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Volume X Part 1 January 10, 2015 10 Business Advisor
Proposed GST: Will it finally happen?
Dr Sanjiv Agarwal
In Budget 2014-15, announcements were made that
focus in the ensuing year would be on approval of the
legislative scheme for the introduction of GST.
However, no clear commitments were made in this
regard so far. The Union Government in third week of
December, 2014 (19 December, 2014) introduced
Constitution (122nd Amendment) Bill, 2014 in
Parliament which when passed shall pave the way for
introduction of proposed Goods and Service Tax (GST)
in India. This is an improvised version of lapsed 115th Amendment Bill of
2011.
Contrary to the general perception amongst many quarters that this Bill
itself is a GST Bill, let it be very clearly understood that this is not a GST
Bill. In fact, GST Bill is not in sight at all at this point in time. What has
been introduced is only the Constitutional Amendment Bill enabling or
empowering the union Government to levy a tax to be called GST which it
cannot levy under the present Constitution. The Bill on passage would
enable the Central Government and the State Governments to levy GST.
This tax (GST) shall be levied concurrently by various states as well as
Union Government. Once this is passed by two-thirds majority in the
Parliament, at least 50 percent of the states will have to pass it. Once this
amendment is through, the road will be clear for GST Bill (and then Act),
given the political will. Eventually, we will then have the following taxes –
 National level GST [Central GST (CGST) and Inter-state GST (IGST)]
 State Level GST (SGST)
What is the proposed Constitutional Amendment?
A newly inserted article 246A in the Constitution shall provide for special
provision with respect to GST. According to the Bill, the following important
clauses of the Bill are worth noting:
(a) Clause 246A
The Legislature of every State shall have power to make laws with respect to
goods and services tax imposed by the Union or by such State. Parliament
will have exclusive power to make laws with respect to goods and services

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tax where the supply of goods, or of services, or both takes place in the
course of inter-State trade or commerce.
(b) Clause 269A
 Goods and services tax on supplies in the course of inter-State trade or
commerce shall be levied and collected by the government of India and
such tax shall be apportioned between the Union and the States in the
manner as may be provided by Parliament by law on the
recommendations of the Goods and Services Tax Council.
 Supply of goods or services, or both, in the course of import into the
territory of India shall be deemed to be supply of goods or services, or
both, in the course of inter-state trade or commerce.
 Parliament may, by law, formulate the principles for determining the
place of supply, and when a supply of goods or of services, or both takes
place in the course of inter-state trade or commerce.
(c) Clause 279A
The President shall, within sixty days from the date of commencement of the
Constitution (One Hundred and Twenty-second Amendment) Act, 2014, by
order, constitute a Council to be called the Goods and Services Tax Council.
(d) Clause 279A
The Goods and Services Tax Council shall make recommendations to the
Union and the States on -
(a) the taxes, cesses and surcharges levied by the Union, the States and the
local bodies which may be subsumed in the goods and services tax;
(b) the goods and services that may be subjected to, or exempted from the
goods and services tax;
(c) model Goods and Services Tax Laws, principles of levy, apportionment of
integrated Goods and Services Tax and the principles that govern the
place of supply;
(d) the threshold limit of turnover below which goods and services may be
exempted from goods and services tax;
(e) the rates including floor rates with bands of goods and services tax;
(f) any special rate or rates for a specified period, to raise additional
resources during any natural calamity or disaster;

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(g) special provision with respect to the States of Arunachal Pradesh, Assam,
Jammu and Kashmir, Manipur; Meghalaya, Mizoram, Nagaland, Sikkim,
Tripura, Himachal Pradesh and Uttarakhand; and
(h) any other matter relating to the goods and services tax, as the Council
may decide.
What will the Goods & Service Tax Council do?
Apart from aforementioned recommendations, GST Council shall undertake
the following–
(a) The Goods and Services Tax Council shall recommend the date on which
the goods and services tax be levied on petroleum crude, high speed
diesel, motor spirit (commonly known as petrol), natural gas and aviation
turbine fuel. While discharging the functions conferred by this article,
the Goods and Services Tax Council shall be guided by the need for a
harmonised structure of goods and services tax and for the development
of a harmonised national market for goods and services.
(b) The Goods and Services Tax Council shall determine the procedure in
the performance of its functions.
(c) The Goods and Services Tax Council may decide about the modalities to
resolve disputes arising out of its recommendations.
Meaning of Goods/ Services/ GST
The amendment Bill defines these terms-
 “goods” includes all materials, commodities, and articles; [article 366
(12)]
 “services” means anything other than goods; [article 366 (26A)]
 “goods and services tax” means any tax on supply of goods or services or
both except taxes on the supply of the alcoholic liquor for human
consumption; [article 366 (12A)].
„Goods‟ and „Services‟ are otherwise defined in other enactments such as
Central Excise Act, 1944, Sale of Goods Act, 1938, The Finance Act, 1994
(Service Tax) etc.
Loss of revenue/ compensation
Parliament may, by law, on the recommendation of the Goods and Services
Tax Council, provide for compensation or loss of revenue on implementation
of the goods and services tax for such period which may extend to five years.

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GST structure
We are going to have a dual GST model. The Centre and the States both will
levy GST on supply of goods and services. On supply of goods and services
in the course of inter-state, only the Centre will levy and collect taxes (IGST)
which will be apportioned between the Centre and the States, based on the
recommendation of GST Council. The Centre will have power to make place
of supply rules in this regard. On supply of goods and services in the course
of or international trade or commerce, states will not have any power to levy
and collect taxes.
For the first two years under GST (or as GST Council would recommend),
1% additional tax apart from GST will be levied on inter-state sale of goods
which will be assigned to the state of origin of supply of goods. The rules
regarding the place of origin will be formed by the Parliament. The Central
Government would also have power to grant exemption to any goods from
this tax. The point to be noted here is that this tax is to be levied on goods
only, thus the differentiation between goods and services would again
assume significance.
The proposed amendment in Article 271 restricts the power of the Central
Government to levy any surcharge on the GST. We may therefore, be in a
better situation wherein GST will be not be subjected to any surcharge
(cess, we may still have).
GST will subsume the following Central and State indirect taxes:
Union taxes States taxes
 Central Excise Duty and
additional excise duty
 CVD and SAD on import of goods
 Excise duty levied under Medicinal
and Toilet Preparation (Excise
Duties) Act, 1955
 Service tax
 Central Sales Tax
 Central Surcharges and cesses
relating to supply of goods and
services
 Value Added Taxes
 Entertainment tax (other than
tax levied by local bodies)
 Octroi
 Entry Tax
 Purchase Tax
 Luxury Tax
 Taxes on Lottery, betting,
gambling;
 State Surcharges and cesses
relating to supply of goods and

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services
 Other taxes/ cesses/ duties/
levies (not specified)
Further, tax on petroleum products will be covered in GST except for crude
petroleum, high speed diesel, motor spirit, natural gas and aviation turbine
fuel. For these five items, GST Council will specify the date from which GST
will be levied. Tobacco & tobacco products; supply of newspapers &
advertisements; luxuries, betting & gambling and entertainment &
amusement are covered under the GST. However, alcoholic liquor for
human consumption has been kept out of GST ambit.
Way forward
Going by the present mood, the Government of the day feels that it may be
able to introduce GST in India w.e.f. 1st April 2016, replacing a host of
indirect taxes presently levied by the centre, states and local bodies. It
hopes for the parliamentary nod (two-third majority) in the forthcoming
Budget session in February, 2015. This is necessary as the Indian
Constitution requires amendment to allow states to tax services and the
centre to tax goods at the retail level and to provide legal framework for GST
by providing for constitution of a GST Council and dispute settlement
mechanism.
One of the major obstacles, Central Sales Tax (CST), has been addressed as
the centre has agreed for compensation on account of phasing out of CST. A
compensation of Rs 11,000 crore has been announced to make up for 2
percent reduction in GST rate to 2%. The Central Government has agreed
for a five-year compensation. Petroleum products shall be included in GST
and taxed at zero rate for the first three years. States will also be
compensated for entry tax which has been agreed to be included in GST.
While the Government claims that there was an overwhelming support for
One of the major obstacles, Central Sales Tax (CST), has been
addressed, as the Centre has agreed for compensation on
account of phasing out of CST.

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the proposals on the Constitutional Amendment for GST which were arrived
at in consultations with the states, there are states like Tamil Nadu which
are opposed to hasty introduction of Constitution Amendment Bill for GST
in Parliament without evolving consensus. West Bengal also has certain
reservations on GST despite the fact that Empowered Committee on GST
once had a West Bengal cadre Chairperson.
There are a few states which seek expeditious roll out of GST while others
like Tamil Nadu still want clarity on GST rates, revenue neutral rates, CST
compensation methodology etc. States like Gujarat feel that finances of net
producing and manufacturing states may come under stress in initial years.
The States also want compensation on account of central sales tax to be
paid to them expeditiously before its roll-out from April 2016. The states
may also get one year time to implement the provision of GST, once GST is
introduced in 2016 as proposed. The Bill itself provides for this leverage.
This is only a transitional provision and all states will sooner or later have to
implement it. This would also address the inconsistency which may arise
out of both tax laws (GST and VAT) being in force.
And finally
All said and done, introduction of GST is not going to be easy. GST design,
structure, IGST, administrative arrangement with states, disputes between
centre and states, multiplicity of authorities, different interpretations by
various states, standardisation of systems and procedures, training, need
for huge IT infrastructure etc., are some of the concerns which will pose
challenge to proposed GST. Common date of introducing GST may also be
an issue as few states may not cooperate, given the political compulsions.
India should get a clean and simple GST with minimal distortions but
consumption-based, keeping in mind business costs and objectives,
economic growth and efficiency in all spheres. A broad, clear and objective
consensus is required to introduce and implement GST.
(Dr Sanjiv Agarwal is Partner, Agarwal Sanjiv & Company, Jaipur)
India should get a clean and simple GST with minimal
distortions but consumption-based, keeping in mind
business costs and objectives, economic growth and
efficiency in all spheres.