GST Constitutional Remedies And Validity

Constitutional Remedies and Validity- GST

The Indian Constitution is the utmost law of India. It has 470 Articles which are divided into 25 parts. It has been amended 104 times since its inception.

LIST OF TOPICS COVERED:

Background

  • A Constitution of a country is a supreme document that governs and overrides all laws and statutes in India. It lays down the fundamental rights, directive principles, and duties of citizens.
  • Each citizen of India has a right to move to the court in case his/her fundamental rights granted by the Constitution of India are being exploited. This right to plead before the court is a remedy provided by the Constitution of India (COI) and is known as a Constitutional remedy.
  • Considering that all laws and statutes in India are beneath the COI, these have to be in harmony with the COI. The laws and statutes should not be framed in a manner that is contradictory or in discord with the COI. Any law or statute which goes beyond the COI is liable to be called unconstitutional and consequently struck down. Therefore, all laws and rules of the country should be in line with the purpose of the COI to be constitutionally valid.

Constitutional Remedies

  • Article 32 of the COI grants rights to the citizens of India to move before the Supreme Court if he/she believes that his/her fundamental rights have been violated. Similarly, Article 226 confers a similar right to move before the High Court.
  • Therefore, such Constitutional remedies safeguard the fundamental rights of Indian citizens. The government is prohibited to frame any laws or statutes which are in contravention to such fundamental rights, in any manner whatsoever. Fundamental rights are the rights that grant equality before the law, irrespective of race, color, caste, religion, birthplace, or gender.
  • The Supreme Court and the High Courts have the power to issue writs or orders to protect such fundamental rights of citizens.
  • A writ petition is a petition filed before the court with a plea to interfering in a lower authority’s decision in case the aggrieved believes that the rights of citizens are being violated.
  • The powers of the High Court to issue writs are wider than that of the Supreme Court. Where the Supreme Court can issue writs only for infringement of fundamental rights, the High Court can issue writs for the same and otherwise. However, one may directly approach the Supreme Court, without first filing a petition before the High Court, where there is a violation of fundamental rights.
  1. Writ of Habeas Corpus: This writ is enforced to protect the fundamental right to liberty of an individual against unlawful detention.
  2. Writ of Certiorari: A writ issued to the lower courts directing the transfer of a case for review. It is generally issued if the higher court finds the matter of over jurisdiction or lack of jurisdiction.
  3. Writ of prohibition: This writ can only be issued against judicial and quasi-judicial authorities to prevent them from exceeding their jurisdiction.
  4. Writ of mandamus: This writ can be issued to subordinate courts and officers directing the performance of certain acts or duties or stopping certain activities as well.
  5. Writ of Quo warranto: This writ questions the legality of a claim to a public office. It prevents the illegal takeover of a public office by an individual.

Constitutional Validity

  • As mentioned above, the Government of India has to abide by the principles laid down in the COI while framing laws. No law can bypass or veto the articles of the COI.
  • Any law or statute which do not fall in line with the principles of COI can be assumed as unconstitutional or invalid.
  • In such a case, the aggrieved party approaches the Court of law to seek justice.
  • The COI has framed three wings to function independently i.e. the executive, the legislature, and the judiciary. There is a separation of powers amongst the three pillars. The legislature of the Parliament frame laws and the executive ensure that such laws are followed diligently. However, the judiciary has the independence provided by the COI to administer justice. Therefore, the judiciary has the freedom to determine and punish the guilty which could even be the executive in some cases.

There have been plentiful instances wherein the Courts have held a specific provision or rule to be unconstitutional or invalid in the sense that such rule goes beyond the COI and breaches one of the fundamental rights of the citizens.

Issues From GST Perspective

  • The 101st Amendment Act, 2016 enabled both Parliament and States to levy GST on supplies of goods and services. The constitutional validity of the GST Act was under scanner when it was first enacted. However, in 2019, the Supreme Court upheld the constitutional validity of the GST Act and the compensation cess as enacted under the law.
  • There have been various provisions of GST law that have been challenged before the Courts to be unconstitutional. Such key provisions are listed below:
  1. The constitutionality of Section 171 of the CGST Act, 2017 which deals with Anti-profiteering measures was questioned on the grounds that it violates Article 19 of the COI.
  2. The constitutional validity of compensation cess has been under discussion.
  3. The intermediary services which was a subject of a dispute under the Service tax regime have also been questioned to be constitutionally valid under GST.
  4. Savings and repeal provisions under GST is another provision that was discussed before the courts for its validity.
  5. A writ was filed challenging the constitutional validity of denial of ITC u/s Section 17(5)(c) and 17(5)(d) of the CGST Act, 2017.
  6. Reverse Charge Mechanism under GST was also questioned before the Courts to be constitutionally valid.
  7. The transitional provisions especially u/s 140 of the CSGT Act, 2017 was under the radar and widely discussed by various courts.
  • Considering that GST law is relatively new, a lot of provisions have been challenged to be constitutionally invalid. Numerous writ petitions have been filed before the High Courts. Also, in the absence of an appellate mechanism, the High Courts have been burdened with plethora of writs. However, the High Court has been conscious of admitting writs only if they pertain to one of the five reasons cited above. The High Court in some cases have also stated that it shall not entertain writs only on account of non-availability of appellate mechanism. The same is beyond the powers of High Court.

Implications For Businesses

While constitutional remedies and validity may seem like a technical term not relevant for all businesses, it is essential to understand that the COI has bestowed certain rights on citizens of India including the businesses. Thus, businesses may invoke such rights, if required. The relevant laws may not always seem to be just and fair to industry and trade. In such cases, the only option left with the trade is to seek shelter under the right to constitutional remedy. For instance, trade and businesses have approached the courts to provide justice by way of intervening whenever unreasonable provisions or rules have been inserted. Recently, the Constitutional validity of Rule 86A of CGST Rules, 2017 empowering GST officer to block ITC-ledger was challenged before Gujarat HC; moreover, Madras HC has also admitted a writ challenging arbitrary restriction placed in Rule 96 (10) for claiming IGST refund.

Thus, in a scenario where a business or an industry is of the opinion that any rule or provision is violating their constitutional rights, they can approach the courts and ask for an intervention. In a democracy as large as India, it is of utmost importance that everyone’s rights are protected even if the violation is done by the Government.

Key Rulings

Some key rulings:

Sr. No.

Name

Highlights

1

Madras High Court in case of M/s Adyar Gate Hotel Limited vs Union of India “The intermittent interventions and the writ petitions filed without exhausting the remedies prescribed under the Statutes need not be entertained in all circumstances in a routine manner. When certain serious legal lapses are noticed, then alone the writ proceedings need to be entertained. However, judicial review in this regard is certainly limited and the Courts must be cautious before entertaining such writ petitions filed without exhausting the remedies available under the provisions of the Statutes.” Thus, the High Court concluded that without exhausting all appellate options, a petition cannot be preferred before the High Court.

2

Supreme Court in the case of CIT vs Chhabil Das Agrawal There is no rule of law that bars the High Court from admitting petition even if all remedial actions have not been taken. It is a rule of policy, convenience, and discretion. Therefore, the High Court may certainly intervene to grant relief under Article 226 of the COI despite the existence of alternative recourse. However, the same should be done judicially, only when the petitioner has made out an exceptional case warranting such interference.

3

Supreme Court in the case of Union of India v. Mohit Minerals (P) Ltd “The purpose of GST is to confer concurrent taxing powers on the Union as well as the States including Union Territory with the legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both”. Thus the validity of compensation cess was upheld.

4

Gujarat High Court in the case of M/s Machinery Recycling Association of India Parliament has exclusive powers under Article 246A of the COI to frame laws for inter-state supplies. This stance has been carried forward from the service tax regime wherein the taxability of intermediary services was introduced w.e.f. 1st October 2014. Therefore, this being a consistent stand of the Government to tax the service provided by the intermediary in India, the same cannot be treated as “export of services” under the Act and therefore, rightly included in Section 13(8) (b) of the Act to consider the location of supplier of service as a place of supply so as to attract CGST and SGST.

5

Kerala HC in the case of Sheen Golden Jewels (India) Pvt. Ltd. vs. The State Tax Officer HC upheld the constitutional validity of saving clause contained u/s 174 of Kerala State Goods and Services Tax Act, 2017 (KSGST Act), stated that “if a right has once been acquired under some statute, that right will not be taken away by the repeal of the statute under which it was acquired”.

6

Gujarat HC in the case of Cosmo Films Ltd vs UOI The Court upheld the constitutional validity of Rule 96(10) of the CGST Rules, 2017 which deals with the refund of IGST for Advance Authorization holders.

7

Madras HC in the case of Comstar Automotive Technologies P. Ltd. vs UOI After the Gujarat HC decision (supra), the Madras HC has admitted the writ petition challenging the constitutional validity of Rule 96(10) of the CGST Rules, 2017. The matter has not been decided yet.

8

Gujarat HC in the case of VKC Footsteps Madras HC in the case of Tvl. Transtonnelstroy AFCONS Joint Venture vs. UOI The Gujarat High Court struck down Rule 89(5) of CGST Rules, 2017. However, the Madras HC decided conversely and held that legislation has consciously used the term ‘input’ and ‘input services’ in various sub-sections of Section 54 to create a distinction between the two.

9

Gujarat HC in the case of Kalpsutra Gujarat vs UOI The Gujarat HC is hearing a petition seeking striking down of Rule 86A of CGST Rules, 2017 in so far as it gives the power to block ITC at no fault of the registered recipient and to declare it ultra vires of Section 16 of CGST Act, 2017.

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