STATEMENT OF OBJECTS AND REASONS

Presently, article 269 of the Constitution empowers the Parliament to make law
on the taxes to be levied on the sale or purchase taking place in the course of
inter-State trade or commerce. Accordingly, Parliament had enacted the Central Sales
Tax Act, 1956 for levy of central sales tax on the sale taking place in the course of
inter-State trade or commerce. The central sales tax is being collected and retained by
the exporting States.
2. The crucial aspect of central sales tax is that it is non-vatable, i.e. the credit of
this tax is not available as set-off for the future tax liability to be discharged by the
purchaser. It directly gets added to the cost of the goods purchased and becomes part
of the cost of business and thereby has a direct impact on the increase in the cost of
production of a particular product. Further, the fact that the rate of central sales tax is
different from the value added tax being levied on the intra-State sale creates a tax
arbitrage which is exploited by unscrupulous elements.
3. In view of the above, it has become necessary to have a Central legislation,
namely, the Integrated 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 in the course of inter-State
trade or commerce. The proposed Legislation will remove both the lacunas of the present
central sales tax. Besides being vatable, the rate of tax for the integrated goods and
services tax is proposed to be more or less equal to the sum total of the central goods
and services tax and state goods and services tax or Union territory goods and services
tax to be levied on intra-State supplies. It is expected to reduce 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 the
integrated goods and services tax will foster a common or seamless Indian market and
contribute significantly to the growth of the economy.
4. The Integrated Goods and Services Tax Bill, 2017, inter alia, provides for the
following, namely :—
(a) to levy tax on all inter-State supplies of goods or services or both except
supply of alcoholic liquor for human consumption at a rate to be notified, not
exceeding forty per cent. as recommended by the Goods and Services Tax Council
(the Council);
(b) to provide for levy of tax on goods imported into India in accordance
with the provisions of the Customs Tariff Act, 1975 read with the provisions
contained in the Customs Act, 1962;
(c) to provide for levy of tax on import of services on reverse charge basis
under the proposed Legislation;
(d) to empower the Central Government to grant exemptions, by notification
or by special order, on the recommendations of the Council;
(e) to provide for determination of the nature of supply as to whether it is
an inter-State or an intra-State supply;
(f) to provide elaborate provisions for determining the place of supply in
relation to goods or services or both;

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