Implementation of New Indirect Taxation Regime – GST – A Boon for State of Jammu and Kashmir for ushering in the New Era of Economic Development

01 Jul 2017 12:36:07

 


Sunil Sethi

After independence, when the Constitution of India was being framed, the Jammu and Kashmir State was going through a phase of instability because of the tribal invasion and circumstances leading to it. Four political leaders from J&K though were part of the Constituent Assembly which framed the Constitution of India. Because of the peculiar situation existing in the State, it was thought prudent to create special provision in the Constitution of India by way of Article 370, which was transitory in nature till the Constitutional machinery is in place, however, it was never the desire of the Constituent Assembly that the Constitution of India will not apply to the State of J&K. Various provisions of the Constitution of India had been adopted in the State by way of Constitutional Orders issued by the President of India after the concurrence or consultation of the State Government under Article 370. While framing the Constitution of the State the supremacy of the Constitution of India has been accepted and Constitution of Jammu and Kashmir is subservient to Constitution of India and is not having a tribute of sovereignty, which has been held by the Hon’ble Supreme Court of India also in the judgment of J&K Bank Ltd. case.  So far as financial jurisdiction of Central Government is concerned that has been extended to the State of Jammu and Kashmir by various constitutional orders and presently number of Central taxes are being levied in the State of J&K. In the 101 constitution amendment which is under discussion, the Central Government or the Parliament has apparently no desire to take any benefit whether financial or political or Constitutional from any State and to the contrary by adopting the new GST Regime, the benefits will go more to the States and consumers and the State Governments stand to gain financially in a big way. Unfortunately, whenever any decision is taken which is purely developmental and related to infrastructure, the emotional issues are being racked up in the State without any basis only for the purpose of political gains. However, the politics has to serve the people rather than exploiting the sentiments of the masses to surcharge the atmosphere for political mileage. For peace to come to the State and be everlasting, we have to open ourselves to an approach of integration with the national thought process. In this changing world there is no room for remaining alone as that will put the State in isolation which has been done in all these years.

The Article 370 which was enacted to define the transitory phase is reproduced herein below: -

“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 and of this article 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.”

Under the scheme of Article 370 of the Constitution of India, through which all powers are driven by the State also, there is no role of the State Legislature so far as adoption of the provisions of Constitution of India in the State is concerned. Article 370 specifically uses the word “State Government” i.e. the Government in Cabinet. Constitutional (One Hundred and First Amendment) Act, 2016 which intends to shift the country to new regime of GST as such can be made applicable to the State of J&K by way of Presidential Order (Constitution Order under Article 370) after getting the concurrence of the State Government. There is absolutely no need of referring the issue to the Legislators or having any wider political consensus and it should have been easily tackled by the Cabinet taking a decision to give the concurrence to the adoption of Constitutional (One Hundred and First Amendment) Act, 2016. Furthermore, under section 147 of the J&K Constitution it has been specifically mentioned that the Legislator cannot discuss or decide on the applicability of the provisions of Constitution of India in Jammu and Kashmir State. Section 147 of Constitution of J&K is reproduced: -

“147. Amendment of the Constitution.-An amendment of this Constitution may be initiated only by the introduction of a Bill for the purpose in the Legislative Assembly and when the Bill is passed in each House by a majority of not less than two thirds of the total membership of that House, it shall be presented to the Sadar-i-Riyasat for his assent and, upon such assent being given, to, the Bill, the Constitution shall stand amended in accordance with the terms of the Bill:  Provided that a Bill providing for the abolition of the Legislative Council may be introduced in the Legislative Assembly and passed by it by a majority of the total membership of Assembly and by a majority of not less them two-thirds of the members of the Assembly present and voting:

Provided further that no Bill or amendment seeking to make any change in-

(a) this section; or (b) the provisions of sections 3 and 5; or (c) the provisions of the Constitution of India as applicable, in relation to the State, shall be introduced or moved in either House of the Legislature.”

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 the 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 has 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 has 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 the 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 Crore 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 on public domain.

            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.

  • xxxx xxxx   xxxx
  • xxxx xxxx   xxxx
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  • The Goods and Services Tax Council shall make recommendations to the Union and the States on—
  • xxxx xxxx   xxxx
  • xxxx xxxx   xxxx
  • xxxx xxxx   xxxx
  • xxxx xxxx   xxxx
  • xxxx xxxx   xxxx
  • xxxx xxxx   xxxx
  • 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 the 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

  •      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. 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.
  • 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 which benefit 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.
  •      To State Government: The major fiscal benefit will come to the State Government Particularly 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 to outside the State and similarly it will be difficult for the traders of 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 even the system of taxation is changing when whole tax structure will be replaced in whole of the country and old existing structure will be non-existence. There is absolutely no option available with the State Government not to go 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 open new vistas of progress and economic stability and going with it will usher the State in the economic stability. It is most required in a troubled State. The economic stability will lead to more employment and more options to the Government to start new projects of public importance. This is a 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 held 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 re-look to all the provisions which are beneficial for the State as the State cannot continue to live in the past as has to move with the present.

As already much delay has been caused by the decision which was taken in the Cabinet to defer giving of the concurrence which was not in the interest of the State as such it is recommended: -

  1. That the State Cabinet should immediately consider the issue and grant the concurrence for adopting the Constitutional (One Hundred and First Amendment) Act, 2016 to the State of J&K.
  2. Request to be made to His Excellency the President of India to consider passing of constitutional order extending Constitutional (One Hundred and First Amendment) Act, 2016to J&K forthwith without loss of further time.
  3. Convening the special meeting of the State Assembly for passing the State GST Act which should be done much before 30th of June 2017 so that the State also board the bus of the new GST Regime alongwith the other State.
  4. In the absence of practicability of passing of State GST by convening the State Legislators the Government may consider passing of Ordinance in exercise of powers with the State under Section 91 of Constitution of J&K.
  5. The delay in the matter and creating uncertainty on 1st of July 2017 will be destructive to the economic interest of the State and will also have adverse effect on the Constitutional relationship between State of J&K and Union of India.

The suggestions to have different model or module for J&K are impracticable and not workable and will lead to more confusion and can only further the voice of separatism. J&K is ready to usher in new era of development and having stronger constitutional relation with the Union.

 

 

 

 

 

 

 

 

 

 

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