GOODS AND SERVICE TAX

The value added tax(VAT) is considered to be a major improvement over the pre-existing Central Excise Duty at national level, and sales tax system at the state level.VAT (introduced on April1,2005) is a multi-point system of taxation on the sale of goods,wherein a system is provided to grant credit for tax paid on inputs. At present, in India, the centre and the states follow a parallel system of indirect taxation, each of which is required to be appropriately reformed, for striking an essence of harmonization between them. The Finance minister in the union budget 2006-07 proposed ,that a national level Goods and Service Tax should be introduced, which are to be shared between the centre and the states.

France was the first country to introduce Goods and Service Tax, which was duly followed by other countries. As the name denotes, goods as well as service taxes have been integrated in Goods and Service Tax, for deriving the benefit of input tax credit. Goods and Service tax is a new version of Value Added Tax(VAT), which involves comprehensive set off of input tax credit.

The problems relating to the multiplicity of tax rates have long been experienced in India. Through the introduction of CENVAT(Central Value Added Tax,W.E.F.April1,2000) and VAT, this problem has been reduced to a certain extent but the dilemma still continues .Therefore, to overcome such problems,

 implementation of GST is important. The GST would involve uniform rates of tax and would establish a strong link between the primary producer of goods and services and the retailer and therefore will abolish cascading effects(where an item is taxed more than once, as it makes its way from production to final retail sale)

. In GST, both the cascading effects of CENVAT and Service Tax are removed, with a continuous chain of set off, from the original producer’s point and service provider’s point, upto the retailer’s level, is established. This reduces the burden of all cascading effects .This is the essence of GST and therefore GST is not simply VAT plus Service Tax, but an improvement over the existing system of VAT and disjoined Service Tax.

The Goods and Service Tax would lead India to a World Class Taxation system and would thereby substantially improve tax collection.

 The GST is an indirect tax to be imposed on manufacture, sale and consumption of goods as well as services at  a national level.

The Reasons behind implementation of Goods and Service Tax:

a. One of the main reasons for the introduction and implementation of GST is the abolition and avoidance of cascading effects of taxation.

b. To remove the inherent limitations in the system ,it has been proposed to abolish central sales tax, state level sales tax, turnover tax, stamp duty ,and State VAT laws .It would also lead to the abolition of ’tax on  tax’ such as Entry Tax on VAT..

c. The   shortfall of existing VAT like Luxury tax, entertainment tax have not yet been included in VAT and thus are still payable.

Goods and Service Tax would be introduced under a dual model-

CGST-Central Goods and Service Tax

SGST-State Goods and Service Tax, which will be collected by the Central and State Governments, respectively.

Input Tax Credit Set-off:

The input tax credit of SGST can be utilized only for the payment of SGST and Input Tax Credit on CGST can be utilized for the payment of CGST only. Therefore cross utilization of Input Tax Credit will not be allowed.

 Levy of Tax:

Just as VAT, there would be a prescribed limit of annual turnover on which tax will be levied .The prescribed threshold limit of annual turnover for goods and services under SGST would be Rs.10Lakhs and under CGST, for goods would be Rs.1.5crore and for services,a separate limit will be announced.

Rate Structure:

As has been prescribed, there would be a four layered rate structure for Goods and Service Tax-

a. Lower rates for essential commodities

b. Standard rates for general goods

c. Special rates for precious metals

d. There may be single rates for services under CGST and SGST.

 It is to be noted that the above rates are not final.

Goods and Service Tax would be collected in the same manner as VAT. Tax would be collected on basis of value addition at each stage of sale.

 Goods and Service Tax would be a further breakthrough towards a comprehensive

Indirect tax reform in the country. Response of the Industry and Trade have been indeed encouraging. GST would result in enormous credit across the entire supply chain and across all states under a common tax base. The GST implementation process has already been started at the central level by converging widely varied tax rates, and providing input tax credit, to convert excise duty into CENVAT.

Therefore the above was an overview of the entire system of Goods and Service Tax and the various benefits and appropriate steps to be taken.

                          

                          

Taxation in India and it's Constitutional History

The power to tax has been exercised by all sovereign entities that are traceable in the pages of History. And so is India as a sovereign republic entitled to collect taxes from its subjects. Taxes can be classified into various categories namely

• Income Tax
• Service Tax
• Wealth Tax
• Value Added Tax and many more

However there are two broad classification of taxation available to us in the forms of Direct Taxes and Indirect Taxes. The difference between these two forms of taxes can be enumerated in the following expression - "A direct tax is one that cannot be shifted by the taxpayer to someone else, where as an indirect tax can be." And even the Britannica corroborates this expression. In lucid language Direct Tax is what the tax payer pays directly to the Government whereas the indirect form of tax is collected by the government through the intermediaries and it is the intermediaries' responsibilty to file for the related Tax return. Income Tax and V.A.T. would be appropriate examples of the direct and indirect tax respectively.

The primary subject of this composition is to deal with the historical background and constitutional madate of the Income Tax policy in India.

The  present Income Tax Act of 1961 came into being after replacing the 1922 Act which was utilised for almost 40 years. The present act came into being on the 1st of April 1962. The new act had its base in the twelfth report of the Law Commission of India which was published in the year 1958 and the direct Taxes Administration Enquiry committee's report which was published in 1959. both the reports recommended the enactment of a new statute and replacing the old one for the former one was rendered messy and shapeless after numerous number of amendments. However it would be worthwhile to note at this juncture that the present Act too has failed the expectations of it miserably. Within the first forty two years itself the Act of 1961 has been amended ninety-three times.

Now in the United Kingdom where the legal framework lacks the presence of a written Constitution, the legislature as the legitimate house of representative of the people is empowered to carry on the sovereign responsibility of enactment of statutes in the name of the Queen. However in countries like India the presence of a Constitution mandates every enactment to pass the test of constitutionality. The Legislatures can pass an enactment subject to the assent of the President of the Nation as the head of the Union. But even after it comes into force the judiciary can strike down any act on grounds of it being ultra vires to the Constitution.

So the Income Tax Act also requires a Constitutional mandate to sustain its existence. Article 265 is one such constitutional provision that necessitates the requirement of a law validating taxation policy. However both the levy as well as collection of taxes must have assent of the legal authorities. The Supreme Court  in Ghulam Hussain v State of Rajasthan[AIR 1963 SC 379] noted that "Law" in this Article would mean Law passed by a competent legislature. And it is obvious that the Income Tax Act,1961 was passed by the Lok Sabha. 

Another important area to be considered is Article 246 of the Constitution. This Article empowers the legislatures to enact laws. But further this article devides the zne of consideration for legislative policies between state and central legislations in three categories. The categories are known as:

• Union List( Central Parliament)
• State List( State Legislations)
• Concurrent List( Both State and Central legislations can legislate on the subjects dealt under the concurrent list however in case of a confilct the central legislation would be preferred over that of the State legislation)

This list is mentioned in the Seventh Schedule of the Constitution of India.The Parliament is empowered to enact on taxation matters subject to entries 82-97 of List I. The parliament also has residuary powers of Taxation under Article 248(2). The corresponding provisions with regard to the State Legislatures has been enumerated in entires 45-68 of list II.

Federation of Hotel and Restaurant Assn vs UOI [178 ITR 97 SC] saw the Supreme Court lay down the principle stating that the courts have been vested with the duty of ascertaining to what extent and to what degree the authority to levy tax exists in each legislature. Since then the Courts could also define the limits of the respective legislative powers.

The Hon'ble Supreme Court of India in the case law of UOI vs Sanyasi Rao[219 ITR 330 SC] laid down that the word "income" mentioned in entry 82 should be construed liberally with a wide perspective. Aboobacker vs UOI [177 ITR 358]; Sat Pal vs ETC [185 ITR 375]; Ashoka vs CIT [209 ITR 679]; Attar Singh vs ITO [191 ITR 667 SC] are Case laws that seconded the above mentioned principle laid down in Sanyasi Rao.


Refference:

1) Kanga, Palkhivala and Vyas, The Law and Practice of Income Tax, Lexis Nexis Butterworths, 9th ed, Vol 1.