Cabinet nod for GST regime

The GST, which seeks to subsume Excise Duty and Service Tax at the central level and Value Added Tax (VAT) on the states front, besides local levies, surcharges and cesses, is being viewed as the most radical reform in the indirect tax system.

“The Cabinet at its meeting chaired by the Prime Minister cleared the Constitution Amendment Bill and it is being proposed to be introduced in the current session of Parliament,” officials said.

Most of the provisions of the CAB, which have been cleared by the Cabinet, are based on the fourth draft amendment Bill prepared by the Finance Ministry, they added.

Ever since the exercise for introduction of GST started nearly four years back the Finance Ministry has prepared as prepared as many as four drafts incorporating views and suggestions of states, which were routed through the Empowered Committee of State Finance Ministers. The first three drafts prepared by the Finance Ministry were rejected by most of the states on the ground that states could not part with their financial autonomy to levy state taxes.

Taking the sensitivity of states into account the fourth draft has proposed that the GST Council, which will be the main body for taking decisions on key issues like fixation of tax rates, exemption of certain goods and services from the purview of taxation as well as modalities for collection of taxes, will be formed through a presidential order.

Petro items outside ambit

The fourth draft has also proposed that the GST Dispute Resolution Authority (GSTDRA)—another key body governing the administration of the GST, will be part of the Constitution Amendment Bill. Besides, the composition of the GSTDRA will be decided by Parliament. The fourth draft has proposed that items like petroleum, natural gas, diesel and ATF be kept out of the GST ambit.

The states had rejected the first draft of the Centre, alleging that it gave veto power to the Union Finance Minister on state taxation issues. The draft had proposed that changes in GST could only be made with the consent of the Union Finance Minister and a two-thirds majority of the states in the council.

After the states’ opposition, the Centre had floated a second draft proposing that alteration in GST could only be done when there is complete consensus.

While Congress-ruled states agreed to the idea, BJP-ruled states, Uttar Pradesh and Tamil Nadu opposed the second draft. The BJP-ruled states wanted to know the exact meaning of “consensus” and suggested that the word be replaced with “consent”.

Introduction of GST has already missed the original deadline of April One, 2010. Subsequently, the Center proposed to introduce it in April, 2011.