GST

Amendment of Indian Constitution for GST

The Goods and Services Tax (GST) marks a momentous and noteworthy reform in India’s taxation system as it was responsible for unifying the fragmented tax structure that existed before its implementation in India. Before the introduction of GST in July 2017, India operated under a complex, multi-tiered tax regime that encompassed a plethora of indirect taxes at both central and state levels. This structure comprised taxes like Value Added Tax (VAT), Central Excise Duty, Service Tax, Central Sales tax, and more. 

The pre-GST era saw a spilling effect of taxes where taxes were levied at each stage of production and distribution, leading to a compounding of taxes on the final product’s cost. This not only inflated the prices for the consumers but also hindered the ease of doing business by creating a web of complex tax laws and compliance requirements across different states.

Furthermore, the pre-GST system lacked uniformity as each state had its own tax regulations, resulting in a fragmented market and hindering the seamless movement of goods and services across borders. This hindered trade and economic growth, and businesses often had to navigate complicated and varying tax structures.

The introduction of GST sought to address the loopholes of the then-existing fiscal structure and aimed to streamline the taxation landscape by replacing multiple indirect taxes with a single comprehensive tax levied on the supply of goods and services. This move sought to eliminate the cascading effect of taxes, enhance tax transparency, and reduce compliance burdens, thereby contributing to and boosting economic growth. 

What is GST?

Goods and Services Tax, popularly referred to as GST, was introduced with the object of “One Nation, One Tax”. 

It is essentially a destination-based tax. In simpler words, it means that it is a tax levied on the supply of goods and services, except on the exempted categories. Now you may wonder how it is different from the old tax regime. The old tax was levied on the ‘manufacturing’ of goods and services, whereas this tax is levied on the ‘supply’ of goods and services. It is noteworthy that it is levied in the state in which the goods and services are consumed and not in the state where they are manufactured.

GST is levied on the final price of goods and services manufactured domestically, subsuming numerous indirect taxes which were levied earlier. It is an indirect tax incidence in the sense that it is paid by the buyers when they purchase any goods or services, which is collected by the seller and ultimately paid to the government.

Unlike many countries where there is a single GST System, India chose to introduce a dual GST System i.e. the GST is levied concurrently by the Central as well as State Governments and the Inter-State trade flow within our country will attract Integrated GST (IGST), which is the aggregate of CGST and the SGST of the destination state. 

Amendment in the Constitution of India for Goods and Services Tax

Keeping in mind the federal structure of the Indian Constitution and the division of powers, the authority to tax the goods and services was to be shared between the Centre and the State, which necessitated the amending of the Indian Constitution. Thus given the dual taxation jurisdiction encompassing both central and state levels, imperative constitutional changes were introduced to ensure uniformity between the central and state domains. The enactment of the Constitution (101st Amendment) Act was brought in 2016, which aimed at effecting modifications within India’s constitutional framework to accommodate the implementation of GST.

Certain Articles underwent revisions to align with the canons of the GST legislation. This encompassed the establishment of the scope and applicability of GST Laws¹, coupled with the explicit assignment of authority to enact these laws and these amendments encompassed pivotal changes, as outlined by the Amendment Act. 

To authorize and empower the Centre and the States to charge and collect GST concurrently, the 101st Constitutional Amendment Act, 2016 was passed by the Legislature, which laid the foundation of GST in India. The Amendment Act introduced the following additions and changes to ensure harmonious exercise of powers:

Article 246A

 The article allowed and empowered the State and the Union to enact GST laws concurrently. The parliament was additionally empowered to make laws specifically on interstate supplies. Integrated GST (IGST) was meant for this inert-state trade of goods and services.

Interestingly this article has overridden the exclusive powers of the Union powers under Article 246 and Article 254, by conferring the power to legislate on GST to both Centre as well as State, in the light of cooperative Federalism.

Collection of taxes

 Article 269A, which concerns the revenue distribution between Centre and State, specifically generated from the inter-state trade. This revenue distribution is meant to be one based on the rules and regulations formed by the GST Council. The distribution is done as where the centre collects the tax, it assigns the state’s share to the state, while where the state collects the tax, it assigns the centre’s share to the centre.

Amendment in Article 268

Article 268 has also been modified and amended so that excise duty on medicinal and toilet preparation will be omitted from the state list and will be subsumed in GST.

Establishment of GST Council under Article 279A

Yet another important introduction made by the 101st Constitutional Amendment Act was the formation and establishment of GST Council. As per the incorporated Article, the GST Council is to be formed by the President to administer and govern GST-related matters. The Union Finance Minister of India serves as the Chairman of the GST Council and works along with the ministers nominated by the State Governments as its members. The Council is formed in a way to have adequate representation of both the Centre and State.

Restriction under Article 286

 Article 286 of the Indian Constitution was also revised to limit the imposition of state taxes on the delivery of goods or services, or both, whether such collection occurs beyond the confines of the respective state. The difference with the pre-GST tax regime is that earlier, this restriction was applicable only on the ‘sale’ of goods and services, but now, owing to the new regime, these will be applicable to the ‘supply’ of goods or services, or both. The article earlier restricted the states from passing any law that allowed them to collect tax on the sale or purchase of goods either outside the state or in the case of import transactions. 

Amendments in Lists

Consequential changes were made in the definitions provided under Article 366, and furthermore, changes were also made in the respective entries of Lists I and II to align the spirit of these fundamental amendments in the respective articles.

Conclusion

So in a nutshell, the introduction and implementation of GST was no undoubtedly a positive step towards simplifying the tax structure, which will ensure that the benefits reach the common man, even in the remotest areas, who fails to comprehend the complexities of indirect tax structures. In pursuance of the same, the Constitution of India was amended accordingly, and this simplification of the fiscal landscape was meant to give a big push to the local businesses and to ensure their inclusion in the global markets, at the same time catering to the interests of the consumers, who had to bear the burden of higher prices, which the seller would often shift onto them. The pre-GST tax structure was convoluted and complex, with a myriad of taxes levied at different stages. This complexity created confusion for businesses and consumers, making it challenging to understand and navigate the tax system.

The simplified and standardized tax procedures made it easier for businesses to comply with tax regulations, reducing the scope for tax evasion and tax fraud and ultimately contributing to the Indian economy.  GST has streamlined the tax collection process, making it more effective and reliable for the government and convenient for the taxpayers and businesses by streamlining the entire process.  This increased revenue could be directed towards critical public services and infrastructure development of the country. Therefore, while all the stakeholders should be and probably are content with the effective implementation of this historical change, however at the same time, this will probably still require a lot of work and effort on the part of the experts and concerned authorities to ensure that the common man understands this structure to ensure effective and successful implementation of the new system.

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1. https://services.gst.gov.in/services/gstlaw/gstlawlist