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2024 (7) TMI 1448 - HC - GSTDoctrine of mutuality - Levy of GST on services in carrying out the activities by the petitioner association - Constitutional Validity of Section 2 (17) (e) and Section 7 (1) (aa) and explanation thereto of the Central Goods and Service Tax Act, 2017 and corresponding provisions of Kerala Goods and Services Act 2017 - vired of Article 246A read with Article 366 (12A) and violative of Articles 14, 19(1) (g), Articles 265 and 300A of the Constitution of India or not - constitutional validity of retrospective effect from 01.07.2017 of Section 7 (1) (aa) - violative of Articles 14, 19 (1) (g) Articles 265 and 300A of the Constitution of India or not. Interpretation of statute - Whether an amendment is clarificatory or it is a substantive change and mere legislature assertion that the amendment is clarificatory is not conclusive? HELD THAT - The Supreme Court in its judgment in the case of Karnataka Bank Ltd v. State of Andra Pradesh 2008 (1) TMI 605 - SUPREME COURT deals with the levy of professional tax under Article 276 of the Constitution of India held that the Constitution empowers the State Legislatures to impose professional tax on any person subject to the maximum cap of Rs. 2500/- per person. The Andra Pradesh State Legislature defines the term person under Section 2 (j) of the Act and explanation to Section 2 (j) of the Act provided that every branch of a firm, company, corporation or other Corporation Body, any Society, Club or Association shall be deemed to be a person. The Supreme Court held that the Legislature should be given the widest power to define the term Person who is to be taxed and a different meaning that the definition in the General Clauses Act can be given for the purposes of taxation and the Legislature in its wisdom can create an artificial unit to define a person for the purposes of levy of tax, and hence, the definition that every branch of a corporate entity would be deemed to be a person and each such branch would be liable for tax independently was upheld. In the case of State of Madya Pradesh v. Rakesh Kohli 2012 (5) TMI 262 - SUPREME COURT the Supreme Court held that the Legislature enjoys a greater latitude for classification, and it is open to the Legislature to identify areas of evasion of tax and bring in provisions to plug the loopholes even by deeming fiction or artificial definitions. The Parliament / State Legislature has amended Section 7 (a) by inserting Section 7(aa) by the Finance Act, 2021. The amendment, as held, is neither beyond legislative competence nor offends any of the fundamental rights guaranteed under Part III of the Constitution of India nor is manifestly arbitrary or capricious. Therefore, the amendment brought in Section 7 (a) by inserting Section 7 (aa) is well within the legislative competence and not ultra-virus. Whether the petitioner can be asked to pay tax retrospective, i.e., w.e.f 01.07.2017 when the principal of mutuality was in vogue, and GST authorities never issued a notice to the petitioner for payment of GST by them? - HELD THAT - Before the amendment was brought in inserting Section 7 (aa) by the Finance Act, 2021, the law of mutuality was well established in the principle of taxation in case of supply of goods and services by clubs/associations to its members. The GST is an indirect tax to be paid by the recipient of goods and services. When the law of mutuality, as held in the Calcutta club case, was understood by the authorities as well as the petitioner, the petitioner did not collect the GST. However, once the amendment has been brought into statute by inserting Section 7 (aa) by the Finance Act 2021, the petitioners have become liable to pay the GST on the supply of goods and services to their members. Section 7 (aa) in my view, therefore, should not be given retrospective operation w.e.f 01.07.2017 but it should be given effect from the date when it was notified ie., 01.01.2022. Whether all the activities undertaken by the petitioner involve the supply of goods and services to its members? - HELD THAT - The various activities undertaken by the petitioner association have been mentioned in previous paragraphs of the judgment. Therefore, the assessing authority is required to examine each activity independently to arrive at a conclusion as to whether such an activity involves the supply of goods and services so that the tax may or may not be imposed on such activity. However, this court would not like to comment on this aspect, and it is left open to the petitioner to satisfy the assessing authority that the particular activity is not involved in any supply of goods and services. The present writ petitions so far as the challenge to the constitutionality of Section 7(aa) is concerned are dismissed - However, it is held that the provisions of Section 7(aa) will have prospective operation with effect from 01.01.2022.
Issues Involved:
1. Constitutionality of Section 2(17)(e) and Section 7(1)(aa) of the CGST Act, 2017. 2. Retrospective application of Section 7(1)(aa) of the CGST Act, 2017. 3. Principle of mutuality and its applicability to the petitioner association. 4. Legislative competence to define "person" for taxation purposes. 5. Specific activities of the petitioner association and their taxability under GST. Issue-wise Detailed Analysis: 1. Constitutionality of Section 2(17)(e) and Section 7(1)(aa) of the CGST Act, 2017: The petitioner argued that Sections 2(17)(e) and 7(1)(aa) of the CGST Act, 2017, are ultra vires Article 246A read with Article 366(12A) and violate Articles 14, 19(1)(g), 265, and 300A of the Constitution of India. The court held that Article 246A empowers the Parliament and State Legislatures to enact laws with respect to GST, which includes the supply of goods and services. The court found that the Constitution does not restrict the Parliament from defining "person" for taxation purposes, and thus, the legislative amendments were within the competence of the Parliament and not ultra vires. 2. Retrospective application of Section 7(1)(aa) of the CGST Act, 2017: The petitioner contended that the retrospective application of Section 7(1)(aa) from 01.07.2017 is unconstitutional and imposes an unforeseen burden. The court held that while the Parliament has the power to make laws retrospectively, the amendment in Section 7(1)(aa) should not have retrospective effect from 01.07.2017. Instead, it should be effective from the date it was notified, i.e., 01.01.2022. The court reasoned that the petitioner did not collect GST due to the settled position of law, and retrospective application would be unjust. 3. Principle of mutuality and its applicability to the petitioner association: The petitioner argued that the principle of mutuality applies, meaning there is no supply of goods and services between the association and its members. The court acknowledged the principle of mutuality as established in the case of Calcutta Club (supra) but noted that the Parliament amended the GST Act to include Section 7(1)(aa), which deems a club/association and its members as separate persons for the purpose of GST. The court held that this amendment is within the legislative competence and does not violate any constitutional provisions. 4. Legislative competence to define "person" for taxation purposes: The court referred to the judgments in Karnataka Bank Ltd v. State of Andhra Pradesh and State of Madhya Pradesh v. Rakesh Kohli, which upheld the legislature's power to define "person" for taxation purposes, even if it deviates from the General Clauses Act. The court concluded that the Parliament and State Legislatures have the authority to define "person" broadly to include clubs and associations for the purpose of GST. 5. Specific activities of the petitioner association and their taxability under GST: The court noted that the petitioner association undertakes various activities, some of which involve the supply of goods and services to its members. The court directed the assessing authority to examine each activity independently to determine its taxability under GST. The petitioner was instructed to cooperate with the assessment proceedings, and the interim order was to remain in operation until the assessment was complete. Conclusion: The court dismissed the challenge to the constitutionality of Section 7(1)(aa) of the CGST Act, 2017, but held that the provision would have prospective operation from 01.01.2022. The matter was remanded back to the respondents for assessment, with the petitioner directed to file their responses to the impugned show-cause notices.
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