Tax is the major source of revenue for any government all across the globe. A systematic approach to tax collection is therefore, sine qua non for a stable and sustainable economy. As said by Chanakya, in Arthashastra, the government should collect tax in the same manner as a honeybee collects honey from a flower- enough for its sustenance while ensuring that the flower is left unharmed.

1. Constitutional Challenges of GST: A Perspective

2. INTRODUCTION
Tax is the major source of revenue for any government all across the globe. A systematic approach to tax
collection is therefore, sine qua non for a stable and sustainable economy. As said by Chanakya, in
Arthashastra, the government should collect tax in the same manner as a honeybee collects honey from a
flower- enough for its sustenance while ensuring that the flower is left unharmed. In India, two broad
category of taxes are collected by the government- Direct Tax and Indirect Tax. Direct Tax means that the
charge and incidence of tax lies upon the same person whereas Indirect Tax mean that the charge and
incidence of tax lies upon different people. The power to levy taxes, direct or indirect, flows from Article
265 of the Indian Constitution, which states as follows: – “265. Taxes not to be imposed save by authority
of law- No tax shall be levied or collected except by authority of law.” Therefore, Article 265 requires that-
(a) there must be a law; (b) the law must authorize the tax; (c) the tax must be levied and collected
according to the law. While the direct tax is levied as per the Income Tax Act, 1961, the indirect tax is
levied as per the Goods and Service Tax (“GST”) regime. The aim of this paper to discuss in detail the
constitutional structure of the old tax regime and the GST regime after the enactment of the Constitution
(101st Amendment) Act, 2017.

3. MEANING OF GST
The Goods and Service Tax has been incorporated in the constitutional structure vide the Constitution
(101st Amendment) Act, 2016. GST has been defined under Article 366(12A) which states that: – “goods
and service tax means any tax on supply of goods, or services or both except taxes on the supply of
alcoholic liquor for human consumption.” GST is a destination based tax levied on supply of goods or
service or both except supply of alcoholic liquor. India’s GST regime is based on the Canadian system of
GST whereby the Centre and the state are given a concurrent or simultaneous power to impose and
collect taxes. GST has replaced a number of indirect taxes being levied by the Union and the State
Governments and intended to remove the cascading effects of taxes and provide a common national
market for goods and services.[1] Therefore, the aim of introduction of Goods and Service Tax was to fulfil
the purpose of “One Nation One Tax”. As a result of the Amendment, Article 246-A, Article 269-A, Article
279-A were inserted in the constitution and the Article 248, Article 249, Article 250, Article 268, Article
269, Article 270, Article 271, Article 286, Article 366 and Article 368 were amended and Article 268-A was
omitted from the constitution.

4. OLD SCHEME OF INDIRECT TAXATION Prior to GST, a number of different indirect taxes were levied upon
goods and services by both the centre and the state as per their legislative competence under
Article 246 read with Schedule VII of the Indian Constitution. The centre levied the following kinds
of indirect tax: – (i) Excise Duty[2] A duty of excise is a tax-levy on home-produced goods of a
specified class or description, the duty being calculated according to the quantity or value of the
goods and which is levied because of the mere fact of the goods having been produced or
manufactured and unrelated to and not dependent on any commercial transaction in them.[3]
Illustration: “A” produces yarn from cotton. Here, “A” is liable for payment of excise duty at the
point of production/ manufacture of the yarn. Let’s say that the value of yarn so produced is Rs.
100/- and the rate of Excise Duty is 10%. Now, at the time of manufacture, the value of the yarn
becomes Rs. 110/- (Rs 100/- base value and Rs. 10/- excise duty.

5. (ii) Custom Duty[4] Simply put, custom duty is a tax imposed upon the export and import of goods. It is not only a source of
revenue but is also a tool of policy regulation in order to protect the domestic industries. It is governed by the Customs Act,
1962. Central Sales Tax[5] Sales Tax means tax levied on the sale or purchase of goods and includes Value added Tax. Central
Sales Tax or CST was imposed on the sale or purchase of goods in the course of inter- state or commerce. CST was assigned
to the state of origin, i.e, from where the goods were being sold. Here, an interesting point to note is that the goods which
are being sold must have been manufactured at some point. In case, these goods are manufactured in India, the
manufacturer must have also paid excise duty on the same and that excise duty so paid becomes a part of the cost of the
goods. Let’s continue with the previous example. After excise duty so levied upon the yarn by “A” the cost of the yarn had
become Rs. 110/-. Now when “A” will sell that yarn to the garment producer, the transaction would be subject to CST if sold
outside the producing State. Let’s say the rate of CST is 10%. Now the cost of the yarn to the garment producer will be Rs.
121 (Rs. 100/- base price, Rs. 10 Excise Duty and Rs. 11/- CST). Now, in effect, the government has collected 21% tax instead
of 20% (10% excise duty and 10% CST). This is also known as the cascading effect of taxes.

6. (iv) Service Tax[6] Service Tax was a tax levied upon the service provider by the Centre. It was introduced in the year 1994 as a
part of the Finance Act under Section 65. The tax so collected by the centre was then apportioned between the union and
the state as per Article 268A[7] of the Constitution. The State too levied multiple taxes as per the subject matters listed in
List II. A few of them are as below: – (i) Value Added Tax[8] Value Added tax or VAT was levied on the sale and purchase of
goods within the State. It is governed by the legislation made by the respective states. E.g. in Punjab, VAT is governed by the
Punjab VAT Act, 2005. (ii) Excise Duty[9] States have been empowered to impose excise duty on alcoholic liquor for human
consumption and opium, indian hemp and other narcotics, but not including medicinal and toilet preparations containing
alcohol.
(iii) Entry Tax[10] Entry tax was imposed by the States on the entry of goods in the local area for consumption, use or sale
therein. It was, therefore, levied on the goods which are being moved from one state to another. The person who owned or
purchases the goods at the time of entry into the State is responsible to pay the entry tax. (iv) Electricity Tax[11] Electricity
tax was levied on the consumption and sale of electricity. (v) Luxury Tax[12] States were also empowered to impose tax on
luxuries, including tax on entertainments, amusements, betting and gambling. Therefore, we can see that a number of taxes
were imposed by both the centre and the states as per the Schedule VII. However, the taxes so imposed were complex and
more then often has a cascading effect. This also led to less compliance and tax evasion. Thus, with an aim to instill
uniformity and ensure compliance, GST was introduced.

7. (ARTICLE 246-A: SPECIAL PROVISION WITH RESPECT TO GOODS AND SERVICES TAX The Constitution (101st Amendment) Act,
2016 inserted the new Article 246-A to the Constitution of India. It states: – “246-A. Special provision with respect to goods
and services tax.— (1) Notwithstanding anything contained in Articles 246 and 254, Parliament, and, subject to clause (2),
the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by
such State. (2) Parliament has exclusive power 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. Explanation.—The provisions of
this article, shall, in respect of goods and services tax referred to in clause (5) of Article 279-A, take effect from the date
recommended by the Goods and Services Tax Council.”
Article 246-A is the source of power of taxation under the GST regime. The Supreme Court in the case of Union of
India v. VKC Footsteps India (P.) Ltd, [2021] 130 taxmann.com 193 (SC) noted three major changes that have been
brought about by the introduction of Article 246-A. These are: – (i) Firstly, Article 246-A defined the source of
power as well as the field of legislation with respect to GST and obviates the need to travel to the seventh
schedule. Thus, when it comes to GST, the distribution of power as envisaged under Article 246 becomes
irrelevant.
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