Tax Research unit (TRU), specialised arm of CBEC, dealing with exemption notifications and related circulars, recently came up with their first IGST circular in relation to interstate movement of conveyance for specific purpose, i.e., for carriage of goods or passengers or for repair and maintenance. The circular clarified that such interstate movement would not qualify as supply of goods or services, and hence would not be liable to IGST but, in case of repair, appropriate GST would be payable on repair charges.
As per the definition under the GST law, conveyance includes a vessel, an aircraft and a vehicle. However, GST law leaves it there and goes no further in laying out the details around differential compliance requirement for conveyance vis-à-vis goods involved in interstate trade. Such detailing is important as conveyance is a subset of goods, though the compliance and tax implications on movement of conveyance is very different from tax implications on supply of goods. This gap—absence of legislative rigour around detailing the compliance obligation by the person in charge of the conveyance, could become a cause of discretions, delays and consequent avoidable disputes.
It is in this context it is important to draw an analogy between the customs law and the GST law—both dealing with cross border movement of goods, customs in the context of national boundaries while GST in case of inter-state boundaries. Both these laws have the same definition of conveyance but different definition of goods. However, as different from the GST law, customs law has a full chapter—starting from Section 29 of the Customs Act to Section 43, dedicated to compliances related to conveyance. This chapter under the Customs law is a good example of how the primary law can possibly treat conveyance related compliance very differently from goods related compliance as the tax implication of the two are very different.
This means that around one-tenth of the customs act is devoted to detailing compliance around conveyance involved in cross-borer movement of goods. These sections of the customs act clearly lay out obligations of the person-in-charge of the vessel, reporting to be made, filing of IGM and EGM with details of airway bill, bill of lading, etc, details of shipper and recipient of goods, and other compliance requirements; failing this compliance the conveyance can be seen as non-compliant in law and person in charge of the conveyance can be held accountable under the law. Should the conveyance related compliance not be formally codified under the IGST law also? Should there be an efficient, electronic check at the state border registering movement of conveyance involved in interstate movement of goods and passengers? Should the compliance machinery not have a simple logic to clearly different conveyance which should be treated as goods and hence taxable and conveyance which are non-taxable as per the circular?
In our view the answer to the above posed question would be an unequivocal yes. If the spirit of GST accrual to the consumption state has to be monitored based on verifiable digital footprint of the conveyance used in the interstate movement. But then, it brings us to more fundamental question—where is the missing piece of legislation governing obligation of person in charge of the conveyance under the GST? Can it be said that the e-way bill rules is to be seen as an attempt to bridge this apparent gap in the legislation regarding compliance obligations of the person in charge of the conveyance used in interstate trade. If it is so, then should the IGST Act not have detailed, formal provisions supported by the e-way bill rules? Like it did under the Customs Act.
Should the e-way bill be a discretionary provision open to negotiation at the highest forum of cooperative federalism, ie, the GST council, or should it have been hardwired in the fundamental framework of the GST legislation. Some of these questions are open to further discussion and interpretation. But for now, till the e-way bill rules are enforced, the IGST law governing interstate movement of goods leaves the person in charge of conveyance free from any obligations. And the government is missing on critical piece of independently verifiable data / information—in which state the goods were consumed. This information gap requires a stich in time.
Even if e-way rules are put in place, in their current format, they may not cover all aspects of the compliance obligation; there could still be some missing links on the subject. To remove any discretion around interpretation of circumstances under which a conveyance would be treated as goods—hence attracting all the other aspects of compliance like determination of value of goods, place of supply of goods, tax rate applicable or otherwise, it is important to define the same in the primary legislation rather than trying to address this issue through secondary or delegated legislation, ie, rules and regulations subsidiary to the GST Act.
It would not be far from the truth that absence of clearly articulated regulatory compliance framework for conveyance in the primary legislation, ie, the IGST law, necessitated the need for issuance of the circular clarifying that interstate movement of conveyance would not be considered supply under the GST, and hence IGST would not be payable. While this circular would bring some sense of temporary clarity to tax treatment on interstate movement of conveyance carrying goods or passenger, whether a circular can fill in the legislative void created by absence of such clarity in the IGST law? May be only temporarily till the GST council notices this gap and chooses to act on it.
(With inputs from Deni Shah, director, indirect tax)