Rajya Sabha passes The Constitution (122nd Amendment) (GST) Bill, 2014

The Rajya Sabha has unanimously passed The Constitution (122nd Amendment) (GST) Bill, 2014 to introduce the goods and services tax (GST).

With this passage of bill, India took giant step in structural indirect taxation reform and paved way for the concept of one nation, one tax.

Earlier the Bill was passed in Lok Sabha in May 2015. However, now the Bill will again go back to the Lok Sabha to incorporate the few amendments approved by the Rajya Sabha.

Note: The Constitution (122nd Amendment) (GST) Bill, 2014 will enter into the statute book as The Constitution (101st Amendment) Bill, 2016.

What is GST?

  • GST is single indirect tax for the whole nation, which will make India one unified common market. It is a single tax on the supply of goods and services, right from the manufacturer to the consumer.
  • GST is essentially a tax only on value addition at each stage i.e. credits of input taxes paid at each stage will be available in the subsequent stage of value addition.
  • Thus, the final consumer will bear only the GST in the supply chain charged by the last dealer with set-off benefits at all the previous stages.

Purpose of GST

  • GST aims to bring uniform indirect tax regime throughout the country by subsuming central and state indirect taxes into single indirect tax.
  • It also seeks to enhance fiscal federalism by removing indirect tax barriers across states and integrate the country into a common market, boosting government revenue and reducing business costs.

Which indirect taxes will subsume into GST?

  • At the Central level: (i) Central Excise Duty, (ii) Additional Excise Duty, (iii) Service Tax, (iv) Additional Customs Duty (also known as Countervailing Duty) (v) Special Additional Duty of Customs.
  • At the State level: (i) State Value Added Tax (VAT) or Sales Tax, (ii) Octroi and Entry tax, (iii) Purchase Tax, (iii) Luxury tax, and (iv) Taxes on lottery, betting and gambling (v) Entertainment Tax (other than the tax levied by the local bodies) (vi) Central Sales Tax (levied by the Centre and collected by the States).

Key changes proposed to the Constitution (122nd Amendment) Bill, 2014

Clause 2014 Bill Amendments in 2016 Bill
Additional  1% tax on inter-State trade
  • It will be levied by Centre in the course of inter-State trade.
  • It will be directly assigned to the States from where the supply originates.
  This provision has been deleted
Compensation to States
  • Parliament may, by law, provide for compensation to states for any loss of revenues for a period which may extend to 5 years.
  • It will be based on the recommendations of the GST Council.
  • This implies that Parliament may decide  (i) whether it wants to provide compensation;(ii) time period for which it can provide such compensation, up to 5 years.
  • Parliament must by law, provide for compensation to states for any loss of revenues, for a period which may extend to 5 years.
  • This would be based on the recommendations of the GST Council.
  • This implies that (i) Parliament must provide compensation to states and (ii) compensation cannot be provided for more than 5 years, but Parliament may decide a shorter time period.
Dispute resolution
  • The GST Council may decide modalities to resolve disputes arising out of its recommendations.
  • The GST Council to establish mechanism to adjudicate any dispute arising out of its recommendations.
  • Disputes can be between: (i) centre and states vs. one or more states; (b) centre vs. one or more states; (c) state vs. state.
  • It makes mandatory for a standing mechanism to resolve disputes.
Replacement of the term IGST
  • The GST Council will make recommendations on the apportionment of the Integrated Goods and Services Tax (IGST).
  • However, IGST was not defined in the bill.

 

  • It replace the term IGST with ‘goods and services tax levied on supplies in the course of inter-State trade or commerce’.
  • The states’ share of the IGST shall not form a part of the Consolidated fund of India.
Inclusion of CGST and IGST in tax devolution to states
  • States’ share of IGST will be distributed between the Centre and States.
  • CGST and the Centre’s share of IGST will be distributed between the Centre and States.

 

 For more analysis: Goods and Services Tax (GST)

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