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TMI Blog2024 (7) TMI 1448X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - HONOURABLE MR. JUSTICE DINESH KUMAR SINGH For the Petitioner : By Advs. George Varghese (Perumpallikuttiyil) Manu Srinath, Nimesh Thomas, Sreelakshmi R. Nair. For the Respondents : Muhamed Rafiq-Spl.GP, By Adv Shaiju K.S., CGC JUDGMENT Both these writ petitions are connected and heard together and are disposed of by the common judgment. 2. W.P(C) No. 21297 of 2023 has been filed praying for a Declaration that 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 are ultra-virus. Article 246A read with Article 366 (12A) and violative of Articles 14, 19(1) (g), Art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors, e.g. Social Security Schemes or SSS (I, II, and III), Professional Disability Support Scheme (PDSS), Professional Protection Scheme, Kerala Health Scheme, etc. All these Schemes are said to support fellow doctors, while one or two schemes support their immediate family members. Besides the admission fee, the member-doctors contribute annually and in cases of certain schemes (e.g. SSS, PDSS), a fraternity contribution upon the death/disability of a fellow member doctor; the pooled sum is paid out to the widow/dependents of the deceased doctors, disabled doctors, doctors afflicted with specified diseases, etc. Each Scheme is run by a separately elected committee, in which the Secretary and President of the petitioner association are ex officio members. The schemes have separate bank accounts, and accounts of each scheme are drawn up and separately audited. 8. It is also stated that wherever activities involve outsiders, such as the activities relating to hospital waste collection, assisting in procuring quality hospital equipment at reasonable prices and in service of the equipment (PEPS i.e., Professional Equipment Employment Protection Scheme), and running of a publication (N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability. The aggregate disability contribution is paid out to the disabled member. Further, upon death, a fixed sum of Rs. 50,000/- is also paid to the family of the deceased member of the scheme. The total amount of such death benefits paid each year is also collected equally from the remaining members. 13. The Professional Protection Scheme of the petitioner association has two objects: - i) to protect members in the case of harassment, litigation, etc, and provide legal aid; (ii) to promote social service activities such as medical aid to the poor, family welfare programs, blood donation camps, medical attention, medical aid, etc. 14. Any member of the petitioner may become a member of this scheme upon payment of an annual subscription fee (Rs. 2,000 for the first year, decreasing by Rs 100 every year, and stabilizing at Rs 1,500). This membership is for one unit of PPS membership. If any member of the scheme faces legal action (for acts done/omitted in the course of his profession), the petitioner engages and pays an advocate to provide legal services to the member concerned. Further, if the litigation results in damages being ordered to be paid by a member of the scheme, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly take a lump-sum payment of 30% of the corpus. The full maturity amount is to be paid to the nominee, if a pension for a spouse is not opted for. If death occurs before the age of 60, the scheme provides for stated pay-outs. 18. Mutual benefit Schemes to provide financial support, encourage the habit of thrift amongst members and encourage financial planning amongst the members. However, this Scheme has since been discontinued. 19. The Patient Care Scheme is to institute a corpus fund to provide assistance to deserving patients, who seeks care in modern medicine, to establish an information/assistance center for patients seeking medical services, to create a network of health care facilities across Kerala to assist poor patients and patients in emergency situations. Any member of the petitioner association may join the Scheme for a period of 3 years on payment of a membership fee of Rs.1000/-. The members of the Scheme are entitled to participate in the general body of this Scheme and are eligible to cast their votes. The criteria and expenditure of the patient care fund are decided by the managing committee of the Scheme from time to time. The payments to deserving patients are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in the case of the club, the services provided by the club are to the members themselves. The club is a self-serving Institution (even where guests are admitted). The club is identified with its members, and it does not have any existence apart from the members. The services provided by the club for members have to be treated as activities of a self-serving institution, even if the club is incorporated as a limited company under the Companies Act, as held in [ Cricket Club of India Ltd v. Bombay Labour Union [AIR 1969 SC 276 ]. There can be no sale or transfer between the club and its members. The learned Senior counsel for the petitioner submits that the Supreme Court struck down the levy of sales tax on the supply of food/beverages made by a club to its members on the ground of principles of mutuality in JCTO, Madras v. The Young Men's Indian Association (Regd.) [ (1970) 1 SCC 462]. 24. In the 46th Amendment (1981) of the Constitution, in an attempt to legitimise the levy of sales tax on a club/association, the tax on sale or purchase of goods is defined in broader terms to include a tax on the supply of goods by an unincorporated association or body of persons to a member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra). 28. The legislative power granted by the Constitution cannot be extended beyond the known legal connotations, it can be done only by a constitutional amendment. The submission is that the amendment brought in the GST/CGST Act by inserting Section 7 (1) (aa) retrospectively by way of the Finance Act 2021 is ultra-virus as the said amendment runs contrary to the long-established and well-recognized concept of mutuality. The submission is that only the constitutional amendment, which invests the parliament and State legislature with the power to levy GST on self-sale / self-services between a club and its members, would be required to do away with the concept/principle of mutuality. Statutory amendments, however, creatively worded and ingeniously couched as a clarification, would not be sufficient to do away with the concept of mutuality. It is also submitted that the supply of goods and services cannot cover all activities and transactions carried out by the petitioner association. 29. The learned Senior counsel has submitted that the effect of the judgments may be nullified by the legislative act removing the basis of the judgment. However, where a judgment recognizes a pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otification No.39/2021 dated 21.12.2021 specifying 01.01.2022 as the date on which the aforesaid Section 108 of the Finance Act 2021 would come into force. However, Section 108 itself states that the insertion of Section 7 (1) (aa) in CGST Act 2017, shall be deemed to have been made with effect from 01.07.2017. Thus, prior to 01.01.2022, it could not have been known that GST ought to have been paid by clubs/associations. Interest is merely a compensation for belated payment of what ought to have been paid earlier. But, the question of payment earlier did not arise in this case as it was impossible to know that whether GST was payable by the club or association. The law does not expect the impossible [lex non cognit ad impossibilia]. Therefore, there should be no levy of interest for any period prior to 01.01.2022. In support of the said contention, the learned counsel for the petitioner has placed reliance on the judgment of Star India (P) Ltd v. CCE (2005) 7 SCC 203] 36. The learned counsel for the petitioner submits that the amendment in Section 7 by Finance Act 2021, particularly the insertion of Section 7 (1) (aa) in the GST Act 2017 also falls foul of Government constituted co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the index of investment friendliness. The committee exhaustively dealt with the retrospective taxation and summed up its recommendation as under:- It has often been said that death and taxes are equally undesirable aspects of human life. Yet, it can be said in favour of death that it is never retrospective. Retrospective taxation has the undesirable effect of creating major uncertainties in the business environment and constituting a significant disincentive for persons wishing to do business in India. While the legal powers of a Government extend to giving retrospective effect to taxation proposals, it might not pass the test of certainty and continuity. This is a major area where improvements should be attempted sooner rather than later 38. It is therefore submitted that the retrospective amendment provision is against the well-settled position of law, and it is unreasonable and arbitrary. 39. The learned counsel for the petitioner also submitted that whenever the petitioner association renders services to third parties, such as waste collection, equipment production, or advertisements in the petitioner s magazine, these activities are registered, and GST is paid. The petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of the argument contending that when the Constitution had imposed a maximum limit of Rs. 2500/- as professional tax, the State legislature, cannot define Person against the definition contained in the General Clauses Act and levy tax on every Branch and thereby collect tax more than Rs. 2500/-. 42. The Supreme Court did not accept the said submission and held that the legislature should be given the widest power to define the term Person for the purposes of imposing the tax and a different meaning than the definition in the General Clauses Act can be given for the purpose of taxation and the Legislature in its wisdom can create an artificial unit to define a person for the purpose of levy of tax. It was therefore, held that 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. 43. In the State of Madhya Pradesh V. Rakesh Kohli [(2012) 6 SCC 312] it has been 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 brings in provision to plug the loopholes even by deeming fiction or artificial defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssociation and what is excluded cannot be indirectly brought under the definition of body of persons. In the present case Article 246 A and Article 366 (12A) refers to the supplier of goods and services nor the recipients of the goods and services. Article 246 A and Article 366 (12A) are very wide in conferring power of the Parliament and State Legislature. It is, therefore, submitted that the subject matter of the present case is completely different from the facts of the case and subject matter of Calcutta Club (supra). 48. There is neither a lack of legislative competence nor the impugned provisions of the GST Act offends any of the fundamental rights guaranteed under Part III of the Constitution, nor can the provisions be said manifestly arbitrary and capricious. Section 7 (1) (aa) of the GST Act cannot be said to be offending any of the aforesaid tests to be declared as unconstitutional. 49. In respect of the challenge to the retrospective amendment in Section 7 (1) (aa), it has been submitted that the Legislature has the power to make laws prospectively and retrospectively. Clarificatory amendments are always retrospective in operation. The amendment introducing Section 7 (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larger public interest and to ensure the taxes are duly collected. 56. In the writ petition, the challenge is to the levy of GST on activities/transactions of the petitioner's association with its members. The petitioners have also challenged the provision under Section 7 (1) (aa) and explanation thereto r/w Section 2 (17) (e) of the CGST / KGST Act. Two main contentions on behalf of the petitioner are that it was the well-established provision of law that there is an identity between the club/association and its members, under the principle of mutuality, and there can be no sale/service by the club to its members. The well-recognized principles of mutuality could not have been erased by the amendment in the GST Act by inserting Section 7 (1) (aa) retrospectively ie., from the date of commencement of the GST regime (01.07.2017) whereby inserting a legal fiction and artificially deeming a club/association and its members to be two separate persons. 57. Second contention is that Article 246 (A) empowers the Parliament and the State Legislature to enact laws to tax on supply of goods or services or both. The supply of goods and services means supply by one person to another and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; The Constitutionality of a provision can be challenged principally on the following grounds:- 1) the legislature lacks legislature competence enact the provision; 2) the impugned provision(s) offends any of the fundamental rights guaranteed under Part III of the Constitution; 3) the provision is manifestly arbitrary and capricious. 59. Mr. Aravind P Datar, the learned Senior counsel for the petitioner, has submitted that unless Article 246A would have been amended to provide for taxing of services by the club / association to its members, the activities of club/association could not be brought within the ambit of GST Act. 60. In support of the submission, he has placed reliance on the judgment of Gannon Dunkerly (supra) and Calcutta Club (supra). 61. The judgment in the case of Gannon Dunkerly (supra) involved the question of the construction of entry 48 in list 2 of Schedule 7 to the Government of India Act, 1935, which provided Tax on the sale of goods. The court was dealing with a levy of tax on the sale of goods over the materials wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods in Entry 48 is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In a building contract which is, as in the present case, one, entire and indivisible and that is its norm, there is no sale of goods, and it is not within the competence of the Provincial Legislature under Entry 48 impose a tax on the supply of the materials used in such a contract treating it as a sale 35. This conclusion entails that none of the legislatures constituted under the Government of India Act, 1935, was competent in the exercise of the power conferred by s. 100 to make laws with respect to the matters enumerated in the Lists, to impose a tax on construction contracts and that before such a law could be enacted it would have been necessary to have had recourse to the residual powers of the Governor General under s. 104 of the Act. And it must be conceded that a construction which leads to such a. result must, if that is possible, be avoided. Vide Manikkasundara v. R. S. Nayudu (1). It is also a fact that acting on the view that Entry 48 authorises it, the States have enacted laws imposing a tax on the sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods and services. Article 246-A empowers the parliament and State Legislature to enact law(s) with respect to the goods and services tax whether the supply of goods or services or both takes place. The power conferred under Article 246-A is plenary power for making laws by the parliament and State Legislature for imposing tax on the supply of goods and services and without any limitation put by the Parliament in the provision of Article 246-A. 65. Article 366 (12) (A) defines goods and services tax to mean any tax on the supply of goods and services or both except taxes on the supply of alcoholic liquor for human consumption. Thus, a combined reading of Article 246A and Article 366 (12A) provides that goods and services tax means any tax on the supply of goods and services or both. The parliament and State Legislature would have the power to make laws with respect to goods and services tax viz, Tax on supply of goods and services or both. 66. Article 246A or Article 366 (12A) does not have any reference to the term Person. The tax is on activities, i.e., the supply of goods and services or both. Therefore, I am of the view that the Parliament as well as the State Legislature, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: 21. The Privy Council, in R. v. Burah, 1878 (5) I.A. 178 laid down a fundamental principle for the interpretation of a written Constitution. Lord Selborne in a classic passage observed: The Indian Legislature has powers expressly limited by the Act of the Imperial Parliament which created it, and it can, of course, do nothing beyond the limits which circumscribe these powers. But, when acting within those limits, it is not in any sense an agent or delegate of the Imperial Parliament, but has, and was intended to have, plenary powers of legislation, as large and of the same nature, as those of Parliament itself. The established of courts of Justice, when a question arises whether the prescribed limits have been exceeded, must of necessity determine that question; and the only way in which they can properly do so, is by looking to the terms of the instrument by which, affirmatively, the legislative powers were created, and by which, negatively, they are restricted. If what has been done is legislation, within the general scope of the affirmative words which give the power, and if it violates no express condition or restriction by which that power is limited (in which category wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary in annulment proceedings under S.53 of the Provincial Insolvency Act to prove that the transferor who has been subsequently adjudged an insolvent should have been honest and straightforward in the matter of transaction impeached held that even if the transferor was wanting in bona fides the crucial question still remains to be answered and unless it is found that the transferee was wanting in bona fides in respect of the transaction in question, he cannot be affected by the dishonest course of conduct of the transferor. The High Court in that case had taken the view that the mortgagee had failed affirmatively to prove its bona fides and the said conclusion was based upon the consideration that the General Clauses Act defined good faith as nothing is said to be done or believed in good faith which is done or believed without due care and attention. It is in that context this Court while analyzing the scope of provisions of the General Clauses Act observed that the General Clauses Act is enacted in order to shorten language used in parliamentary legislation and to avoid repetition of the same words in the course of the same piece of legislation. Such an Act is not meant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder consideration and in the General Clauses Act. 36. The expression person is employed in more than one Article of the Constitution of India. We shall not refer to all those Articles where the expression person has been used. It would be enough to notice Arts.20, 21, 22 and 226 of the Constitution of India where it has been used. The provision of the General Clauses Act, 1897 which is applicable for the interpretation of the Constitution as provided for under clause (1) of Art.367 itself restricts the applicability of the Act and makes such an application subject to the context as otherwise may require. The trinity of Arts.20, 21, 22 broadly guarantee the personal liberties against the State to individual person. They are not guaranteed to all those who are included in the definition of person under S.3 (42) of the General Clauses Act. Person under S.3 (42) of the General Clauses Act shall include any company or association or body of individuals whether incorporated or not. Does it mean that the High Court is entitled to issue a writ or order or direction under Art.226 of the Constitution against every person under S.3 (42) of the General Clauses Act? It is well settled that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is under those circumstances this Court observed that when a branch of a company forwards a buyers order to the principal factory of the company and instructs them to despatch the goods direct to the buyer and the goods are sent to the buyer under those instructions it would not be a sale between the factory and its branch. The observations so made have no bearing whatsoever on the issue with which we are concerned in the present case. 43. The appellant company herein continues to be company within the meaning of S.3 of the Companies Act, 1956 which defines the company, existing company, private company and public company for the purposes of the Companies Act. Its status as one entity continues to be the same. It is only for the purposes of the present Act viz. Andhra Pradesh Tax on Professions, Trades, Callings and Employments Act, 1987 even its branches are treated as a person enabling the authorities to levy and collect profession tax. 45. For the aforesaid reasons, we hold the definition of the word person in the impugned Explanation and also Explanation No. I to the First Schedule of the Act is not intended to tax a person at a rate higher than Rs. 2500/- per annum, per per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the representatives of the people, are supposed to know and be aware of the needs of the people and what is good and bad for them. The Court cannot sit in judgment over their wisdom''.' Then dealing with the decision of this Court in State of T.N. and Others v. Ananthi Ammal and Others, 1995 KHC 759 : 1995 (1) SCC 519 : AIR 1995 SC 2114 , a three Judge Bench in Mcdowell and Co. observed in paragraphs 43 and 44 [at pg. 739) of the Report as under: ''' Now, coming to the decision in Ananthi Ammal, we are of the opinion that it does not lay down a different proposition. It was an appeal from the decision of the Madras High Court striking down the Tamil Nadu Acquisition of Land for Harijan Welfare Schemes Act, 1978 as violative of Art.14, Art.19 and Art.300A of the Constitution. On a review of the provisions of the Act, this Court found that it provided a procedure which was substantially unfair to the owners of the land as compared to the procedure prescribed by the Land Acquisition Act, 1894, insofar as S.11 of the Act provided for payment of compensation in instalments if it exceeded rupees two thousand. After noticing the several features of the Act incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) SCALE 45 : 2008 (2) KLT SN 13 : AIR 2008 SC 1640, a two - Judge Bench of this Court was concerned with a judgment of the Andhra Pradesh High Court. The High Court had declared S.47A of the 1899 Act as amended by AP Act 8 of 1998 that required a party to deposit 50% deficit stamp duty as a condition precedent for a reference to a Collector under S.47A unconstitutional. The Court said in P. Laxmi Devi (Smt.), 2008 KHC 6136 : 2008 (4) SCC 720 : 2008 (3) SCALE 45 : 2008 (2) KLT SN 13 : AIR 2008 SC 1640 as follows: '19. It is well settled that stamp duty is a tax, and hardship is not relevant in construing taxing statutes which are to be construed strictly. As often said, there is no equity in a tax vide CIT v. V.MR.P. Firm Muar. If the words used in a taxing statute are clear, one cannot try to find out the intention and the object of the statute. Hence the High Court fell in error in trying to go by the supposed object and intendment of the Stamp Act, and by seeking to find out the hardship which will be caused to a party by the impugned amendment of 1998. 30. Had the High Court kept in view the above well-known and important principles in law, it would not have declared Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by installments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the 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 (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply of goods and services to its members. 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. 77. In view of the aforesaid discussion, 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. Petitioners are directed to file their response to its impugned show-cause notices, and the matters are remanded back to respondents 4 and 5 to complete the assessment. The petitioner shall cooperate with the assessment proceedings. Till the assessment is complete, the interim order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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