The GST Council in its ninth meeting held on January 16 has resolved the contentious issues and paved the way for smooth implementation of GST.
The most important issue is dual control. Article 246A of the Constitution has empowered both the Centre and the States to collect GST. The Centre will collect Central GST (CGST) and the State will collect State GST (SGST). This means, if a taxpayer has a turnover of Rs1 lakh in the month and the tax rate is ten per cent, he will pay Rs10,000 to the Centre and Rs10,000 to the State where he is located. In other words, he has to face two authorities for the same transaction.
Both the Centre and the State having control over the taxpayer will complicate the tax administration. The Central authority may audit a taxpayer and so also the State authority. In that case, there will be two audit reports and two adjudication orders. Audit or adjudication done by two persons separately cannot be similar. The taxpayer will be harassed complying with two authorities, and that will also lead to litigation as the taxpayer may contest in the higher court how there can be two separate orders for the same transaction. The GST Council has decided that a taxpayer is to have interface with one authority, either the State authority or the Central authority for collection of both CGST and SGST. The State officers will be empowered under CGST Act and Central officers will be empowered under SGST Act to administer both. The entire taxpayers will be allocated between the Centre and the States.
Presently, the Central Government collects excise duty on manufacture. There is exemption limit for the manufacturer having turnover up to Rs1.5 crore. The Central authority also does not have power to tax on trading of goods. The traders and small manufacturers are not within the purview of Central Excise department. But under GST, the taxable event will be supply and it covers both manufacture and trading, besides service sector.
The taxpayers up to turnover of Rs1.5 crore is large, approximately 70 per cent of total taxpayers and taxpayers above Rs1.5 crore constitute 30 percent. It is now decided that ninety percent of the taxpayers having turnover up to Rs1.5 crore and fifty percent of the taxpayers having turnover above Rs1.5 crore will be with the state authorities. The Centre will administer ten percent of the taxpayers having turnover below Rs1.5 crore and fifty percent of the taxpayers having turnover above Rs1.5 crore. The State will administer the taxpayers allocated to them for both SGST and CGST and part with the CGST to the Centre and so also the Centre will do the same for the state for the taxpayers allocated to them.
The other contentious issue was cross empowerment of Integrated GST (IGST). Article 246A (2)read with Article 269A empowers the Central Government to levy and collect IGST on goods or services in course of inter-state trade and commerce. This implies that the Centre has the exclusive power to administer IGST.
A taxpayer may have both intra-state and inter-sate transactions. He will pay SGST and CGST on supply of goods or services within the state and IGST on supply to outside the state. There is also provision of cross utilisation of input tax credit (ITC) of SGST with IGST and vice versa. Administrative problem shall crop up when a state officer audits such a taxpayer and finds some fault with adjustment of SGST input tax with IGST or non-transfer of SGST from other state. (Under GST system, the buyer of a state shall pay IGST to the seller of the other state and avails of IGST paid on his supply in his state on the basis of tax invoice. The seller of the other state will utilize the credit of SGST input tax, if he has any, and pay the balance. The state of the seller will remit that amount to the Centre and the Centre in its turn will transmit the amount to the state of the buyer) In case of wrong payment or adjustment, either of the states may suffer. So it is felt that the state authorities should be empowered with administration under IGST Act to look into the IGST transactions while auditing SGST/CGST.
Central Sales Tax (CST) Act, which is going to be subsumed in GST, is an Act passed by parliament, but is being administered by the state authorities. Article 269 empowers the Centre to levy and collect CST on inter-state transactions, but the States, by CST Act are collecting and appropriatingthe tax. In the similar vein, it is decided that the State officers will be empowered under IGST Act to administer except in cases where there is a conflict between two states. In that case Central authorities will adjudicate the matter.
The third issue was with regard to economic activities undertaken in the territorial waters. As per the Constitution, the territorial waters, i.e twelve nautical miles from the coast is part of the Union territory. So any transactions between places within a state with a place inside the territorial waters will neither be treated intra-state as it is not part of the state, nor inter-state transaction as the territorial water do not belong to a state. Presently, coastal states collect taxes on supplies made from the state to the ships anchored inside the territorial water. Substantial amount of VAT and also entry tax accrues on bunkering and supply of goods to the ships. The states, particularly the coastal states will lose the revenue if territorial waters arenot treated as part of the State territory.
The GST Council has decided that though the territorial waters cannot be the part of state territory because of the constitutional provision, but the transactions between a place of the state with a point within territorial waters shall be deemed as intra-state transactions. A similar law is already there with regard to Special Economic Zone (SEZ). SEZ area, though a part of the state, is deemed to be foreign territory for the purpose of the SEZ Act. The State and the Centre can collect SGST and CGST respectively on supplies made from the state to territorial waters.
(The author is a Joint Commissioner of Commercial Taxes, Odisha. Views expressed in this article are his own)