The constitution of India prescribed the power to levy tax on both the union and state government by its union list and state list.
The 101st constitution amendment act introduced the system of ‘one nation, one tax’.
One indirect taxation system applicable throughout the nation removes the barriers proposed by the taxation system introduced by both central and state governments.
It extends to the union territory of Jammu and Kashmir and is governed by the central goods and services tax (Extension to Jammu and Kashmir) Act, 2017.
This pan India uniform indirect tax system ensured the smooth flow of goods throughout the country.
Goods and services tax, also known as ‘GST’, is governed by the Constitution (one hundred and first amendment) Act, 2016.
GST prescribed the power to both the central government and state government to levy and collect it.
The 101st constitution amendment act 2016 introduction led to some amendments and the insertion of some new articles in the constitution of India.
Salient features of the 101st Constitution Amendment Act
The 101st constitution amendment act, 2016 has some salient features. These are:-
- One hundred and first constitution amendment act led to Article 246A in the constitution, which provided powers to the parliament and the respective state legislatures to make goods and services tax laws. The parliament is empowered to make laws specifically on inter-state supplies.
- The act also led to Article 269A in the constitution, which prescribes revenue from Integrated goods and services tax (IGST). IGST deals with inter-state supplies. IGST is governed by the IGST Act 2017.
- 101st constitution amendment act also inserted Article 279A, which proposed the power to the president to constitute a GST council. This GST council will consist of ministers from both union and state governments. This council may make recommendations, procure or modify any rule and regulation concerning goods and services tax.
- Article 286 of the constitution got amended to restrict the imposition of tax by the state on the supply of goods or services or both where such collection takes place outside the territory of the respective state or on export and import of goods in India.
Previously, this restriction was on the sale or purchase of goods, but now it is replaced by the supply of goods or services or both.
- The seventh schedule contains the Union list, State list and concurrent list. The union list includes the aspects on which the union government can make laws. In contrast, the state government can make laws on the arrays mentioned in the state list, and both the union and state governments are entitled to make laws in the areas mentioned in the concurrent list.
The union list provides the power to levy excise duty on manufacture/production of petroleum crude, high-speed diesel, motor spirit, natural gas, and aviation turbine fuel to the union government.
The power to levy taxes on the five petroleum products also gets provided to the state government but not in case of sale in inter-state trade or commerce or sale in the course of international trade or commerce as per the state list.
- If the state suffers any revenue loss due to the implementation of the GST, it can seek relief in compensation from the centre.
It is valid for up to five years and governed by the Goods and services (compensation to states) Act, 2017.
Objectives of GST
Here is a list of objectives aimed to be achieved by the implementation of GST:-
- The first objective of GST is to create a common market with a uniform tax rate in India.
- GST eliminates the prior taxes for the same transaction as input tax credits.
- The GST aims to boost exports by refunding the amount collected on the inputs, so there will be no tax on exports.
- It aims to bring more taxpayers and increase revenue by increasing the tax base.
- Simplification of application and tax return procedure through common forms
- Provided the online payment gateways for payment of taxes and submission of forms
Goods and Services Network (GSTN) is a unified information technology system created for GST operation.
What does the seventh schedule state?
The seventh schedule deals with the subjects of distribution of powers of legislature between the union and states.
It defines and specifies and allocation of powers and functions between the union and states.
This distribution of subjects is based on articles 245 & 246 of the constitution of India.
Article 245 of the constitution defines the extent of the laws made by the parliament and the state legislatures. It states that “the parliament can legislate or make laws for whole or any part of India while the state legislature can make laws for whole or any part of the state”.
It also states that the laws made by parliament cannot get termed as invalid on the grounds of having extra-territorial operations.
Article 246 of the constitution contains the subject matter of laws made by parliament and state legislatures.
It divides the subject matter on which parliament and state legislatures can legislate and make laws on it.
The parliament can make laws on the subjects mentioned in List I, i.e. union list, while the states are empowered to make laws on the matters mentioned in List II, i.e. state list.
And, both the parliament and the state legislature is empowered to make laws on the subject matter mentioned in List III, i.e. concurrent list.
The concurrent list provides flexibility to the states as the laws made by the parliament on a particular subject can get eased as per the state’s requisites.
Even then, the parliament is empowered to override the laws made by the state in case of repugnancy.
After the 42nd constitution amendment, the seventh schedule got amended, and the state list subjects like,
- protection of wild animals & birds
- administration of justice
- weights and measurements
were transferred to the concurrent list.
These subjects get allocated under three lists. These are:-
- Union List (List I)
- State List (List II)
- Concurrent List (List III)
The union list deals with the subjects under the purview of the Union legislature.
Only the parliament is authorised to legislate on the subjects mentioned in the union list.
The parliament can legislate on 98 subjects (originally 97) mentioned in the union list. The state list deals with the subject of power and functions allocated to the states. The states are authorised to deal with the subjects mentioned under the state list.
The state list contains 61 subjects (originally 66), and the state is authorised to legislate on these subjects.
As per the concurrent list, both the parliament and state legislature get authorised to legislate on the subjects mentioned in the list.
There are a total of 52 subjects (originally 47) mentioned in the concurrent list.
These aspects get included in the joint domain of both union and state governments.
Types of GST
The one hundred and one constitution amendment act led to the introduction of four types of GST for governing taxation system in India:-
- SGST (State goods and services tax)
- CGST (Central goods and services tax)
- IGST (Integrated Goods and services tax)
- UGST (Union territory goods and services tax)
STATE GOODS AND SERVICES TAX
The state government levies state goods and services tax on intra-state goods and services transactions.
The state’s revenue collected from SGST on transactions made within the state on goods and services gets earned.
The SGST eliminated earlier taxes such as VAT, luxury tax, entertainment tax, octroi tax, a tax levied on the lottery, and purchase tax.
CENTRAL GOODS AND SERVICES TAX
The central goods and services tax gets levied on the central government’s intra-state goods and services transactions.
It is governed by the Central goods and services tax act 2017.
The central government earns the revenue collected from CGST.
The central goods and services tax gets shared between the centre and state governments.
Both the government will agree on combining their appropriate portion of the tax to be levied on the concerned intra-state goods and services transactions.
The CGST to get levied should not exceed the limit of 14%.
It eliminated the entry tax, service tax, additional customs duty, special additional duty of customs, additional excise duty, central excise duty, etc.
INTEGRATED GOODS AND SERVICES TAX
The Integrated Goods and services tax gets levied on inter-state goods and services transactions. This Integrated GST applies to both imports and exports. It is governed by the Integrated goods and services tax act, 2017.
The IGST revenue gets shared between both the central and state government.
The share of revenue agreed on by both the governments will be divided between them accordingly.
UNION TERRITORY GOODS AND SERVICES TAX
A particular union territory government levies the Union territory goods and services tax(UTGST) on the goods and services transaction taken up within the union territory.
It is governed by the Union territory goods and services act, 2017 and levied along with the CGST.
It applies to union territories similarly to the SGST, applicable to the intra-state supply of goods and services.
UTGST has its application in the Union Territories of Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli & Daman and Diu, Lakshadweep, Jammu and Kashmir, Ladakh.
The state goods and services tax (SGST) is applicable in the Union Territories of the National capital territory of Delhi and Puducherry as these UT’s have their legislature.
Split into GST regime
This 101st constitution amendment act also led to a split in the GST regime into CGST, SGST and IGST. At the same time, CGST and SGST are applicable on the intra-state supply of goods and services, whereas IGSTappliese to the inter-state supply of goods and services.
GST is implemented with the view of “one nation, one tax”. It combined all the existing central and state taxes into one.
Instead of applying various indirect taxes by central and state governments, GST aims to unify all the existing central and state taxes into one tax.
To ensure hassle-free distribution of tax among the centre and state governments, GST gets divided into CGST, SGST, & IGST.
It united the tax structure by making the states available the funds at the same time.
The 101st constitution amendment act 2016 aims to make India one unified common market and introduce a new uniform indirect taxation system.
It provides a transparent tax structure for the consumers on the value of goods and services he is availing for use.
The GST is divided into three tax slabs to ease the process of its implementation and distribution of funds between the central government and state governments.
The GST collected under 101st constitution amendment act 2016 is divided into four tax slabs of 5%, 12%, 18% & 28%.
The maximum rate of IGST applicable is 40% and cannot exceed more than that and,
The upper cap fixed for the application of CGST is 20%.
The GST is not applicable on some goods and services or some transactions like a gift given by an employer to an employee, agricultural services like harvesting, renting or leasing of machinery, services provided by courts and tribunals, sale of land/building subject to para 5(b) of schedule II, etc.
Under the GST regime, the credit of input taxes will be available in the subsequent stage of value addition making it taxable at the last stage of value addition.
What is an input tax credit?
The input tax credit is the amount of GST an individual already paid on the inputs, which can further get adjusted in the output. It applies to the business houses registered under the GST act.
How can one claim the input tax credit?
It can get claimed when the recipient has the tax invoice of the purchase, and the GST charged on it is already paid, and the concerned recipient has filed the GST returns.
What is the condition for disallowing the input tax credit?
The input tax credit will get disallowed if the recipient fails to pay the service provider within 180 days. If the recipient pays, the service provider makes the payment even after 180 days; then, the input tax credit will be re-allowed.
How does the revenue collected from IGST gets divided among centres and states?
The inter-State seller will pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases.
The State exporting the goods will transfer the credit of SGST to the Centre used in payment of IGST. The dealer importing the goods will claim credit of IGST while discharging his output tax liability in his State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST.
Since GST is a destination-based tax, all SGST on the final product will ordinarily follow the consuming State.