BY MAHESH CHINTALWAR & DR. THARANATH.
GOODS AND SERVICES TAX
AN OVERVIEW
Taxes are the largest source of income for the Government. Taxes collected in various forms by the Central Government, State Government and Local authorities are deployed for various purposes and projects for the development of the nation. India is a democratic country which has adopted federal form of constitution with clearly demarcated specific roles for the central and state government.
The taxation system in India empowers both the Central government and the State governments to levy and collect various types of taxes from the citizens. The well-structured taxation system is a good indicator for economic progression of each country.
GST is one of the biggest tax reforms undertaken in India which came into force from 1st July 2017 with a purpose to make India as “One Tax One Nation” and to make India a competitive market for goods and services benefiting all stakeholders such as consumers, traders, service providers, Government and economy in general.
Constitutional Background of Taxation System
The Constitution of India is the basis of all legislation which empowers the centre and the states to make legislation on various subjects mentioned in Schedule VII of the Union List, State List and Concurrent List. The Constitution has clearly demarcated the financial matters between the centre and the states under Articles 265 to 290 dealing with financial matters.
Article 245 provides that Parliament may make laws for the whole or any part of the territory of India, and the legislature of a State may make laws for the whole or any part of the State. Article 246(1) provides that Parliament has exclusive power to make laws with respect to any of the matters enumerated in Union List of the Seventh Schedule.
Article 246(2) provides that Parliament and the legislature of any State have power to make laws with respect to any matters enumerated in Concurrent List of Seventh Schedule. The Parliament has residuary power in respect of making legislation. Entries 82 to 92B, 96 and 97 of Union List of VII Schedule describe taxation matters of the Union Government. Entries 45 to 63 and 66 (presently there are 16 subjects) of State List II specify taxation matters of the State Governments and the Concurrent List III mentions entries 6, 45, 44 and 47 concurrent taxing matters.
Goods and Services Tax – A Structural Reform in Taxation Regime
Tax systems the world over have undergone significant changes during the last twenty-five years as many countries across the ideological spectrum and with varying levels of development have undertaken reforms. The wave of tax reforms that began in the mid 1980s and accelerated in the 1990s was motivated by a number of factors. In many developing countries, pressing social imbalance was the driving force for tax reforms. In other words, the transition from a planned economy to a market economy necessitated wide-ranging tax reforms.
Basically, taxation system can be classified into direct tax and indirect tax at the Central and State level, expenditure, goods and services. The Goods and Services Tax (GST) has become one of the most prominent topics for debate in India after passing GST Act which came into force from 1st July 2017 by 122nd Constitutional Amendment Bill by the Parliament. GST has created cumulative reactions amongst all political parties, business community, academicians, economists, consumers at large in general.
Dual Model of GST
India is a federal country hence both the centre and state government have been empowered to levy and collect taxes through appropriate legislation under GST system. The Union and the State Governments are allowed to levy taxes on supply of goods and services simultaneously.
There are three components of GST, Central GST (CGST), State GST (SGST) or Union Territory GST (UGST), and Integrated GST (IGST).
IGST – Integrated Goods and Services Tax
IGST is levied on supply of goods and services which takes place between two persons residing in different states in the course of inter-state trade or commerce.
CGST – Central Goods and Services Tax
CGST is levied by the Central Government on supply of goods and services between persons on all intra-state transactions.
SGST/UGST – State Goods and Services Tax or Union Territory Goods and Services Tax
SGST/UGST is levied on all intra-state supplies of goods and services or both.
Intra-State Supply of Goods and Services
Where the location of the supplier and the place of supply of goods are in the same state or same union territory, it shall be treated as intra-state supply of goods. However, the following supply of goods shall not be treated as intra-state supply, namely: supply of goods to or by a Special Economic Zone developer or a Special Economic Zone Unit; goods imported into the territory of India; or supplies made to a tourist referred to in Section 15.
Where the location of the supplier and the place of supply of services are in the same state or same union territory, it shall be treated as intra-state supply. However, the intra-state supply of service shall not include supply of services to or by a Special Economic Zone Developer or a Special Economic Zone Unit.
GST Council
The Goods and Service Tax Council is a constitutional body established under Article 279A of Indian Constitution by One Hundred and First Amendment. It comprises the Union Finance Minister, 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.
Functions of GST Council
The Council will make recommendations to the Union and States on important issues related to GST, including the rates of taxes for goods and services and any special rates for a specified period to raise additional resources during any natural calamity or disaster; taxes, cesses and surcharges to be subsumed under GST; applicability and exemption of goods and services from GST; Model GST Laws; principles of levy, apportionment of IGST and principles related to place of supply; the threshold limit of turnover regarding exemption from GST; the rates of taxes for goods and services and any special rates; making special provisions for the States of Arunachal Pradesh, Assam, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and any other matter related to GST.
Conclusion
The GST regime has replaced indirect taxes leviable at centre and state level with a single tax on all supply of goods and services on intra-state and inter-state supply. The GST has been brought into force after a long-awaited 15 years by the 122nd Constitutional Amendment, moving the present indirect tax regime to a GST framework.
The central idea behind introduction of GST has been to simplify the complex indirect taxation in India with elimination of cascading effect, mobilization of revenue and ensuring ease in trade and commerce of our country. Ultimately GST would lead to broaden the base of tax and lowering rates of taxes in relation to goods and services benefiting consumers at large.
Nonetheless, the success of GST is subject to its effective implementation and facilitation to all stakeholders. There is high expectation as GST would mark the greatest reform in the domain of indirect taxation.