Euthan asia of manufacture in GST

By | September 5, 2016

I have designed the expres sion euthanasia of manufacture from the Keynesian concept of euthanasia of the rentier. The concept of manufacture was born in 1944 when the Central Excise Act came into being and died in 2016 when the goods and services tax (GST) was introduced. So, it was 72 years old when it died. This is only true for goods covered by GST. Outside GST, there are a few items such as petroleum, liquor which might be high in respect of value but all other goods in daily life are covered by GST. I am quite happy that this concept has gone having suffered throughout my working life with this complicated concept. I have written a full book on manufacture and have not revised it because of the torrent of judgments on this subject which has made the ground shifty even now. I don’t lament the death of the concept of manufacture which is so uncertain and complicated that it is one of the most litigation-prone issues in indirect taxation. Entry No. 84 of List-1 of Schedule VII of the Constitution made all manufactured goods subject to excise duty. But the Constitution did not give any definition. Even the Central Excise Act, 1944, did not give an exact definition but only gave an inclusive definition which means that it indicated what all are included in it but did not say what is exactly manufacture. This left the definition of manufacture to be given by the high courts and the Supreme Court. Even the Supreme Court gave an enormous number of judgments, not all of which were perfectly consistent with each other. Several judgments of the Supreme Court were needed to clarify even what was indeed the taxable event in the case of manufactured goods. The first most important judgment was given by the full Bench of the Supreme Court on a reference made by the President of India (Special Reference No.1 of 1962). The issue arose because all the States claimed that the indirect taxes were taxes on property for which there is immunity under Article 289 of the Constitution. The Supreme Court decided in May 1963 in Re. Sea Customs Act, 1878 reported in 1963 AIR SC 1760 that taxable event in the case of excise is the act of manufacture of goods and the duty is not directly on the goods. And, in the case of sales tax, the taxable event is the act of sale which is the taxable event and not on the goods. The court clarified further that it cannot be said that the excise duty or sales tax is a tax directly on the goods for in that event they will become the same tax. Finally, the Supreme Court upheld the competence of the Union government to tax excise duty since it is not on the goods, that is to say, it is not a property tax. Several Supreme Court judgments, some of them from division Bench, were necessary to clarify that ownership or the fact of removal of goods are not taxable event. There are so many judgments of the Supreme Court on the question of what is marketable because that is the test of the goods being manufactured for the purpose of excise tax. Then the issue came about who is the manufacturer which also needed several Supreme Court judgment to decide. The concept of manufacture was in sales tax also and there also it created several controversial issues. There are innumerable judgments on individual goods such as chemicals, oil, rubber, paper, textiles, metals, minerals, vehicles, air craft, vessels, ore-based items, waste and scraps, biri ,cigarettes, and almost everything on earth. Right now there is controversy going on whether segregation of imported copper and aluminium scrap is manufacture or not. The controversies are in high courts, tribunals, commissioner (appeal) and in lower formations. So, manufacture is the other name for litigation. And the battle ground is as wide as the whole department. With all the high court and Supreme Court judgments, the issues on manufacture are still not finally settled and litigations are going on. In GST the taxable event is supply, which is a simple concept. It is not litigation prone. Iam happy. Lawyers might lament it. –[05-09-2016]

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