As per the Jammu and Kashmir Reorganisation Act, 2019 read with the Notification bearing S.O. 2889 (E) dated 09.08.2019 issued by the Department Jammu and Kashmir Affairs, Ministry of Home Affairs, the appointed date for the reorganization of the State of J&K into Union Territory (UT) of J&K and UT of Ladakh is fixed as 31.10.2019 – which is about 15 days away. Form GST perspective, this reorganization will throw a number of challenges to the dealers of J&K, specially to them who have presence across the States including Districts of Kargil and Leh. It will also entail some major changes in the ERP / Accounting Software of the dealers. However, surprisingly, till date there is no clarification issued by the CBIC/Govt. on the crucial points involved, some of them are enumerated below:

Registration and State Codes

Those who have little bit of understanding of a ERP system, can appreciate that opening a new State Code and linking the same with all relevant master is not a very easy task. But till date there is no clarity from the Govt. as to what will be the State Code of the two new UTs. Ideally, the new UT of J&K should continue with the State Code 01 and the new UT of Ladakh may be allotted with the State Code 38.

Further, there is no clarity as to how the migration of the GSTIN will take place. Suppose a dealer is having places of business across the State of J&K and currently having GSTIN starting with 01 state code, will he automatically allotted with 2 GSTIN – one for UT of J&K and one for UT of Ladakh? Or, he will have to specifically apply for registration in the two UTs afresh? Or, he can continue with the existing GSTIN in the UT of J&K and will have to apply for a GSTIN in the UT of Ladakh afresh. It is very sad to note that this basic clarity is not yet provided to the dealer till date.

Balance of Electronic Credit / Cash Ledger

There is no clarity on the fate of the accumulated balance of input tax credit and cash as available with the dealer as on the appointed date. Will these balances available for offsetting the liability in the new UT of J&K? Or will these be proportioned in a given ratio between two new UTs?

Suppose, the accumulated input tax credit available with the dealer is pertaining to stocks lying at J&K and Ladakh both. Will the dealer have to determine the said credit for each of the UTs separately? Will the same need to get audited by the independent auditor? There will some common input services and it will be practically impossible to split the input tax credit for those services between two new UTs. For the argument sake, even if we assume the said segregation is possible, what will be the mechanism of the transferring the said input tax credit from the existing State J&K to the new UTs of J&K and Ladakh?

All these vital issues are still left open for the guess work of everyone.

Sales Return

Suppose a dealer has warehouse at Srinagar from where goods are supplied to a customer in Kargil District before 31.10.2019. So the said supply has attracted CGST and SGST.  Now after 31.10.2019 the said customer wants to return the goods. The supplier in that case will have to issue a credit note but the question is what tax will the said credit note will carry? Since after 31.10.2019, two jurisdictions will be different, the GSTIN will certainly not accept (due to inbuilt validation) a credit note issued from UT of J&K to UT of Ladakh with CGST and SGST. If the supplier issues the credit note with IGST against a supply made with CGST / SGST then J&K will get SGST twice – one for the initial supply and one for the credit note with IGST (which will be transferred from UT of Ladakh to UT of J&K)!!!

Thus, a clarification on the treatment of sales return made after 31.10.2019 from one UT to another, out of intra-State supplies made prior to 31.10.2019, will be highly solicited.

Stock in Transit as on the appointed date

The treatment of stock in transit as on the appointed date is the another area of uncertainty. Suppose a supply is made from Delhi to Leh as on 28.10.2019. Obviously, the tax invoice will carry the recipient’s GSTIN starting with 01. Now, let’s assume the goods are received at the recipient’s end on 04.11.2019 when his GSTIN has got changed (say starting with 38). Now, the questions are:

  • Can the recipient with a different GSTIN avail the IGST credit on the strength of the tax invoice which carries the erstwhile GSTIN of the recipient?
  • How the share of the IGST will get transferred in favour of the UT of Ladakh because the supplier will obviously upload the Tax Invoice with the recipient’s GSTIN of the erstwhile J&K?

Similarly, say on 28.10.2019 some supplies are made from Srinagar to a customer situated at Leh. And the goods are received on 04.11.2019. Obviously, in this case the invoice will carry CGST/SGST. Can the customer as on 04.11.2019 avail the said credit of CGST and SGST when his GSTIN has got changed (from one belonging to the existing J&K to the one allotted for the new UT of Ladakh)?

Similar question will also arise for intra – State stock transfer made on the strength of the delivery challan prior to the amendment date which are received in the other jurisdiction post the appointed date.

Broken period of return

The appointed date for the bifurcation of the State of J&K is fixed as 31.10.2019 and not 01.11.2019. So how many returns to be filed for the month of October 2019?  Apparently, it looks like that the dealer (who has operations in both J&K and Ladakh) has to file 3 returns each:

  • One for the consolidated State of J&K for the period 01.10.2019 to 30.10.2019
  • One for the UT of J&K for 31.10.2019
  • One for the UT of Ladakh for 31.10.2019

Similarly, the dealer may also have to file 3 Annual Returns for the FY: 2019 – 20.

I sincerely hope the authority will understand the complexity involved in breaking the returns in the aforementioned manner and their good sense will force them to issue some clarification on this point.

Extension of the existing Industrial Incentive Schemes

It is also anticipated that to avoid any sort of confusion, necessary notification(s) will be issued soon to extend the existing industrial incentive schemes (both Central and State) available in the existing State of J&K, to the new UT of J&K and UT of Ladakh so that the unexpired incentives seamlessly flow to the dealers irrespective of the fact as to whether he falls under the jurisdiction of the new UT of J&K or UT of Ladakh.

I sincerely hope that keeping in mind the current socio-economic and political situation in the valley, the Government cannot afford to take any further risk which can increase the agony of the thousands of the dealers and thus, very soon will come up with necessary clarifications to remove the uncertainty and doubt hovering around in the mind of the dealers and others (ASP/GSP/GST Practitioners etc.), may be including the GSTN itself.

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October 2021