1. Relevance to GST
The cornerstone of GST lies in its direct connection to valid contracts. Every form of supply covered by GST is essentially a contractual agreement. Consequently, any transaction that fails to meet the requirements of a valid contract is automatically excluded from the treatment afforded by GST.
It would be a disservice to this discourse to overlook the vast array of knowledge available in the field of Contract law, established long before the advent of GST.
Vinculum juris embodies the binding legal obligations willingly undertaken by contracting parties, and it is not within anyone’s authority, not even a court’s, to deny parties their agreed-upon terms and the protection it provides in case of default. The transactions involving supply all stem from contractual commercial arrangements, with only a few exceptions mandated by law. A comprehensive comprehension of Contract law is imperative for any student wishing to fully grasp the intricacies of GST.
Delving into the works of no less than five distinct authors on the Indian Contract Act will facilitate the exploration of topics that permeate the entire scope of supply within GST law. Additionally, publications that draw upon English Contract law, particularly the notable works of Anson and Chitty, can be included to enrich the understanding of this subject matter.
It is crucial to grasp that parties may engage in an agreement, yet the transformation into a bona fide contract solely hinges on its lawful enforceability. Solely only those agreements that abide by the prevailing laws possess the potential for legal enforceability to become a contract.
2. Capacity to Contract
2.1 Validity of contract
The achievement of Parties engaging in trade relations with each other is insignificant if their contract is deemed invalid, rendering their efforts futile. Numerous factors influence the validity of these relations, compelling Parties to exercise great caution. The law unequivocally delineates what undermines the validity of a contract.
To assess a contract’s validity, one must meticulously scrutinize each validating component outlined in this legislation. Furthermore, when a contract is purportedly enforceable, a presumption arises in favor of its validity, unless an incurable or inseverable flaw, such as a minority or mistake, is discovered. Parties who intended to establish binding legal obligations cannot deny the existence of their contract. The presence of consideration suggests the validity of the contract or the terms constituting a binding agreement.
It is essential to comprehend that a contract is not merely a formal document but an agreement reached on the object and the expectation of its enforceability in case of breach or threatened breach.
2.2 Legal or Lawful Authority
The ability to enter into a contract encompasses the fundamental requirement of having the rightful power to do so. Without legitimate authority, no individual can claim to be engaging in a contractual agreement. Authority extends not only to the person making the contract but also to the person entering into the contract. The precise and explicit definition of ‘Recipient’ in section 2(93) of the Central GST Act allows the terms “Beneficiary” and “Recipient-Contractee” to be used interchangeably.
Asserting any claim based on factual circumstances necessitates the possession of legal authority to substantiate such claims. Whether it pertains to a medical facility, a charitable organization, an educational institution, or any other relevant entity, the absence of lawful authority renders any further examination of the specific nature of the activities performed unnecessary. A person providing substandard care with lawful authority falls within the definition, whereas someone offering high-quality care without lawful authority does not. The ability to undertake any action presupposes the existence of lawful authority to do so.