Role of GST and its reforms for the betterment of Business-Trade in the International Regime

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GST is one of the most strategic reforms in Indirect Taxation.  In India, the value chain of the business process usually involved double taxation beginning from the stage of production till consumption. The previously existing system of taxation had various loopholes which provided for evasion of tax at different stages.

The federal structure of indirect taxation allowed the state governments to exempt or impose higher taxes on inter-state transfer of goods. The GST reforms have helped the Indian economy to harmonies the imposition of taxes at stages of production, distribution and consumption of goods/services.

However, the Courts in India have evolved various principles for increasing the efficiency of GST which are discussed below briefly;

In Union of India vs M/S Mohit Minerals Pvt. Ltd, the Gujarat High Court held that the chargeable sections must be given a strict interpretation and importers of goods cannot be deemed to be covered within the ambit of ‘’recipient’’ as stipulated under section 5(3) of the IGST Act.

Thus, entry 10 of Notification No. 10/2017 fastening tax liability on the importer is ultra vires. Article 265 doesn’t entitle delegated legislation to impose tax in absence of express provision. The Revenue has erred in treating importers as recipients of services as the services are received by the foreign exporter. The Indian importers were not even liable to pay consideration to the foreign shipping lines and hence, cannot be held liable to pay tax on such services.

A beneficiary of services cannot be said as a recipient of service. The claim that payment of IGST is revenue neutral on account of ITC eligibility with the importer is not valid in as much as the importer does not qualify as a recipient of services and therefore cannot avail ITC of the IGST so paid.

The mere fact that the transportation of goods terminates in India, will not make the such supply of transportation of goods as taking place in India. The decision is of vital importance since the high court has pronounced that the notification is not only ultra vires of the provisions of the IGST Act but also violated the provisions of the Constitution of India.

By applying the ratio of the decision in Kosum Ingots & Alloys Limited v. Union of India[1], when a law is declared unconstitutional by a High Court, it is said to have effect throughout the territory of India, Hence Taxpayers can avail advantage of this judgement for a refund of taxes which is already paid.

The Bai Mumbai Trust v. Suchitra[2] Case specifies the parameters to be considered for determining tax liability under the GST Law. It states that the element of ‘’reciprocity’’ is essential to trigger the definition of Supply. The doctrine of Supply doesn’t contemplate a wrongful unilateral act. Supply is a taxable event necessary for IGST to be brought into usage.

State of West Bengal v. Calcutta Club Limited[3] emphasized the doctrine of Mutuality would continue to apply to incorporated and unincorporated members clubs after the 46th amendment Act which added Art, 366 to the Constitution.

It was held that the Clubs are not liable to pay service tax for the amount received from its members, while Maxim Tubes Company Pvt Ltd v. Union of India, stressed the need to balance the conflict which arises between the conditions of Physical Export and Pre-import prescribed by DRI, as it is difficult to fulfil both the conditions simultaneously without violation of either of them.

Therefore, the High Court held that the conditions don’t fulfil the test of reasonableness and are not in line with the Advance Authorization Scheme. Hence, the honorable Court struck down the “Pre-Import condition” mentioned in the notification as it causes inevitable hardships to the exporters.

The petition in the case of Material Recycling Association of India v. Union of India[4] seems to be on a weak footing as the government policy is crystal clear for not granting export status to intermediary services therefore the court appears to have incorrectly decided in the matter related to double taxation of intermediary services.

The services provided to a separate legal entity which is a parent company is considered an export of services as the export conditions in Linda Engineering Pvt Ltd v. Union of India (2020) stipulates such condition of service provider and service recipient cannot be applied when both are separate legal entities though they belong to the same cluster.

The judgement throws light on the reasons behind the objectives for exclusion conditions in service rules of export.

Conclusion

The Foreign Trade Policy (FTP) for 2020 mentions that the harmonization and simplification of Indirect taxation in the country will reduce the cost of Production and would thereby make Indian Industries more competitive in the globalized world. The Courts in India through their rulings have paved the way for a better tax regime in the country which needs to keep evolving to have a better position in international Trade.

Especially the need for reforms is more evident in General taxation law after the Supreme Court’s Ruling in the case of Vodafone International Holding BV v. Union of India about retrospective taxation in the Country which has created apprehension in the minds of foreign investors for Carrying on International Trade in India.

End Notes

[1] ( 2004) 6 SCC 254

[2] 2019 (31) GSTL 193

[3] AIR 2019 SC 310

[4] 2020 (7) TR 3155


This article has been submitted by Vaishnavi S, a student at V.M. Salgaocar College of Law, Goa.


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