Introduction of GST in India : A Critical Analysis of Provisions and Scope - Part 3

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In the first & the second posts the shortcomings in the proposed amendment to the Indian Constitution  for introduction of goods and services tax in India by The Constitution (115th Amendment) Bill, 2011 have been discussed and analysed . In this sequel some further analysis of the GST Bill is made. For a proper appreciation of this analysis the first two parts of the critical analysis should be looked into.

        

          PART  3:

 The Transitional Provision in section 18 of the GST Bill has been introduced to take care of the problems that may arise owing to delay in implementing the Central and State GST legislations after the effective date of the Constitutional Amendment. It actually gives a breather for one year and provides as follows:

"Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier."

Comments:

(a)   The Transitional Provision refers to "tax on goods or services or on both" which will be protected for a period of maximum one year despite the amendment of the Constitution. But the taxes sought to be covered is never "on goods" as such -- the taxes actually intended to be referred to are the taxes on sale or purchase of goods or on manufacture of goods or on entry of goods, etc. It can also be argued that Service Tax is also on not the ‘service’ per se -- it is on provision of such service.
   
     So unless the relevant provision is suitably re-drafted  --
      the transitional provision becomes superfluous and a nullity as after amendment of the Constitution in the manner presently proposed in the GST Bill, the Sales Tax Acts and Entry Tax/ Octroi Acts of the States and the Central Excise Act as applicable to the goods sought to be covered under GST or even the provisions of Service Tax shall be inoperative from the very date of effect of such amendment of the Constitution, since the existing taxation entries of the Constitution have been sought to be replaced or even omitted.

(b)   The existing entries in the Constitution relating to tax on items as goods as such, and not on events or transactions like manufacture, sale or purchase or entry etc involving goods, are the following:

Union List :

89. Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freights."

State List :

56. Taxes on goods and passengers carried by road or on inland waterways.

57. Taxes on vehicles, whether mechanically propelled or not, suitable for use on roads, including tramcars subject to the provisions of entry 35 of List III.

58. Taxes on animals and boats.

62. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling.

So it may be argued that after one year from the proposed Constitutional amendment

all the above-mentioned entries in the Union and the State Lists shall cease to be in force, since they are taxes on goods or services as such, though all such taxes may not be subsumed in GST.



Introduction of GST in India : A Critical Analysis of Provisions and Scope - Part 2



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          In the first post I've discussed and analysed the shortcomings in the proposed definition of "goods and services tax" in clause (12A) of Article 366 of the Indian Constitution  for introduction of goods and services tax in India by The Constitution (115th Amendment) Bill, 2011. In this sequel some further analysis of the GST Bill is made. For a proper appreciation of this analysis the first part of the critical analysis should be looked into.

        

          PART  2



1.      Amended entry 54 of State List —Power of the State to levy taxes on sale of goods within the State will now be applicable only to the non-GST goods.

Inadequacy of the proposed entry 54 relating to sales of goods outside GST:

Presently Article 366 (29A) authorise levy of “tax on the sale or purchase of goods”. The new goods and services tax will 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) which reads as follows:

"(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration;"

Such tax will also be outside the purview of GST as it does not cover such goods.

Moreover, the proposed amended entry 54 of State List does not cover such deemed sales 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.’’

Furthermore the amended entry 54 of the State List as above is supposed to incorporate the State's power to tax the transactions in goods outside the ambit of GST in replacement of the existing entry in Article 366 (29 A). However while the existing entry in Article 366 (29A) incorporates both sale and purchase of such goods the proposed entry 54 covers only the sale and not the purchase. It is wholly unacceptable and could never have been intended.

Again, proposed entry 54 as above has a preference to "sale in the course of international trade and commerce". What does that expression mean ? It has not been defined anywhere. In fact in terms of Article 286 (1) the Parliament has exclusive power to formulate principles for determining supply outside a State, and supply in the course of import into or export out of India. The amended provision in Article 286 also uses the expression "in the course of import into" and "export out of" the territory of India but it has no reference to "sale in the course of international trade and commerce" or to "supply of goods or services or both in the course of international trade and commerce".

So effectively the Parliament does not have any power to specify the principles for determination of sale in the course of import into or export out of India in respect of non-GST goods and for determination of supply in the course of import into or export out of India in respect of goods under GST. It could also never have been intended.

So appropriate amendment is absolutely necessary for a working model of the GST to be implemented in India.

2.      Omitted Entry 55 —“Taxes on advertisements other than advertisements published in the newspapers and advertisements broadcast by radio or television" => included in GST.

3.      Amended Entry 62 — “Taxes on entertainments and amusements to the extent levied and collected by a Panchayat or a Municipality or a Regional Council or a District Council.’’ => Only the Municipalities or the Panchayats etc, and not the State, shall have the power to levy such tax. Such tax is not subsumed in GST.

4.      Entry 92B of Union List relating to consignment transfer has been retained. There was proposal to include inter-state stock transfers under GST — if it is included in GST then entry 92B should be re-drafted to apply to non-GST goods only while consignment transfer of GST-goods should specifically be included in "tax on supply of goods".

5.      Introduced New Article 246A that the Parliament and the Legislature of every State will have concurrent power to make laws with respect to goods and services tax subject to the condition that the Parliament will have the exclusive power to make laws with respect to goods and services tax where the supply of goods or services or both takes place in the course of inter-state trade or commerce.

6.      Amended Article 248 — Residuary powers of the Parliament to make laws under the Concurrent List has been made subject to the provisions of restriction under Article 246A

7.       Amended Article 249 — Power of Parliament to make laws on subjects in State list in national interest and Article 250 — Power of Parliament to make laws on subjects in State List in the case of Emergency —to include law on GST pursuant to resolution passed by the Council of States supported by not less than a two-thirds majority of the members present and voting

8.      Amended Article 268 — Duties levied by Union but collected and appropriated by the States — Excise duty on medicinal and toilet preparations (containing alcohol, narcotic and psychotropic substances) in the Union List has been omitted for the purpose of this Article => to be subsumed in GST.

9.      New Article 269A — Levy of GST in the course of inter-state trade or commerce

(a)   The GST on supplies of goods or services or both in the course of inter-state    trade   or commerce shall be levied and collected by the Union Government and shall be apportioned between the Union and the States which would be prescribed by the Parliament.

(b)   Supply of goods or services or both in the course of import into India shall be deemed to be a transaction of inter-state trade or commerce

(c)    The Parliament shall formulate the principles to determine when supply of goods or of services or both shall be treated as effected in inter-state trade or commerce.

10.      Amended Article 270 — Distribution of taxes between the Union and the States — to include GST.

11.      New Article 279A — Creation of GST Council --

The President shall constitute a GST Council within sixty days from the commencement of the GST Act.

Membership of the GST Council

The Union Finance Minster as the Chairperson, the Union Minister of State for Revenue shall be one of the Members and the Finance Minister or any other minister nominated by each State Government shall be the members of the GST Council.

Functions of the GST Council

The GST Council will work for the development of a harmonised national market for goods and services and shall make recommendations to the Union and the States on:

                    (I)      Taxes, cesses and surcharges levied by the Union and the States and local bodies which may be subsumed within the GST

                   (II)       Exemptions from GST for such goods and services

                   (III)      Threshold limit of turnover below which GST may be exempted

                   (IV)     The GST rate

                   (V)      Any other matter relating to GST.

12.  New Article 279B — GST Dispute Settlement Authority 

(a)     The Parliament, by law, will provide for the creation of a Goods and Services Tax Dispute Settlement Authority to adjudicate any dispute or complaint referred to by a State or Union Government arising out of deviation from any recommendation of the GST Council which results in the loss of revenue to the State Government of the Union Government or affects the harmonised structure of the GST.

(b)     The DSA shall consist of three members namely, the Chairperson, who has been a Supreme Court Judge or the Chief Justice of a High Court and the remaining members shall be persons having expertise in the field of law, economics or public affairs appointed by the President on recommendation of the GST Council.

(c)     The DSA shall pass suitable orders including interim orders

(d)     Only the Supreme Court shall exercise jurisdiction over such adjudication or dispute or complaint.

Watch for Part 3

gstanalyst.blogspot.com

Further discussion and analysis of the GST Bill will follow.

Introduction of GST in India : A Critical Analysis of Provisions and Scope

gstanalysis : Free Help
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       If you search the Internet for "GST in India" there are approximately 4500000 search results as on date. While many of the same are highly informative and authentic very few of them make a thorough critical analysis of the actual legal provisions being introduced. The basis of such opinion of mine is absence of such thorough critical analysis about provisions in The Constitution (One Hundred and Fifteenth Amendment), Bill, 2011 [ Bill No. 22 of 2011 ] as introduced in the 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. 

  

gstanalyst

       As a taxman I shall try to analyse the relevant provisions of the GST Bill in phases. 

     

     Subsequently I shall also discuss about some aspects of the present VAT/sales tax relating to works contracts, transfer of right to use goods, claims for subsequent sales under section 6 (2) of the CST Act, 1956, etc and with special reference to West Bengal. 

DISCLAIMER : My opinions are purely personal and for academic purposes only and should not be construed to have any bearing or reference or relation to the organisation where I am employed. I am also not responsible or liable for any loss or damages as the information furnished is solely for academic purposes only and shall not be construed as a legal or similar advice or guidance.

HERE   WE   GO !

See the relevant pages in this blog.

           Further analysis of other provisions of GST Bill will follow shortly.

GST Bill link :

www.finmin.nic.in/gst/Constitutional_115th_Amendment_Bill_2011.pdf

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