Prelude:
It is within everyone’s knowledge that the Constitutional amendments w.r.t. GST was mired in political controversies for many years and finally the Constitutional Amendment Bill paving way for enactment of GST was passed on 3.8.2016. After ratification by more than 50% of the States, the Presidential assent was accorded on 8.9.2016. However, the first step taken by the Executive by issuing notification dt.16.9.2016 giving effect to the provisions of the Constitutional Amendment Act has resulted in a legal controversy as to whether CE duty liability arises in respect of removal of excisable goods from 16.9.2016, as amended Entry 84 of List I of VII Schedule applies to few commodities. This issue has kept the tax professionals and Government officials busy in social media during the weekend. As a knee-jerk reaction the Government officials have hinted at giving clarifications and issuing amendments. This article introduces readers to the controversy and possible ramifications.
Notification:
The controversial notification no.2016 S.O. 2986(E) in F. No. 31011/07/2014-SO (ST) has been issued on 16.9.2016 and made effective from the same date. It notifies the date on which Sections 1 to 20 (except section 12) of the Constitutional Amendment Act, 2016 would come into force. For convenience of reference the relevant portion of the notification is abstracted:
“In exercise of the powers conferred by sub-section (2) of section 1 of the Constitution (One Hundred and First Amendment) Act, 2016, the Central Government hereby appoints the 16th day of September, 2016 as the date on which the provisions of Sections 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 13, 14, 15, 16, 17, 18, 19 and 20 of the said Act, shall come into force.”
List I of VII Schedule to Constitution:
The notification issued on 16.9.2016 has notified the amendment to the VII Schedule to Constitution including List I (Entry 84), which now reads thus:
“Duties of excise on the following goods manufactured or produced In India namely—
- petroleum crude;
- high speed diesel;
- motor spirit (commonly known as petrol);
- natural gas;
- aviation turbine fuel and
- tobacco and tobacco products.”
Legal controversy:
The effect of the notification is that Entry 84 of Union List – VII Schedule is now restricted to levy of duty of excise on certain goods manufactured or produced in India (not all goods). Now the pertinent question, which arises is whether CE levy on other products/products is not possible post 16.9.2016? A similar issue would arise in the context of countervailing duty (CVD).
Ramifications/remedies:
a. Whether the Government can justify collection of CE duty based on Entry 97 of List I of VII Schedule, which deals with any other matter not included in Lists II or III including tax?
If this is attempted then it would run contrary to the claims made from the beginning that many levies including Central Excise levies would be subsumed in GST. Further it would show a way to introduce new taxes other than GST by defining different taxable events.
b. Whether the duty collected from 16.9.2016 is illegal and without authority of law and consequently liable to be refunded?
This would result in huge loss of revenue as the Government has to refund crores of rupees collected with interest from 16.9.2016. Who will compensate the Union for such losses?
c. Whether the assessees can pay duty under protest till remedial action is taken by the Government?
Since the levy appears to have been suspended such an option is available to the assessee legally till clarity emerges.
d. Can the notification be amended to notify only the Article relating to powers of GST Council?
Can the GST Council exercise its powers and make recommendations on something, which is not even notified?
e. Whether the transitional provisions in section 19 of the Constitutional Amendment Act is sufficient to take care of this anamoly?
The said transitional provision refers to tax on goods or services or both in force in any State and not Union. Further by giving effect to the Constitutional Amendment Act, the old provisions have been repealed by the competent authority and hence remedial action may not be possible.
f. In terms of section 20 of the Constitutional Amendment Act, the President can remove difficulties?
Such power can be exercised only when there is any difficulty in giving effect to the provisions of the Constitution as amended by the Constitutional Amendment Act. Can inability to collect Central Excise due to Government’s action be treated as difficulty to give effect to Constitutional provisions so as to call for Presidential order?
g. Can the Government go back on its words (w.r.t. retrospective laws) and look at the option of a retrospective amendment to remove difficulties and unintended consequences?
This would bring down the image of the Government, which has time and again promised ‘no more retrospective levies’.
Conclusion:
The Government having taken the first step in a flawed manner should refrain from hasty knee jerk reactions. Instead, they should consult the Law Ministry and take measured legal steps to sort out this confusion and avoid such mindless exercise of power in future. For the time being, the assessee’s mind still lingers with a doubt as to whether CE levy is in suspense or suspended?
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