The Constitution is the foundation and source to legislate all laws in India. All laws are subordinate to the Indian Constitution because the constitution is the supreme law of the land. The Constitution acknowledges the significance of taxes as a way for the government to raise money and fund its expenditures. It seeks to guarantee a just and equitable tax structure that protects citizens’ rights and interests while fostering social welfare and economic progress. It is important to note that taxation laws are complex and subject to amendments by the legislature and interpretations by the judiciary. In this article, we shall discuss very important amendment in the Constitution i.e., 101st Constitutional Amendment Act

Article 246 of the Constitution of India:

Article 246 of the Indian Constitution, distributes legislative powers including taxation, between the Parliament of India and the State Legislatures; Schedule VII enumerates the subject matters on which the Parliament and State Legislature have the powers to make laws in three lists:

• List I (Union List): It lists subjects on which only the Parliament has the exclusive powers to make laws
• List II (State List): It lists subjects on which only the State Legislatures has the exclusive powers to make laws
• List III (Concurrent list): It lists subjects on which both the Parliament and the State Legislatures are competent to make laws.

Residual powers lie with the Parliament. It means if the subject is not mentioned in these three lists, then only the Parliament has power to make laws on that subject.

The 101st Constitutional Amendment Act paved the way for the introduction of the Goods and Services Tax (GST) in India, replacing a plethora of central and state taxes, thereby aiming to create a unified tax regime. It is instrumental in reflecting the accommodative spirit of Indian federalism, fostering cooperation and consensus between the central and state governments.

Significance of the 101st Constitutional Amendment Act:

The 101st Constitutional Amendment Act of 2016 holds significant importance in the context of India’s taxation system, as it introduced the Goods and Services Tax (GST), which was one of the most significant tax reforms in the country’s history. The Amendment Act laid the foundation for the implementation of GST, which sought to simplify and streamline the indirect tax structure across India. Here’s a detailed look at its significance:

Introduction of Goods and Services Tax (GST)

• Unified Tax System: The 101st Amendment created the legal framework for the introduction of GST, a single tax system that replaced multiple indirect taxes, such as sales tax, VAT, excise duty, service tax, and customs duties, with one unified tax.
• Comprehensive Indirect Tax Reform: GST aimed to eliminate the cascading effect of taxes (tax on tax), where goods and services were taxed at each stage of the supply chain, leading to a reduction in the overall tax burden on consumers.

Simplification of the Tax Structure

• Single Tax on Goods and Services: Before GST, India had a complex tax structure with both state and central taxes, often leading to confusion and administrative hurdles. The 101st Amendment brought uniformity by merging various taxes into a single tax system.
• Transparency and Ease of Doing Business: The simplified tax structure and the introduction of online tax filing and compliance systems aimed to reduce tax evasion and corruption. It made doing business in India easier and more transparent.

Enhanced Federal Structure

• Dual GST System: The Amendment introduced a dual GST model, where GST is levied by both the central government (CGST) and state governments (SGST). This ensures that both levels of government receive a share of the tax revenue, respecting the federal structure of India.
• Increased Revenue for States: Under GST, states receive a share of the tax revenue based on consumption rather than production, which helps reduce disparities between states and ensures a more balanced distribution of resources.

Economic Growth and Efficiency

• Boost to the Indian Economy: By eliminating inter-state barriers to trade and reducing the complexity of multiple taxes, the implementation of GST under the 101st Amendment was expected to improve the efficiency of the economy, reduce costs, and stimulate trade across state boundaries.
• Creation of a Common National Market: The harmonization of tax laws created a common national market, which allows goods and services to move seamlessly across the country without the burden of multiple taxes at each checkpoint.

Empowering the GST Council

• GST Council: The 101st Amendment also established the GST Council, a body responsible for deciding tax rates, exemption lists, and other important matters related to GST. This body includes the Union Finance Minister and the Finance Ministers of all the states, ensuring collaborative decision-making in the implementation and management of GST.
• Flexibility in Taxation: The GST Council’s decisions allow for flexibility in tax rates and exemptions, which can be adjusted based on the needs of the economy and states.

Constitutional and Legislative Changes

• Article 246A: The 101st Amendment inserted Article 246A into the Indian Constitution, granting both the Central and State legislatures the power to make laws on GST.
• Goods and Services Tax Act: The Amendment also paved the way for the passage of the Goods and Services Tax Act, which laid down the specifics of the implementation of GST.
• Compensation to States: The Amendment provided for a compensation mechanism to states, ensuring that they do not lose revenue due to the transition to GST. States would receive compensation for any loss in revenue for a specified period.

Standardization of Tax Rates

• Harmonization of Tax Rates: The Amendment allowed for the creation of a uniform tax rate on goods and services, reducing complexity for businesses, especially those operating in multiple states. It also provided for the standardization of the tax base and tax rates across the country.

Addressing the Issue of Tax Evasion

• Increased Compliance: The introduction of GST under the 101st Amendment is expected to reduce tax evasion, as businesses are required to file regular returns and comply with a centralized and digitized system. It also helps to create a paper trail for transactions, making it easier to track tax payments.

The 101st Constitutional Amendment Act of 2016 was a landmark reform in India’s tax system, providing a strong foundation for the implementation of GST. Its significance lies in transforming India’s indirect tax regime, creating a unified tax system that promotes efficiency, reduces tax evasion, and fosters economic growth. By empowering both the central and state governments, simplifying tax structures, and promoting ease of doing business, it was a step forward in strengthening India’s fiscal framework and encouraging a more cohesive national economy.

Accommodative Spirit of Federalism

The 101st Constitutional Amendment Act of 2016, which introduced the Goods and Services Tax (GST) in India, exemplifies the accommodative spirit of federalism by carefully balancing the powers and responsibilities of both the central and state governments in the tax framework. This balance is crucial in maintaining the federal structure of India, where both levels of government have certain exclusive powers but also share certain responsibilities.

Here’s how the 101st Constitutional Amendment reflects an accommodative spirit of federalism:

Dual GST System:

The dual GST structure is central to the accommodative spirit of federalism. Under this system, both the central government (CGST) and state governments (SGST) have the authority to levy and collect taxes on goods and services, which ensures that both levels of government are part of the taxation process. GST was designed as a shared tax system where the central government and state governments jointly levy taxes on the same base. The introduction of CGST and SGST recognizes the fiscal autonomy of states while maintaining the national unity of the tax system.

Constitutional Empowerment of States

The 101st Amendment inserted Article 246A into the Indian Constitution, which grants both the Central and State legislatures the power to make laws regarding GST. This ensures that states have the constitutional authority to legislate on matters related to the tax system, acknowledging their importance in the governance and economic framework of the country. It also empowers states to impose taxes and levy charges on goods and services, giving them significant autonomy in fiscal matters while ensuring cooperation with the central government.

GST Council – A Collaborative Decision-Making Body

The GST Council was created by the 101st Amendment to act as the key decision-making body for GST-related matters. It comprises the Union Finance Minister, who is the chairperson, and the Finance Ministers of all states and union territories. The council plays a vital role in determining tax rates, exemption lists, and the tax base, thus ensuring that both central and state governments have an equal say in decisions regarding the tax system. This collaborative body represents the spirit of cooperative federalism, allowing states and the central government to work together to ensure a fair and effective tax system that accommodates the interests of both levels of government.

Compensation to States

One of the most significant provisions of the 101st Amendment is the compensation mechanism for states. Recognizing that GST could potentially lead to revenue losses for states during the initial years of implementation, the Amendment introduced a Compensation Fund. The central government is responsible for compensating states for any revenue loss due to the introduction of GST for a period of up to five years. This ensures that states do not face financial difficulties during the transition to a unified tax system. This provision highlights the central government’s commitment to maintaining fiscal stability for states and promoting economic equity across regions.

Autonomy in Taxation for States

While GST is a unified tax system, states still have autonomy in setting tax rates for specific goods and services within the framework set by the GST Council. States have the flexibility to set exemption lists for certain items, such as food and essential goods, which enables them to meet local economic conditions and needs. This ensures that the states have the freedom to exercise control over certain taxation matters, thus reinforcing the principle of decentralization within India’s federal system.

Harmonization of Tax Policies

The 101st Amendment ensures that the country operates as a common national market by harmonizing tax policies and reducing inter-state barriers to trade. This is essential for economic integration while still respecting the federal nature of India. States are not stripped of their tax rights but instead are given a framework within which they can operate effectively while contributing to the national economy.

States’ Role in Governance of GST

Through the GST Council, states actively participate in the governance and administration of the GST system. They are involved in decisions related to tax rates, exemptions, and the dispute resolution mechanism. The Council is a unique example of cooperative federalism where the central and state governments jointly make critical decisions about the tax system, which ensures inclusivity and mutual respect between the levels of government.

The 101st Constitutional Amendment Act fosters an accommodative spirit of federalism by ensuring that the central government and state governments share powers and responsibilities in the implementation of GST. The dual GST system, the creation of the GST Council, the compensation mechanism for states, and the constitutional empowerment of states reflect the commitment to maintaining a cooperative relationship between the two levels of government while recognizing their fiscal autonomy. This collaborative approach enables India to have a unified tax system that is both efficient and equitable, accommodating the diverse economic needs of various states while ensuring national cohesion. The 101st Amendment thus stands as an example of how federalism can work in harmony with economic reforms to foster growth and stability.

Main Provisions under 101st Constitutional Amendment Act, 2016:

Article 246A – Power to impose GST

According to Article 246 A(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

According to Article 246 A(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 attached to article 246A lays down that 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’. Goods and services mentioned under Article 279(5) are petroleum crude, High Speed Diesel, Motor Spirit (commonly known as petrol), Natural Gas and Aviation Turbine Fuel.

The power to levy Central Excise duty on goods manufactured or produced in India is available in respect of Petroleum crude; High speed diesel; Motor spirit (commonly known as petrol); Natural gas; Aviation turbine fuel; and Tobacco and tobacco products. However, once GST is imposed there will be no duty on manufacture of these goods.

The power to impose tax on sale of the following products is still provided to the State Governments: Petroleum crude; High speed diesel; Motor spirit (commonly known as petrol); Natural gas; Aviation turbine fuel; and Alcoholic liquor for human consumption. However, once GST Council is recommend the date from which GST is imposed on these products (except alcoholic liquor for human consumption), and no sales tax will be imposed on these products.

Levy & collection of GST in the course of inter-State trade or commerce – Article 269A

• 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 territory of India shall be deemed to be supply in the course of inter-State trade or commerce
• Parliament will formulate the principles for determining the place of supply, and when a supply takes place in the course of inter-State trade or commerce.
• The amount apportioned to a State from the tax collected on supplies in the course of inter-state trade or commerce where an amount collected as tax levied in the course of inter-state trade or commerce has been used for payment of the tax levied by a State under article 246A. In other words, where IGST is used for payment of SGST.
• Where an amount collected as tax levied by a State under article 246A has been used for payment of the tax levied under clause inter-state trade or commerce. When SGST is used for payment of IGST.

These clauses will ensure that no separate appropriation will be required from the Parliament to disburse money to the states.

GST Council – Article 279A

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.

Constitution of Council:

• The Union Finance Minister as Chairperson;
• The Union Minister of State in charge of Revenue or Finance;
• The Minister in charge of Finance or Taxation or any other Minister nominated by each State Government.
• Vice Chairperson to be chosen among the members.

GST Council can make recommendations on the following:

• The taxes, cesses and surcharges that may be subsumed;
• The goods and services that may be subjected to or exempted from GST;
• Model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied under Article 269A and the principles that govern the place of supply;
• The threshold limit of turnover below which goods and services may be exempted;
• Rates, floor rates, band, special rates;
• Special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand
• Date on which GST be levied on petroleum crude, HSD, Petrol, natural gas and ATF and
• Any other matter relating to the goods and services tax, as the Council may decide.

Quorum:

One-half of the total number of Members of the Goods and Services Tax Council must be present.

Weightage of votes:

• Central Government – 1/3rd of the total votes cast, and
• State Governments – 2/3rd of the total votes cast.
• Decision by 75% majority

Illustration:

At a meeting of the Council, 24members are present, of which 23 members are from the states and one represents the Centre.

The weightage of votes will work as under:

• Total votes cast 24
• Weightage of centre = 1/3 of 24 = 8 votes
• Weightage of the 23 members of the States taken together = 2/3 of 24 = 16 votes i.e. or (16/23) i.e. 0.6956votes each member.
• Votes required passing a resolution- ¾ of 24 = 18
• Weightage of Central Government -1/3 of 24 = 8
• Votes required from the States 18 – 8 =10
• States required to support to take decision: 10/ 0.6956 = 14.387 or 15. Thus 15 members out of 23 members must support the decision.
• Interestingly in the above case no decision can be taken without the support of the Central Government even if all the states present in above case concur as ¾ majorities will fall short

Dispute resolving Mechanism:

As per the 101st Amendment Act, 2016 of the Constitution GST council shall establish a mechanism to adjudicate any dispute –

• Between Government of India and one or more States, or
• Between Government of India and any States on one side and one or more other states on the other side; or
• Between two or more States, arising out of the recommendations of the council or implementation thereof

Other Important Roles of GST Council:

• The GST Council to be guided by the need for a harmonised structure of goods and services tax and for the development of a harmonised national market for goods and services.
• GST Council to devise mechanisms to adjudicate disputes arising between the Centre and States.
• Parliament shall on the recommendation of the GST Council, provide for compensation to the States for loss of revenue arising on account of implementation of the GST for a period of five years.

Article 286 – Restrictions on the States to Impose Tax:

• Prior to amendment, the clause restricted the states to impose taxes on sale or purchase of goods.
• Now it has been amended to provide that the state shall not impose any tax on the supply of the goods or services or both, where such supply takes place: a) Outside the State or b) In the course of the import of the goods into, or export of the goods out of, the territory of India
• Further, the Parliament will formulate the principals for determining when a supply constitutes a supply as mentioned in the point above.

Consequence of 101st Constitutional Amendment:

As per definition given in article 366(12A), GST covers all the goods except alcoholic liquor for human consumption. It means no GST can be levied on Alcoholic liquor for human consumption. Present system of State Excise duty and sales tax on Alcoholic liquor for human consumption will continue.

As a result, the following bills became an Act on 12th April 2017:

• Central Goods and Services Tax Bill, 2017
• Integrated Goods and Services Tax Bill, 2017
• Union Territory Goods and Services Tax Bill, 2017
• Goods and Services Tax (Compensation to States) Bill, 2017

The Central Government notified 1st July, 2017 as the date from which the much awaited indirect tax reform in India, i.e., Goods and Services Tax (GST) will be implemented. Accordingly, Goods and Services Tax (GST) has been implemented in India w.e.f. 1st July, 2017

Conclusion:

The 101st Constitutional Amendment Act of 2016 marks a historic milestone in India’s tax reform journey, primarily through the introduction of the Goods and Services Tax (GST). This Amendment brought about significant changes to India’s tax system, transforming it into a unified and efficient framework by replacing multiple indirect taxes with a single tax on goods and services. It exemplifies the spirit of cooperative federalism, striking a balance between the central government and state governments in matters of taxation. The 101st Amendment significantly simplifies the tax structure, removes barriers to inter-state trade, promotes a common national market, and enhances transparency in tax collection. It also fosters economic integration and growth, benefiting businesses and consumers alike by reducing tax cascading and compliance costs.

In conclusion, the 101st Constitutional Amendment Act represents a major leap towards modernizing India’s tax system, facilitating better economic governance, and ensuring that both the central and state governments can work together efficiently. It embodies a sustainable model of cooperative federalism, ensuring a fair and balanced approach to taxation while fostering national unity and economic progress.