The introduction of the Goods and Services Tax (GST) in India was one of the most transformative reforms in the country’s fiscal policy and taxation system. However, before it could be implemented, certain constitutional amendments had to be made to facilitate the introduction of this unified tax structure.

In this blog, we will explore the major constitutional changes that were made to enable the rollout of GST in India. We will break down the specific sections of the Constitution that were amended, and provide details about the dates and reasons for these amendments.

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1. The 101st Constitutional Amendment Act, 2016

The major constitutional changes to implement GST came with the 101st Constitutional Amendment Act of 2016, which was passed by the Parliament of India on August 8, 2016, and came into effect on September 16, 2016.

This amendment modified several key provisions of the Indian Constitution to empower the Central and State Governments to levy taxes under the new GST framework. It also established the legal basis for the GST Council, which would govern the implementation of GST across the country.

Let’s break down the key amendments introduced through this Act:

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2. Amendment to Article 246 – Powers of the Parliament and the State Legislatures

Article 246 deals with the distribution of legislative powers between the Parliament and State Legislatures. Prior to the amendment, the Constitution granted separate tax powers to the Centre and the States in their respective domains, resulting in a complex tax structure.

What Changed?

• New Article 246A was inserted, specifically dealing with the GST regime. This article conferred concurrent powers to both the Centre and States to legislate on the subject of taxes on goods and services, which was previously divided between Central Excise, VAT, and Sales Tax.
• It enabled both the Union Government and State Governments to legislate on GST-related matters, thereby bringing a unified tax system in India.

Text of the Amendment (Article 246A):

• “Notwithstanding anything in Article 246, the Parliament has power to make laws with respect to goods and services tax on goods and services, and the Legislature of every State has power to make laws with respect to goods and services tax on goods and services.”

This change was critical to empower both levels of government to impose taxes under the GST system.

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3. Amendment to Article 279A – Constitution of the GST Council

Before the GST regime, the taxation system in India was fragmented, with taxes being levied by both the central and state governments. To ensure a unified and coordinated approach, the Constitution was amended to establish the GST Council—a body that would have the power to make decisions on key matters related to GST taxation.

What Changed?

• Article 279A was inserted to provide for the formation of the GST Council, which is the key decision-making body for GST policies. This body is responsible for recommending tax rates, exemptions, and other important decisions related to GST.
• The Council comprises the Union Finance Minister, State Finance Ministers, and an officer of the rank of Secretary from the Union Government, and one representative from each State.

Text of the Amendment (Article 279A):

• “The President shall, on the recommendation of the Council, constitute a GST Council which will consist of the Union Finance Minister, the Minister of State for Revenue or Finance, and the Finance Ministers of all States and Union Territories.”

This article establishes the GST Council as an essential body to ensure coordination between the Centre and States on all matters related to GST.

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4. Amendment to Article 265 – Taxation by Law

Article 265 of the Constitution states that no tax shall be levied or collected except by the authority of law. This provision was vital for ensuring that the imposition of GST on goods and services is carried out in accordance with constitutional principles.

What Changed?

• The 101st Amendment clarified that the levy and collection of GST will be done by authority of law, and the powers granted to both the Centre and the States to impose taxes would be governed by the new GST framework.

Text of the Amendment (Article 265):

• “No tax shall be levied or collected except by the authority of law, and the levy and collection of tax under GST shall be in accordance with the provisions of the Constitution.”

This provided the legal foundation for GST to be legally valid and ensured compliance with the rule of law.

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5. Insertion of Articles 268A and 269A – Empowering States and the Centre for GST

Article 268A and Article 269A were inserted to clearly define the division of taxes between the Centre and the States under the GST regime.

What Changed?

• Article 268A empowered the Union Government to levy taxes on inter-state supply of goods and services, while Article 269A specified that the State Governments would have the authority to impose taxes on intrastate supply.

Text of the Amendment (Article 268A and 269A):

• Article 268A: “Taxes on goods and services, levied by the Union and collected and appropriated by the Union and the States shall be subject to the provisions of the Goods and Services Tax Act.”
• Article 269A: “Taxes on inter-state supply of goods and services shall be levied and collected by the Union, but shall be apportioned between the Union and the States.”

This division of tax authority was essential to avoid taxation conflicts between the Centre and States, and to ensure that the GST framework functioned in a coordinated manner.

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6. Amendment to Article 366 – Definition of Goods and Services

Before the GST amendment, goods and services were defined separately under different laws, and this created ambiguity in tax policy. The introduction of GST necessitated a unified definition of both.

What Changed?

• Article 366 was amended to define goods and services under GST for the first time. This was essential for simplifying the tax structure.

Text of the Amendment (Article 366):

• “Goods and Services Tax shall include all taxes, levies, and duties that are imposed on the supply of goods and services.”

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7. Key Dates for Constitutional Amendments

• August 8, 2016: The 101st Constitutional Amendment Bill was passed in Parliament.
• September 16, 2016: The 101st Amendment Act came into effect, marking the official launch of the GST framework.

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Conclusion: The Constitutional Backbone of GST

The 101st Constitutional Amendment Act of 2016 laid the foundation for the implementation of GST in India. By amending several key provisions of the Constitution, it allowed both the Union Government and State Governments to levy taxes in a coordinated manner, ensuring a unified tax structure.

This historic change was critical in streamlining the tax system and creating a single market across India, benefiting businesses and consumers alike. The GST Council established through these amendments plays a crucial role in determining the future course of the GST system.

India’s journey from a fragmented tax structure to a unified GST system is a testament to the vision of reforming the country’s tax landscape, and the constitutional amendments were the first step toward making this vision a reality.

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