The 122nd Constitutional Amendment Bill (hereafter referred as CAB) was introduced in Parliament on 19th Dec,2014. In the past, to amend the Constitution, 115th CAB was introduced by the UPA Government in March 2011. However, this 115th CAB lapsed.
The rationale for introduction of CAB is that, currently, the Constitution of India does not provide for a parallel levy of indirect taxes by Centre and State which is a pre-requisite for GST. To address this, CAB was introduced in Lok Sabha.
The CAB is a starter for the approaching GST regime. In the following paragraphs let us understand in detail what CAB provides and what it does not.
CAB - Enables introduction of GST
The CAB enables the Centre and State Government (including Union Territories) to introduce law for levying GST on supply of goods or services or both.
Thus, in GST regime, there will be one CGST law and one SGST law each for the States (including Union Territories).
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 or both will attract CGST (to be levied by Centre) and SGST (to be levied by State) unless kept out of purview of GST.
GST will be applicable even when the transaction involves supply of both (goods and services). In effect, woks 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.
It may be noted that the term 'supply' is not defined or elaborated or qualified (such as supply for a consideration). Thus, it needs to be seen whether even free supply will attract GST.
It may be recalled that earlier 115th CAB did not provide for definition of the term 'service'. Now, this 122 nd CAB specifically provides that 'services means anything other than goods' [refer Article 366 (26A)]. This broad definition of the term 'service' will altogether remove the disputes on the aspect whether something is goods or services (unless Government proposes different rates for GST on goods or services or both).
At present inter-State supply of goods attract Central Sales Tax. Now, CAB provides that an inter-State supply of goods or services will attract IGST ((i.e. CGST plus SGST) [refer Article 269A].
It may be noted that IGST will be levied and collected by the Centre and proceeds of IGST will be shared amongst the Centre and the States.
Inter-State sale of goods to attract additional tax
CAB provides that an additional tax upto 1% will be levied by Centre on inter-State supply of goods (and not on services). This additional tax will be assigned to States from where the supply of goods originates. This additional tax seems be a new version of CST.
This additional tax will be applicable for a period of two years and could be extended further by GST Council.
However, CAB is silent on the aspect whether credit of this additional levy will be available or it will be a cost in the supply chain. If it will be a cost then it appears that the tax cascading will continue in the GST regime too.
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). As regards services, it attracts Service Tax (or Research and Development cess in few instances).
CAB 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 (i.e. CGST plus SGST) [refer Article 269A]. Thus, import of goods will attract BCD and IGST. It may be noted that import of services, as against service tax at present, in GST regime, will attract IGST.
Alcohol for human consumption
It appears that 'alcohol for human consumption' will be kept outside the GST regime. As only 'alcohol for human consumption' is excluded as a corollary it can be stated that all other sectors / goods are intended to be included in GST.
Exclusion of alcohol sector could mean that the companies manufacturing alcohol may not be in a position to avail credit of GST paid by them on their procurements.
Petroleum products and tobacco
Petroleum products and tobacco will continue to attract duty of excise.
However, CAB specifically provides that the petroleum products may not attract GST, however, at a later stage, GST Council may decide to levy on petroleum products.
Role of GST Council
The CAB is silent on the key aspects of GST such as -
• How the model GST law would be?
• Which taxes, cesses, surcharges will be subsumed in GST?
• Which goods and services are subject to or exempt from GST?
• What will be the rate of GST including floor rates?
• What will be the threshold limit of GST?
However, to address the aforesaid issues, CAB provides that 'GST Council' will be formulated. The GST Council will consist of Union Finance Minister, Union Minister of State and State Finance Minister. On the aforesaid issues, GST Council will have the power to make recommendations to Centre and States.
It may be recalled that earlier 115th CAB also provided for a Dispute Settlement Authority to settle disputes between States or between States and Centre with regard to GST.
However, in this CAB the GST Council has been given the authority to determine the modalities to resolve disputes arising out of its recommendations.
Compensation to States
It may be noted that earlier 115th CAB did not provide for compensation to States. However, this CAB specifically provides that Parliament by law, on recommendation of GST Council, provide for compensation to the Sates for loss of revenue arising out of implementation of GST upto 5 years.
By providing for compensation in the Constitution itself, the Centre seems to have addressed the concerns raised by the State regarding fear of loss of revenue.
Though, the CAB may have an easy passage through Lok Sabha (where NDA has a majority) it will be interesting to see how the Government passes the hurdle of Rajya Sabha. Also, to become a law, CAB will have to be approved by more than half of the States.
Readers will agree that continuous assurance on GST coupled with concrete steps shows the Government's determination to bring GST in India. So, let us hope that a simpler and better tax regime does a 'Ghar Vapasi' in India.
By CA Pritam Mahure