 "Sujit Ghosh")
The Constitution (122) Amendment Bill enabling the introduction of the goods and services tax (GST) has recently been enacted. It is a landmark reform considering the sweeping changes it brings about in the indirect tax regime in India as well as in distribution of powers between the Centre and states vis-a-vis such taxes. Unfortunately, upon minute review of the amendments read with the provisions of the draft Model GST law, several constitutional issues emerge.
Definition of goods
The first challenge emerges in the form of the definition of 'goods' and 'services' under the Model GST law. Since inception, 'goods' was defined in the Constitution in a broad manner. Judicial decisions have thus far held goods to include intangible property such as off-the-shelf software, trademarks, and the sales tax levied on them. The definition of 'services' has now been added in the Constitution as "anything other than goods". While the Model GST law uses a similar definition for 'services', in a well intentioned move, it has deemed 'services' to include (and 'goods' to exclude) intangibles. While this was probably meant to mitigate tax-litigation/double-taxation on software, the question is when the Constitution has already defined the term 'goods' - which has been interpreted by the Supreme Court to include 'intangibles' - can the draft Model GST law deviate from the definition provided in the Constitution? Clearly, a plenary legislation such as the GST Act, cannot override the meaning ascribed to the words 'goods' in the Constitution and any derogation from such definition will make the plenary legislation ultra vires. Similar issues arise on actionable claims.
Taxing immovable property
That apart, when services are defined (in the Constitution) as anything other than goods, it clearly gives an impression that immovable property can fall within the ambit of services (for it is not goods). Under such a situation, there is a great apprehension, that where the power to levy GST has been conferred on supply of services, technically, the central government can levy GST on supply of land (in all its forms including a sale/transfer thereof) - giving rise to another controversy on legislative propriety qua enactment of laws relating to land.
Dispute resolution
The third challenge is apropos the GST Council, which is expected to be formed no later than November 12, 2016. According to the newly introduced Article 279A (11) of the Constitution, the GST Council shall establish a mechanism to adjudicate disputes between Union and states. At the same time, under our Constitution, any dispute between the Centre and states, or among the states themselves, has to be adjudicated by the Supreme Court of India under Article 131 under its original jurisdiction. Further, the Constitution envisages only two specific scenarios (under Articles 262 and 263) for resolution of disputes by Tribunals other than the Supreme Court. This raises serious concerns about the constitutional ability of the GST Council to adjudicate disputes. As it stands, the GST Council's power to frame dispute adjudication mechanism should be read merely as power to establish procedural conditions and certainly not any power to confer jurisdiction on any forum. To adjudicate such disputes, the adjudicatory power already vests with the SC under Article 131.
Power to levy CST
The fourth challenge emerges from the retention of Entry 92 A of List I (legislative powers of the central government) of the Constitution, which grants the power to levy central sales tax (CST) despite the recent constitutional amendment for GST. Retention of Entry 92A in its entirety essentially leads to the inference that the central government has retained the power to levy CST on all goods even after the coming into force of GST. It is interesting to note that in the recent constitutional amendment for GST, while Entry 84 of List I (which deals with excise duty) and Entry 54 of List II (which deals with sales tax) have been amended to restrict these duties (excise and sales tax) to only six goods, outside the GST purview, no such restriction has been made vis-a-vis Entry 92 A of List I (which deals with the power to levy CST).
In other words, unless the CST Act is abrogated, there is nothing that legally permits assessees from not paying CST in addition to GST, on all interstate sales. Are we, therefore, staring at an unintended dual tax regime on interstate supplies, namely CST and integrated GST?
Tax on declared goods
The fifth challenge can lead to significant surprise for the industry. It pertains to the fact that "declared goods" has had a special status under the Constitution and according to specific drill prescribed under Article 286(3), the state governments were restrained from taxing them at a rate higher than four per cent. This article has, however, been deleted by the 122 constitutional amendment Act, meaning that the states are now free to levy tax on 'declared goods' at any rate as it chooses, which can be as high as the rates applicable to general goods, namely, 12.5 per cent or more. On its own, this amendment has no negative effect, for all goods would be liable to GST, which does not contemplate any concept of declared goods. However, those goods which were declared goods and would not be within GST - such as petroleum crude and aviation turbine fuel for turbo props - can now be subject to value-added tax by the state governments, at a higher rate.
A reform as landmark as GST needs greater attention to detail from lawmakers. It would be unfortunate if 'one nation, one tax' leads to many litigations and worse still, a constitutional logjam.
The author is is partner and national head at Advaita Legal
