Evolution of GST in India, GST Law & Practice Notes

Evolution of GST in India

GST Law & Practice Notes

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Article 245 of the Constitution is the source of all legislative powers of Parliament and State Legislatures. Article 246 has demarcated the legislative powers between the Union and the States by way of three lists of the Seventh Schedule to the Constitution. Under the existing constitutional arrangement relating to indirect taxation, while the States are authorised to levy and collect VAT, CST (Central Sales Tax), Entry tax, Luxury tax, Entertainment tax, Electricity duty, State excise duty, the Centre is authorised to levy and collect excise duties, service tax, custom duties etc. The centre does not have authority to impose tax on sale of goods and the States do not have power to lever tax on services.

The Centre has the exclusive authority to levy tax on services and excise duty on manufacture of goods, whereas the States have the exclusive authority to levy tax on sale of goods. This exclusive division of fiscal powers has led to multiplicity of indirect taxes resulting in a complex indirect tax structure in the country that is ridden with hidden costs for the trade and industry.

Need of GST in India

There was no uniformity of tax rates and structure across States, Cross utilization of credit of excise duty and service tax, levied by the Central Government, was not available while paying VAT, levied by the State Government and vice-versa. Hence, the prices of goods and services get artificially inflated to the extent of this tax on tax’.

There are onerous compliance requirements in terms of paper work, time and resources of umpteen numbers of indirect tax legislations of the present tax system which make the compliance cost very high for tax payers. The existing indirect tax structure has disintegrated the Indian market by creating tax barriers which have hampered efficient production and supply chain models in the economy. In order to do away with all the defects in the indirect tax system during pre-GST regime, the need to reform indirect tax system then existing in India was felt.

Further, the need for such reforming in indirect tax system became the need of the hour when India started following the path of liberalisation in 1991. However, serious work to integrate indirect tax legislations and simplify it did not start until the year 2000. Comprehensive and common in indirect tax legislation was possible only when the central and state governments worked together as India is having a federal structure.

History of GST

France was the first country to implement GST in the year 1954. Within 62 years of its advent, about 160 countries across the world have adopted GST because this tax has the capacity to raise revenue in most transparent and natural manner.

Initiative by Vajpayee Government

In the year 2000, the Vajpayee Government started discussion on GST by setting up an empowered committee, headed by Asim Dasgupta, (Finance Minister, Government of West Bengal). The committee was given the task designing the GST model and overseeing the IT back-end preparedness for its rollout.

Kelkar Task Force 2004

The Finance Ministry of Government of India set up a Task Force under the chairmanship Mr.Vijay Kelkar in 2004 on the implementation of Fiscal Responsibility and Budget Management. It made recommendations to bring about a radical transformation of the Indian Tax System. It disagreed with the existing approach of the government to reduce government expenditure to achieve the fiscal consolidation. It has advised to go for a Revenue-led Approach which focuses on enhancing the revenues instead of compressing the expenditure. It went further to suggest that the Government should enhance capital expenditure in order to counterbalance the contraction effects of fiscal consolidation.

The Goods and Service Tax is an outcome of the recommendations of the Task Force under the chairmanship of Mr. Vijay Kelkar. In India the draft of Goods and Service Tax (GST) was presented in the parliament in August, 2009.

Initiative of NDA Government

Subsequently, the then Union Finance Minister, Shri P. Chidambaram announced that GST would be introduced from April 1, 2010. Since then, GST missed several deadlines and continued to be shrouded by the clouds of uncertainty. The talks of ushering in GST, however, gained momentum in the year 2014 when the NDA Government tabled the Constitution. (122nd Amendment) Bill, 2014 on GST in the Parliament on 19th December, 2014. The Lok Sabha passed the Bill on 6th May, 2015 and Rajya Sabha on 3rd August, 2016. Subsequent to ratification of the Bill by more than 50% of the States, Constitution. (122nd Amendment) Bill, 2014 received the assent of the President on 8th September, 2016 and became Constitution (101st Amendment) Act, 2016, which paved the way for introduction of GST in India. In the following year, on 27th March, 2017, the Central GST legislations – Central Goods and Services Tax Bill, 2017 integrates Goods and Service Tax Bill, 2017, Union Territory Goods and Services Tax Bill, 2017 and Goods and Services Tax (Compensation to States) Bill, 2017 were introduced in Lok Sabha. Lok Sabha passed these bills on 29th March, 2017 and with the receipt of the President’s assent on 12th April, 2017, the Bills were enacted.

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