The Good and Services Tax (GST) was launched in India on July 1, 2017 in a midnight function at the Central Hall of Parliament by the Prime Minister in the august presence of the president of India. It was indeed a historic occasion and paradigm shift as India moved towards ‘One Nation, One Tax, One Market.’ The global experience has shown that implementation of GST results in numerous benefits for all stakeholders. In the Indian GST regime, the consumers will benefit from lower prices due to removal of cascading in taxes and efficiency gains. The trade and industry will benefit because of uniform single indirect tax throughout the country, seamless flow of input tax credit, removal of tax related barriers at inter-state borders, reduced logistic costs, and to end IT enabled system and minimal interface with the tax authorities.

Need for the Constitutional Amendment

 In the countries where GST has been  introduced, barring rare exceptions, GST is unitary in character and is levied either by the Central Government or by the State Governments.
The introduction of GST in India required amendment in the constitution as prior to the Constitutional amendment is fiscal powers between Centres and the states were clearly demarcated as per the entries in the Union List and the state list. The centre had the powers to levy tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics etc.) while the states had the power to levy tax on the sale of goods. In case of inter-state sales, the centre had the power to levy a tax (the central sales Tax) but the tax was collected and
retained entirely by the states. As for services, only the Centre was empowered to levy the services tax.

Journey to launch of GST in Iida

The GST has already been introduced in nearly 160 countries and France was the first introduce GST in the year 1954. In view of numerous benefits GST brings in to the economy,
introduce into GST has been on the political agenda of the country for quite some time. The journey to introduction of GST in India has been long and is a culmination of the efforts of many political leaders, economic thinkers and officers of the Centre and the state governments. The idea of GST was first mooted in the year 2000 during the Prime Ministership of Shri Atal Bihar Bajpayee and a committee was set up headed by the then West Bengal Finance Minister Shri Asim Dasgupta to design a GST model. In 2003, the Vajpayee government set up another task force under Shri Vijay Kelkar to recommend tax reforms. On February 28, 2006, the then union finance minister in his budget for 2006-7 proposed that GST would be introduced from April 1, 2010. The empowered Committee of state finance ministers (EC), which had formulated the design of State VAT, was requested to come up with a roadmap and structure for the GST.

As introduction of GST required constitutional amendment, the political consensus could not be garnered for a long time. The efforts to introduce GST in India picked up momentum after the formation of the present Government. The constitution (122nd amendment) Bill, 2014 was introduced in Lok Sabha on December 19, 2014 and was passed by Lok Sabha in May 2015. The bill was taken up in the Rajya Sabha and was then referred to the Joint Select Committee of the Rajya Sabha and the Lok Sabha on May 14, 2005.

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Constitution ( 1 0 1 st Amendment Act 2016)

The constitutional amendment empowers the Centre and the states to levy and collect the goods and Services Tax (GST). The GST has been defined as tax on supply of goods or services or both, except supply of alcoholic liquor for human consumption. Thus, alcohol for human consumption has been kept out of the GST by way of definition of the GST in the Constitution. On the other hand, five petroleum products viz. petroleum crude, motor (petrol), high speed diesel, natural gas and aviation turbine fuel have temporarily been kept out and the GST Council can decide the data from which they shall be included in GST.

A significant feature of the constitutional amendment is provision relating to constitution of the GST council. The council comprises of the Union Finance Minister (Chairman of the
Council), the union minister of state (Revenue) and the state Finance/Taxation Ministers of 29 states and two union territories with legislature (Delhi and Pondicherry). The guiding principle of the GST council is to ensure harmonization of different aspects of GST between the centre and the states as well as among states with a view to develop a harmonized national market for goods and services within India. The council is tasked to make recommendations to the union and the states on the following:

(i) The taxes, cesses and surcharges levied by the centre, the states and the local bodies
which may be subsumed under GST;

(ii) The goods and services that may be subjected to or exempted from the GST;

(iii) The date on which the GST shall be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel;

(iv) Model GST laws, principles of levy, apportionment of IGST and the principles that govern the place of supply;

(v) The threshold limit of turnover below which the goods and services may be exempted from GST;

(vi) The rates including floor rates with bands of GST;

(vii) Any special rate of rates for a specified period to raise additional resources during any natural calamity or disaster;

(viii) Special provision with respect to the Northeast States, J & K, Himachal Pradesh and Uttarakhand; and

(ix) Any other matter relating to the GST, as the Council may decide.

The constitutional amendment provides that every decision of the GST council shall be taken at a meeting by a majority of not less than  ¾th of the weighed votes of the members present and voting.

  Functioning of GST Council

 The GST council, in its 18 meetings held before the roll out of the GST on July 1, 2017 has done commendable work in developing consensus over a number of issues which looked intractable at one time. The council was able to recommend draft legislations pertaining to the central GST, the state GST, the union territory GST, Integrated GST and Compensation to the states and number of GST related Rules within a span of a few meetings. The difficult issue of cross empowerment and administrative division of tax payers between the states and the centre was resolved in a true spirit of give and take. Despite varying rates of VAT on goods in different states, all goods and services have been fitted into
different slabs in a smooth manner. The newly created constitutional body, the GST Council, has emerged as a new model of cooperative federalism, where the centre and the states are
willing to share and pool in their sovereignty and give fiscal space to each other.

Compensation to the States

 As GST is a destination based tax, there was apprehension amongst some states, particularly manufacturing states, that implementation of GST may result in loss of revenue for them.
Therefore, the Constitution (One Hundred and First Amendment) Act, 2016 provides for compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period of five years. Based on the recommendation of the GST Council, the goods and services tax (Compensation to States), Act 2017 has been enacted.

The GST regime has many provisions to address the concerns of the medium and small enterprises. The law provides for an exemption threshold were by it is not mandatory for a
business whose aggregate turnover in a financial year is less than Rs. 20 lakh (Rs. 10 lakh for special category States) to register. Such small enterprises would be exempt from paying GST. In addition, there is also a composition scheme under which an eligible registered person, whose aggregate turnover in the preceding financial year did not exceed Rs. 75 lakhs can opt to file summarized returns on a quarterly basis. The taxpayers dealing in goods (both traders and manufactures) and restaurant sector can only opt for the composition scheme. Under the Composition scheme, the manufacture will pay tax at the rate of 1 percent; restaurant sector at the rate of 2.5 percent and traders and the rate of 0.5 percent of the turnover each under CGST Act and SGST Act. However, the services providers and the tax payers making inter-state supplies or making supplies through e-commerce operators are not eligible for the composition scheme.

 The launch of GST in India with effect from  July 1, 2017 is a transformative reform and will change the way businesses are done in India. All  stakeholders have welcomed the reform. The new GST regime will bring in more and more businesses into the formal economy. Radical change of this magnitude is bound to bring about some pain. The tax administration, both at the centre and the states, are working hard to endure that the transition is smooth. The gains of this little pain are going to be many and long lasting for the Indian economy.

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