CA. Manan Gupta and CA. Mani Gupta

CA. Manan Gupta and CA. Mani Gupta

GST (Goods & Service Tax) is a dream evolving into reality. Model GST law has been released by Government of India in public domain in June 2016 as it would be applicable to whole of India. Our Magna-Carta, the Constitution of India, has been duly amended vide One Hundred and Twenty Second Constitution Amendment bill, 2014 w.e.f. 16 September 2016 as recently notified. This amendment has provided concurrent power to both Centre & the States to make laws with respect to goods and services tax imposed by the Centre or by such State. Also, the Parliament of India has been given 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. But this amended Constitution is not yet applicable to whole of India.

Jammu & Kashmir is a state annexed from Maharaja Hari Singh long ago in year 1947. Since that time, it enjoys a special status in Indian Constitution. Article 370 of our Constitution provides that the Parliament can make laws for Jammu & Kashmir on those matters of Union and Concurrent list which correspond to the matters specified in the Instrument of Accession governing the accession of Jammu and Kashmir to India, in consultation with the Government of Jammu and Kashmir. In addition to that, the Parliament can also make laws for other matters in said Union and Concurrent list, but with the concurrence of the Government of the State. Thus Article 370 clearly implies that Parliament has power to make laws only on Defence, External Affairs and Communication related matters of Jammu and Kashmir as provided in Instrument of Accession signed in 1947.  As regard to law related to any other matter, subsequent ratification by the Government of Jammu and Kashmir is necessary to make it applicable to the State. Thus it can be deduced from above, that the Government of Jammu and Kashmir needs to ratify the One Twenty Second Constitutional Amendment bill for it to be applicable in the State. It further implies that Parliament yet has no power to implement tax laws with respect to goods and services provided by the State whether or not in course of inter-state supply except under the present laws.

The Finance Act 1994 (“Service Tax”) is already not applicable to the State for the same reason. Although, the State in itself has levied tax on some services, but it never implemented Finance Act, 1994, and thus Services provided in Jammu and Kashmir are out of the scope of the current Service Tax. The Fourteenth Finance Commission acceded to extend a reward to the State in case it agrees to levy Service Tax in the State. The 14th Finance Commission Report states that if the Service tax starts to be levied in Jammu & Kashmir during the award period, the share of State will be 1.854% of the tax devolution. However, if the State continues without the levy of Service tax, no proceeds will be assigned to Jammu & Kashmir from Service Tax, as it does not have revenues from Service Tax and the share of Jammu & Kashmir will be distributed amongst other states proportionately.

The State of Jammu and Kashmir is already getting revenue deficit grants to meet its expenditure requirements from the Centre since many years for now. Amongst 11 revenue-deficit states, Jammu and Kashmir is getting the maximum grant of about Rs 60,000 crore for an aggregate period of five-years ending March 2020, on the recommendations of 14th Finance Commission and as “in-principle” accepted by the government. The application of Goods and Service tax law in the state of Jammu and Kashmir will ease this situation by providing a considerable increase in State revenue. The impact of GST on present tax collections of the State of Jammu & Kashmir can be looked in to as below:

 (Amount Rs. In Crores)

Particulars Present Scenario GST Scenario Net Gain/Loss
Total Tax Collection from Traders [Local + Inter-state] 1,672.99 1,211.45 -461.54
Total Tax Collection  from Industry [Local + Inter-state] 156.34 850.56 694.22
Total Tax Collection from Services 1,046.79 3,089.16 2,042.37
Entry Tax 142.50 -142.50
Toll  Tax 551.98 -551.98
Entertainment Tax 0.52 -0.52
Total 3571.12 5151.17 1,580.05

(Impact of GST on Jammu & Kashmir Taxation System— Study Report)

The Government of Jammu & Kashmir will have a net gain of Rs. 1580 crores after the implementation of GST in the State. Though the government would lose the revenue from Entry Tax, Toll Tax and Entertainment Tax but will also gain from increase in revenue from tax on services. Except revenue gain, there is a lot more for the State of Jammu & Kashmir to incentivize the application of GST in the State. Ratification of GST law in the State will mean a uniform tax structure for whole country. This will lead to integration of State with rest of India. The manufacturers/service providers will have a better market and a much larger platform. The entire India will become single market with same tax structure. The seclusion of state in terms of trade and commerce, due to unawareness of tax structure of the State in common people, will end.

The ratification of One hundred Twenty Second Constitution Amendment bill, 2014 will prove to be a phenomenal change for the State of Jammu & Kashmir. This bill has amended Constitution by the way of insertion of a new Article namely 246A. The Parliament can now exercise its power to make GST related laws for the States directly through the Constitution rather than through Union or Concurrent list as provided earlier in Seventh Schedule to the Constitution. The ratification of said bill by the State of Jammu and Kashmir will entail giving outright power to Parliament to make taxation laws in relation to supply of goods and services of the State which at present is being enjoyed by State government exclusively. Although, the Government in Jammu & Kashmir is formed in alliance with Government at Centre, still the challenge of getting it passed in Legislative Assembly of the State cannot be undermined.

In the ambit of study of the available data it may be deduced that implementation of GST in Jammu & Kashmir would not only benefit the State Economy with a gain of Rs. 1580 crores to the State Government but there will also be a provision of compensation in new regime for any losses during the initial transitional phase. GST will help common people of the State by yielding the benefits of lower cost, no cascading effect, transparent revenue structure and a nationally integrated market thus creating a win-win scenario for all.

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