QUESTION : Evaluate the Essential Defence Services Bill 2021 and discuss how will it impact India’s ordnance factories?
The Hindu Editorial Topic : NO FUNDAMENTAL RIGHT TO STRIKE
WHAT ?
Right to Strike and Fundamental Right
WHY IN NEWS ?
Recently, the Minister of Defence introduced the Essential Defence Services Bill, 2021, in the Lok Sabha to provide for the maintenance of essential defence services.
BACKGROUND :
- Indian Ordnance Factories is the oldest and largest industrial set up which functions under the Department of Defence Production of the Ministry of Defence.
- Recently, the Union Cabinet approved a long-pending proposal to restructure the nearly 200-year-old Ordnance Factory Board (operating 41 ammunition and military equipment production facilities) into seven State-owned corporations under the provisions of the Companies Act ,2013.
o To improve its accountability, efficiency and competitiveness.
- The Defence Minister assured that there would be no change in the service conditions of employees of the OFB, and the decision was aimed at boosting India’s defence manufacturing sector.
- Against the decision, the recognised federations of the employees gave a notice for an indefinite strike.
o The conciliation proceedings initiated by the government at the level of the Chief Labour Commissioner failed in the meeting.
- The government decided to convert the Ordnance Factory Board into seven Defence Public Sector Undertakings.
INTENTION BEHIND THIS BILL :
- It is essential that an uninterrupted supply of ordnance items to the armed forces be maintained for the defence preparedness of the country.
- The ordnance factories should continue to function without any disruptions, especially in view of the prevailing situation on the northern front of the country.
- The government should have the power to meet the emergency created by such attempts (Strikes) and ensure the maintenance of essential defence services in all establishments:
o Connected with defence,
o In the public interest or interest of the sovereignty and
o The integrity of India or security of any State or decency or morality.
OBJECTIVE OF THIS BILL :
- It is aimed at preventing the staff of the government-owned ordnance factories from going on strike.
o Around 70,000 people work with the 41 ordnance factories around the country.
- The ordnance factories form an integrated base for indigenous production of defence hardware and equipment, with the primary objective of self-reliance in equipping the armed forces with state of the art battlefield equipment.
ABOUT ESSENTIAL DEFENCE SERVICES BILL :
- It empowers the government to declare services mentioned in it as essential defence services.
- The cessation of work of which would prejudicially affect:
o The production of defence equipment or goods;
o The operation or maintenance of any industrial establishment or unit engaged in the production of goods or equipment required for any purpose connected with defence;
o Repair or maintenance of products connected with defence.
- It also prohibits strikes and lockouts in any industrial establishment or unit engaged in essential defence services.
- The Bill will replace the Essential Defence Services Ordinance recently.
- If passed it will come into effect retrospectively from 30th June 2021, when the ordinance was promulgated.
ITS IMPACT :
- It has a direct bearing on around 70,000 employees of the 41 ordnance factories around the country, who are unhappy with the corporatisation of OFB, fearing that it will impact their service and retirement conditions.
ESSENTIAL DEFENCE SERVICES ORDINANCE,2021 :
- It comes in the backdrop of major federations affiliated with the 76,000 employees of the Ordnance Factory Board (OFB) making an announcement that they would go on indefinite strike from July 2021 in protest against the government’s decision to corporatise the OFB.
- Under the ordinance:
o Any person, who commences a strike which is illegal under this Ordinance or goes or remains on, or otherwise takes part in, any such strike, shall be punishable with:
- Imprisonment for a term, which may extend to one year, or with fine, which may extend to ₹10,000, or both.
o Anyone instigating or inciting others to take part in a strike declared illegal under the Ordinance shall also be punished with imprisonment for a term that may extend up to two years, apart from having to pay fines.
o Employees who come under the purview of the Ordinance are:
- Involved in the production of defence equipment, services and operation, or maintenance of any industrial establishment connected with the military.
- As well as those employed in the repair and maintenance of defence products.
Previous cases of the strikes made illegal by the government in certain circumstances:
- The Madhya Pradesh (and Chhattisgarh) Civil Services Rules, 1965.
o It prohibits demonstrations and strikes by government servants and direct the competent authorities to treat the durations as unauthorised absence.
o A strike under this rule includes total or partial cessation of work, a pen-down strike, a traffic jam, or any such activity resulting in cessation or retardation of work.
o Other States too have similar provisions.
- Under Article 33 of the Constitution:
o Parliament, by law, can restrict or abrogate the rights of the members of the armed forces or the forces charged with the maintenance of public order so as to ensure the proper discharge of their duties and maintenance of discipline among them.
o Thus, for the armed forces and the police, where discipline is the most important prerequisite, even the fundamental right to form an association can be restricted under Article 19(4) in the interest of public order and other considerations.
- The Supreme Court in Delhi Police v. Union of India (1986):
o Upheld the restrictions to form association by the members of the non-gazetted police force after the Police Forces (Restriction of Rights) Act, 1966, and the Rules as amended by Amendment Rules, 1970, came into effect.
o While the right to freedom of association is fundamental, recognition of such association is not a fundamental right.
o Parliament can by law regulate the working of such associations by imposing conditions and restrictions on their functions, the court held.
- In T.K. Rangarajan v. Government of Tamil Nadu (2003):
o The Supreme Court held that the employees have no fundamental right to resort to strike.
o Further, there is prohibition to go on strike under the Tamil Nadu Government Servants’ Conduct Rules, 1973.
o Also, there is no moral or equitable justification to go on strike.
o The court said that government employees cannot hold the society to ransom by going on strike.
o In this case, about two lakh employees, who had gone on strike, were dismissed by the State government.
GRIEVANCE REDRESSAL :
- A police havildar was convicted of contempt of court by the sub-divisional officer, Gaya.
o The Gaya police, thereupon, gave notice of strike unless redress was given to the havildar and the sub-divisional officer punished.
o Though an inquiry was ordered immediately, the strike commenced on March 24, 1947.
o When some representatives of policemen met Gandhi at Jehanabad on March 28, he told them that their strike was ill-advised.
- Gandhi’s Advice:
o They were not mere wage-earners but the members of an essential service.
o They should immediately and unconditionally call off the strike.
o In his speech on March 27, Gandhi said that the police should never go on strike.
- Theirs was an essential service and they should render that service, irrespective of their pay.
o There were several other effective and honourable means of getting grievances redressed.
- There is no fundamental right to strike under Article 19(1)(a) of the Constitution.
o Strikes cannot be justified on any equitable ground.
o Strike as a weapon is mostly misused which results in chaos.
o Though the employees of OFB have threatened to go on strike, Parliament, which has the right to restrict even the fundamental rights of the armed forces, is well within its right to expressly prohibit resorting to strike.
RIGHT TO STRIKES :
- Right to strike is recognized globally. Article 19(1) the Constitution of India guarantees the protection of certain freedoms as fundamental rights such as:
o Freedom of speech and expression.
o Assemble peaceably and without arms.
o Form associations or unions.
o Move freely throughout the territory of India.
o Reside and settle in any part of the territory of India.
o Practise any profession, or to carry on any occupation, trade or business.
- However, strike is not expressly recognized in the Constitution of India. SC settled the case of Kameshwar Prasad v. The State of Bihar 1958 by stating that strike is not a fundamental right. Government employees have no legal or moral rights to go on strikes.
- India recognized strike as a statutory right under the Industrial Disputes Act, 1947.
INDUSTRIAL DISPUTES ACT 1947 :
- It defines public utility service and strike, it also puts certain prohibitions on the right to strike. It provides that no person employed in public utility service shall go on strike in breach of contract:
o Without giving the employer notice of strike within six weeks before striking.
o Within fourteen days of giving such notice.
o Before the expiry of the date of strike specified in any such notice as aforesaid.
o During the pendency of any conciliation proceedings before a conciliation officer and seven days after the conclusion of such proceedings.
- It is to be noted that these provisions do not prohibit the workmen from going on strike but require them to fulfill the condition before going on strike. Further these provisions apply to a public utility service only.
Indian Ordnance Factories :
- It is the oldest and largest industrial setup that functions under the Department of Defence Production of the Ministry of Defence.
- These form an integrated base for indigenous production of defence hardware and equipment, with the primary objective of self-reliance in equipping the armed forces with state of the art battlefield equipment.
CONCLUSION :
- Therefore, there is a need to provide for the maintenance of essential defence services so as to secure the security of nation and the life and property of public at large and for matters connected therewith or incidental thereto.
QUESTION : “Goods and Services Tax helped the country in transitioning to an automated indirect tax ecosystem” Comment with critical analysis.
The Hindu Editorial Topic : A GRAND TAX BARGAIN IN DANGER OF COMING APART
WHAT ?
GST And its Issues
WHY IN NEWS ?
- After four years, the promise of the Goods and Services Tax (GST) remains substantially unrealised.
o It is a far cry from the attempted avoidance of cascading and continues to be a not very transparent multi-rate system with associated difficulties in computing and assessing tax liability, tax burden and tax incidence.
MORE ABOUT THIS NEWS :
- The tax base of GST does not appear to be expanding as the recent uptick has reversed last month. The GST is strongly correlated to overall GDP.
- Revenue collection of the GST is dependent on the nominal growth rate of Gross Value Added (GVA) in the economy.
- Since inception, GVA per quarter has been between ₹40-lakh crore to ₹47-lakh crore and GST revenue has not been higher than ₹2.7-lakh crore to ₹3.1-lakh crore.
- The Tax to Gross value addition is only about 5% to 6.5% though GVA growth was much higher. Obviously, a very large segment is covered by exemption, composition schemes, evasion and lower tax rate.
ISSUES :
- Political Architecture: The fundamental weakness of the GST is its political architecture which is asymmetrically loaded in favour of the Centre.
o Disputes between States and between the Centre and the States are inevitable in a mosaic arrangement.
o But in the current structure, no particular body is tasked to adjudicate this though the original Constitution (115th Amendment) Bill 2011 (GST Bill) had a provision for such an institution.
o In the voting, the central government has one-third vote and States have two-thirds of total votes (with equal voting rights regardless of size and stake). With the support of a dozen small States whose total GST collection is not more than 5% of the total — and their Budget is mostly underwritten by the central government — the game is hugely in the Centre’s favour.
- Issues with tax structure: The second problem is the design flaws in the tax structure. Nearly 45% to 50% of commodity value is outside the purview of the GST, such as petrol and petroleum products.
o In addition, States which export or have inter-State transfers or mineral and fossil fuel extractions are not getting revenue as the origin States and need a compensation mechanism.
- Exemptions from registration and taxation of the GST have further eroded the GST tax base compared to the tax base of the pre-existing VAT. Exemptions are purely distortionary and also provide a good chance to remain under the radar, thereby directly increasing evasion or misclassification.
- Exclusion as another issue: Petroleum products remaining outside the purview of GST has helped the Centre to increase cesses and decrease central excise, in what would otherwise have been shareable with the States. Now, States will be keen on including petrol and diesel under the GST as their share of tax goes up in the process, even if there is a special rate fixed for it.
- Compliance with GST return (GSTR-1) filing stipulation and the resultant tax information is not up to date. The gap in filing GSTR-1 was 33% in 2019-20 and has been increasing. As per GSTR-3B, the effective tax rate is as low as 6.5% when GSTR-1 shows an average 15% tax rate. Fraudulent claims of Input Tax Credit (ITC) because of a lack of timely reconciliation are quite high though it has come down by two thirds. Tax evasion, estimated by a National Institute of Public Finance and Policy’s paper, is at least 5% in minor States and plus 3% in the major States.
ITS SIGNIFICANCE :
- Better Compliance: GST helped in achieving better tax compliance by subsuming multiple taxation and reduction in taxation burden in the last four years.
- Automated tax ecosystem: It helped the country in transitioning to an automated indirect tax ecosystem. From electronic compliances, generation of e-invoices to tracking movement of goods through e-way bill – everything is now online.
- E-invoice & More Revenue: The E-invoicing system helped reduce fake invoicing. Use of technology with online bill generation has resulted in smoother consignment movement and much fewer disputes with officials. After the introduction of E-invoice, GST collections have risen steadily since November 2020, surpassing the Rs. 1 lakh crore mark on several occasions.
- Logistical efficiency, production cost cut: Another major achievement of this regime is the fact that over 50% of logistics effort and time is saved since GST has ensured the removal of multiple checkpoints and permits at state border checkpoints.
- Lesser transaction costs: After the introduction of GST, there has been a significant reduction in transaction costs. This reduction has been a huge breakthrough in the interstate movement of products, allowing the country to boast of a single national unified market for businesses.
- Cooperative Federalism: The customs portals are linked with the GST portal for credit availing on imports constitution of the GST Council and ensuring Centre-State partnership in the decision-making process. It ensured cooperative federalism to be its major part.
- Ease of doing business: India’s ease of doing business ranking has improved significantly in the last four years. Before GST was implemented, India’s Ease of Doing Business ranking was 130 in 2016. In 2020, India was ranked 63rd on the list.
- More Freedom: Since the GST rate is the same across the country for a particular supply, traders and manufacturers in the organized sectors have gained more freedom to choose the best vendors, suppliers, and other stakeholders with better pricing, regardless of their location.
- Improved Competitiveness: GST has improved the competitiveness of domestic industries in the international market by removing hidden and embedded taxes.
WAY FORWARD :
- These policy gaps with regard to a higher threshold (when in sales tax, it was lower) exemption level and multiple tax rates have led to a base erosion. Policy gaps along with compliance gaps do need to be addressed.
- Without proper tax information, infrastructure and base, the States would go in for selective tax enforcement.
- In the long run, voluntary compliance will suffer and equity in taxation will be violated. Finally, the grand bargain will come apart. Given all these problems, a version 2.0 of GST may have to be designed sooner rather than later.
- Expansion Of Tax Base: There are many goods that are still outside the GST net and hamper the seamless flow of input tax credit. Key items outside its ambit are electricity, alcohol, petroleum goods, and real estate. Among fuels, it may be possible to bring natural gas and aviation fuel within GST. Also, the government in the upcoming meeting can reduce the GST on essential items such as oxygen concentrators, vaccines, etc to overcome the pandemic.
- Infusing tax predictability: The GST Council can adjust the rates only once a year. Further, the Centre shouldn’t bypass GST by introducing any Cess. The Centre can also rationalise the present Cess ecosystem in India to a bare minimum. This will ensure tax predictability to states and enhance the ease of doing business.
- More accommodative approach from the Centre: To prevent an irretrievable breakdown during the pandemic the Centre has to be more accommodative to State’s needs. Such as, allocating State’s share properly, procuring vaccines from abroad, etc. This will further enhance State’s reliability on GST.
- Pandemic has had severe impacts on GST also and led to economic contraction. Certain structural level changes to the law may help boost the business and economy.
- Constitute the GST Appellate Tribunal as it is obvious that all taxpayers do not have the finances or means to approach the High Court for every practical difficulty faced.
- Streamlining of anti-profiteering measures and simplification of compliance procedures also needs to be revisited to ensure that the cost efficiency and reduction in prices envisaged under GST law finally reach the common man.
- The law is still a ‘work-in-progress’ and the process of evolution, in such a complex journey, cannot be eliminated.
CONCLUSION :
GST is a positive step towards shifting the Indian economy from the informal to the formal one. But, the Center and States have to understand the limitations associated with Indirect Taxes and move towards the inclusion of people into the Direct tax bracket. But, to revive GST Regime back on track India needs some radical steps such as an extension of revenue guarantee to States, restricting cesses, above all respecting the need of State governments fiscal problems.
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