MAY 21, 2025

The Taxing Tale of Laws, Rules, and Regulations

By Vijay Kumar

IMAGINE being trapped in a maze of laws, rules, and regulations, with no clear exit in sight. Welcome to the world of taxation, where the complexity of GST (Goods and Services Tax) can leave even the most seasoned taxpayer bewildered. As we navigate this labyrinth, let's explore the hierarchy of laws, rules, and regulations that govern GST, and try to make sense of the chaos.

As per Article 265 of the Constitution of India, No tax shall be levied or collected except by authority of law. So, there has to be laws to collect taxes including GST and whoever makes these laws should have the power to make laws. In India, usually laws are made by the Parliament and State legislatures. As per Article 246,

1. Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule ("Union List").

2. The Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule ("State List").

3. Parliament, and the Legislature of any State have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule ("Concurrent List").

So, there are three lists, the Union List, State List and the Concurrent List.

In the List I, known as the Union List, are included taxes like:

1. Taxes on income other than agricultural income.

2. Corporation tax.

3. Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies.

4. Duties of excise

5. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists .

In the List II, known as the State List, are included taxes like:

1. Taxes on agricultural income.

2. Taxes on lands and buildings.

3. Taxes on professions, trades, callings and employments.

The List III known as Concurrent List does not include any taxes.

GST is not included either in List I or List II and there is no tax in List III. Article 246A gives the power to Parliament and the State Legislatures to make laws with respect to Goods and Services Tax (GST). And that is how our Central Goods and Services Tax Act, 2017 has come into existence. So, there is an Act passed by Parliament which not only provides the authority of law as required by Article 265, but also provides for the method of levy, collection, offence, punishment etc., As per Section 9 of the CGST Act, there shall be levied a tax called the central goods and services tax collected in such manner as may be prescribed and shall be paid by the taxable person .

The tax has to be collected in such manner as may be prescribed. Who will prescribe and how? As per Section 2(87) of the CGST Act,

"prescribed" means prescribed by rules made under this Act on the recommendations of the Council.

But who has the power to make rules? Section 164 of the Act grants the Government the power to make rules.

1. The Government may, on the recommendations of the Council, by notification, make rules for carrying out the provisions of this Act.

2. Without prejudice to the generality of the provisions of sub-section (1), the Government may make rules for all or any of the matters which by this Act are required to be, or may be, prescribed or in respect of which provisions are to be or may be made by rules.

3. The power to make rules conferred by this section shall include the power to give retrospective effect to the rules or any of them from a date not earlier than the date on which the provisions of this Act come into force.

4. Any rules made under sub-section (1) or sub-section (2) may provide that a contravention thereof shall be liable to a penalty not exceeding ten thousand rupees.

The Government by notification may make rules. Can the Central Board of indirect Taxes and Customs (CBIC) which administers the CGST Act make rules? And what is the difference between the Board and the Government? Is the Board the Government? Actually, who is the government? As per Article 77(1) of the Constitution,

All executive action of the Government of India shall be expressed to be taken in the name of the President

and as per Article 77(3),

The President shall make rules for the more convenient transaction of the business of the Government of India, and for the allocation among Ministers of the said business .

In exercise of the powers conferred by Article 77(3), the President on January 14, 1961 made the Government of India (Allocation of Business) Rules, 1961 as per which the business of the Government of India shall be transacted in the Ministries, Departments, Secretariats and Offices specified in the First Schedule to these rules.

In the Finance Ministry, there is a Department of Revenue which is entrusted with all matters relating to the Central Goods and Services Tax Act, 2017. So, the Government for the purpose of making rules for GST would be the Department of Revenue in the Finance Ministry. The Board-CBIC functions under the Department of Revenue. So, the Board is perhaps not Government and cannot make GST Rules.

But the Board can make regulations! As per Section 165 of the CGST Act,

The Board may, by notification, make regulations consistent with this Act and the rules made thereunder to carry out the provisions of this Act.

Parliament can make the Act, Government can make the Rules and Board can make Regulations. But what are regulations? Section 2(95) of the CGST Act gives us the answer.

95) "regulations" means the regulations made by the Board under this Act on the recommendations of the Council;

And what is a notification? Section 2(80) of the CGST Act gives us the answer

(80) "notification" means a notification published in the Official Gazette and the expressions "notify" and "notified" shall be construed accordingly;

Very clear? But why regulations? Both rules and regulations are to carry out the provisions of this Act, but the regulations made by the Board are to be consistent with the Act and the Rules.

These rules, regulations and notifications have statutory value as they need Parliamentary approval. Section 166 of the GST Act stipulates:

Every rule made by the Government, every regulation made by the Board and every notification issued by the Government under this Act, shall be laid, as soon as may be after it is made or issued, before each House of Parliament,…….

Apart from these, the Board can issue instructions. As per Section 168,

The Board may, if it considers it necessary or expedient so to do for the purpose of uniformity in the implementation of this Act, issue such orders, instructions or directions to the central tax officers as it may deem fit, and thereupon all such officers and all other persons employed in the implementation of this Act shall observe and follow such orders, instructions or directions.

So, Board can issue orders, instructions or directions to its officers and they are bound by such orders, instructions or directions. But how are orders, instructions or directions different from each other? Let's not bother – they are any way not binding on the trade and not always followed by the officers.

Thus, we have the Board issuing circulars, instructions, letters to the field officers who are expected to obey them.

Board can issue regulations for some imprecise objective, but they have not done it so far. Government can issue notifications and rules and Parliament can enact the law based on the power given by the Constitution.

And the taxpayer can be responsible to pay the taxes and comply with all the procedural requirements statutorily imposed on him by all these instruments.

By the way, what is law? As per Article 13(3)(a) "law" includes any Ordinance, order, bye-law, rule, regulation, notification, custom or usage having in the territory of India the force of law. Though this applies to only Article 13, this could be what law is all about.

Navigating the world of GST laws, rules, and regulations can be a daunting task. The hierarchy of laws, rules, and regulations is complex, with each playing a crucial role in the implementation of GST. While the taxpayer may feel overwhelmed, it's essential to understand the distinction between laws, rules, regulations, and notifications. After all, as the saying goes, "nothing is certain except death and taxes" – and in India, the complexity of GST can feel like a third certainty!