Constitutional Amendments for Goods and Services Tax in India

India's Constitution previously outlined separate taxation powers for the Central and State governments through the Union and State Lists. To implement the Goods and Services Tax (GST), which required concurrent taxing authority for both the Centre and States, a constitutional amendment was essential to ensure consistent legislation across all jurisdictions.

The Constitution (101st Amendment) Act of 2016

This Act modified, added, and removed specific articles of the Constitution to facilitate the proper implementation of GST. These changes addressed several key areas:

• Defining legislative and taxing powers for GST.
• Establishing the scope and application of GST laws.
• Determining how GST revenues would be shared between the Central and State governments.
• Outlining the formation, authority, and responsibilities of the GST Council.
• Phasing out previous taxes to introduce GST.
• Specifying methods for compensating states for revenue losses incurred due to GST implementation.

Article 246A: Special Provisions for Goods and Services Tax

This new article empowers both the Parliament and individual State/Union Territory Legislatures to enact GST laws for taxes they impose. Crucially, the Indian Parliament holds exclusive authority to legislate on inter-state supplies, specifically through the Integrated Goods and Services Tax (IGST) Act. Additionally, certain products are temporarily exempt from GST until the GST Council recommends their inclusion:

• Petroleum crude
• High-speed diesel
• Motor spirit
• Natural gas
• Aviation turbine fuel

Article 269A: Inter-State GST Levy and Collection

While Article 246A grants Parliament exclusive power over inter-state supply laws, Article 269A addresses the revenue sharing mechanism for these supplies between the Central and State governments. It authorizes the GST Council to formulate rules for this distribution. Imports of goods or services are also categorized as inter-state supplies, enabling the Central Government to impose IGST on these transactions. Previously, goods imports were subject to Countervailing Duty (CVD). The IGST framework now allows taxpayers to claim input tax credit for IGST paid on imports throughout the supply chain, a benefit not available under the former system.

Article 279A: Establishing the GST Council

This article empowers the President to establish the GST Council, a collaborative body comprising representatives from both the Central and State governments. The GST Council serves as the primary committee responsible for proposing, harmonizing, or adopting any laws or regulations pertaining to the Goods and Services Tax in India.

Article 286: Constraints on Tax Imposition Powers

This pre-existing article previously limited states from enacting laws to collect taxes on the sale or purchase of goods outside their borders or on import transactions. It was subsequently amended to extend these restrictions to services as well. Additionally, the term "supply" has superseded "sale or purchase" within this article.

Article 366: Incorporating Key Definitions

Article 366, an existing constitutional provision, was modified to incorporate these new definitions:

• Goods and Services Tax refers to a tax imposed on the supply of goods, services, or both. Notably, the supply of alcoholic beverages intended for human consumption is explicitly excluded from GST's scope.
• Services encompass everything apart from goods.
• The term "State" also includes a Union Territory that possesses its own legislature.

State Compensation Under GST

The Act also includes a mechanism to compensate states for any revenue shortfalls resulting from GST implementation. This compensation provision was valid for a period of five years, leading to the enactment of the Goods and Services Tax (Compensation to States) Act, 2017.

Overview of the Seventh Schedule

The Seventh Schedule, linked to Article 246, enumerates three distinct lists that outline the legislative domains of both the Union and State Governments.

List – I: Union List

This list specifies subjects where the Parliament (Central Government) holds exclusive authority to enact laws.

List – II: State List

This list details subjects where state governments possess the sole power to legislate.

List – III: Concurrent List

This list covers subjects where both Central and State Governments can legislate. Amendments to relevant entries in this list were made to enable:

• The continuation of Central excise duty on the manufacturing or production of five specific petroleum products: petroleum crude, high-speed diesel, motor spirit, natural gas, and aviation turbine fuel. Additionally, excise duty is still imposed on tobacco and tobacco products, making them subject to both excise duty and GST.
• Granting states the authority to levy taxes on these five petroleum products.
• The abolition of entertainment tax, except when levied by local governmental bodies.