Notification of GST Constitution Amendment Act creates
confusion over Indian government's power to levy
manufacturing tax
News item offered by Taxsutra, week 40, 20 September 2016
The proposed goods & services tax (GST) regime in India achieved a milestone when the provisions of
The Constitution (One Hundred and First) Amendment Act 2016 were notified w.e.f. 16 September 2016.
But the celebrations soon turned sour, as confusion ensued over the powers of the Union government as
well as state governments to levy taxes in terms of the entries listed in Seventh Schedule to the Indian
Constitution.
Before 16 September, Entry 84 of Union List (List I) empowered the Parliament to make law with
reference to levy of excise duty on goods manufactured or produced in India. The Constitution
Amendment Act has restricted the scope of said Entry to cover excise duty only on petroleum products.
Additionally, Entry 54 of State List (List II), which empowered state legislatures to tax sale and purchase
of goods, has now been deleted.
As leading tax expert Adv. K. Vaitheeswaran succinctly explained, “The design was
to continue excise duty on petroleum products and levy GST on other goods and
services. By notifying all the sections of the Constitution Amendment Act, the
restricted Entry 84 is now in place without a corresponding GST. Therefore,
technically the power to levy excise on non-petroleum products is questionable from
September 17, 2016. Further Sec. 19 of the Amendment Act allows States to
continue their existing levies for one year. Sec. 19 does not appear to cover Centre.
The enthusiasm in attempting to meet the deadline of April 1st seems to have
created a legal controversy”. He also questioned the legality of the notification
bringing into existence the GST Council from 12 September, inasmuch as the
Section empowering the constitution of the GST Council was notified thereafter.
Mr. Rohan Shah, Managing Partner of Economic Laws Practice, a leading law
firm in India, remarked “After September 16, the situation is Centre no longer can
levy excise duty other than on tobacco and petroleum, and States can no longer levy
sales tax ... If every tax must have a Constitutional empowerment, then today in the
levy of excise duty and in the levy of sales tax the view of many commentators is that
the States and the Centre have no power to tax. Therefore, since September 16,
every collection of excise duty or VAT is supposed to be without the authority of law.
Strictly in the context of Constitution under Article 265 the levy cannot be sustained.
It is illegal.”
On the other hand, India’s Revenue Secretary, Dr. Hasmukh Adhia, has stated
that there is no legal infirmity in the Notifications issued by the government, and he
does not find any need for further clarification or notification in this regard. The
government seems to have taken shelter of residual Entry 97 of List I, which covers
any other matter not enumerated in List II or List III, including any tax not mentioned
in either of those lists. The government is also relying on Section 19 of the
Constitution Amendment Act, which states that any provision of law relating to tax on
goods or services or on both in force in any State which is inconsistent with the
amended provisions of the Constitution shall continue to be in force until amended or
repealed by a competent legislature/competent authority or until expiry of one year
from such commencement, whichever is earlier.
While it seems that two schools of thought have emerged over this issue, it would be expedient to put an
end to this conundrum by way of a clarification/notification to ensure smooth implementation of GST
w.e.f. 1 April 2017.