India: Introduction Of The GST Bill

Last Updated: 30 January 2015
Article by Economic Laws Practice

After a long await, last Friday (December 19, 2014) finally saw the Finance Minister, Mr. Arun Jaitley table the Constitutional (One Hundred and Twenty Second Amendment) Bill, 2014 ('Amendment Bill') in the Lok Sabha. While introducing the Bill in the Lok Sabha, the Finance Minster described it as 'single most important tax reform after 1947'. By the Amendment Bill, the Constitution is proposed to be amended so as to confer concurrent taxing powers on the Union as well as the States to introduce the Goods and Services Tax ('GST') in the country and vest the respective legislatures (Parliament and State Legislatures) to make laws for levying GST on every transaction of 'supply of goods or services or both'. While the idea of GST was first mooted by the then Finance Minister Mr. P Chidambaram in the Budget Speech of 2006-07, however, the passage of GST could not become a reality in all these years owing to irreconcilable differences between the Centre and the States over the framework, taxing powers, issues of revenue loss and compensation.

However, the election of the new NDA Government seems to have augured well for the revival of GST. The introduction of the Amendment Bill is unarguably the first major economic policy initiative by the NDA Government and its introduction at the fag end of this stormy Parliament session somewhere reflects the commitment of the NDA Government to push through its much promised economic reforms including the GST, which, when implemented, shall usher in a harmonised national market of goods and services and shall lead to a simplified, non adversarial and assesses friendly tax administration system in the country.

Key Features of the GST Bill  

A closer look of the Amendment Bill reveals that it not only seeks to empower the Centre and State with the concurrent taxing jurisdiction over 'transaction of supply of goods or services or both' but it also provides a prima facie broad framework as to what the Indian GST would be in terms of its coverage, its operating mechanism, implementation and dispute resolution. Set out below are the key amendments qua introduction of GST proposed by the present Amendment Bill:

RELEVANT CONCEPTS

WHAT THEY MEAN

Scheme of Taxation (Article 246A, Article 269A, Article 270, Article 286)

Taxation under the GST

Consistent with the federal structure of the country, GST would have two components: one levied by the Centre referred as to as the Central GST ('CGST') and the other levied by the States referred to as State GST ('SGST'). Further, the Centre will have the power to tax inter- state supply of goods and services through levy of 'Integrated Goods and Service Tax' ('IGST'). Such IGST will be apportioned between the Centre and State in the manner as may be provided by Parliament by law on the recommendation of the GST Council. It has been proposed that the Parliament may by law formulate the principles for determining the place of supply, and when a supply of good or supply of services or both takes places in the course of inter-state trade or commerce.

Taxes to be Subsumed

Subsuming of various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duty, Excise Duty levied under the Medicinal Toilet Preparations Act, Service tax, Central Sales Tax, Additional Customs Duty i.e. CVD and Special Additional Duty of Customs i.e. SAD and Central Surcharges and Cesses so far as they relate to the supply of goods and services.

Subsuming of various State Value Added Tax/Sales Tax, Entertainment Tax (other than that levied by local bodies), Octroi and Entry Tax, Purchase Tax, Luxury Tax, Taxes on lottery, betting and gambling and State Cesses and Surcharges so far as they relate to the supply of goods and services. However, Entry 62 of List II (State List) has been sought to be substituted to allow local bodies (Panchayat, municipality, regional/district council) the right to levy and collect taxes 'on Entertainment and Amusements'. 

Goods and Services Tax (Article 366 12A)

Goods and Service Tax has been defined to mean any tax on supply of goods or services or both excluding 'taxes on the supply of alcoholic liquor of human consumption'. Therefore, the only item sought to be excluded from the purview of GST is 'alcoholic beverages'. States shall retain its power to charge Excise duty and Sales Tax/VAT on 'alcoholic beverages' under the GST era as well.

Significantly, petroleum and petroleum products such as - high speed diesel, motor spirit (petrol), natural gas, aviation turbine fuel have been subsumed in the GST. However, it has also been provided that petroleum products shall not be subject to the levy of GST till notified at a future date on the recommendation of the GST Council. The present taxes levied by the States and the Centre on petroleum and petroleum products, i.e., Sales Tax/VAT, CST and Excise duty only, will continue to be levied in the interim period.

It is important to note that the earlier Bill sought to exclude from the purview of GST, petroleum and petroleum products besides alcoholic beverages which as stated above is the only item which remains outside the purview of GST.

Promulgation of Goods and Service Tax Council  (Article 279A)

Composition

The GST Council is envisaged as a recommendatory body with the Union Finance Minster as Chairperson, Minister in charge of Finance or Taxation or any other Minster nominated by each State Government as members and Union Minster of State in charge of Revenue as Member of the GST Council.  The Members shall choose a Vice Chairman from amongst themselves.

Recommendatory Power

The GST Council will be the heart for smooth implementation of GST in the country as it has been empowered to make recommendations on issues of significance such as taxes to be subsumed under GST, rate structure, exemption list of goods/services, threshold limits. Further, the present Amendment Bill (unlike the earlier Bill) extends the recommendatory role of the GST Council to include subjects such as model GST Laws, principles of levy, apportionment of Integrated  Goods and Services Tax  and the principles that govern place of supply. 

The GST Council has also been inter alia vested with the power to recommend special schemes with respect to States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand- a focus area of the new NDA Government.

As stated above, GST Council has also been empowered to recommend the date on which the GST can be levied on petroleum crude, high speed diesel, petrol, natural gas and aviation turbine fuel-which- as stated above shall continue to be taxed temporarily by the States. It has been specifically provided that the GST Council shall be guided with the objective to create a "harmonized structure" and a "harmonized national market" for GST.

Decision making Mechanism

The present Amendment Bill seeks to increase the quorum for meetings of the GST Council from one-third (in the earlier Bill) to one half of the total number of members of the GST Council. Instead of the 'consensus' based decision making process at the meeting of the GST Council, the Amendment Bill introduces a 'weighted voting system'. As per this voting system, every decision of the GST Council would be taken at a meeting, by a majority of not less than three-fourth of the 'weighted votes of the members present and voting', wherein the Central Government would have the weightage of one third of the total vote cast and the State Governments would have a weightage of two-third of the total votes cast. A formula for calculation has also been prescribed in the Statement of Objects and Reasons.

Dispute Resolution Mechanism

The Present Amendment Bill empowers the GST Council to decide the modalities of resolving disputes arising out of its recommendations. This is a clear departure from the previous proposal of having a separate GST Dispute Settlement Authority ('GST DSA') - Orders of which were proposed to be amenable only to the jurisdiction of the Supreme Court of India. The concept of GST DSA was strongly opposed by the State Governments and was also held undesirable in the 73rd Report of the Parliamentary Standing Committee on Finance (2013). 

Treatment of Goods of Special Importance (Article 286)

The Amendment Bill seeks to dispense with the concept of 'declared goods of special importance' by omitting Clause (3) of Article 286 of the Constitution. The omitted Clause empowered the Parliament to restrict and provide such conditions with respect to any State laws which sought to levy tax on sale and purchase of such goods which were declared by the Parliament to be of 'special importance' in inter-state trade or commerce  and/or a tax on sale or purchase concerning transactions of works contract, hire-purchase and transfer of right to use any goods as specified in Sub-Clauses (b), (c),(d) of Clause (29A) of Article 366 of the Constitution.

Resolution of the issue of CST Compensation to States

Additional tax on supply of goods in the course of inter- State Trade and Commerce

The Amendment Bill seeks to resolve the contentious issue of CST Compensation to States by seeking to 'Constitutionally Guarantee' compensation through the following method:

Provides for the imposition of an additional tax on the supply of goods in the course of inter- state trade and commerce, at a rate not exceeding 1%, for a period of two years/or any other period as recommended by the GST Council. The proceeds of such a tax would go to the State Government from where the supply originates.

Compensation to States for Loss of Revenue on Account of Introduction of GST

It has been provided that Parliament by law and on the recommendation of the  GST Council, shall compensate States for loss of revenue arising on account of implementation of GST for such period which may extend to 5 years.  The GST Council shall decide on the modalities of the compensation and also the sun-set clause.  However,  that such compensation shall not extend beyond five years.

The provisions of the Amendment Bill suggests that the NDA Government has been more amenable and receptive to pleas of the State Government and has (unlike the UPA Government) walked the extra mile to arrive at consensus with States on various contentious issues especially structure of tax, coverage of goods, compensation for revenue loss, flexibility of the GST Council, etc.- which ostensibly were major impediments stalling the process of implementation of GST.

The Next Steps

The introduction of the Amendment Bill in the Parliament is a welcome step and a desired move forward towards achieving a full-fledged harmonized system of GST. However, the Government needs to ensure that Amendment Bill's introduction should not meet the same fate as that of the erstwhile Amendment Bill. For the Bill to come into force, it would need to be passed by at least two-third majority in both Houses of Parliament and subsequent ratification by at least half of the State Legislatures. While passage of the Bill is expected to be smooth in the Lok Sabha, its passage in the Rajya Sabha remains doubtful, given that the Government is less in number and is facing an acrimonious and a united opposition. Due to the recent run-ins between the Government and the opposition and the rarity of unity amongst the opposing political parties, achieving a consensus is going to be an uphill task for the Government.  Even if the Government is able to get the Bill passed in the coming Budget Session, it will be an uphill task to secure its ratification from half of the State Legislatures, not to mention the drafting of the numerous regulations/laws which shall govern the entire framework of GST.

Conclusion

Hence, the deadline of April 2016 for the introduction of GST seems an uphill task. However politics has always been the 'art of the possible, the attainable — the art of the next best' and it will be of interest to watch the move of the Government in the coming months. However, given the resoluteness of the NDA Government and its avowed intent to introduce the GST by April 2016, it will indeed be jeopardous for us to not be prepared for the same. It is time to look at your business models keeping the impeding GST in mind. We shall keep you posted.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
HSA Advocates
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
HSA Advocates
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions