Chapter 2: Constitutional and Legal Framework

The Constitution (One Hundred and First Amendment) Act, 2016, enacted on 8 September 2016, laid the foundation for the implementation of the Goods and Services Tax (GST) in India. It introduced a comprehensive restructuring of the indirect tax system by empowering both the Centre and States to levy and collect GST on the supply of goods and services.

Key Provisions Introduced:

Article 246A: Grants simultaneous powers to the Parliament and State Legislatures to make laws on GST.

Article 269A: Provides for the levy and collection of Integrated GST (IGST) on inter-State trade or commerce, to be shared between the Centre and States.

Article 279A: Constitutes the GST Council, the apex decision-making body for GST policy and administration.

Article 366(12A): Defines GST as “a tax on supply of goods or services or both, except taxes on the supply of alcoholic liquor for human consumption.”

Significance: The 101st Amendment marked a paradigm shift in India’s fiscal federalism by replacing multiple taxes with a unified structure and ensuring cooperative federal decision-making through the GST Council.

The GST Council, established under Article 279A of the Constitution, is the central policy-making body for all GST-related decisions. It is a federal institution ensuring collaboration between the Centre and States.

Composition of the GST Council:

Chairperson: The Union Finance Minister (as Chairperson).

Members:

Union Minister of State for Finance (Revenue).

Finance/Taxation Ministers of all States and Union Territories with legislatures.

Voting Mechanism:

Decisions are made by majority of not less than three-fourths of the weighted votes of the members present and voting.

The Centre’s vote weight = 1/3, while the States collectively hold 2/3.

Key Functions of the Council:

Recommend tax rates, exemptions, and thresholds.

Decide model GST laws, rules, and procedures.

Suggest principles for apportionment of IGST.

Resolve disputes between Centre and States.

Guide implementation of e-way bills, return formats, and IT systems.

Role in Practice: The Council has been instrumental in keeping GST dynamic and responsive, regularly reviewing rate structures, clarifying ambiguities, and recommending relief measures in public interest.

The CGST Act, 2017, enacted by the Parliament, is the primary legislation governing GST at the Central level. It provides the framework for levy, collection, and administration of tax on intra-State supplies.

Key Features:

Levy and Collection: Tax on intra-State supplies of goods and services.

Registration: Compulsory for persons crossing threshold limits.

Input Tax Credit: Seamless credit allowed for eligible supplies.

Compliance: Prescribes returns, audits, assessments, and penalties.

Offences and Penalties: Detailed provisions for enforcement and adjudication.

Applicability:

Extends to the whole of India, excluding the State of Jammu & Kashmir (before the reorganization, later extended).

Implemented w.e.f. 1 July 2017.

Objective: To ensure uniformity in taxation, simplify compliance, and integrate India’s fragmented tax system under a technology-driven model.

(a) State GST (SGST) Acts

Each State Legislature has enacted its own State Goods and Services Tax Act (SGST), broadly mirroring the CGST Act with minor variations in procedural aspects. It empowers States to collect tax on intra-State supplies of goods and services, parallel to the Centre’s CGST.

Example: For a sale within Delhi: CGST + SGST are levied at equal rates (e.g., 9% + 9%). Both taxes are collected separately but operate on the same taxable event.

(b) Integrated GST (IGST) Act, 2017

The IGST Act governs taxation on inter-State supplies, imports, and exports. It provides for:

Levy of IGST on all inter-State transactions.

Apportionment of revenue between Centre and the destination State.

Seamless flow of credit from one State to another, ensuring no cascading.

Example: Goods sold from Delhi to Mumbai at ₹1,00,000 attract IGST @18% = ₹18,000. This tax is collected by the Centre and then apportioned between Centre and Maharashtra.