Sunil R.P. Sethi
Shifting of indirect taxation system to new Goods and Services Tax (GST) Regime, by way of passing of Constitutional (One Hundred and First Amendment) Act, 2016 by Parliament to which subsequent assent was given by President of India on 8th September, 2016 and has been gazetted, has led to unprecedented political issue being made out of it by the vested elements in the State of Jammu and Kashmir by co-relating it with the fiscal autonomy of the State and its impact upon Article 370 of the Constitution of India. In India, there are two types of Taxes viz.; (1) Direct Tax like Income Tax which is directly charged from the person upon whom tax is imposed; and (2) indirect taxes which are charged from a third person but ultimately its effect travels on to the consumers who have to pay it. There are eleven such taxes presently prevailing which are Central Sales Tax, General Sales Tax, Value Added Tax, Entry Tax, Toll Tax, Excise Duty, Central Excise Duty etc. Whereas the direct taxation system remains as it was with the powers vested with the Union Government, it is indirect taxation which is subject matter of debate and discussion particularly in the State of Jammu and Kashmir.
In the new GST Regime, a single tax system instead of prevailing multiple indirect taxation system is being introduced. While in the States other than State of Jammu and Kashmir, there is uniformity and clarity with regard to imposition of indirect taxation and jurisdictional position and taxing position between States and Union is well defined whereunder Central Taxes as also the Service Tax are chargeable by the Union whereas States are left to charge State taxes under Entry 54 of List 1 of Schedule VII appended to the Constitution of India For the State of Jammu and Kashmir the said Entry has not been extended under Article 370 of the Constitution of India. Because of that position, the Union Government does not levy and charge Service Tax in the State of Jammu and Kashmir. The State of Jammu and Kashmir has imposed Service tax by including the “Services” within the definition of “Goods” of J&K General Sales Tax Act, 1962, which is a contemptuous issue and number of litigations have been filed in the High Court and in vast majority of cases the imposition of service tax by the State has been stayed and as a result neither the State Government nor the Central Government are in a position to effectively impose Service Tax in the State of Jammu and Kashmir. The field as such is left open on this aspect.
Under the new GST regime, the transactions will be divided into two i.e. Inter-State and Intra-State. While in inter-state transactions the legislative competence will be of Parliament under newly inserted Article 246-A (2), the legislative competence so far as Intra-State taxation both for goods and services will be vested with the State Legislature. Amended Article 246-A reads as under: –
“246A. (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.
(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.”
As is clear from the above provision, the power to legislate on the service tax is vested with the State Legislature and because of that situation the J&K State will have undoubted power to impose service tax which it was not in a position as on today. Because of State’s inability to impose Service Tax of various services, presently loss of the State is running into Crores of rupees and furthermore the State was not in a position to take its share from the Central Pool of the taxation as well.
So far as inter-State transaction is concerned, the jurisdiction is vested with the Parliament to maintain uniformity through the country and there can be no dispute upon it. However, the Service Tax will be charged by the State Government on behalf of the Central Government and share of it will be retained as per the norms fixed. It is this issue on which controversy is sought to be raised that by surrendering the powers to impose service tax to the Central Government will affect the fiscal autonomy of the State. As is apparent from the above, the same is not the position as the legislative competence will still be vested with the State and fiscal part of it can be easily taken care of.
Even otherwise, the talks on fiscal autonomy of the State are meaningless as the State has surrendered to the Union Government the power to impose tax in the State like CST, central Excise duty, custom by way of Constitutional Amendment order issued by President of India with the concurrence of the State in the year 1958. There is absolutely no reason for the State to suffer losses which is about Rs.1000 Crore per year in case of non-implementation of GST Regime in the State. The Constitutional (One Hundred and First Amendment) Act, 2016 can be adopted by the State Government (not by the State Legislature) by simply discussing and passing the same in the State Cabinet as is provided under Article 370 of the Constitution of India because Article 246-A will be a new provision to be adopted by the State. The State Government could have done it simply by putting the issue in the State Cabinet and passing it but the State Government has taken a welcome and laudable step of discussing the issue with all political parties and major stakeholders to evolve consensus on the issue. Operation of Article 370 of the Constitution of India in a strict legal sense would have led to the decision by the Government in a much easier and manageable manner but the State Government has resorted to transparency and consensus so that everything is before the Public domain. Article 370 of the Constitution of India reads as under: –
“370. (1) Notwithstanding anything in this Constitution, –
(a) the provisions of article 238 shall not apply in relation to the State of Jammu and Kashmir;
(b) the power of 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 governing the accession of the State to the Dominion of India as the matters with respect to which the Dominion Legislature may make laws for that State; and
(ii) such other matters in the said Lists as, with the concurrence of the Government of the State, the President may by order specify.
Explanation. -For the purposes of this article, the Government of the State means the person for the time being recognised by the President as the Maharaja of Jammu and Kashmir acting on the advice of the Council of Ministers for the time being in office under the Maharaja’s Proclamation dated the fifth day of March, 1948;
(c) the provisions of article 1 shall apply in relation to that State;
(d) such of the other provisions of this Constitution shall apply in relation to that State subject to such exceptions and modifications as the President may by order specify:
Provided that no such order which relates to the matters specified in the Instrument of Accession of the State referred to in paragraph (i) of sub-clause (b) shall be issued except in consultation with the Government of the State:
Provided further that no such order which relates to matters other than those referred to in the last preceding proviso shall be issued except with the concurrence of that Government.
(2) If the concurrence of the Government of the State referred to in paragraph (ii) of sub-clause (b) of clause (1) or in the second proviso to sub-clause (d) of that clause be given before the Constituent Assembly for the purpose of framing the Constitution of the State is convened, it shall be placed before such Assembly for such decision as it may take thereon.
(3) Notwithstanding anything in the foregoing provisions of this article, the President may, by public notification, declare that this article shall cease to be operative or shall be operative only with such exceptions and modifications and from such date as he may specify:
Provided that the recommendation of the Constituent Assembly of the State referred to in clause (2) shall be necessary before the President issues such a notification.”
Further fear of compromising on the fiscal autonomy of the State by way of adoption of Constitutional (One Hundred and First Amendment) Act, 2016 is ill-founded. The argument that in case of adoption of Constitutional (One Hundred and First Amendment) Act, 2016 in toto will lead unrestricted power upon the Goods and Services Tax Council is highly unsustainable, as legislative control on the fiscal autonomy of the State has already been addressed by way of introduction of Article 279-A in clause (iv) (g) which provision reads as under: –
”279A.
(1) xxxx xxxx xxxx
(2) xxxx xxxx xxxx
(3) xxxx xxxx xxxx
(4) The Goods and Services Tax Council shall make recommendations to the Union and the States on-
(a) xxxx xxxx xxxx
(b) xxxx xxxx xxxx
(c) xxxx xxxx xxxx
(d) xxxx xxxx xxxx
(e) xxxx xxxx xxxx
(f) xxxx xxxx xxxx
(g) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and”
The above clearly shows that the GST Council will create special provisions for the States including for the State of Jammu and Kashmir so that fears the people of J&K are well taken care of. Even otherwise GST Council will also include the Finance Minister of the State of J&K or any other Minister nominated by the State Government as member and it is very easily conceivable that interest of the State will be safeguarded. Additional safety mechanism can also be put in place.
Benefits of new GST Regime
(a) To Manufacturers: Under the new GST Regime, input tax credit will be available to the manufacturers and there will be no cascading effect i.e. there will be no tax on tax. In present scenario if the manufacturer is purchasing the raw material and paying tax on such purchases @ 20% he after manufacturing is also paying tax on the finished product which let’s say is 30% so in total 50% is the tax which will be going to the Government. In the present regime the manufacturer will pay tax @ 20% on the purchase and then (30-20=10%) on the finished product thereby save 20% of the tax. This will lead to massive industrialization boost in the State and with the proper incentives being put in place the industry will look for a boom both in Kashmir and Jammu.
(b) To consumer: The consumers will be the gainers in major way as because of rationalization of taxes and lessening of tax burden, the prices of commodities will fall and which will directly go to the consumers and the majority of items have been kept in the tax slabs which are minimal tax category and luxurious items have been kept in the higher tax bracket. The consumers this way will be major gainer.
(c) To State Government: The major fiscal benefit will come to the State Government Particularly to the State of J&K which is a consuming State with lesser industrial activity and more consumption and more consumers. The items which are being manufactured outside the State are being imported into the State and taxes majorly are taken by the States where the manufacturing of these goods take place. In the new regime the taxation will be consumption destination based and the major benefit will come to the destination State. State of J&K as such will get huge flow of funds through the taxation by way of having huge consumption base both static as well as floating in the nature of tourism and pilgrimage like Vaishno Devi and Amar Nath Yatra and leisure like tourism in Kashmir and other parts of the State.
The losses in case GST is not adopted or implemented w.e.f. 1st July, 2017. In case of non-adoption of new GST Regime in the State or its delayed implementation beyond 1st July, 2017 when the new regime will come into place in rest of the country, the whole system of trade and trade in the State will crumble down because in view of new taxation system in rest of the country and it will not be possible for the traders of the State to send items including dry fruits handicraft and handloom items, fruits outside the State and similarly it will be difficult for the traders outside the State to send their items to State of J&K. It will be practically impossible to maintain the present taxation system in the State when whole tax structure will be replaced in whole of the country and old existing structure will be non-existant. There is absolutely no other option available with the State Government than going with the new regime and be part of progress and economic stability. In case of any delay in implementing the new GST regime by 1st July, 2017, the same scenario will happen which will have catastrophic effect on the fiscal health of the State.
The new GST regime has opened new vistas of progress and economic stability and going with it will usher in economic stability in the State. It is most required in a troubled State like J&K. The economic stability will lead to more employment and more options to the Government to start new projects of public importance. This is the time for all the political parties and the stakeholders to stand with the National Resolve and be part of the change instead of politicizing the issue for ideological political gains. In the past such approach has led to non-adoption of many beneficial Constitutional amendments in the State of J&K like 73rd and 74th amendments as also the constitutional amendment providing reservation in promotion etc. It is the time to have a re-look at all the provisions which are beneficial for the State as the State cannot continue to live in the past as it has to move with the present.
(The author is Senior Advocate)
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