New GST regime, but old definition issues bl-premium-article-image

Sukumar Mukhopadhyay Updated - October 29, 2020 at 08:33 PM.

Defining goods in as precise a manner will go a long way in determining the tax to be levied on them

Taxing definitions

Traditionally the tariff of Customs, excise, sales tax and service tax have had varying definitions. Even after the Goods and Services Tax regime came into being, the tariff book for the GST has very many definitions, all artificial ones, which are needed to identify the products for levying duty.

Now, there are the following rates — nil, 5, 12, 18, and 28 per cent. If the 12 per cent and 18 per cent rates had been merged into one rate, say, 16 per cent, the need for this level of identification of goods would not arise.

Goods under nil, 5 per cent and 28 per cent rates are listed clearly by name. So goods that do not fall under these three rates, would fall under the 16 per cent bracket. Under this regime, there would be no need for a big tariff book and no necessity for defining goods. The tariff book would be needed only for trade classification purpose.

In the absence of such a system, a GST tariff book with definitions of products for identifying them is needed. It has definitions of motor spirit, superior kerosene oil, paper board, newsprint, systems, machining centre and many more. Do we really need them? We do because there is a choice between 12 per cent and 18 per cent rates.

Need for artificial definitions

There is a very good justification for these artificial definitions, which have evolved over time. In the 1960s and the 1970s there were a very few definitions mentioned in the tariff. As a result assessing officers spent a lifetime in customs and excise distinguishing between rubber and resin, ash and dross, skelp and strip, paper and board and so on.

This writer has read technical books, consulted chemists, engineers, specialists and experts but finally got nowhere near the solution to the problem of properly distinguishing their identity until we started defining goods in the tariff itself.

While devising the definitions it was found that natural definitions are very often illusory as technical books differ, understanding in different countries differ and finally new products also are being discovered by mixing several things with technological advance.

Without proper identification of goods it is very difficult to classify them either for charging duty or for imposing an import ban from the license point of view.

The inevitable situation is that the tax payers claim that the goods they are dealing with are the ones, which are exempted or attract lower duty. A typical example is vegetable which was exempted from sales tax. So traders of coconut and betel leaf claimed them to be vegetable.

Ultimately the Supreme Court decided that coconut and betel leaves are not vegetable since they are not known as vegetables in common parlance (Ramavatar Budhiprasad v.Asstt S.T.O AIR 1961 SC 1325). But lemon, chilly and ginger were ruled as vegetable. This shows that relying on natural definitions can also lead to litigation.

Alloys and mixtures

There are other reasons also. Products have in many cases ceased to be natural and are artificial in the sense that they are mixtures of different products such as rubber and resin, leather and rubber (leatheroid), wood and resin, textile and resin etc. Such products cannot be easily identified or defined and not in any case by any natural standard. So they need an artificial definition.

Also another reason is that there are certain articles, which cannot be defined scientifically with an exactitude that is necessary for the market. In the market people know roughly what is stainless steel but how much of carbon or chromium content is necessary for calling it stainless steel could not be definitively agreed upon.

So it has been defined that for the purpose of excise that it should have the alloys up to a certain percentage. Scientific definitions are also not so accurate as in the case of software. So there is an artificial definition for this. There were too many court cases on this issue.

The Calcutta High Court has upheld the legality of artificial definition in the case of Saifuddin v. Asst Commissioner of Sales Tax 1976 (38)STC 463 (Cal).

The conclusion is that artificial definitions are essential to impart certainty in concepts. It is advisable to have more statutory definitions in the tariff to eliminate controversies regarding identification of goods for the purpose of classification.

The writer is former Member, CBEC

Published on October 29, 2020 15:03