States taken care of, Madam(s) silenced, major parties who matter in the Parliament supporting, the process to introduce the biggest indirect tax reform in India, the GST, has begun.
Bill No. 192 of 2014, The Constitution (one hundred and twenty second amendment) Bill, 2014 seeks to insert the following articles 246A, 269A and 279A in The Constitution apart from making certain amendments to already existing articles. These amendments will pave way for introduction of a dual structure Goods and Services Tax.
Article 246A is introduced in Part XI Chapter 1 titled “Legislative Relations”. This article empowers the legislature of every state to make laws with respect to goods and services tax imposed by the Union or by the State. The fear of the States that they will lose the power to legislate on tax related matter is thus allayed. However, with respect to goods and services tax where the supply of goods or services or both takes place in the course of inter-state trade or commerce the power to legislate is retained by the Parliament.
Part XII Chapter 1 titled “Finance” will be a place for the new article 269A which will address the issue of distribution of revenue between the Union and the States. The goods and services tax supplied in the course of inter-state will be levied and collected by the Government of India. The proportion of sharing of such tax between the Union and the States will be decided by the Parliament by a law on the recommendation of the Goods and Services Tax Council. Through this article the Parliament is also empowered to formulate the principles for determining the place of supply and when a supply of goods or services or both takes place in the course of inter-state trade or commerce.
Article 279A is being inserted in Part XII. It is significant to note that through this article a new authority called the “GST Council” will be constituted. The article requires the President to constitute the GST Council within 60 days from the date the amendments contained in the bill are notified. The GST Council will comprise of the following:
Union Finance Minister – Chairperson
Union Minister of State in Charge or Revenue or Finance – Member
The Minister in Charge of Finance or Taxation or any other Minister nominated by each State Government – Members
The members of the GST Council are empowered to choose among themselves any one person to be the Vice Chairperson for such period as they may decide.
The GST Council is empowered to make recommendations to the Union and the States on:
a. the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and service tax;
b. the goods and services that may be subjected to, or exempted from the goods and services tax;
c. 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;
d, the threshold limit of turnover below which goods and services may be exempted from goods and services tax;
e. the rates including floor rates with bands of goods and service tax;
f. any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster;
g. special provision with respect to the states of Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and
h. any other matter relating to the goods and services tax, as the Council may decide.
The GST Council is also empowered to recommend the date from which GST shall be levied on petroleum crude, high speed diesel, motor spirit, natural gas and aviation turbine fuel. Till such time, excise duty will continue to be levied on these products by the Centre and VAT by the States. Alcoholic liquor for human consumption will be outside the GST and the Council shall have no power whatsoever in deciding the taxation of these goods. It is provided in the article that the GST Council shall continue to work towards creating a National market for goods and services in India that will ultimately pave way for a harmonized structure of goods and services tax. In fine print the idea is welcome but India with its diversities it will be a challenge to achieve this objective.
The amendment in article 366 seeks to introduce a much simpler definition for the term service by defining the same as “services means anything other than goods”. A similar definition is found in EU VAT.
An amendment that could have been avoided is the levy of additional tax on supply of goods in the course of inter-state trade not exceeding one percent to be levied and collected by the Government of India for a period not exceeding two years or such other period as the GST Council may recommend.
The concept of sale being replaced with supply will bring to tax free supplies in the nature of samples, compliments, testing etc. unless otherwise specifically exempted in the GST law.
The fate of indirect taxation will thus vest with the GST Council and suo moto the States will not able to decide on the rate, cesses and surcharge. Though the GST Council has only recommendatory powers yet it will have the final say in matters relating to GST. Professionals will have an important role to play in the smooth implementation as the GST law will replace number of indirect taxes, remove cascading effect and above all provide for a common national market for goods and services. The stage is thus set for a United India at least in taxation, are we ready for the Change?
CA. Rajendra Kumar P,
FCA, Chartered Accountant