act without the Explanations shall have to be
considered first, to find out whether, it created an artificial
situation, or created ambiguity, and if so, the Explanation may be
considered as having injected the true and real meaning to those
provisions from the very inception of the provisions to which the
Explanation is added.
30. In C.I.T. v. S.R. Patton, [(1992) 193 ITR 49], the Kerala
High Court was considering the effect of the Explanation to
Section 9(1)(ii) of the Act. The Bench held at page 55:
―The mere use of the label ―Explanation‖ is not decisive of
the true meaning and scope of the provision. Ordinarily, the29
1994 SCC OnLine Del 585
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 164 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
purpose of an Explanation in a statute is to clarify or explain or
settle any doubt or ambiguity or controversy. It may even
widen the scope of the main provision in rare cases. The words
used alone can reflect the true intent and they should be
construed on their own terms. In this regard, the context,
background and history of the legislation may be looked
into–See Aphali Pharmaceuticals Ltd. v. State of
Maharashtra, [(1989) 4 SCC 378 : AIR 1989 SC 2227, p. 393,
paragraph 33]–wherein the Supreme Court has analysed the
entire law on the point‖.
xxx xxx xxx
34.Keshavji Ravji and Co. v. Commissioner of Income-tax,
[(1990) 183 ITR Page 1] is also a decision of the Supreme Court.
One of the questions that arose for consideration was whether
Explanation 1 added to Section 40(b) of the Act in the year 1984
serves as the parliamentary exposition of the true purport of
Section 40(b) or whether the said Explanation brought about a
change in its meaning. This was considered at page 18 thus:
―An Explanation, generally speaking, is intended to
explain the meaning of certain phrases and expressions
contained in a statutory provision. There is no general theory
as to the effect and intendment of an Explanation except that
the purpose and intendment of the ―Explanation‖ are
determined by its own words. An Explanation, depending on
its language, might supply or take away something from the
contents of a provision. It is also true that an Explanation
may–this is what Sri Ramachandran suggests in this case–be
introduced by way of abundant caution in order to clear any
mental cob-webs surrounding the meaning of a statutory
provision spun by interpretative errors and to place what the
Legislature considers to be the true meaning beyond any
controversy or doubt. Hypothetically, that such can be the
possible purpose of an ―Explanation‖ cannot be doubted. But
the question is whether, in the present case. Explanation 1
inserted into Section 40(b) in the year 1984 has had that effect.
The ―Notes on Clauses‖ appended to the Taxation Laws
(Amendment) Bill, 1984, say that clause 10 which seeks to
amend Section 40 will take effect from 1st April, 1985, and
will, accordingly, apply in relation to the assessment year
1985-86 and subsequent years. The express prospective
operation and effectuation of the ―Explanation‖ might perhaps,
be a factor necessarily detracting from any advancement of the
intent on the part of the legislature that the Explanation was
intended more as a legislative exposition or clarification of the
existing law than as a change in the law as it then obtained.‖
35. The above observation in no way advances the case of the
Revenue before us. The effect to be given to an Explanatory
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 165 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
amendment depends upon several factors, including its language.
The concluding sentence in the above observation indicates that,
when the legislature has made the Explanation operative
prospectively by words expressed therein, its operation shall have
to be confined to the future date. Same reasoning would govern the
case when the Parliament limited the retrospectivity of the
Explanation with effect from a particular date. In such a situation,
giving further retrospectivity to the Explanation will be hijacking
the intention of the legislature into an impermissible area.
36. The declaration and the clarification involved in the
Explanation 2, are only for the purposes of assessments with effect
from 1-4-1976. This provision, widens the concept of
‗entertainment expenditure’ by including in its scope, such of the
expenditures which are otherwise, traditionally understood as the
routine business expenditures incurred in connection with the
‗business- hospitality’. Therefore, the widened meaning cannot be
extended to the past period when the amended Explanation 2 was
not in operation. ‖
166. It would be profitable in this context to notice the following
pertinent observations which appear in CIT vs. Telstra Singapore (P)
Ltd30.
―71. It was the aforesaid precepts which appear to have guided
the court in DIT v. New Skies Satellite BV[(2016) 382 ITR 114
(Delhi); 2016 SCC OnLine Del 796.] and where the amendments
introduced in section 9 were sought to be pressed into aid by the
Department. In DIT v. New Skies Satellite BV [(2016) 382 ITR 114
(Delhi); 2016 SCC OnLine Del 796.] , the court firstly doubted the
characterization of those amendments as being clarificatory or for
that matter being liable to be viewed as an explanation of existing
terms of the statute. This becomes apparent from the following
discussion which appears in that decision (page 136 of 382 ITR):
―36. A clarificatory amendment presumes the existence of a
provision the language of which is obscure, ambiguous, may
have made an obvious omission, or is capable of more than one
meaning. In such case, a subsequent provision dealing with the
same subject may throw light upon it. Yet, it is not every time
that the Legislature characterises an amendment as retrospective
that the court will give such effect to it. This is not in derogation
of the express words of the law in question, (which as a matter
of course must be the first to be given effect to), but because the
law which was intended to be given retrospective effect to as a
clarificatory amendment, is in its true nature one that expands30
2024 SCC OnLine Del 5016.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 166 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
the scope of the section it seeks to clarify, and resultantly
introduces new principles, upon which liabilities might arise.
Such amendments though framed as clarificatory, are in fact
transformative substantive amendments, and incapable of being
given retrospective effect. In R. Rajagopal Reddy v. Padmini
Chandrasekharan [(1995) 213 ITR 340 (SC); (1995) 2 SCC
630.] , it was held that the use of the words ‗is declared’ is not
conclusive that the Act is declaratory because it may be used to
introduce new rules of law. If the amendment changes the law it
is not presumed to be retrospective irrespective of the fact that
the phrase used is ‗it is declared’ or ‗for the removal of doubts’.
In determining, therefore, the nature of the Act, regard must be
had to the substance rather than to form. While adjudging
whether an amendment was clarificatory or substantive in
nature, and whether it will have retrospective effect or not, it
was held in CIT v. Gold Coin Health Food (P.) Ltd.[(2008) 304
ITR 308 (SC); (2008) 9 SCC 622.] and CIT v. Podar Cement
Pvt. Ltd. [(1997) 226 ITR 625 (SC); (1997) 5 SCC 482.] that, (i)
the circumstances under which the amendment was brought in
existence, (ii) the consequences of the amendment, and (iii) the
scheme of the statute prior and subsequent to the amendment
will have to be taken note of.
37. An important question, which arises in this context, is
whether a ‗clarificatory’ amendment remains true to its nature
when it purports to annul, or has the undeniable effect of
annulling, an interpretation given by the courts to the term
sought to be clarified. In other words, does the rule against
clarificatory amendments laying down new principles of law
extend to situations where law had been judicially interpreted
and the Legislature seeks to overcome it by declaring that the
law in question was never meant to have the import given to it
by the court? The general position of the courts in this regard is
where the purpose of a special interpretive statute is to correct a
judicial interpretation of a prior law, which the Legislature
considers inaccurate, the effect is prospective. Any other result
would make the Legislature a court of last resort. United
States v. Gilmore [75 US 330 (1869); 8 Wall. 330; 19 L.Ed.
396.] , Peony Park v. O’Malley [223 F.2d 668 (8th Cir. 1955).] .
It does not mean that the Legislature does not have the power to
override the judicial decisions which in its opinion it deems as
incorrect, however to respect the separation of legal powers and
to avoid making a Legislature a court of last resort, the
amendments can be made prospective only (Ref. County of
Sacramento v. State of California [134 Cal. App. 3d 428.]
, Marriage of Davies, In re [(1982) 105 Ill. App. 3d 661.] ).
38. The circumstances in this case could very well go to
show that the amendment was no more than an exercise in
undoing an interpretation of the court which removed income
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 167 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
from data transmission services from taxability under section
9(1)(vi). It would also be difficult, if not impossible to argue,
that inclusion of a certain specific category of services or
payments within the ambit of a definition alludes not to an
attempt to illuminate or clarify a perceived ambiguity or
obscurity as to interpretation of the definition itself, but towards
enlarging its scope. Predicated upon this, the retrospectivity of
the amendment could well be a contentious issue. Be that as it
may, this court is disinclined to conclusively determine or
record a finding as to whether the amendment to section 9(1)(vi)
is indeed merely clarificatory as the Revenue suggests it is, or
prospective, given what its nature may truly be. The issue of
taxability of the income of the assessees in this case may be
resolved without redressal of the above question purely because
the assessee has not pressed this line of arguments before the
court and has instead stated that even if it were to be assumed
that the contention of the Revenue is correct, the ultimate
taxability of this income shall rest on the interpretation of the
terms of the double taxation avoidance agreements. Learned
counsel for the assessee has therefore contended that even if the
first question is answered in favour of the Revenue, the income
shall nevertheless escape the Act by reason of the double
taxation avoidance agreement. The court therefore proceeds
with the assumption that the amendment is retrospective and the
income is taxable under the Act.‖
72. The court thereafter and while speaking of the extent of
Parliamentary power to overcome or override treaty provisions
significantly observed (page 139 of 382 ITR):
―41. This court is of the view that no amendment to the Act,
whether retrospective or prospective can be read in a manner so
as to extend in operation to the terms of an international treaty.
In other words, a clarificatory or declaratory amendment, much
less one which may seek to overcome an unwelcome judicial
interpretation of law, cannot be allowed to have the same
retroactive effect on an international instrument effected
between two sovereign States prior to such amendment. In the
context of international law, while not every attempt to subvert
the obligations under the treaty is a breach, it is nevertheless a
failure to give effect to the intended trajectory of the treaty.
Employing interpretive amendments in domestic law as a means
to imply contoured effects in the enforcement of treaties is one
such attempt, which falls just short of a breach, but is
nevertheless, in the opinion of this court, indefensible….
54. Neither can an act of Parliament supply or alter the
boundaries of the definition under article 12 of the Double
Taxation Avoidance Agreement by supplying redundancy to any
part of it. This becomes especially important in the context of
Explanation 6, which states that whether the ‗process’ is secret
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 168 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
or not is immaterial, the income from the use of such process is
taxable, none the less. Explanation 6 precipitated from
confusion on the question of whether it was vital that the
‗process’ used must be secret or not. This confusion was
brought about by a difference in the punctuation of the
definitions in the double taxation avoidance agreements and the
domestic definition. For greater clarity and to illustrate this
difference, we reproduce the definitions of royalty across both
double taxation avoidance agreements and clause (iii) to
Explanation 2 to section 9(1)(vi).‖
73. It, however, desisted from rendering a definitive opinion on
the scope of those provisions firstly since submissions in that
respect had not been advanced and it upon an ultimate analysis
coming to the conclusion that the treaty provisions would prevail
over the provisions introduced in section 9(1)(vi) of the Act. This is
evident from a reading of para 38 which has been extracted
hereinabove. In our considered opinion, the test of whether
domestic legislation asserts to ―supply or alter the boundaries‖ is
the correct enunciation of the legal position. A provision enshrined
in the legislation of an individual contracting State would thus be
entitled to operate and subsist provided it remains within the
perimeters judicially recognised above.‖
167. As we view Notification No. 45/2017 as it originally stood, it is
manifest that it spoke only of a duty of customs. That expression could
have only been construed as referable to Section 12 of the Customs Act.
It is only by virtue of the subsequent amendments inserted in
Notification no. 45/2017 that the words ―tax‖ and ―cess‖ came to be
added. As is manifest from a reading of the CBIC circular dated 19 July
2021, the amendments which were sought to be ushered in by virtue of
Notification no. 36/2021 were clearly intended to overcome the
judgment handed down by the CESTAT in the matter of M/s
Interglobe Aviation Limited vs. Commissioner of Customs Nos.
51226-51571/2020.31 The GST Council upon due deliberation appears
to have recommended that a suitable clarification ―including any
clarificatory amendment if required‖ may be issued for the removal of
any doubt. Paragraph 7 of that clarification reads thus:-
31 2020 (43) G.S.T.L. 410 (Tri. – Del.)
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 169 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
―7. In the above background, the matter was placed before the GST
Council in its 43rd Meeting held on the 28th May, 2021. The GST
Council deliberated on the issue and recommended that a suitable
clarification, including any clarificatory amendment, if required,
may be issued for removal of any doubt, to clarify the decision of
the GST Council that re-import of goods sent abroad for repair
attracts IGST and cess (as applicable) on a value equal to the repair
value, insurance and freight.‖
168. Suffice it to note that the Circular of the CBIC does not refer to
any prior decision that may have been taken by the GST Council
opining that a reimport of goods sent abroad for repairs would attract
not just IGST but also an additional duty under the CTA. Notification
No. 45/2017 came to be promulgated as per the considered case of the
respondents themselves in implementation of a policy decision that a
reimport of goods sent abroad for repairs would attract IGST on a value
equal to the repair value. This part of the levy is one which is not even
questioned by the writ petitioners. The question which, however, merits
consideration is whether Notification no. 45/2017 envisaged a duty or a
tax other than or over and above the BCD.
169. We find ourselves unable to read or interpret Notification
No.45/2017 as embodying an intendment to levy a tax or cess referable
to the CTA especially since the original notification only spoke of a
duty of customs. It would thus be wholly impermissible to view the
amendment sought to be introduced by Notification No.36/2021 as
being either in the nature of an explanation, a removal of doubt clause
or clarificatory. This more so since as per the stated case of the
respondents themselves, those amendments were prompted by the
decision of the CESTAT in the case of the writ petitioner itself. The
amendments were thus clearly aimed at attempting to remove the basis
on which the CESTAT had rendered its decision based on a reading of
Notification No.45/2017.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 170 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
170. Quite apart from there being a grave doubt of whether an
authority exercising the power of framing subordinate legislation could
have attempted to do that, we in any case are of the firm opinion that
Notification No. 45/2017 could have not been possibly construed as
envisaging a levy in addition to that which stood attracted by virtue of
Section 5(1) of the IGST. We are also of the firm opinion that the
amendments introduced were clearly intended to expand the tax net, an
aspect which was held in Martin Lottery Agencies as detracting from
the characterisation of an amendment as clarificatory or one seeking to
remove an ambiguity. We are constrained to observe that the
introduction of an Explanation in plenary or subordinate legislation
cannot be used as an artifice or a guise to expand or reinvent the
original provision. That would clearly amount to a legislative
overreach. It would thus be principally incorrect to view the
amendment as being either clarificatory or an enunciation of a position
that was implicit or inherent.
ORDERS OF THE COMMISSIONER OF CUSTOMS
(APPEALS)
171. That then takes us to the orders passed by the Commissioner of
Customs (Appeals) which has distinguished the earlier judgment of the
CESTAT in light of the amendments which came to be introduced by
Notification No. 45/2017. We in this respect deem it appropriate to
extract the following paragraphs from the impugned order dated 30
November 2022:
―5.3 Though the issue is common in all appeals, these Appeals
have been divided into two sub categories, i.e., appeals for
impugned Bills of Entry assessed before the issuance of
Notification 36/2021-Customs, dated 19.07.2021 and appeals for
impugned Bills of Entry assessed after the issuance of the said
Notification. The reason for such division is different grounds onSignature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 171 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
merit taken by the Appellant and thus they are discussed
separately.
For appeals filed for the impugned bills of entry assessed prior
to period prior to amendment of Notification No. 45/2017–
Customs, dated 30.06.2017 by Notification 36/2021-Customs,
dated 19.07.2021 (SI. No. 1 to 163 of Annexure)
5.4 The ground taken by the Appellant for this period is primarily
that Notification No. 45/2017– Customs refers to ‘duty of
customs’ at sl. no. ‘2’ and such ‘duty of customs’ would mean basic
customs duty and does not include IGST. It is also observed that in
similar matter, Appellant’s appeals were accepted by the CESTAT
Delhi vide Final Order No 51226-51571/2020 dated 02.11.2020
and 50608-51022 dated 15.01.2021. In both the orders, Hon’ble
Tribunal had analyzed the meaning of word “duty of Customs”
used in SI. No 2 of the Notification No 45/2017-Cus. The Hon’ble
Tribunal also negated the arguments of the Revenue that the
Government intended to include integrated tax and compensation
cess in the expression “duty of Customs”.
5.5 I note that post these judgements, CBIC has issued Circular No
16/2021-Customs dated 19.07.2021 in this matter. The relevant
portion of the circular is as below:-
“4. GST rate and exemptions are prescribed on the
recommendation of the GST Council. The Council, at the time
of roll out of GST decided to continue the concession as were
available under the said notification No. 94/96-Cus, with only
consequential amendment, i.e, replacing additional duties of
customs with IGST and Compensation cess, as discussed in the
14th Meeting of the GST Council. Accordingly, under GST,
IGST and Compensation cess were made applicable on the
value of repairs, insurance and freight on re-import of goods
sent abroad for repair.
5. Again, during the 37th GST Council Meeting, while
examining the request to make available the credit of ITC paid
on aircraft engines and parts exported for repairs and later
re-imported, the leviability of IGST on such imports, on the
cost of repairs, insurance and freight charges, was affirmed.
In fact, this was never disputed in first place and the request
was to allow credit of the IGST so paid. Similarly, while
examining the question of GST rate on maintenance, repair
and overhauling (MRO) services in respect of aircraft, aircraft
engines and other components and parts, the leviability of
IGST on such re-imports was again affirmed by the GST
Council in its 39th meeting, making it explicitly clear that such
goods re-imported after repair from outside India attract IGST
on the repair, freight and insurance value. In the said
discussion, the IGST levied on such goods re-imported after
being exported abroad for repairs was a significant factorSignature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 172 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
considered by the GST Council while deciding the rate on
MRO services. The above deliberations of the GST Council
leave no doubt that the Council had consciously recommended
for levy of IGST and cess, albeit at the repair, insurance and
freight cost instead of the entire value of goods imports, on the
basis of which the said notifications No. 45/2017-Cus and
46/2017-Cus were issued.
6. Recently, in the matter of M/s Interglobe Aviation Limited
versus Commissioner of Customs, in its Final Order Nos.
51226-51571/2020 dated the 2nd November, 2020 {2020 (43)
G.S. T.L. 410 (Tri. – Del.)), the Hon’ble CESTAT Principal
Bench, New Delhi on analysis of notification No. 45/2017-
Customs, has interpreted that intention of legislation was only
to impose basic customs duty on the fair cost of repair
charges, freight and insurance charges on such imports of
goods after repair. The Hon’ble CESTAT has thus concluded
that integrated tax and compensation cess on such goods
would be wholly exempt. An appeal has been preferred by the
Department before the Hon’ble Supreme Court against the
said Order.
7. In the above background, the matter was placed before the
GST Council in its 43rd Meeting held on the 28th May, 2021.
The GST Council deliberated on the issue and recommended
that a suitable clarification, including any clarificatory
amendment, if required, may be issued for removal of any
doubt, to clarify the decision of the GST Council that re-
import of goods sent abroad for repair attracts IGST and cess
(as applicable) on a value equal to the repair value, insurance
and freight.
8. Accordingly, as recommended by the GST Council, it is
clarified that notification Nos. 45/2017-Customs and 46/2017-
Customs, both dated the 30th of June, 2017 were issued to
implement the decision of the GST Council taken earlier, that
re-import of goods sent abroad for repair attracts IGST on a
value equal to the repair value, insurance and freight.
Further, in the light of the recommendations of the GST
Council in its 43rd Meeting, a clarificatory amendment has
been made in the said notifications, vide notification Nos.
36/2021-Customs and 37/2021- Customs, both dated 19th
July, 2021, without prejudice to the leviability of IGST, as
above, on such imports as it stood before the amendment.”
5.6 From this, it is abundantly clear that the intent of the GST
Council, the supreme Constitutional body for making policy in
respect of GST, has always been to levy IGST on such imports. In
fact, this intent flows from the fact that such imports were subjected
to Additional Duty of Customs also prior to introduction of GST in
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 173 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
terms of Notification No 94/96-Cus dated 16.12.1996. It is also
evident that the GST Council has made its intent clear on several
occasions. In light of this, I respectfully note that the impugned
goods shall be liable to integrated tax and the exemption from the
same is not available to them. Since position of law and legislative
intent has been made abundantly clear by the GST Council itself,
the cited judgements of Hon’ble Tribunal are distinguishable and I
respectfully follow the clarification issued by the GST Council.
5.7 I also note that, CBIC has issued Notification No 36/2021-
Customs dated 19th July, 2021 wherein Notification No 45/2017-
Customs has been amended suitably. Said amending notification is
reproduced as under:-
Notification No. 36/2021-Customs I Dated: 19th July, 2021
G.S.R. 494(E).– In exercise of the powers conferred by sub-
section (1) of section 25 of the Customs Act, 1962 (52 of
1962), the Central Government, on being satisfied that it is
necessary in the public interest so to do, hereby makes the
following amendments in the notification of the Government of
India, in the Ministry of Finance (Department of Revenue),
No. 45/2017-Customs, dated the 30th June, 2017, published in
the Gazette of India, Extraordinary, Part II, Section 3, Sub-
section (0, vide number G.S.R. 781(E), dated the 30th June,
2017, namely: —
In the said notification, —
(i) in the Table, against serial numbers 2 and 3, in column (3),
for the words “Duty of customs”, the words “Said duty, tax or
cess” shall be substituted; (ii) in the Explanation, after clause
(c), the following clause shall be inserted, namely: —
“(d) on recommendation of the GST Council, for removal of
doubt, it is clarified that the goods mentioned at serial
numbers 2 and 3 of the Table, are leviable to integrated tax
and cess as leviable under the said Customs Tariff Act, besides
the customs duty as specified in the said First Schedule,
calculated on the value as specified in column (3), and the
exemption, under said serial numbers, is only from the amount
of said tax, cess and duty over and above the amount so
calculated.”
5.8 Conjoint reading of Circular No 16/2021-Cus dated 19.07.2021
and the said notification make it crystal clear that the explanation
`d’ is clarificatory in nature. The intentions of GST council
amplified in the said circular have been implemented by this
amendment. As it had always been intention of the legislature that
IGST should be leviable on such re-imports, the explanation added
in the notification 45/2017-Cus by Notification No 36/2021-
Customs dated 19.07.2021
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 174 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
will have retrospective effect as it does not change position of law
but only clarifies it in more specific terms.
5.9 I refer to the ruling of the Hon’ble Supreme Court’s judgement
in case of W.P.I.L. Ltd. Vs Commissioner Of Central Excise,
Meerut, U.P. [2005 (181) E.L.T. 359 (S.C.)] which held that
clarificatory notifications shall have retrospective effect. The
relevant portion is as under –
“14. In our opinion, therefore, the authorities were in error in
upholding the demand and in directing the appellant to pay
excise duty.
15. The learned Counsel for the appellant is also right in
relying upon a decision of this Court in Collector of Central
Excise, Shillong v. Wood Craft Products Ltd., [(1995) 3 SCC
454]. In that case, this Court held that a clarificatory
notification would take effect retrospectively. Such a
notification merely clarifies the position and makes explicit
what was implicit. Clarificatory notifications have been issued
to end the dispute between the parties.
16. In view of the consistent policy of the Government of
exempting parts of power driven pumps utilized by the factory
within the factory promises, it could not be said that while
issuing Notification No. 46/94 of March 1, 1994, the
exemption in respect of said item which was operative was
either withdrawn or revoked. The action was taken only with a
view to rescinding several notifications and by issuing a
composite notification. The policy remained as it was and in
view of demand being made by the Department a
representation was made by the industries and on being
satisfied, the Central Government issued a clarificatory
Notification No. 95/94 on April 25, 1994. It was not a new
notification granting exemption for the first time in respect of
parts of power driven pumps to be used in the factory for
manufacture of pumps but clarified the position and made the
position explicit which was implicit. “(Emphasis supplied by
us)
As can be noted, in the quoted case, the policy of the Government
has remained consistent and hence a clarificatory amendment was
held to be retrospective. In present case also, the policy of the
Government had been consistent and hence the explanation ‘d’ has
to be considered to have retrospective application.
5.10 I also noted that in cases of M/s M M Aqua and M.s Sedco
Forex, cited by the Appellant, such explicit and categoric
clarification/ expression of legislative intent was absent. Further in
case of lqbal & Co, Hon’ble Court noted as below”-
“26. In Commissioner of Income Tax Vs Mohanlal Bhagwati
Prosad [(1993) 204 ITR 234(Calcutta)], the Court held that
Explanations 2 and 3 of Section 40(b) of the Act are
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 175 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
clarificatory in nature, and this was evident from the circular
issued by the Central Board of Direct taxes; hence
explanations were given retrospective effect by the Court. It
should be noted here that, a literal reading of Section 40(b)
resulted in treating every kind of payment of interest, salary,
bonus, commission or remuneration made by the firm, to the
partners, as not deductible in computing the taxable income of
the firm. This ignored bonafide payments and the different
capacities in which the partners may receive the payment. In
fact, this literal meaning of the words resulted in an
unwarranted artificial situation, and therefore, when the
Explanations were added to explain the real situation, Court
thought it proper to apply these Explanations as giving the
true meaning of Section 40(b) all along. In fact, one of us (K.
S.Bhat, J) is a party to a similar decision of the Karnataka
High Court in Commissioner of income Tax Vs Mangalore
Ganesh Beedi Works, [(1992) 193ITR 77].
27. After referring to the several decisions the Karnataka High
Court observed at page 87:
“We have quoted elaborately from several decisions to
highlight the problem posed by the wording of Section 40(b)
without the Explanation now added to it.”
28. Again, as to the normal principle governing the
Explanation, the Court held: “The normal principle in
construing an Explanation is to understand it as explaining the
meaning of the provision to which it is added; the Explanation
does not enlarge or limit the provision, unless the Explanation
purports to be a definition or a deeming clause; if the intention
of the Legislature is not fully conveyed earlier or there has
been a misconception about the scope of a provision, the
Legislature steps in to explain the purport of the provision;
such as explanation has to be given effect to, as pointing out
the real meaning of the provision all along.”
Para 34. An explanation, generally speaking, is intended to
explain the meaning of certain phrases and expressions
contained in a statuary provision. There is no general theory
as to the effect and intendment of an Explanation except that
the purpose and intendment of the “Explanation” are
determined by its own words. An Explanation, depending on
its language, might supply or take away something from the
contents of a provision. It is also true that an Explanation
may- this is what Sri Ramachandran suggests in this case- be
introduced by way of abundant caution in order to clear any
mental cob-webs surrounding the meaning of a statuary
provision spun by interpretative errors and to place what the
Legislature considers to be true meaning beyond any
controversy or doubt.” (Emphasis supplied).
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 176 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
It may be noted that the legislative intent has been clearly indicated
in Circular No 16/2021-Cus dated 19.07.2021 and for
implementation of the same, explanation ‘d’ has been introduced.
Thus explanation ‘d’ needs to be considered to have retrospective
effect.
5.11 In case of M/s Dilip Kumar & Co. [2018(361) ELT 577 (SC)],
the Hon’ble Court noted as under:-
“Para 24. As contended by Ms. Pinky Anand, Learned Additional
Solicitor General, the principle of literal interpretation and the
principle of strict interpretation are sometimes used
interchangeably. This principle, however, may not be sustainable
in all contexts and situations. There is certainly scope to sustain
an argument that all cases of literal interpretation would involve
strict rule of interpretation, but strict rule may not necessarily
involve the former, especially in the area of taxation. The
decision of this Court in Punjab Land Development and
Reclamation Corporation Ltd., Chandigarh Vs Presiding Officer,
Labour Court Chandigarh & Ors ,(1190) 3 SCC 682, made the
said distinction, and explained the literal rule-
” The Literal rules of construction require the wording of the Act
to be construed according to its literal and grammatical meaning
whatever the result may be. Unless otherwise provided, the same
words must normally be construed throughout the Act in the same
sense, and in the case of old statutes regard must be had to its
contemporary meaning if there has been no change with the
passage of time.” That strict interpretation does not encompass
strict-literalism into its fold. It may be relevant to note that simply
juxtaposing ‘strict interpretation’ with literal rule’ would result in
ignoring an important aspect that is ‘apparent legislative intent’.
We are alive to the fact that there may be overlapping in some
cases between the aforesaid two rules. With certainty, we can
observe that, ‘strict interpretation’ does not encompass such
literalism. which lead to absurdity and go against the legislative
intent. As noted above, if literalism is at the far end of the
spectrum, wherein it accepts no implications or interferences,
then ‘strict interpretation’ can be implied to accept some form of
essential inferences which literal rule may not accept.” (Emphasis
supplied).
5.12 From above two paragraphs, it is evident that legislative intent
is paramount and any interpretation which goes against such intent
has to be negated. In the case at hand, the legislative intent has
been made amply clear by the Circular No 16/2021-Cus dated
19.07.2021. This leaves no scope in interpreting that explanation
`d’ in Notification no 45/2017-Cus as added by Notification No
36/2021-Customs dated 19.07.2021 has to be considered to have
retrospective effect.
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 177 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
5.13 In view of above discussion and findings, I have not reasons
to differ from the impugned assessments wherein IGST has been
levied on impugned imports as it is in accordance with the
legislative intent.
For appeals filed for the impugned bills of entry assessed post
amendment of Notification No. 45/2017– Customs, dated
30.06.2017 by Notification 36/2021- Customs, dated 19.07.2021
(SI. No. 164 to 1274 of Annexure)
5.14 For this period, the Appellant has changed their ground of
Appeal and is now contending that their transaction is supply of
service and IGST is being discharged on such service and it cannot
be levied again on re-import of parts. They have also contended
that IGST is leviable only upon inter-state supply of goods and
transaction in dispute is a composite supply with principal supply
being of service.
5.15 I note that now the Appellant is challenging validity of
Notification No. 45/2017– Customs, dated 30.06.2017 as
amended by Notification 36/2021-Customs, dated 19.07.2021 on
the main ground that it amounts to double taxation. However,
examining validity of an exemption notification issued under the
Customs Act, 1962 is beyond scope of this Authority. This Office,
being creature of the statute has to act as per provisions of the Act
and notifications issued thereunder. I specifically note that the
Notification No. 45/2017- Customs (as amended) explicitly
provides for levy of IGST in present case as no exemption from
payment of IGST is available for reimports of aircraft engine or
aircraft parts. When IGST has been levied strictly as per said
notification, no error can be found with assessment done in this
manner and the plea of double taxation does not hold good.
5.16 I must also add that as examined earlier in paras 5.9 to 5.12,
the legislative intent is supreme. When the legislature in its wisdom
has levied IGST on re-import of repaired parts vide said
Notification, this Office cannot find fault with assessment done as
per the Notification.
5.17 I must add that validity of levy of IGST as per Notification
No. 45/2017– Customs, dated 30.06.2017 as amended by
Notification 36/2021- Customs, dated 19.07.2021 is not open to
challenge before this Office. In this regard I refer to Order of
Hon’ble Tribunal in Sparkle International 2015 (325) E.L.T. 926
(Tri. – Del.) in which it was held-
6. We have considered the contentions of both sides. The
appellant had claimed exemption from Special Additional Duty
under Notification No. 20/2006-Cus. in respect of the impugned
goods in terms of entry No. 50 in the table appended to
Notification No. 20/2006-Cus. The said entry is reproduced below
:-
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 178 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
50 Any All goods specified Nil
Chapter in the First
Schedule to the
Additional Duty of
Excise (Goods
Special
Importance) Act,
1957 (58 of 1957)It is, thus, evident from the above entry (No. 50) that once the
impugned goods were removed from the said 1st Schedule vide
Finance Act, 2011, the benefit of exemption Notification No.
20/2006-Cus. no longer remained available to the appellant in
respect of the impugned goods. The appellant has not disputed the
fact that the impugned goods were not specified in the said 1st
Schedule during the relevant period. It is only contesting the
demand on the ground that as per law the Central Government
could not collect Special Additional Duty (SAD) on the impugned
goods when the said goods were exempt from sales taxNAT by
virtue of the provisions of Section 3(5) of the Customs Tariff Act,
1975 which allows levy of such SAD only to countervail
VAT/sales tax. While the said sub-section allows Central
Government to levy SAD not only to countervail sales taxNAT but
also other taxes/charges, we must hasten to add that once the
Central Government has taken a view in this regard and imposed
SAD on the impugned goods, it is not open to CESTAT to
challenge the validity of such levy. The Tribunal being a creature
of the statute is bound to follow the provisions thereof and this
legal position is not under challenge. As regards the judgment in
the case of CC (Preventive), Patna v. Katyal Metal Agencies
(supra), we reproduce paragraphs 4 and 5 of the said judgment
below : –
4. We find that the Special CVD is as per sub-section 5 of
Section 3 of CETA, 1985. The Special CVD is levied for
counterbalancing for Sales Tax/VAT. Undisputedly, the
Sales Tax/VAT is exempted in this case. In this regard,
learned Commissioner (Appeals) has found that the element
of CVD is a tax in lieu of Sales Tax/VAT and that once the
Importer fulfils the obligation of paying both the CVD and
the Sales Tax/VAT, then he is entitled to refund of the CVD
he had paid. The relevant portion of the Commissioner
(Appeals) Order is reproduced hereunder : –
“On my observation of the facts of the case, I have come
to the conclusion that the element of CVD is a tax in lieu
of Sales Tax/VAT and that once the Importer fulfils the
obligation of paying both the CVD and the Sales
Tax/VAT, then he is entitled to refund of the CVD he had
paid. Now in this peculiar circumstance the fact remains
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 179 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
that there is no Sales Tax on the Item (subject goods)
imported as the same has come under the list of
exempted List of Commodities, inserted vide Notification
No. F.3(77)Fin.(T&E) 2005-06/1424-1433 Kha, dated
14-3- 2006 w.e.f 14th March, 2006 of the First Schedule
to Delhi VAT (Section 6). It therefore goes without
saying that when the subject goods is exempted from
payment of Sales Tax there is no question of asking him
whether he has paid the Sales Tax. The very fact that he
has produced the Exemption Notification is sufficient
enough to admit the refund claim. In other word, when
the subject goods is exempted from Sales Tax, it
necessary follows that he is not required to pay the CVD.
When the Item imported is exempted from Sales
Tax/VAT, the same should have also been exempted
from. CVD. This would have simplified the matter.
5. It is pertinent to mention here that what is abated
cannot be taken away indirectly. In these circumstances,
we do not find any reason to stay the operation of the
impugned Orders-in-Appeal. Stay Petitions are
dismissed.”
We find that CESTAT in this order has prima facie
disregarded the fact that the appellant was not entitled to the
benefit of Notification No. 102/2007- Cus. and in effect held
that the Central government could not collect the impugned
SAD in that case. As CESTAT is not competent to challenge
the legality of a Notification issued by Central Govt., prima
facie, the order is issued without jurisdiction and an order
issued without jurisdiction is a nullity. More importantly, the
said CESTAT order (in the case of Katyal Metal Agencies) is
only an interim order dismissing stay petition of Revenue and
therefore has no value as a precedent for deciding the issue.
(Emphasis supplied).
Similarly in case of Shree Dodhaganga Krishna SSK Niyamitha vs.
CCE Belgaum 2001 (138) E.L.T. 1082 (Tri. – Bang.), Hon’ble
Tribunal held that-
5. It was also held by the Supreme Court in the case of Miles
India Ltd. v. Assistant Collector of Customs reported in 1987
(30) E.L.T. 641 that Tribunal as well as Customs authorities
are bound by the statutory period of limitation. It was also
observed therein that proceeding beyond the period can be
initiated in the Civil Court. This view was affirmed by the
Apex Court in the case of Mafatlal Industries Ltd. (supra). In
view of this, it is clear that the refund claim made beyond the
period of 6 months, the party is required to file a civil suit or
to file a writ petition before the appropriate forum. The
Tribunal cannot go into the validity of the constitutional
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 180 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
proceedings and question vires of the statute, being a creature
of the statute. In any view of the matter. I do not find any
substance in the appeal filed by the party. Refund claim is
clearly barred by time. I do not find any infirmity in the
impugned order and accordingly I uphold the impugned order
dismissing the appeal. (Emphasis supplied).
Thus, the validity of levy of IGST as per Notification No.
45/2017– Customs, dated 30.06.2017 amended by Notification
36/2021-Customs, dated 19.07.2021 cannot be examined by this
Authority and it is held that assessment of these bills of entry is as
per said notification and is upheld.
ORDER
6. In view of above, I reject the appeals filed by the Appellant as per
Annexure and uphold the assessment done therein.
Matter is disposed of accordingly.‖
172. It is thus apparent that the CESTAT has essentially come to hold
that the impugned amendments were clarificatory and would thus be
liable to be read as removing the very basis on which its original
judgments between the parties inter se had been rendered. However, we
have for reasons aforenoted, come to the firm conclusion that the
amendments inserted could neither be said to be clarificatory nor could
they be viewed as being explanatory of a pre-existing provision.
173. As observed in the preceding parts of this decision the mere use
of terms like ‗Explanation’ or ‗removal of doubt’ neither results in an
automatic validation of an amendment nor does its mere labelling as
such make it clarificatory. For an amendment to be legitimately
classified as an ‗Explanation’ or a ‗removal of doubts’ provision, it
must be demonstrably evident that the position it seeks to clarify was
already incorporated, contained or rooted in the original statute or the
notification or even intended to be as such.
174. An explanation or clarification could be validly construed as
meeting the tests as propounded if it attempts to elucidate a pre-existing
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 181 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
legal position that was implicit in the statute or the notification from its
inception. It thus seeks to explain and remove ambiguities and
uncertainties surrounding the meaning liable to be ascribed to a word or
a provision. However, before it can be legitimately accepted to be
clarificatory, one would have to be satisfied that its true intent got
obscured in the course of judicial interpretation. However and as we
have found hereinabove, there was no ambiguity in the notification
adverting to a duty of customs alone. We thus find ourselves unable to
concur with or uphold the view to the contrary as expressed by the
CESTAT.
SUMMATION
175. We accordingly and for all the aforesaid reasons are of the
considered opinion that an integrated tax on the import of services can
only be imposed under Section 5(1) of the IGST. A supply of service once
so classified cannot be recharacterized. The Constitution Amending Act
read along with the provisions contained in the CGST and the IGST leave
us in no doubt that an import of service could have only been taxed by
virtue of a legislation referrable to Articles 246A and 269A. If the
submission of the respondents were to be accepted, it would compel us to
view Entry 83 falling in List I as the conferment of an authority to
legislate and levy a duty on import of service which is clearly not the
legislative field or subject of that entry. In fact if Entry 83 were so read, it
would impinge upon the the power conferred by Articles 246A and 269A
itself.
176. A conjoint reading of the Proviso to Section 5(1) along side Section
3(7) of the CTA clearly establishes that they are a part of a composite and
comprehensive machinery laid in place for collection of a goods and
services tax. It merely designates the place and the juncture when the tax
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 182 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
liability would be liable to be discharged. The integrated tax which is
spoken of in Section 3(7) can only be recognised as being a reference to
the integrated tax leviable under the IGST. We find ourselves unable to
countenance a power or authority inhering in the respondents to subject a
supply or import of service to a tax under the CTA in the garb of levying
an additional duty.
177. The reliance placed on the judgment of the Supreme Court in
Hyderabad Industries is clearly misplaced since the said decision was
primarily concerned with the interplay between BCD and an additional
duty of customs under the CTA. While there cannot be a cavil of doubt
with respect to those two levies being separate and distinct, we are in the
present batch concerned with the levy of a tax upon import of services
under the IGST and an additional levy which, according to the
respondents, would be leviable on a purported reading of Section 3(7) of
the CTA. Regard must also be had to the amendments which came to be
made in Section 3(7) and which no longer speaks of an authority to levy a
tax notwithstanding the provisions contained in any other enactment but
restricts its expanse to the imposition and collection of a tax ―as leviable‖
under Section 5(1). In any case, and as we have found, both Sections 5(1)
of the IGST and Section 3(7) of the CTA are indelibly connected to the
levy and collection of the tax contemplated under the former. We find
ourselves unable to construe or interpret Section 3(7) as envisaging an
independent levy.
178. The impugned amendments ushered in by virtue of Notification No.
36/2021 together with the clarification issued by the CBIC were clearly
intended to expand the tax net and cannot, therefore, be termed to be
merely clarificatory. The original notifications were in unambiguous terms
restricted to the levy of a BCD. It was this position which was sought to
be drastically amended by those changes. In any event, the levy of an
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 183 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
additional duty even after the transaction has been subjected to the
imposition of a tax treating it to be a supply of service would be clearly
unconstitutional and cannot be sustained.
DISPOSITION
179. We accordingly allow the instant writ petitions. Notification No.
36/2021 insofar as it purports to levy an additional levy over and above
the IGST imposed under Section 5(1) by adding the words “….tax and
cess” is declared unconstitutional, ultra vires the IGST and is quashed
to the aforesaid extent. For reasons aforenoted, we also declare the
Explanation to clause (d) as introduced by the aforesaid notification as
invalid and set aside the same. Circular No. 16/2021 issued by the
CBIC is consequentially quashed.
180. We also for all the reasons assigned in the body of this judgment
quash and set aside the impugned orders dated 30 November 2022
[WP(C) 7845/2023] and 28 December 2023 [WP(C) 4673/2024] passed
by the Commissioner of Customs (Appeals) as also the orders of
assessment which were assailed. The petitioners shall be entitled to
consequential reliefs.
YASHWANT VARMA, J.
RAVINDER DUDEJA, J.
MARCH 04, 2025/RW/DR/neha/kk
Signature Not Verified
Digitally Signed
W.P.(C) 934/2023 & connected matters Page 184 of 184
By:KAMLESH KUMAR
Signing Date:04.03.2025
18:12:15
[ad_1]
Source link