NATIONAL LAW UNIVERSITY ODISHA

INDIRECT TAXATION PROJECT

TOPIC:

ANALYSIS OF RECENT GST HIKE ON ESSENTIAL ITEMS IN VIEW OF CURRENT ECONOMIC

SITUATION OF INDIA

Submitted to:
MR. SUBHAPRAD MOHANTY

Submitted by:

ABHINAV SINGH CHAUHAN [2019/B.B.A. LL.B./001]

SHREYA PRAKASH [2019/B.B.A. LL.B./042]

[ IV Year | VII Semester | B.B.A. LL.B. (2019-2024)]

Academic Year: 2022-23
 TABLE OF CONTENTS

Abstract ----------------------------------------------------------------------------------------------------- 3
1. Introduction --------------------------------------------------------------------------------------- 4

2. Research Methodology -------------------------------------------------------------------------- 4

3. GST framework in India ------------------------------------------------------------------------ 5

3.1. How and Why was GST introduced ------------------------------------------------------- 5

3.2. GST and Federal Structure in India ------------------------------------------------------ 6

3.3. GST council and Role ----------------------------------------------------------------------- 7

4. analysis of GST and it’s rates in India and Abroad ----------------------------------------- 9

5. GST hike on essential items -------------------------------------------------------------------11

5.1. The need for hike ---------------------------------------------------------------------------12

5.2. The implementation ------------------------------------------------------------------------12

5.3. The Aftermath and the impact ------------------------------------------------------------13

6. The reason of hiking rates and the impact thereon: Was hike necessary? --------------14

7. Conclusion ---------------------------------------------------------------------------------------15

Bibliography ----------------------------------------------------------------------------------------------17

Page | 2
 ABSTRACT

The Indian economy has been on a roller coaster since the pandemic-induced lockdown in the
first quarter of 2020, which led to several industries being closed while many others faced a
massive revenue loss due to loss in business. Though the Indian economy started to gain
momentum by the end of 2021, the Ukraine- Russia War thawed India’s economic recovery.
The Ukraine- Russia War not only impacted the Indian economy but severely affected the
global economy, with crude prices soaring along with a worldwide food shortage.

Although some economies fared through the challenges of economic distress, some countries
felt the heat. The economic situation for India’s neighbours, Sri Lanka, Bangladesh and
Pakistan, is so critical that they had to ask IMF for grants, with Sri Lanka asking for a bail-out
package as it defaulted on several of its loan repayment.

India, too faced a certain level of hardships with its expenses soaring while the income
decreased on account of the economic slowdown. However, India passed on the burden to its
taxpayers. Indian government first increased the taxes on petroleum products in 2020 while the
global prices were at their record low level. Recently, the Indian government also imposed
Goods and Services Tax (GST) on essential goods like milk products, and packaged grains,
among others. This tax hike comes at a time when India’s inflation rate is over 9%, with the
prices of every commodity rising.

This article aims to analyse the effect of the recent tax hike on various items in the Indian
economy. The article further analyses the economic position of India amid the looming clouds
of global recession and if India could prevent a recession by increasing the tax rates amid the
falling rupee.

Page | 3
1. INTRODUCTION

In 2017, the indirect taxation framework in India took a major overhaul with 101st amendment
to constitution of India which implemented the GST in India. The specific framework for
indirect tax, that too in a country in India, cannot be determined by the formulae devised by
economists as it is the by-product of the inevitable tension between the economically desirable
and politically feasible outcome of the tax reforms.

The GST was introduced to decongest the then prevailing tax laws in India and to provide
comprehensive set-off tax benefits across all the levels of supply chain from that of
manufacturer to that of retailer, eventually easing the cascading and pyramiding effects. In the
earlier tax structures, there was a burden of tax-on-tax in the sales and excise tax system
prevalent in pre-GST era. The GST fused a major chunk of indirect taxes among itself to reduce
the multiplicity of taxes, which would eventually reduce the operating costs of indirect tax
structure in the country.

One of the major benefits of the GST was to pass on the benefit of cost reduction to the
consumers and few essential items were kept outside its purview, in order to keep the inflation
costs under check, which was also one of the reasons of introduction of multiple tax slabs under
the GST. However, the government of India in a recent move increased tax rates on essential
items even when the Indian economy was suffering a major blow. Though one of the reasons
attributed can be to decreased the widening fiscal deficit.

This article discusses the framework of GST in India and the GST council in order to analyse
the decision making process and decision of implantation of GST on states. The article further
analyses the government’s decision to introduce tax on essential items in the present economic
situation of India. The article finally analyses the impact of such a move on the Indian economy.

2. RESEARCH METHODOLOGY

RESEARCH OBJECTIVE

To study and analyse the developments related to imposition of GST on essential items and the
rile of GST council for recommending the same in view of the economic situation of India/

SCOPE OF RESEARCH

Page | 4
The scope of this project is restricted to Indirect Tax Laws in India and GST in other
jurisdictions.

The research methodology adopted in this study is doctrinal and analytical. The research
involves analysis of both primary and secondary materials. Primary material includes the case
laws, legislations and the notification issued by the government of India. Secondary material
includes various article and books coupled with reports and discussion of various regulatory
bodies such as Reserve Bank of India, International Monetary Fund among others

RESEARCH QUESTIONS

The research questions for this project are as follows:

• What is the role of GST Council in recommending tax rates on various items?
• What are the rates of GST on essential items in other common law jurisdictions?
• Why did India suddenly imposed GST on exempted essential goods?

3. GST FRAMEWORK IN INDIA

Before the introduction of GST, India's indirect tax regime had various limitations. His pre-
GST system of central excise tax and the state sales tax system had tax burdens. GST has a
wealth of indirect and state taxes under its umbrella. We are consolidating taxes on goods and
services for easier liquidation. Furthermore, we have achieved a certain level of value creation
in commerce. There is now a continuous chain of offsets that removes the burden of cascading
effects.

In other words, GST is a comprehensive indirect tax collection on the production, sale and
consumption of goods and services at the national level. GST is an indirect tax that makes all
of India a single common market. The GST was designed to provide India with a world-class
tax regime and improve tax revenues. It will put an end to long-standing distortions of
discriminatory treatment of manufacturing and service industries. GST enables seamless
financing under a common tax base across supply chains and states.

3.1. HOW AND WHY WAS GST INTRODUCED

Asim Dasgupta served as the chairman of the Empowered Committee, which the Vajpayee
administration established in 2000 to draught the GST concept. Following that, the Task Force

Page | 5
on Implementation of the Fiscal Responsibility and Budget Management Act, 2003 (Chairman:
Vijay Kelkar) suggested that all ineffective and distorting taxes be eliminated so that India
could benefit from the efficiencies of a single national tax and suggested a comprehensive GST
based on the VAT principle. The idea of implementing a GST was first put forth in 2005 by P.
Chidambaram, who was the Union Finance Minister at the time. In his budget speech for the
fiscal year 2005–2006, Chidambaram stated that a goods and services tax that includes both
the Center and the States should be applied to the entire production-distribution chain.

In his budget speech for 2006–2007, he maintained his notion and suggested April 1, 2010, as
the day the GST would be implemented. An Empowered Committee (EC) of State Finance
Ministers was tasked with collaborating with the Central Government to create a plan for the
implementation of GST in order to achieve this goal. On April 30, 2008, the final draught of
the EC report was released as "A Model and Roadmap for Goods and Services Tax in India".

The EC published the First Discussion Paper on Goods and Services Tax in India on November
10, 2009 in order to solicit feedback from business, trade associations, and the general public
after receiving comments on the report from the Government of India and concerned State
Government officials, and after taking into account their recommendations. The Constitution
(115th Amendment) Bill, which would enable the Center and States to enact laws for the
levying of GST, was presented in the Lok Sabha on March 22, 2011. But after the 15th Lok
Sabha was dissolved; the Bill became ineffective.

The Constitution (122nd Amendment) Bill, 2014 was then presented in the Lok Sabha on
December 19 to resolve a number of GST-related issues. Notably, the Constitution did not
expressly grant the Central Government or State Government the authority to levy taxes on the
"delivery of goods and services," hence the adoption of the GST required a constitutional
modification. While the States had the authority to tax the sale of products, the Centre had the
authority to tax both services and goods up until the point of production. A constitutional
amendment was required since the GST regime mandates that both the Central and State
Governments tax goods and services at the same time.

3.2. GST AND FEDERAL STRUCTURE IN INDIA

In many parts of the world, the idea of a destination-based comprehensive tax on consumption
of goods and services known as GST—"a single (unified) tax levied by the national government

Page | 6
at a uniform rate and collected on value added at each stage of sale and purchase in the supply
chain—became popular in the late 1960s”.1

With this strategy, the revenue base is expanded, economic distortions are decreased, and the
input taxes are eliminated, making the tax system more responsive to the needs of the global
marketplace.2 By the early 1990s, VAT/GST reforms had turned into something of a litmus
test for the emerging countries' deeper integration into the global marketplace as a result of the
IMF's constant support and advocacy of this type of taxation in the emerging economies. A
single national GST is typically seen as the best option for the creation of a common market in
a nation.3

However, in huge federal nations like India, where subnational budgetary autonomy is a touchy
subject, this "ideal" approach is not politically practical. Federal nations like Canada and Brazil
have implemented either hybrid federal-regional VAT systems, known as "dual" federal-
regional VAT systems, or regional VATs. In these systems, VAT is imposed by both the
national and subnational governments. The benefits of a sole national GST, such as the
extension of the tax base, elimination of distortionary input taxes, reduction of trade barriers,
and avoidance of the cascading effect of taxation, would still apply even under these federal
variations if correctly implemented.

3.3. GST COUNCIL AND ROLE

The one-hundred first constitutional amendment Act which paved way for the constitutional
framework for the GST also constituted a GST council for the implementation of GST. The
GST Council is made up of “the Union Finance Minister, who serves as the council's chair, the
Union Minister of State for Finance or Revenue, and all of the individual State Governments'
Finance Ministers.”4 On a variety of issues as listed in Article 279A(4) of the Constitution, it
has the authority to make ‘recommendations’. A super-majority of three-fourths of the
members present and voting must vote in order for a decision to be made by the GST Council,
but not all States and the Union have an equal number of votes. One-third of the votes are cast
by the Union, and two-thirds are cast by all the States together.

1
Chanchal Kumar Sharma, The Political Economy of India’s Transition to Goods and Services Tax, German
Institute of Global and Area Studies (GIGA) 1, 6 (2021).
2
RE Krever & White, GST in Retrospect and Prospect (Thomson Brookers 2007).
3
R Bird & Gendron, The VAT in Developing and Transitional Countries (1st ed., Cambridge University Press).
4
Constitution of India, Art. 279A(1).

Page | 7
The term "recommendation" (as opposed to "prescription") implies that it is non-binding on
the parties involved, hence there is room for ambiguity over whether the Council's
"recommendations" are binding.5 The phrase "recommendations" or a version of the same is
used in the context of the GST Council in the explanation to Section 18 of the 101st
Amendment Act, which implies that neither the union nor the states are required to mandatorily
follow the council’s advice.

A closer look, however, would seem to indicate that this is not the case. It is a well established
rule of construction that words should be understood in the context in which they are used,6
and in accordance with the legislative meaning.7 Since the GST Council was established with
the express purpose of making the recommendations legally obligatory, the choice of the word
"suggestion" may be an example of bad drafting. There are two reasons for this. First, if the
GST Council is unable to issue recommendations that are legally enforceable, the GST system
as a whole will disintegrate since each State will have its own unique and potentially
incompatible tax levy and collecting system.

Dealing with the constitutionality of constitution of GST council, the Supreme Court in the
case of Union of India v. Mohit Minerals,8 while upholding the constitutionality of the council
held that the GST council, a constitutional body, is tasked with making recommendations on a
variety of GST-related topics. According to Article 279A(4)(h), the GST Council has the
authority to make recommendations on "any other topic" pertaining to GST as the Council sees
fit. According to Clause 6 of Article 279A, the GST Council must reach its recommendations
by coordinated discourse among the federal divisions. Article 279A of the Constitution
specifies that recommendations should be made to "the Union and the States," as opposed to
other clauses that say they should be presented to the President or the Governor. The GST
Council's suggestion submitted in accordance with Article 279A is unqualified. That is, the
worth of such a recommendation is not explained. However, it would be improbable for the
GST Council's proposals to become law in and of itself under Article 246A. Such a limitation
would have been there in Articles 246A or 279A if the GST Council was meant to be a decision-
making body whose recommendations become laws. Both Article 246A and Article 279A do

5
Naraindas Indurkhya v. State of M.P., (1974) 4 SCC 788.
6
Yedida Chakradhararao v. State of A.P., (1990) 2 SCC 523.
7
Pratap Singh v. State of Jharkhand, (2005) 3 SCC 551.
8
Union of India v. Mohit Minerals, 2022 SCC OnLine SC 657 : MANU/SC/0683/2022.

Page | 8
not start with a non-obstante Clause or state that the legislative power is "subject to" Article
279A.

The sections of the IGST Act and CGST Act that mandate that the Union Government act on
the GST Council's recommendations must be construed in light of the enactment's goal of
establishing a consistent taxation system. Since different States could previously offer various
tax slabs and exemptions, the GST was instituted. When the government uses its authority to
notify secondary legislation to implement the uniform taxation system, the GST Council's
recommendations become legally binding on the government. According to Article 279A, the
Council has extensive discretionary authority to make recommendations on GST-related
subjects, including those that lie outside the ambit of the IGST and CGST Act's rule-making
authority.

The court further in Mohit Mills case9 held that found that it cannot be contended that all of the
GST Council's recommendations are binding on the Government just because some of them
are subject to the provisions of the CGST Act and IGST Act. A main law's provisions cannot,
as a matter of first principles, be used to interpret the Constitution's provisions, which serve as
the nation's standard. The only provisions that can be read in light of the Constitution are those
included in main legislation. The legislature enacts laws by using both its constituent and
legislative powers to change the Constitution. Comparatively to its legislative power, the
legislature's constituent power is of a higher constitutional order. Even if Parliament has passed
laws requiring the Central Government to abide by the GST Council's recommendations in
order to announce secondary legislation, this does not mean that all of the council's
recommendations made in accordance with its authority under Article 279A are legally
enforceable.

4. ANALYSIS OF GST AND IT’S RATES IN INDIA AND ABROAD

Around 160 nations have chosen the GST as their preferred taxation method, and so the idea is
not new to the world. While most nations only have one rate, in India, the government has
divided GST into five categories: 0%, 5%, 12%, 18%, and 28%. Although the GST was
implemented under the slogan “one nation, one tax,” it is still not a uniform tax. By comparing
the rates on some basic products in different countries, we can establish that though India

9
Id.

Page | 9
adopted the GST on the pretext of same being adopted by developed nations, India devised a
new structure of GST to meet its economic needs.

So, in India, a nominal GST of 5 per cent applies to “curd, lassi, butter milk and paneer when
sold in pre-packaged and labelled form, and Ultra High-Temperature Milk”. Further, a GST of
12 per cent applies to “condensed milk, butter, ghee and cheese”.

In Canada, basic groceries including “meat, fish, poultry, cereals, dairy products, eggs,
vegetables (fresh, frozen, canned), coffee, tea, fishery products for human consumption,” etc.
fall under the category of zero-rated goods.

Other major nations of the world, follow a flat GST rate mechanism, i.e. same rates for all the
goods and services. At a rate of 3%, GST was introduced in Singapore in 1994. It was then
hiked to 7% in 2007. 2015 saw GST’s debut in Malaysia. The GST rate there is 6%. In New
Zealand, a 10% GST was introduced in 1986. Since 2010, there has been a 15% GST rate in
effect. It was made available in Australia on July 1st, 2000. In Australia, the majority of goods,
services, and other commodities are subject to the 10% general sales tax (GST).

The Indian GST system has four non-zero slabs: 5%, 12%, 18%, and 28%. Most countries only
have one rate. According to the World Bank report10, 49 countries only use one rate, compared
to 28 countries that utilize two rates. Along with India, the other countries that use four or more
rates are Italy, Luxembourg, Pakistan, and Ghana.

India’s 28% GST rate, the highest of the four non-zero slabs, is the second-highest among a
sample of 115 countries having a GST (VAT) system, according to the India Development
Update11, a World Bank book released in Delhi on March 15, 2018. India has the highest
average rate in Asia. The Indian GST is one of the most complex tax systems in the world,
according to the World Bank.12

High compliance costs also result from the requirement to categorize inputs and outputs
according to the relevant tax rate, which is necessitated by the existence of several tax rates.
Businesses must match invoices between their outputs and inputs in order to be eligible for the
entire input tax credit in addition to applying the right rate, which raises compliance expenses.

10
‘World Development Report 2016 : Digital Dividends’ (The World Bank, 17 May 2016)
<https://www.worldbank.org/en/publication/wdr2016> accessed 5 October 2022.
11
‘India Development Update’ (The World Bank, 14 March 2018)
<https://www.worldbank.org/en/news/feature/2018/03/14/india-development-update> accessed 5 October 2022.
12
‘GST: Indian system among the most complex globally, says World Bank report’ (Business Standard, 16 March
2018) <https://www.business-standard.com/article/economy-policy/gst-indian-system-among-the-most-
complex-globally-says-world-bank-report-118031600472_1.html> accessed 5 October 2022.

Page | 10
The secret to success is policy design that reduces the burden of compliance, for instance by
reducing the number of different rates and limiting exemptions, with straightforward laws and
procedures, an appropriately structured and resourced administration, compliance strategies
based on a balanced mix of education and assistance programmes, and risk-based audit
programmes.

5. GST HIKE ON ESSENTIAL ITEMS

The “Central Board of Indirect Taxes and Customs” (CBIC) issued the Central Tax (Rate)
notifications 03/2022 to 11/2022 on 13th July 2022.13 The GST council at its 47th meeting
approved a duty at the rate of 5% on some essential household items. These modifications were
to take effect on July 18, 2022. Some of these items are:

• Food products including cereal, lentils, and flour sold in single containers weighing up
to 25 kg will be deemed “prepackaged and labelled” and subject to 5% GST. When pre-
packaged and clearly labelled, other commodities including curd, lassi, and puffed rice
will also be subject to GST at the rate of 5%.
• Printing, writing, or drawing ink, knives with cutting blades, paper knives, pencil
sharpeners and blades, spoons, forks, ladles, skimmers, and cake servers are other
products that will cost more. Now, instead of drawing 12%, these objects would draw
18% GST.
• Solar water heaters and LED lighting will be subject to an 18% tax.
• Tetra Pak (or aseptic packaging paper) used to package dairy goods or liquid drinks
will now be subject to 18% GST rather than 12%.
• Cut and polished diamonds will now be taxed at 1.5% instead of the previous 0.25%.
• Up to Rs 1,000 per day of hotel lodging will now be subject to a 12% tax.
• Non-ICU hospital rooms with room rent above Rs 5,000 per day would be subject to a
5% GST.
• The GST rate will be 18% for bank chequebooks and loose leaf cheques and 12% for
globes, atlases, and maps.

13
‘Central Tax (Rate) Notifications’ (Central Board of Indirect Taxes and Customs) <https://cbic-
gst.gov.in/hindi/central-tax-rate.html> accessed 5 October 2022.

Page | 11
 5.1. THE NEED FOR HIKE

After heated debates, the points describing the reasons for such a hike could be categorized
into four major points.

a. Due to tax leakage

When the GST was implemented, a rate of 5% was originally applicable on “branded”
cereals, pulses, and flour; however, this rate was later changed to tax only goods sold
under “registered” brands or brands on which the provider had not waived an
enforceable right.
However, reputable producers and brand owners soon discovered widespread abuse of
this loophole, and as a result, GST income from these goods steadily decreased.
Suppliers and trade groups who had to pay taxes on branded items hated this. To prevent
this abuse, the hike is justifiable.
b. The VAT is carried over into the GST.
This tax on necessities was in force in numerous states before to the implementation of
the GST and under the VAT regime. Taxes on food were a source of income for the
states. It was anticipated that this new GST regime would continue this, however when
regulations and circulars were released and it was implemented in 2017, it was only
applied to branded products.
c. There are no taxes on food goods that are offered in loose forms
The same daily essential products, on which GST has been levied, when sold loose and
not pre-packed or pre-labelled, will not attract any GST.
d. Even the states want the GST to be paid
Officers and the Group of Ministers (GoM) gave it various degrees of consideration
before the GST Council ultimately endorsed the hike. The Council, which includes
representatives from every state, reached a unanimous conclusion to revoke the
exemption and put pre-packaged and labelled food products inside the GST.

5.2. THE IMPLEMENTATION

It is very important to understand what is the actual effect of this GST hike in the Indian market.

Firstly, the only products for which these adjustments are made, are the ones covered under the
Legal Metrology Act and after paying GST, the bulk of those items are already being marketed
under their brand names. Therefore, it is unlikely to lead to any discernible rise in revenue
collections, unlike the recent windfall tax on fuel.

Page | 12
Instead, the Hon’ble Union Finance Minister made it clear that there were worries about income
leakage since some companies were abusing the exemption rule for unlabeled food goods by
failing to register them.14 Due to this, it was decided to revoke the exemption and put pre-
packaged and labelled food products inside the GST umbrella. It was further stated that, with
the exception of two or three products, only the methods of applying GST on these
commodities had changed.

Second, based on the clearly defined procedure in the form of the recommendations of the GST
council, any adjustments to the GST may only be put into effect with agreement between the
Centre and the States. So, rather than being a solo action, it is founded on a wider unanimity.
So, when viewed through this lens, the state governments’ rejection is a little unpredicted. The
Hon’ble Finance Minister of Kerala has stated that his State does not intend to impose GST on
necessities that tiny shops offer in packs of one to two kilograms.15

Any such exclusions would merely serve to skew the GST’s overall structure, increase its
complexity, and increase conflicts and litigation. Five years have passed since the
establishment of the GST in 2017. Overall, it has made the country into a single market, but
there are still a lot of glitches that need to be resolved.

5.3. THE AFTERMATH AND THE IMPACT

High inflation had already put the Indian homes’ budget at risk, and now they have to start
planning for some additional expenses immediately. Consumers will have to pay more for their
daily shopping as the government increased the government income, streamlined rates, and
reduced conflicts by changing the GST rates on a variety of commodities. Given that people
are already suffering from rising inflation, this adjustment is most likely to have a detrimental
effect on their family budgets.

Many small shops and millers pre-package their products and put them on the shelves so that
consumers may easily buy them without having to wait for them to be weighed and packed. In
the majority of India's retail stores, pre-packing of this kind is a standard procedure. Many

14
‘GST on certain food items: FM Sitharaman says decision taken to curb tax leakage with all states onboard’
(Economic Times, 19 Jul 2022) <https://economictimes.indiatimes.com/news/economy/policy/gst-on-certain-
food-items-fm-sitharaman-says-decision-taken-to-curb-tax-leakage-with-all-states-
onboard/videoshow/92988737.cms?from=mdr> accessed 5 October 2022.
15
Scroll Staff, ‘Kerala will not impose GST on essential items sold by small stores, says minister’ (Scroll.in, 20
Jul 2022) <https://scroll.in/latest/1028633/kerala-will-not-impose-gst-on-essential-items-sold-by-small-stores-
says-minister> accessed 5 October 2022.

Page | 13
regular consumers who frequent these stores for their necessary purchases will be negatively
impacted by the current adjustment.

Even though some state like Kerala did not support the move and regarded the increase as
unilateral decision by the centre, the recommendations made by the GST council were effective
across the nation. The GST rate hike will not only impact the budget of households but also led
to retailers face certain consequences.16 The households will face more heat due to
government’s actions as the households are already under a pressure due to retail inflation
being over 7% during June 2022, which was above the RBI’s threshold of 6%. Though the
overall GST hike of stables will be negative for FMCG companies due their stock price
showing a downward trend due to high inflation, the retailers and shopkeepers would need to
update the prices of items to match it with the new tax rate.

6. THE REASON OF HIKING RATES AND THE IMPACT THEREON: WAS

HIKE NECESSARY?

The Goods and Services Tax was adopted by the Indian government in 2017 with the aim of
enhancing tax administration for the government and lowering the compliance burden for
taxpayers. The government implemented slab rates for a variety of items and unified all indirect
taxes into a single new tax known as GST.

Outrage that the GST would raise prices and have a negative impact on the common person
has been triggered by the introduction of the GST on basic items like pulses, cereals, and rice.
This viewpoint gains importance, particularly in light of the current economic environment's
high rates of fuel and daily-consumables inflation, which have had an effect on household
budgets. Since the GST was implemented in 2017 the government has made many changes to
the slabs. But it is believed that the most recent changes would ultimately make it harder for
the typical individual to live.

These commodities could previously only be delivered if they were labelled and contained in
a unit. All pre-packaged and labelled items, regardless of whether they have a unit container or
not, are covered by the GST, and the distinction between branded and unbranded goods has
been erased. It is vital to keep in mind that this modification only applies to items that meet the
criteria for "pre-packed commodities" under the Legal Metrology Act, 2009.

16
Kanishka Sarkar, ‘D-Street is cautious as these daily essentials may cost more following GST rate hike’ (CNBC,
18 Jul 2022) < https://www.cnbctv18.com/market/gst-rate-hike-impact-on-fmcg-stocks-patanjali-dabur-to-
nestle-14166412.htm> accessed 5 October 2022.

Page | 14
Some say that the timing of raising tax rates at a time when consumer price index (CPI)
inflation is over 7%, wholesale pricing index (WPI) inflation is over 15%, there is a high
unemployment rate, the rupee is losing value, the current account deficit is growing, and global
inflation is predicted to increase is cruel.17 Moreover as the hiked rates were implemented when
FMCG sector was already bleeding due to inflatory pressure, the prospects of demand due to
such hike will important for the sector.18

In India, inflation and price increases are not just economic concepts but also frequently utilized
political weapons by the opposition parties to criticize the government. However, when it
comes to the pricing of necessities, political factors weigh more heavily than economic ones.
Political parties frequently clash in Parliament over how best to capitalize on the government's
alleged failure to control inflation as they attempt to gain support from the general public, who
has been worst hurt by price increases. It is because those in lower socioeconomic brackets
suffer more from rising costs, and the harm is greater if it affects vital goods.

Regarding application and terminology also there is confusion. Does the tax on “prepacked”
make a distinction between wholesale and retail? Would the fee have an effect on ONDC's
pledge to extend e-commerce to nearby shops? Do investments get encouraged in industries
like food processing and renewable energy? A parade of modifications has emerged during the
course of 47 GST Council Meetings, and the terrain is littered with several explanations.19

It is not simple to have streamlined fiscal laws in a big country like India with many
stakeholders. As a result, the voyage will be drawn out and lengthy, with frequent conflicts.
But most likely, that is how a big, active democracy works!

7. CONCLUSION

Though its been more than five years when GST was introduced in India, GST has always been
a topic of debate, whether for its implementation, its rates or for jeopardizing the federal
taxation structure of India. GST was introduced as a tax mechanism beneficial for both the

17
PTI, ‘'Cruel' to hike GST on some essential items of consumption, it'll increase inflation, says Congress’
(Economic Times, 20 Jul 2022) <https://economictimes.indiatimes.com/news/politics-and-nation/cruel-to-hike-
gst-on-some-essential-items-of-consumption-itll-increase-inflation-says-congress/articleshow/93008063.cms>
accessed 5 October 2022.
18
Kanishka Sarkar, ‘D-Street is cautious as these daily essentials may cost more following GST rate hike’ (CNBC,
18 Jul 2022) < https://www.cnbctv18.com/market/gst-rate-hike-impact-on-fmcg-stocks-patanjali-dabur-to-
nestle-14166412.htm> accessed 5 October 2022.
19
Shankkar Aiyar, ‘GST rate hikes and chaos of clarifications’ (CNBC, 18 Jul 2022) <
https://www.newindianexpress.com/opinions/columns/2022/jul/24/gst-rate-hikes-and-chaos-of-clarifications-
2479910.html> accessed 5 October 2022.

Page | 15
consumers and the industry, eventually boosting the revenue of the government, which was
true as GST collections for the first half of 2022 continue to be over INR 1.4 lakh rupees.

Nevertheless, the tax rates and their imposition through the recommendation made by GST
council is often questioned. The recent GST hike on essential items too was a phenomenon
resulting out of recommendations made by GST council. Such recommendations came at a
time when the country was under the pressure of rising inflation and economy was recovering
out the COVID-19 induced slowdown.

The affect of the move cannot be determined at such a stage as the demand curve and economic
analysis will take some time. However, the burnt faced by households cannot be ignored. It
will be pertinent to see if the government will be making any changes to the move after an
analyzing the aftermath of the rate hike.

Page | 16
 BIBLIOGRAPHY

• Alok P. Kumar, ‘For a mess of potage: The GST’s promise of increased revenue to
States comes at the cost of the Federal Structure of the Constitution’ (2016) 28(2)
National Law School of India Review 97.
• Pinaki Chakraborty, ‘Moderating the Hype: The Goods and Services Tax Council holds
the key to the effective implementation of the law’ (2016) 51(33) Economic and
Political Weekly 8.
• Chanchal Kumar Sharma, ‘The Political Economy of India’s Transition to Goods and
Service Tax’ (2021) 325 German Institute of Global and Area Studies.
• Alok K. Prasanna, ‘Goods and Services Tax: An Exercise in Controlled Federalism?’
(2016) 51(34) Economic and Political Weekly 10.

Page | 17
Turnitin - Originality Report - Indirect tax Project https://www.turnitin.com/newreport_printview.asp?eq=1&eb=1&esm=...

Turnitin Originality
Report
Processed on: 10-Oct-2022 20:51 IST
Similarity by Source
ID: 1921666871
Similarity Index
Word Count: 4967 Internet Sources: 16%
Submitted: 1 16% Publications:
Student Papers:
1%
3%

Indirect tax Project By

Abhinav Singh Chauhan

4% match (Internet from 12-Sep-2022)

https://www.taxmann.com/bookstore/bookshop/bookfiles
/nitibhasinchapter2.pdf

2% match (Internet from 04-Oct-2022)

https://www.advocatekhoj.com/library/judgments
/announcement.php?WID=15140

2% match (Internet from 20-Aug-2022)

https://pure.giga-hamburg.de/ws/files/23175227/WP_325.pdf

2% match (Internet from 15-Jan-2022)

https://Www.dnaindia.com/business/report-india-s-gst-one-of-the-most-
complex-says-world-bank-2594292

2% match (Internet from 25-Sep-2022)

https://economictimes.indiatimes.com/news/economy/policy/revised-gst-
rates-kick-in-today-here-is-a-list-of-items-thatll-get-costlier/articleshow
/92946233.cms

1% match (Internet from 23-Mar-2022)

https://pdfcoffee.com/centre-state-pdf-free.html

1% match (Internet from 14-Mar-2022)

https://www.businesstoday.in/latest/economy-politics/story/india-gst-
among-most-complex-globally-simplification-key-its-success-world-bank-
report-247425-2018-03-16

< 1% match (Internet from 20-Jun-2011)

http://www.taxmann.com/SampleJournals/ContentsGST.pdf

< 1% match (Internet from 04-Oct-2022)

https://economictimes.indiatimes.com/topic/taxing/videos

< 1% match (Internet from 04-Sep-2022)

https://taxguru.in/goods-and-service-tax/gst-milk-milk-products.html

< 1% match (Internet from 20-Apr-2014)

http://www.comtax.uk.gov.in/files
/pdf/16_Report%20of%20the%20Task%20force%20on%20GST.pdf

1 of 10 10-10-2022, 20:59
Turnitin - Originality Report - Indirect tax Project https://www.turnitin.com/newreport_printview.asp?eq=1&eb=1&esm=...

< 1% match (Internet from 04-Oct-2022)

https://asianage.com/india/politics/200722/gst-hike-sets-off-ruckus-in-lok-
sabha.html

< 1% match (Internet from 07-Oct-2022)

https://www.rbi.org.in/scripts/PublicationsView.aspx?id=17470

< 1% match (Internet from 27-Jan-2022)

https://Www.Hindustantimes.Com/business-news/the-party-will-be-over-
how-gst-will-affect-businesses-that-don-t-pay-tax/story-
5eD9fb630wsMCxliECvHMP.html

< 1% match (Internet from 15-Jul-2019)

https://www.taxmanagementindia.com/visitor/detail_rss_feed.asp?ID=1040

< 1% match (student papers from 15-Apr-2022)

Submitted to S.P. Jain Institute of Management and Research, Mumbai on
2022-04-15

< 1% match (Internet from 21-Jun-2022)

https://hnlu.ac.in/wp-content/uploads/2021/09/HNLU-JLSS-Volume-
V-2019_js_12.11.20.pdf

< 1% match (Internet from 27-Apr-2019)

https://ijrcs.org/wp-content/uploads/TIE-MARCH-2018.pdf

< 1% match (Internet from 31-Jan-2022)

https://www.livemint.com/Politics/99hZqzvxfdwmZKgkbWORrO/GST-one-of-
the-most-complex-and-second-

ABSTRACT The Indian economy has been on a roller coaster since the
pandemic-induced lockdown in the first quarter of 2020, which led to
several industries being closed while many others faced a massive revenue
loss due to loss in business. Though the Indian economy started to gain
momentum by the end of 2021, the Ukraine- Russia War thawed India’s
economic recovery. The Ukraine- Russia War not only impacted the Indian
economy but severely affected the global economy, with crude prices
soaring along with a worldwide food shortage. Although some economies
fared through the challenges of economic distress, some countries felt the
heat. The economic situation for India’s neighbours, Sri Lanka, Bangladesh
and Pakistan, is so critical that they had to ask IMF for grants, with Sri
Lanka asking for a bail-out package as it defaulted on several of its loan
repayment. India, too faced a certain level of hardships with its expenses
soaring while the income decreased on account of the economic slowdown.
However, India passed on the burden to its taxpayers. Indian government
first increased the taxes on petroleum products in 2020 while the global
prices were at their record low level. Recently, the Indian government also
imposed Goods and Services Tax (GST) on essential goods like milk
products, and packaged grains, among others. This tax hike comes at a
time when India’s inflation rate is over 9%, with the prices of every
commodity rising. This article aims to analyse the effect of the recent tax
hike on various items in the Indian economy. The article further analyses
the economic position of India amid the looming clouds of global recession
and if India could prevent a recession by increasing the tax rates amid the

2 of 10 10-10-2022, 20:59
Turnitin - Originality Report - Indirect tax Project https://www.turnitin.com/newreport_printview.asp?eq=1&eb=1&esm=...

falling rupee. 1. INTRODUCTION In 2017, the indirect taxation framework

in India took a major overhaul with 101st amendment to constitution of
India which implemented the GST in India. The specific framework for
indirect tax, that too in a country in India, cannot be determined by the
formulae devised by economists as it is the by-product of the inevitable
tension between the economically desirable and politically feasible
outcome of the tax reforms. The GST was introduced to decongest the
then prevailing tax laws in India and to provide comprehensive set-off tax
benefits across all the levels of supply chain from that of manufacturer to
that of retailer, eventually easing the cascading and pyramiding effects. In
the earlier tax structures, there was a burden of tax-on-tax in the sales
and excise tax system prevalent in pre-GST era. The GST fused a major
chunk of indirect taxes among itself to reduce the multiplicity of taxes,
which would eventually reduce the operating costs of indirect tax structure
in the country. One of the major benefits of the GST was to pass on the
benefit of cost reduction to the consumers and few essential items were
kept outside its purview, in order to keep the inflation costs under check,
which was also one of the reasons of introduction of multiple tax slabs
under the GST. However, the government of India in a recent move
increased tax rates on essential items even when the Indian economy was
suffering a major blow. Though one of the reasons attributed can be to
decreased the widening fiscal deficit. This article discusses the framework
of GST in India and the GST council in order to analyse the decision
making process and decision of implantation of GST on states. The article
further analyses the government’s decision to introduce tax on essential
items in the present economic situation of India. The article finally analyses
the impact of such a move on the Indian economy. 2. RESEARCH
METHODOLOGY RESEARCH OBJECTIVE To study and analyse the
developments related to imposition of GST on essential items and the rile
of GST council for recommending the same in view of the economic
situation of India/ SCOPE OF RESEARCH The scope of this project is
restricted to Indirect Tax Laws in India and GST in other jurisdictions. The
research methodology adopted in this study is doctrinal and analytical. The
research involves analysis of both primary and secondary materials.
Primary material includes the case laws, legislations and the notification
issued by the government of India. Secondary material includes various
article and books coupled with reports and discussion of various regulatory
bodies such as Reserve Bank of India, International Monetary Fund among
others RESEARCH QUESTIONS The research questions for this project are
as follows: ? What is the role of GST Council in recommending tax rates on
various items? ? What are the rates of GST on essential items in other
common law jurisdictions? ? Why did India suddenly imposed GST on
exempted essential goods? 3. GST FRAMEWORK IN INDIA Before the
introduction of GST, India's indirect tax regime had various limitations. His
pre- GST system of central excise tax and the state sales tax system had
tax burdens. GST has a wealth of indirect and state taxes under its
umbrella. We are consolidating taxes on goods and services for easier
liquidation. Furthermore, we have achieved a certain level of value creation
in commerce. There is now a continuous chain of offsets that removes the
burden of cascading effects. In other words, GST is a comprehensive
indirect tax collection on the production, sale and consumption of goods
and services at the national level. GST is an indirect tax that makes all of
India a single common market. The GST was designed to provide India
with a world-class tax regime and improve tax revenues. It will put an
end to long-standing distortions of discriminatory treatment of
manufacturing and service industries. GST enables seamless financing

3 of 10 10-10-2022, 20:59
Turnitin - Originality Report - Indirect tax Project https://www.turnitin.com/newreport_printview.asp?eq=1&eb=1&esm=...

under a common tax base across supply chains and states. 3.1. HOW AND
WHY WAS GST INTRODUCED Asim Dasgupta served as the chairman of the
Empowered Committee, which the Vajpayee administration established in
2000 to draught the GST concept. Following that, the Task Force on
Implementation of the Fiscal Responsibility and Budget Management Act,
2003 (Chairman: Vijay Kelkar) suggested that all ineffective and distorting
taxes be eliminated so that India could benefit from the efficiencies of a
single national tax and suggested a comprehensive GST based on the VAT
principle. The idea of implementing a GST was first put forth in 2005 by P.
Chidambaram, who was the Union Finance Minister at the time. In his
budget speech for the fiscal year 2005–2006, Chidambaram stated that a
goods and services tax that includes both the Center and the States
should be applied to the entire production-distribution chain. In his budget
speech for 2006–2007, he maintained his notion and suggested April 1,
2010, as the day the GST would be implemented. An Empowered
Committee (EC) of State Finance Ministers was tasked with collaborating
with the Central Government to create a plan for the implementation of
GST in order to achieve this goal. On April 30, 2008, the final draught of
the EC report was released as "A Model and Roadmap for Goods and
Services Tax in India". The EC published the First Discussion Paper on
Goods and Services Tax in India on November 10, 2009 in order to solicit
feedback from business, trade associations, and the general public after
receiving comments on the report from the Government of India and
concerned State Government officials, and after taking into account their
recommendations. The Constitution (115th Amendment) Bill, which would
enable the Center and States to enact laws for the levying of GST, was
presented in the Lok Sabha on March 22, 2011. But after the 15th Lok
Sabha was dissolved; the Bill became ineffective. The Constitution (122nd
Amendment) Bill, 2014 was then presented in the Lok Sabha on December
19 to resolve a number of GST-related issues. Notably, the Constitution did
not expressly grant the Central Government or State Government the
authority to levy taxes on the "delivery of goods and services," hence the
adoption of the GST required a constitutional modification. While the
States had the authority to tax the sale of products, the Centre had the
authority to tax both services and goods up until the point of production.
A constitutional amendment was required since the GST regime mandates
that both the Central and State Governments tax goods and services at
the same time. 3.2. GST AND FEDERAL STRUCTURE IN INDIA In many
parts of the world, the idea of a destination-based comprehensive tax on
consumption of goods and services known as GST—"a single (unified) tax
levied by the national government at a uniform rate and collected on value
added at each stage of sale and purchase in the supply chain—became
popular in the late 1960s”.1 With this strategy, the revenue base is
expanded, economic distortions are decreased, and the input taxes are
eliminated, making the tax system more responsive to the needs of the
global marketplace.2 By the early 1990s, VAT/GST reforms had turned into
something of a litmus test for the emerging countries' deeper integration
into the global marketplace as a result of the IMF's constant support and
advocacy of this type of taxation in the emerging economies. A 1 single
national GST is typically seen as the best option for the creation of a
common market in a nation.3 However, in huge federal nations like India,
where subnational budgetary autonomy is a touchy subject, this "ideal"
approach is not politically practical. Federal nations like Canada and Brazil
have implemented either hybrid federal-regional VAT systems, known as
"dual" federal- regional VAT systems, or regional VATs. In these systems,
VAT is imposed by both the national and subnational governments. The

4 of 10 10-10-2022, 20:59
Turnitin - Originality Report - Indirect tax Project https://www.turnitin.com/newreport_printview.asp?eq=1&eb=1&esm=...

benefits of a sole national GST, such as the extension of the tax base,
elimination of distortionary input taxes, reduction of trade barriers, and
avoidance of the cascading effect of taxation, would still apply even under
these federal variations if correctly implemented. 3.3. GST COUNCIL AND
ROLE The one-hundred first constitutional amendment Act which paved
way for the constitutional framework for the GST also constituted a GST
council for the implementation of GST. The GST Council is made up of “the
Union Finance Minister, who serves as the council's chair, the Union
Minister of State for Finance or Revenue, and all of the individual State
Governments' Finance Ministers.”4 On a variety of issues as listed in Article
279A(4) of the Constitution, it has the authority to make
‘recommendations’. A super-majority of three-fourths of the members
present and voting must vote in order for a decision to be made by the
GST Council, but not all States and the Union have an equal number of
votes. One-third of the votes are cast by the Union, and two-thirds are cast
by all the States together. The term "recommendation" (as opposed to
"prescription") implies that it is non-binding on the parties involved, hence
there is room for ambiguity over whether the Council's "recommendations"
are binding.5 The phrase "recommendations" or a version of the same is
used in the context of the GST Council in the explanation to Section 18 of
the 101st Amendment Act, which implies that neither the union nor the
states are required to mandatorily follow the council’s advice. A closer look,
however, would seem to indicate that this is not the case. It is a well
established rule of construction that words should be understood in the
context in which they are used,6 3 4 5 and in accordance with the
legislative meaning.7 Since the GST Council was established with the
express purpose of making the recommendations legally obligatory, the
choice of the word "suggestion" may be an example of bad drafting. There
are two reasons for this. First, if the GST Council is unable to issue
recommendations that are legally enforceable, the GST system as a whole
will disintegrate since each State will have its own unique and potentially
incompatible tax levy and collecting system. Dealing with the
constitutionality of constitution of GST council, the Supreme Court in the
case of Union of India v. Mohit Minerals,8 while upholding the
constitutionality of the council held that the GST council, a constitutional
body, is tasked with making recommendations on a variety of GST-related
topics. According to Article 279A(4)(h), the GST Council has the authority
to make recommendations on "any other topic" pertaining to GST as the
Council sees fit. According to Clause 6 of Article 279A, the GST Council
must reach its recommendations by coordinated discourse among the
federal divisions. Article 279A of the Constitution specifies that
recommendations should be made to "the Union and the States," as
opposed to other clauses that say they should be presented to the
President or the Governor. The GST Council's suggestion submitted in
accordance with Article 279A is unqualified. That is, the worth of such a
recommendation is not explained. However, it would be improbable for the
GST Council's proposals to become law in and of itself under Article 246A.
Such a limitation would have been there in Articles 246A or 279A if the
GST Council was meant to be a decision- making body whose
recommendations become laws. Both Article 246A and Article 279A do not
start with a non-obstante Clause or state that the legislative power is
"subject to" Article 279A. The sections of the IGST Act and CGST Act that
mandate that the Union Government act on the GST Council's
recommendations must be construed in light of the enactment's goal of
establishing a consistent taxation system. Since different States could
previously offer various tax slabs and exemptions, the GST was instituted.

5 of 10 10-10-2022, 20:59
Turnitin - Originality Report - Indirect tax Project https://www.turnitin.com/newreport_printview.asp?eq=1&eb=1&esm=...

When the government uses its authority to notify secondary legislation to

implement the uniform taxation system, the GST Council's
recommendations become legally binding on the government. According to
Article 279A, the Council has extensive discretionary authority to make
recommendations on GST-related subjects, including those that lie outside
the ambit of the IGST and CGST Act's rule-making authority. 7 The court
further in Mohit Mills case9 held that found that it cannot be contended
that all of the GST Council's recommendations are binding on the
Government just because some of them are subject to the provisions of
the CGST Act and IGST Act. A main law's provisions cannot, as a matter of
first principles, be used to interpret the Constitution's provisions, which
serve as the nation's standard. The only provisions that can be read in light
of the Constitution are those included in main legislation. The legislature
enacts laws by using both its constituent and legislative powers to change
the Constitution. Comparatively to its legislative power, the legislature's
constituent power is of a higher constitutional order. Even if Parliament has
passed laws requiring the Central Government to abide by the GST
Council's recommendations in order to announce secondary legislation, this
does not mean that all of the council's recommendations made in
accordance with its authority under Article 279A are legally enforceable. 4.
ANALYSIS OF GST AND IT’S RATES IN INDIA AND ABROAD Around 160
nations have chosen the GST as their preferred taxation method, and so
the idea is not new to the world. While most nations only have one rate, in
India, the government has divided GST into five categories: 0%, 5%, 12%,
18%, and 28%. Although the GST was implemented under the slogan “one
nation, one tax,” it is still not a uniform tax. By comparing the rates on
some basic products in different countries, we can establish that though
India adopted the GST on the pretext of same being adopted by developed
nations, India devised a new structure of GST to meet its economic needs.
So, in India, a nominal GST of 5 per cent applies to “curd, lassi, butter
milk and paneer when sold in pre-packaged and labelled form, and Ultra
High-Temperature Milk”. Further, a GST of 12 per cent applies to
“condensed milk, butter, ghee and cheese”. In Canada, basic groceries
including “meat, fish, poultry, cereals, dairy products, eggs, vegetables
(fresh, frozen, canned), coffee, tea, fishery products for human
consumption,” etc. fall under the category of zero-rated goods. Other
major nations of the world, follow a flat GST rate mechanism, i.e. same
rates for all the goods and services. At a rate of 3%, GST was introduced in
Singapore in 1994. It was then hiked to 7% in 2007. 2015 saw GST’s
debut in Malaysia. The GST rate there is 6%. In New Zealand, a 10% GST
was introduced in 1986. Since 2010, there has been a 15% GST rate in 9
Id. effect. It was made available in Australia on July 1st, 2000. In
Australia, the majority of goods, services, and other commodities are
subject to the 10% general sales tax (GST). The Indian GST system has
four non-zero slabs: 5%, 12%, 18%, and 28%. Most countries only have
one rate. According to the World Bank report10, 49 countries only use one
rate, compared to 28 countries that utilize two rates. Along with India, the
other countries that use four or more rates are Italy, Luxembourg,
Pakistan, and Ghana. India’s 28% GST rate, the highest of the four non-
zero slabs, is the second-highest among a sample of 115 countries having
a GST (VAT) system, according to the India Development Update11, a
World Bank book released in Delhi on March 15, 2018. India has the
highest average rate in Asia. The Indian GST is one of the most complex
tax systems in the world, according to the World Bank.12 High compliance
costs also result from the requirement to categorize inputs and outputs
according to the relevant tax rate, which is necessitated by the existence

6 of 10 10-10-2022, 20:59
Turnitin - Originality Report - Indirect tax Project https://www.turnitin.com/newreport_printview.asp?eq=1&eb=1&esm=...

of several tax rates. Businesses must match invoices between their outputs
and inputs in order to be eligible for the entire input tax credit in addition
to applying the right rate, which raises compliance expenses. The secret to
success is policy design that reduces the burden of compliance, for
instance by reducing the number of different rates and limiting
exemptions, with straightforward laws and procedures, an appropriately
structured and resourced administration, compliance strategies based on a
balanced mix of education and assistance programmes, and risk-based
audit programmes. 5. GST HIKE ON ESSENTIAL ITEMS The “Central Board
of Indirect Taxes and Customs” (CBIC) issued the Central Tax (Rate)
notifications 03/2022 to 11/2022 on 13th July 2022.13 The GST council at
its 47th meeting approved a duty at the rate of 5% on some essential
household items. These modifications were to take effect on July 18, 2022.
Some of these items are: ? Food products including cereal, lentils, and
flour sold in single containers weighing up to 25 kg will be deemed
“prepackaged and labelled” and subject to 5% GST. When pre- 10. 11 12 .
13 packaged and clearly labelled, other commodities including curd, lassi,
and puffed rice will also be subject to GST at the rate of 5%. ? Printing,
writing, or drawing ink, knives with cutting blades, paper knives, pencil
sharpeners and blades, spoons, forks, ladles, skimmers, and cake servers
are other products that will cost more. Now, instead of drawing 12%, these
objects would draw 18% GST. ? Solar water heaters and LED lighting will
be subject to an 18% tax. ? Tetra Pak (or aseptic packaging paper) used to
package dairy goods or liquid drinks will now be subject to 18% GST rather
than 12%. ? Cut and polished diamonds will now be taxed at 1.5% instead
of the previous 0.25%. ? Up to Rs 1,000 per day of hotel lodging will now
be subject to a 12% tax. ? Non-ICU hospital rooms with room rent above
Rs 5,000 per day would be subject to a 5% GST. ? The GST rate will be
18% for bank chequebooks and loose leaf cheques and 12% for globes,
atlases, and maps. 5.1. THE NEED FOR HIKE After heated debates, the
points describing the reasons for such a hike could be categorized into four
major points. a. Due to tax leakage When the GST was implemented, a
rate of 5% was originally applicable on “branded” cereals, pulses, and
flour; however, this rate was later changed to tax only goods sold under
“registered” brands or brands on which the provider had not waived an
enforceable right. However, reputable producers and brand owners soon
discovered widespread abuse of this loophole, and as a result, GST income
from these goods steadily decreased. Suppliers and trade groups who had
to pay taxes on branded items hated this. To prevent this abuse, the hike
is justifiable. b. The VAT is carried over into the GST. This tax on
necessities was in force in numerous states before to the implementation
of the GST and under the VAT regime. Taxes on food were a source of
income for the states. It was anticipated that this new GST regime would
continue this, however when regulations and circulars were released and it
was implemented in 2017, it was only applied to branded products. c.
There are no taxes on food goods that are offered in loose forms The same
daily essential products, on which GST has been levied, when sold loose
and not pre-packed or pre-labelled, will not attract any GST. d. Even the
states want the GST to be paid Officers and the Group of Ministers (GoM)
gave it various degrees of consideration before the GST Council ultimately
endorsed the hike. The Council, which includes representatives from every
state, reached a unanimous conclusion to revoke the exemption and put
pre-packaged and labelled food products inside the GST. 5.2. THE
IMPLEMENTATION It is very important to understand what is the actual
effect of this GST hike in the Indian market. Firstly, the only products for
which these adjustments are made, are the ones covered under the Legal

7 of 10 10-10-2022, 20:59
Turnitin - Originality Report - Indirect tax Project https://www.turnitin.com/newreport_printview.asp?eq=1&eb=1&esm=...

Metrology Act and after paying GST, the bulk of those items are already
being marketed under their brand names. Therefore, it is unlikely to lead
to any discernible rise in revenue collections, unlike the recent windfall tax
on fuel. Instead, the Hon’ble Union Finance Minister made it clear that
there were worries about income leakage since some companies were
abusing the exemption rule for unlabeled food goods by failing to register
them.14 Due to this, it was decided to revoke the exemption and put pre-
packaged and labelled food products inside the GST umbrella. It was
further stated that, with the exception of two or three products, only the
methods of applying GST on these commodities had changed. Second,
based on the clearly defined procedure in the form of the
recommendations of the GST council, any adjustments to the GST may
only be put into effect with agreement between the Centre and the States.
So, rather than being a solo action, it is founded on a wider unanimity. So,
when viewed through this lens, the state governments’ rejection is a little
unpredicted. The Hon’ble Finance Minister of Kerala has stated that his
State does not intend to impose GST on necessities that tiny shops offer in
packs of one to two kilograms.15 Any such exclusions would merely serve
to skew the GST’s overall structure, increase its complexity, and increase
conflicts and litigation. Five years have passed since the 14 establishment
of the GST in 2017. Overall, it has made the country into a single market,
but there are still a lot of glitches that need to be resolved. 5.3. THE
AFTERMATH AND THE IMPACT High inflation had already put the Indian
homes’ budget at risk, and now they have to start planning for some
additional expenses immediately. Consumers will have to pay more for
their daily shopping as the government increased the government income,
streamlined rates, and reduced conflicts by changing the GST rates on a
variety of commodities. Given that people are already suffering from rising
inflation, this adjustment is most likely to have a detrimental effect on
their family budgets. Many small shops and millers pre-package their
products and put them on the shelves so that consumers may easily buy
them without having to wait for them to be weighed and packed. In the
majority of India's retail stores, pre-packing of this kind is a standard
procedure. Many regular consumers who frequent these stores for their
necessary purchases will be negatively impacted by the current
adjustment. Even though some state like Kerala did not support the move
and regarded the increase as unilateral decision by the centre, the
recommendations made by the GST council were effective across the
nation. The GST rate hike will not only impact the budget of households
but also led to retailers face certain consequences.16 The households will
face more heat due to government’s actions as the households are already
under a pressure due to retail inflation being over 7% during June 2022,
which was above the RBI’s threshold of 6%. Though the overall GST hike of
stables will be negative for FMCG companies due their stock price showing
a downward trend due to high inflation, the retailers and shopkeepers
would need to update the prices of items to match it with the new tax rate.
6. THE REASON OF HIKING RATES AND THE IMPACT THEREON: WAS HIKE
NECESSARY? The Goods and Services Tax was adopted by the Indian
government in 2017 with the aim of enhancing tax administration for the
government and lowering the compliance burden for taxpayers. The
government implemented slab rates for a variety of items and unified all
indirect taxes into a single new tax known as GST. Outrage that the GST
would raise prices and have a negative impact on the common person has
been triggered by the introduction of the GST on basic items like pulses,
cereals, and rice. This viewpoint gains importance, particularly in light of
the current economic environment's high rates of fuel and daily-

8 of 10 10-10-2022, 20:59
Turnitin - Originality Report - Indirect tax Project https://www.turnitin.com/newreport_printview.asp?eq=1&eb=1&esm=...

consumables inflation, which have had an effect on household budgets.

Since the GST was implemented in 2017 the government has made many
changes to the slabs. But it is believed that the most recent changes would
ultimately make it harder for the typical individual to live. These
commodities could previously only be delivered if they were labelled and
contained in a unit. All pre-packaged and labelled items, regardless of
whether they have a unit container or not, are covered by the GST, and the
distinction between branded and unbranded goods has been erased. It is
vital to keep in mind that this modification only applies to items that meet
the criteria for "pre-packed commodities" under the Legal Metrology Act,
2009. Some say that the timing of raising tax rates at a time when
consumer price index (CPI) inflation is over 7%, wholesale pricing index
(WPI) inflation is over 15%, there is a high unemployment rate, the rupee
is losing value, the current account deficit is growing, and global inflation is
predicted to increase is cruel.17 Moreover as the hiked rates were
implemented when FMCG sector was already bleeding due to inflatory
pressure, the prospects of demand due to such hike will important for the
sector.18 In India, inflation and price increases are not just economic
concepts but also frequently utilized political weapons by the opposition
parties to criticize the government. However, when it comes to the pricing
of necessities, political factors weigh more heavily than economic ones.
Political parties frequently clash in Parliament over how best to capitalize
on the government's alleged failure to control inflation as they attempt to
gain support from the general public, who has been worst hurt by price
increases. It is because those in lower socioeconomic brackets suffer more
from rising costs, and the harm is greater if it affects vital goods.
Regarding application and terminology also there is confusion. Does the tax
on “prepacked” make a distinction between wholesale and retail? Would
the fee have an effect on ONDC's pledge to extend e-commerce to nearby
shops? Do investments get encouraged in industries 17 like food
processing and renewable energy? A parade of modifications has emerged
during the course of 47 GST Council Meetings, and the terrain is littered
with several explanations.19 It is not simple to have streamlined fiscal laws
in a big country like India with many stakeholders. As a result, the voyage
will be drawn out and lengthy, with frequent conflicts. But most likely, that
is how a big, active democracy works! 7. CONCLUSION Though its been
more than five years when GST was introduced in India, GST has always
been a topic of debate, whether for its implementation, its rates or for
jeopardizing the federal taxation structure of India. GST was introduced as
a tax mechanism beneficial for both the consumers and the industry,
eventually boosting the revenue of the government, which was true as GST
collections for the first half of 2022 continue to be over INR 1.4 lakh
rupees. Nevertheless, the tax rates and their imposition through the
recommendation made by GST council is often questioned. The recent GST
hike on essential items too was a phenomenon resulting out of
recommendations made by GST council. Such recommendations came at a
time when the country was under the pressure of rising inflation and
economy was recovering out the COVID-19 induced slowdown. The affect
of the move cannot be determined at such a stage as the demand curve
and economic analysis will take some time. However, the burnt faced by
households cannot be ignored. It will be pertinent to see if the government
will be making any changes to the move after an analyzing the aftermath
of the rate hike. BIBLIOGRAPHY ? Alok P. Kumar, ‘For a mess of potage:
The GST’s promise of increased revenue to States comes at the cost of the
Federal Structure of the Constitution’ (2016) 28(2) National Law School of
India Review 97. ? Pinaki Chakraborty, ‘Moderating the Hype: The Goods

9 of 10 10-10-2022, 20:59
Turnitin - Originality Report - Indirect tax Project https://www.turnitin.com/newreport_printview.asp?eq=1&eb=1&esm=...

and Services Tax Council holds the key to the effective implementation of
the law’ (2016) 51(33) Economic and Political Weekly 8. ? Chanchal Kumar
Sharma, ‘The Political Economy of India’s Transition to Goods and Service
Tax’ (2021) 325 German Institute of Global and Area Studies. ? Alok K.
Prasanna, ‘Goods and Services Tax: An Exercise in Controlled Federalism?’
(2016) 51(34) Economic and Political Weekly 10. 2 6 8 15 16 18 19

10 of 10 10-10-2022, 20:59