Constitutional Challenges of GST - A Perspective

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Constitutional Challenges of GST A Perspective
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• INTRODUCTION
• Tax is the major source of revenue for any
  government all across the globe. A systematic
  approach to tax collection is therefore, sine qua
  non for a stable and sustainable economy. As said
  by Chanakya, in Arthashastra, the government
  should collect tax in the same manner as a
  honeybee collects honey from a flower- enough for
  its sustenance while ensuring that the flower is
  left unharmed. In India, two broad category of
  taxes are collected by the government- Direct Tax
  and Indirect Tax. Direct Tax means that the
  charge and incidence of tax lies upon the same
  person whereas Indirect Tax mean that the charge
  and incidence of tax lies upon different people.
  The power to levy taxes, direct or indirect,
  flows from Article 265 of the Indian
  Constitution, which states as follows 265.
  Taxes not to be imposed save by authority of law-
  No tax shall be levied or collected except by
  authority of law. Therefore, Article 265
  requires that- (a) there must be a law (b) the
  law must authorize the tax (c) the tax must be
  levied and collected according to the law. While
  the direct tax is levied as per the Income Tax
  Act, 1961, the indirect tax is levied as per the
  Goods and Service Tax (GST) regime. The aim of
  this paper to discuss in detail the
  constitutional structure of the old tax regime
  and the GST regime after the enactment of the
  Constitution (101st Amendment) Act,
  2017.

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• MEANING OF GSTThe Goods and Service Tax has
  been incorporated in the constitutional structure
  vide the Constitution (101st Amendment) Act,
  2016. GST has been defined under Article 366(12A)
  which states that goods and service tax means
  any tax on supply of goods, or services or both
  except taxes on the supply of alcoholic liquor
  for human consumption. GST is a destination
  based tax levied on supply of goods or service or
  both except supply of alcoholic liquor. Indias
  GST regime is based on the Canadian system of GST
  whereby the Centre and the state are given a
  concurrent or simultaneous power to impose and
  collect taxes. GST has replaced a number of
  indirect taxes being levied by the Union and the
  State Governments and intended to remove the
  cascading effects of taxes and provide a common
  national market for goods and services.1
  Therefore, the aim of introduction of Goods and
  Service Tax was to fulfil the purpose of One
  Nation One Tax. As a result of the Amendment,
  Article 246-A, Article 269-A, Article 279-A were
  inserted in the constitution and the Article 248,
  Article 249, Article 250, Article 268, Article
  269, Article 270, Article 271, Article 286,
  Article 366 and Article 368 were amended and
  Article 268-A was omitted from the
  constitution.

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• OLD SCHEME OF INDIRECT TAXATION Prior to GST, a
  number of different indirect taxes were levied
  upon goods and services by both the centre and
  the state as per their legislative competence
  under Article 246 read with Schedule VII of the
  Indian Constitution. The centre levied the
  following kinds of indirect tax (i) Excise
  Duty2 A duty of excise is a tax-levy on
  home-produced goods of a specified class or
  description, the duty being calculated according
  to the quantity or value of the goods and which
  is levied because of the mere fact of the goods
  having been produced or manufactured and
  unrelated to and not dependent on any commercial
  transaction in them.3 Illustration A
  produces yarn from cotton. Here, A is liable
  for payment of excise duty at the point of
  production/ manufacture of the yarn. Lets say
  that the value of yarn so produced is Rs. 100/-
  and the rate of Excise Duty is 10. Now, at the
  time of manufacture, the value of the yarn
  becomes Rs. 110/- (Rs 100/- base value and Rs.
  10/- excise duty.

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• (ii) Custom Duty4 Simply put, custom duty is a
  tax imposed upon the export and import of goods.
  It is not only a source of revenue but is also a
  tool of policy regulation in order to protect the
  domestic industries. It is governed by the
  Customs Act, 1962. Central Sales Tax5 Sales Tax
  means tax levied on the sale or purchase of goods
  and includes Value added Tax. Central Sales Tax
  or CST was imposed on the sale or purchase of
  goods in the course of inter- state or commerce.
  CST was assigned to the state of origin, i.e,
  from where the goods were being sold. Here, an
  interesting point to note is that the goods which
  are being sold must have been manufactured at
  some point. In case, these goods are manufactured
  in India, the manufacturer must have also paid
  excise duty on the same and that excise duty so
  paid becomes a part of the cost of the goods.
  Lets continue with the previous example. After
  excise duty so levied upon the yarn by A the
  cost of the yarn had become Rs. 110/-. Now when
  A will sell that yarn to the garment producer,
  the transaction would be subject to CST if sold
  outside the producing State. Lets say the rate
  of CST is 10. Now the cost of the yarn to the
  garment producer will be Rs. 121 (Rs. 100/- base
  price, Rs. 10 Excise Duty and Rs. 11/- CST). Now,
  in effect, the government has collected 21 tax
  instead of 20 (10 excise duty and 10 CST).
  This is also known as the cascading effect of
  taxes.

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• (iv) Service Tax6 Service Tax was a tax levied
  upon the service provider by the Centre. It was
  introduced in the year 1994 as a part of the
  Finance Act under Section 65. The tax so
  collected by the centre was then apportioned
  between the union and the state as per Article
  268A7 of the Constitution. The State too levied
  multiple taxes as per the subject matters listed
  in List II. A few of them are as below (i)
  Value Added Tax8 Value Added tax or VAT was
  levied on the sale and purchase of goods within
  the State. It is governed by the legislation made
  by the respective states. E.g. in Punjab, VAT is
  governed by the Punjab VAT Act, 2005. (ii) Excise
  Duty9 States have been empowered to impose
  excise duty on alcoholic liquor for human
  consumption and opium, indian hemp and other
  narcotics, but not including medicinal and toilet
  preparations containing alcohol.(iii) Entry
  Tax10 Entry tax was imposed by the States on
  the entry of goods in the local area for
  consumption, use or sale therein. It was,
  therefore, levied on the goods which are being
  moved from one state to another. The person who
  owned or purchases the goods at the time of entry
  into the State is responsible to pay the entry
  tax. (iv) Electricity Tax11 Electricity tax was
  levied on the consumption and sale of
  electricity. (v) Luxury Tax12 States were also
  empowered to impose tax on luxuries, including
  tax on entertainments, amusements, betting and
  gambling. Therefore, we can see that a number of
  taxes were imposed by both the centre and the
  states as per the Schedule VII. However, the
  taxes so imposed were complex and more then often
  has a cascading effect. This also led to less
  compliance and tax evasion. Thus, with an aim to
  instill uniformity and ensure compliance, GST was
  introduced.

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• (ARTICLE 246-A SPECIAL PROVISION WITH RESPECT TO
  GOODS AND SERVICES TAX The Constitution (101st
  Amendment) Act, 2016 inserted the new Article
  246-A to the Constitution of India. It states
  246-A. Special provision with respect to goods
  and services tax. (1) Notwithstanding anything
  contained in Articles 246 and 254, Parliament,
  and, subject to clause (2), the Legislature of
  every State, have 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 takes 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
  279-A, take effect from the date recommended by
  the Goods and Services Tax Council.Article
  246-A is the source of power of taxation under
  the GST regime. The Supreme Court in the case of
  Union of India v.  VKC Footsteps India (P.) Ltd,
  2021 130 taxmann.com 193 (SC) noted three major
  changes that have been brought about by the
  introduction of Article 246-A. These are (i)
  Firstly, Article 246-A defined the source of
  power as well as the field of legislation with
  respect to GST and obviates the need to travel to
  the seventh schedule. Thus, when it comes to GST,
  the distribution of power as envisaged under
  Article 246 becomes irrelevant.Read more
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