J&K will have to pass special laws to make GST applicable

New Delhi, March 29

Jammu & Kashmir will have to pass special laws to be able to implement the Goods and Services Tax (GST) as its current constitutional status does not mandate the applicability of the new indirect tax reform in the state.

The Central-GST (CGST) and Integrated-GST (IGST) Bills, introduced in the Lok Sabha yesterday as part of last legislative exercise in Parliament before the tax regime is rolled out from July 1, extend to the whole of India, except J&K.

While the service tax is levied all over the country since 1994, it is not applicable in J&K. The state levies its own taxes for services provided in the state.

This is because Article 370 of the Constitution grants special autonomous status to the state and Parliament has power to make laws only on defence, external affairs and communication related matters of the state.

As a result, once CGST and IGST Bills were passed by Parliament, the J&K Assembly would have to pass a legislation saying the two laws were applicable to the state, official sources said. This approval by the state Assembly will be in addition to the requirement of all states to approve the GST law.

Once the J&K Assembly passes the laws, the Union government will have to amend the CGST and IGST laws and delete the phrases that they do not apply to the state, the sources added.

The deletion of the phrases will make the laws applicable to the state. Introduced by Finance Minister Arun Jaitley in the Lok Sabha yesterday, the Bills said they extend “to the whole of India except the state of Jammu and Kashmir.” A separate law for levy of cess on select goods to make up for a kitty to compensate states for any loss of revenue in the first five years of GST rollout, extends, however, to whole of India, including Jammu and Kashmir. The GST (Compensation to States) Bill “extends to the whole of India,” the legislation introduced by Jaitley said.

The approval by Parliament and state assemblies to these laws will pave the way replacing the current patchwork of national, state and local levies with a single, unified value-added tax system and integrating India as one market. The CGST Bill will amalgamate all indirect Central government levies, such as sales tax, service tax, excise duty, additional customs duty (countervailing duty), special additional duty of customs, surcharges and cesses. The CGST provides for a maximum tax of 20 per cent. A similar tax will be levied by the states through a separate State-GST law. The actual rates would, however, be a four-tier tax structure of 5, 12, 18 and 28 per cent as approved by the GST Council.

The peak rate of 40 per cent is only an enabling provision for financial emergencies.

The Bill on the Integrated-GST is for levy and collection by the Centre on the inter-state supply of goods and services. The IGST law provides for a maximum tax of 40 per cent. — PTI