GST Council meeting: Deadlock over high sea taxes persists; April 1 target unlikely

Most states say GST can be implemented from June or July; next GST Council meeting on January 16.

By: ENS Economic Bureau | New Delhi | Published: January 5, 2017 1:19 am

An agreement on the crucial issue of ‘dual control’, which envisages a division of control over tax assessees between the states and the Centre under the proposed Goods and Services Tax (GST) and is at the heart of the wrangling between the two sides, remained inconclusive in the eighth GST Council meeting that ended Wednesday. Even as the Council discussed other provisions of the Integrated GST bill, some states raised their objections on the definition of territory and tax jurisdiction in offshore areas of coastal states and demanded a higher share in the split of GST rate, thereby pushing the deliberations aground.

With the deadlock between states and the Centre continuing over these two issues of definition of territory and dual control, the deadline of April 1 is completely ruled out. Most states said GST can be implemented only from June or July. The next GST Council meeting is on January 16.

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“The IGST law was discussed. It has 11 chapters. The initial 10 chapters have nearly been approved and some issues remain open because they are being discussed. We will meet again because the nature of discussions was inconclusive,” finance minister Arun Jaitley said.

Jaitley said legal drafts of the supporting legislations of GST have been prepared including the gaps of pending issues. The draft bills have been sent to law ministry for legal vetting, after which it will be shared with the Council members for approval.

Kerala’s finance minister Thomas Isaac said the Centre noted the concerns of the states on the issues of territorial waters and need for higher compensation. “The Centre seems to be in a mood to reconsider some of the stands it is adopting. It is appreciating the position of the states — be it our concerns on compensation or reconsidering it’s stand on the issue of territorial waters,” Isaac said.

Isaac said he is hopeful that the Centre and the states will be able to find a solution on the dual control issue in the next meeting. States including West Bengal and Kerala reiterated their demand of retaining exclusive control over tax assessees below the threshold of Rs 1.5 crore turnover. West Bengal FM Amit Mitra said, “…we could not pass the IGST law because there were things that have been held back.
There was no discussion on the question of dual control where the states want that below Rs 1.5 crore you cannot have dual control.”

States have been demanding tax jurisdiction in the GST regime over high sea sales in offshore regions within 12 nautical miles, whereas Centre claims it to be a Union-administered territory.

“The issue broadly is that area within 12 nautical miles into the sea is Indian territory and a question arises whose territory it is.

Conventionally, service tax and customs is charged by Government of India in those areas…as far as fishing business is concerned the Constitution provides for fishing rights to states in that area,”Jaitley said.

Explaining further on the issue, he said, “Some states have been levying taxes in the nature of sales tax/VAT. Centre has not levied it. So, the case of states is since we have been levying taxes, we should be allowed to levy taxes. The contra argument is this strictly does not fall within the definition of state territory and under article 366(30) this is to be considered as a Union administered territory because the definition in Union Territory in Constitution is what is not part of a scheduled state, is a Union Territory.”

Jaitley said that a constitutional issue needs to be found on the issue and the solution has to be legally tenable.

Some states including Kerala, Delhi,West Bengal, Karnataka, Meghalaya and Tamil Nadu have asked for a higher share of the GST rate, proposing a 60:40 split. So for the peak GST rate of 28 per cent, states are now demanding SGST of 60 per cent of 28 per cent (16.8 per cent), while Centre gets to keep CGST amounting to 40 per cent of 28 per cent, that is, 11.2 per cent. The initial proposition of the division of the GST rates between the Centre and the states was of equal division (50:50), Jaitley said.

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