We are pleased to present the latest edition of Tax Street – our newsletter that covers all the key developments and updates in the realm of taxation in India and across the globe for the month of May 2021.
- The 'Focus Point' explores the implications of the retrospective amendment to the scope of 'Supply' in the Finance Act, 2021.
- Under the 'From the Judiciary' section, we provide in brief, the key rulings on important cases, and our take on the same.
- Our 'Tax Talk' provides key updates on the important tax-related news from India and across the globe.
- In the 'M&A Tax and Regulatory' section we highlight the critical rulings and significant updates in the M&A tax and regulatory arena.
- Under 'Compliance Calendar', we list down the important due dates with regard to direct tax, transfer pricing and indirect tax in the month.
We hope you find our newsletter useful and we look forward to your feedback. You can write to us at email@example.com. We would be happy to hear your thoughts on what more can we include in our newsletter and incorporate your feedback in our future editions.
Retrospective amendment to the scope of 'Supply' in Finance Act, 2021: Unsettling the settled?
"The health of our economy will not improve until we inject the 'S' factor into our fiscal laws, and make them Sane, Simple and Stable."
- Nani Palkhivala
The amendment to Section 7 of the CGST Act, 20171 with retrospective effect from 1 July 2017, seeks to levy tax on activities or transactions involving supply of goods and/ or services by any person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.
Further, with the aid of an Explanation, it has been clarified that the person and its members or constituents shall be deemed as separate persons notwithstanding anything contained in any other law for the time being in force, any judgment, decree or order of the Court, Tribunal, or authority. Simultaneously, entry 7 of Schedule II to the CGST Act which classified "Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration" as 'supply of goods' for the purpose of GST, stands omitted with retrospective effect.
Before delving into the implications of the above provision, let us look at the legislative background and judicial history of taxation of such transactions.
Legislative and judicial background
Over the years, the 'doctrine of mutuality' has been invoked in a myriad of cases, both under the Income-tax as well as erstwhile indirect tax laws, viz. Service tax and VAT laws.
The doctrine stems from the common law principle that a person cannot make a profit from himself. In the context of Indian law, some Hon'ble High Courts had upheld the doctrine of mutuality vis-à-vis levy of sales tax by following the English cases of Graff vs. Evans2 and Trebanog Working Men's Club and Institute Ltd. vs. Macdonald3. However, a 3-Judge Bench of Hon'ble Apex Court overruled this view in Enfield India Ltd4 on the ground that said doctrine had no application vis-à-vis taxing statute.
This issue once again came up before the Hon'ble Supreme Court's Constitution Bench in CTO vs. Young Men's India Association5 wherein this time, and it was held that the club (although a distinct entity) was only an agent of its members and there was no 'sale' involved in the supply of various preparations to them since the element of 'transfer' was absent.
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1. To be notified by way of separate Notification
2. [(1882) 8 Q.B. 373]
3. [(1940) 1 K.B. 576]
4. [(1968) 2 SCR 421]
5. [(1970) 1 SCC 462]
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