The Constitution contains the Union List and the State List within which the power to levy separate taxes is given to the Centre and States respectively. GST was to be levied in such a way that both the Centre and the States received the power to levy and collect it.
Further, the legislation had to remain consistent across the Centre and the various State/Union Territory Legislatures. To provide for this, an amendment in the Constitution was necessary.
Constitution (101st Amendment) Act, 2016
In order to suitably implement the GST legislation, this Act resulted in the insertion, deletion and amendment of certain Articles of the Constitution. The following matters were dealt with as a result of these changes:
- The delineation of powers to levy and make laws with respect to GST
- The applicability and scope of the GST law
- The manner of apportionment of revenue from GST among Centre and States
- The constitution, powers and duties of the GST Council
- The discontinuation of existing taxes to give way for GST
- The manner of providing compensation to States for loss of revenue on account of the introduction of GST
Article 246A: Special Provision for GST
This Article was newly inserted to give power to the Parliament and the respective State/Union Legislatures to make laws on GST respectively imposed by each of them. However, the Parliament of India is given the exclusive power to make laws with respect to inter-state supplies. The IGST Act deals with inter-state supplies. Thus, the power to make laws under the IGST Act will rest exclusively with the Parliament.
Further, the article excludes the following products from the scope of GST until a date recommended by the GST Council:
- Petroleum Crude
- High-Speed Diesel
- Motor Spirit
- Natural Gas
- Aviation Turbine Fuel
Article 269A: Levy and Collection of GST for Inter-State Supply
While Article 246A gives the Parliament the exclusive power to make laws with respect to inter-state supplies, the manner of distribution of revenue from such supplies between the Centre and the State is covered in Article 269A. It allows the GST Council to frame rules in this regard.
Import of goods or services will also be called as inter-state supplies. This gives the Central Government the power to levy IGST on import transactions. Import of goods was subject to Countervailing Duty (CVD) in the earlier scheme of taxation. IGST levy helps a taxpayer to avail the credit of IGST paid on import along the supply chain, which was not possible before.
Article 279A: GST Council
This Article gives power to the President to constitute a joint forum of the Centre and States called the GST Council. The GST Council is an apex member committee to modify, reconcile or to procure any law or regulation based on the context of Goods and Services Tax in India.
Article 286: Restrictions on Tax Imposition
This was an existing article which restricted states from passing any law that allowed them to collect tax on sale or purchase of goods either outside the state or in the case of import transactions. It was further amended to restrict the passing of any laws in case of services too. Further, the term ‘supply’ replaces ‘sale or purchase’.
Article 366: Addition of Important definitions
Article 366 was an existing article amended to include the following definitions:
- Goods and Services Tax means the tax on supply of goods, services or both. It is important to note that the supply of alcoholic liquor for human consumption is excluded from the purview of GST.
- Services refer to anything other than goods.
- State includes Union Territory with legislature.
Compensation to States Under GST
This Act also contains a provision to provide for relief to states on account of the revenue loss to the states arising due to the implementation of GST. It has a validity period of five years. The Goods and Services Tax (Compensation to States) Act, 2017 was born as a result.
What does the Seventh Schedule State?
The Seventh Schedule to Article 246 contains three lists, which contain the matters under which the Union and the State Governments have the authority to make laws.
List – I: Union List
It contains the matters with respect to which the Parliament (Central Government) have the exclusive right to make laws.
List – II: State List
It contains the matters in respect of which the state government has the exclusive right to make laws.
List – III: Concurrent List
It contains the mattes in respect of which both the Central and State Governments have the power to make laws.
The relevant entries in this list were adjusted in such a way as to provide for the following:
- To continue the levy of excise duty by the Centre on manufacture/production of five petroleum products namely: petroleum crude, high-speed diesel, motor spirit, natural gas, and aviation turbine fuel. In addition to the above, excise duty is also levied on tobacco and tobacco products. As a result, tobacco and tobacco products are subject to both excise duty and GST.
- The power to levy taxes on the five petroleum products was given to the states too.
- Entertainment tax was abolished except where it is levied by local bodies.