Can GST framework come to Kerala’s aid?

In a recent Cabinet meeting, the Kerala government decided to approach the Goods and Services Tax (GST) Council to seek imposition of a 10 per cent cess on State GST (SGST) to fund re-construction activities for the floods. While no formal proposal has been tabled yet, the legality of such a levy has come under the scanner. VIDUSHI GUPTA and VINTI AGARWAL, research fellows at Vidhi Centre for Legal Policy, analyse the GST framework to answer some pertinent legal questions

What is aces sandi sit recognised under the Constitution?

Aces sis generally treated as a tax imposed for an earmarked purpose. The term ‘cess’ is recognised under Article 270 of the Constitution for the distribution of tax between the Union and states.

Can acess be levied over and above GST?

While the Constitution re cog ni se sit as a concept, there is no provision from which the explicit power to levy aces scan be derived. Under the erstwhile indirect tax regime, the power to impose such a levy was read into the Centre’ sand states’ general power to tax.

At present, Article 246A grants the Centre and states concurrent powers to make laws regarding goods and services tax. The expression ‘goods and services tax’ has been further defined in Article 366(12A) as ‘any tax’ on the supply of goods or services.

A wide interpretation of these provisions may lead to the conclusion that aces sf al ls within the am bit of‘ any tax’ and accordingly, Article 246A em powers both states and the Centre to impose such a levy over and above GST.

What are the implications of allowing Article 246 A to be broadly interpreted?

The G ST was implemented with an aim to facilitate the formation of a nationwide market by eliminating multiplicity of taxes, and consequent cascading. Various amendments have been made to theConstitution that under line this intent. Forinstance, Articles 271 and 248 were amended to restrict the government’ s power to levy a surcharge and invoke residuary provisions to impose a further tax on goods and services covered under the GST.

Given that Constitutional provisions should be interpreted harmoniously and in accordance with the lawmakers’ intent, reading Article 246 A to allow the im position of additional cess would run counter to these amendments and their intended effect. It would act as a precedent to allow the levy of similar impositions in the future, consequently diluting the purpose behind the G ST.

Currently, is any cess being levied over and above G ST?

The com pens a ti onces sis the only cess that is currently levied under a special provision of the Constitution (Hundred and First Amendment) Act, 2016. However, this levy has been challenged before the Bombay High Court. Earlier this year, apropos alto levy sugar cess was mooted but was later abandoned.

What are the other alternatives that maybe explored by Kerala underthe GST regime?

Article 279A (4) lists the issues on which the G ST Council can offer recommendations. Subclause (f) allows the Council to suggest special rates to raise funds during natural calamities. Thus, the Council may increase the rate of S GS T applicable in Kerala while maintaining the other rates constant, though the effective S GS T rate must be restricted to2 0 percent.

It maybe argued that the imposition of a distinct rate of tax on supplies in one state would ne gate the GS T’ s objective of maintaining a uniform indirect tax structure. Article 279A (6) may also lend support to this argument as it requires the Council to be guided by the need for a harm on is ed national market. Another cause for worry maybe the unequal bifurcation of the consolidated G ST rate between the Centre and state.

While these concerns are valid, it is imperative to re cog ni se that the Council’ s power under Article 279 A(4) (f)i san exception and is to be exercised only during natural disasters, for a specific period.

In light of the uncertainty over the legal validity of cess, and the existence of a special provision in case of natural calamities, a bettero ption for the Kerala government would be to seek an increase in S GS T rate for a specified period, as opposed to acess.