101st Constitutional Amendment Act 2016

Polity & Governance glossary

Also called: GST amendment, 101st Constitutional Amendment Act · Topic: Federalism and Centre-State Relations · NCERT: Class 11, Ch 9 "Constitution as a Living Document"

Meaning

The 101st Constitutional Amendment Act, 2016 brought in the Goods and Services Tax (GST) from 1 July 2017. It added three new articles:

  • Article 246A lets Parliament and the state legislatures tax the same supply of goods and services at the same time.
  • Article 269A gives Parliament alone the power to tax supplies between states.
  • Article 279A creates the GST Council.

It matters because it is the biggest change to India's tax powers since 1950. One tax replaced many separate Union and state indirect taxes. The Union and the states now have to agree on tax decisions in a shared body.

Explanation

Why the amendment was needed

  • Before GST, the Seventh Schedule kept taxes in separate lists.
  • The Union taxed some things, such as manufacture.

  • The states taxed others, such as the sale of goods.

  • So a single tax on a "supply" (any sale, transfer or service) could not exist. Neither level had the full power.

  • India also has a vertical fiscal imbalance: the Union holds the best sources of money, while the states carry most of the spending. Class 11 NCERT says states have "very meagre revenue sources" and depend on grants.
  • The amendment rewrote the taxing powers so that both levels could tax the same transaction.

Its main parts

  • Concurrent taxing power for GST (Article 246A): Parliament and every state legislature can make GST laws on supplies inside a state. This is new. Earlier, no tax power was held by both levels at once.

  • In practice this creates a "dual GST": a Central GST and a State GST on the same supply.

  • Inter-state supplies (Article 269A): only Parliament can levy GST on supplies from one state to another, and on imports. The tax is then shared between the Union and the states.

  • GST Council (Article 279A): a joint body of the Union and the states.
  • Chair: the Union Finance Minister.
  • Members: the Union Minister of State for Finance, and the Finance Minister (or another minister) of each state.
  • Its work: it recommends GST rates, exemptions, model GST laws and special rules for some states.

  • Voting: a decision needs three-fourths of the weighted votes of members present and voting. The Union's vote counts as one-third. All the states together count as two-thirds.

  • Subsuming taxes: many separate Union and state indirect taxes were merged into GST. The aim is "one nation, one tax" and a single national market.

Limits and exclusions

  • Alcohol for human consumption is outside GST under the Constitution itself. States keep taxing it.
  • Petroleum products are inside GST on paper. GST on them starts only from a date the GST Council recommends. Until then, the old taxes continue.
  • Not binding: the GST Council's recommendations do not bind Parliament or the states. They are persuasive (Mohit Minerals, 2022).

How it was passed

  1. It was a constitutional amendment under Article 368. Each House of Parliament had to pass it by a special majority: a majority of its total membership, and two-thirds of the members present and voting.
  2. It changed how taxing power is shared and altered the Seventh Schedule. These are federal provisions, so at least half of the state legislatures had to approve it (Article 368(2)).
  3. After the President's assent, GST started on 1 July 2017.

In the Constitution and practice

  • Where it sits:
  • Part XI (Article 246A);
  • Part XII on finance (Articles 269A and 279A);

  • changes to the tax entries of the Seventh Schedule.

  • Federal setting: the 101st Amendment belongs to the financial side of centre-state relations. It works alongside:

  • the separate tax lists (Union List entries 82-92C, State List entries 45-63);
  • the sharing of Union taxes (Articles 268-272);

  • the Finance Commission (Article 280).

  • As cooperative federalism: the GST Council is one of the main tools of cooperative federalism. In cooperative federalism, the Union and the states work as partners. Other examples are the Aspirational Districts Programme (2018) and joint action during COVID-19.

  • Mohit Minerals (2022): the Supreme Court held that the GST Council's recommendations are persuasive, not binding.
  • Article 246A gives Parliament and the states equal law-making power over GST.

  • So the states keep their own say, even after Council decisions.

  • Friction in practice:

  • the Union keeps cesses outside the pool of taxes it shares with the states;
  • states complain about withheld scheme funds;

  • petroleum and alcohol still stay outside GST.

  • NCERT update: Class 11 NCERT (Ch 9, "Constitution as a Living Document") shows amendments as the way the Constitution changes with need. GST is a key example. NCERT's picture of state finances is outdated: NITI Aayog replaced the Planning Commission on 1 January 2015.

Don't confuse with

  • Article 246A vs Article 246: Article 246 splits law-making into the Union, State and Concurrent Lists of the Seventh Schedule. Article 246A is a special rule only for GST. It gives both levels power over the same supply "notwithstanding" Article 246.
  • Article 246A vs Article 269A: under 246A, both levels tax supplies inside a state. Under 269A, only Parliament taxes supplies between states, and the money is then shared.
  • GST Council vs Finance Commission:
  • The GST Council (Article 279A) is a permanent joint body. It recommends GST rates and laws.

  • The Finance Commission (Article 280) is an expert body. It recommends how Union taxes are shared with the states and what grants they get (Article 275).

  • GST Council vs Inter-State Council:

  • The GST Council comes straight from the Constitution (Article 279A) and meets often on tax.
  • The Inter-State Council was set up by Presidential Order on 28 May 1990, under Article 263. It is only advisory and rarely meets.

Prelims Hooks

  • Amendment numbers: 101st Amendment (2016) is GST. The 100th Amendment (2015) is the Land Boundary Agreement with Bangladesh.
  • Article matches:
  • Article 246A: concurrent GST power of Parliament and the states.
  • Article 269A: GST on inter-state supplies.

  • Article 279A: GST Council.

  • GST Council: chaired by the Union Finance Minister. The Union's vote counts as one-third and all states together as two-thirds. A decision needs three-fourths of the weighted votes.

  • Case: Mohit Minerals (2022) held that GST Council recommendations are persuasive, not binding. "The GST Council's decisions bind Parliament and the states" is FALSE.
  • Trap: "Petroleum and alcohol are taxed under GST" is FALSE. Alcohol for human consumption is excluded by the Constitution. GST on petroleum waits for a date the Council recommends.
  • Ratification: the amendment changed federal tax powers, so at least half of the state legislatures had to approve it (Article 368(2)).

Mains Points

  • Cooperative federalism, or pooled sovereignty?
  • For: the GST Council is a working forum where the Union and the states decide together. This supports Granville Austin's idea of "cooperative federalism".
  • Against: states gave up their separate taxing powers. With one-third of the votes, the Union has an effective veto, because no decision can reach three-fourths without it. The states can block decisions only if they act together.

  • Mohit Minerals (2022) restored some balance by holding that the Council's advice does not bind.

  • Fiscal autonomy and the vertical imbalance:

  • GST made states more dependent on a shared pool and on Union transfers. The vertical fiscal imbalance grew wider.
  • Cesses kept outside the shared pool and withheld scheme funds have caused friction.

  • Possible reforms: a share of cesses for the states, a firmer role for the Inter-State Council, and bringing petroleum into GST in stages with fair compensation for states.

  • "Constitution as a living document": the 101st Amendment shows that the Constitution can change its basic division of tax powers with the states' consent (Article 368(2)) while keeping federalism, a part of the basic structure (S.R. Bommai, 1994). It is a good example of the "bargaining federalism" described by W.H. Morris-Jones.

Related concepts

Read more

Sources

  1. 1Class 11, Ch 9 "Constitution as a Living Document" (primary)