The Constitution of India granted the union and state government the power to levy tax on both by its union and state lists.
The 101st constitution amendment act introduced the ‘one nation, one tax’ system.
An indirect taxation system applicable throughout the nation removes barriers proposed by the taxation system introduced by both central and state governments.
The system 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 ensures smooth and hassle-free 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 granted the power to both the central and state governments to levy and collect it.
The introduction of the 101st Constitution Amendment Act 2016 led to some amendments and the insertion of some new articles in the constitution of India.
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Salient features of the 101st Constitution Amendment Act
The 101st constitution amendment act, 2016, has the following salient features:
- The 101st constitution amendment act led to Article 246A in the constitution and paved the way for the parliament and respective state legislatures to enact goods and services tax laws. The parliament is empowered to make laws specifically on interstate supplies.
- The act led to Article 269A in the constitution, which covers revenue from Integrated goods and services tax (IGST). IGST deals with inter-state supplies. IGST is governed by the IGST Act 2017.
- The 101st Constitution Amendment Act also inserted Article 279A, which proposed the power to the president to constitute a GST council. This GST council consists 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 was 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.
This restriction was on the sale or purchase of goods, but now it has been replaced by the supply of goods or services or both.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. By 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 areas mentioned in the concurrent list.
The union list provides the power to levy excise duty on the 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 was provided to the state government. However, this power was extended to the 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 revenue loss due to the implementation of the GST, it can seek relief in compensation from the centre. It is valid for up to 5 years and governed by the Goods and Services (Compensation to States) Act, 2017.
Objectives of GST
A list of objectives for the implementation of GST are as follows:
- The first objective of GST is to create a common market with a uniform tax rate in India.
- GST eliminates 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.
- The GST aims to bring more taxpayers and increase revenue by increasing the tax base.
- GST simplifies the application and tax return procedure through common forms
Provided an online payment gateway 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 distribution of powers of legislature between the union and states. The schedule defines and specifies allocation of powers and functions between the union and states.
This distribution of subjects is based on Articles 245 and 246 of the Constitution of India.
Article 245 of the constitution defines the extent of the laws by the parliament and the state legislatures and 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’.
The law states that laws made by parliament cannot be termed invalid on the grounds of extra-territorial operations. Article 246 of the constitution covers laws by parliament and state legislatures. The law 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, that is, the Union List, while states are empowered to make laws on the matters mentioned in List II, that is, the state list.
Both the parliament and the state legislature are empowered to make laws on the subject matter mentioned in List III, that is, concurrent list, which provides flexibility to the states as the laws made by the parliament on a particular subject can be eased as per the state’s requisites. The parliament is empowered to override laws by the state in case of repugnancy.
After the 42nd constitution amendment, the seventh schedule was amended, and the state lists subjects such as:
- Protection of wild animals & birds
- Administration of justice
- Weights and measurements
These 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 subjects under the purview of the Union Legislature. Only the parliament is authorised to legislate on 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).
As per the concurrent list, both the parliament and state legislature are authorised to legislate on the subjects mentioned in the list. The concurrent list has a total of 52 subjects (originally 47) mentioned in the concurrent list. These aspects are included in the joint domain of both union and state governments.
Types of GST
The 101st constitution amendment act led to the introduction of four types of GST for governing taxation system in India:-
- State goods and services tax (SGST
- Central goods and services tax (CGST)
- Integrated Goods and services tax (IGST)
- Union territory goods and services tax (UGST)
State Goods and Services Tax
The state government levies state goods and services tax on intra-state goods and services transactions. The state collects revenue from SGST on transactions within the state on goods and services. 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 is levied on the central government’s intra-state goods and services transactions. The tax is governed by the Central goods and services tax act 2017. The central government earns the revenue collected from CGST. Both the central and state governments agree on the appropriate portion of the tax to be levied on the concerned intra-state goods and services transactions.
The CGST to be levied should not exceed the limit of 14%. The CGST eliminated the entry tax, service tax, additional customs duty, special additional duty of customs, additional excise duty, central excise duty.
Integrated Goods and Services Tax
The Integrated Goods and services tax is levied on inter-state goods and services transactions. This IGST applies to both imports and exports and is governed by the Integrated Goods and Services Tax Act, 2017. The IGST revenue is shared between both the central and state governments. The share of revenue agreed on by both the governments is 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 within the union territory. The tax is governed by the Union territory goods and services act, 2017 and levied along with the CGST. It is applicable to union territories similar to the SGST, applicable to the intra-state supply of goods and services.
UTGST is applicable 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 according to the legislature of these territories.
Split into the GST regime
This 101st constitution amendment act also led to a split in the GST regime into CGST, SGST, and IGST. CGST and SGST are applicable on the intra-state supply of goods and services, whereas IGST is applicable to the inter-state supply of goods and services.
Instead of applying various indirect taxes by central and state governments, GST is implemented with the view of ‘one nation, one tax’ and combines all existing central and state taxes into one tax.
To ensure hassle-free distribution of tax among the centre and state governments, GST is categorised into CGST, SGST, and IGST. The regime 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. The amendment provides a transparent tax structure for the consumers on the value of goods and services he/she is availing.
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 categorised into four tax slabs of 5%, 12%, 18%, and 28%.
The maximum rate of applicable IGST is 40%. The upper cap fixed for the application of CGST is 20%. The GST is not applicable on some goods and services or some transactions such as a gift given by an employer to an employee, agricultural services like harvesting, renting or leasing of machinery, services provided by courts and tribunals, and sale of land/building subject to para 5(b) of schedule II.
Under the GST regime, the credit of input taxes is 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 are further adjusted in the output. The credit applies to business houses registered under the GST act.
How can one claim the input tax credit?
The input tax credit can be 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 is 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. The input tax credit is then re-allowed.
How is the revenue collected from IGST divided among centres and states?
Inter-state sellers will pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST, and SGST on their purchases.
The State exporting the goods transfers the credit of SGST to the Centre used in the payment of IGST. The dealer importing the goods will claim credit of IGST while discharging his output tax liability in his/her State. The Centre then transfers to the importing state the credit of IGST used in payment of SGST. Because GST is a destination-based tax, all SGST on the final product ordinarily follows the consuming state.