Goods and Service Tax, as the new indirect tax regime, seeks to re-institutionalize the present arrangement of indirect taxes. Under the earlier scheme, a greater say of the State existed but this initial arrangement seems to have been minimized by the present setup of GST. GST is not a political issue to be discussed in terms of the UPA vs. NDA regime rather, it is linked to the spirit of federalism as enshrined in our constitution and hence, it is to be conversed in terms of Centre vs. State establishment. The concept of fiscal federalism was the major hint behind separation of tax structure between the Centre and the States in the Indian realm.. However, the major impediments to its successful implementation lie in the notional extension of its success in addition to hesitation and uncertainty of intention as to its enforceability in the present socio-political environment of the country.
It is to be noted that the Constitutional amendment may prove to be dangerous to the financial federalism of the country, if the GST model fails or if the GST Council acts arbitrarily. Although GST cannot be rejected or criticized as bearing potential threat to the Indian taxation structure, however, moderately scrutinizing the provisions and their respective quandaries will unearth the latent menaces. GST can be seen in two major ways wherein the former one enquires its conceptual orientation and the latter analyzes it on the turf of structural constraints. One cannot argue any challenging situation originating out of any legislation at a pre-mature level and hence, we could only rely on the circumstantial inevitability which seems to put a deleterious notion to “cooperative federalism” that it ostensibly serves.
GST as a comprehensive tax scheme conveys the abolition of various indirect taxes that were previously in authority of the Central and State governments. Hence, it has amalgamated the various taxes into a single tax, procurement of which will then be divided among states in a prescribed ratio. Various central taxes such as excise duties, service tax, etc. and the State taxes such as sales, value-added, purchase, entertainment tax etc. will be levied on a fixed rate known as GST or Integrated GST/IGST. GST is a fundamental step in our taxation policy and hence, it requires more time and an in depth concurrence to come into operation. Furthermore, if one raises a contention that GST is being discussed for the past few years since it is an initiative under the UPA Government, then one must also consider some basic changes that have been introduced in the Constitutional (122nd Amendment) Bill, 2014 as compared to the Constitutional (115th Amendment) Bill, 2011. It does not seem unwarranted to forward the Bill to a select committee which would recommend the possible changes in the present scheme of GST. The present scheme of GST has to be made more rigid since the flexibility that it provides serves nothing but an impasse on certain basic features of federalism in which decentralization and fiscal liberty are prominent. Taxation is part of “Eminent Domain” and hence, it does not just get hampered when such power is interrupted but it also gets extinguished when there is a change in the center of flow of such powers that is apparent in case of GST, as the power is centralized in the hands of the Central Government.
The 2014 Bill proposes to provide a compensation scheme of upto five years, however, the provisions of the Bill give an impression that the proportion will be decided by the GST Council. The question then arises as to how the calculations provide 100% compensation for the first five years, 75% for the fourth year and 50% compensation for loss of revenue for the fifth year. Taking the authoritative challenges as constant, there is no light of reference as to what will happen if the loss of revenue continues after five years of which susceptibility is equally probable as is otherwise. The recommendation of the Standing Committee on GST, 2013 has given a very logical finding that there must be a monitoring/evaluation cell that will assess the impact of GST upon GDP, inflation, hoarding etc. that was not incorporated in the present Bill which could again seem to be an unforeseen fault in the present model of GST. There have been similar recommendations by the said Standing Committee regarding imposition of floor rate, providing cooperative federalism and making the system rigid and centrally powered rather than to have an “obstinate federalism” in place which is against the spirit of the Constitution. Matter of consensus to majority in the decision-making within the GST Council was nevertheless to bypass practical delinquent it served,. It even infringes the inherent freedom of opinion that was previously in the hand of those States who will defer to present GST system and hence, the GST council will act as no more than an institutional invader of fiscal federalism.
Section 18(1) of The Constitutional (122nd Amendment) Bill, 2014 provides that an additional 1% tax is to be levied for the initial two years and may be extended as per the recommendation of the GST Council. The above provision seems to be a major fault since it appears to have been framed with a fraudulent prospectus or concocted future vision. Such a power to extend such additional tax is neither rigid nor explanatory except for the possible profit for the producing State. If that is the condition, that GST provides more proceeds to the consuming State in case of goods, then the whole system is to be reviewed rather than adding a life support to the State in an unplanned manner.
Section 12 of the 2014 Bill brings the addition of Article 279A of the Constitution, providing the constitution and functioning of the GST Council and through Section 12(11) of the Bill, the GST Council is made into a dispute resolution body wherein adjudicatory role is being given to such authority. Now there is no reference to the Supreme Court as the apex constitutional body unlike its predecessor Bill of 2011. Mere changing of the name does not change the nature and if anywhere such adjudicatory function is accomplished, the Supreme Court will always bear supremacy and ensure the finality of decision in such cases. This misdemeanor in the present Bill will have an obvious impact on the future business of the GST Council, and even if the Supreme Court has been sidelined from adjudicating on matters in this regard, in no such case would this curtail the inherent and sacrosanct power of judicial review by the Apex Court.
Hon’ble Finance Minister calling GST as the “single biggest tax reform since independence” will have to compete in the Rajya Sabha or Upper House where political statics are not favorable unlike as of the Lok Sabha or Lower House, wherein the passage was smooth as it was in the hand of majority Government. Shifting the debate from political to the legal perspective reaps better and bearable results as otherwise, the ramification of the GST will be nothing more than it being the “biggest flawed tax reform since independence”.