ST to GST - Non Existing Entry 92C - A Constitutional Puzzle?
MANY including Courts believe that Service Tax is levied under Entry 92C of the Seventh Schedule to the Constitution of India inserted by the eighty eighth amendment which brought in Article 268A.
Article 268A (1) states,
"Taxes on services shall be levied by the Government of India".
Entry 92C reads as:
"92C. Taxes on services."
But there is a small problem - the Eighty eighth amendment was never notified!
In an article for us in June 2009, the eminent senior advocate Arvind P Datar wrote, "Interestingly, Entry 92C and Article 268A were inserted by the 88th Amendment to the Constitution. But both these have not been notified till date."
In the Madras Hire Purchase Association case - , argued by Mr.Datar, the Madras High Court observed, "Service tax is made by Parliament under Entry 92C of List I and Article 268-A… "
I asked Mr.Datar on this immediately after the High Court judgement was delivered. He wrote to me, "I had specifically argued that 92C and 268A had not been notified; we are moving the Supreme Court against this order." He did and the Supreme Court in observed, "this Court has on three different occasions upheld the levy of service with reference to Entry 97 of List I in the face of challenges to the competence of the Parliament based on the entries in List II and on all the three occasions, this Court has held that the levy of service tax falls within Entry 97 of List I."
So, Service Tax is levied under the residual entry 97 of the Seventh Schedule to the Constitution, and not under entry 92C.
Now the Constitution Amendment Bill to bring in GST specifically provides for omitting Entry 92C in the Seventh Schedule and Article 268A in the Constitution. Remember these provisions were never notified.
Interestingly, this point came up before the Rajya Sabha Select Committee, which studied the Constitution Amendment Bill. Some Members sought clarifications and asked, "What is entry 92C?" (as it does not figure in the Constitution)
The Committee observed,
Regarding the aforesaid Entry, the Committee is of the view that Entry 92C was inserted by the Constitution (Eighty-Eighth Amendment) Act, 2003 to empower the Union to impose service tax on certain services read with article 268A of the Constitution.
Notwithstanding, the service tax levied under the Finance Act, 1994 were continuing as such. The amendment was carried out in the Constitution but the provision was never brought into force. Since Parliament has enacted the said constitutional provision and as such the provision stands as the part of Constitution; unless it is omitted by a Constitution Amendment Act by Parliament, it will continue to sit in the Constitution. Therefore, it is necessary to omit the said provision to ward of any future doubts about GST.