JUNE 27, 2015

By M K Gupta IRS (Retd.)

1. NO power to Parliament or State legislature to make laws to levy and collect GST

Article 246 of the Constitution empowers the Parliament and State legislatures to make laws with respect to the matters enumerated in three Lists in the Seventh Schedule. In the GST Bill 2015 there is no mention of taxes on supply of goods or services or both in the said Lists. It appears by inserting Article 246 A, it is envisaged that both Parliament and State Legislature will have power to make laws for levy of tax on supply of goods or services or both. It is felt that the way Article 246A is worded it does not empower Parliament or State Legislature to make laws for levy and collection of GST.

Article 246A reads as below:

"246A. (1) Notwithstanding anything contained in Article 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."

This Article empowers Parliament and State Legislature to make laws. Such laws shall be with respect to goods and services tax imposed by the Union or by such State. In the Constitution there is no power to impose a tax either by Union or State. A tax can be levied and collected under the authority of law passed by competent legislative authority. Competency has to come from the constitution. It is not legally correct to say that Union or State has imposed any tax. These two organs have no power to impose any tax within the four corners of the Constitution. It is not understood how the legislative organ can make any law which has been imposed by an authority who has no such power to impose the tax.

In view of above, Article 246A appears to be poorly worded. It should have been worded by empowering both the legislative organs to make laws in respect of tax on supply of goods or services or both in the respective jurisdictions.

2. No power to Parliament to make laws with respect to GST when supply of goods or services or both is made in the course of import into territory of India.

Clause 2 of Article 246A gives exclusive power to Parliament to make laws with respect to goods and services tax when supply takes place in the course of inter-State trade or commerce. This power is only limited to inter-state trade or commerce. It cannot be used to make laws with respect to imported goods and services. This is clearer from Article 269A. This provides that GST in the course of inter-State trade or commerce shall be levied and collected by the Government of India and appropriated between Union and States. The Explanation to this Article is important as it deems GST on import covered under GST in the course of inter -State trade or commerce. There is no such deeming provision under clause 2 of Article 246A.

3. Section 18 of the GST Bill regarding Additional Tax of 1%

No Article number is given. At what place this will be inserted in the Constitution?

There is no authority under the Constitution to make law for levy and collection of this Additional tax. Section 18 of the GST Bill only lays down it should be levied and collected by the Government of India. There is no provision in the GST Bill empowering Parliament to make laws for levy and collection of this Additional Tax. Article 265 says no tax shall be levied or collected without the authority of law which means a valid law as enacted by a legislature. The legislature can make law on a subject which is specified in the Constitution.

Secondly, Additional tax of 1% is proposed on supply of goods in the course of inter-State trade or commerce. It is not envisaged in this clause that this additional tax would be in respect of goods produced in a particular State. The word "originates" is mentioned in clause 2 of this section. Intention is to levy additional tax of 1% for the benefit of a state where goods are produced or manufactured. However, clause 1 of this Section gives some other impression.

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4. Ambiguity about levy of Additional Tax of 1% on Petroleum crude and specified petroleum products.

Amendment in entry 54 of State List empowers State Legislature to levy tax on sale of petroleum crude, HSD, MS(petrol), natural gas, ATF but not including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce. It means on these products State Vat / Sales tax and Central Sales Tax would be leviable. Question arises whether on these products Additional tax of 1% in terms of Section 18 of the GST Bill would also be leviable?

As per Article 366(12A), GST means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption. There is no doubt GST includes Petroleum crude and specified products. But Explanation to Article 246A says that GST in respect of these goods will take effect from the date to be recommended by the Council. It means GST is not at all applicable to these goods until date is notified. Amended entry 54 in List II gives power to States to levy VAT/ Sales tax on such goods. In terms of Article 269, the Union can levy CST. The Union cannot levy IGST on these products under Section 269A in view of clause 2 of 246A and the Explanation.

Section 18 of GST Bill empowers levy of Additional tax of 1% on supply of goods" in the course of inter- State trade or commerce. This levy of additional tax is in the context of GST which means any tax on supply of goods or services or both. When GST is not applicable to petroleum crude and products till the date is notified, additional tax cannot be levied on supply of petroleum crude and products. Section 18 of GST Bill uses the word "additional tax on supply of goods" It only means additional GST. GST means tax on supply of goods etc etc. Tax on supply of goods i.e. petroleum crude and products is not at all applicable till notified. If so, additional tax on supply of such goods would not be attracted.

Other view is that Section 18 of the GST Bill is an independent provision for levy of Additional Tax of 1% on supply of goods in the course of inter-State trade or commerce. It is not controlled by the provisions of law relating to GST. Therefore in respect of the said products both CST and Additional tax of 1% can be levied.

5. Double levy of GST and Vat/ Sales tax on petroleum crude, HSD, MS, ATF and Natural Gas.

In terms of Article 246A read with the Explanation, Petroleum crude, HSD, MS, ATF and Natural Gas would be liable to GST from the date to be recommended by the GST Council. On that notified date on these products GST and State Vat/ Sales tax would be applicable as no provision is made in the GST Bill to give effect to entry 54 in the State List in respect of the said products up to the notified date.