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Browse Law School Education Taxation GST & Constitutional Changes

Even though GST is described as a tax on supply, there is no definition of supply in the Constitution. What does it mean? Does it mean that supply has to be given a particular meaning as commonly understood or it has to be given a different meaning. The answer to that lies in the jurisprudence. 

A dispute came up before the Supreme Court regarding definition of a concept called Works Contract. In 2013, the Supreme Court in Larsen and Toubro explained that once there is an expression which is used in the Constitution but not defined, that concept has to be given the widest of meanings. This decision was later endorsed by a Constitution Bench in Kone Elevator. This therefore means that, in the absence of a definition of supply it has to be given widest of meanings. This is particularly important. It is important for a reason that while colloquially a number of transactions may not qualify a supply, still there is no Constitutional limitation for purpose of tax. Let us take an example. There are number of transactions which happen between branches or between different units of the same entity. These are generally called as branch transfers and they were subject to a tax called as Consignment Tax, even though it was not imposed but there was a legislative field to that effect. These transactions can also be brought within the scope of GST ,as there is a specific noting to this aspect before the Rajya Sabha Select Committee, which examined this fact and it was acknowledged that even inter-branch transfers are constituting supply. Therefore, the definition of supply actually plays out by expanding the concept in terms which were never imagined. So a number of supplies which for not considered as supply generally understood can also be taxed under GST.



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