INVERTED DUTY UNDER GSTA RUBRIC EMBROILED IN UNNECESSARY LITIGATION

As evident, GST works on a premise that being in the nature of consumption tax, the tax burden is ultimately borne by the final consumer and businesses do not bear the burden of the tax since they are allowed to take credit of the tax paid on anterior supplies received by them. The said principle has also been endorsed by Organization for Economic Cooperation and Development in the context of international VAT/ GST Guidelines.

- Sherry Samuel Oommen

Since the advent of the Goods & Services Tax (GST) in July 2017, the topic of GST has been a subject matter of varied litigation. The intent of GST is indeed perspicuous apart from being laudable, as well articulated in the first discussion paper published by the Empowered Committee of State Finance Ministers in 2009, which states as follows:

“In the GST, both the cascading effects of CENVAT and service tax are removed with set-off, and a continuous chain of set-off from the original producer's point and service provider's point up to the retailer's level is established which reduces the burden of all cascading effects. This is the essence of GST, and this is why GST is not simply VAT plus service tax but an improvement over the previous system of VAT and disjointed service tax. The GST at the Central and at the State level will thus give more relief to industry, trade, agriculture and consumers through more comprehensive and wider coverage of input tax set-off and service tax setoff, subsuming of several taxes in the GST and phasing out of CST.” [Emphasis supplied]

As a proprio vigore, the Statement of Objects and Reasons appended to the Bill introducing the Central Goods & Services Tax Act, 2017 (“CGST Act”) also stated that GST will be levied at each stage of supply chain and the taxes paid at earlier stage will be available as input tax credit. The relevant extract of the same is as under:

3. In view of the aforesaid difficulties, all the above-mentioned taxes are proposed to be subsumed in a single tax called the goods and services tax which will be levied on sac o! of goods or services or both at each stage of supply chain starting from manufacture or import till the last retail level.