GST: Centre has not lost power to levy excise duty and service tax
September, 21st 2016
Ending days of confusion, the government has clarified that the notification of the provisions of the Constitution amendment Act for the goods and services tax (GST) does not take away the power of the central government to levy excise duty and service tax.
The clarification comes after hectic consultations between the finance ministry, law ministry and attorney general Mukul Rohatgi on Monday.
“DoR (department of revenue) examined the validity and implications of notifications dated 10th and 16th September with respect to existing taxes imposed by the Union and states. There is no legal infirmity in these notifications,” revenue secretary Hasmukh Adhia wrote on microblogging site Twitter.
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“Law department has confirmed that there appears to be no legal requirement to issue any further clarification or notification in this regard,” he said.
Rohatgi confirmed to Mint that there is no legal hurdle in the notification.
After notifying the provision for the setting up of the GST council with effect from 12 September, the government notified most of the other provisions of the Constitution amendment Act effective 16 September. This also included a provision which stated that only GST will be levied on the supply of goods and services.
However, what seemed to have caused the confusion was the notification of Section 17 of the Act with effect from 16 September. Chartered accountants, lawyers and analysts were of the view that the clause takes away the powers of the central government as it does not allow it to levy excise duty on manufacturing and probably even restricts the levy of service tax and ideally should have come into effect only when GST was implemented.
They were of the view that the states may have also lost the power to levy value-added tax (VAT) if not for the clause of a transition period of one year given to them to move towards GST from the date of the notification.
This had prompted the government to promise a re-look, with Adhia on Sunday making a commitment to check the correct legal position and issue a clarification.
GST is a singular tax reform that will remove barriers across states and unite the country into a common market. It will subsume most of the indirect taxes levied by the centre and the states, including excise duty, service tax, VAT, entertainment tax, entry tax and luxury tax.
The government is targeting to roll out GST by 1 April 2017 and is keen to bring all states on board for its speedy and uniform implementation.
With the Constitution amendment Act being notified, all states will have to move towards GST by September 2017 as they will not have any powers to levy value-added tax after that.
Analysts, however, are still circumspect. “Section 17 of the Act very clearly limits the power of the central government to levy excise duty on manufacturing with the exception of petroleum products. It clearly warranted a clarification from the government,” said a lawyer, who did not wish to be identified.