Model Answer
0 min readIntroduction
The Indian economy, prior to 2017, was characterized by a complex and cascading tax structure. This complexity stemmed from multiple layers of indirect taxes levied by both the central and state governments, leading to inefficiencies and increased costs for businesses. Recognizing these drawbacks, the Goods and Services Tax (GST) was envisioned as a unified, comprehensive indirect tax regime. However, implementing GST necessitated constitutional amendments, leading to the Constitution (One Hundred and First Amendment) Act, 2016. This Act paved the way for the GST regime, fundamentally altering the federal fiscal structure of India and aiming to establish a common national market.
Salient Features of the 101st Amendment Act, 2016
The Constitution (One Hundred and First Amendment) Act, 2016, brought about significant changes to the Constitution, primarily focusing on enabling the implementation of GST. Key features include:
- Amendment of Article 246A: This article was inserted to grant exclusive power to Parliament and State Legislatures to make laws with respect to GST. It defines GST as any tax on the supply of goods and/or services.
- Insertion of Article 268A: This article deals with the taxes to be levied and collected by the Union. It specifies that GST on inter-state supplies will be levied and collected by the Central Government.
- Insertion of Article 269A: This article deals with the taxes to be levied and collected by the States. It specifies that GST on intra-state supplies will be levied and collected by the State Government.
- Compensation to States: The Act provided for a mechanism to compensate states for any revenue loss they might incur due to the implementation of GST. This was crucial to gain the consensus of states for the constitutional amendment. A GST Council was established.
- Establishment of the GST Council: Article 279A was inserted to establish the GST Council, a constitutional body responsible for making recommendations on various aspects of GST, including rates, rules, and procedures. The Council comprises the Union Finance Minister, the Union Minister of State for Finance, and the Finance Ministers of all states.
- Definition of ‘Supply’: The Act broadened the definition of ‘supply’ to include any transaction that constitutes a sale, transfer, barter, lease, or import of goods or services.
Efficacy in Removing Cascading Effect and Creating a Common National Market
The 101st Amendment Act, and subsequently the GST regime, has been largely efficacious in achieving its stated objectives, though challenges remain.
- Removal of Cascading Effect: Prior to GST, taxes were levied on taxes, leading to a cascading effect that increased the cost of goods and services. GST, being a destination-based tax with Input Tax Credit (ITC) mechanism, has largely eliminated this cascading effect. Businesses can now claim credit for taxes paid on inputs, reducing the overall tax burden.
- Creation of a Common National Market: GST has broken down inter-state barriers to trade and commerce, creating a unified national market. The removal of check posts and simplified tax procedures have facilitated the free flow of goods and services across states.
- Increased Tax Compliance: The GST regime has led to increased tax compliance due to the electronic matching of invoices and the stringent penalties for non-compliance.
- Improved Logistics Efficiency: The reduction in transit times and the simplification of tax procedures have improved logistics efficiency, reducing transportation costs and delivery times.
However, some challenges persist:
- Complexity of GST Rates: The multiple GST rates (5%, 12%, 18%, 28%) can still create confusion and complexity for businesses.
- Technical Glitches: The GST Network (GSTN) has faced technical glitches and outages, disrupting the filing of returns and the claiming of ITC.
- Revenue Neutrality: Achieving revenue neutrality under GST has been a challenge, with some states experiencing revenue shortfalls.
- Compliance Burden for Small Businesses: The compliance requirements under GST can be burdensome for small and medium-sized enterprises (SMEs).
The GST Council has been actively addressing these challenges through amendments and clarifications. The implementation of e-way bills and the simplification of return filing procedures are steps in the right direction.
Conclusion
The Constitution (One Hundred and First Amendment) Act, 2016, was a landmark legislation that laid the foundation for the GST regime in India. While the GST system isn’t without its imperfections, it has demonstrably reduced the cascading effect of taxes and fostered a more unified national market. Continuous refinement of the GST framework, addressing technical issues, and simplifying compliance procedures are crucial to realizing its full potential and ensuring its long-term success in bolstering India’s economic growth.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.