GST: Conceptual and other misconceptions removed
is allowed, it becomes a VAT. In one of the Supreme Court judgements it was observed that central excise is a VAT and so was service tax. That is not quite the correct position. Central excise tax was a turnover tax until 1986, when MODVAT (modified VAT) was introduced for a certain number of goods but not all, and not for capital goods. So, it was partially a turnover tax and partially VAT. The input credit for capital goods was allowed in the 1994 Union Budget and at that stage only it became a VAT. Similarly when services tax was introduced in the 1994 Union Budget, only four services were taxed but no input tax credit was given. That was introduced later. The number of services which was taxed went on increasing but at no stage all services were taxed. So, service tax never became a VAT in general. It continued to be a turnover tax where input tax credit was not given, and it became a VAT where input credit was given. So, this is the fundamental position: Neither central excise nor service tax is really or intrinsically a VAT. It is a VAT depending on whether input tax credit is given or not.
Criticism has been voiced that the present GST does not include petroleum, liquor and real estate. Petroleum and liquor had to be kept outside so that the states could realise some revenue when they wanted. Real estate has not rightly been included because it is neither good nor service. In order to include it in the GST, a wide-ranging Constitutional amendment is necessary, involving entries 63, 54, 49 & 18 of the State List and entry 84 of the Union List, not practicable at present or desirable.
The common criticism is that there would be litigation due to multiplicity of rates. The real controversy is only between 12 per cent and 18 per cent. All other rates are quite clear and specific. However, the ideal position would have been 16 per cent, in place of 12 per cent and 18 per cent.
Conclusion: The present GST is good, though not the best. But, the best is often an enemy of the good.