Goods and Services Tax (GST)

Taxes and the fundamental rights

Note4Students

From UPSC perspective, the following things are important :

Prelims level : GST

Mains level : Paper 2- Testing the legitimacy of tax

The article deals with the issue of a petition challenging the imposition of 5% GST on mobility aids used by disabled citizens.

Background

  • The petitioner, in Nipun Malhotra vs. Union of India, argued in Supreme Court that the tax imposed on mobility aids used by disabled citizenswas patently discriminatory.
  • A decision to impose a tax, the Court said, was a matter of policy over which the judiciary ought not to ordinarily interfere.
  • In adjourning the case, it suggested that the petitioner exhaust his options by submitting his grievances to the GST Council, which is the governing body responsible for determining which products are taxed, and at what rate.

Should the Courts test the legitimacy of the tax

  • It might be keen to ensure that the judiciary does not sit on judgment over matters that fall within the domain of legislative and executive competence.
  • There is nothing inherently distinct about taxing laws; they are in no way plenary and unamenable to judicial review.
  • Quite to the contrary, taxes have a direct bearing on how society is arranged.
  • The nature and rate of tax imposed on a product can impinge both on a person’s freedom and on a person’s right to be treated with equal care and concern.
  • Therefore, it ought to be well within an independent judiciary’s province — as the top courts in Canada and Colombia, among others, have recently held — to examine whether or not an imposition of a tax violates a fundamental right.

Why government impose tax on mobility aids?

  • Until the advent of the GST, mobility aids were almost entirely immune from indirect taxes.
  • In virtually every State, exemptions were granted on the payment of value-added-tax on such goods.
  • However, under GST 18% tax was imposed on these devices and subsequently reduced to 5%.
  • The government claims that it cannot relieve mobility aids from taxation, because to do so will disincentivise domestic manufacturers.
  • Domestic manufacturers can claim “input tax credit” on taxes paid on raw material in the process of manufacturing when it remits the levy collected from the eventual purchaser of the product.
  •  The State’s argument is that in the absence of a levy of GST on the final product, the manufacturer will be burdened with input taxes.
  • Since it cannot claim any credit for those taxes paid, the prices of the final product would have to be concomitantly higher.
  • As a result, the manufacturer will be placed in a relative position of disadvantage to foreign makers.

Issues with the government’s argument

  • This argument, though, suffers from at least two fallacies. First, a reading of the various notifications issued by the GST Council shows that many other products that are essential to human needs are exempt from tax.
  • Second, that the grant of an exemption in cases such as these would disentitle manufacturers from claiming input tax credit is a matter of legislative design.

Way forward

  • Parliament can find other ways to ensure that domestic manufacturers are granted credit for the taxes that they pay on inputs.
  • A decision taken on exempting goods from taxation is a matter of classification.
  •  Given that the classification rests on a state of disability, it must be seen, on any sensible consideration of our equality jurisprudence, as, at least facially, inequitable.
  • The onus must, therefore, rest on the government to show the Court that it had cogent reasons for treating these goods as distinct from other commodities that are exempt from tax.
  • A failure to discharge this onus ought to render the levy illegitimate.
  • The GST Council can take a leaf out of the books of Canada and Australia, and grant a complete exemption on the levy imposed on mobility aids.

Conclusion

It is time we recognised that an unreasonable levy can deeply compromise fundamental human needs. To free taxing statutes from the ramparts of the Constitution is to risk the entrenching of inequality.

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Mike Linz
18 days ago

I wanted to buy wheelchair for my grandpa. Just wanted to which type of wheelchair to buy as I wanted to purchase one which would put less strain on his aging arms at the same would provide him independence so that he woudn’t need an attendent to carry him everywhere.