The Goods and Service Tax (GST) is the latest introduction to the Indian taxation regime. The GST system will replace the existing indirect taxes and thereby increase the coverage base for the better collection of taxes. Pattern of leading taxation laws of the European nations with respect to the novel methods of tax collection will remove the difficulties of tax evasions and leakages at various levels and inter-state disparities in the rates of taxation. The Parliament passed the 122nd Constitutional Amendment, 2011 earlier this year to grant sanctity to the law. Among the salient provisions of the said Amendment, The GST Council is the most significant one.
- Nature of the GST Council
The GST Council is the key decision-making body under the GST Tax regime. The Union Cabinet under the chairmanship of the Prime Minister approved the setting up of the GST Council on 12th September, 2016. The Cabinet also gave assent to create the GST Council Secretariat to be headquartered in New Delhi. The said GST Council is described under Article 279A of the Constitution of India. The GST Council will comprise of the Union Finance Minister as the Chairman of the Council. The Union Minister of State for the Revenue will also be its member along with the Minister-in-charge of taxation nominated by each state government. The most important aspect of the GST Council is that the important decisions of the Council will be taken by the three-fourth majority of the Council. It is pertinent to note that under the said provision, the Centre will have one-third of the votes and the rest two-third will be between the various states. The provision is seen as a vital safeguard to prevent the Centre from imposing its decisions on the State Governments.
- Functions of the GST Council
Article 279A(4) of the Constitution provides that the GST Council will be entrusted will the responsibility of making recommendations as regards the various taxes, surcharges and cesses which will be subsumed by the GST Tax. It will also decide the items which will be exempted from tax and the threshold limit of the turnover for the application of GST Tax. It will make the model rules and regulations for the said Council’s working. The Secretariat will act as the executive support for the Council and will take care of the aspect of documenting the law. The Revenue Secretary of the Government of India will be the ex-officio Secretary of the GST Council. The Chairman of the Central Board of Excise and Customs (CBEC) will also be the member of the GST Council, though he will not be having voting rights.
The GST Council will function as the dispute resolution body for the taxation regime. The various contentious issues like the exemption of items, rate of taxation, etc. have to be deliberated upon in the GST Council for working out the amicable solutions for the same. The Council will be like the legislature for the GST system in which the recommendations will be voted upon by the members. Since every state would have its nominated representative in the Council, the concerns of all the states will be taken into consideration by the Council. The Council will also be trying to evolve out a consensus on the various issues before going for the ballot. The most pivotal feature of the GST Council is that it grants equal vote to every state of India. The equal vote feature would mean that whether it is the industrial states like Maharashtra and Karnataka, or the hilly states like Sikkim or Himachal Pradesh, the weightage of the vote will be the same. The provision has been criticised by Tamil Nadu state government as being wrong since the interests of bigger states which collect greater taxes have not been paid heed to. But the provision seems to be incorporated in the democratic spirit to counter the dominance of the larger states. The special exemption provision has also been made out in favour of the hilly states like Himachal Pradesh or the North-Eastern States for which the different limits of taxation could be set. It is to safeguard their interests as they don’t contribute a larger quantum of tax for having a smaller tax base.
- Meetings of the GST Council
The Union Government has recently incorporated the GST Council and its Secretariat. It is seen as a major step for the government deadline of 1st April, 2017 set for the enforcement of the GST law. The GST Council has already had two of its meetings in the month of September, 2016. In the first meeting of the Council, the intricate details of the working aspect of the law were discussed. The rules and regulations of the Council, along with the time intervals for its meetings being decided by the Council. The critical consensus in the meeting was reached on the issue of the threshold limit of turnover for the business to be set at ₹20 lakhs in order to avoid the hassle for smaller businesses. The meeting also saw the incorporation of the draft compensation formula in order to make good the losses suffered by the state due to the incorporation of GST. The Central Government has decided to grant the power to the state for the assessment of the annual turnover up to ₹1.5 crores which earlier remained with the Central Board of Excise and Customs (CBEC). This has been seen as an indication for the grant of greater autonomy to the states in collection of the taxes. The striking feature of the meeting was the commitment of the Centre to evolve out a consensus over the main issues rather than trying to push the provisions through its majority and support of allied state governments.
The second meeting of the GST Council was held on 30th September, 2016. The meeting showed the first signs of dispute arising as the minutes of the earlier meetings could not be adopted since Tamil Nadu and West Bengal said that they still have reservations about the decisions taken in the meeting. This critical issue was discussed at length in the second meeting along with the treatment of services, but no consensus could be adopted in this regard. The GST Council decided to form a committee comprising of both the Central and state governments’ officials in order to resolve the issue. The breakthrough was achieved with regard to draft rules pertaining to registration, payment, refund, returns and invoice mechanisms for granting the area-wise tax exemptions. The adoption of the rules is being seen as a major milestone for the government in its adherence of the 1st April deadline for the law to become effective throughout the nation.
- Recent Developments
The Finance Minister Mr. Arun Jaitley expressed hope that the issues will be resolved at the earliest. He also informed that the contentious issue of the tax rates will be dealt with in the next meeting of the GST Council. The discussions will also be held on draft state and centre GST Bills. The second meeting also brought about the differences between various states. It is a sign of fracture and it will serve in the future as a sign of caution for the Central Government to proceed carefully in the direction of taxation. The next meeting of the Council is scheduled to be held on 18th October, 2016. The meeting is very important as it will decide upon the issue of the rate of taxation. It will be in the best interest of the nation that the government manages to resolve the deadlock over the pivotal issues and the provisions are ratified by the council at the earliest in order to set the new regime in motion that is seen as the roadmap of India’s robust taxation system to augment the governmental resources for the growth and development of the country.
