Chief Minister of the State of Punjab, Capt. Amarinder Singh on 21.3.2018 announced a waiver of the State Government’s 50 percent share in the total collection of GST, called SGST, on supplies to langar or prasad at Sri Darbar Sahib, Durgiana Mandir and Bhagwan Valmiki Tirath Sthal. During discussions on this issue in the Legislative Assembly, the government was criticized for not persuading the GST Council, and in reply the Finance Minister Shri Manpreet Brar tabled the minutes of the GST council meeting, dated August 5, 2017, in the Punjab Assembly and read out the relevant portions wherein it was stated that the “Minister from Punjab” demanded exemption on the items used for preparing langar at the Golden Temple, and the same was rejected by the Council chairperson. The Vidhan Sabha of Punjab then passed a unanimous resolution to press for total waiver of GST on these items by the Central Government. However it does appear that the State Government will be unilaterally issuing exemption to supplies to two langars and is not going to wait for long. The article examines whether the exemption from SGST which the State Governments has unilaterally announced, against the advice of GST Council, is good in law and whether it augurs well for the future of GST.
The authority to impose GST in the Constitution of India is as follows-
Article 246A. Special provision with respect to goods and services tax.—(1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), 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.
(2) 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.
Explanation.—The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council.
This Article of the Constitution gives full and unconditional authority to the Legislature to impose GST in the course of intrastate trade. There is no mention of the Council in it. The Constitution has conferred sovereign powers on the State to tax GST where there is no inter-state movement of goods or service. To that extent if the Government of Punjab refuses to match its steps with the comity of States and the Union and imposes a tax regime which has not been agreed to by the federation, through the GST Council, no violation of the Constitution can be said to have taken place.
The notification granting the exemption could still be considered ultra vires under the state’s own law on GST. Section 9 of SGST Act says as follows:-
‘9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty percent, as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.’
The State has announced the grant of exemption without obtaining a positive recommendation of the GST Council. The question of law is whether the recommendation of GST Council is a mere advice given by a Constitutional body leaving it to the Government to accept it or reject it or whether it has a greater compelling force in it, even if we accept the notion that under the Constitution of India, State Governments are not obliged to act on someone else’s advice as that would amount to compromising their sovereignty. In other words, the question is whether, under the States’ own laws, the Council’s advice is more than a product of “think tank” consultation which does not inhibit the advice taker from acting in any manner the person so chooses to do.
There are many Constitutional bodies that have been created who are meant to advise the Government. The Government is obliged to consider their advice and in many cases inform the Parliament whether they have accepted or rejected them. The advice of UPSC, for instance, on disciplinary action against officers, is not binding on the Government nor systemic advice given by the Election Commission on elections. There is no case law that answers the question whether the recommendation of the GST Council is anything more than advice or policy suggestions given by a Constitutional body to the Government.
The text of the State Legislature needs a study as it seems to give a direct role to the Council in making of tax tariff. The Act says that ‘there shall be levied a tax…… at such rates, not exceeding twenty percent, as may be notified by the Government on the recommendations of the Council…’ The state legislature seems to have imposed a binding on itself to the extent that the tariff can be fixed only on the recommendation of GST Council. It does not appear that a negative recommendation will do as a recommendation mentioned in section 9 of the Act. The language of the statute seems to assign a greater value to the expression ‘recommendation of GST Council’ than a mere consultation. In fact, the GST Council is seen as an active partner in laying of tariff rates and a notification giving exemption to supplies to langars would be ultra-vires the state statute.
The announcement of the Chief Minister gave a wrong impression of what was intended by him and the Finance Minister of India has given a statement clarifying that services offered by the Gurudwara are already exempt. Grant of exemption to Gurudwaras was not the subject which concerned the Chief Minister. He meant supplies to Gurdwaras which were earlier exempted from VAT laws of Punjab prior to the commencement of GST laws but are charged to GST.
The Government’s intention to exempt goods supplies to two Gurudwaras would render the persons who act as vendors to two Gurudwaras as the beneficiaries. In this context, the Central Government has argued against the grant of this exemption on the plea that end-use exemptions are not visualized in the scheme of GST.
Whether end-use exemptions can be granted is a policy matter because the States power to exempt includes the power to grant an exemption with any condition that they may wish to impose including a condition of end-use of the goods or services supplied. In practice of GST law, an end-use exemption has been granted to Canteen Stores Department (CSD) of Ministry of Defence under section 55 of the Act, where the beneficiary is the CSD itself and not the vendors. CSD has been entitled to claim a refund of 50% of the GST already paid by them on the supplies received by them. This option is available to GST Council to consider an exemption to supplies at least to those entities who were exempted from the VAT or Central Excise prior to the commencement of GST laws.
It does not appear that the Government of Punjab has issued any exemption notification to supplies to any langar at the time of going to press. There is a GST Dharma that must be followed so as to preserve the personality of GST laws in India and the principal duty in it is not to take unilateral action. This duty is the essence of cooperative federalism in indirect taxation. The Government of Punjab will be well advised to approach the GST Council again and explain to them that GST should not be imposed on those supplies of high merit, such as goods meant for free distribution in langars, which enjoyed full exemption from VAT before 1.7.2017. The Council should approach the issue of exemption under section 55 of the Act in the spirit of cooperation that’s necessary for GST to work.
Sujit Kumar Sinha
Chief Commissioner of Customs Excise (Rtd)