Facilitating GST Law (An Analysis)

The ‘GST’ Constitution Amendment Bill, (No. 192 of 2014) – Facilitating GST Law (An Analysis)

One of the major Indirect tax reforms that the country is now on road to witness is the incarnation of a single GST law instead of multiple indirect taxes viz Service Tax, Central Excise, VAT, CST, Local Body Tax, Entry Tax etc. After a round of discussions of Hon’ble Finance Minister with State FM’s, the Government of India has tabled the GST Bill (No. 192 – Constitutional Amendment), 2014 on 19th December,2014.

The clause by clause analysis of GST Bill, 2014 is as under:-

A. Insertion of Clause 246A – To Facilitate the Parliament & States to make laws in regard to Goods & Service Tax Imposed by Union or such State

“246A(1) - Notwithstanding anything contained in articles 246 and 254, Parliament, and. subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such state.

(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.

Explanation:- The provisions of this article, shall, in respect of goods and services tax referred to in clause (5), of article 279A, take effect from the date recommended by the Goods & Service Tax Council”

BRIEF ANALYSIS

Article 246 of Constitution of India establishes the law making jurisdiction of Central and State governments over Union List, State List and the concurrent list of Schedule VII to the Constitution. Article 254 establishes that the law enacted by Central government shall prevail over the state government where the laws are conflicting on subject matter of concurrent list (except that the state law may prevail in that state subject to Hon’ble President Assent.

The article 246A(1) shall empower goods and service tax law framing with both the central and state government unlike in the current case where the service tax / excise was centre’s domain in union list and sales tax on goods was state’s domain except in case of interstate transactions.

Article 246(2) reestablishes the centre’s exclusive control on interstate supply of goods & services. Importantly interstate supply of services will mark its separate significance in the proposed GST regime.

Article 279A is proposed for setup of GST Council within 60 days of commencement of this Act, 2014. The items proposed in article 279A (5) includes petroleum crude, high speed diesel, motor spirit (petrol), natural gas and aviation turbine fuel. The date on which GST is to be levied on these items is to be recommended by GST council.

B. Facilitative amendments in Article 248(1), 249(1), 250(1), 268(1), 269(1), 270(1), 286. Omitting Article 268A.

BRIEF ANALYSIS

Article 248(1) empowers the parliament to make laws on any matters not covered in state list and concurrent list. Hence in a sense this article is giving powers on residual matters to parliament. Now, this has been made subject to 246A since GST shall be both centre’s and state’s domain.

Article 249(1) empowers the parliament to make laws even of state list where it is in national interest and the council of states have passed a resolution to this effect of 2/3rd members or more. Now, GST has been also covered in this provision.

Article 250(1) empowers the parliament to make laws even of state list in pursuance to proclamation of emergency being in operation. Now, GST has been also covered in this provision.

Article 268(1) governs levy of duties of excise on medicinal and toilet preparations as mentioned in union list but are collected by state. Now, the duties of excise on medicinal and toilet preparations is being omitted.

Apportioning of taxes between centre and state is facilitated by Article 268A (Services) will be dispensed away.

Article 269 facilitates levy and collection of interstate tax on sale of goods (not services) or consignment of goods but the same to be assigned to states. Now, the interstate supply of goods and services has been made an exception to this pure assignment to states since service now covered. A separate article 269A has been inserted to apportionate the taxes.

Article 270 provides for apportionment of taxes and duties between Union and State. The Interstate GST has been kept out of this by inserting necessary exception. The reason for this exception is since the apportionment in interstate’s case is not to be undertaken as per Article 270 laid mechanism but on recommendations of GST council as facilitated under Article 269A. In other cases of GST levied by government of India, a new clause 270(1A) is inserted and apportionment to be in accordance with normal provisions of Article 270 only.

Article 286 imposes restrictions for imposition of taxes on sale or purchases of goods in case of interstate trade, imports or exports or trade outside the state. It empowers the parliament for the same. Now, this is extended to GST.

C. Insertion of Article 269A – Apportionment of Interstate Taxes on Supply of Goods and Services based on GST Council’s recommendations.

“269A. (1) Goods and service tax on supplies in course of inter-state trade or commerce shall be levied and collected by government of India and such tax shall be apportioned between the Union and states in the manner as may be provided by the parliament by law on recommendations of goods and service tax council.

Explanation:- For the purpose of this clause, supply of goods, or of services, or both in course of import into the territory of India shall be deemed to be supply of goods or of services or both in course of inter-state trade or commerce.

(2) Parliament may by law, formulate the principles for the determining the place of supply, and when a supply of goods, or of services, or of both takes place in course of interstate trade or commerce.”

BRIEF ANALYSIS

With the beginning of GST, now taxes on supply of goods and service in course of interstate trade or commerce would also required to be made a commodity of due apportionment between union and states instead of pure assignment as in cases of goods. This article 269A is inserted precisely to mitigate this aspect. The apportionment shall be undertaken pursuant to GST Council’s recommendation.

To understand what transaction would constitute interstate trade, the rules of supply, origin and point of incidence would be required to be framed. The same would be in parliament’s domain.

D. Surcharge by Parliament not to Apply to GST

Article 271 empowers the parliament to increase taxes and duties on articles. The GST has been made an exception to power of parliament. Hence, the parliament cannot impose surcharge on GST.

E. Constituting the ‘GST Council’ vide Article 279A

BRIEF ANALYSIS

Article 279A is to be inserted to empower the Hon’ble President of India to constitute ‘ GST Council’. Brief features shall be :-

a. To be incorporated within 60 days of Commencement of Act.

b. Members shall include:-

- FM – Chairperson

- Union Minister of state in charge of revenue – Members

- State FM’s / Nominated State Ministers – Members

c. Members to choose Vice Chairperson

d. Recommendations on :-

- the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax;

- the goods and services that may be subjected to, or exempted from the goods and services tax

- model Goods and Services Tax Laws, principles of levy, apportionment of integrated Goods and Services Tax and the principles that govern the place of supply

- the threshold limit of turnover below which goods and services may be exempted from goods and services tax

- the rates including floor rates with bands of goods and services tax

- any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster

- special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur; Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and

- Any other matter relating to the goods and services tax, as the Council may decide.

e. Date of levy of GST on items like petrol, diesel and natural gas.

f. Quorum shall be 50% of members

g. Decision by 75% of total weighted votes of members present and voting. Centre to have 1/3rd of weight of total votes and states to have 2/3rd of total votes cast.

h. Dispute resolution modalities.

F. New Definitions – Article 366

12A) "goods and services tax" means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption

Hence it would exclude alcoholic liquor currently.

'(26A) "Services" means  anything other than goods

Anything other than goods is service reflects wide interpretation of what constitutes services.

G. Amendments in Union, State List of Schedule VII of Constitution. Also, amendment in Sixth Schedule.

BRIEF ANALYSIS

Schedule VI

Para 8(3) of Schedule VI empowers the district councils to levy and collect taxes on certain items. One insertion in further proposed in the same i.e. “Taxes on entertainment and amusements”

Schedule VII – Union List

a. Duties of excise on goods manufactured in India done away except petroleum, High speed diesel, petrol, natural gas, aviation turbine fuel and tobacco or tobacco products. (No. 84)

b. Taxes on the sale or purchase of newspapers and on advertisements published therein – Done Away (No. 92)

c. Entry related to interstate purchase and sale of goods (92C) – Done Away

Schedule VII – State List

a. Entry Tax – Done Away (No. 52)

b. Taxes on advertisements – Done away (No. 55)

c. Taxes on entertainment and amusements (Entry No. 62) – Applicable to the extent levied and collected by district / regional councils.

d. Entry No. 54 on sale of goods, now scope reduced to petroleum, High speed diesel, petrol, natural gas, aviation turbine fuel and tobacco or tobacco products except in case of interstate trade or international trade or commerce.

H. Other Modalities

a. An additional tax on supply of goods, not exceeding one per cent. in the course of inter-State trade or commerce shall, notwithstanding anything contained in clause (I) of Article 269A, be levied and collected by the Government of India for a period of two years or such other period as the Goods and Services Tax Council may recommend and such tax shall be assigned to the states in manner as provided hereunder in (b)

b. The net proceeds of additional tax on supply of goods in any financial year, except the proceeds attributable to the Union territories, shall not form part of the Consolidated Fund of India and be deemed to have been assigned to the States from where the supply originates.

c. The Government of India may, where it considers necessary in the public interest, exempt such goods from the levy of tax under clause (1).

Key Note: - This is exemption pertaining to the additional tax as referred above.

a. Parliament may, by law, formulate the principles for determining the place of origin from where supply of goods take place in the course of inter-State trade or commerce.

b. Parliament may, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for such period which may extend to five years.

c. Necessary provisions for transition and power of president to remove difficulties incorporated.

About the Author:

CA Ankit Gulgulia

Author is Practicing Chartered Accountant in New Delhi/NCR and specialising in Indirect Taxes, Corporate Laws and Transfer Pricing. He can be reached at ankitgulgulia@gmail.com

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