STATEMENT OF OBJECTS AND REASONS
Presently, the Constitution empowers the Central Government to levy excise duty on anufacturing and service tax on the supply of services. Similarly, it empowers the State Governments and Union territories to levy sales tax or value added tax on the sale of goods. In addition, many States also levy an entry tax on the entry of goods in local areas. This exclusive division of fiscal powers has led to a multiplicity of indirect taxes in the country.
2. The present tax system on goods and services in the Union territories is facing certain difficulties which are as under—
(a) the multiplicity of taxes at the Central and State levels has resulted in a complex indirect tax structure in the country that is ridden with hidden costs for the trade and industry;
(b) there is no uniformity of tax rates and structure across the States and there is cascading of taxes due to “tax on tax”; and
(c) the credit of excise duty and service tax paid at the stage of manufacture is not available to the traders while paying the State level sales tax or value added tax, and vice-versa. Further, the credit of State taxes paid in one State cannot be availed in other States. Hence, the prices of goods and services get artificially inflated to the extent of this “tax on tax”.
3. In view of the above, it has become necessary to have a Central Legislation, namely, the Union Territory Goods and Services Tax Bill, 2017. The proposed Legislation will confer power upon the Central Government for levying goods and services tax on the supply of goods or services or both which takes place within a Union territory without Legislature.
4. The proposed Legislation will simplify and harmonise the indirect tax regime in the country. It is expected to reduce the cost of production and inflation in the economy, thereby making the Indian trade and industry more competitive, domestically as well as internationally. It is also expected that introduction of goods and services tax will foster a common or seamless Indian market and contribute significantly to the growth of the economy. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of goods and services tax that would incentivise tax compliance by taxpayers. The proposed goods and services tax will broaden the tax base and result in better tax compliance due to a robust information technology infrastructure.
5. The Union Territory Goods and Services Tax Bill, 2017, inter alia, provides for the following, namely:—
(a) to levy tax on all intra-State supplies of goods or services or both except supply of alcoholic liquor for human consumption at a rate to be notified, not exceeding twenty per cent. as recommended by the Goods and Services Tax Council (the Council);
(b) to empower the Central Government to grant exemptions, by notification or by special order, on the recommendations of the Council;
(c) to provide for apportionment of tax and settlement of funds on account of transfer of input tax credit between the Central Government, State Government and Union territory;
(d) to provide for assistance by officers of Police, Railways, Customs, and those engaged in the collection of land revenue, including village officers, and officers of central tax and officers of the State tax to proper officers in the implementation of the proposed Legislation;
(e) to provide for recovery of tax, interest or penalty payable by a person to the Government which remains unpaid, by the proper officer of central tax;
(f) to establish an Authority for Advance Ruling in order to enable the taxpayer to seek a binding clarity on taxation matters from the department;
(g) to provide for elaborate transitional provisions for smooth transition of existing taxpayers to goods and services tax regime;
(h) to provide for application of certain provisions of the Central Goods and Services Tax Act, 2017, inter alia, relating to definitions, time and value of supply, input tax credit, registration, returns other than late fee, payment of tax, assessment, refunds, audit, inspection, search, seizure and arrest, demands and recovery, appeals and revision, offences and penalties and transitional provisions in the proposed Legislation; and
(i) to empower the Commissioner to issue orders, instructions or directions to the Union territory tax officers.
6. The Notes on clauses explain in detail the various provisions contained in the Union Territory Goods and Services Tax Bill, 2017.
7. The Bill seeks to achieve the above objectives.
NEW DELHI; ARUN JAITLEY.
The 23rd March, 2017.