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LawMin blocks FinMin’s attempt to ban Mandi tax by state govts on agricultural produce

Entry 66 of the State List empowers states to levy fees in respect of any matter contained in the State list in support of its opinion.

Finance ministry, mandi tax, market fees, mandi tax on agricultural produce, Goods and Services Tax, GST slabs Mandi tax is prevalent in many states — prime being Punjab, Haryana, West Bengal and Madhya Pradesh — and varies across major commodities.

The Legal Affairs Department has thwarted finance ministry’s attempt to ban mandi tax or market fees charged by state governments on sale/purchase of agricultural produce saying that there was “no legal or constitutional inconsistency” between the levy and the Goods and Services Tax (GST) regime.

Legal Affairs last week said that the State List under the Seventh Schedule gives control of markets and fairs to the states with Entry 66 of the List empowering them to levy fees in respect of any matter contained in the List except for court fees.

Since the GST law did not amend “relevant Entries” of the State List, states were free to legislate for a levy. “Unless the respective states subsume fees that are being levied on sale or purchase of agricultural produce in mandi in the GST, there appears to be no legal impediment to levy such fee,” it said.

Following protests by traders, finance ministry last month questioned the validity of states imposing market fee or rural development fee on grounds that these were incompatible and legally not permissible under the “one nation one tax” GST where all local taxes and VAT were to be subsumed.

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It raised the query despite its own Law Committee’s unanimous opinion that the charge was “distinct” from the levy of a tax and that there was “no incompatibility between the levy of market fee on sale and purchase of agricultural produce in mandis and the imposition of GST”.

The mandi fee, the Committee said, could not be termed as tax because it was in the nature of “user charges” for provision of specific services and facilities in notified areas. “Since there is a direct nexus between charging of these fees and the provision of a facility at a market place, market fee cannot be said to be a tax,” it argued.

It also quoted Entry 66 of the State List empowering the states to levy fees in respect of any matter contained in the State list in support of its opinion.

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Mandi tax is prevalent in many states — prime being Punjab, Haryana, West Bengal and Madhya Pradesh — and varies across major commodities. It ranges from 0.2 per cent to even 6 per cent depending on states and the commodity. Following the GST rollout, it was expected that these taxes would be subsumed in the “one nation one tax” regime.

First published on: 28-11-2017 at 01:35:50 am
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