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A thorough critical analysis of the actual legal provisions being introduced in India through The Constitution (One Hundred and Fifteenth Amendment), Bill, 2011 [ Bill No. 22 of 2011 ] as introduced in the Indian Parliament on 22.03.2011 to provide for levy of Goods and Services Tax (GST) by the Union and the States/Union Territories having legislature.
The GST Bill [see link below] may be looked into for greater details.
As a taxman fully associated with indirect taxation since 1985 I shall try to analyse the relevant provisions of the GST Bill in phases. I shall also restrict the discussions only to documents available in public domain.
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gstanalyst |
HERE WE GO !
Presently the Indian Parliament has the power to make taxation laws on manufacture of goods and provision of services and on sale of goods in the course of inter-state trade or commerce while the State Legislatures have the power to make laws about tax on the sale and purchase of goods within the respective States. The State has such power under entry 54 of State List read with Article 366 (29A) of the Constitution. The proposed GST bill seeks to introduce in Article 366 the definition of goods and services tax in newly inserted clause 12A, omit the present clause 29A and amend entry 54 restricting the sales tax only on specified items and also for some ancillary changes.
1. In section 14 (ii) of the GST Bill the provision relating to Article 366 (29A) has been omitted. The said clause (29A) authorised levy of “tax on the sale or purchase of goods”. The new goods and services tax does not cover petroleum products, natural gas, aviation turbine fuel and most significantly, alcoholic liquor for human consumption. If article 366 (29A) is omitted altogether then there will be no scope for levying sales tax especially in respect of sales of alcoholic liquor in hotels, bars etc in terms of clause (f) of Article 366 (29A). Such tax will also be outside GST. Moreover, the proposed amended entry 54 of State List does not cover such deemed sales [ food articles and drinks supplied as part of service ] as is evident below:
“54. Taxes on the sale, other than sale in the course of inter-State trade or commerce or sale in the course of international trade and commerce of, petroleum crude, high speed diesel, natural gas, motor spirit (commonly known as petrol), aviation turbine fuel and alcoholic liquor for human consumption.’’
So Article 366 (29A) should not be omitted altogether.
Furthermore, in view of the federal structure of the Constitution a State may exercise its option either not to levy goods and services tax or to levy such tax from a later date beyond the period of one year as mentioned in section 18 of the GST Bill relating to Transitional Provision. [ The inadequacy of such Transitional Provision will be analysed later. ] Also to accommodate such rights of the States the Article 366 (29A) should be retained, maybe with some modification.
2. The proposed new entry in Article 366 for introduction of GST is as below:
2. The proposed new entry in Article 366 for introduction of GST is as below:
‘(12A) “goods and services tax’’ means any tax on supply of goods or services or both except taxes on the supply of the following goods, namely:—
(I) petroleum crude;
(II) high speed diesel;
(III) motor spirit (commonly known as petrol);
(IV) natural gas;
(V) aviation turbine fuel; and
(VI) alcoholic liquor for human consumption.’
Query that remains => Whether the above list includes light diesel oil used in generators? Whether LDO will be under GST or under sales tax / VAT ?
Comments on the inadequacy and inconsistency of the proposed entry:
(i) Supply has not been defined in the Constitution and there is no other legislation relating to “supply” as such which is different from the case of "sale" as defined in Sale of Goods Act. "Sale" under the Sales of Goods Act involves "transfer of property in goods" and there is concept of "delivery" of goods but the word "supply" is not used therein. Since we're going to replace sales tax with GST the question arises as to whether in the proposed clause (12A) "supply" includes "sale" as defined in Sales of Goods Act or not.
(ii) Again, whether such "supply" automatically includes "transfer of property in goods" in execution of works contract ? Whether such "supply" includes "transfer of property in goods" otherwise than by way of contract or the case of sale of goods through hire-purchase agreements ? In the absence of entries in the Constitution relating to "tax on supply of goods" and "tax on supply of services" by providing inclusive definitions to cover the intended transactions to be brought under the tax net it appears that we are reverting to provisions similar to the pre-46th Constitutional Amendment era. It is apprehended that specification in the relevant Central and State GST Acts without support of the corresponding Constitutional entry will be legally invalid as was held before the 46th Constitutional Amendment.
(iii) Whether proposed clause (12A) provides for "tax on supply of goods" and "tax on services" instead of on "tax on supply of services" ? There are inherent differences between "supply of goods" and "supply of services". Instead of "tax on supply of goods or services or both" it should be specifically mentioned as "tax on supply of goods or of services or both" as used in Article 286, i.e. the expression should be identical throughout the Constitution.
(iv) The proposed clause (12A) of Article 366 also covers only "supply" but does not envisage any tax on the corresponding "receipt", as is presently available in ‘tax on sale or purchase of goods’ in clause (29 A). But similar provision is also required in view of the concept of "reverse charge" especially in respect of tax on supply of service. The same is also required for taxation of receipt of goods and services in course of import into India as required in Article 269 A.
(v) Moreover, the concept of supply of goods is not at all identically applied to supply of services where reverse charge mechanism has to be introduced in certain cases to tax the recipient of the service to ensure a proper levy of such tax. For this reason also there should be separate entries relating to "tax on supply of goods" and "tax on supply of services".
(vi) There is inherent difficulty in defining ‘service’. Multiple deemed sales — as in works contracts referred to in the decision of Hon’ble Supreme Court in the case of Larsen & Toubro [17 VST] — should be specifically included In the Constitutional entry itself in “tax on supply of services” to cover the chain of transactions.
(vii) The provisions of section 14 (i) incorporating newly introduced clause (12A) in Article 366 is framed in such a manner that it appears that there exists a provision for "taxes for the supply of" the goods which are outside the ambit of goods and services tax. But in fact, there is no provision for tax on "supply" of such goods like petrol, ATF, foreign liquor etc. Moreover, if it is intended that tax will be levied on "supply" of such goods kept outside the purview of GST then all the existing legislations of all the States and the Centre relating to levy of tax on “sale or purchase” of such goods shall have to be rewritten.
Suggestions:—
An alternative draft to take care of the pit-falls of the proposed entry (12A) may be as below:—
‘(12A) “goods and services tax’’ means any tax on supply or receipt of goods or supply or receipt of services or both except tax on the sale or purchase of the following goods, namely—
(I) petroleum crude;
(II) high speed diesel;
(III) light diesel oil;
(IV) motor spirit (commonly known as petrol);
(V) natural gas;
(VI) aviation turbine fuel; and
(VII) alcoholic liquor for human consumption.’
Entry (29A) of Article 366 should be retained though with some modification. New entries (29B) and (29C) should be introduced in parity with the existing entry (29A) to define "tax on supply or receipt of goods" and "tax on supply or receipt of service" with appropriate deeming provisions.
Further analysis of other provisions of GST Bill will follow shortly.
