Monday, 22 December 2014

122nd Constitution Amendment Bill for GST Explained

GST 122nd Constitution Amendment Bill


GST will substitute many indirect taxes which are levied by Center and State Government. This shall require changes in constitution to give power to Central Govt to enact new taxation law.
The Union Cabinet approved on 17th December, 2014 the proposal for introduction of a Bill in the Parliament for amending the Constitution of India to facilitate the introduction of Goods and Services Tax (GST) in the country. The Union Finance Minister Shri Arun Jaitley introduced the said Bill in the Lok Sabha on 19th December, 2014. Which can be downloaded from Downloads section.
This is not the first time the Constitution Amendment Bill is brought for introduction of GST. Earlier UPA Govt had introduced similar bill, but was lapsed.

Before we discuss the Constitution Amendment Bill for GST, we need to know peculiarities of the Lists given in part XI of the Constitution of India. Which gives powers to Central and State Govt to enact laws. If you know, these already, please continue to Highlights of the bill.
  • The Union List or List-I is a list of 100 items (though last item is numbered 97) on which Parliament has exclusive power to legislate
  • The State List or List-II is a list of 61 items (Initially there were 66 items in the list)
  • The Concurrent List or List-III is a list of 52 items(though the last item is numbered 47)  concerned with relations between the Union and States
Ordinarily speaking if govt had to bring a law which is subject matter of state list, then they would add that item in concurrent list or in union list. But there is a catch in this. The items specified in the concurrent list have a overriding power by Central Govt over State Govt.[Article 246][Article 256]. That's why to give equal powers, another article i.e. Article 246A is introduced. Article 246A states
Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State. 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. 

The bill has 21 Clauses, most of which propose to make changes to Union, State and Concurrent List. Other important amendments are - Formation of new Council for overseeing GST, Compensation to Sates for a period of 5 years from Center. 

Salient features of Bill

  • List of Taxes which shall replace GST can be found here
  • It is proposed to do away with the concept of ‘declared goods of special importance’ under the Constitution.
  • Center will compensate States for loss of revenue arising on account of implementation of the GST for a period up to five years. A provision in this regard has been made in the Amendment Bill (The compensation will be on a tapering basis, i.e., 100% for first three years, 75% in the fourth year and 50% in the fifth year).
  • All goods and services, except alcoholic liquor for human consumption, will be brought under the purview of GST. Petroleum and petroleum products have also been Constitutionally brought under GST. However, 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.
  • Both Center and States will simultaneously levy GST across the value chain. Center 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.
  • The Center 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.
  • GST is a destination-based tax. All SGST on the final product will ordinarily accrue to the consuming State.
  • GST rates will be uniform across the country. However, to give some fiscal autonomy to the States and Center, there will a provision of a narrow tax band over and above the floor rates of CGST and SGST.
  • It is proposed to levy a non-vatable additional tax of not more than 1% on supply of goods in the course of inter-State trade or commerce. 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. 

Goods and Services Tax Council

Creation of Goods and Services Tax Council to examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, exemption list and threshold limits. The Council shall function under the Chairmanship of the Union Finance Minister and will have the Union Minister of State in charge of Revenue or Finance as member, along with the Minister in-charge of Finance or Taxation or any other Minister nominated by each State Government. It is further provided that every decision of the Council shall be taken by a majority of not less than three-fourths of the weighted votes of the members present and voting in accordance with the following principles:-
(A) the vote of the Central Government shall have a weightage of one-third of the total votes cast. and
(B) the votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast in that meeting.

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