The Constitution does not provide for a parallel levy of indirect
taxes by the Centre and states, a pre-requisite for the roll-out of goods and
services tax (GST) in the country. The government introduced in Parliament last
week the 122nd Constitution amendment Bill to address this.
Some key highlights of the Bill are:
1.Enables introduction of GST
1.Enables introduction of GST
- The
Bill replaces the lapsed 115th Constitution amendment Bill, introduced by
the United Progressive Alliance (UPA) government in March 2011.
- This
enables the Centre and state governments, including Union territories, to
introduce the law for levying GST on supply of goods and services.
- Under
the GST regime, there will be one Central GST law and one state GST law
each for the states.
2.'GST' defined
- The
term 'GST' is defined in Article 366 (12A) to mean "any tax on supply
of goods or services or both except taxes on supply of the alcoholic
liquor for human consumption".
- Thus,
all supply of goods or services will attract Central GST (CGST) and state
GST (SGST), unless kept out of purview of GST. In effect, works contracts
will also attract GST. As GST will be applicable on 'supply', the
erstwhile taxable events such as 'manufacture', 'sale', 'provision of
services', etc., will lose their relevance.
- As
the term 'supply' is not defined or elaborated or qualified such as, supply
for a consideration etc, it needs to be seen whether even free supply will
attract GST.
3. 'Service' defined
- The
115th Constitution amendment Bill did not provide for a definition of the
term 'service'.
- The
latest Bill specifically provides that "services
mean anything other than goods".
- This
broad definition of the term will altogether remove the disputes on the
aspect whether something is goods or services (unless the government
proposes different rates for GST on goods or services or both).
4. Integrated GST
- At
present, inter-state supply of goods attract Central Sales Tax.
- The
Bill provides that an inter-state supply of goods or service will attract
IGST (i.e. CGST plus SGST).
- IGST
will be levied and collected by the Centre, and the proceeds will be
shared among the Centre and the states.
5.Inter-state sale of goods to attract additional tax
- The
Bill provides that an additional tax up to 1 per cent will be levied by the Centre on
inter-state supply of goods (and not on services).
- This
additional tax, applicable for a period of two years, will be assigned to
states from where the supply of goods originates.
- The
GST Council could further extend the period beyond two years.
- However,
the Bill is silent on whether credit of this additional levy will be
available, or will it be a cost in the supply chain. In case of latter, it
could have a tax cascading effect on the supply chain.
6.Import of goods or services
- At
present, import of goods attracts basic
customs duty (BCD), additional customs duty (ACD), and special additional
customs duty (SAD), while import of a service attracts service tax (or research and
development cess in few instances).
- The
Bill provides that the import of goods
or services will be deemed as supply of goods or services or
both, in the course of inter-state trade or commerce and thus it will
attract IGST (CGST plus SGST). Thus,
import of goods will attract BCD and IGST, while import of services will
attract IGST.
7. Alcohol for human consumption
- It
appears that alcohol for human consumption will be kept outside the GST
regime.
- Exclusion
of the alcohol sector could mean that companies manufacturing alcohol may
not be in a position to avail credit of GST paid by them on their
procurements.
8. Petroleum products and tobacco
- Petroleum
products and tobacco will continue to attract excise duty.
- However,
the Bill specifically provides that petroleum products might not attract
GST.
- However, at a later stage the GST Council might decide
to levy GST on petroleum products.
9. Role of GST Council
The Bill is silent on some key aspects of GST such as :
- · What the model GST law would look like?
- · Which taxes, cesses, surcharges would be subsumed in GST?
- · Which goods and services are subject to, or exempt from GST?
- · What will be the rate of GST, including the floor rates?
- · What will be the threshold limit of GST?
The 115th Constitution amendment Bill provided for a
Dispute Settlement Authority to
settle disputes between states or between states and the Centre with regard to
GST.
=>> However, under the latest Bill, the GST Council has been given
the authority to determine the modalities to resolve disputes arising out of
its recommendations. The GST
Council will consist of the Union finance minister, minister of state and state
finance ministers.
10. Compensation to states
10. Compensation to states
- The Bill did not provide for compensation to
states.
- This Bill specifically provides that Parliament by law,
on recommendation of GST Council, provide for compensation to states for loss of revenue arising out of implementation of
GST up to five years.
By providing for compensation in the Constitution itself, the
Centre seems to have addressed the concerns raised by the states regarding fear
of loss of revenue.
The way forward
The way forward
- After passage through both Houses of Parliament, to
become a law, the Bill will have to be approved by more than half of the
states.
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Insertion of New Articles
1) Article 279A – Goods and Services Tax Council
2) Article 246A – Special Provision with Respect to
Goods and Services Tax
3) Article 269A – Levy and Collection of Goods and
Services Tax in course of Inter-State Trade or Commerce
Amendment to Existing Articles
1) Article 248- Residuary powers of legislation
2) Article 249- Power of Parliament to Legislate with
respect to a matter in the State List in the National Interest
3) Article 250- Power of Parliament to Legislate with
respect to any matter in the State List if a Proclamation of Emergency is in
Operation
4) Article 268- Duties levied by the Union but collected
and appropriated by the States
5) Article 269- Taxes levied and collected by the Union
but assigned to the States
6) Article 270- Taxes levied and distributed between the
Union and the States
7) Article 271- Surcharge on certain duties and taxes for
purposes of the Union
8) Article 286- Restrictions as to imposition of tax on
the Sale or Purchase of Goods
9) Article 366- Meaning of Goods and Services Tax(GST)
& Services
10) Article 368- Power of Parliament to amend the
Constitution and procedure therefore
11) Amendment to Sixth Schedule to the Constitution
12) Amendment to Seventh Schedule to the Constitution
Omission of Articles
Article
268A- Service tax levied by Union and collected and appropriated by the Union
and the States