The mood is positive for GST with the Congress appearing to soften its stand and press reports indicating a possible five hour debate in the Parliament on the 122nd Constitutional Amendment.

1. GST – The Constitutional Debate
K. VAITHEESWARAN,
Advocate
vaithilegal@yahoo.co.in
The mood is positive for GST with the Congress appearing to soften its stand
and press reports indicating a possible five hour debate in the Parliament on the
122nd
Constitutional Amendment. While the entire country has been discussing
the Model GST Law that was released last month, it is time to see the issue in
proper perspective and ensure that the foundation, namely the Constitutional
Amendment is properly enacted by the Parliament. While GST is indeed
important, it is imperative that there are no design faults. This article seeks to
identify six elements in the Amendment Bill which needs to be looked at afresh
and the issues addressed
1. Inter-State Transactions – Impact of Entry 83 – Union List
Article 246A(2) as proposed, grants excusive power to the Parliament to
make laws with respect to goods and services tax where the supply of
goods or of services or both takes place in the course of inter-state trade
or commerce. Article 246A is not withstanding Article 246 which deals
with subject matter of laws made by Parliament and State Legislature.
Article 269A as proposed provides for GST on supplies in the course of
inter-state trade to be levied and collected by the Government of India
and apportioned between the States and the Union through Parliament
law on recommendations of GST Council. Article 269A also provides
that supply of goods or services or both in the course of import into the
territory of India shall be deemed to be inter-state supply.
Entry 83, Union List, deals with duties of customs including export
duties. Customs duties including additional duty of customs (CVD) and
SAD are levied under the Customs Tariff Act. These duties have been

2. judicially held as ‘duty of customs’. While Article 246A(2) would pave
the way for levy of IGST on imports, the power to levy different kinds of
customs duties (subject to WTO commitments) continue to exist through
Entry 83 Union List read with Article 246(1).
2. Levy of Surcharge
The biggest headache in the existing tax regime is the levy of surcharge,
additional surcharge and different kinds of cess. The existing Article 271
empowers the Parliament to increase any of the duties and taxes referred
to in Article 269 and 270 by a surcharge and the whole of the proceeds
shall form part of the Consolidated Fund of India. The amendment to
Article 271 is to provide for an exception to GST under Article 246A.
Article 246A is the special provision for levy of GST by the Union and the
State. The amendment to Article 271 keeps the window open for levy of
surcharge by the Parliament through law. In other words, the GST
referred to in Article 246A is both the CGST and the SGST whereas, a
reading of Article 271 would show that it is confined to Parliament levy
of surcharge.
When States levies surcharge in addition to Sales tax, the judicial view
was that the power is derived from the same Entry viz. Entry 54. In the
GST regime, in the absence of an Entry based levy with GST being levied
by both the Centre and the State through Article 246A, it is not clear as
to how States would be in a position to raise revenue if required through
levies such as surcharge. While Article 279A deals with the GST Council
and contemplates recommendation for special rate or rates that can be
imposed for raising additional resources during any natural calamity or
disaster the powers are very limited.

3. 3. 46th
Amendment to the Constitution
The 46th
amendment had introduced Article 366(29A) whereby the term
‘tax on sale or purchase of goods’ was widened to include six
transactions, noteworthy being the transfer of right to use goods and the
transfer of property in goods involved in the execution of works contract.
This Article continues and is not deleted in the 122nd
Amendment Bill.
When GST is a levy on goods and services, it is not clear as to why
Article 366(29A) should continue? It is also significant to note that the
Model GST Law provides that certain transactions would be treated as
supply of goods or supply of services and Schedule II treats works
contracts as a service. One argument canvassed is that Entry 54, State
List provides for a tax on sale of goods but confined to petroleum
products. However, it is difficult to imagine a works contract in
petroleum products.
4. Amendments to List – Recipe for Chaos
• Entry 84, Union List is confined to petroleum crude, HSD, petrol,
natural gas, ATF and tobacco. This means that Excise duty will
continue for these products. The Central Excise Act, Central
Excise Rules, Cenvat Credit Rules, Central Excise Tariff Act,
Valuation Rules and other Rules will all have to continue.
• Entry 54, State List is confined to the petroleum products and
States have the power to tax the sale of alcoholic liquor for human
consumption. The respective State VAT laws and Rules will have to
continue to exist. A hotel selling food and alcoholic beverages will
have to comply with GST law for food and VAT law for alcoholic

4. beverages. Further the overlap of tax cannot be ruled out since
Entry 54 and GST are not mutually exclusive.
• Entry 92 and 92C, Union List is omitted whereas Entry 92A
continues. Entry 92A deals with levy of tax on inter-state sale of
purchase of goods other than newspapers. Unlike Entry 54, State
List, there is no scaling down of Entry 92A. In other words
Parliament has power to levy a tax on sale or purchase of goods in
the course of inter-state trade or commerce under Entry 92A read
with Article 269 and the amendment bill also confers power on the
Parliament through Article 269A.
• Entry 62, State List as it exists empowers levy of taxes on luxuries,
including taxes on entertainments, amusements, betting and
gambling. In exercise of these powers, States were levying luxury
tax and entertainment tax. The Amendment Bill proposes to
substitute Entry 62 whereby, it would now be taxes on
entertainments and amusements to the extent levied and collected
by the Panchayat or a Municipality or a Regional Council or a
District Council. In the GST regime, theatres could end up paying
entertainment tax to the municipality, whereas all their
procurements of machinery, equipments, furniture, exhibition
rights would be with GST. Obviously, the GST cannot be set off
against the entertainment tax and this would drive up the costs in
the entertainment business. With most of the States having a cap
on the price of film tickets, the way forward could very well be a
horror story.

5. 5. Transition Window
Section 20 of the Amendment Bill provides for a non-obstante clause to
provide that any provision of law relating to tax on goods or services or
both in force in any State immediately before the commencement of the
Amendment Act, which is inconsistent with the provisions of the
Constitution as amended shall continue to be in force until amended or
repealed by a competent Legislature or other competent authority or until
the expiry of one year from such commencement whichever is earlier.
This opens a Pandora’s Box since unlike VAT which was confined to
State, and India could manage a phased implementation, GST has to
come across the Country on the same date. This provision enables a State
to continue its levies under existing laws for a maximum period of one
year from the commencement of the Amendment Act. The commencement
of the Amendment Act is another complication since Section 1(2) of the
Constitution Amendment Bill provides that the Central Government may
by Notification appoint different dates for different provisions of the
Act!!!
6. Compensation
The major reason for manufacturing States to have reservations on GST
is the possible loss of revenue and the Central Government has walked
the extra mile to assure compensation and compensation provisions form
part of the Constitutional Amendment Bill. However, Section 19 of the
Amendment Bill provides that Parliament may by law provide for
compensation to States for loss of revenue arising on account of
implementation of GST on the recommendation of the GST Council. The
role of the GST Council therefore becomes significant and if GST indeed

6. results in loss of revenue to some States, any delay in compensation can
completely affect that particular State.
Given the complex tax structure that exists today and the fond hope that
has been nurtured that GST would be a simple tax regime, it is better that
the problems in the design are adequately addressed in the Constitutional
Amendment that is to be enacted.

7. results in loss of revenue to some States, any delay in compensation can
completely affect that particular State.
Given the complex tax structure that exists today and the fond hope that
has been nurtured that GST would be a simple tax regime, it is better that
the problems in the design are adequately addressed in the Constitutional
Amendment that is to be enacted.