Its official now that the Goods and Services Tax (GST) regime is all set to be rolled out in the state of Jammu and Kashmir as the government will be convening a special session of the State Assembly later this month to debate the draft legislation that was approved by the state cabinet on Wednesday.
It is under the 101st Constitutional Amendment Act of the Indian Constitution under which the GST would be applicable to all States, however, the act does not apply to J&K as of now.
It has been left to the State legislature to look into its various provisions and take decisions accordingly. The state government has prepared its own draft bill that was approved by the cabinet and the amendment made in the act will apply in the modified form.
Now it has been left for the state legislature as to whether it ratifies the bill and accords for its implementation or not. But given the present numbers in the legislature, the government it seems will manage a safe passage for the bill in both the lower and the upper houses of the legislature.
However, what remains to be seen is that will the application of GST act in the state infringe upon Article 370 or compromise on the power to impose taxes that the State draws from Section 5 of its own Constitution.
While other states draw their power to tax from Article 246 of the Indian Constitution, J&K draws it from Section 5 of its own constitution.
Importantly, there are constitutional, legal and administrative aspects attached to GST. If the state does not extend the law to the state, then no business can be done profitably and all business in J&K will suffer as the state will have to pay two taxes. Non-implementation of GST will also mean that no trader can get supplies from outside the state as they will have to pay taxes twice.
But all this is a matter of debate as the implementation of the act is going to fetch an additional tax revenue of around Rs 1500 Cr to the state in addition to the devolutions from Government of India.
But how to go about passing a bill and later implementing it, is a million dollar question. The Article 370 of the Constitution grants special autonomous status to the state of Jammu and Kashmir. However, the Parliament of India retains the power to make laws on defence, external affairs and communication-related matters of the state.
This is one of the reasons why the Service Tax levied all over the India since 1994 is still not applicable in J&K. The state levies its own taxes for services provided.
Nevertheless, the state government of J&K can still integrate its revenue with Goods and Services Tax, provided they pass two separate bills in the state assembly. The J&K Assembly will have to pass a legislation stating that the two laws viz. Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST) are applicable to them. This approval by the state assembly will be in addition to the requirement of all states to approve the State GST law.