The government is on a war footing to push the passage of the Goods and Services Tax (GST) in this Parliament session. And as we look forward to the GST becoming a reality, this article will help you understand the fundamentals that go into shaping the GST Bill: The Constitutional Amendment Act (CAA).
The GST, which has been a hot topic of discussion for a while now, is a unified approach to taxation. It provides a simplified way of indirect taxation, and hence has been accepted by many countries around the world. However, the Indian Constitution did not initially provide for a parallel levy of indirect taxes by the Centre and States–a pre-requisite for GST.
The UPA government tried to amend this through 115th Constitutional Amendment Bill (CAB) in March 2011 but it lapsed. The current government reintroduced the proposal through 101st Constitutional Amendment Bill (CAB), which was cleared by the Lok Sabha in May 2015 and by the Rajya Sabha in August 2016. This resulted in the constitutional amendment for parallel tax levy via the GST and formation of Constitutional Amendment Act (CAA).
CAA is the very first step in adopting GST. Let us understand some key facets of the CAA in detail:
1. CAA Enables Introduction of GST
The CAA enables the Centre and State Governments (including Union Territories) to introduce a law for levying GST on supply of goods or services or both. In the GST regime, there will be one CGST law and one SGST law each for the States (and a corresponding UTGST for Union Territories).
2. GST Defined
The term “GST” is defined in the Article 366 (12A) of CAA to mean ‘any tax on supply of goods or services or both except taxes on supply of the alcoholic liquor for human consumption’. Thus, all supply of goods or services or both will attract CGST (Central GST, to be levied by the Centre) and SGST/UTGST (State or Union Territory GST, to be levied by the State or Union Territories respectively) unless kept out of the GST?s purview.
The GST will be applicable on both, goods and services (including work contracts). As GST is applicable on ‘supply’, previously taxable events such as ‘manufacture’, ‘sale’, ‘provision of services’ etc. will lose their relevance. We should note, however, that the term ‘supply’ is not defined or elaborated or qualified (such as supply for a consideration etc.). But, as per the revised GST law, supply with consideration will attract GST (unless covered under Schedule I of revised GST law).
3. Services Defined
The CAA specifically provides that ‘services’ means anything other than goods. This broad definition of the term ‘service’ will remove any disputes on classification of goods or services (unless the government proposes different rates for GST on goods or services or both).
4. Integrated GST or IGST
Currently, inter-state supply of goods attracts Central Sales Tax. Now, the CAA provides that an inter-state supply of goods or services will attract Integrated GST or IGST (i.e. CGST plus SGST). IGST will be levied and collected by the Centre and shared amongst the Centre and the States.
5. Import of Goods or Services
Right now, import of goods attracts Basic Customs Duty (BCD), Additional Customs Duty (ACD) and Special Additional Customs Duty (SAD). Services attract Service Tax or Research and Development cess in some instances.
The CAA provides that the import of goods or services will be deemed as supply of goods or services or both, in the course of inter-state trade or commerce, thus attracting IGST. Therefore, import of goods will attract BCD and IGST, while import of services will attract IGST.
6. Alcohol for Human Consumption
It appears that ‘alcohol for human consumption’ will be kept outside the GST regime. Since this is the only item mentioned as an exception, we can assume that that all other sectors / goods are intended to be included within GST.
This impacts alcohol manufactures negatively, since companies manufacturing alcohol may not be in a position to avail the credit of GST paid by them on their procurements.
7. Petroleum Products and Tobacco
Petroleum products and tobacco will continue to attract excise duty. However, the CAA specifically provides that petroleum products may not attract GST. This can change in the future, if the GST council decides to levy GST on petroleum products.
8. Role of the GST Council
The CAA is silent on key aspects of the GST such as:
- The Contours of the model GST law
- Which taxes, cesses, surcharges will be subsumed within the GST?
- Which goods and services are subject to or exempt from GST?
- What will be the rate of GST including floor rates?
- What will be the threshold for GST?
To address some of these issues, the ‘GST Council’ was formulated consisting of The Union Finance Minister (as Chairman), The Union Minister of State in charge of Revenue or Finance, and The Minister in charge of Finance or Taxation or any other Minister, nominated by each state government.
The GST Council has also been given the authority to determine the modalities of resolving disputes arising out of its recommendations.
9. Compensation to States
The CAA also provides for compensation to the States for loss of revenue. By providing for compensation, the Centre seems to have addressed concerns raised by States with respect to loss of revenue.
With the GST looking like a very real possibility, the CAA acts as the guiding light for all the rules under the bill. Hence understanding the CAA becomes important for every taxpayer.
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