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March 17, 2021

Is the Parliament empowered under the Constitution to come up with special laws on GST?

by CA Jessica Nagaonkar in GST

Is the Parliament empowered under the Constitution to come up with special laws on GST?

Article 246A was inserted into the Constitution (One Hundred and First Amendment) Act, 2016 to facilitate concurrent taxing powers to the Union as well as the States so far as GST was concerned. According to the said article, notwithstanding anything contained in articles 246 and 254, Parliament and 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. 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.

Four years after the CGST Act was enacted, the Punjab and Haryana High Court expressed its prime facie view in the case of Narinder Chugh against the Union of India and other respondents on whether the Parliament was empowered under the Constitution to come up with special laws on GST.

Facts of the Case:

  1. The petitioner was involved in a GST evasion case. Among other things, the Bench was told that total amount of GST evasion in the case was of Rs 7,83,15,309.
  2. Earlier this year, GST Department had information that three firms were engaged in availing and passing bogus Input Tax Credits [ITC].
  3. The accountant (petitioner) was also allegedly an active participant for creation of firms
  4. The petitioner challenged the vires of Sections 69 and 132 of the CGST Act, 2017.
  5. He also prayed for interim protection during the pendency of the writ petition as non-bailable warrants had been issued by the competent authority.
  6. His apprehension was that he may be taken into custody, as he appeared before the authority concerned.
  7. Appearing before the Bench, a senior counsel on the petitioner’s behalf also raised a number of other legal issues, particularly the powers of the legislature to enact laws under Article 246A.
  8. He also referred to the provisions of the CrPC to contend that an offence under the CGST would be investigated, inquired into, tried and otherwise dealt with according to provisions of the code, subject to any provision contrary in the CGST Act.

What are the provisions of Section 69 and Section 132 of CGST Act?

Section 69 in the Central Goods and Service Tax (CGST) Act gives power to authorities to arrest any person if there is “reason to believe” that he has committed tax evasion. If the Commissioner of GST believes a person has committed an offence u/s 132, he can be arrested by any authorised GST officer. Offenses u/s 132 where arrest provisions become applicable are-

  • A taxable person supplies any goods/services without any invoice or issues a false invoice
  • He issues any invoice or bill without supply of goods/services in violation of the provisions of GST
  • He collects any GST but does not submit it to the government within 3 months
  • Even if he collects any GST in contravention of provisions, he still has to deposit it to the government within 3 months. Failure to do so will be an offense under GST
  • He has already been convicted of an earlier offence u/s 132

Observations of the High Court (HC)

  • The Bench asserted it was of the prima facie view that the special enactment has been enacted for the recovery of taxes, under enabling provisions contained in Section 4 of the Code of Criminal Procedure (CrPC).
  • HC was also of prima facie view that Parliament was empowered under Article 246A of the Constitution to enact special laws with regard to GST.
  • The legislation enacted was for levy and collection of taxes on the supply of goods and services having special provisions for recovery of revenue.
  • It being a fiscal matter, a distinct procedure appeared to have been evolved by Parliament by virtue of a special enactment, which is permissible under Section 4 of the CrPC.
  • HC also clarified that since they were dealing only with the prayer for interim relief at present, they did not intend to express any final opinion on the issue.

In conclusion, the Parliament is empowered to enact special laws on GST. In February, this year Application of bail by Rakesh Arora (involved in the same fraud as the petitioner) was rejected as he had created three fake firms for procuring bills from the firms based at Delhi who had no purchases and tax which was not deposited for these transactions was utilized by the firms for not only availing ITCs but for getting the refunds by showing the sales to export units. Thus, refund was received for the tax which was actually never received by Revenue.

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