Constitutional background for GST

India operates with combination of a federal as well as a decentralised structure, which is why the power to levy various indirect taxes has been distributed among the central as well as the state governments. As per article 265 of the Constitution of India “No tax shall be levied or collected except by authority of law”. To give effect to the same, article 246 of the Constitution of India enumerates the subject-matter of laws made by the parliament and by the state legislature, wherein as per clause (1) it provides that parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule referred to as the “Union List”, as per clause (3) the legislature of any state has exclusive power to make laws for such state with respect to any of the matters enumerated in List II in the seventh schedule referred to as the “State List”, clause (2) provides that parliament and legislature of states shall have power to make laws with respect to matters enumerated in List III in the seventh schedule referred to as the “Concurrent List”. Also, as per article 248 “Subject to article 246A, parliament has exclusive power to make any law with respect to any matter not enumerated in the concurrent list or state list”, to give effect to the same entry no. 97 is there in the Union list i.e. the List I to give the residuary power to the parliament with respect to matters which have not been enumerated in List II or III. Entry No 97 of the List I is reproduced below

“Any other matter not enumerated in List II or List III including any tax not mentioned in either of those lists.”

Under the old indirect tax structure, number of taxes were being levied by the Central Government, State Government or local authority and each tax was having a different taxable event. However, the major sources of income of Central govt. and State govt. were excise duty, customs duty, service tax and Sales tax/VAT. For ease of understanding, the Pre-GST tax structure is reproduced below:

In order to accomplish the motive of “One Nation One Tax” and introduce GST, equal power to make laws with respect to Goods and Services Tax had to be given to Parliament and the legislature of every state, which was not possible by enlisting the matter under the concurrent list i.e. List 3 in the seventh schedule because of article 254 of the Constitution of India, since it provides that in case of inconsistency between laws made by Parliament and laws made by the legislature of States then the law made by parliament prevail and the law made by the legislature of the States shall be void.  Hence, due to the presence of Article 254 of the constitution, states would have never agreed to levy GST by enlisting it under the concurrent list, which is why article 246A has been inserted into the Constitution of India containing “Special provision with respect to goods and services tax” the same has been reproduced below:

“246A. (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 279A, take effect from the date recommended by the Goods and Services Tax Council.’’

Article 246A clause (1) provides power to Parliament and legislature of every State to make laws with respect to goods and services tax imposed by Union or by Such State, which gave rise to the Central Goods and Services Tax (CGST) & State Goods and Services Tax (SGST). And clause (2) further provides that parliament has exclusive power to make laws with respect to goods and services tax when transaction is in the course of inter-state trade or commerce, which gave rise to Integrated Goods and Service Tax (IGST). Also, article 279A has been inserted in the Constitution which provides that the President of India shall constitute GST Council which shall consist of Union Finance Minister as a Chairperson, Union Minister of State in charge of Finance as a member, the State Finance Minister or State Revenue Minister or any other minister nominated by each State as a member of the council. The council shall select one of them as Vice Chairperson of Council. The council shall

  1. Make recommendations to the Union and the States on various matters.
  2. Recommend with regards to date on which GST shall be levied on petroleum crude, high speed diesel, motor spirit, natural gas and aviation turbine fuel.
  3. The determine procedure for performing its functions.
  4. To resolve any dispute arising out of any of its recommendations.

 

Further some of the important definitions in the Constitution of India related to GST are as follows:

  1. Goods and services tax

Clause (12A) of article 366

“(12A) “goods and services tax” means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption;”

Hence, it has been clarified by the Constitution of India that the taxable event in the GST regime will be “Supply” & GST cannot be levied on alcoholic liquor for human consumption.

  1. Goods

Clause (12) of article 366

“(12) “goods” includes all materials, commodities, and articles.”

  1. Services

 Clause (26A) of article 366

“(26A) “Services” means anything other than goods.”

Article by Abhinav Chhabra ( Linkedin Profile )

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