TIOL-DDT 2932
19 09 2016
Monday

THE very mention of GST makes the social media tipsy with too many experts giving too many opinions - mostly wrong. The Government should be aware of this trending tweets and posts and should realize that any faltering movement will be closely watched, analysed and publicized and become topics of hot discussion right across the country even before you finish saying GST. I spent the whole of Saturday and Sunday calling up experts in the field and getting their concerned opinion. Though it is well known as to what happened, a little recap might be in order.

The Constitution (One Hundred and First Amendment) Act, 2016 received the assent of the President on 8th September 2016. The Act consists of 20 Sections which briefly are:

1. The Act to come into force on a date to be notified by the Government. Different Sections can be notified from different dates.

2. New Article 246A inserted in the Constitution - Parliament and State Legislatures given power to make laws with respect to GST

3. Article 248 amended to include Article 246A.

4. Article 249 amended to include Article 246A.

5. Article 250 amended to include Article 246A.

6. Article 268 amended to delete "and such duties of excise on medicinal and toilet preparations"

7. Article 268A (service tax - not notified) omitted

8. Article 269 amended to include Article 269A.

9. Article 269A inserted - GST on inter-State trade or commerce.

10. Article 270 amended to make consequential changes.

11. Article 271 amended to make consequential changes.

12. Article 279A inserted - GST Council.

13. Article 286 amended to make consequential changes.

14. Article 366 amended - GST, services and State defined.

15. Article 368 amended to make consequential changes.

16. Sixth Schedule amended - power to levy taxes on entertainment and amusements - by certain authorities.

17. Seventh Schedule amended:

a. Entry 84 (List I) - excise duty amended to restrict excise duty to certain products like petroleum crude, HSD…

b. entries 92 (List I) (Taxes on the sale or purchase of newspapers and on advertisements) and 92C (service tax) omitted

c. Entry 52 (entry tax) in List II omitted.

d. Entry 54 (tax on sale and purchase of goods) in List II amended.

e. Entry 55 (tax on advertisements) in List II omitted.

f. Entry 62 (Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling) in List II amended.

18. Compensation to States for loss of revenue on account of introduction of GST.

19. Transitional Provisions: State Laws to be validly in force till maximum one year.

20. Power of President to remove difficulties.

The Act was to come into force from a date to be appointed by the Government. The Government could fix different dates for different provisions. So, the Government notified Section 12 (GST Council) to be effective from 12th September 2016.

The remaining Sections were notified to be effective from 16th September. This 16th September Notification triggered the panic button and set the social media on fire. The daunting question was:

Are Excise Duty, Service Tax and VAT abolished without GST actually coming in?

A little more basic explanation.

As per Article 246 of the Constitution:

1. Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (referred to as the "Union List").

2. The State Legislature has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (referred to as the "State List").

3. Parliament, and the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (referred to as the "Concurrent List").

As per the new amendment, Article 246A empowers the Parliament and State Legislatures to make Laws with respect to GST.

In the Seventh Schedule, List I has 97 entries, in which entry 84 which empowered the Parliament to make laws for duties of excise, now allows excise duty only on certain commodities like Petroleum Crude. So, there seems to be no provision for imposing excise duty. But entry 97 is Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists. Can excise duty be now collected under the residuary entry 97? Service Tax was being collected and will continue to be collected under this entry 97.

Similarly, VAT was collected under entry 54 of List II. Now as per the amended provisions, VAT can be collected only on certain products like Petroleum Crude, HSD etc which are at present outside the purview of GST.So, what will happen to VAT now? Is there no authority to levy VAT?

This is how I ended up spending Saturday and Sunday calling up the experts. I spoke to a large number of Revenue Officers - serving and retired; senior and junior, and several leading tax consultants and advocates right across the country. Many Revenue Officers were sure that the Government has goofed up and they gleefully told me, "you often criticize the IRS, now see what the mess the IAS has landed us in." The IAS officers I tried to contact were wisely not available. The lawyers tried to find ways out and feebly defended the Government. In the meantime, we were flooded with frantic calls and messages from our Netizens wanting to know if India is declared a "No Tax Country".

The problem doesn't seem to be all that serious, though the situation could have been better handled and the Revenue Secretary or some senior functionary associated with GST should have been available to clarify doubts and do some damage control.

VAT is saved by the transitional provisions under Section 19 of the Constitution (One Hundred and First Amendment) Act, 2016. Under this provision, the VAT laws are valid till they are repealed or till one year from the commencement of the Constitution (One Hundred and First Amendment) Act, 2016, whichever is earlier. So, the States have a maximum time till September 15 2017 to join the GST bandwagon.

Service Tax is any way levied under the powers of entry 97 of List I and will continue to be so.

Excise Duty can also be levied under the residuary entry 97. If Service Tax can be levied under entry 97, why not excise?

But all shades of opinion are floating around on these issues and the Government will come out with some sort of clarification today.

The Revenue Secretary has tweeted, "Some questions are raised about the notifications issued recently in respect of GST constitutional amendment. We will be clarifying the correct legal position tomorrow and we will issue amendments if the need be."

But one thing is certain - GST has to come into force all over India before 15th September 2017.

How to Catch a Crane?

I am reminded of a short story. A gentleman asked his expert friend, what was the best method of catching a crane. The expert friend replied, "just go when it is dark, put some wax on the head of the crane, when the Sun would rise afterwards, it would melt the wax which is sure to fall into its eyes. The bird would be blind and you can catch it."The gentleman asked, "then why not catch it at the very beginning when you go to put the wax?"He replied, "if it were done so easily, then where was the master's feat, i.e., ustad ki ustadi."

This is not my story - this was a story recited by Sardar Hukum Singh in the Constituent Assembly 67 years ago when this mysterious residuary entry 97 in List I of Schedule 7 to the Constitution was discussed.

Why Entry 97 in List I of Seventh Schedule to the Constitution?

THIS has an interesting background. As mentioned above, List I, Union List has 97 entries with entry 97 being - Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.

Why any other matter? When any matter not mentioned in List-II and List-III would fall under entry 97 of List-I, why do you have those 96 items in List-I? Are they not unnecessary?

When each entry in the List-I was being discussed in the Constituent Assembly, Sardar Hukum Singh made an amendment motion to suggest that the first 90 items are not necessary and one item would have been enough. But somehow these items got passed and Sardar Hukum Singh suggested an amendment to entry 97 (then it was entry 91 - six more entries were added later).

The Sardar said, "My difficulty, Sir, is that after dealing with all these entries from 1, to 90 and after discussing all those details, and even considering interplanetary travels and those journeys from one satellite to another, from the moon to earth and from earth to moon, we have at last come to the conclusion that they are not complete and there might be others that might be required to be included in this List. The object of this entry 91 is, whatever is not included in Lists II and III must be deemed to have been included in this List. I feel that it could be said in very simple words, if the word 'other' were omitted, and then there would be no need for this list absolutely. Ultimately, it comes to this that whatever is not covered by Lists II and III is all embraced in the Union List. This could be, said in very simple words and we need not have taken all this trouble which we have taken.

My submission was that the omission of the word 'other' from this entry would have served the whole purpose of putting this long list."

Then he recited the crane story and said, "I fail to understand, Sir, why all this procedure should have been gone through. When we come to entry 91, we have to put, this Residuary power. It could have been more easily done by paying more attention to Lists II and III and simply saying any matters not enumerated, in Lists II or III including any tax not mentioned in either of those lists. That would give us the same effect without bothering about all these details."

Mr. Naziruddin Ahmad said, "Mr. President, Sir, I do not wish to oppose entry 91. It is too late to do it, but I should submit that the moment we adopted entry 91, it would involve serious redrafting of certain articles and entries. We have stated in substance that entries in List I will belong to Union, List II to States and List III common to both. That was the original arrangement under which we started. We took the scheme from the Government of India Act. When an entry like 91 was considered at an earlier stage we agreed that the Residuary power should be with the Centre. As soon as we accept entry No. 91, entries 1 to 90 would be redundant. In fact, all the previous entries from I to 90 would be rendered absolutely unnecessary. I fail to see the point now retaining entries 1 to 90. If every subject which is, not mentioned in Lists II and III is to go to the Centre what is the point in, enumerating entries I to 90 of list I? That would amount to absolutely needless, cumbersome detail. All complications could be avoided and matters simplified to say that all matters enumerated in List. II must belong to the States, and all matters enumerated in List III are assigned to the Centre and the States concurrently and that every other conceivable subject must come within the purview of the Centre. There was nothing more simple or logical than that. Instead, a long elaborate List has been needlessly incorporated. This was because List I was prepared in advance and entry No. 91 was inserted by way of after thought. As soon as entry 91 was accepted, the drafting should have been altered accordingly. May I suggest even at this late stage that these needless entries be scrapped and things made simple?"

Prof. Shibban Lal Saksena said, "This matter has been the subject of discussion in this country for several years for about two decades. Today it is being allowed to be passed without any discussion. There should not be any deletion of items 1 to 90. I know this entry will include everything that is already contained in the first 90 entries as well as whatever is left. This entry will strengthen the Centre and weld our nation into one single nation behind a strong Centre. Throughout the last decade the fight was that provincial autonomy should be so complete that the Centre should not be able to interfere with the provinces, but now the times are changed. We are now for a Strong Centre. In fact, some friends would like to do away with provincial autonomy and would like a unitary Government. This entry gives power to the Centre to have legislation on any subject which has escaped the scrutiny of the House. I support this entry."

Dr. B.R. Ambedkar replied,"I propose to deal with the objection raised by my friend Sardar Hukum Singh. I do not think he has realised what is the purpose of entry 91 and I should therefore like to state very clearly what the purpose of 91 in List I is. It is really to define a limit or scope of List I and I think we could have dealt with this matter, viz., of the definition of and scope of Lists II and III by adding an entry such as 67 which would read:

"anything not included in List II or III shall be deemed to fall in List I"

That is really the purpose of it. It could have been served in two different ways, either having an entry such as the one 91 included in List I or to have an entry such as the one which I have suggested 'that anything nor included in List II or III shall fall in List I'. That is the purpose of it. But such an entry is necessary and there can be no question about it.

Now I come to the other objection which has been repeated if not openly at least whispered as to why we are having these 91 entries in List I when as a matter of fact, we have an article such as 223 (this is now 248) which is called Residuary article which is 'Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List". Theoretically I quite accept the proposition that when anything which is not included in List II or List III is by a specific article of the Constitution handed over to the Centre, it is unnecessary to enumerate these categories which we have specified in List I. The reason why this is done is this. Many States people, and particularly the Indian States at the beginning of the labours of the Constituent Assembly, were very particular to know what are the legislative powers of the Centre. They wanted to know categorically and particularly; they were not going to be satisfied by saying that the Centre will have only Residuary powers. Just to allay the fears of the Provinces and the fears of the Indian States, we had to particularise what is included in the symbolic phrase "Residuary powers". That is the reason why we had to undergo this labour, notwithstanding the fact that we had article 223.

I may also say that there is nothing very ridiculous about this, so far as our Constitution is concerned, for the simple reason that it has been the practice of all federal constitutions to enumerate the powers of the centre, even those federations which have got Residuary powers given to the Centre. Take for instance the Canadian constitution. Like the Indian Constitution, the Canadian Constitution also gives what are called Residuary powers to the Canadian Parliament. Certain specified and enumerated powers are given to the Provinces. Notwithstanding this fact, the Canadian constitution. I think in article 99, proceeds to enumerate certain categories and certain entries on which the Parliament of Canada can legislate. That again was done in order to allay the fears of the French Provinces which were going to be part and parcel of the Canadian Federation. similarly also in the Government of India Act, the same scheme has been laid down there and section 104 of the government of India, Act, 1935 is similar to article 23 here. It also lays down the proposition that the Central Government will have Residuary powers. Notwithstanding that, it had its List I. Therefore, there is no reason, no ground to be over critical about this matter. In doing this we have only followed as I said, the requirements of the various Provinces to know specifically what these Residuary powers are, and also we have followed well-known conventions which have been followed in any other federal constitutions. I hope the House will not accept either the amendment of my friend Sardar Hukum Singh nor take very seriously the utterings of my Friend Mr. Naziruddin Ahmad."

And the Entry No. 97 is strongly existing in List I along with the other not so necessary 96 items. The list of 96 items, as they say, is not exhaustive but only illustrative.

Excise Duty can be levied under the Entry 97 in List I of the Seventh Schedule of the Constitution.

As today's DDT has become too long with GST, I am not covering anything else today. After all GST is almost a reality now and we will have to learn to live more with it than the outdated Central Excise or Service Tax.

Until Tomorrow with more DDT

Have a nice day.

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