Has the central govt lost its power to levy excise duty?

With the release of Notification No. SO2986(E), dated 16 September 2016 (“Notification”), the Central Government has notified the enactment of the Constitution (One Hundred and First Amendment) Act, 2016 (“Act”) with effect from 16 September 2016. Accordingly, Article 246A of the Constitution has become operational from 16 September 2016 which inter alia empowers the Centre and the States to make law with respect to ‘supply of goods and services’. Effectively, in respect of ‘supply of goods and services’, taxes may now be imposed only under Article 246A of the Constitution and such tax is Goods and Services Tax (“GST”).

The interesting part lies in Section 17 of the Act which amends List I and List II of the Seventh Schedule to the Constitution. As a result, it appears that the Centre has lost its power to levy Excise on manufacturing of goods as well as to levy Central Sales Tax (“CST”) on inter-state sales and purchases since the power under entries 84, 92 and 92C of List I has been restricted as per the Act. In addition, Service tax levied under residuary entry 97 of List I may not be applicable from 16 September 2016 as the newly inserted articles, Article 246A and Article 366 (12A) restricts the levy of tax on services to GST.

In a similar manner, due to replacement of entry 54 in List II with effect from 16 September 2016, the power to levy Value of Added Tax (“VAT”) on sale of goods other than petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, appears to having been lost by the States. It is pertinent to note that the States have a saving clause in Section 19 of the Act, wherein such a contradiction in the provisions resulting in the loss of power can be saved by maximum up to 15 September 2017 provided no amendment is made in the VAT laws by the states from 16th September 2016. Interestingly, the Act has nothing to offer for Central levies on this account.

This definitely is not the intent of the lawmakers, but the manner in which the Notification has been drafted may not present a good picture of things to come.