Early morning, I boarded my flight to Ahmedabad. I was invited there by one of the Industry Associations for delivering a lecture on GST. The moment seat-belt sign went-off, I opened my laptop and started re-visiting the power point presentation updated by my team last night with the latest development, i.e. passage of four GST bills by the Parliament.
In-flight service started. The flight attendant approached and asked me and the gentleman sitting next to me about our food preferences. "South Indian" I replied, whereas my neighbour preferred Omelette. I saved my file and packed the laptop, before having my meal. My neighbour in the meanwhile started eating after folding the newspaper that he had been reading and placing it in the front seat pocket.
As I took my first bite, I caught a glimpse of press coverage about GST on the newspaper, and picked it up with my neighbour's permission. In next few minutes, I finished the meal as well as reading the GST news, and returned the paper with a quick "thanks".
"You are welcome", replied the gentlemen turning his face towards me and introduced himself as Ravi Kale. "Hi, I am Gajendra", I responded. "Gajendra ji, you seem to be working on GST these days", he said and before I could react he added, "I saw you working on the GST ppt", pointing his finger towards my laptop bag with a smile.
"Yes, I do", I replied with a matching smile. "Tell me something", he said and asked after a small pause "our Finance Minister says GST is "one nation one tax", whereas opposition says, "one nation, one tax is only a myth", so what is it all about?"
Sensing the political angle, I choose to give a diplomatic answer, "Ravi ji, "one nation one tax" is something like this expression - is glass half-full or half-empty?" while lifting and flashing the half-filled glass of water lying on my tray table.
"But what is your opinion, as an expert?" he said with an extra emphasis on the word "your". Now since it was about my expertise, I decided to give a little longer answer, "Raviji, see, there are two most crucial features of GST basis which we can say that it is "one nation one tax". You must have read that over 10 Central and State Taxes such as Central Excise, Service Tax, Value Added Tax etc. will be subsumed in GST and that's the foremost reason why it is a unified tax."
"Yeah, I know", was his brief response. I continued, "secondly, and more importantly, merging of various taxes ensures availability and cross-utilization of input tax credits. It will result in lowering the cost of goods and services for us".
Sensing that he was not able to grasp this tax concept completely, I tried to simplify, "let me explain this with the help of an example" and to create a relevant example, I asked him what he does? "I work with PVR", he replied.
"Ok, so today any Service Tax or VAT paid by PVR on acquiring cinema distribution rights or other goods and services is a cost, correct?", I asked. "Correct" he replied.
"But sooner such taxes as well as Entertainment Tax collected on tickets will be replaced by GST. So, on one hand PVR will have GST credits for taxes paid on inputs, and on the other it will collect GST from its customers. Due to the credit mechanism, PVR will only be responsible for depositing net GST, i.e. difference between output and input taxes".
He seemed to have understood this; I concluded "because cross utilization of input tax credits for Central and State taxes is possible under GST, it is one single tax." "Got it", he said and quickly asked a counter question, "but why can't we have one national GST law instead of separate-separate State GST laws which States can amend at their sweet will?"
"Well, our Constitution doesn't permit such tax structure", was my short answer. Immediately he raised an intelligent doubt, "if that is the case why can't Constitution be amended?"
This being a complex legal issue, needed a longer explanation! "Raviji, broadly there are three reasons why such an amendment is not possible", I said and took a deep breath.
Then I resumed, "the first reason is that Supreme Court in its celebrated decision of Kesavananda Bharti laid down the theory of "basic structure" and said that Parliament does not have power to alter basic structure of the Constitution. Secondly, in several cases Supreme Court has held that "federal" character or two tier Government at the Central and State levels is one of the "basic structures" of the Constitution. Finally, a federal form of Constitution can only persist if States have their independent source of revenue".
I concluded by saying, "Due to this reason, Courts may declare illegal an amendment in the Constitution that takes away autonomy of the States to recover taxes under their own law". "Then we can never have a single national indirect tax law", was the take away of Mr. Kale.
"Very unlikely and even undesirable" I said. I further explained, "States in India have their own distinctiveness and our Constitutional framework protects them." Finally, I remarked, "In this scenario, GST is a beautiful work-around as it serves national interest of one nation one tax while preserving State's diversity."
Mr. Kale grinned cheerfully and quoted Mahatma Gandhi - "our ability to reach unity in diversity will be the beauty and the test of our civilization."
I nodded. Before any further conversation, the pilot announced that we were going to land in Ahmedabad. I could see Sabarmati river through the window.
Seat belt sign went on. There was silence. Gratitude to our law-makers for achieving anekta may ekta through GST was in my mind and, I believe, even in the mind of Mr. Kale!
The author, Mr. Gajendra Maheshwari is a Managing Partner in Reina Legal.