Ratish Gupta
GST is being introduced in the country after a 13 year long journey since it was first discussed in the report of the Kelkar Task Force on indirect taxes. A brief chronology outlining the major milestones on the proposal for introduction of GST in India is as follows:
a. In 2003, the Kelkar Task Force on indirect tax had suggested a comprehensive Goods and Services Tax (GST) based on VAT principle.
b. A proposal to introduce a National level Goods and Services Tax (GST) by April 1, 2010 was first mooted in the Budget Speech for the financial year 2006-07.
c. Since the proposal involved reform/restricting of not only indirect taxes levied by the Centre but also the States, the responsibility of preparing a Design and Road Map for the implementation of GST was assigned to the Empowered Committee of State Finance Ministers (EC).
d. Based on inputs from Govt. of India and States, the EC released its First Discussion Paper on Goods and Services Tax in India in November, 2009.
e. In order to take the GST related work further, a Joint Working Group constituting of officers from Central as well as State Government was constituted in September, 2009.
f. In order to amend the Constitution to enable introduction of GST, the Constitution (115th Amendment) bill was introduced in the Lok Sabha in March 2011. As per the prescribed procedure, the bill was referred to the Standing Committee on Finance of the Parliament for examination and report.
g. Meanwhile, in pursuance of the decision taken in a meeting between the Union Finance Minister and the Empowered Committee of the State Finance Ministers on 8th November, 2012, a ‘Committee on GST Design’, consisting of the officials of the Government of India, State Governments and the Empowered Committee was constituted.
h. This Committee did a detailed discussion on GST design including the Constitution (115th) Amendment Bill and submitted its report in January, 2013. Based on this Report, the EC recommended certain changes in the Constitution Amendment bill in their meeting at Bhubaneswar in January, 2013.
i. The Empowered Committee in the Bhubaneswar meeting also decided to constitute three committees of officers to discuss and report on various aspects of GST as follows:-
a) Committee on place of Supply and Revenue Neutral Rates;
b) Committee on dual control, threshold and exemption;
c) Committee on IGST and GST on imports.
j. The Parliamentary Standing Committee submitted its Report in August, 2013 to the Lok Sabha. The recommendations of the Empowered Committee and the recommendations of the Parliamentary Standing Committee were examined in the Ministry in consultation with the Legislative Department. Most of the Parliamentary Standing Committee were accepted and the draft Amendment Bill was suitably revised.
k. The final draft Constitutional Amendment Bill incorporating the above stated changes were sent to the Empowered Committee for consideration in September, 2013.
l. The EC once again made certain recommendations on the Bill after its meeting in Shillong in November 2013. Certain recommendations of the Empowered Committee were incorporated in the draft Constitution (115th Amendment) Bill. The revised draft was sent for consideration of the Empowered Committee in March, 2014.
m. The 115th Constitutional (Amendment) Bill, 2011 for the introduction of GST introduced in the Lok Sabha in March, 2011 lapsed with the dissolution of the 15th Lok Sabha.
n. In June 2014, the draft Constitution Amendment Bill was sent to the Empowered Committee after approval of the new Government.
o. Based on a broad consensus reached with the Empowered Committee on the contours of the Bill, the Cabinet on 17.12.2014 approved the proposal for introduction of a Bill in the Parliament for amending the Constitution of India to facilitate the introduction of Goods and Services Tax (GST) in the country. The bill was introduced in the Lok Sabha on 19.12.2014, and was passed by the Lok Sabha on 06.05.2015. It was then referred to the select Committee of Rajya Sabha, which submitted its report on 22.07.2015.
p. After long political negotiations, the Constitutional Amendment bill was passed in both houses of the Parliament in July 2016 with certain amendments.
GST vis-a-vis J&K State
Goods & Services Tax (GST) is a biggest reform to bring about a uniform indirect tax regime in the country allowing the free movement of goods. The following state taxes will subsume by GST:
State VAT
Central Sales Tax
Purchase Tax
Luxury Tax
Entry Tax
Entertainment Tax
State cases and surcharges
Works contract Tax
Service Tax
A study conducted by Indirect Tax Committee of the Institute of Chartered Accountants of India reveal that J&K State is going to be gainer by around Rs.1500 crores on implementation of GST.
The experts, business community do understand that the J&K State cannot remain isolated from implementing GST as it will result into cascading burden of “tax on tax” being no set offs available for taxes paid on inputs or on previous purchases. In consequence the total tax on chain from the raw material/input suppliers to the final retailer in this type of scenario/regime will be higher. Whereby, the price of the good for the final consumer shall go up.
Having Stated as above, the cost of products either way coming in & going out shall be very very high in case of interstate transactions. The consumers in the state shall be burdened to pay high cost for goods in absence of input credits of taxes paid by seller. Similarly, the buyers from outside won’t get encouraged to buy from J&K as they would not have any input credit on taxes levied by state.
It is a fact beyond doubt that GST will subsume CST. For interstate taxable supply, there shall be a statute called Integrated GST (IGST) wherein the Central Government will be the nodal agency to collect and appropriate between the states position of IGST i.e., SGST based on destination/consumption of taxable supplies. In other words, for interstate taxable supply, CST will be replaced by the IGST as proposed in 122nd Constitutional Amendment Bill which will ensure uninterrupted flow of credit. IGST rate will be determined by considering the average of Central GST and State(s) GST. IGST will not only be applicable on interstate taxable supply but also on interstate branch transfer of goods and services treating them as a separate legal entity for GST purpose.
The cause of worry is for the industry in J&K. One of Central Taxes that the GST will replace is Central Excise Duty. It has a definite impact on manufacturing units (excisable products). For manufacturers of J&K State CBEC Notification No. 56/2002-Central Excise dated November 14, 2002 has exempted goods specified in the first schedule and the second schedule to the Central Excise Tariff Act, 1985 with certain exceptions from excise duty/additional excise duty of excise, equivalent to the amount of duty paid by the manufacturer of goods, other than the amount of duty paid by utilization of CENVAT Credit Rules, 2002. Thus all will go in GST Regime. If these area based exemption do not revived in J&K in GST, then option with State Govt. is to compensate industry to remain competitive with other states by way of incentives/refunds.
Entry Tax, Entertainment Tax, Service Tax, Toll Tax, works Contract Tax, VAT all such State Taxes will subsume by GST. In fact, the harassment of Lakhanpur shall not be any more.
SGST will not subsume our existing GST to the extent of Taxes on Petroleum, high speed diesel, motor spirit, natural gas, aviation turbine fuel as of now including Alcoholic Liquor for human consumption but shall definitely subsume Service Tax and WCT.
One school of thought discourages exemption to industry. In their mind set, exemptions from indirect taxes like Central Excise and VAT (which have further been extended to industries under various schemes of the Central and the State Governments) although with two main objectives:
* Development of industrially backward areas.
* Encouragement to industries that are considered to be critical for the economic development of the country.
Under CENVAT also, industries set up in the Jammu & Kashmir enjoys exemption from payment of CENVAT, yet this area based exemption creates economic distortions and affect economic viability of units located in non-exempt areas. Also, they are difficult to administer and prone to misuse, along with the fact that durability of investment attracted by such measures beyond the exemption period is also doubtful.
In view of the above, although such experts recommended that area based exemption should not be continued under the GST regime yet the Govt. of J&K & others effected states must fight with Central Govt. to not to do so.
Another school of thought states, the State Government may provide necessary support to the industry for the economic development and then may discontinue the exemption with a sun set clause and provide direct investment linked cash subsidy/refund scheme.Then Govt. needs to work out and device some mechanism in substitution of VAT remission to Industries.
It’s a fact beyond doubt that the situation with regard to GST for the State of Jammu & Kashmir is quite different from other states as it enjoys special status through the Constitution itself. Article 370 of the Constitution of India makes temporary provisions with respect to the State of Jammu & Kashmir. It provides that the powers of the Parliament to make laws for the said state shall be limited to – (i) those matters in the Union List and the Concurrent List which, in consultation with the Government of the State, are declared by the President correspond to matters specified in the Instrument of Accession, (ii) such other matters in the said lists as, with the concurrent of the Government of the state, the President may by order specify. Complete reading of Article 370 reveals that the Government of India cannot enforce any law on the State of Jammu and Kashmir without the approval or concurrence of the Government of the State except in the case of defence, external affairs and communications. However, in terms of the Constitution, provisions of Seventh Schedule, list 1, Entry 84, Central Excise Duty is levied on all articles produced or manufactured (except alcohol for human consumption etc.). Since the provisions of the Constitution of India have been made applicable to the State of Jammu & Kashmir with certain modifications vide the Constitution (Application to Jammu & Kashmir) Order, 1954 as amended from time to time, levy of Central Excise Duty is applicable to the State. Further Central Sales Tax was also made applicable to the State through the amending Order of 1958.
Under such facts & circumstances and keeping in view the overall benefits of GST, it is quite evident that constitutional interest of Jammu & Kashmir State number one, is very much protected as, it has to pass State GST in its own legislature. Number 2, for input credits concurrence for extension of IGST and CGST must be accorded. To be very honest when CST is being replaced by IGST and CST is already extended to State by J&K through the amending order of 1958, there is nothing left to hold that constitutional interest of Jammu & Kashmir has not been safeguarded.
Thus like CST has been extended to state of J&K by Amendment Act, similarly as per experts the extension of IGST and CGST shall get extended by Amendment Act only. Truly speaking Parallel Act of state cannot be a substitute of IGST & CGST as these are Central Acts. Now, once the concurrence of state is accorded and President of India declares the implementation /extension of IGST Act & CGST Act to the state of J&K then there is no need to enter into separate MOUs with states as is being heard from the corridors of Civil Secretariat . Thus the CGST Act & IGST Act can not be made applicable to J&K State in current form unless & until concurrence of Govt. of Jammu & Kashmir is obtained and President of India declares its extension by Amendment Act.
However, to safe guard industry if area based exemption is not continuing for industry in state of J&K then the state Govt. has to design a mechanism of refunds to industry. The scheme as adopted for excise duty refund in our state for industries can be studied to implement and issue refunds.
In Nutshell the benefits of GST are:
· For Business & Industry;
– Easy Compliance
– Uniformity of tax rates and structures
– Removal of Cascading
– Improved Competitiveness
– Gain to Manufacturers & Exporters
· For Governments;
– Simple and easy to administer
– Better control on leakage
– Higher revenue efficiency
– For the Consumer;
– Single and transparent tax proportionate to the value of goods and services.
– Relief in overall tax burden.
Implementation of GST in Country & States
For the implementation of GST in the country, the Central and State Government have jointly registered Goods and Services Tax Network (GSTN) as a not for profit, non Government Company to provide shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders. The key objectives of GSTN are to provide a standard and uniform interface to the taxpayers, and shared infrastructure and services to Central and State/UT Governments. The basic idea is to avoid evasion in Indirect Tax System.
GSTN is working on developing a state of the art comprehensive IT infrastructure including the common GST portal providing fronted services of registration, returns and payments to all taxpayers, as well as the backend IT modules for certain States that include processing of returns, registrations, audits assignments, appeals etc. All States, according authorities, RBI and banks, are also preparing their IT infrastructure for the administration of GST.
There would no manual filing of returns. All taxes can also be paid inline. All mis matched returns would be auto generated, and there would be no need for manual interventions. Most returns would be self assessed.
The GSTN will implement common PAN based registration.
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