J&K govt need to pass special law in order to implement Goods and Services Tax in state

In order to implement the Goods and Services Tax, the Jammu and Kashmir government will have to pass special laws in the state as the present Constitutional status does not allow the applicability of new indirect tax reform.

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

While 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 of India has power to make laws only on defence, external affairs and communication related matters of the state.

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As a result, once CGST and IGST bills are passed by Parliament, the J&K Assembly will have to pass a legislation saying the two laws are applicable to them, official sources said.

This approval by the state assembly will be in addition to the requirement of all states to approve the State-GST law.

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

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Deletion of the phrase will make the laws applicable to the state.

The bills introduced by Finance Minister Arun Jaitley in Lok Sabha on Monday stated that 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 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 the indirect central government levies like sales tax, service tax, excise duty, additional customs duty (Countervailing Duty), special additional duty of customs, surcharges and cesses.

CGST provides for a maximum tax of 20 per cent. A similar tax will be levied by states through a separate State-GST law.

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 Integrated-GST is for levy and collection by the Centre on inter-state supply of goods and services.

The IGST law provides for a maximum tax of 40 per cent.