Contrary to the provisions enacted in clause (1) of Article 266, the provisions inserted as Article 269A by the Constitution (101st Amendment) Act,2016 stipulate that some amounts which accrue as revenues to the Union as GST levied on inter-state supplies or as revenues to a State as GST levied on intra-state supplies would not form part of the respective Consolidated Fund. Such amounts being tax revenues cannot also form part of public accounts referred to in clause (2) of Article 266. Accountability of GST authorities for allowing prompt input GST credits to those who are eligible so as to avoid cascading, and for denying multiple/ineligible claims for input GST credits, would therefore have to be in accordance with law other than law referred to in Articles 266 and 283 which relate to the Consolidated Funds and public accounts. We examine how such law relating to levy of taxes on the one hand and assignment of tax revenues to the Union and the States on the other may be made according to the Constitution.
Goods and services tax (GST) regimes may come into being in accordance with Articles 246A and 269A in lieu of many central and state indirect taxes which may cease to be levied. Those Articles have been inserted in the Constitution vide the Constitution (101st Amendment) Act,2016. The new GST regimes would rely for purposes of levy, on the legal classification of whatever have been referred to in the amended Constitution as ‘”supplies” of goods or services or both’ as supplies “in the course of inter-state trade or commerce”, and other (including “intra-state”) supplies.
In interpreting the provisions of the amended Constitution, Goods and Services Tax Council (GST Council) constituted by the President by invoking Article 279A, taxable entities, tax authorities and the Courts would have to construe the term “supply”. They would interpret it to imply either transfer of property rights in goods from a “supplier” to a “recipient” or movement of goods from one “place of business” to another without any transfer of property rights or acquisition by a “recipient” of the contractual rights to the supply of services to be made by a “supplier” by the deployment of the assets (including human resources) of such supplier. This would be practical because the actual and potential market-participants would, as observed by Ronald Dworkin, tend to “take (their) rights seriously” when it has not been possible for the law-makers serving the Union and every State to collectively decide to enact in the Constitution a formal definition of the term “supply”. Most importantly, only a provision in the Constitution defining “supply” would provide guidance to the GST Council in its deliberations.
The enactment of the Constitution (101st Amendment) Act, 2016 was preceded by the introduction of the Constitution (122nd Amendment) Bill, 2014 after the President made his recommendations as stipulated in Article 274 of the Constitution after having been informed of the subject matter (“Levy of GST on transactions involving “supply” of goods and services“) of the proposed Bill. This was because in addition to the States having to yield political space to levy some taxes to the Union, the levy of some central taxes (not including central sales tax) in which the States are “interested” was intended to be discontinued. Since he is presumed to have acted in his judgment in accordance with the Constitution it is evident that the President, being a public authority embedded in ‘the State’ vide Articles 12 and 36, acted to serve the interests of the People (a k a “public interests“). He would have done so by applying the principles which lay down every broad principle which would serve the public interests as enacted by the People in Part IV of the Constitution and stipulated by them in Article 37 for compliance as under:
“The provisions contained in this Part (i.e., Part IV) shall not be enforceable by any court, but the principles (i.e., Directive Principles of State Policy) therein laid down are nevertheless fundamental in the governance of the country and it shall be the duty of the State to apply these principles in making laws.” (Matter in italics in brackets added for ready information)
Article 274 of the Constitution does not provide that the President may recommend the introduction of such Bill by ignoring the requirements of Article 37 and by offering to provide “compensation” on behalf of the Union to any State, if in consequence of the Bill becoming law the amount of tax (e.g., central sales tax) revenues which would have accrued to the State but for such law would diminish. By applying the principles referred to in Article 37 the President could not do any wrong since he would be acting only according to the Constitution. We cannot assume that as long as he justifies his constitutional act by offering restitution to the supposed “victims” of possible wrong among the Entities embedded in ‘the State’, he may go ahead and act by applying extraneous principles, such as “compensation”, not referred to in Article 37. We cannot but note that no entity embedded vide Article 36 in ‘the State’ (such as the Government of a State or the Government of India) has any vested right to revenues accruing as taxes at unchangeable rates indefinitely. Every such Entity has only a constitutional “duty” to ensure that ‘the State’ efficiently discharges its duty to serve the People as stipulated in Article 37. Each such Entity has only such property, legal and contractual rights to help perform such duty. ‘The State’ after all is a creature of the People who have stipulated that the fundamental rights of every individual secured by the provisions enacted in Part III of the Constitution so as to ensure his/her dignity in the national life are not jeopardized by the actions of ‘the State’.
It is therefore not surprising to note that the term “compensation” cannot be found referred to formally in any provision of the amended Constitution even after section 18 of the Constitution (101st Amendment) Act,2016, which provides as follows, commenced:-
“Parliament shall, by law, on the recommendation of the Goods and Services Tax Council, provide 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”
The provisions enacted in sub-clause (h) of clause (4) of Article 279A as inserted in the Constitution ought to be interpreted by resort to the principle of noscitur-a-sociis. If so interpreted, it is evident that “compensation” is not one of the matters on which the GST Council is empowered to make recommendations. The Constitution implies that no entity embedded in ‘the State’ would commit a wrong against another entity which is also embedded in ‘the State’. At any rate central sales tax revenues are unrelated to section 18 extracted above.
The GST Council, as and when constituted, would also be an authority embedded in ‘the State’. It would be duty-bound to apply the principles stipulated in Article 37 so as to serve the public interests even if one of the consequences of its recommendations would imply diminution of tax revenues to the Union or to any State in transiting to the post-101st Amendment regimes of goods and services taxes. Ideally, the recommendations of the GST Council ought to avoid any rigid rule of the road to restrain the Union and every State to their respective “GST rate lanes” which, once drawn, would be impossible to be redrawn in future. They ought to lead to a “just” social order based on fair rules of the game (“dharma”) for the entities embedded respectively in the institutions of ‘the State’, ‘the Bureaucracy’, ‘the Market’ and ‘the Society’. The rules of the game ought to enable them to function harmoniously as institutions of national life and to play their respective roles as stipulated in clause (1) of Article 38 as under:
“The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life.”(italics added for emphasis)
This would lead to ease of doing business based on a fair choice architecture for the actual and potential market-participants. They would then be able to source goods and/or services needed by them world-wide sans undue participation constraints. Most importantly, the stipulation relating to national life in Article 38 cannot but imply public life in which the integrity of national income and the wealth of the nation are secure and remain protected in the economy which, being integrated with the world, has been “open” after four decades of the Republic.
It is inevitable that the term “supply” would have to be defined in law so as to ensure compliance with Articles 246A, 269A and the amended Article 286. Such law may be enacted by Parliament by assuming authority for itself after the commencement of the Constitution (101st Amendment) Act, 2016 which has been enacted by collective action taken by Parliament and the State Legislatures as stipulated in Article 368. The term “supply” is not defined in the amended Constitution even with reference to a law which is, or may be, made by Parliament, say in the manner “agricultural income” is defined in Article 366. Since every State has legislative competence under Article 246A notwithstanding anything in Articles 246 and 254, restraint on the legislative competence of any State Legislature to define “supply” (for levy of intra-state GST not referred to in clause (2) of Article 246A) as it deems appropriate, appears questionable.
Clause (1) of Article 246A empowers the Union as well as every State to levy goods and services taxes on intra-state supplies of goods or services or both. The central goods and services tax levied on intra-state supplies would in view of the amended Article 270 be a “tax or duty in which the States are interested” for purposes of Article 274. It is also for the States to note that Article 274 is not amended by the 101st Amendment Act to provide that the recommendations of the President would be a pre-requisite to introduce any Bill to amend any prior definition of the term “supply” if recommended by the GST Council and collectively acted upon by Parliament and the State Legislatures. Many States ratified the Constitution (122nd Amendment) Bill, 2014 with neither a formal definition of the term “supply” to be inserted in the Constitution nor an amendment to Article 274 to stipulate, similar to the stipulation about the definition of the term “agricultural income”, a Presidential recommendation to introduce any Bill to amend any prior definition of the term “supply” which may be provided in a law made by Parliament.
Neither the Statement of Objects and Reasons in support of the Constitution (115th Amendment) Bill, 2011 nor such Statement in support of the Constitution (122nd Amendment) Bill, 2014 referred to the deliberations of the Government of India with the Empowered Committee of State Finance Ministers (ECSFM). The ECSFM has been established by the Government to study the best practices in similar regimes in force in other countries and to enable the Government of India and the State Governments to arrive at a collective decision on the best practices applicable to the system of governance in India. It is evident from the First (and only) Discussion Paper brought out by the ECSFM that no option other than the option based partially on a suggestion relating to “Viable Integrated Value-Added Tax” was considered by the ECSFM and the Government of India. That suggestion was made in 1996 by Michael Keen and Stephen Smith in “The Future of the Value-Added Tax in the European Union” (Economic Policy Vol 23, pp375-471 and 419-420). The instrument was christened “Integrated GST” by the ECSFM and was even referred to as such in the 122nd Amendment Bill, 2014.
Presumably since it was problematic to define it formally in the Constitution, the reference to “Integrated GST” was omitted in the Constitution (101st Amendment) Act, 2016 which was eventually enacted without any formal term to refer to the central inter-state GST leviable under clause (2) of Article 246A. The Statements of Objects and Reasons in support of the Constitution(115th Amendment) Bill, 2011 and the Constitution (122nd Amendment) Bill, 2014 no doubt omit to credit the ECSFM with any role in making possible a collective decision about the GST regimes, The First Discussion Paper of the ECSFM is also not transparent as to the logic leading to the choice of the instrument of integrated GST to be levied on inter-state supplies and the reasons for the rejection of possible alternatives. The relevant paragraph on pages 21 and 22 of the Discussion Paper reads as under:
“The Empowered Committee has accepted the recommendations of the Working Group of concerned officials of Central and State Governments for adoption of IGST model for taxation of inter-State transaction of Goods and Services. The scope of IGST Model is that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. The relevant information will also be submitted to the Central Agency which will act as a clearing house mechanism, verify the claims and inform the respective governments to transfer the funds.” (Italics added)
Elsewhere on page 38 it is clarified by the ECSFM that-
“Cross utilisation of ITC (input tax credit) between the Central GST and the State GST would, in general, not be allowed.” (matter in italics in brackets added)
The ECSFM continued to study the practices obtaining in similar regimes in other countries much after the choice of the bureaucrats referred to in the first of the Discussion Papers was accepted by non-bureaucratic members on behalf of the lawmakers serving the States in 2009 and very much after the constitution amendments were under way. We may therefore assume that the ECSFM and the Government of India which facilitated the study of best practices in the world, are open to other options also. But if any such option has been put forward by the ECSFM to the Government of India, it is not in the public realm by way of a subsequent “Discussion Paper” or otherwise.
On the other hand the word “used” which occurs in italics in two places in the above paragraph of the First Discussion Paper of the ECSFM may be found incorporated in addition to the amended Article 270 referred to below, somehow in clauses (3) and (4) of Article 269A, which reads as under:
“269A. (1) Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India 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 the Goods and Services Tax Council.
Explanation.—For the purposes of this clause, supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce.
(2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India.
(3) Where an amount collected as tax levied under clause (1) has been used for payment of the tax levied by a State under article 246A, such amount shall not form part of the Consolidated Fund of India.
(4) Where an amount collected as tax levied by a State under article 246A has been used for payment of the tax levied under clause (1), such amount shall not form part of the Consolidated Fund of the State.
(5) Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.’’.(Italics added)
For some reason, the word “assigned” (which has relevance in complying with Article 266) has been omitted in clauses (2) and (3) in Article 269A- and relates only to the annual “net proceeds” in Article 270- and the word “used” has been inserted in clauses (3) and (4) above without there being any other provision in the Constitution as amended by the 101st Amendment Act which may refer to conferment of legislative competence on Parliament and State Legislatures to make any law envisaging such “use” by taxable entities in paying taxes levied under clauses (1) and (2) of Article 246A.
Owing to the constitutional requirement of compliance with Article 252 or to any other unstated reason, the lawmakers serving the Union and the States have been unable to enact in the Constitution (101st Amendment) Act,2016 a definition of the term “integrated goods and services tax” used in the 122nd Amendment Bill, 2014 consistent with the First Discussion paper of the ECSFM referred to above in a provision which might have read as follows:-
“integrated goods and services tax” means the goods and services tax levied by the Union under clause (2) of Article 246A on the value of every supply of goods or services or both in the course of inter-state trade or commerce at an ad valorem rate, such rate being the sum of the ad valorem rate specified under clause (1) of Article 246A of the central goods and services tax and such ad valorem rate of state goods and services tax as specified under that clause by law in accordance with the recommendations of the Goods and Services Tax Council as the rate of state goods and services tax to be applicable in common in every State.”
Similarly, it has also not been possible for the lawmakers serving the Union and the States to enact provisions of Article 246A which envisage the “use” referred to in Article 269A and the amended Article 270 and which might have read as follows so as to provide for the role to be played by the new instrument designated “integrated goods and services tax” in the paragraph of the First Discussion Paper of the ECSFM referred to above:-
“246A. (1) Notwithstanding anything contained in articles 246 and 254,Parliament, and, subject to clauses (2) and (3), 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.
(2) Subject to clause (3), 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.
(3) The taxes leviable in accordance with clauses (1) and (2) shall be levied at the rates of the levy to be specified on ad valorem basis; and in paying the tax due to a State in accordance with any law referred to in clauses (1), the law shall provide that such amount as has been apportioned to a State in accordance with Article 269A may also be used; and in paying the tax due to the Union in accordance with the law referred to in clause (2) in any State, the law shall provide that such amount if any as has been paid as tax to the State in accordance with clause (1) may also be used.
Explanation.—The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council.”
All that Article 270 of the Constitution as amended by the 101st Amendment Act,2016 provides is as under:-
“(1) All taxes and duties referred to in the Union List, except the duties and taxes referred to in articles268, 269 and 269A, respectively, surcharge on taxes and duties referred to in article 271 and any cess levied for specific purposes under any law made by Parliament shall be levied and collected by the Government of India and shall be distributed between the Union and the States in the manner provided in clause (2).
(1A) The tax collected by the Union under clause (1) of article 246A shall also be distributed between the Union and the States in the manner provided in clause (2).
(1B) The tax levied and collected by the Union under clause (2) of article246A and article 269A, which has been used for payment of the tax levied by the Union under clause (1) of article 246A, and the amount apportioned to the Union under clause (1) of article 269A, shall also be distributed between the Union and the States in the manner provided in clause (2).
(2) Such percentage, as may be prescribed, of the net proceeds of any such tax or duty in any financial year shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax or duty is leviable in that year, and shall be distributed among those States in such manner and from such time as may be prescribed in the manner provided in clause (3).
(3) In this article, “prescribed” means,—
(i) until a Finance Commission has been constituted, prescribed by the President by order, and
(ii) after a Finance Commission has been constituted, prescribed by the President by order after considering the recommendations of the Finance Commission.”
The annual “distribution” among the States of a part (i.e., net proceeds) of the revenues of the Union after considering the recommendations of the Finance Commission would again be contingent on the “use” referred to in clause (1B) of Article 270. No law providing for such use is referred to in the Constitution as amended by the 101st Amendment Act,2016. No provision to confer legislative competence to enact such law on Parliament or State Legislatures is available in the Constitution as amended by the 101st Amendment Act,2016.
For a meaningful governance of the potentially eligible and other claims for input GST credits, “apportionment” of the moneys paid by way of inter-state GST to the Union has to be inter-state-transaction-specific and “apportionment” of such moneys to a State has to be “destination”-tax-payer-specific and “assignment” of central inter-state GST credit to a State or transfer of state GST credit from a State to the Union have to relate to the set of all such moneys apportioned specifically. No apportionment may merely signify a total annual sum of “net proceeds” distributed without reference to the parties to, and particulars of, the transactions to which such aggregate sum relates. From Article 270,it is evident that the credit in the Consolidated Fund of a given State would be available only after the recommendations of the Finance Commission are made and considered by the President. It is unclear from the amended Constitution as to how it would be possible to allow input GST credits to eligible claimants if the GST authorities would have to wait for the order referred to in clause (2) of Article 270. At any rate Article 270 has no application to “transfer” of credit from the Consolidated Fund of (an “exporting”) State to the Consolidated Fund of India.
The reference to Article 269A in clause (1) of Article 270 omits to note that levy of goods and services tax referred to in Article 269A, unlike the taxes referred to in Articles 268 and 269, is not related to any Entry in the Union List. The Constitution, even after the 101st Amendment, continues to envisage two methods of “assignment” of central tax revenues to the States. One method is to assign, as in clause (2) of Article 269, the gross proceeds of the central tax to the respective States (excluding UTs) by law made by Parliament as and when transactions occur and such taxes accrue in those States. The second is to assign a proportion of the net proceeds of central taxes which accrue totally in the period of a year to the respective States by order of the President after considering the recommendations of the Finance Commission year-wise. In addition to enabling transfer of moneys from the Consolidated Fund of India to the respective Consolidated Funds of the States, the regimes for input GST credit would need the enabling of the transfers of moneys from the respective Consolidated Funds of the States to the Consolidated Fund of India. Goods and services taxes being transaction taxes levied by both the Union and the States, mere assignment of only the net proceeds of the central levies to the States year-wise may not also sustain the requisite regimes of input GST credits which would govern efficient avoidance of “cascading” of the incidence of the goods and service taxes. The Statement of Objects and Reasons in support of the Constitution (122nd Amendment) Bill,2014 primarily justified the constitutional amendment by the need to avoid such cascading.
When year-wise assignment of a “transaction tax” such as central inter-state goods and services tax as envisaged in clause (1B) of Article 270 would not accord with the constitutional scheme of assignment of the gross proceeds of transaction taxes to the States, levy of cess thereon as provided in clause (1) of Article 270 cannot arise. On the other hand, it has been provided in the amended Article 271 that no sur-charge on GST would be leviable. Neither levy of cess as referred to in clause (1) of Article 270 nor levy of sur-charge as referred to in Article 271 can therefore be taken as enabled to be added to central inter-state GST according to the constitutional scheme of assignment to the States in the amended Constitution.
The insertion of the clauses (2), (3) and (4) of Article 269A and clause (1B) of Article 270 as enacted in September 2016 in the Constitution (101st Amendment) Act,2016 relate to a new term “use” which is referred to therein. That term was not employed in drafting the Constitution (122nd Amendment) Bill, 2014 which was introduced in December 2014 with the prior recommendation of the President. The reference to the term “use” in those clauses significantly modifies the original collective plan of lawmaking by the Union and the States on which the recommendation of the President had been sought in compliance with Article 274.
In the Constitution we have after the 101st Amendment a new concept termed “apportionment” in addition to “distribution” and “assignment”. Article 266 does not recognize apportionment. If an amount such as is referred to in clause (3) of Article 269A is collected as tax levied under clause (1) of that Article by the Government of India, the same would form part of the Consolidated Fund of India as stipulated in clause (1) of Article 266 unless it is assigned to a State after “apportionment”. Unless such amount is thus accounted for with reference to specific particulars of transactions which are eligible for the relief of input GST credit in the Consolidated Fund of the State in question after such assignment, how can the State provide in the law for the levy of state GST made by it under Article 246A to make such credit of inter-state GST available to a taxable entity to be used in paying the state GST due from that entity and ensure such credit? The transaction-wise “apportionment” of inter-state GST in full to a State cannot be the same as the year-wise assignment of ‘net’ amount so apportioned.
The following is an example of such a provision for the assignment of a central tax (viz., central sales tax) on inter-state sales transactions in clause (2) of Article 269:
“The net proceeds in any financial year of any such tax, except in so far as those proceeds represent proceeds attributable to Union territories, shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax is leviable in that year, and shall be distributed among those States in accordance with such principles of distribution as may be formulated by Parliament by law.” (italics added for emphasis)
The following provisions enacted as subsection (3) of section 9 of the Central Sales Tax Act, 1956 acquire constitutional validity in view of the provisions enacted in clause (2) of Article 269:
“The proceeds in any financial year of any tax, including any interest or penalty, levied and collected under this Act in any State (other than a Union Territory) on behalf of the Government of India shall be assigned to that State and shall be retained by it; and the proceeds attributable to Union Territories shall form part of the Consolidated Fund of India”.
If the law to be enacted by Parliament under clause (5) of Article 269A were to provide credit in the Consolidated Fund of a “destination” State for an amount apportioned under clause (1) of that Article, it would accord with the constitutional scheme of assignment of central tax revenues to the States only if a provision similar to clause (2) of Article 269 is enacted in the Constitution.
The provision in clause (4) of Article 269A is however more problematic. If an amount has been collected as state GST levied under clause (1) of Article 246A, the same would form part of the Consolidated Fund of the State concerned as stipulated in clause (1) of Article 266. There is no provision in the Constitution even after the commencement of the 101st Amendment Act, for any the assignment of that amount to the Union for credit to the Consolidated Fund of India after “apportionment”. Unless such amount can be credited to the Consolidated Fund of India, how can Parliament provide and ensure that such credit may be used in paying the inter-state GST due in the State in question?
It is possible that law may be made to provide for a “clearing house” as suggested in the First Discussion paper of the ECSFM. It is possible that such clearing house may or may not be the Reserve Bank of India which keeps the accounts of the Consolidated Funds. As and when it comes into being it would also have to be a public authority embedded in ‘the State’ since it would handle information from taxable entities furnished privately and confidentially; and ensure that multiple input credits in respect of the same transaction are strictly avoided. The law may empower the clearing house to traverse the governance space between “assignment” of GST revenues from one Consolidated Fund to another and “apportionment”-
(a) of specific credits to the Consolidated Fund of India on account of payment/collection/recovery of IGST into amounts of money which may be “used” by specific taxable entities in paying IGST or CGST due on transactions of “supply” made by every such entity and amounts of money which may be used by specific taxable entities in paying the applicable SGST due on transactions of supply made by every such entity ; and
(b) of specific credits to the Consolidated Fund of every State on account of payment/collection/recovery of the applicable SGST into amounts of money which may be “used” by specific taxable entities in paying IGST due on transactions of supply made by every such entity and amounts of money which may be “used” by specific entities in paying the applicable SGST due on transactions of supply made by every such entity.
The clearing house, whether it is Reserve Bank of India or not, would have to be formally established in law to be enacted by the Parliament with authority from every State Legislature. The Constitution would have to provide for the requisite legislative competence to the Parliament with authority from every State Legislature. When established the clearing house would be a public authority embedded in ‘the State’ responsible to ensure accurate assessments by primary and post-primary GST authorities of goods and services taxes due and payable without any jeopardy to the confidential disclosure of information by taxable entities.
After the failure of the first attempt in 2003 to enable the Union and the States to levy service taxes concurrently, the Republic is at the threshold of its second attempt at enabling the Union and the States to levy taxes designated as “goods and services taxes” concurrently within every State. The legal classification of transactions as “intra-state” and “inter-state” – which enabled the Union to comply with the requirement of optimal allocation of resources for the common good as stipulated in Article 39 through the instrument of central planning since 1956- is somehow being continued even after central planning has been discontinued. While uniformity in the rates of levy applicable in common in every State is being aimed at, no common procedure for the compliance with, and for well-coordinated administration of, the central and state GST statutes (similar to “criminal procedure” or “civil procedure” listed in the Concurrent List) is in the anvil since the Concurrent List is not amended by the 101st Amendment.
Vide Article 245 of the Constitution, lawmaking by Parliament and the Legislature of any State would have to be subject to the provisions of the Constitution. The provisions enacted in clauses (3) and (4) of Article 269A contemplate the use of some amounts collected as revenues accruing to the Union and the States as goods and services tax. For purposes of accountability the amounts so collected are declared in clause (1) of Article 266 as forming part of either the Consolidated Fund of India or the Consolidated Fund of a State. They are not amounts which may be accounted for in the public accounts referred to in clause (2) of Article 266 since they represent “revenues” creditable to the respective Consolidated Fund. In fact the law would have to require every taxpayer owing ICST/CGST/ any applicable SGST to pay the sums owed into the respective Consolidated Fund before furnishing periodical returns. If according to Articles 246A and 269A such amounts are not to form part of the respective Consolidated Fund, the law relating to appropriation of moneys from and the law relating to the custody and accounting of the moneys in the Consolidated Funds and referred to respectively in Articles 266 and 283, would not apply. Laws similar to the law referred to in clause (2) of Article 269 may have to be enacted by Parliament with authority from every State Legislature, since the input GST credit would be concurrent. The Constitution may have to provide the requisite legislative competences to them to do so and to link “assignment” of the revenues accruing by way of levy of IGST on inter-state supplies and of levy of SGSTs on intra-state supplies and “apportionment” of specific portions of those revenues with well-defined particulars linking eligible taxable entities and well-identified transactions from one Consolidated Fund to another. The word “transfer” used by the ECSFM in their First Discussion Paper is just an informal term for “assignment” without which accountability to the Constitution in compliance of Article 266 would not be possible.
Governance of input GST credits to assess accurately the amounts of GST payable out of the amounts of GST due from every supplier who ultimately collects such amounts as part of the prices payable by domestic consumers is but one relatively insignificant aspect of the governance of the modes of levy of direct and indirect taxes without any detriment to the national income in the economy. It is useful to recall the portrayal by RAMusgrave, an authority in public finance, and conceive of an economy as consisting of the flow of the values of goods and services in one direction and the complementary flow of incomes in the reverse direction. If so conceived it would be evident that the journey to protect the national income from possible detriments would be long and would call for coordination in the governance –
(a) of the levy of direct taxes on agricultural and other incomes generated by entities engaged in businesses and professions and of the levy of GST; and
(b) of the conditions stipulated in law for the entitlement to input GST credits of such entities (e.g., exporters) which may claim levy of indirect taxes at zero or other rates less than the effective CGST and SGST rates acceptable to responsible lawmakers.
The journey of long distance has to start with a single step. Ideally the route ought to take the traveler through territories where the local consumers pay taxes which replace the long-standing octroi levies and provide the local bodies revenues to discharge their duties. We are conditioned by the non-choice of an instrument simpler than the “integrated goods and services tax” and by the non-avoidance of the legal distinction (of 1956 vintage) of supplies as inter-state and intra-state in spite of the simple and obvious fact that (non-retail) supplies to non-consumers would contribute no net revenues to the Union and the States in view of input GST credits. Being so conditioned, the inevitable first step would have to be to further amend the Constitution–
(i) to define the word “supply” therein and if Parliament has to assume a role in that definition to include or exclude any transaction from the scope of the word, to provide for a role for the President in Article 274;and
(ii) to provide for transfers of moneys through assignment from one Consolidated Fund to another through the medium of Reserve Bank of India or other public authority.
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