Taxsutra gst - the constitutional debate
- 1. GST – The Constitutional Debate K. VAITHEESWARAN, Advocate [email protected] The mood is positive for GST with the Congress appearing to soften its stand and press reports indicating a possible five hour debate in the Parliament on the 122nd Constitutional Amendment. While the entire country has been discussing the Model GST Law that was released last month, it is time to see the issue in proper perspective and ensure that the foundation, namely the Constitutional Amendment is properly enacted by the Parliament. While GST is indeed important, it is imperative that there are no design faults. This article seeks to identify six elements in the Amendment Bill which needs to be looked at afresh and the issues addressed 1. Inter-State Transactions – Impact of Entry 83 – Union List Article 246A(2) as proposed, grants excusive power to the Parliament 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. Article 246A is not withstanding Article 246 which deals with subject matter of laws made by Parliament and State Legislature. Article 269A as proposed provides for GST on supplies in the course of inter-state trade to be levied and collected by the Government of India and apportioned between the States and the Union through Parliament law on recommendations of GST Council. Article 269A also provides that supply of goods or services or both in the course of import into the territory of India shall be deemed to be inter-state supply. Entry 83, Union List, deals with duties of customs including export duties. Customs duties including additional duty of customs (CVD) and SAD are levied under the Customs Tariff Act. These duties have been
- 2. judicially held as ‘duty of customs’. While Article 246A(2) would pave the way for levy of IGST on imports, the power to levy different kinds of customs duties (subject to WTO commitments) continue to exist through Entry 83 Union List read with Article 246(1). 2. Levy of Surcharge The biggest headache in the existing tax regime is the levy of surcharge, additional surcharge and different kinds of cess. The existing Article 271 empowers the Parliament to increase any of the duties and taxes referred to in Article 269 and 270 by a surcharge and the whole of the proceeds shall form part of the Consolidated Fund of India. The amendment to Article 271 is to provide for an exception to GST under Article 246A. Article 246A is the special provision for levy of GST by the Union and the State. The amendment to Article 271 keeps the window open for levy of surcharge by the Parliament through law. In other words, the GST referred to in Article 246A is both the CGST and the SGST whereas, a reading of Article 271 would show that it is confined to Parliament levy of surcharge. When States levies surcharge in addition to Sales tax, the judicial view was that the power is derived from the same Entry viz. Entry 54. In the GST regime, in the absence of an Entry based levy with GST being levied by both the Centre and the State through Article 246A, it is not clear as to how States would be in a position to raise revenue if required through levies such as surcharge. While Article 279A deals with the GST Council and contemplates recommendation for special rate or rates that can be imposed for raising additional resources during any natural calamity or disaster the powers are very limited.
- 3. 3. 46th Amendment to the Constitution The 46th amendment had introduced Article 366(29A) whereby the term ‘tax on sale or purchase of goods’ was widened to include six transactions, noteworthy being the transfer of right to use goods and the transfer of property in goods involved in the execution of works contract. This Article continues and is not deleted in the 122nd Amendment Bill. When GST is a levy on goods and services, it is not clear as to why Article 366(29A) should continue? It is also significant to note that the Model GST Law provides that certain transactions would be treated as supply of goods or supply of services and Schedule II treats works contracts as a service. One argument canvassed is that Entry 54, State List provides for a tax on sale of goods but confined to petroleum products. However, it is difficult to imagine a works contract in petroleum products. 4. Amendments to List – Recipe for Chaos • Entry 84, Union List is confined to petroleum crude, HSD, petrol, natural gas, ATF and tobacco. This means that Excise duty will continue for these products. The Central Excise Act, Central Excise Rules, Cenvat Credit Rules, Central Excise Tariff Act, Valuation Rules and other Rules will all have to continue. • Entry 54, State List is confined to the petroleum products and States have the power to tax the sale of alcoholic liquor for human consumption. The respective State VAT laws and Rules will have to continue to exist. A hotel selling food and alcoholic beverages will have to comply with GST law for food and VAT law for alcoholic
- 4. beverages. Further the overlap of tax cannot be ruled out since Entry 54 and GST are not mutually exclusive. • Entry 92 and 92C, Union List is omitted whereas Entry 92A continues. Entry 92A deals with levy of tax on inter-state sale of purchase of goods other than newspapers. Unlike Entry 54, State List, there is no scaling down of Entry 92A. In other words Parliament has power to levy a tax on sale or purchase of goods in the course of inter-state trade or commerce under Entry 92A read with Article 269 and the amendment bill also confers power on the Parliament through Article 269A. • Entry 62, State List as it exists empowers levy of taxes on luxuries, including taxes on entertainments, amusements, betting and gambling. In exercise of these powers, States were levying luxury tax and entertainment tax. The Amendment Bill proposes to substitute Entry 62 whereby, it would now be taxes on entertainments and amusements to the extent levied and collected by the Panchayat or a Municipality or a Regional Council or a District Council. In the GST regime, theatres could end up paying entertainment tax to the municipality, whereas all their procurements of machinery, equipments, furniture, exhibition rights would be with GST. Obviously, the GST cannot be set off against the entertainment tax and this would drive up the costs in the entertainment business. With most of the States having a cap on the price of film tickets, the way forward could very well be a horror story.
- 5. 5. Transition Window Section 20 of the Amendment Bill provides for a non-obstante clause to provide that any provision of law relating to tax on goods or services or both in force in any State immediately before the commencement of the Amendment Act, which is inconsistent with the provisions of the Constitution as amended shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until the expiry of one year from such commencement whichever is earlier. This opens a Pandora’s Box since unlike VAT which was confined to State, and India could manage a phased implementation, GST has to come across the Country on the same date. This provision enables a State to continue its levies under existing laws for a maximum period of one year from the commencement of the Amendment Act. The commencement of the Amendment Act is another complication since Section 1(2) of the Constitution Amendment Bill provides that the Central Government may by Notification appoint different dates for different provisions of the Act!!! 6. Compensation The major reason for manufacturing States to have reservations on GST is the possible loss of revenue and the Central Government has walked the extra mile to assure compensation and compensation provisions form part of the Constitutional Amendment Bill. However, Section 19 of the Amendment Bill provides that Parliament may by law provide for compensation to States for loss of revenue arising on account of implementation of GST on the recommendation of the GST Council. The role of the GST Council therefore becomes significant and if GST indeed
- 6. results in loss of revenue to some States, any delay in compensation can completely affect that particular State. Given the complex tax structure that exists today and the fond hope that has been nurtured that GST would be a simple tax regime, it is better that the problems in the design are adequately addressed in the Constitutional Amendment that is to be enacted.
- 7. results in loss of revenue to some States, any delay in compensation can completely affect that particular State. Given the complex tax structure that exists today and the fond hope that has been nurtured that GST would be a simple tax regime, it is better that the problems in the design are adequately addressed in the Constitutional Amendment that is to be enacted.