By R K Hasija, Advocate
THE much talked about tax reform in the form of GST i.e. Goods and Services Tax is proposed to be implemented from April 2016 if everything goes well. It will replace all indirect taxes levied on goods and services by the Central and State Governments. India being a federal republic, GST will be implemented concurrently by the Central and State Governments as CGST and the SGST respectively.
2. Roadmap to implement GST though appears difficult but not impossible. The Constitution (One Hundred and Twenty-second Amendment) Bill, 2014 was introduced in the Lok Sabha by Finance Minister on 19 th December 2014 and was passed by the House on 5 th May 2015. The Government attempted to move the Bill for consideration in the Rajya Sabha on 11 th May 2015. However, members of the Opposition repeatedly stalled the proceedings of the House and now it stands referred to a Select Committee. The 21 member Committee is expected to give its report by the end of the monsoon session. If it is passed by the Rajya Sabha, it has to be ratified by half of the State assemblies. Political situation in different states may affect smooth legislation of the proposed amendment. But given the fact that it will be beneficial to consuming States, it may sail through especially when the Center has assured the appropriate compensation to the States for the initial revenue loss, if any.
3. The situation with regard to GST for the State of Jammu & Kashmir is quite different from other States. It may be a herculean task to implement the GST in the State of J&K which enjoys special status through the Constitution itself. Article 370 of the Constitution of India makes temporary provisions with respect to the State of Jammu and 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 to correspond to matters specified in the Instrument of Accession, (ii) such other matters in the said Lists as, with the concurrence 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 defense, external affairs and communications.
4. 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 and Kashmir) Order, 1954 as amended from time to time, levy of Central Excise duty is applicable to the State. Central Sales Tax was also made applicable to the State through the amending Order of 1958.
5. As of now, provisions of the Finance Act, 1994 relating to levy of service tax are not applicable to the State of Jammu & Kashmir. However, the State Government has enacted for levy of tax on certain services through ‘The Jammu and Kashmir General Sales Tax Act, 1962′. As per, definition clause of this Act, certain services such as “ services provided in the shape of works contract, whether divisible or indivisible, involving the transfer of property or not, services in the form of lodging facilities provided by the hotels, services provided by Telecom/Cellular phone agencies by way of transfer of right to use any goods or otherwise, services provided by private nursing homes, beauty saloons, photographers and advertisers rendered by way of or as part of any contract or in any other manner whatsoever involving skill and labour or any other services as may be notified by the Government from time to time” have been included in the definition of “goods” itself. Thus,the State Government has exercised its power to levy tax on certain services which the Central Government has not been vested with.
6. As per proposed amendment to the Constitution towards GST, levy of Central Excise duty on all excisable goods except a few and levy of Central Sales Tax and Service tax are being omitted from the Union List. As per proposed new Article 246A, concurrent power is being given to the Union as well to all the States to legislate laws to levy Goods and Services Tax. Also exclusive power is proposed to be given to Parliament of India to legislate on the inter-state supply of goods or services or both, vide proposed amendment. Since GST is proposed to be implemented by introduction of new article in the Constitution itself, no corresponding entry is required either in the Union or State or Concurrent List empowering Centre or the State or Both. Since State of Jammu & Kashmir enjoys special status by virtue of Article 370 of the Constitution, the proposed new Article 246A in the Constitution will not automatically apply to the state. It is an uphill task to implement GST in the state of J&K which itself requires lot of questions to be answered.
7. Article 370(3) empowers President to cease or modify the operations of this temporary status by virtue of notification. But issuing of said notification itself requires recommendations of Constituent Assembly of the State. Since Constituent Assembly of the State does not itself exist anymore, the said power of the President does not exist in reality. Does it mean that State of J&K can never be brought under new tax law called Goods and Service Tax? The obvious answer is no. Recourse has to be taken Article 368 of the Constitution which allows amendment to the Constitution. This leads to another question that if Article 368 empowering amendment to the constitution also embodies power to make Article 370 of the Constitution inoperative, why the proposed constitutional amendment for introducing GST is silent on this aspect. Is it a miss while drafting proposed constitutional amendment that special status of State of J&K has not been kept in mind? Article 370 cannot be amended under Article 368 without concurrence of the State Government of J&K. The Constitution (Application of J&K) Order 1954, lays down that any amendment in the Constitution will not apply to the State of J&K unless extended by Presidential order which involves concurrence of or consultation with the Government of the State. To summarize, proposed amendment in the Constitution and consequent application of GST can be made applicable to State of J&K only if the same is ratified by State of J&K.
8. What flows from above is that GST in J&K requires State Assembly of J&K to give a final nod to the same. Having said that let us see the indications concerning GST in the political corridors of the State of Jammu & Kashmir. As per the latest press reports, the indications are not encouraging for the smooth implementation of the GST in the State. Government of Jammu and Kashmir has expressed concerns about the proposed implementation of Goods and Services Tax (GST) which according to it would erode the State’s taxation autonomy. Although discussions have been held between industrialists and senior ministers over implementation of GST, but no headway has been made. Trade bodies in both Jammu and Kashmir region seems to be on the opposite fronts over the issue of implementation of GST. While the Chamber of Commerce and Industry (CCI) Jammu is vouching for its implementation, the business community in Kashmir is opposing the same citing special status given to Jammu and Kashmir under Article 370. The State of Jammu and Kashmir, however, can only be a part of the new uniform tax regime if the State’s Assembly gives it a nod and followed by Presidential Order.As of now, the State, given the apprehension that GST could result in an end to the state’s taxation autonomy, has been reluctant to welcome the new tax regime. The concerns of the State appear to be unfounded given the fact that GST is going to be very useful for consuming States vis-à-vis supplying States, Jammu & Kashmir State being a consuming State, it would be the gainer in revenue. Central Excise duty and CST are being levied by the Union, which are going to be merged in CGST, sales tax is being levied by the State which is going to be SGST. Only a few services are being taxed by the State as of now. After implementation of GST, the State will be able to tax all the services.
9. Let us also see what will be the impact over the commercial affairs, if eventually J&K is one state left out from the ambit of GST. It will be chaotic in respect of inter-state sales/ clearances/ supplies. Goods moving from other States to Jammu & Kashmir will be carrying a GST burden of 25% (assuming GST rate to be 25%) which will not be abatable in the State. It will be a costly affair for the importers in the State inasmuch as without input credit, the same goods or the goods manufactured /processed there from will be liable to local Sales Tax again. The goods moving from Jammu & Kashmir to other States, of course, would not be liable to any tax, be it central excise duty, local sales tax or CST. However, those goods may be having inbuilt input credit which in turn would not be passed in any manner to the buyers and thus it will be a case of breaking the input credit chain. Consequently, the inter-state trade may be severely affected. The efforts made by the successive Governments to promote industrialization in the State would also go haywire. Thus, in order to protect the trade, commerce and industry in the State, it would be in the best interest of the State to adopt the GST regime.
10. Although, the Finance Minister of the State has said that GST is an outstanding and efficient system, but has asserted that it is unlikely to implement the GST regime as it will take away the State’s authority of legislating on taxes. According to the Minister, positive impact of the 14th Finance Commission award is being offset by various measures including the new GST regime which will limit the scope of any intervention by the States because GST will have uniform tariff structure. This apprehension of the State does not appear to be well founded. Going by the proposed amendment in the Constitution, State will have the concurrent power to legislate on the GST. As per clause (4) of Article 279A, the GST Council shall make recommendations to the Union and the States special provision with respect to the certain States including Jammu and Kashmir . Although the rates of tax will be largely uniform through India, it does not mean that States cannot have effective rates of SGST lower than the uniform rates.
11. Given the fact that ruling party at the center being a coalition partner in the State Government, the proposed amendment may be adopted by the State legislature and GST may thus be implemented in the State. Nevertheless, it is something which will require a lot more effort from the Government even after GST constitutional amendment is passed by Rajya Sabha as also by at least 50% of the State Legislatures. While entire country is waiting for GST, will the state of J&K join the race or will be left out is a matter to be watched.
(The author is a Partner, Lakshmikumaran & Sridharan, Chandigarh and the views expressed are personal.)
Source : http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=23978