In India, the taxation reforms can be traced back to the early 1990s right from liberalization and globalization to the recent enactment of Goods and Services Tax (GST), which was incorporated by way of the 101st Amendment to the Constitution. GST can be considered the most comprehensive single tax reform in India since independence. It united numerous indirect taxes into a solitary tax in this manner subsuming a variety of taxes.
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What is Indirect Tax?
Indirect taxes are levied on goods and services and is levied based on the production, sale or purchase of goods or provision of services in various forms such as import and export duty, excise, sales tax, value-added tax, service tax, entertainment tax, electricity duty, tax on passenger fares and freights etc. As the name suggests, indirect taxes are basically taxes that can be passed on to another entity or individual, unlike direct taxes which are paid directly by the persons on whom these taxes are levied.
They can be imposed by the laws made by the Central or State government. For the Central government, the three main components of indirect taxes are Central Excise, Customs and Service tax. Similarly, for the State Governments, the major taxes are Value Added Tax and Central Sales Tax along with Octroi, Entertainment Tax etc.
Deficiencies in the old Indirect tax Regime
In the old indirect tax regime, there were many deficiencies which were slowing down the economic growth of the country. To begin with, the multiplicity of taxes was creating a lot of confusion among the taxpayers. States were imposing their own tax and the Centre was imposing its own tax. Also, there were different varied taxes for goods and services. For instance, there were different taxes for entertainment tax and luxury and all these taxations over tax were creating a cascading effect and the whole process of paying tax had become immensely complex for the taxpayers as they were finding it difficult to comply with the tax laws since they had to file the return under different laws. Hence, the need for a revamping of the whole tax structure became necessary.
The constitution (one hundred and first amendment) act, 2016
In pursuance of such reform, the One Hundred and Twenty-Second Amendment Bill, 2014 was first passed by the Lok Sabha on 6 May, 2015 and then by the Rajya Sabha on 3 August, 2016. On 1 July, 2017, it came into force and officially came to be known as the Constitution (One Hundred and First Amendment) Act, 2016. It has been ratified by more than half of the State Legislatures in accordance with Article 368(2) of the Constitution. The amendment introduced the Goods and Services Tax Act, 2017.
Under the GST Act, 2017 the burden of paying the tax is on the final consumer. It is a destination-based consumption tax. The revenue is received by that State where the goods and services are destined to be consumed. The State which produced the goods and services will not receive the taxes. Maximum retail price (MRP) includes GST, it cannot be charged over MRP. Following have been kept out of the ambit of GST- alcoholic liquor for human consumption, oil and fuel, tobacco and real estate sector.
In India, the Double GST Model is followed, Centre and State both can simultaneously levy a tax on the same transaction. It suits the federal structure of the Government of India as in case of supply within the State, Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST)/Union Territory Goods and Service Tax (UTGST) is levied in half rate. In the case of supply outside the State, Integrated Goods and Services Tax (IGST) is levied at full rate. The half share is given to the Centre and the other half is given to the State/UT where the goods and services are destined to be consumed. The CGST Act, 2017 provides separate provisions for the supply of goods  and supply of services .
Collection of GST
The liability to pay CGST/SGST/IGST arises at the time of supply of goods and/or services, as the case may be. Thus, liability to pay tax on inter-State supply, or intra-State supply, or both would crystalize at the time of supply. Liability to tax and liability to pay tax is separate and distinct. Liability to pay tax is not the same thing as a liability to tax. Accordingly, though the tax is attracted to supply, the power to collect the same arises only when the time of supply arises. But the collection of such tax is postponed to a future date. Collection of such tax is made by the due date of filing return for the respective tax period.
Constitution provisions related to Tax
The predominant provision which gives the constitutional authority to the Government to levy tax is Article 265 of the Constitution of India which provides that no tax shall be levied or collected except by the authority of law. A charging section is a must in any taxing statute for levy and collection of tax. An executive order is not sufficient to levy a tax. In the case of Chhotabhai Jethabhai Patel & Co. v. Union of India,  it was held that the law providing for the imposition of tax must be valid and that it should not be prohibited by any provisions of the Constitution.
The Constitution (One Hundred and First Amendment) Act, 2016 comprises 20 sections which made several amendments in the Constitution. Just like the Union, the States of India also has the power to levy a tax on the supply of goods or services or both. Earlier, the State did not have the power to levy a tax on newspapers but the law changed after the advent of the GST Act, 2017. Article 286, however, imposes the following restrictions on the State’s power to impose sales tax on goods:-
- Sale or purchase of goods which take place inter-State,
- Sale or purchase of goods during import and export out of the territory of India.
Definition of Tax
The Constitution (One Hundred and First Amendment) Act, 2016 defines ‘goods and services tax’ as any tax on supply of goods, or services or both except taxes on the supply of alcoholic liquor for human consumption. Thus, alcoholic liquor for human consumption has been kept out of the GST ambit. Further, ‘Services’ has been defined as anything other than goods.
Levy of the Duty of Tax
Article 268 discusses the duties that are levied by the Union but are collected and appropriated by the States. For example, stamp duties mentioned in Union List shall be levied by Central Government but shall be collected by the State. Article 269 discusses the taxes that are levied and collected by the Union and are assigned to the States. It implies that the revenue collected will not go to the Consolidated Fund but will be used and distributed among the State in accordance with the principle formulated by the Parliament. Article 270 discusses the taxes that are levied and collected by the Union and distributed between the Union and the States. For example, taxes and duties referred in the Union list.
Special provisions for GST
Article 246A has been 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 has the exclusive power to make laws regarding inter-State supplies. The IGST Act deals with inter-State supplies. Import of goods or services also come under the ambit of inter-State supplies. This gives the Central Government the power to levy IGST on import transactions.
While Article 246A has bestowed on the Parliament the exclusive power to make laws regarding inter-State supplies, the method of dissemination 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.
The GST Act, 2017 also made amendments in residuary powers of legislation under Article 248. As per the amendment, the exclusive power of Parliament to make any law on any matter not enumerated in the Concurrent List or State has been made subject to Article 246A. The amendment also provides that Parliament has the power to make laws for the whole or any part of the territory of India on a matter in the State List or regarding GST provided under article 246A if it is necessary or expedient in the national interest or if a Proclamation of Emergency is in operation under Article 249 and Article 250 respectively.
The most astonishing feature of the amendment is the formation of the GST Council under Article 279A. It is a joint forum of the Central Government as well as the State Governments. The Union Finance Minister of India is appointed as the Chairperson of the GST Council. The Council is responsible for making important decisions regarding GST laws. Its functions include making the decision on tax-related laws, the tax rate, tax exemption rules, notifying separate notification date for applicability of GST on oil and fuel, the due date of submitting GST forms, special exemptions for some States etc.
Challenges in Implementation of GST
- Tax administration staff at both the Central and State level should be trained adequately regarding the concept, legislation and procedure of GST so that it could be successfully implemented.
- Exporters who prior had profited by tax exemptions on their inputs are currently needed to pay taxes on inputs in advance. Only then they are allowed to claim a refund after filing of tax returns.
- GST makes the entire process from filing the return, payment of tax, refund claim etc., entirely online. Generally, little and medium ventures might not have the specialized technical knowledge to adjust to this gigantic change.
After analysing the constitutional provisions of GST, it can be concluded that GST will bring One Nation and One Tax market. GST is going to subsume all major indirect tax laws prevailing in India. Proficient formulation of GST is unquestionably going to prompt revenue gain for both Centre and States significantly through enlarging of tax base and advancement in tax compliance. It can be further concluded that GST positively affects different areas and industries. It is evident from the above discussion that the new system of imposing and collecting taxes is much more convenient and less complicated than before.
It is the need of the hour that the Government must educate and conduct proper training, continuous seminars and workshops on GST. To a great extent, GST has been successful in removing the complexities of the previous tax system and encourages people to pay their tax liabilities. Although there are a few difficulties in the implementation of GST yet taking care of these difficulties prudently will prompt the fruitful implementation of GST.
 The Central Goods and Services Tax Act, 2017 (Act 12 of 2017), s. 12.
 The Central Goods and Services Tax Act, 2017 (Act 12 of 2017), s. 13.
 1962 AIR 1006.
 The Constitution of India, art. 366(12A).
 The Constitution of India, art. 366(26A).
BY APURVA MEHTA | NATIONAL UNIVERSITY OF STUDY AND RESEARCH N LAW (NUSRL), RANCHI