NOTIFICATIONS FOR CONSTITUIONAL AMENDMENTS – A TSUNAMI OF ERRORS

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NOTIFICATIONS FOR CONSTITUIONAL AMENDMENTS –
A TSUNAMI OF ERRORS
K. VAITHEESWARAN,
Advocate
vaithilegal@yahoo.co.in
The Nation witnessed the historical 101st
Constitutional Amendment Act being
passed by the Parliament and in record time more than 50% of the States
ratified the amendment and the President approved the legislation. A herculean
task was achieved without any hurdle in a very short span of time. The
Constitutional Amendment itself is a complicated one and unfortunately much
haste has been shown resulting in errors which has brought embarrassment to
the Government and has the potential of bringing the Central Government
revenues to a standstill.
Firstly, the very fact that the Constitutional Amendment Act would come into
force from dates specified by Notification of the Government itself is something
difficult to accept. A constitutional amendment and that too a serious one as this
should not have been in the realm of Government Notification.
Secondly, one would have expected the Government to be very careful while
issuing these notifications, since the entire nation is moving away from an
established tax regime to an unchartered, unknown new terrain.
Whether levy of excise duty on non-petroleum / tobacco products from
16.09.2016 is illegal?
Entry 84 of the Union List provided for duties of excise on tobacco and other
goods manufactured or produced in India. In exercise of powers under this
Entry, the Parliament enacted the Central Excise Act, 1944 and the Government
framed the Rules thereunder for the levy and administration of excise duty.

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Section 17 of the 101st
Constitutional Amendment Act has amended Entry 84 of
the Union List whereby Entry 84 is now confined only to levy of excise duty on
petroleum products, tobacco and tobacco products. The grand plan of GST
based on reading of the Constitutional Amendment Act and press statements
indicated that the Central Government would continue levy of excise duty on
petroleum products and tobacco but all other goods would be subjected to GST
along with services.
Section 2 of the Amendment Act has introduced Article 246A which empowers
the Parliament and the Legislature of every State to make laws with respect to
goods and services tax.
The problem has arisen on account of the Government issuing Notification
No.S.O.2986(E) dated 16.09.2016 notifying all the sections from 16.09.2016
including Section 17.
This has created a faux pas since from 16.09.2016, excise duty can be levied
only on petroleum products and tobacco on account of the substituted Entry 84
and GST cannot be levied since there is no mechanism for such levy in place.
Whether Section 19 can justify the continuing levy?
One may try to justify continuance of the levies by referring to Section 19 of the
Amendment Act which provides that notwithstanding anything in this Act, any
provision of any law relating to goods or services or both in force in any State
immediately before the commencement of this Act which is inconsistent with the
provisions of the Constitution as amended by this Act shall continue to be in
force until amended or repealed by a competent Legislature or other competent
authority or until expiration of one year from such commencement whichever is
earlier.
In my view, Section 19 would not save the levy for the following reasons:-
(i) Section 19 refers to ‘any State’ thereby indicating the continuance of levy
of tax on sale of goods by the States under Entry 54 of the State List and
other levies by the State which would be affected by the amendment.

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(ii) While Article 12 of the Constitution of India defines ‘State’ to include
Government, Parliament, Government and Legislature of each State and
all local and other authorities within the territory of India or under the
control of Government of India, Article 12 starts with ‘in this Part’ and
should be confined to Part-III which deals with fundamental rights.
Entry 84 Union List is part of the Seventh Schedule which is connected
to Article 246 which forms part of Part-XI of the Constitution.
(iii) The very fact that Section 19 refers to ‘competent Legislature’ or
‘competent authority’ indicates that only states can resort to Section 19
for continuing their existing levies.
Whether Entry 97 of the Union List would provide necessary protection?
Entry 97 of the Union List is a residual entry covering any other matter not
enumerated in List II or List III, including any tax not mentioned in either of
those lists. While it is true that Parliament would have legislative competence
under Entry 97, with reference to imposition of tax, justifying the levy of excise
on other goods under this entry would prove to be fatal for the following
reasons:
(i) Entry 84 is substituted to levy excise duty only on petroleum and tobacco
and justifying excise duty levy under Entry 97 for other products would
be patently illegal.
(ii) If excise duty levy on other products can be justified under Entry 97, then
can excise duty be continued under Entry 97 even after introduction of
GST? Therefore, justification of the levy under Entry 97 could very well
defeat GST.
Accountability
The Government must first acknowledge the error and embark on an exercise of
rectifying the error rather than justifying and explaining the same which will
only deepen the crisis. The Government’s revenues are at stake and some

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accountability is required at this stage since this is one of the biggest errors that
tax laws have seen in recent times.
Threat to States?
A Constitutional crisis has been created by notifying all the amendments
including Section 19 whereby States would suddenly have no power to raise
revenue after one year under existing entries and would be forced to impose
GST in whatever form under Article 246A. Is this a veiled threat to the States to
agree quickly for GST?
Hypothetically, assuming the rate of tax debate or the taxes to be subsumed or
the exemptions to be given are not finalized by the GST Council, there is a one
year time bomb ticking for the State. If GST Council does not conclude these
issues, States would lose their power to levy VAT and other taxes on 16.09.2017
and each State would have to bring in their own GST to survive.
Discussions
GST has many things to unfold and a number of surprises are in store. It is not
easy for the Government to implement such a massive change in law on its
own. The Government must consult the industry and the legal professionals and
then take appropriate decisions with reference to the changes.
Solutions
The problem can be solved through the following solutions:
(i) The ideal solution would be to rescind the Notification dated 16.09.2016
in toto and carefully analyze all the consequences and implement the
amendment at different stages depending upon different time frames.
(ii) Approach the President of India seeking his indulgence under Section 20
of the Amendment Act. Section 20 provides that if any difficulty arises in
giving effect to the provisions of the Constitution as amended by this Act
(including any difficulty in relation to the transition from the provisions
of the Constitution as they stood immediately before the date of assent of
the President to this Act to the provisions of the Constitution as amended

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by this Act), the President may by order make such provisions including
any adaptation or modification of any provision of the Constitution as
amended by this Act or law as appear to the President to be necessary or
expedient for the purpose of removing the difficulty. No order is possible
after the expiry of three years from the date of such assent and every
order as soon as it is made should be laid before each House of the
Parliament.
Tail Piece – Has the GST Council been legally constituted?
As a tail piece, one other crisis is also in the making which can threaten the very
existence of the GST Council. Notification No. S.O. 2915 (E) dated 10.09.2016
had appointed 12th
day of September 2016 as the date on which the provisions
of Section 12 of the Amendment Act shall come into force. Section 12 deals
with GST Council and the President issued a Notification dated 15.09.2016
constituting the GST Council.
The problem lies with the bringing into force of Section 12 since the
Notification states that it is issued in exercise of powers conferred by Section
1(2) of the Constitution (One Hundred and First Amendment) Act, 2016. If
Section 1 itself has come into force only from 16.09.2016, how is it possible to
exercise power under Section 1 on 10.09.2016?