Supply of Goods Vs. Supply of Services in GST: Test of Constitutional Validity
By: – Bimal jain
Goods and Services Tax – GST
Dated:- 8-9-2016<\/p>\n
Dear Professional Colleague,
\nSupply of Goods Vs. Supply of Services in GST: Test of Constitutional Validity
\nOwing to the federal structure of India, where there are two taxing authorities – the Central Government and the State Government(s), the Country has witnessed overlapping of powers of the State Government(s) and the Central Government. Even though the current indirect tax system treats goods and services differently, in certain cases where goods and services with other types of supplies are being packaged as composite bundles & offered for sale to consumers under a variety of supply-chain arrangements, there is double taxation. This is evident in the following exemplary cases:
\nExcise Vs. Service Tax:
\n * Drawings and designs,
\n * Commissioning and installations,
\n * Software etc.
\nService Tax Vs. VAT:
\n * AC Restaurant s<\/p>\n
= = = = = = = =<\/p>\n
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\n * Transfer of future goods (i.e. property therein will pass at future date)
\n * Transfer\/disposal of business assets with or without consideration
\n * Sale of business assets by any other person to recover debt
\n * Goods forming part of business assets on ceasing to be a taxable person
\n * Supply of goods by an unincorporated association to its members
\nMatters to be treated as supply of services:
\n * Transfer of right to use goods
\n * Lease, tenancy, easement, licence to occupy land
\n * Lease or letting out of building
\n * Job work on others' goods
\n * Personal use\/making available for non-commercial use of business assets
\n * Renting of immovable property
\n * Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or before its first occup<\/p>\n
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\nManifestly, present disputes of goods vs. services have been very decently handled in the Model GST Law which has been for ages, marred the current tax regime. But, threadbare analyses of the same would reveal that the settlement of goods vs. services may not fade away so easily in GST when the Schedule II is tested on the scale of constitutional validity. Few of such important points are summarised as under:
\nIs it constitutionally valid to treat intangibles as services?
\nThe Model GST Law has made it explicit that intangibles would be treated as supply of services (as per definition of 'services' under Section 2(88) of the Model CGST\/SGST Act, 2016), while the same has been excluded from the definition of 'goods' given under Section 2(48) of the Model CGST\/SGST Act, 2016.
\nHowever, the definition of 'goods' given under Article 366(12) of the Constitution of India is defined in inclusive manner to provide<\/p>\n
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\nThus, it may raise eyebrows as to whether for the limited purpose of GST, 'intangibles' (i.e. copyright, goodwill, software, trademark, etc.) can be considered as 'service', when the Constitution does not allow so. In case, tax is levied on the basis of definition provided in Model GST Law, it would tantamount to defiance of sanctity of the Constitution, which is ultra-virus.
\nPackaged software – whether goods or services?
\nEven if the bifurcation of goods and services created in Model GST Law by virtue of Schedule II is accepted (leaving aside the contraction with the Constitutional provisions), still there are certain matters where litigation may continue such as likely issue of dispute in case of packaged software (i.e. software provided in physical forms like CD\/DVD, etc.), where a contrary view might be possible contending that by supplying software on CDs (being tangible property), the intention is to supply the 'software' essentially (being int<\/p>\n
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\n (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;
\n (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 the person to whom such transfer, delivery or supply is made.”
\nWhile the 122nd Constitutional Amendment Bill, 2014 has chosen to continue with Article 366(29A) of the Constitution (as against 115th Constitutional Amendment Bill, 2<\/p>\n
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