Expert Opinion in GST Classification Disputes: When Technical Literature Is Better Than Case Law
The GST Law replaced Service Tax Law as provided for in the Finance Act, 1994 which contained specific principles for classification of services.
The decision in Ramesh Kumar Patodia v. Citi Bank was concerned with whether services given are subject to GST or not is determined by classification of that service. The GST Law replaced Service Tax Law as provided for in the Finance Act, 1994 which contained specific principles for classification of services. These disputes were resolved through “most specific description”...
The decision in Ramesh Kumar Patodia v. Citi Bank was concerned with whether services given are subject to GST or not is determined by classification of that service. The GST Law replaced Service Tax Law as provided for in the Finance Act, 1994 which contained specific principles for classification of services. These disputes were resolved through “most specific description” and “essential character” tests. It is to be noted that even then there was no objectivity in classification except multiple supply rules and tie-breaker provisions.
The GST Law was enacted to encompass many Central and State taxes in its ambit. It negated the pyramiding effect of the indirect taxation regime. Since there was no constitutional authority to impose a tax on the “delivery of goods and services”, the Central and State governments carried forth a constitutional change to introduce GST. According to the current legislation, one must ascertain that the activity they do is a supply that is subject to GST to be obligated to pay GST. Sections 65-A and 66-F of the Finance Act were in effect till June 2012 and 2017 respectively and emphasized that categorization should be based on the “most precise description” and the “essential character” test.
To confirm that the GST is taxed from an earlier era, unlike the principles in central excise or customs, the classification should be done based on the earliest entry rather than the latest entry. However, it is still disputed that there is a lack of objectivity in these classification tests.
Following are few “technical literatures” that may be relevant for GST classification and could also supercede case laws to resolve disputes:
- Explanatory Notes to Harmonized System of Nomenclature (HSN): These were developed by the World Customs Organisation and are frequently relied upon by Indian courts in customs, excise, VAT and GST classification disputes.
- Indian Standards (IS) issued by the Bureau of Indian Standards.
- Industry Manuals and Trade Publications
- Regulatory Frameworks: These provide guidance issued by Reserve Bank of India, Securities and Exchange Board of India, etc.
As has been seen in Ramesh Patodia, the Court carried out an intensive analysis of the factual matrix rather than laying down an objective test to differentiate taxable services from non-taxable services. Therefore, it would be beneficial for the Courts and the general public that technical literature is preferred over case law for determining the classification of service/goods in any GST dispute as the case law may be from an earlier era but the literature could still be relevant as the statute is derived from another technical piece of literature. In any case, the facts would matter primarily.
Two arguments further reinforce what has been previously stated. First, since case laws are fact-specific, it would be harder to determine classification as the earlier reasoning may not be universally applicable and upon careful examination of facts, a different type of classification may emerge. Second, application of technical literature would further reduce subjectivity as the tests abovementioned involve judicial discretion in most cases. As the Explanatory Notes in the HSN are relied upon for GST classification, it would help the Court in understanding the nature of the service/good before applying a legal perspective.
Classification disputes under GST cannot be resolved solely through analogies drawn from prior judicial decisions, particularly when modern commercial transactions and technological developments continue to reshape the nature of goods and services. Needless to mention, if technical literature is preferred over case laws then there could be a consistency in the GST adjudication since similar facts do not mean same application of a rule.
Case laws should not overshadow objective sources that directly explain the characteristics, functions, and commercial understanding of the supply in question. Technical literature such as HSN Explanatory Notes, industry standards, regulatory frameworks, and expert publications provide a more reliable foundation for determining classification because it addresses the factual and technical aspects that ultimately drive the legal analysis. A GST adjudication framework that prioritizes technical evidence before precedent would not only reduce subjectivity and inconsistent outcomes but also ensure that classification keeps pace with evolving business realities while remaining faithful to the structure and intent of the GST regime.
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