The Law ministry has said only the central government can control traders under the Integrated Goods and Services Tax (IGST) law and State Governments should not be empowered to levy and collect IGST on inter-state sales and purchases. The opinion is bound to upset many states on the eve of another round of meetings of the GST Council. The law ministry’s opinion in favour of the central government will be a setback to states such as Tamil Nadu and West Bengal, and could be a stumbling block to GST. The proposal will be presented in the GST Council meeting scheduled on December 11 and 12.
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The ministry’s opinion has come at a time when all the states want power to control traders engaged in inter-state sales and purchases. The draft integrated GST law says only the central government will have administrative power over all traders engaged in inter-state sales. The meeting of the GST Council, headed by finance minister Arun Jaitley, held last week failed to reach a consensus on the contentious issue of control.
The law ministry, in its opinion, which was accessed by The Indian Express, said: “It’s understood that the issue under examination is in respect of authorisation of state governments tax authorities to levy and collect IGST and not the distribution thereof. In this context, Clause (1) of Article 269A is very much clear in terms i.e. ‘goods and services tax on supplies in the course of inter-state trade or commerce shall be levied and collected by the Government of India’ and therefore, there appears no scope for assignment of powers to the state governments’ tax authorities in relation to levy and collection of IGST as it is the normal rule of construction that when a statute vests certain power in an authority to be exercised in a particular manner then the said authority has to exercise it only in the manner provided in the statute itself.”
It is understood that states are unlikely to accept the law ministry’s opinion and will insist on control of traders by state authorities. While the finance ministry is set to go by the opinion of the law ministry, it’s to be seen whether some concessions will be granted so that GST can be rolled out.
The bone of contention is how the small taxpayers — who, under the existing regime, are largely with the states — will be administered. The states want exclusive control on businesses with turnover below Rs 1.5 crore (the current threshold for central excise), including the service taxpayers, who are close to 30 lakh in number. The Centre is inclined to give the states exclusive right to assess goods suppliers up to Rs 1.5 crore, but is firm that the service tax assessees should remain under its sole control at least in the initial years. The states don’t have the competence to deal with service tax, which the Centre has acquired over the last 22 years, officials said.
The central government plans to implement GST from April 1, 2017. The GST has to be rolled out by September 16, 2017, as the existing indirect taxes will come to an end and it would not be possible for either the centre or states to collect the taxes. The GST Council will have to finalise the model GST, Integrated GST (IGST) and compensation laws at the earliest to implement the new tax regime from the desired date.