Setting at rest confusion over levy of excise duty, the finance ministry today said there is no "legal infirmity" in the notifications issued by the government with regard to the GST Constitution Amendment Act.
Some experts have raised doubt about the legality of levying excise duty by the Centre on various commodities till implementation of the goods and services tax (GST) from April 1, 2017, after the government on September 16 notified certain provisions of the Act.
"DoR (department of revenue) examined the validity and implications of notifications dated September 10 and 16 with respect to existing taxes imposed by the Union and states. There is no legal infirmity in these notifications," Revenue Secretary Hasmukh Adhia tweeted.
He further said the law department has confirmed that "there appears to be no legal requirement to issue any further clarification or notification in this regard".
The confusion arose following the notification with regard to amendment of Entry 84 of the Union List following which the Centre can levy excise only on petroleum crude, high-speed diesel, petrol and natural gas.
Earlier, Entry 84 of the Union List of the Constitution allowed the Centre to levy excise duty on tobacco and other goods with the exception of potable alcohol, opium and narcotic drugs.
In view of these amendments, it was speculated whether the government could legally collect excise duty till the day GST, which will subsume excise duty in addition to service tax and other levies, is implemented.
The other view, however, was that the Centre has widespread power under Entry 97 of the Union List to levy taxes on goods which are not mentioned in any List under the Seventh Schedule of the Constitution.
Entry 97 says the Centre will have powers on "any other matter not enumerated in List II or List III, including any tax not mentioned in either of those lists".
List II under the Seventh Schedule of the Constitution deals in subjects on which states have legislative powers while List III is the concurrent list wherein both the Centre and states can make laws.
Nangia & Co Director Rajat Mohan said, "The government may say the power to levy excise, service tax could be drawn from Entry no. 97 from the Union List which is residuary entry. The power to levy state taxes i.E. VAT, entry tax and Octroi etc could be drawn from Section 19 of The Constitutional (One Hundred and First Amendment) Act, 2016.
Jaitley said the rate structure can be determined only
after deciding whether compensation to states is to be funded out of the rate structure or some special cess or any other source.
The attempt, he said, was to fit zero rated items while levying a 6 per cent tax on items that are currently charged 3-9 per cent tax.
"We will finalise the tax structure at the next meeting," he said, indicating there were two standard rates of 12 per cent and 18 per cent under discussion.
Once the GST rates are decided, the GST Council will meet again on November 9-10 to finalise the draft legislations.
Explaining further, Adhia said if cess is not imposed and instead the tax of demerit goods are raised, as suggested by some states, then the number of tax slabs in GST would go up.
"On each one of these luxury items, there is a separate taxation burden. For example, for aerated water, cigarette, bidi, luxury car it may be different. If you have to put each in rate structure, one challenge is how many slabs can you have then.
"Can you have 26, 45, 75 per cent slabs? There are commodities where the effective rate of taxation currently is more than 100 per cent. Now the question is, is it feasible to have so many slabs of taxation in GST," Adhia reasoned.
On the issue of dual control and division of authority for assessment, Jaitley said the underlying principle is one assessee will be assessed by one authority.
"So whom will the Centre assess and whom will the state assess and how that bifurcation will take place depends on how the dual authority is managed... The discussion on the two items is continuing, it is still inconclusive. In the fourth meeting of the GST Council these two items would be discussed and hopefully decision taken," Jaitley said.
Presentations have been made by officers of central and state governments on this issue and West Bengal Finance Minister Amit Mitra also presented some statistics, which need to be updated, he said.
The GST Council, in its first meeting on September 23, had decided that states will have exclusive control over all dealers up to a revenue threshold of Rs 1.5 crore in a year.
A mechanism was to be worked out for traders above Rs 1.5 crore to ensure that a dealer is regulated either by the Central government or the state government but not both.
However, in the second Council meeting on September 30, some states disagreed with the decision taken after the first meeting that the Centre will assess 11 lakh service tax filers in the new dispensation.
Initially, there was a feeling that standard rate should
be 18 per cent, Jaitley said, adding with Centre proposing two standard rates of 12 per cent and 18 per cent, Centre and states' tax revenue would be protected and there is limited liability on the tax payer.
Explaining why the GST Council could not reach a consensus on GST rate structure, Kerala Finance Minister T M Thomas Isaac said some states insisted that only cess on tobacco and clean environment cess should be used for compensating the states.
"That comes to around Rs 44,000 crore. So you still require some Rs 7,000 crore for making the compensation. It was decided that Centre would look into as to on which items cess would be levied," Isaac said.
He added that he was in favour of raising the highest rate of tax beyond the currently proposed 26 per cent as no business house will pass on reduction in tariff from current levels to the consumer.
Delhi Finance Minister Manish Sisodia said there was no consensus on rates and the GST Council will meet again over dual control on services.
Tamil Nadu Finance Minister K Pandiarajan said administration was a more important issue than tax rate.
The meeting felt the Centre has the power to levy cess which would help protect revenue base. It is an efficient way to compensate states for five years and full proceeds would be earmarked to states, he said.
As per Finance Ministry estimates, the four-slab GST rate of 6 to 26 per cent would lower retail inflation by 0.06 per cent.
As many as 20 items currently in CPI basket may be out of GST net, while an estimated 92 items with total 49.565 per cent weight in consumer price inflation (CPI) basket would attract 0 per cent GST rate.
The 6 per cent GST rate on 29 items in CPI basket are currently taxed at 3-9 per cent. A total of 71 items in the CPI basket, currently taxed at 9-15 per cent, may be put in 12 per cent bracket and another 37 items, currently levied a tax of 15-21 per cent, would be put at 18 per cent rate.
The highest band of 26 per cent would essentially be on 50 items in CPI basket that are currently taxed at more than 21 per cent.
