The authority to levy and collect tax arises from the Constitution of India. Article 245 of the Constitution confers the powers of Parliament and the legislature of the State for enacting the laws. In the case of any taxation law, any rule, provision, or notification that is Ultra vires the Constitution is illegal and void. The significant provisions relating to the Constitution are as under:
Taxes that are not to be imposed save by authority of Law (Article 265)
This article states that nobody shall have the authority to levy or collect tax without the authority of law. The term authority of law presumes that tax proposed to be levied must be within the legal framework of the Legislature imposing tax.
Extent of laws made by Parliament and by legislatures of State (Article 245)
This article of the constitution deals with the relationship between the Union and the States. The power to enact the laws is conferred on Parliament and the Legislature of the State by Article 245 of the Constitution. The said article provides as under:
“(i) Subject to the provisions of the Constitution, Parliament has authority to frame laws for the entire or any part of India, and the States may make laws for the whole or any part of their territory.
(ii) No law that had been framed by the Parliament would be considered invalid on the grounds that it would have an extraterritorial operation.”
Subject matter of laws made by Center and by the governments of the State (Article 246):
It gives the sole authority to Central and State governments for levying taxes in India. Whereas the Parliament may make laws for the whole of India or any part thereof, the State Legislature may make laws for the State or part thereof.
The Seventh Schedule to Article 246: It contains III Lists which enumerate the matters
under which the Union and the State Governments have authority to make laws. The three lists are as follows:
List I: Union List– The Central Government has exclusive powers in respect of matters listed in this list.
List II: State List– The State Government has powers in respect of matters listed in this list.
List III: Concurrent List– The authority to make laws in respect of matters listed in the List lies both with Centre and State Governments.
Why was there a need to amend the Constitution of India?
The Constitution of India has given separate powers to the Centre and the States to impose various taxes. The Central government levied Excise Duty on all the goods produced or manufactured in India, The State The government levies Value Added Tax (VAT) once the goods entered the stream of trade upon completion of manufacture.In the case of Inter-State Sale of Goods, the Centre carried the power to levy the Central Sales Tax, but the tax was collected and retained entirely by States.
In the case of Services, the Centre alone had the power to levy Service Tax. In the case of goods imported from outside India, the Centre levied Basic Custom Duty (BCD) and Additional duties of Customs together with applicable cesses if any.
To lay the foundation of GST in India an amendment was made in the Constitution to empower the Centre and the States to together charge and collect GST. In this respect, the existing Constitution has been amended by the Constitution (101st) Amendment Act, 2016 for this purpose. Article 246 A of the Constitution empowers the Centre and the State to levy and collect tax.
Constitution 101st Amendment Act 2016
- Both the Centre and the States have the power to make laws governing goods and services.
- The IGST (Integrated Goods and Service Tax) has to be levied on Inter-state transactions of Goods and Services and the same has to be collected by Central Government.
- GST is to be levied on all supplies of goods and services except alcoholic liquor for human consumption. GST shall not be charged on the Petroleum Crude, High-Speed Diesel, Motor spirit, Natural gas, and Aviation Turbine Fuel till a date to be notified in the official gazette.
- The Chairman of The GST Council shall be The Union Finance Minister.
Article 246A: Special Provisions for GST
Article 246A gives special power to Centre and States to make laws to GST imposed by Centre and States. Also, it gives exclusive power to the Centre to make laws for Inter-State Supplies.
Article 248: Residuary Powers of Legislation:
Article 248 provides the residuary powers to Parliament of our country to frame laws for any matter not listed in the Concurrent or State List.
Article 269A: Levy and Collection of GST in course of Interstate Trade or Commerce:
This article states that GST to be levied on Inter-State Trade or Commerce shall be levied and collected by GOI and apportioned between Union and States in the guidance and recommendations of the GST Council of India. Also in the case of Import of Goods and Services IGST would be levied which was earlier subject to CVD under the Customs Tariff Act,1975. It also states that cross Utilization of IGST and SGST would not form part of the Consolidated Fund of India.
Article 279A: GST Council
This article has given the power to the President of India to constitute a joint committee of the States and Centre called the GST Council. The Union Finance Minister would be the Chairperson and the ministers in charge of Revenue and Finance would be the Members of the council. The GST Council has the authority to make recommendations on levies of tax, cesses, or surcharges, exempt, and to modify them from time to time. They are also authorized to put forward their recommendations from time to time.
Article 366: Definitions
New definitions for Goods and services (12A), Services (26A), and State (26B) have been inserted.