The One Hundred and First Amendment of the Constitution of India, officially known as The Constitution (One Hundred and First Amendment) Act, 2016, introduced a national Goods and Service Tax (GST) in India from 1stApril 2017. The GST is a Value Added Tax (VAT) and is proposed to be a comprehensive indirect tax levied on manufacture, sale and consumption of goods as well as services at the national level which will replace all indirect taxes levied on goods and services by a single tax on the supply, right from the manufacturer to the consumer.[1]
This Amendment Act, introduced as the one Hundred and Twenty-Second Amendment Bill, to the Constitution of India. There are three ways of amending the Constitution:
- Bills passed by a simple majority
- Bills passed by a special majority of 2/3rd of the members present and voting.
- Bills passed by a special majority along with ratification of legislatures of ½ of the states.[2]
Since the present amendment to the Constitution also included amendments to Chapter I of Part XI and the Lists in the Seventh Schedule, under Article 368 (2) the latter mode of the amendment was followed.
Amendments:
The 101st Amendment Act inserts repeals and amends certain parts of the Constitution.
The following Articles have been inserted-
Article 246A:
(1) Notwithstanding anything contained in Articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have the power to make laws with respect to goods and services tax imposed by the Union or by such State.
(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both take place in the course of inter-State trade or commerce.
Explanation—The provisions of this Article, shall, in respect of goods and services tax referred to in clause (5) of Article 279A, take effect from the date recommended by the Goods and Services Tax Council.[3]
By this Article, the State Legislatures now have the power to make individual laws with respect to GST imposed by the Centre and to make necessary arrangements for implementation of the same in inter-state trade, while the Centre has exclusive power to make GST laws in case of inter-state trade. Both the Union and States in India now have concurrent powers to make law with respect to goods & services.
Article 269A:
(1) Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
Explanation—For the purposes of this clause, the supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be the supply of goods, or of services, or both in the course of inter-State trade or commerce.
(2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India.
(3) Where an amount collected as a tax levied under clause (1) has been used for payment of the tax levied by a State under Article 246A, such amount shall not form part of the Consolidated Fund of India.
(4) Where an amount collected as the tax levied by a State under Article 246A has been used for payment of the tax levied under clause (1), such amount shall not form part of the Consolidated Fund of the State.
(5) Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both take place in the course of inter-State trade or commerce.[4]
In case of inter-state trade, the amount collected by the Centre is to be apportioned between the Centre and the States as per recommendations of the GST Council. That is under GST, where the center collects the tax, it assigns the state’s share to state, while where the state collects the tax, it assigns center’s share to center. Such proceeds shall not form a part of the Consolidated Fund of India.
Article 279A:
(1) The President shall, within sixty days from the date of commencement of the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services Tax Council.
(2) The Goods and Services Tax Council shall consist of the following members, namely:
(a) the Union Finance Minister:- Chairperson;
(b) the Union Minister of State in charge of Revenue or Finance:- Member;
(c) the Minister in charge of Finance or Taxation or any other Minister nominated by each State Government:- Members.
(3) The Members of the Goods and Services Tax Council referred to in sub-clause (c) of clause (2) shall, as soon as may be, choose one amongst themselves to be the Vice-Chairperson of the Council for such period as they may decide.
(4) The Goods and Services Tax Council shall make recommendations to the Union and the States on—
(a) the taxes, ceases, and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services 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 the levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under Article 269A 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 services 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 and 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.
(5) The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.
(6) While discharging the functions conferred by this Article, the Goods and Services Tax Council shall be guided by the need for a harmonized structure of goods and services tax and for the development of a harmonized national market for goods and services.
(7) One-half of the total number of Members of the Goods and Services Tax Council shall constitute the quorum at its meetings.
(8) The Goods and Services Tax Council shall determine the procedure in the performance of its functions.
(9) Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely:
(a) the vote of the Central Government shall have a weight of one-third of the total votes cast, and
(b) the votes of all the State Governments taken together shall have a weight of two-thirds of the total votes cast, in that meeting.
(10) No act or proceedings of the Goods and Services Tax Council shall be invalid merely by reason of—
(a) any vacancy in, or any defect in, the Constitution of the Council; or
(b) any defect in the appointment of a person as a Member of the Council; or
(c) any procedural irregularity of the Council not affecting the merits of the case.
(11)The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute —
(a) between the Government of India and one or more States; or
(b) between the Government of India and any State or States on one side and one or more other States on the other side; or
(c) between two or more States, arising out of the recommendations of the Council or implementation thereof.[5]
This Article provides for the constitution of a GST Council along with its powers and positions. The process of decision-making also has to be done through voting.
Repealed Articles:–
Article 268A
This sec., as inserted by Section 2 of the Constitution (Eighty-eighth Amendment) Act, 2003 relating to Service tax levied by Union and collected and appropriated by the Union and the States.
Amended Articles:-
1. The residuary power of legislation of Parliament under Article 248 is now subject to Article 246A.
2. Article 249 has been changed so that if 2/3rd majority resolution is passed by Rajya Sabha, the Parliament will have powers to make necessary laws with respect to GST also in the national interest.
3. Article 250 has been amended so that the Parliament will have powers to make laws related to GST during the emergency period.
4. Article 268 has been amended so that excise duty on medicinal and toilet preparation will be omitted from the state list and will be subsumed in GST.
5. Article 269 would empower the Parliament to make GST related laws for inter-state trade/commerce.
6. Article 270 now provides for collection and distribution of tax to be done according to Article 246A.
7. Currently, under Article 271, GST has been exempted from being part of the Consolidated Fund of India.
8. Article 286 has been amended to include the supply of goods and/or services under its ambit than just sale or purchase of goods.
9. Article 366 now includes the definitions of Goods and Service Tax, Services and State.
10. Article 279A has also been brought under the ambit of Article 368.[6]
Amended schedule-
The Sixth Schedule has been amended to give power to the District Councils to levy and collect taxes on entertainment and amusements. (para 8, sub-para3)
The Seventh Schedule has been amended thus-
- In the Union List, petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel, tobacco and tobacco products have been removed from the ambit of GST and have been subjected to Union jurisdiction. Newspapers, advertisements, and Service Tax have been brought under GST. (entries 84, 92, 92C)
- In the State List, petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption have been included, except where the sale is in course of inter-State or International trade and commerce. Entry tax and Advertisement taxes have been removed. Taxes on entertainment only to be included to the extent of that imposed by local bodies. (entries 52, 54, 55, 62)
Compensation and Transition
Upon recommendation by GST Council, the Parliament will provide compensation to the States in case of any loss due to the implementation of GST to five years. However, no redressal against the advice or decisions of the GST council has been provided to the States. Special powers have been given to the president to make such necessary adaptations and modifications by order within a period of three years for removing any difficulty that may arise.
Finally, for the transitional period, it has been provided that laws inconsistent with the above provisions shall continue to be in force until repealed by the legislature, or until a year has elapsed, whichever is earlier.
Frequently Asked Question:
What is GST?
GST is a kind of tax collecting system i.e. indirect tax. It refers to the Goods and Service Tax. It is a destination – based tax as it is levied on the final destination of goods and services. It has replaced all other taxes like Central Excise Law, Service Tax Law, VAT, Entry Tax, Octroi, etc. It is one the biggest ever tax reform so far has been done in India. It has come into force on 1 July 2017 by Hundred and first amendment act, 2016.
Therefore, in simple terms, it can be said that GST is a kind of indirect tax levied on the supply of goods and services which are at their final destination. This law has subsumed all other indirect taxes. It is one indirect tax for the entire country.
Are GST payments tax deductible?
Yes, GST payments are tax deductible, as under the GST Model, a tax deduction can be used to deduct the tax but only at the rate of one percent from the payment made or credited to the supplier of taxable goods or services, provided the total value of supply should be as per under contract not exceed 5lakhs rupees and should be notified by the Central or State Government on the recommendation of Council.
However, when such tax is deducted there has to be the issuance of a certificate by the deductor to deductee mentioning the contract value, the amount deducted and other particulars required by the Government time to time.
How GST works explain with example?
Stage 1: The Manufacturer
Let’s assume a manufacturer of water bottle buys a raw material, which cost him Rs 200, a sum that includes a tax of Rs 10. With the available raw material, the manufacturer manufactures a water bottle. The manufacturer adds value to the materials in the process of creating a bottle. Let us assume the value added by him be Rs. 30. Then the gross value of the bottle becomes Rs 230, (Rs 200 + 30). At a rate of 10%, the tax on output on the shirt will then be Rs 13. But under GST, he can set off this tax Rs 13 against the tax, as he has already paid on raw material and inputs Rs 10. Therefore, the effective GST incidence on the manufacturer is only Rs.3 this way Rs.13-10, making GST a tax only on the value added.
Stage 2:The Distributor or Service Provider:
The consecutive stage is that of the good passing from the manufacturer to the wholesaler, a service provider. The wholesaler buys it for Rs.230 and adds on the value which is the margin of for assumption say Rs.20. Then the gross value of the goods the wholesaler sells would then become a total of Rs 250 (Rs230 + 20). A 10% tax on this amount will become Rs 15. But again, under GST, one can set off the tax on his output Rs 15 against the tax on his purchased good from the manufacturer Rs 13. Thus, the effective GST incidence on the wholesaler is only Rs.2 (15 – 13).
Stage 3:The Consumer:
Finally, a retailer buys the bottle from the wholesaler. He adds a margin of Rs.10 to his purchase of Rs.250. Therefore, the gross value of the bottle he sells goes up to Rs.260 (Rs.250 + 10). At this stage, the taxa 10% will be Rs.16. By setting off this tax against the tax on his purchase from the wholesaler (Rs 15), the retailer brings down the effective GST incidence on himself to Rs.1 (16 –15). Thus, we conclude that the total GST on the entire value chain from raw material i.e. input suppliers (who can claim no tax credit since they haven’t purchased anything themselves) through the manufacturer, wholesaler and retailer is Rs 10+3+2+1= Rs 16 as a grand total, which is finally borne by the consumer.
Therefore, in simple words, GST can be understood in the sense that earlier where the from the starting of manufacturing a product to the end until it reaches its final destination, the tax was levied at each stage. But when GST comes into force, the tax will be levied at the last or the destined place i.e. consumer only. Thus, making the price of the product less, and feasible for the public.
GST system is applicable in which other countries?
Along with India, there are other countries which follow the same system of collecting the tax, i.e. GST, although different countries have a different structure. Like India, Brazil, Canada has a dual GST model. France was the first where this system of collecting tax was initiated. After that, there are 140 total countries which follow the same system with some differences.
How GST different from VAT?
GST refers to Goods and Service Tax while VAT refers Value Added Tax, by simply looking at these two words both are the eminent ways of collecting the tax, but if the two terms are looked deeply both the terms are different in the sense:
1. VAT is added on to the market price of the product whereas GST is charged on selling price and ultimately the Central and State charges GST as per their percentage.
2. In VAT tax is charged only on the sale of goods whereas in GST tax is charged on goods or service.
3. VAT is only charged by the state government for the welfare of the general public whereas GST is collected by State as well as Central Government both on every sale. The amount is then ultimately divided among them.
4. VAT is not applicable on provided or sold services. Service tax is additionally charged, whereas GST rates for services depend on the nature of services.
When GST council constituted?
In 2000 the then Prime Minister Atal Bihari Vajpayee Government came up with the idea of GST and stetted up the committee the Empowered Committee for creating the structure for this reform.
Edited by Ankita Jha
References:
[1] F. Lourdunathan& P. Xavier, A study on the implementation of goods and services tax (GST) in India: Prospectus and challenges, 3(1) INTERNATIONAL JOURNAL OF APPLIED RESEARCH 626, 626-627 (2016)
[2] THE CONSTITUTION OF INDIA (Sep. 19, 2017, 16:10 AM), http://www.Constitution.org/cons/india/p20368.html
[3] Ministry of Law and Justice (Legislative Deptt.), The Constitution (One Hundred and First Amendment) Act, 2016, II THE GAZETTE OF INDIA, Sep 8, 2016, at pp. 1-2.
[4] Supra 3, at pg. 2
[5] Supra 3, at pp. 3-4
[6] Supra 5
