Evolution, Constitutional Background and Structure of GST | Tax Law - CLAT PG PDF Download

GST Evolution

Constitutional Background of GST

Power to Levy and Collect Taxes

• Taxation powers, whether direct or indirect, stem from the Constitution of India.
• If any tax law, such as an act, rule, notification, or order, does not align with the Constitution, it is considered ultra vires(beyond legal authority) and is deemed illegal and void.

Article 265

• Article 265 of the Constitution prohibits arbitrary tax collection, stating that "no tax shall be levied or collected except by authority of law."
• The term "authority of law" implies that the tax must be within the legislative competence of the body imposing it.

Article 246A

• Article 246A, introduced by the Constitution (101st Amendment) Act, 2016, grants the power to levy Goods and Services Tax (GST) to both the Centre and the States.

Need for Amendment

• Previously, the Constitution delineated separate taxation powers for the Centre and the States.
• The Centre imposed excise duty on all goods produced or manufactured in India, while the States levied Value Added Tax (VAT) once goods entered the stream of trade post-manufacture.
• For inter-State sales, the Centre could levy Central Sales Tax, but the revenue was entirely retained by the States.
• Services were exclusively taxed by the Centre, along with applicable cesses.
• The introduction of GST necessitated a constitutional amendment to integrate various taxes into a unified Goods and Services Tax.
• The Constitution (101st Amendment) Act, 2016, was enacted to empower both the Centre and the States to levy and collect GST.

Provisions of Constitution of India Dealing with GST

Article 246A: Power to Make Laws with Respect to Goods and Services Tax

• Article 246A grants the power to the Centre and State Governments to make laws regarding GST imposed by either the Centre or the States.
• The Centre has exclusive power to legislate on GST for inter-State supply of goods and/or services.

Article 269A: Levy and Collection of GST on Inter-State Supply

• Article 269A mandates that GST on inter-State supplies shall be levied and collected by the Government of India.
• The collected tax is apportioned between the Union and the States as per the law made by Parliament on the recommendations of the Goods and Services Tax Council.
• Additionally, the import of goods or services into India is considered as supply in the course of inter-State trade or commerce.

Article 366: Definitions of 'Goods and Services Tax', 'Services', and 'State'

• 'Goods and services tax' refers to any tax on the supply of goods, services, or both, excluding taxes on the supply of alcoholic liquor for human consumption.
• 'Services' encompass anything other than goods.
• The term 'goods' includes all materials, commodities, and articles as defined under Article 366.

Article 279A: GST Council

• Article 279A empowers the President to constitute the Goods and Services Tax Council (GST Council), a joint forum of the Centre and the States.
• The Council, chaired by the Union Finance Minister, includes Finance/Taxation Ministers from the States and Union Territories with Legislatures and the Union Minister of State in charge of Revenue or Finance.
• The GST Council recommends important issues such as tax rates, exemptions, threshold limits, and dispute resolution to the Union and the States.
• Decisions are made by a majority of not less than three-fourths of the weighted votes of members present and voting, with the Centre's vote having a weightage of one-third and the States' votes two-thirds.

Structure of GST

• Central Goods and Service Tax (CGST): Levied and collected by the Central Government.
• State Goods and Service Tax (SGST): Levied and collected by State Governments or Union Territories with State Legislatures.
• Union Territory Goods and Service Tax (UTGST): Levied and collected by Union Territories without State Legislatures on intra-State supplies of taxable goods and/or services.
• Integrated Goods and Service Tax (IGST): Applicable on inter-State supplies of taxable goods and/or services, approximately the sum of CGST and SGST/UTGST, levied by the Centre.

CGST replaces central taxes like central excise duty, additional excise duty, services tax, and certain customs duties. SGST replaces state taxes such as VAT, entertainment tax, luxury tax, and others. Alcoholic beverages and petroleum products are excluded from GST.

GST is implemented on a "concurrent dual" basis, allowing both the Centre and the States to levy, collect, and administer GST. The regime includes Central GST and State/Union Territory GST for intra-State transactions, while IGST is imposed for inter-State transactions. The structure also involves the State Compensation Cess to address revenue loss for States during the transition to the GST regime.