The Central Government of India, introduced the 122nd Constitution Amendment Bill, 2014 (‘Bill’) on the introduction of Goods and Services Tax (‘GST’) before the lower house of Parliament on December 19, 2014. This Bill replaces an earlier bill introduced in 2011 by the erstwhile government which had since lapsed because of dissolution of the Lok Sabha.
The Bill has also been introduced on the back of hectic negotiations and parlaying between the Centre and States on various contentious issues such as taxing powers and revenue sharing, after the current government had come into power in May 2014; it is therefore significant that it has been subjected to a level of debate and concessions by the Centre and States over the past 6 months, which is key to achieving success in amending the taxing powers of the Centre and States, which is a fundamental aspect of a federal democracy like India.
The Bill proposes to replace the current Indian tax regime which is multi-tiered. Currently, the Centre imposes excise duty on manufacture of goods, and service tax on provision of services (other than customs duty on imports). The States separately impose Value Added Tax (VAT) on the supply of goods and a portfolio of specific taxes such as entertainment tax, excise duties on alcohol for human consumption and medicinal and toilet preparations (MTP), entry tax and octroi. For mixed supply of services and goods (eg construction, restaurants), both service tax and VAT apply on the respective components. This results in a multiplicity of taxes with limited cross credits, conceptual difficulties, differential tax regimes between States and undue litigation.
The followings are the salient features of the Constitutional Amendment Bill 122.
i. Insertion of new article 246A to confer simultaneous power to Union and State legislatures to legislate on GST.
ii. To do away with the concept of ‘declared goods of special importance’ under the Constitution.
iii. Central taxes like Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty (CVD) and Special Additional Duty of Customs (SAD), etc. will be subsumed in GST.
iv. At the State level, taxes like VAT/Sales Tax, Central Sales Tax, Entertainment Tax, Octroi and Entry Tax, Purchase Tax and Luxury Tax, etc. would be subsumed in GST.
v. All goods and services, except alcoholic liquor for human consumption, will be brought under the purview of GST, though it has also been provided that petroleum and 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.
vi. Both Centre and States will simultaneously levy GST across the value chain. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State.
vii. The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of goods and services. There will be seamless flow of input tax credit from one State to another. Proceeds of IGST will be apportioned among the States.
viii. GST will be a destination-based tax. All SGST on the final product will ordinarily accrue to the consuming State.
ix. Levy of non-vatable additional tax upto 1% on supply of goods in the course of inter-State trade or commerce. for a period not exceeding 2 years.This tax will be for a period not exceeding 2 years, or further such period as recommended by the GST Council. This additional tax on supply of goods shall be assigned to the States from where such supplies originate.
x. The term “services” is proposed to be exhaustively defined as “anything other than goods”.
Source: PRS India (Click here to access the Amendment Bill)