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Regulatory Framework

Amendments proposed to the Constitution of India

The Union government introduced the Constitution (122nd) Amendment Bill, 2014 in the Lok Sabha on 19 December 2014, paving the way for the introduction of the Goods and Services Tax (GST) regime in India.

Through this Bill, the government aims to incorporate necessary changes in the Constitution for the roll out of GST across India, which would usher in unanimity in indirect taxes amongst various sectors of the economy. Once approved by Parliament, the legislation on GST will give powers to both the Union and States, including Union territories, for appropriating levy and collection mechanism in the subject matter of goods and services. Furthermore, this common tax on goods and services shall subsume in its repertoire many indirect taxes being levied individually by the Centre and States, thereby removing their cascading effect. This will also provide a national market to enable uniform trade throughout the territory of India.

New Articles proposed to be inserted in the Constitution of India

  • Article 246A — The Parliament and State Legislatures shall have power to make laws with respect to goods and services tax (GST) imposed by the Union or by such State, with the Parliament retaining exclusive power to make laws with regard to supplies in the course of inter-state trade or commerce
  • Article 269A – The GST for supplies in the course of inter-state trade or commerce (including imports) to be levied and collected by the Government of India and shared between the Union and States on the basis recommended by the GST Council. Further, the principles determining the place of supply and when a supply of goods or services, or both take place in the course of inter-state trade or commerce shall be formulated by the Parliament
  • Article 279A – President to constitute the GST Council within sixty days from date of commencement of the said Constitutional Amendment coming into force. The Council, while discharging its functions, shall be guided by the need for a harmonised structure of GST for development of a national market. Key members of the Council shall comprise of Union Finance Minister as Chairperson and Union Minister of State in charge of Revenue or Finance and the Minister in charge of Finance or Taxation or any other Minister as nominated by each State Government as Members. Council’s key objectives are to examine issues relating to GST and make recommendations to the Union and the States on various matters. The Council shall determine the procedure in the performance of its functions and the modalities to resolve disputes arising out of its recommendations

Amendment of existing articles of the Constitution of India

The following articles of the Indian Constitution are proposed to be amended to give the effects mentioned below:

  • Article 248 – Residuary power of legislation provided to the Parliament has been made subject to Article 246A, i.e. both Parliament and State Legislature shall frame laws pertaining to GST
  • Article 249 – In case a two third majority resolution has been passed by the Council of States, for the national interest, Parliament shall have the power to make necessary laws with respect to GST
  • Article 250 – The Parliament shall have the power to make the necessary laws, relating to GST, for whole or part of the territory of India, during the period when a proclamation of Emergency is in operation
  • Article 268 – Excise duty on medicinal and toilet preparations has been omitted from the State List and subsumed in GST
  • Article 268A – Subsumation of Service tax in GST
  • Article 269 – GST on supplies in the course of inter-State trade or commerce shall be collected by Government of India and apportioned between Union and States
  • Article 270 – Insertion of Article 269A as an exception to taxes levied and collected by Union and distributed between States
  • GST levied and collected by Government of India, over and above GST under Article 269A, shall be distributed amongst Union and States as per the mechanism prescribed
  • Article 271 – Non-levy of surcharge on GST
  • Article 286 – Restriction on imposition of tax, on supply of goods or services or both, by States where such supply takes place: outside the State; in the course of import/ export out of India.

The President may by order, make necessary provisions for removing difficulties arising out the amendments of this Act. However, no such order to be made upon expiry of three years from the date of assent of this Act. Further, every such order to be placed before each house of Parliament

Our view

The introduction of the GST Bill in Parliament by the Union government is a welcome move. This is a stepping stone towards the rollout of a major tax reform, which is needed to invigorate the economy. After overcoming several major road-blocks in the past, there finally seems to be a consensus on ways to meet the concerns of the States on important matters, including compensation for any loss of revenue, autonomy, compensation structure, inclusion of entry tax and taxation of petroleum products. The need of the hour is a prompt approval of the Bill by Parliament within the ongoing winter session itself; if the Government wants GST to become a reality by April 2016, a highly optimistic deadline that it has set for itself.