TAX LAW ASSIGNMENT

TOPIC

CONSTITUTIONAL FRAMEWORK OF GST

Submitted to: Submitted by:

Dr. Eakramuddin Kamlesh rai

Self-Finance
B.A.L.L.B
21

JAMIA MILLIA ISLAMIA

 Acknowledgment

At the outset, I would like to express my heartfelt gratitude and thank my teacher, Dr.
Eakramuddin for giving me a project topic such as this and for having the faith in me to deliver.
Thank you, Sir, for giving me an opportunity to grow.
My gratitude also goes out to the staff and administration of JMI for the infrastructure in the
form of our library that was a source of great help for the completion of this project.
TABLE OF CONTENT

 Introduction
 Tax- Meaning and Implications
 Constitutional framework – legislative powers
 Constitution (One Hundred and First) Amendment Act, 2016
 Amendments to Constitution
 Other amendments
 Conclusion
 Bibliography
Introduction
There have been major changes in tax systems of countries with a wide variety of economic
systems and levels of development during the last two decades. The motivation for these reforms
has varied from one country to another and the thrust of reforms has differed from time to time
depending on the development strategy and philosophy of the times. In many developing
countries, the immediate reason for tax reforms, has been the need to enhance revenues to meet
impending fiscal crises. One of the most important reasons for recent tax reforms in many
developing and transitional economies has been to evolve a tax system to meet the requirements
of international competition. The transition from a predominantly centrally planned development
strategy to market based resource allocation has changed the perspective of the role of the state
in development. The transition from a public sector based, heavy industry dominated, import
substituting industrialization strategy to one of allocating resources according to market signals
has necessitated systemic changes in the tax system. In an export-led open economy, the tax
system should not only raise the necessary revenues to provide the social and physical
infrastructure but also minimize distortions. Thus, the tax system has to adjust to the
requirements of a market economy to ensure international competitiveness.
The strength of a nation’s economy depends upon the system of taxation which if taken correct
approaches, can keeps revenue consistent, stimulates industrial activity and manages growth in
our economy. Through efficient measures, the tax system can lead to revenue mobilization in
response to growth and result in revenue grows slightly faster than GDP. India’s well developed
tax structure has a three-tier federal structure consisting of the Union Government, the State
Governments and the Local Bodies. These three bodies are authorized with the imposition of the
different duties and taxes, which are prevalent in the country. In most cases, these local bodies
include the local councils and the municipalities. According to the Constitution of India, the
government has the right to levy taxes on individuals and organizations. Any tax levied not
backed by law or is beyond the powers of the legislating authority is unconstitutional.
However, the constitution states (Article 265)1 that no one has the right to levy or charge taxes
except the authority of law. Whatever tax is being charged has to be backed by the law passed by
the legislature or the parliament. Any tax levied by the government which is not backed by law
or is beyond the powers of the legislating authority may be struck down as unconstitutional. The
Indian Constitution2 distributes legislative powers including taxation, between the Parliament
and the State Legislature.

1
Article 265 of Constitution of India
2
Article 246 (Seventh Schedule)
Tax- Meaning and Implications3
Tax is one of the most common financial terms. Taxes are one of the primary sources of income
for the government through which it fulfils various projects and initiatives. They are levied by
the central and state governments. It is not a voluntary payment or donation, but an enforced
contribution, exacted pursuant to legislative authority. It may be direct tax or indirect tax, and
may be paid in money or as its labor equivalent. In India, the system of direct taxation as it is
known today has been in force in one form or another even from ancient times. Variety of tax
measures are referred in both Manu Smriti and Arthasastra.
According to Manu Smriti, the king should arrange the collection of taxes in such a manner
that the tax payer did not feel the pinch of paying taxes. He laid down that traders and artisans
should pay 1/5th of their profits in silver and gold, while the agriculturists were to pay 1/6th,
1/8th and 1/10th of their produce depending upon their circumstances.
Kautilya has also described in great detail the system of tax administration in the Mauryan
Empire. It is remarkable that the present-day tax system is in many ways similar to the system of
taxation in vogue about 2300 years ago.
Arthasastra mentioned that each tax was specific and there was no scope for arbitrariness. Tax
collectors determined the schedule of each payment, and its time, manner and quantity being all
pre-determined. The land revenue was fixed at 1/6 share of the produce and import and export
duties were determined on ad-valorem basis. The import duties on foreign goods were roughly
20% of their value. Similarly, tolls, road cess, ferry charges and other levies were all fixed. Tax
policy in India has evolved as an important component of fiscal policy that played a central role
in the planned development strategy. In particular, tax policy was the principal instrument for
transferring private savings to public consumption and investment 4by India’s Constitution.
Inevitably tax policy in the country has responded to changing development strategy over the
years. In the initial years tax policy was guided by a large number of demands placed on the
government 12 and effort was put to raise taxes from those with an ability to pay, without paying
attention to the efficiency factors of the instruments for the purpose
Implications
Everybody is obliged by law to pay taxes. Total Tax money goes to government exchequer.
Appointed government decides that how are taxes being spent and how the budget is organized.
Tax payment is not optional; an individual has to pay tax if his/her incoming is coming under the
income tax slab. It is a duty of every citizen to pay taxes. More collection of tax allows the
government to launch more and more welfare schemes.

3
https://www.jagranjosh.com
4
AMARESH BAGCHI AND STERN NICHOLAS, TAX POLICY AND PLANNING IN DEVELOPING COUNTRIES, (Oxford
University Press, 1994)
1) To Provide Basic Facilities for Every Citizen of the Country: Whatever money is received
by the government in terms of direct tax and indirect tax is spent by it for the welfare of the
citizens of the country. Some of the services provided by the government are: health care,
electricity, roads, education system, free houses for poor, water supply, police, firefighters,
judiciary system, disaster relief, taking care of bridges and other things of public welfare.
2) To Finance Multiple Governments: All the local government of the state like village
panchayats, block panchayats and municipal corporations receive fund from the state finance
commission.
3) Protection of the Life: Tax payers receive the protection of life and wealth from the
government in case of external aggression, internal armed rebellion or any other situation in
exchange of tax paid by them.

CONSTITUTIONAL FRAMEWORK – LEGISLATIVE POWERS

India consists of twenty-eight states and seven Union Territories and these states have their own
state parliament (known as legislative assembly), and state government, headed by Chief
Minister of the State. Similarly, Central government Union Government/Cabinet and has
parliament represented by the members elected from all over India. The administrative and
legislative powers of states have been governed by Constitution of India.
Part XI of the Indian Constitution deals with the Relations between the Union and the states.
Article 245 deals with the distribution of legislative powers between States and Union whereby it
states that Union Parliament will have power to make laws applicable to whole of India whereas
State Parliament (Legislative Assembly) will have power to make laws applicable only within
the state which has enacted the law. Similarly, Article 246 demarcates the domain within which
the Union and state can enact laws. Article 246 has to be read along with seventh schedule of the
Constitution. Article 246 mentions that Union Parliament has all the power to make laws
applicable within India on those subjects matters which are incorporated in List I of the Seventh
Schedule; State Parliament has power to make laws applicable with in such state on such
subjects which are incorporated in List II of the Seventh Schedule; and both the Union and the
state can legislate on any subjects that are incorporated in List III of the Constitution. These three
lists are also called Union List, State List and Concurrent List respectively. In the matters which
are enumerated in Concurrent list, though both state and Union will have the power to legislate,
the law made by the Union Parliament prevails over laws made by state in case of conflict of
laws made by state and Union.
Within these constitutional frameworks, Union can make laws on areas of national defence,
naval, military and air forces etc. on administrative fronts as these subjects are enumerated in
Union List – List I of Seventh Schedule. On the issues of fiscal legislations, Union has been
entrusted to frame laws on inter-state trade and commerce (Entry No.42), banking (Entry No.45),
stock markets (Entry No.48), taxes on income other than agricultural income (Entry No.82),
duties of exports including export duties (Entry No. 83) etc.
Similarly, within these constitutional frameworks, State can make laws on areas of police, public
orders, prison, criminal justice procedures etc. on administrative fronts as these subjects are
enumerated in State List – List II of Seventh Schedule. On the issues of fiscal legislations, State
has been entrusted to frame laws on betting and gambling (Entry No. 34), laws on duties of
excise on liquor and narcotic drugs (Entry No. 51), Taxes on the entry of goods in the local areas
(Entry No. 52), Taxation on the consumption and sale of electricity (Entry No. 53) and taxes on
the sale or purchase of goods other than newspapers (Entry No. 54) etc.

As mentioned above List – III i.e. concurrent list has also been incorporated in the Constitution
which gives power to make laws to both Union and the State. The laws on price control (Entry
No. 34), Weights and Measures (Entry No. 33-A), the laws on lectricity (Entry No. 38), and
Stamp Duties (Entry No. 44) etc. are the some of the areas where both Union and the States have
power to legislate. With respect to taxation, Indian Constitution provides extra safeguards and
conditions. Part XII of the Constitution deals with Finance, Property, Contracts and Suits and
Article 265, under Chapter XII, clearly mentions, “265. No tax shall be levied or collected except
by authority of law.” Therefore, in the matter of taxation, both Union and the State can levy and
collect tax after passing an appropriate legislation on the subject. As the constitution presently
demarcates the power between Union and States to formulate even the fiscal legislation on areas
of taxation, the main issue that remains to be resolved at priority is integrating these powers at a
level which has power to issue GST. In our constitutional framework, the duty of excise (on
manufacture of goods), the duty of customs (on imports and exports of goods brought to and out
of India), Central Sales Tax (tax on inter-state sale of goods), and Service tax (on delivery and
consumption of intangible services) are levied by Union where as sales tax on sale of goods
within a state, excise duties on alcohol and opium, various cess like mining cess and seigniorage
fees, octroi charges on goods entering to State and entry tax on good brought within local areas
are levied and collected by State. Some duties like stamp duties etc. are collected by State though
even Union has power to make laws on such subjects like Stamp duties being the subject matter
under Concurrent List (List – III) of Seventh Schedule of Constitution. Therefore, any GST
which tries to levy taxes on various such areas should first clear the hurdle of constitutional
allocation of power among states and Unions to make laws pertaining to various fiscal heads.

Constitution (One Hundred and Twenty Second) Amendment Bill, 2014

The Constitution (115th Amendment) Bill was introduced in the Lok Sabha on 22.03.2011. The
said Bill lapsed with the dissolution of the 15th Lok Sabha. The Constitution (122nd
Amendment) Bill was introduced in the 16th Lok Sabha on 19.12.2014. The Bill provides for a
levy of GST on supply of all goods or services except for the specified goods. The tax shall be
levied as Dual GST separately but concurrently by the Union (CGST) and the States (SGST).
The Parliament would have exclusive power to levy GST (IGST) on inter-State trade or
commerce (including imports) in goods or services. The Central Government will have the
power to levy excise duty in addition to the GST on tobacco and tobacco products.

A GSTC would be constituted comprising the Union Finance Minister, the Minister of State
(Revenue) and the State Finance Ministers to recommend on the GST rate, exemption and
thresholds, taxes to be subsumed and other features. This mechanism would ensure some degree
of harmonization on different aspects of GST between the Centre and the States as well as across
States. One half of the total number of members of GSTC would form quorum in meetings of
GSTC. Decision in GSTC would be taken by a majority of not less than three-fourth of weighted
votes cast. Centre would have one-third weightage of the total votes cast and all the States taken
together would have two-third of weightage of the total votes cast. The Constitution Amendment
Bill needs to be passed by a two-third majority in both Houses of Parliament and subsequent
ratification by at least half of the State Legislatures. The Bill was earlier passed by the Lok
Sabha in May, 2015. The Bill was referred to the Select Committee (of 21 members led by Sh.
Bhupendra Yadav, Hon’ble MP) of Rajya Sabha on 12.05.2015. The Select Committee had
submitted its Report on the Bill on 22.07.2015. The Bill has finally been passed in the Rajya
Sabha and thereafter by Lok Sabha in August, 2016. Further the bill has since been ratified by 20
States and now awaits receipt of assent by the President. This would complete the process of the
amendment of the Constitution.
Constitution (One Hundred and First) Amendment Act, 2016
the Constitution 122nd Amendment Bill was put forth in the 16th Lok Sabha on 19 Dec 2014.
 The Bill suggests levy of GST on all goods and services, except alcohol that humans
consume.
 The tax is levied as Dual GST by the Centre and states/union territories. The component
levied by the Centre is Central Tax - CGST, while that levied by the state is State Tax -
SGST. The tax levied by union territories is Union Territory Tax - UTGST.
 The Centre would levy the GST on inter-state trade or imports of services and goods.
This tax is referred to as Integrated Tax - IGST.
 The Central Government will also levy excise duty on tobacco products, in addition to
GST.
 The tax on five petroleum products, i.e., high speed diesel, crude, petrol, natural gas, and
Aviation Turbine Fuel (ATF) will be outlined later after a decision is made by the GST
Council.
September 2016: A Goods and Services Tax Council (GSTC) was created by the union finance
minister, revenue minister, and ministers of state to take decisions on GST rates, thresholds,
taxes to be subsumed, exemptions, and other features of the taxation system. The state finance
ministers mentioned that the EC would be a platform for states where there would be discussions
of their regional issues. The GST Council is a separate entity that would oversee the
implementation of the GST system.
Article 246A - Power to impose GST [New Provisions]
Article246A (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.

246A (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: In respect of goods and services tax referred to in clause (5) of article 279A, Article
246A will take effect from the date recommended by the Goods and Services Tax Council. 279A
(5) consists (Petroleum crude, High Speed Diesel, Motor Spirit (commonly known as petrol),
Natural Gas and Aviation Turbine Fuel).
Article 366(12A) 5which is 101 amendment Act of constitution defines GST as “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.
Certain changes have been made in definition due to 101 amendment in the constitution which
are:
366(26A)- Services- Anything other than goods.
366(26B)- State - With reference to articles 246A, 268, 269, 269A and article 279A includes a
Union territory with Legislature.
366 (12)- Goods - includes all materials, commodities, and articles [Definition Already Present
prior to 101 Constitutional amendment]

GST shall be levied and collected by the Central Government 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 GST Council. Supply of goods, or of services, or both in the course of
import into the 7 Supply of goods, or of services, or both in the course of import into the territory
of India shall be deemed to be supply in the course of inter-State trade or commerce. Supply of
goods, or of services, or both in the course of import into the 7 Supply of goods, or of services,
or both in the course of import into the territory of India shall be deemed to be supply in the
course of inter-State trade or commerce.
Article 279A provides for constituting a Council called the Goods and Services Tax Council
within 60 days from date of commencement of 101st Constitution Amendment Act, 2016.
Members are as follows: -
(a) the Union Finance Minister as Chairperson;
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scconline.com
(b) the Union Minister of State in charge of Revenue or Finance;
(c) the Minister in charge of Finance or Taxation or any other Minister nominated by each State
Government.
(d) Vice Chairperson to be chosen among the members.

Amendments to Constitution6

Amendment to List I
Entry 84
Duties of excise on the following goods manufactured or produced in India, namely:
(a) petroleum crude;
(b) high speed diesel;
(c) motor spirit (commonly known as petrol);
(d) natural gas;
(e) aviation turbine fuel; and
(f) tobacco and tobacco products."
Amendments to List II
Entry 52 Taxes on the entry of goods into a local area for consumption, use or sale therein.
(Octroi / Entry Tax) and Entry 55 Taxes on advertisements other than advertisements published
in the newspapers [and advertisements broadcast by radio or television] have been omitted.
In Entry 54: Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly
known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption,
but not including sale in the course of interState trade or commerce commerce or sale in the
course of international trade or commerce of such goods.
Other Amendment in Constitution
248
EARLIER-Parliament has exclusive power to make any law with respect to any matter not
enumerated in the Concurrent List or State List.

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The constitution of India
NOW-The Power of the Parliament has been made subject to Article 246A. In other words,
residuary power of the Parliament will not affect the State’s power to levy Goods and Service
Tax under Article 246A.
249
EARLIER-If Rajya Sabha has declared by resolution in national interest that Parliament should
make laws with respect to any matter enumerated in the State List, Parliament can make laws for
the whole or any part of the territory of India with respect to that matter while the resolution
remains in force.
NOW-The resolution of Rajya Sabha can mandate the Parliament to make laws with respect to
GST as provided in Article 246A also and not just restrict the same to matters specified in State
List.
250
EARLIER-Parliament shall, while a Proclamation of Emergency is in operation, have power to
make laws with respect to any of the matters enumerated in the State List.
NOW-This Power of the Parliament has been extended to Goods and Service Tax under Article
246A
268
EARLIER-tamp duties and excise duty on medicinal and toilet preparations shall be levied by
the Government of India but shall be collected by states where such duties are levied within a
state.
NOW- Duties of excise on medicinal and toilet preparations has been deleted from this Article as
GST subsumes the same
268A
EARLIER-Taxes on services shall be levied by the Government of India.
NOW-268A omitted

Benefits of GST Implementation7

Key benefits of the GST announcement are detailed below:
1. As mentioned above, the GST system will create a common national market that boosts
foreign investment.
2. The cascading effect of taxation will be mitigated.
3. There will be uniformity in laws, rates of tax, and procedures across states.

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Bharati Law Review, Oct-Dec, 2016
4. The GST regime is expected to boost manufacturing activities and exports. This would,
in turn, generate more employment and lead to the growth of the economy.
5. Indian products would be more competitive in the international markets.
6. The GST system is likely to improve the overall investment climate in India.
7. Uniformity in the rates of SGST and IGST will reduce tax evasion to a large extent.
8. The average sales burden experienced by companies is expected to come down, thereby
increasing consumption and boosting subsequent production of goods.
9. GST is a simpler system of taxation with smaller number of exemptions.
10. There are automated and simplified methods for processes such as registration, refunds,
returns, tax payments, etc.
11. All interactions will be handled by the common GSTN website.
12. The input tax credit process will be more accurate and transparent, as electronic matching
will be performed.
13. The final price of most goods will be lower when taxation is at the new GST rates. There
will also be a seamless input tax credit flow between the manufacturer, retailer, and
supplier of service.
14. A huge segment of small-scale retailers may be either exempt from tax or may benefit
from low tax rates based on the compounding scheme. Consumers will further benefit if
purchases are made from these small retailers.
Conclusion

As mentioned in the preceding sections the six-decade old indirect tax regime had become too
cumbersome and obstructive for the growth of our Nation, a major overhaul was required. This
came in the form of GST which was made effective from 1-7-2017. GST will subsume almost 17
central and state taxes and 21 cesses and bring nation under united, common market with
simplified tax structure, with emphasis on greater self-compliance environment. It shall ignite the
growth of economy through a comprehensive but simple indirect tax regime which, aims at
enlarging tax base not by coercion but compliance, ensures vertical equity of taxes yet lowers
overall tax rates. There is a need to ensure two-fold requirements in any constitutional
amendments. The first one is to meet the objective proposed by introduction of GST – a robust
indirect tax regime in India which minimizes unwarranted cascading effects, and smoothens the
supply chain till the level of consumers, and the other objective that any amendments should
meet is not to abrogate federal autonomy that states enjoy in framing fiscal legislations. Also,
such constitutional provisions should be flexible within its rigidity to make provisional
emergency provisions when states face acute economic emergency. Constitution can provide the
mechanisms and procedures to be adopted to amend GST when such grave situations are faced
by the states.
BIBLIOGRAPHY

 Commission on Centre-State Relations (1988), Report of the Commission on Centre-

State Relations (Chairman: R.S.Sarkaria), Part I, Government of India, New Delhi.
 Government of India, The Constitution of India, New Delhi
 Government of India, Reports of Finance Commissions, New Delhi
 Milind Kumar, Goods and Services Tax: Law and Practice (EBC,Lucknow ,1st edn.,
2019)