Only a day after Centre and States reached consensus on having four tier GST rates, the same could not happen on Friday on who will control which set of assessees under GST, a disagreement that threatens to derail the April 1 target for rollout of the new indirect tax regime.
The second-day of the all-powerful GST Council failed to reach a consensus over which category of assessees should be governed by the Centre and which by states.
The November 9-10 meeting of the Council has been called off.
It was to finalise the draft law and supporting legislations for subsuming an array of central and state levies including excise duty, service tax and VAT.
The finance ministers of states will now meet informally on November 20 to evolve a political consensus on the sticky issue.
The next meeting of the GST Council, headed by Finance Minister Arun Jaitley, has been scheduled for November 24-25.
Jaitley, who had previously stated that he hoped for all modalities for the GST to be finalised by November 22, was still hopeful of getting the supporting legislations during the ensuing Winter Session of Parliament from November 16.
“That’s the effort. I am endeavouring to do that,” he said when asked if the CGST and IGST legislations will come before Parliament in the upcoming session.
“When in the month of August we passed the Constitution amendment, it appeared too challenging because the time was very short. As of today, I am more confident than I was in August. let me say this because bulk of the spade work has been done. Most of the decisions have been taken. Only one key decision remains,” he said.
Differences on the issue of cross empowerment to avoid dual control arose with states demanding control over 11 lakh service tax assessees, and Centre proposing to do away states having exclusive control over all dealers up to an annual revenue threshold of Rs 1.5 crore -- an issue which was settled in the first meeting of the GST Council.
No decision could be arrived at the end of the third meeting of the Council on October 19.Jaitley said the draft CGST, IGST, SGST and compensationlaws will be sent to states after November 15 and the GST Council in November 24-25 meeting will approve them.
He said all pros and cons have to be weighed before deciding on the issues of cross empowerment to ensure single interface under GST, which will subsume excise, service tax, VAT and other local levies.
“In order to resolve it we will have an informal meeting of the ministers, in order to find a political solution to this problem, and we will try and thrash out a solution on the November 20 between these options or may be a hybrid option of this,” he said.
“But whatever option is we don’t want to take it in a hurry because it has to be a well thought out decision, because administratively, any mistake on this front could be chaotic. So we are going slowly and systematically on this,” he added.
In the last meeting of the Council, 5 proposals were discussed, but on Friday the Council has arrived at an option of two proposals-- horizontal division and vertical division.
‘Horizontal Division’ would mean tax payers would be divided both for administrative and audit purposes based on a cut off turnover.
Those with a turnover over Rs 1.5 crore would be administered both by the Centre and states, while those with below Rs 1.5 crore would be administered solely by the state.
The ‘Vertical Division’ based on ratios assigns tax payers to a tax administration, Centre or state, for a period of 3 years for all purposes including audit. Tax payers could be divided in a ratio which would balance the interest of the Centre and the state, both with respect to revenue and spread of numbers.
Jaitley said the matter is complex and hence the Centre and states do not want to rush through with the final answer as the consequences of this are unforeseen. “You can have neighbouring shopkeepers being assessed by different authorities and, therefore, Jaitley said the GST Council, since its first meeting on September 22, has taken 10 important decisions.
On the issue of deciding tax jurisdiction, he said that one asseessee should not be subjected to assessment by multiple assessing officers and there should be clear guidelines on it.
“So when in terms of division, you are talking in terms of scrutiny cases,” Jaitley said, adding that only 5 per cent of the returns filed in the GSTN portal will be picked for scrutiny.
With both the Centre and states having huge manpower, there was a suggestion that eventually a federal bureaucracy be created by merging the officers. “But that is a far cry as of now,” Jaitley said.
He said the objective of working out the dual control jurisdiction over assessees is that the quality of assessment and the efficiency of tax system go up and there is optimum utilisation of manpower available with both.
State FMs want more tax data
Meeting of the all powerful GST Council failed to reach any conclusion on the dual control issue as states objected to non-availability of updated data on assessees of service tax, excise and VAT.
The Goods and Services Tax Council, comprising state finance ministers and headed Union Finance Minister Arun Jaitley, will meet informally on November 20 to sort out the differences.
Some state ministers, sources said, could also meet on November 19 to sort out differences over dual control, which will determine the jurisdiction of Centre and states over assessees.
The Council will formally meet on November 24 and 25 to decide on host of issues including the dual control and approve draft legislations on IGST, CGST and SGST. The meeting was earlier scheduled for November 9 and 10.
“There will be dual control or cross empowerment or else GST cannot be implemented. It is absolutely clear in everyones’ mind,” said a minister after the 4th GST Council meeting.
“The only problem is that we do not want to make a decision in rush. We work with data. We need those numbers. Once we have the numbers, we will decide,” he said.
Another minister said that states have asked the Centre to come with updated data on Service Tax, Excise and VAT.
Some state ministers also demanded service tax assesses below Rs 1.5 crore should be allowed to be assessed by states.
“We had agreed upon that in case of goods there will be a threshold of Rs 1.5 crore. We wanted that principle should be extended to services also. But Centre is not willing,” said another minister, adding that before the mood could become acrimonious “we decided to break” and meet again on November 20.