Delhi High Court says both Centre and States have power to make GST-related laws

Delhi HC says both Centre and States have power to make GST-related laws

Laws are not to be declared unconstitutional on the fanciful theory that power would be exercised in an unrealistic fashion or in a vacuum or on the ground that there is a remote possibility of abuse of power, the Court said.

A division bench of the Delhi High Court (HC) said that both Parliament and state legislatures are entitled to make all GST-related laws.

The bench of Justices Manmohan and Sanjeev Narula on 8 January 2021 observed, "There is always a presumption in favour of constitutionality of an enactment or any part thereof and the burden to show that there has been a clear transgression of constitutional principles is upon the person who impugns such an enactment."

The writ petition was filed, seeking a declaration that Sections 69 and 132 of the Central Goods and Services Tax Act, 2017 (CGST) are arbitrary, unreasonable and being beyond the legislative competence of the Parliament are ultra vires and they could not have been enacted under Article 246A of the Constitution of India, 1950 as they are criminal in nature.

The counsel for the Petitioners submitted that Entry 93 of List 1 confers jurisdiction upon the Parliament to make criminal laws only with respect to matters in List 1 and not CGST. They also submitted that the procedure prescribed under the CGST Act is not just, fair and reasonable.

The vehemently argued that despite the CGST officers being vested with powers of police officers as well as those of a civil court while investigating an offence, still the proceedings are termed as an 'inquiry' and the person summoned is not an 'accused'. They pointed out that as CGST officers are not police officers, no protection under Article 20(3) is available to the summoned persons – thereby causing them immense prejudice.

Per contra, S.V. Raju, Additional Solicitor General for the Respondents, submitted that Article 246A contains special provisions for making laws with respect to GST. According to him, Sections 69 and 132 are in respect of GST and the power to legislate on this subject is conferred by Article 246A.

According to him, the absence of a provision for making a complaint under the CGST Act cannot be a ground for challenging the vires of Sections 69 and 132 of the CGST Act. He emphasised that the present cases involve several non-functional and bogus firms that had fraudulently availed IGST refunds and/or Input Tax Credits (ITC) and had caused substantial loss to the Union of India.

He stated that as per the investigation conducted till date, the fraudulent IGST refund was more than Rs. 63 crore and the fraudulent ITC claimed was more than Rs 6.35 crore and that the petitioner therein had raised sale invoices of Rs. 211.89 crore while having stock worth only Rs. 2.95 crore, which indicated that the petitioner had been indulging in circular trading by raising fraudulent invoices. In view of the said facts, he prayed that no interim protection be granted to the Petitioners.

The Court gave its reasoning that the principles for adjudicating the constitutionality of an enactment or any part thereof are well settled and whenever constitutionality of a provision is challenged on the ground that it infringes a fundamental right, the direct and inevitable effect/consequence of the legislation has to be taken into account. The scope of Article 246A is significantly wide as it not only empowers both Parliament and State Legislatures to levy and/or enact GST Act, but it also grants the power to make all laws 'with respect to' GST.

The Court said, "Laws are not to be declared unconstitutional on the fanciful theory that power would be exercised in an unrealistic fashion or in a vacuum or on the ground that there is a remote possibility of abuse of power. In fact, it must be presumed, unless the contrary is proved, that administration and application of a particular law would be done 'not with an evil eye' and unequal hand."

The Court pointed out that, the power of arrest conferred by Section 69 of the Act is not a general power of arrest, but is restricted to certain offences which are specified under Section 69 of the Act and some in Section 132 of the Act and the offences so specified are all offences relating to GST. Consequently, this Court is of the prima facie view that the expression 'with respect to GST used in Article 246A, being a constitutional provision, must be given its widest amplitude and would include the power to enact criminal law with regard to GST.

Consequently, the Court opined that of the prima facie, pith and substance of the CGST Act is on a topic, upon which the Parliament has the power to legislate as the power to arrest and prosecute are ancillary and/or incidental to the power to levy and collect GST. Hence both Sections 69 and 132 of the Act are constitutional and fall within the legislative competence of Parliament.

The Court was in agreement with the submissions made by the ASG and stated, "that the Central tax officers are empowered to conduct intelligence-based enforcement action against taxpayers assigned to State tax administration under Section 6 of the CGST Act.

"What emerges at the prima facie stage is that it is the case of the Respondents that a tax collection mechanism has been converted into a disbursement mechanism as if it were a subsidy scheme," said the Court while dismissing the prayer for interim relief of the petitioners.