Constitutional Provisions relating to tax

Constitutional provisions of taxation are referred under article 265 to article 289.

Article 265
No tax shall be levied or collected except by the authority of law, levy of taxes must be within the legislative power.
No presumption in levy of tax , for levy of tax fiscal statute must be read as whole.

Article 266
This article talks about consolidated funds and public accounts of India and the states. Consolidated funds are those
funds in which all the receipts of government of India are credited like tax, loans taken , treasury bills , etc.

All expenditure of government of India is done from consolidated fund of India from which money is appropriated
after the permission of parliament.

1. Public account funds

2. Funds which are not credited in consolidated funds are credited to public account funds.
3. This includes remittances, provident fund deposits and so on. This account can be made without parliamentary
authorisation, such payments are of executive in nature such as banking transaction.

Article 267
Contingency funds are maintained by president and held by finance secretory on behalf of president. Such funds are
used at the time of emergency such as natural calamities and crises like floods, tsunamis and earthquake.

Article 268
Under this article it is explained that the duties levied by the Union, but they are collected and appropriated by the
states. For e.g. Stamp duties, excise duties on medical and toilet preparations.

The proceeds in any financial year of any such duty leviable within any state shall not form part of the consolidated
fund in India but shall be assigned to that state.

Article 269
Taxes levied and collected by central government but assigned to the states.

According to clause (2) these taxes are namely:

a. Duties in respect of succession to property other than agriculture land

b. Estate duty in respect of property other than agricultural land.
c. Terminal taxes on goods or persons carried by railway, port or airlines.
d. Taxes on railway fares and freights.
e. Taxes other than stamp duties on transactions in stock exchanges and future markets.
f. Taxes on the sale or purchase of newspaper and on advertisements published therein.
g. Taxes on the sale or purchase of goods other than newspaper where such sale or purchase takes place in the course
of interstate trade or commerce.
h. Taxes on consignment of goods.

Article 269(A)
101st amendment act in 2016

• Levied and collection of gods and services tax in course of interstate trade or commerce.
• Goods and services tax is collected and levied by central government of India.
 • It is not the part of consolidated fund rather it is divided into union and state based on the law made by parliament
on the recommendation of GST Council.

Article 270
This article talks about those taxes which are levied and distributed between union and state except A- 268, 269 and
269 A.,

Surcharge on taxes and duties in article 271 and cess levied for specified purpose under any law made by parliament,
these all are not part of CFI and they are divided on the basis of finance commission on recommendation of president.

Cess and Surcharge

Cess is a tax on tax. It is described under article 270 of constitution of India it is also called subtax. Cess is for a
specific purpose and the amount of cess goes to consolidated fund of India.

For eg; Educational cess and Swachh Bharat cess etc.

Surcharge is also tax on tax, it is levied on specific limit usually higher income groups. Amount of surcharge is also
goes to CFI , surcharge is not levied for specific purpose but it is levied on specified people mainly higher income
groups.

Article 273
Grants in lieu of export duty on jute and jute products in states Assam, Bihar, Orissa, and West bengal and this grant
shall be charged on the consolidated fund of India (CFI)

Article 274
Talks about the taxes in which states are interested such as agricultural income, for that prior recommendation of
president is required to bills affecting taxation in which states are interested.

Article 275
Talks about that grants from Union to State for schemes and developments , welfare of SC and ST and thirdly that
administration development of autonomous district of Assam.

Article 276
The sixtieth amendment act of constitution of India amended article 276.
The article talks about that the extra taxes are levied on profession, trades and callings and employments and the limit
of these taxes are Rs.2500.

Article 277
Talks about that any taxes, duties , cesses or fees immediately before the commencement of the constitution, were
being lawfully levied by the government of any state or any municipality or any other local authority may
notwithstanding that those taxes, duties and cesses or fees are mentioned in the Union list continue to be levied by the
same purpose until the provision to the contrary has been made by Parliament by law.

Article 279
Talks about calculation of net proceeds and its partition here net proceeds are actual amount after deducting the cost
inferred from the collection of Tax. And this amount apportioned between union and state.

Article 279A
The article defines GST council clause 1 of the article says that when the 101 amendment passes president constitutes a
council namely GST council.

The chairperson of that council will be the union finance minister and the union ministers of state in charge of revenue
of finance is the member, the minister in charge of finance or taxation or any other minister nominated by each state
governments are the members.

The council can give the recommendation on cess, tax, surcharge levied by the union and state and other local bodies,
the goods and services that may be exempted from the GST.

GST laws and on what basis it is decided and appointment principles and threshold limit of turnover, base rate, special
rate for the special purposes like for natural calamity or special provisions on respect of hilly areas or northeast states. (
Arunachal Pradesh, Mizoram, Kashmir, Manipur, Meghalaya, Nagaland ,Uttarakhand and Himachal Pradesh)

GST council shall recommend the date on which the goods and services tax shall be levied on petroleum , crude oil,
high speed diesel, natural gas, aviation turbine fuel.

Article 282
The Union or a state may make any grants for any public purpose , notwithstanding that the purpose is not one with
respect to which Parliament or the Legislature of the state , as the case may be, may make laws.

Article 286
State cannot authorize the imposition of tax on supply of goods and services , where such supply takes place outside
the state or where the export of the goods and services takes place out of territory of India.

Parliament by law formulate principles for determining when a supply of goods and services takes place in any way
mentioned in clause (1)

Article 289
This article talks about exemption of property and income of state from union taxation.

1. The property and income of state are exempted from union taxation.
Nothing in Clause (1) shall prevent the Union from imposing or authorizing the imposition of , any tax to such
extent , if any , as Parliament made by law provide in respect of a trade or business of any kind carried on by or
on behalf of the government of a state , or any operations connected therewith , or any property used or
occupied for the purpose of such trade or business or any income accruing or arising in connection therewith.

Aggregate Turnover
As defined under GST law, aggregate turnover refers to the aggregate value of all taxable supplies (not including the
value of inward supplies over which tax is payable by an individual on a reverse charge basis), exports of goods and
services, exempt supplies, and inter-state supplies of persons having the same PAN, to be computed on Pan India basis,
but not including State tax, Union territory tax, Central tax, Integrated tax, and cess.

Meaning of Aggregate Turnover:- As per section 2(6) of CGST Act, 2017 ‘aggregate turnover’ means the aggregate
value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse
charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same
Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax,
integrated tax and cess.
> Aggregate turnover does not Include:-
1. Inward supply on which recipient is liable to pay tax under reverse charge mechanism. The value of such supply would
not form part of the ‘aggregate turnover’ of the recipient of such supply. However, the value of such supplies would
continue to be part of the ‘aggregate turnover’ of the supplier of such services.
2. Central tax, state tax, union territory tax, integrated tax & compensation cess.

> Aggregate turnover includes the following supplies:-

1. Taxable supplies;
2. Exempt supply: • Supply that have NIL rate of tax; • Supply that are wholly exempt from tax under section 11, or
under section 6 of IGST Act. • Non-taxable supply
3. Export of goods or services or both; 4. Interstate supply between units of a person having same PAN.
GST Council structure
As per Article 279A of the amended Constitution, the GST Council is a joint forum of the Centre and the States, and
consists of the following members: -

Union Finance Minister Chairperson

The Union Minister of State, in-charge of Revenue, Min. of Finance Member

The Minister In-charge of Finance or Taxation or any other Minister nominated by each Members
State Government

The Council is empowered to make recommendations to the Union and the States on the following:-
a) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be
subsumed in the goods and services tax;
b) the goods and services that may be subjected to, or exempted from the goods and services tax;
c) model Goods and Services Tax Laws, principles of levy, apportionment of Integrated Goods and Services
Tax and the principles that govern the place of supply;
d) the threshold limit of turnover below which goods and services may be exempted from goods and services
tax;
e) the rates including floor rates with bands of goods and services tax;
f) any special rate or rates for a specified period, to raise additional resources during any natural calamity
or disaster;
g) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and
h) the date on which GST shall be levied on petroleum crude, high speed diesel, motor spirit (petrol), natural
gas and aviation turbine fuel.
i) any other matter relating to the goods and services tax, as the Council may decide.

On 12th September,2016 the Union Cabinet under the Chairmanship of the Hon'ble Prime Minister approved
setting up of GST Council and creation of its Secretariat as follows:

(a) GST Council as per Article 279A of the amended Constitution;

(b) GST Council Secretariat, with its office at New Delhi;
(c) Secretary (Revenue) as the Ex-officio Secretary to the GST Council;
(d) Inclusion of the Chairperson, Central Board of Excise and Customs (CBEC), as a permanent invitee (non-
voting) to all proceedings of the GST Council;
(e) One post of Additional Secretary to the GST Council in the GST Council Secretariat (at the level of
Additional Secretary to the Government of India), and four posts of Commissioners in the GST Council
Secretariat (at the level of Joint Secretary to the Government of India).
What are the Benefits of GST Registration?

The advantages of GST Registration are given bellow:-

• Simplifies Taxation Services

GST has combined a number of indirect taxes under one umbrella and integrated the Indian market.

• Reduction in Costs of Products & Services

With the introduction of GST, the cascading effect of a series of VATs and taxes has been erased which has
resulted in the reduction of cost of goods and services.

• Helps in Avoiding Lengthy Taxation Services

GST Registration helps the small businesses in avoiding the lengthy taxation services. As the service providers
with a turnover of less than 20 lakhs and goods provider with a turnover of less than 40 lakhs are exempt from
paying the GST.

• Aimed at Reducing Corruption and Sales Without Receipts

GST was introduced with an aim of reducing corruption and sales without receipts. Also, it helps in reducing
the need for small companies to comply with various indirect taxes.

• Uniformity in Taxation Process

GST Registration brings uniformity in the taxation procedure and allows centralized registration. This helps the
businesses to file the tax returns every quarter through an online process.

• Minimizing Tax Evasion

With the introduction of GST, tax evasion is minimized to a great extent.

• Higher Threshold for Registration

Earlier, in the VAT system, any business with a turnover of more than Rs 5 lakh was liable to pay VAT in
India. In addition, service tax was exempted for service providers with a turnover of less than Rs 10 lakh.
Under GST regime, on the other hand, this threshold has been increased to Rs 20 lakh, which exempts lot of
small traders and service providers.

• Composition Scheme for Small Businesses

Under GST, small business under turnover of Rs 20 to 75 lakh can benefit as it gives an option to lower taxes
by using the Composition scheme. This move has brought down the tax and compliance burden on many small
businesses.

• Simple and Easy Online Procedure

The complete process of GST (from registration to filing returns) is done online, and it is super simple. This has
been advantageous for start-ups mainly, as they do not have to run from pillar to pillars to get diverse
registrations such as VAT, excise, & service tax.

• Compliances is Lesser in number

Previously, there was VAT & service tax, each of which had its own returns & compliances. Under GST, on
the other hand, there is just one, unified return to be filed.

• Regulations of Unorganized Sector

In the pre-GST era, it was often observed that certain industries in India like building construction and textile
were largely unorganized and unregulated. Under GST, however, there are provisions for online compliances
and payments, and for availing of input credit only when the supplier has accepted the amount. This has
brought in accountability and regulation to these industries.
 What is supply under GST?
Supply includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a person undertakes
either of these transactions during the course or furtherance of business for consideration, it will be covered
under the meaning of Supply under GST.

Elements of Supply
Supply has two important elements:
• Supply is done for a consideration
• Supply is done in course of furtherance of business
If the aforementioned elements are not met with, it is not considered as a sale.
Examples:
• Mr. A buys a table for Rs.10,000 for his personal use and sells it off after 10 months of use to a dealer. This is
not considered as supply under CGST as this is not done by Mr A for the furtherance of business.
• Mrs. B provides free coaching to neighbouring students as a hobby. This is not considered as supply as this act
is not performed for a consideration.
However, as specified in Schedule I of GST Act, certain activities are considered as supply even if it is made
without consideration.
The definition of supply has certain major elements:

•
• All forms of supply

• When made or agreed to be made

• For a consideration

• By a person [Please note ‘To a person’ is absent]

• In the course or furtherance of business.

Special Audit under GST

When can a special audit be initiated?

The Assistant Commissioner may initiate the special audit, considering the nature and complexity of the case
and interest of revenue.

If he is of the opinion during any stage of scrutiny/ inquiry/investigation that th e value has not been correctly
declared or the wrong credit has been availed then a special audit can be initiated.

A special audit can be conducted even if the taxpayer’s books have already been audited before.
Who will order and conduct a special audit?

The Assistant Commissioner (with the prior approval of the Commissioner) can order for special audit (in
writing). The special audit will be carried out by a chartered accountant or a cost accountant nominated by
the Commissioner.

Importance of GST

Advantages of GST to Consumers

1.Decrease in the price of goods & services Since GST is charged at all levels of the supply chain, a considerable
difference can be found in the prices of the products. While consumers would have to pay separate taxes before,
they now have to pay just one tax. A customer will be able to avail the advantages of GST cost that will be lesser
than VAT or service taxes.
Food items, such as basic food grains & spices fall under the Range 0-5% GST, this might be extremely beneficial
for the customers as they are cheaper to buy. Packaged products like shampoos, tissue papers, toothpaste, soaps,
electronic items have become cheaper.
Other observed GST slab rates are:
5% corresponds to mass consumption items such as Spices
12% corresponds to processed food
28% corresponds to white goods
28% plus cess correspond to luxury goods, aerated drinks, tobacco, etc.

2.Same price around the country One of the major advantages of GST is the fact that a consumer will be able
to avail the product at the same price anywhere in the country. However, the products that fall under the GST
tax-slab come under this advantage.

3. Simplified tax system The entry of GST into the Economy has made the tracking of taxes easier than ever
before. Since GST works on a computerized system, consumers can be fully aware of the amount they are paying
in taxes for the goods and services. Every time you purchase goods and services; you will be able to see the
amount you paid in tax on the Receipt.

Benefits of GST to the Government.

1.Foreign investments Goods and Services Tax (GST) was launched with the motto of ‘One Tax One Nation’.
Common and accountable markets help attract foreign investment and promotes Indian products at an
international platform.

2. Boost in the import & export Industry Attracting foreign investment will not only help Indian products and
services reach a global platform, but also give a boost to the Import and export Industry. The more trade takes
place the better job opportunities are created.
The unemployed of the country will get jobs and newer businesses will enter the Market.

Benefits of GST to Traders

 1.Transparency Traders could be wholesalers, retailers, importers and exporters, etc. One of the major
advantages is the transparency that comes with GST. It makes the business transaction easy for traders as they
have to pay GST for everything they purchase along the supply chain.
2. Easy borrowing Digitalisation has brought about immense ease in transactions to society and has made life
much easier for both consumers and traders. GST brought the recording of every financial transaction on its
system which makes it easier for small and large businesses to maintain their transactions’ record.
Maintaining this record makes it much easier to take loans from banks or other businesses since the system has
the history of the assets and the repayment ability of the trader.

3. Easy entry into the market This is another major advantage for any business under the GST tax regime. With
the clarity in market processes, a better flow of action between the various traders can be maintained. This makes
the entry of any trader into the market easier as compared to previous times.

EXEMPTED SERVICES IN GST EXEMPTION LIST

• All the services related to agriculture including harvesting, cultivation, supply, packaging, warehouse, renting or
leasing of machinery, etc. are exempted from GST. However, this does not include the rearing of horses.

• Transportation of individuals via public transport, metered cabs, auto-rickshaws, metro, etc.

• Transport of agriculture produce and transportation of goods outside of India

• Transportation of goods where the total amount of charges is less than Rs 1500

• Government and foreign diplomatic services

• Services provided by RBI or any foreign diplomatic mission in India are also exempt from GST

• Services provided to diplomats including the United Nations

• Certain healthcare and educational services are also exempt from GST such as mid-day meal catering services,
services provided by a Vet, clinic, or paramedics. Services by ambulances and charities are also included in the list
 Offences Under GST
A total of 21 offences are mentioned in the CGST Act, 2017. These offences can be broadly classified into the
following five categories:

1. Wrong Invoicing

• Supply of goods/services by a taxable individual without an invoice or with a false invoice.

• Issuance of the invoice without the supply of the goods/services.
• Using the invoice identification number of someone else.
2. Fraud

• Submission of wrong information at the time of GST registration.

• Submission of wrong financial records with an intent to evade the applicable tax.
• Not providing the required information or giving wrong information during the proceedings.
3. Tax Evasion

• Collecting GST but not submitting the same to the government within a period of 3 months.
• Not collecting the GST in line with the provisions laid down by the law and not submitting the same to the
government.
• Obtaining CGST/SGST refund by committing fraud.
• Utilising input tax credit without actually receiving the goods/services.
• Deliberate suppression of sales with an intent to evade the tax.
4. Transport/Supply of Goods

• Transport of goods without proper documentation.

• Transport of goods that can be seized.
• Destroying/tampering with goods which have been seized.
5. Others

• Not registering under GST despite being required by the law.

• Not deducting TDS or deducting less TDS whenever required.
• Not deducting TCS or deducting less TCS whenever required.
• Taking or distributing the input tax credit in violation of the law.
• Obstructing the authorised GST officer when they are performing their duty.
• Not maintaining all the required books as mandated by the law.
• Destroying any evidence.
 GST Penalties

Not making your GST payments or making short payments will result in GST penalties. Offenders will have to
pay a penalty of 10% of the tax amount, subject to a minimum of ₹10,000.

1. Monetary Penalties Under GST

The following table lists down all the offences as per the GST law for which a monetary penalty under GST is
applicable:

Offence Type Penalty Amount

A late fee of ₹100 per day on both CGST and SGST, subject to a
Delay in filing GSTR maximum of ₹5,000. No late fee applicable for IGST

Not filing the GSTR 10% of the tax due, subject to a minimum of ₹10,000

100% of the tax due, subject to a minimum of ₹10,000 (jail term

Fraud in case of a high-value fraud)

Helping someone commit fraud Up to ₹25,000

Demand and recovery provisions of Sections 73 & 74

applicable:
(i) Fraud cases: 100% of the tax due, subject to a minimum of
₹10,000
Opting for the GST composition (ii) Non-fraud cases: 10% of the tax due, subject to a minimum
scheme without being eligible of ₹10,000

Incorrect GST rate charged-

charging a higher rate 100% of the tax due, subject to a minimum of ₹10,000

Not issuing invoice 100% of the tax due, subject to a minimum of ₹10,000

Not getting registered under GST 100% of the tax due, subject to a minimum of ₹10,000

Incorrect invoicing ₹25,000

2. Non-Monetary Penalties Under GST

There are some minor offences for which no penalty is applicable; however, interest may be levied on the tax due.
 Type of offence Action

Incorrect type of GST

charged (e.g. IGST instead No penalty applicable. The correct GST amount is to be paid and the
of CGST/SGST) amount paid earlier is reversed.

Incorrect filing of GST

returns No penalty. An interest of 18% p.a. applicable on the shortfall amount

Delayed payment of the

invoice. No penalty. ITC is reversed if invoice not paid within 6 months

Incorrect GST rate

charged— charging a lower
rate No penalty. An interest of 18% p.a. applicable on the remainder amount

3. Penalty for Fraud

If a person is found guilty of having committed fraud under the GST Act, they have to pay a penalty of 100% of
the tax amount, subject to a minimum penalty of ₹10,000.

4. Penalty for Helping a Person Commit Fraud

In case a person is found guilty of helping a GST-registered business owner commit fraud, they will have to pay a
penalty of up to ₹25,000 depending upon the type of fraud and their involvement in the same.

5. Corporal Punishments Under GST

In case of fraud exceeding ₹100 Lakhs, the offender might also have to serve a jail term apart from the applicable
fine. The table below depicts the quantum of jail term based on the amount of fraud committed:

Tax Amount ₹100-₹200 Lakhs ₹200-₹500 Lakhs Above ₹500 Lakhs

Jail Term Max 1 Year Max 3 years Max 5 years