GOODS AND SERVICES TAX LAW – IN THE MAKING

[Dr. Sanjiv Agarwal]

A major change in administering GST will be that the tax incidence is at the point of sale as against the present system of point of origin. According to the Task Force under the 13th Finance Commission, GST, as a well designed value added tax on all goods and services, is the most elegant method to eliminate distortions and to tax consumption.

The Constitution (122^nd Amendment) Bill, 2014

The GST Bill – The Constitution (One Hundred and Twenty-second Amendment) Bill, 2014 has been discussed and passed by Rajya Sabha on 4^th August, 2016 after a 7 hours long debate by members of Rajya Sabha. The discussion on the GST bill came after months of discussions between the ruling party and the opposition – with both sides meeting multiple times to negotiate amendments.

The momentous Bill, which marks the first parliamentary step towards implementation of a “one country, one market, one tax” framework, was cleared by a two-thirds majority, which is required for any Constitution Amendment Bill, following a division of votes.

The Bill has been passed unanimously and the journey to GST from now onwards will inter alia, involve the following steps –

• The bill will be sent for presidential reference.
• Subsequent to that, the Bill will be transmitted to the Lok Sabha (possibly on Thursday), which also needs to approve the amendments by two-thirds majority.
• The President will then refer it to the state assemblies.
• At least half the state assemblies, that is 16, would need to ratify the Bill by two-thirds majority.(Already done by 18 States)
• It will then go for presidential assent before being notified in the gazette
• After all these procedures, Parliament would take up the actual GST Bill (possibly in the winter session).

Assurances that opposition has sought from the Government are:

• The actual GST Bill should take care of concerns about state Government's being allowed to raise revenue in emergency situations.
• The subsequent GST Bill should not be categorized as Money Bill, by passing Rajya Sabha.
• Cap on GST rates of 18%
• Improved dispute resolution mechanism

Model GST Law

The draft of model law on proposed Goods and Services Tax (GST) has since been released by the Empowered Committee of State Finance Ministers (in short, EC) on 15^th June, 2016.

Called as 'Model GST Law', it shall comprise of two pieces of legislation, viz,

• Goods and Service Tax Act, 2016 (year may change)
• Integrated Goods and Services Tax Act, 2016 (year may change)

GST Act

The model GST Act comprises of –

• 25 Chapters
• 178 Sections (including numeric - alpha section)
• 4 Schedules
• GST Valuation (Determination of Value of Supply of Goods and Services), Rules 2016
• 109 definitions in section 2

IGST Act

The Model IGST Act comprises of –

• 11 Chapters
• 33 Sections
• 8 Definitions

It may be noted that EC had already issued four reports on different business processes in October 2015 which pertains to registration, payment, returns and refund under the GST regime. These business processes in fact lay down the procedural aspects in relation to such activities. (may take shape of Rules on finalization). 

GST: THE JOURNEY SO FAR

Chronology of major events in progress of Goods & Service Tax in India
Year	Milestone
1974	LK Jha Committee suggests VAT
1986	MODVAT introduced in India from 1st of March on select commodities
1991	Chelliah Committee recommends VAT
1999	FM announces decision to introduce VAT in India.  Formation of Empowered Committee on VAT
2002	Task Force on Indirect Taxes report headed by Kelkar CENVAT introduced on all commodities at central level
2003	VAT introduced in first Indian State of Haryana
2005	VAT in 24 States/UTs including Punjab, Chandigarh, HP, J&K and Delhi.
2006	VAT implemented in 5 more States including Rajasthan.
2007	FM announces GST introduction in India from April 01, 2010.  Parthasarathi Shome submits a study paper on GST. Empowered Committee of State Finance Ministers constitutes the Joint  Working Group. VAT implemented in Tamil Nadu & Puducherry. Central Sales Tax (CST) phase out starts, CST cut to 3%.  Joint Working Group set up for proposing GST roadmap and structure.
2008	VAT introduced in the last Indian State of UP from January 01, 2008. EC finalises its views on a broad GST structure with consensus on Dual GST (Central & State GST), separate legislation, levy and administration.  CST reduced to 2%
2009	Empowered Committee release First Discussion Paper on GST in November. Report of Task Force on GST of 13th Finance Commission in December Report of 13th Finance Commission (TFC) (Chapter 5 on GST) in December
2010	Proposed date to introduce GST in India postponed to April 01, 2011.
2011	Government introduces Constitution Amendment Bill on GST in Lok Sabha
2013	Parliament Standing Committee submit reports on GST Constitutional Amendment Bill Standing Committee recommendations incorporated in Bill Standing Committee on Finance tables its report on GST Bill. EC rejects Central Government's proposal to include petroleum products under GST.
2014	March: Revised Bill incorporating recommendations of Standing Committee  sent to EC for examination Previous Constitution Amendment Bill lapses. Newly-elected Government sets April, 2016 as new date for GST roll-out. GST sub-committee in the EC proposes a revenue–neutral rate of 26.7%. Alcohol to be kept outside the purview of GST. All entry taxes proposed to be subsumed under GST, whether collected by States or local bodies. Petroleum and petroleum products to be subsumed in GST, with nominal or zero-rated tax. GST compensation to States pegged at around ₹ 11,000 crore. Centre to provide three year compensation on the revenue loss incurred by States after GST roll-out. December : GST Constitutional Amendment Bill moved in Lok Sabha
2015
06.05.2015	Lok Sabha passes GST Bill
12.05.2015	Bill on GST not passed by Rajya Sabha ; referred to Select Committee
17.06.2015	Committees Constituted to recommend tax rates and to monitor progress of IT preparedness / mechanism of GST / drafting of rules.
22.07.2015	Select Committee of Rajya Sabha tabled its report on GST Bill
29.07.2015	Union Cabinet approves Select Committee recommendations
11.10.2015	Discussion papers to on business processes on registration, payment, returns and refunds under GST made public
03.12.2015	Committee on Tax rates submits reports
03.08.2016	Revised draft presented in Parliament / approved by Rajya Sabha
08.08 2016	Revised Constitutional (122nd Amendment) Bill approved by Lok Sabha
12.08.2016 to 06.09.2016	Constitutional Amendment Bill ratified by 18 Legislative Assemblies

Be Prepared For GST

Preparedness for GST in next few months will involve Tax Planning Review, Transactions Review, Training Manpower, Cost Effectiveness in Inventory, logistics & final goods, business planning with anticipation of new tax structure with competition, fastest implementation & transition to GST, Procurement and purchase orders implementation, invoicing patterns, proper implementation of GST transition in input stage credit, tax management versus business operations, various misc provisions, etc.

One has to take all steps to ensure that no dispute arises during transition and thereafter. If precautions and safeguards are not taken, well in time, during the pre and post implementation period of GST regime, then the possibility of litigation, due to ignorance and/ or non implementation, cannot be ruled out.

It is expected that GST would add to GDP of the country by about 2 percent. It is hoped that to get GST rolling by April, 2017, Union Government and all State Governments will have to work hard and act fast to have GST in place by this date. The target is ambitious but achievable. Let's hope that collective wisdom of all members of Parliament (including the opposition) and the legislative assemblies shall prevail to allow the GST to see the light of the day.

Discussions to this article

[Ganeshan Kalyani]

Sir, very very nice article. The event of tax development is really appreciable. Yes of course the suggestion / concern shared by you is really useful. Industries should gear up to their spirit now. Thanks.