# Kay Pan Fragrances (P) Ltd. Ghaziabad v. U.O.I. & Ors

- **Citation:** (2022) 7 ILRA 970
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2022-05-23
- **Case number:** Writ Tax No. 760 of 2022
- **Bench:** Surya Prakash Kesarwani, Jayant Banerji
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/kay-pan-fragrances-p-ltd-ghaziabad-v-u-o-i-ors-48689
- **Pages:** 24

## Headnote

A. Civil Law - Constitution of India,1950 -
The Constitution (101st Amendment ) Act -
Article 246-A r/w Article 366 (12A) -
CGST/ UPGST Act,2016 - Sections 7,8,& 9
-Income Tax Act 1961- Sections 132 &
153-A - Article 246-A r/w Article 366 (12A) and
other relevant provisions were enacted by the
Constitution (101st Amendment) Act, 2016 so
as to bring the taxes on purchase and sale of
goods, duties on excise and entertainment tax
etc. under one umbrella by empowering the
Parliament and the St. Legislatures to enact
laws with respect to taxes on supply of goods or
services or both including sale of goods.
Accordingly, the Parliament enacted the Central
7 All. M/S Kay Pan Fragrances (P) Ltd. Ghaziabad Vs. U.O.I. & Ors.
971
Goods and Services Tax Act, 2017 and the St.
Legislatures have enacted the St. Goods and
Services
Tax
Act.
Article
246A
of
the
Constitution of India, the provisions of Section
7, 8 and 9 of the CGST Act/ UPGST Act, the
St.ment of Objects and Reasons of The
Constitution (101st Amendment) Act, 2016 and
the St.ment of Objects and Reasons of the
CGST/ UPGST Act, leaves no manner of doubt
that the word 'supply' includes sale also. Thus,
the
Parliament
does
not
lack
legislative
competence to enact Section 7 of the CGST Act
levying tax on supply of goods or services or
both. Likewise, in view of Article 246-A of the
Constitution of India, St. Legislature does not
lack legislative competence to enact Section 7 of
the UPGST Act.

B. The constitutional validity of an Act can be
challenged only on two grounds, viz. (i) lack of
legislative competence; and (ii) violation of any
of the Fundamental Rights guaranteed in Part
III of the Constitution or of any other
constitutional provision. Except the above two
grounds, there is no third ground on the basis
of which the law made by a competent
legislature can be invalidated. In considering
the validity of a Statute the presumption is
always in favour of constitutionality and the
burden is upon the person who attacks it to
show that there has been transgression of
constitutional principles.

Writ Petition dismissed. (E-12)

List of Cases relied upon:-

## Text

_Characters 0–39,999 of 80,609. This is a partial read: ask again with offset=39999 for what follows._

970 INDIAN LAW REPORTS ALLAHABAD SERIES
belief that 'cotton' includes 'cotton waste'
and he had purchased the goods in question
and furnished Form-C for the said goods
and in the aforesaid circumstances it was
canvassed that there was no mens rea
which is essential ingredient prior to
levying penalty under Section 10 of the
Act.

21. In the present case, the revisionist
had never applied for registration of Railway
Siding, Locomotives and Transmitters and in
absence of registration of such goods Form-C
was issued to him for purchase of the said
items and it could not be demonstrated by the
revisionist that he had done this under any
bona fide belief or under mistake of fact.
Apart from the above, clearly Railway
Siding, Locomotives and Transmitters cannot
be related to any other goods or class of
goods for which registration had already been
obtained by the revisionist, so as to show that
he was under some bona fide belief that the
said goods are included in the class of goods
for which Registration Certificate had already
been issued. In absence of any such bona fide
belief, or any other circumstance indicating
that revisionist could have validly purchased
the said goods against Form-C, it cannot be
said that the same had been obtained in a
bona fide manner and hence leads to
inevitable conclusion that Form-C had been
utilized malafidely and unauthorizedly only
with intention to evade tax.

22. From the aforesaid facts it cannot be
demonstrated that purchase of goods against
Form-C was done in bona fide manner nor
had the revisionist moved any application for
inclusion of said goods for registration under
Section 7 of the Act.

23. In the above circumstances it
cannot be said that there is any infirmity in
imposition of penalty by the revenue under
Section 10 of the Act. Hence this Court is
of the considered view that there is no
infirmity in the order of Tribunal and hence
no interference is required by this Court.

24. The revisionist is dismissed. The
questions of law are answered against the
assessee and in favour of the revenue.
----------
(2022)07ILR A970
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 23.05.2022

BEFORE

THE HON'BLE SURYA PRAKASH
KESARWANI, J.
THE HON'BLE JAYANT BANERJI, J.

Writ Tax No. 760 of 2022

M/s
Kay
Pan
Fragrances
(P)
Ltd.
Ghaziabad ...Petitioner
Versus
U.O.I. & Ors. ...Respondents

Counsel for the Petitioner:
Ms. Pooja Talwar, Sri Dhruv Agarwal (Senior
Adv.)

Counsel for the Respondents:
A.S.G.I., C.S.C., Sri Sanjay Kumar Om, Sri
M.C. Chaturvedi (Addl. A.G.)

A. Civil Law - Constitution of India,1950 -
The Constitution (101st Amendment ) Act -
Article 246-A r/w Article 366 (12A) -
CGST/ UPGST Act,2016 - Sections 7,8,& 9
-Income Tax Act 1961- Sections 132 &
153-A - Article 246-A r/w Article 366 (12A) and
other relevant provisions were enacted by the
Constitution (101st Amendment) Act, 2016 so
as to bring the taxes on purchase and sale of
goods, duties on excise and entertainment tax
etc. under one umbrella by empowering the
Parliament and the St. Legislatures to enact
laws with respect to taxes on supply of goods or
services or both including sale of goods.
Accordingly, the Parliament enacted the Central
7 All. M/S Kay Pan Fragrances (P) Ltd. Ghaziabad Vs. U.O.I. & Ors.
971
Goods and Services Tax Act, 2017 and the St.
Legislatures have enacted the St. Goods and
Services
Tax
Act.
Article
246A
of
the
Constitution of India, the provisions of Section
7, 8 and 9 of the CGST Act/ UPGST Act, the
St.ment of Objects and Reasons of The
Constitution (101st Amendment) Act, 2016 and
the St.ment of Objects and Reasons of the
CGST/ UPGST Act, leaves no manner of doubt
that the word 'supply' includes sale also. Thus,
the
Parliament
does
not
lack
legislative
competence to enact Section 7 of the CGST Act
levying tax on supply of goods or services or
both. Likewise, in view of Article 246-A of the
Constitution of India, St. Legislature does not
lack legislative competence to enact Section 7 of
the UPGST Act.

B. The constitutional validity of an Act can be
challenged only on two grounds, viz. (i) lack of
legislative competence; and (ii) violation of any
of the Fundamental Rights guaranteed in Part
III of the Constitution or of any other
constitutional provision. Except the above two
grounds, there is no third ground on the basis
of which the law made by a competent
legislature can be invalidated. In considering
the validity of a Statute the presumption is
always in favour of constitutionality and the
burden is upon the person who attacks it to
show that there has been transgression of
constitutional principles.

Writ Petition dismissed. (E-12)

List of Cases relied upon:-

1. Anant Mills Vs St. of Guj. reported in AIR
1975 SC 1234 (para 20)

2. Charanjit Lal Choudhary Vs U.O.I. & ors., AIR
1951 SC 41 (para 10),

3. Union of India Vs Elphinstone Spinning and
weaving Co. Ltd. 7 ors., AIR 2001 SC 724 (para
9),

4. St. of Bihar & ors. Vs Smt. Charusila Dasi,
AIR 1959 SC 1002 (para 14)

5. Kedar Nath Singh Vs St. of Bihar, AIR 1962
SC 955 (para 26)

6. Corporation of Calcutta Vs Libery Cinema, AIR
1965 SC 1107

7. Anandji Haridas and Co. (P) Ltd. Vs S.P.
Kasture and ors., AIR 1968 SC 565 (para 32)

8. Sunil Batra Vs Delhi Administration and ors.,
AIR 1978 SC 1675

9. St. of Bihar Vs Bihar Distilleries, AIR 1997 SC
1511 (para 18),

10. Zameer Ahmad Latifur Rehman Sheikh Vs
St. of Mah. and ors., J.T. 2010 (4) SC 256 (para
34),

11. Greater Bombay Co-operative Bank Ltd. Vs
United Yarn Tex (P) Ltd. & ors., (2007) 6 SCC
236 (paras 82 to 85)

12. Promoters and Builders Assc. Vs Pune
Municipal Corp. (2007) 6 SCC. 143 (para 9)
(Delivered by Hon'ble Surya Prakash
Kesarwani, J.
&
Hon'ble Jayant Banerji, J.)

1. Heard Sri Dhruv Agarwal, learned
Senior Advocate assisted by Pooja Talwar,
learned counsel for the petitioner, Sri S.P.
Singh, learned Additional Solicitor General
of India assisted by Sri Sanjay Kumar Om,
learned
Central
Government
Standing
Counsel for the respondent No.1 and Sri
M.C.
Chaturvedi,
learned
Additional
Advocate General assisted by Sri B.P.
Singh
Kachhwah,
learned
Standing
Counsel for the respondent Nos.2 to 5.

2. This writ petition has been filed
praying for the following reliefs:

"(a) issue a writ of declaration
declaring Section 7 read with Schedule II of
the Central Goods and Service Tax Act,
2017 in so far as it includes the
transaction of sale within the scope of
972 INDIAN LAW REPORTS ALLAHABAD SERIES
supply and levy tax on such sales as ultra
vires the Constitution, null and void;

(b) issue a writ of declaration
declaring Section 7 read with Schedule II of
the U.P. Goods and Service Tax Act, 2017
in so far as it includes the transaction of
sale within the scope of supply and levy tax
on
such
sales
as
ultra
vires
the
Constitution, null and void;

(c) issue a writ, order or direction
in the nature of Mandamus directing the
respondent authorities not to take any
coercive action against the petitioner in
view
of
the
impugned
order
dated
07.02.2022 passed by the respondent no.4;

(d) issue a writ, order or
direction in the nature of certiorari
quashing
the
impugned
order
dated
07.02.2022 passed by the respondent No.4
(Annexure nos. 29);

(e) issue a writ, order or direction
in the nature of mandamus to waive off the
mandatory 10% deposit for filing an
Appeal under Section 107 of U.P. GST Act,
2017 by the petitioner against the order
dated 07.02.2022; and

(f) Award the costs of the petition
to the petitioner."

SUBMISSIONS:-

3. Sri Dhruv Agarwal, learned Senior
Advocate submits as under:-

(i) Article 246-A does not confer
power to impose tax on sale of goods.
Therefore, enactment of section 7 of the
Central Goods and Services Tax Act, 2017
(hereinafter referred to as 'the CGST Act')
and the U.P. Goods and Services Tax Act,
2017 (hereinafter referred to as 'the UPGST
Act'), lacks legislative competence.

(ii) The word 'supply' does not
mean sale. Therefore, sale could not fall
within the meaning of the word 'supply'.
Reliance is placed upon judgment of
Hon'ble Supreme Court in the case of
Southern Petrochemical Industries Co.
Ltd. vs. Electricity Inspector & ETIO,
(2007)
5
SCC
447
(Para-50)
and
Karnataka
Power
Transmission
Corporation vs. Ashok Iron Works (P)
Ltd. (2009) 3 SCC 240 (Para-28).

(iii) The words 'tax on the sale or
purchase on goods' has been defined in
Article 366(29A) and Entry 54, List-II of
the VIIth Schedule of the Constitution of
India provides for tax on sale of only
petroleum crude, high speed diesel, motor
spirit, natural gas, aviation turbine fuel and
alcoholic liquor for human consumption.
Therefore, by implication, no law can be
legislated which may levy tax on sale of
goods inasmuch as amended Entry 54 has
narrowed down the field of legislation
limited
to
petroleum
crude
etc.
as
aforementioned.

(iv) Opportunity of hearing as
provided under Section 75(4) of the CGST/
UPGST Act has not been afforded to the
petitioner.
(v) All relied upon documents have not
been provided to the petitioner and thus,
the assessment order suffers from breach of
principles of natural justice.

4. Learned Additional Solicitor
General
and
the
learned
Additional
Advocate General support the impugned
order and submit that the provisions of
Section 7 of the CGST Act/ UPGST Act are
valid and not ultra vires.

5. Sri M.C. Chaturvedi, learned
Additional Advocate General has further
submitted
that
challenge
to
the
constitutional
validity
of
a
statutory
provision can be entertained only if the
petitioner is able to show, firstly, that there
is lack of legislative competence to enact
7 All. M/S Kay Pan Fragrances (P) Ltd. Ghaziabad Vs. U.O.I. & Ors.
973
the impugned statutory provision and
secondly, impugned provision infringes
any of the fundamental rights of the
petitioner
guaranteed
under
the
Constitution
of
India
or
any
other
constitutional provisions. He submits that
neither the Parliament nor the State
Legislature lacked legislative competence
to enact Section 7 nor Section 7 infringes
any of the fundamental rights of the
petitioner. He further submits that there is
always presumption in favour of validity of
a statutory provision. In support of his
submissions,
he
relied
on
several
judgments, constitutional and statutory
provisions and Statement of Objects and
Reasons.

Discussion and Findings:-

6. We have carefully considered the
submissions of learned counsels for the
parties and perused the records of the writ
petition.

7. The entire submission of learned
counsel for the petitioner so as to challenge
the constitutional validity of Section 7 of
the CGST Act/ UPGST Act is that the
Parliament and the State Legislature lacked
legislative competence to enact Section 7.

8. Before we proceed to examine the
rival submissions, it would be appropriate
to note the relevant provisions of the
Constitution of India, The CGST Act, The
UPGST Act and Statement of Objects and
Reasons, as under:-

Relevant Provisions:

(i)
101st
Amendment
to
the
Constitution of India:-

"The

Constitution (One Hundred and First
Amendment)

 Act, 2016

 [September 8, 2016.]

An Act further to amend the
Constitution of India.

Be it enacted by Parliament in the
Sixty-seventh Year of the Republic of India
as follows:--

Prefatory Note - Statement of
Objects and Reasons-The Constitution is
proposed to introduce the goods and
services tax for conferring concurrent
taxing powers on the Union as well as the
States including on Union Territory with
Legislature to make laws for levying goods
and services tax on every transaction of
supply of goods or services or both. The
goods and services tax shall replace a
number of indirect taxes being levied by
the Union and the State Governments and
is intended to remove cascading effect of
taxes and provide for a common national
market for goods and services. The
proposed Central and State goods and
services
tax
will
be
levied
on all
transactions involving supply of goods and
services, except those which are kept out of
the purview of the goods and services tax.

2. The proposed Bill, which
seeks further to amend the Constitution,
inter alia, provides for-

(a) subsuming of various Central
indirect taxes and levies such as Central
Excise Duty, Additional Excise Duties,
Excise Duty levied under the Medicinal
and Toilet Preparations (Excise Duties)
Act,
1955,
Service
Tax,
Additional
Customs Duty commonly known as
Countervailing Duty, Special Additional
Duty of Customs, and Central Surcharges
and Cesses so far as they relate to the
supply of goods and services;

(b) subsuming of State Value
Added Tax/Sales Tax, Entertainment Tax
974 INDIAN LAW REPORTS ALLAHABAD SERIES
(other than the tax levied by the local
bodies), Central Sales Tax (levied by the
Centre and collected by the States), Octroi
and Entry tax, Purchase Tax, Luxury tax,
Taxes on lottery, betting and gambling;
and State cesses and surcharges in so far
as they relate to supply of goods and
services;

(c) dispensing with the concept of
"declared goods of special importance"
under the Constitution;

(d) levy of Integrated Goods and
Services Tax on inter-State transactions of
goods and services;

(e) levy of an additional tax on
supply of goods, not exceeding one per cent
in the course of inter-State trade or
commerce
to
be
collected
by
the
Government of India for a period of two
years, and assigned to the States from
where the supply originates;

(f) conferring concurrent power
upon Parliament and the State Legislatures
to make laws governing goods and services
tax;

(g) coverage of all goods and
services, except alcoholic liquor for human
consumption, for the levy of goods and
services tax. In case of petroleum and
petroleum products, it has been provided
that these goods shall not be subject to the
levy of Goods and Services Tax till a date
notified on the recommendation of the
Goods and Services Tax Council;

(h) compensation to the States
for loss of revenue arising on account of
implementation of the Goods and Services
Tax for a period which may extend to five
years;

(i)
creation
of
Goods
and
Services Tax council to examine issues
relating to goods and services tax and make
recommendations to the non and the states
on parameters like rates, exemption list and
threshold limits. The Council shall function
under the Chairmanship of the Union
Finance Minister and will have the Union
Minister of State in charge of Revenue or
Finance as member, along with the
Minister in-charge of Finance or Taxation
or any other Minister nominated by each
State Government. It is further provided
that every decision of the Council shall be
taken by a majority of not less than threefourths of the weighted votes or the
members present and voting in accordance
with the following principles:-

(A) the vote of the Central
Government shall have a weightage of onethird of the total votes cast, and

(B) the votes of all the State
Governments taken together shall have a
weightage of two-thirds of votes of the total
votes cast in that meeting.

Illustration

In terms of clause (9) of the
proposed Article 279-A, the "weighted
votes of the members present and voting" in
favour of a proposal in the Goods and
Services Tax Council shall be determined
as under.-

WT = WC + WS

Where

WT = WC + WS = WST/SP x SF

Wherein

WT=Total weighted votes of all
members in favour of a proposal.

WC=Weighted vote of the Union
= 1/3 i.e., 33.33% if the Union is in favour
of the proposal and be taken as "0 if, Union
is not in favour of a proposal.

WS= Weighted votes of the States
in favour of a proposal.

SP= Number of States present
and voting.

WST= Weighted votes of all
States present and voting i.e. 2/3, i.e.,
66.67%

SF = Number of States voting in
favour of a proposal.
7 All. M/S Kay Pan Fragrances (P) Ltd. Ghaziabad Vs. U.O.I. & Ors.
975

(j) Clause 20 of the proposed Bill
makes transitional provisions to take care
of any inconsistency which may arise with
respect to any law relating to tax on goods
or services or on both in force in any State
on the commencement of the provisions of
the Constitution as amended by this Act
within a period of one year.

3. The Bill seeks to achieve the
above objects.

1. Short title and commencement
- (1) This Act may be called the
Constitution (One Hundred and First
Amendment) Act, 2016.

(2) It shall come into force on
such date as the Central Government may,
by notification in the Official Gazette,
appoint, and different dates may be
appointed for different provisions of this
Act and any reference in any such provision
to the commencement of this Act shall be
construed
as
a
reference
to
the
commencement of that provision.

2. Insertion of new Article 246-A
- After article 246 of the Constitution, the
following article shall be inserted, namely:-
-

"246-A. 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 279-A, take effect from the date
recommended by the Goods and Services
Tax Council."

3.Amendment of Article 248.- In
article 248 of the Constitution, in clause
(1), for the word "Parliament", the words,
figures and letter "Subject to article 246-A,
Parliament" shall be substituted.

4. Amendment of Article 249.- In
article 249 of the Constitution, in clause
(1), after the words "with respect to", the
words, figures and letter "goods and
services tax provided under article 246-A
or" shall be inserted.

5. Amendment of Article 250.- In
article 250 of the Constitution, in clause
(1), after the words "with respect to", the
words, figures and letter "goods and
services tax provided under article 246-A
or" shall be inserted.

6. Amendment of Article 268.- In
article 268 of the Constitution, in clause
(1), the words "and such duties of excise on
medicinal and toilet preparations" shall be
omitted.

7. Omission of Article 268-A -
Article 268-A of the Constitution, as
inserted by section 2 of the Constitution
(Eighty-eighth Amendment) Act, 2003 shall
be omitted.

8. Amendment of Article 269. In
article 269 of the Constitution, in clause
(1), after the words "consignment of
goods", the words, figures and letter
"except as provided in Article 269-A" shall
be inserted.

9. Insertion of new Article 269A.- After article 269 of the Constitution, the
following article shall be inserted, namely:-
-

''269-A. Levy and collection of
goods and services tax in course of interState trade or commence - (1) Goods and
services tax on supplies in the course of
inter-State trade or commerce shall be
levied and collected by the Government of
976 INDIAN LAW REPORTS ALLAHABAD SERIES
India and such tax shall be apportioned
between the Union and the States in the
manner as may be provided by Parliament
by law on the recommendations of the
Goods and Services Tax Council.

Explanation.--For the purposes of
this clause, supply of goods, or of services,
or both in the course of import into the
territory of India shall be deemed to be
supply of goods, or of services, or both in
the
course
of
inter-State
trade
or
commerce.

(2) The amount apportioned to a
State under clause (1) shall not form part
of the Consolidated Fund of India.

(3) Where an amount collected as
tax levied under clause (1) has been used
for payment of the tax levied by a State
under article 246-A, such amount shall not
form part of the Consolidated Fund of
India.

(4) Where an amount collected as
tax levied by a State under article 246-A
has been used for payment of the tax levied
under clause (1), such amount shall not
form part of the Consolidated Fund of the
State.

(5) Parliament may, by law,
formulate the principles for determining the
place of supply, and when a supply of
goods, or of services, or both takes place in
the
course
of
inter-State
trade
or
commerce.''.

10. Amendment of Article 270.-
In article 270 of the Constitution,--

(i) in clause (1), for the words,
figures and letter "articles 268, 268-A and
269", the words, figures and letter "Articles
268, 269 and 269-A" shall be substituted;

(ii) after clause (1), the following
clauses shall be inserted, namely:--

''(1-A) The tax collected by the
Union under clause (1) of Article 246-A
shall also be distributed between the Union
and the States in the manner provided in
clause (2).

(1-B) The tax levied and collected
by the Union under clause (2) of article
246-A and article 269-A, which has been
used for payment of the tax levied by the
Union under clause (1) of Article 246-A,
and the amount apportioned to the Union
under clause (1) of Article 269-A, shall also
be distributed between the Union and the
States in the manner provided in clause
(2).''

11. Amendment of Article 271.-
In Article 271 of the Constitution, after the
words ''in those articles'', the words, figures
and letter ''except the goods and services
tax under article 246-A,'' shall be inserted.

12. Insertion of new Article 279A - After Article 279 of the Constitution, the
following
Article
shall
be
inserted,
namely:--

''279-A. Goods and Services Tax
Council. - (1) The President shall, within
sixty days from the date of commencement
of the Constitution (One Hundred and First
Amendment) Act, 2016, by order, constitute
a Council to be called the Goods and
Services Tax Council.

(2) The Goods and Services Tax
Council shall consist of the following
members, namely:--

(a) the Union Finance Minister

.....

Chairperson;

(b) the Union Minister of State in
charge of

Revenue or Finance

.....

Member;

(c) the Minister in charge of Finance

or Taxation or any other Minister

nominated
by
each
State
Government

.....
7 All. M/S Kay Pan Fragrances (P) Ltd. Ghaziabad Vs. U.O.I. & Ors.
977

Members

(3) The Members of the Goods
and Services Tax Council referred to in
sub-clause (c) of clause (2) shall, as soon
as may be, choose one amongst themselves
to be the Vice-Chairperson of the Council
for such period as they may decide.

(4) The Goods and Services Tax
Council shall make recommendations to the
Union and the States on--

(a)
the
taxes,
cesses
and
surcharges levied by the Union, the States
and the local bodies which may be
subsumed in the goods and services tax;

(b) the goods and services that
may be subjected to, or exempted from the
goods and services tax;

(c) model Goods and Services Tax
Laws, principles of levy, apportionment of
Goods and Services Tax levied on supplies
in the course of inter-State trade or
commerce under article 269-A and the
principles that govern the place of supply;

(d) the threshold limit of turnover
below which goods and services may be
exempted from goods and services tax;

(e) the rates including floor rates
with bands of goods and services tax;

(f) any special rate or rates for a
specified
period,
to
raise
additional
resources during any natural calamity or
disaster;

(g) special provision with respect
to the States of Arunachal Pradesh, Assam,
Jammu and Kashmir, Manipur, Meghalaya,
Mizoram,
Nagaland,
Sikkim,
Tripura,
Himachal Pradesh and Uttarakhand; and

(h) any other matter relating to
the goods and services tax, as the Council
may decide.

(5) The Goods and Services Tax
Council shall recommend the date on which
the goods and services tax be levied on
petroleum crude, high speed diesel, motor
spirit (commonly known as petrol), natural
gas and aviation turbine fuel.

(6)
While
discharging
the
functions conferred by this article, the
Goods and Services Tax Council shall be
guided by the need for a harmonised
structure of goods and services tax and for
the development of a harmonised national
market for goods and services.

(7) One-half of the total number
of Members of the Goods and Services Tax
Council shall constitute the quorum at its
meetings.

(8) The Goods and Services Tax
Council shall determine the procedure in
the performance of its functions.

(9) Every decision of the Goods
and Services Tax Council shall be taken at
a meeting, by a majority of not less than
three-fourths of the weighted votes of the
members present and voting, in accordance
with the following principles, namely:-

(a) the vote of the Central
Government shall have a weightage of onethird of the total votes cast, and

(b) the votes of all the State
Governments taken together shall have a
weightage of two-thirds of the total votes
cast, in that meeting.

(10) No act or proceedings of the
Goods and Services Tax Council shall be
invalid merely by reason of--

(a) any vacancy in, or any defect
in, the constitution of the Council; or

(b) any defect in the appointment
of a person as a Member of the Council; or

(c) any procedural irregularity of
the Council not affecting the merits of the
case

(11)The Goods and Services Tax
Council shall establish a mechanism to
adjudicate any dispute --

(a) between the Government of
India and one or more States; or
978 INDIAN LAW REPORTS ALLAHABAD SERIES

(b) between the Government of
India and any State or States on one side
and one or more other States on the other
side; or

(c) between two or more States,
arising out of the recommendations of the
Council or implementation thereof.''.

13.Amendment of Article 286.-
In article 286 of the Constitution,--

(i) in clause (1),--

(A) for the words "the sale or
purchase of goods where such sale or
purchase takes place", the words "the
supply of goods or of services or both,
where such supply takes place" shall be
substituted;

(B) in sub-clause (b), for the word
"goods", at both the places where it occurs,
the words "goods or services or both" shall
be substituted;

(ii) in clause (2), for the words
"sale or purchase of goods takes place", the
words "supply of goods or of services or
both" shall be substituted;

(iii) clause (3) shall be omitted.

14. Amendment of Article366.-
In article 366 of the Constitution,--

(i) after clause (12), the following
clause shall be inserted, namely:--

'(12-A) "goods and services tax"
means any tax on supply of goods, or
services or both except taxes on the supply
of
the
alcoholic
liquor
for
human
consumption;';

(ii)
after
clause
(26),
the
following
clauses
shall
be
inserted,
namely:--

'(26-A)
"Services"
means
anything other than goods;

(26-B) "State" with reference to
articles 246-A, 268, 269, 269-A and article
279-A includes a Union territory with
Legislature;'.

15.Amendment of Article 368.-
In Article 368 of the Constitution, in clause
(2), in the proviso, in clause (a), for the
words and figures "Article 162 or Article
241", the words, figures and letter "Article
162, Article 241 or Article 279-A" shall be
substituted.

16.Amendment
of
Sixth
Schedule.- In the Sixth Schedule to the
Constitution, in paragraph 8, in subparagraph (3),--

(i) in clause (c), the word "and"
occurring at the end shall be omitted;

(ii) in clause (d), the word "and"
shall be inserted at the end;

(iii) after clause (d), the following
clause shall be inserted, namely:--

"(e) taxes on entertainment and
amusements.".

17.
Amendment
of
Seventh
Schedule.- In the Seventh Schedule to the
Constitution,--

(a) in List I--Union List,--

(i) for entry 84, the following
entry shall be substituted, namely:--

"84. Duties of excise on the
following goods manufactured or produced
in India, namely:--

(a) petroleum crude;

(b) high speed diesel;

(c) motor spirit (commonly known
as petrol);

(d) natural gas;

(e) aviation turbine fuel; and

(f)
tobacco
and
tobacco
products.";

(ii) entries 92 and 92-C shall be
omitted;

1. in List II--State List,--

(i) entry 52 shall be omitted;

(ii) for entry 54, the following
entry shall be substituted, namely:--

"54. Taxes on the sale of
petroleum crude, high speed diesel, motor
spirit (commonly known as petrol), natural
gas, aviation turbine fuel and alcoholic
liquor for human consumption, but not
7 All. M/S Kay Pan Fragrances (P) Ltd. Ghaziabad Vs. U.O.I. & Ors.
979
including sale in the course of inter-State
trade or commerce or sale in the course of
international trade or commerce of such
goods.";

(iii) entry 55 shall be omitted;

(iv) for entry 62, the following
entry shall be substituted, namely:--

"62. Taxes on entertainments and
amusements to the extent levied and
collected by a Panchayat or a Municipality
or a Regional Council or a District
Council.".

18. Compensation to States for
loss of revenue on account of introduction
of goods and services tax.- Parliament
shall, by law, on the recommendation of the
Goods and Services Tax Council, provide
for compensation to the States for loss of
revenue
arising
on
account
of
implementation of the goods and services
tax for a period of five years.

19.
Transitional
provisions.-
Notwithstanding anything in this Act, any
provision of any law relating to tax on
goods or services or on both in force in any
State
immediately
before
the
commencement of this Act, which is
inconsistent with the provisions of the
Constitution as amended by this Act shall
continue to be in force until amended or
repealed by a competent Legislature or
other
competent
authority
or
until
expiration
of
one
year
from
such
commencement, whichever is earlier.

20. Power of President to remove
difficulties.- (1) If any difficulty arises in
giving effect to the provisions of the
Constitution as amended by this Act
(including any difficulty in relation to the
transition from the provisions of the
Constitution as they stood immediately
before the date of assent of the President to
this Act to the provisions of the Constitution
as amended by this Act), the President may,
by order, make such provisions, including
any adaptation or modification of any
provision of the Constitution as amended
by this Act or law, as appear to the
President to be necessary or expedient for
the purpose of removing the difficulty:

Provided that no such order shall
be made after the expiry of three years from
the date of such assent.

(2) Every order made under subsection (1) shall, as soon as may be after it
is made, be laid before each House of
Parliament."

(ii) Article 366(12A) of the
Constitution of India:-

'(12A) "goods and services tax"
means any tax on supply of goods, or
services or both except taxes on the supply
of
the
alcoholic
liquor
for
human
consumption;

(iii) Objects and Reasons of
CGST Act, 2017:-

"The Central Goods and
Services Tax Act, 2017

[No.12 of 2017]

[12th April, 2017]

An Act to make a provision for
levy and collection of tax on intra-State
supply of goods or services or both by the
Central Government and the matters
connected therewith or incidental thereto

Be it enacted by Parliament in the
Sixty-eighth Year of the Republic of India
as follows-

Statement
of
Objects
and
Reasons.--
Presently,
the
Central
Government levies tax on, manufacture of
certain goods in the form or Central
Excise duty, provision of certain services
in the form of service tax, inter-State sale
of goods in the form of Central Sales tax.
Similarly, the State Governments levy tax
on and on retail sales in the form of value
added tax, entry of goods in the State in
the form of entry tax, luxury tax and
980 INDIAN LAW REPORTS ALLAHABAD SERIES
purchase tax, etc. Accordingly, there is
multiplicity of taxes which are being
levied on the same supply chain.

2. The present tax system on
goods and services is facing certain
difficulties as under-

(i) there is cascading of taxes as
taxes levied by the Central Government are
not available as set off against the taxes
being levied by the State Governments;

(ii) certain taxes levied by State
Governments are not allowed as set off for
payment of other taxes being levied by
them;

(iii) the variety of Value Added Tax
Laws in the country with disparate tax rates
and dissimilar tax practices divides the
country into separate economic spheres, and

(iv) the creation of tariff and nontariff barriers such as octroi, entry tax, check
posts, etc., hinder the free flow of trade
throughout the country. Besides that, the
large number of taxes create high compliance
cost for the taxpayers in the form of number
of returns, payments, etc.

3. In view of the aforesaid
difficulties, all the abovementioned taxes are
proposed to be subsumed in a single tax
called the goods and services tax which will
be levied on supply of goods or services or
both at each Stage of supply chain starting
from manufacture or import and till the last
retail level. So, any tax that is presently being
levied by the Central Government or the State
Governments on the supply of goods or
services going to be converged in goods and
services tax which is proposed to be a dual
levy where the Central Government will levy
and collect tax in the form of central goods
and services tax and the State Government
will levy and collect tax in the form of State
goods and services tax on intra-State supply
of goods or services or both.

4. In view of the above, it has
become necessary to have a Central
legislation, namely, the Central Goods and
Services Tax Bill, 2017. The proposed
legislation will confer power upon the
Central Government for levying goods and
services tax on the supply of goods or
services or both which takes place within a
State. The proposed legislation will simplify
and harmonise the indirect tax regime in
the country. It is expected to reduce cost of
production and inflation in the economy,
thereby making the Indian trade and
industry more competitive, domestically as
well as internationally. Due to the seamless
transfer of input tax credit from one stage
to another in the chain of value addition,
there is an in-built mechanism in the design
of goods and services tax that would
incentivise tax compliance by taxpayers.
The proposed goods and services tax will
broaden the tax base, and result in better
tax compliance due to a robust information
technology infrastructure.

5.
The
Central
Goods
and
Services Tax Bill, 2017, inter alia, provides
tor the following, namely-

(a) to levy tax on all intra-State
supplies of goods or services or both except
supply of alcoholic liquor for human
consumption at a rate to be notified, not
exceeding twenty per cent as recommended
by the Goods and Services Tax Council (the
Council);

(b) to broad base the input tax
credit by making it available in respect of
taxes paid on any supply of goods or
services or both used or intended to be
used in the course or furtherance of
business;

(c) to impose obligation on
electronic commerce operators to collect
tax at source, at such rate not exceeding
one per cent of net value of taxable
supplies, out of payments to suppliers
supplying goods or services through their
portals;
7 All. M/S Kay Pan Fragrances (P) Ltd. Ghaziabad Vs. U.O.I. & Ors.
981

(d) to provide for self-assessment
of the taxes payable by the registered
person;

(e) to provide for conduct of audit
of registered persons in order to verily
compliance with the provision of the Act;

(f) to provide for recovery of
arrears of tax using various modes
including detaining and sale of goods,
movable and immovable property of
defaulting taxable person;

(g) to provide for powers of
inspection, search, seizure and arrest to the
officers;

(h) to establish the Goods and
Services Tax Appellate Tribunal by the
Central Government for hearing appeals
against the orders passed by the Appellate
Authority or the Revisional Authority:

(i) to make provision for penalties
for contravention of the provisions of the
proposed Legislation;

(j) to provide for an antiprofiteering clause in order to ensure that
business passes on the benefit of reduced
tax incidence on goods or services or both
to the consumers; and

(k) to provide for elaborate
transitional
provisions
for
smooth
transition of existing taxpayers to goods
and services tax regime.

6. The Notes on clauses explain
in detail the various provisions contained
in the Central Goods and Services Tax Bill,
20l7.

7. The Bill seeks to achieve the
above objectives."

(iv) Section 7 of the CGST Act,
2017:- Section 7 of the CGST Act, 2017,
which is para materia with Section 7 of the
UPGST Act,
is
part
of
Chapter-III
providing for Levy of Collection of Tax.
Section 7 of the CGST Act provides for
scope of supply as under:-

"(1) For the purposes of this Act,
the expression "supply" includes--

(a) all forms of supply of goods
or services or both such as sale, transfer,
barter, exchange, licence, rental, lease or
disposal made or agreed to be made for a
consideration by a person in the course or
furtherance of business;

(aa) the activities or transactions,
by a person, other than an individual, to its
members or constituents or vice-versa, for
cash, deferred payment or other valuable
consideration.

Explanation.--For the purposes of
this clause, it is hereby clarified that,
notwithstanding anything contained in any
other law for the time being in force or any
judgment, decree or order of any Court,
tribunal or authority, the person and its
members or constituents shall be deemed to
be two separate persons and the supply of
activities or transactions inter se shall be
deemed to take place from one such person
to another;

(b) import of services for a
consideration whether or not in the course
or furtherance of business; [ and]

(c) the activities specified in
Schedule I, made or agreed to be made
without a consideration; [xxx]

[(d) the activities to be treated as
supply of goods or supply of services as
referred in Schedule II]

[(1A) Where certain activities or
transactions,
constitute
a
supply
in
accordance with the provisions of subsection (1), they shall be treated either as
supply of goods or supply of services as
referred to in Schedule II]

(2)
Notwithstanding
anything
contained in sub-section (1),--

(a) activities or transactions
specified in Schedule III ; or

(b) such activities or transactions
undertaken by the Central Government, a
982 INDIAN LAW REPORTS ALLAHABAD SERIES
State Government or any local authority in
which
they
are
engaged
as
public
authorities, as may be notified by the
Government on the recommendations of the
Council,

shall be treated neither as a
supply of goods nor a supply of services.

(3) Subject to the provisions of
[sub-sections (1), (1A) and (2)], the
Government may, on the recommendations
of the Council, specify, by notification, the
transactions that are to be treated as--

(a) a supply of goods and not as a
supply of services; or

(b) a supply of services and not
as a supply of goods."

Legislative Competence:-

9.

By
101st
Amendment
in
Constitution of India, a new Article 246-A
was inserted with overriding effect to
Articles 246 and 254 of the Constitution of
India. By Clause (1) of Article 246-A, the
Parliament, and, subject to clause (2), the
Legislature of every State, have been
empowered to make laws with respect to
goods or services tax imposed by the Union
or by such State. Clause (2) has given
exclusive powers to the Parliament 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.
Simultaneously, amendments were made in
Articles 248, 249, 250, 268, 269, 270, 271,
279A, 286, 366 and 368 of the Constitution
of India. Article 268A as existed prior to
the 101st Amendment, was omitted.