State GST Act will continue in Jammu & Kashmir for the time being: Experts

The state goods and services tax (GST) will continue, says the Jammu and Kashmir reorganisation legislation, but according to officials and experts, it would be for the time being. 

Later, the UT GST Act has to be made for Ladakh and state GST Act for J&K.

According to experts, the reorganisation Act says the GST Act will continue because in its absence there will be problems in enforcing the indirect tax on the two union territories that will now replace the state of Jammu and Kashmir. 

“Although J&K will continue with the SGST since it has an assembly despite being union territory, Ladakh will require UTGST, for which the Centre will pass an ordinance to quicken the process,” an official said. 

M S Mani, partner at Deloitte India, said the SGST Act in J&K was not scrapped because it would have been difficult to collect the tax in the absence of such a law. 

Abhishek Jain, partner at EY India, said necessary amendments would have to be made for including Ladakh in the UTGST Act, 2017.

Sumit K Batra, a corporate lawyer, said until formal notification is out, J&K post removal of article 370 will be governed by SGST.

Besides the tax laws, there are other issues that have to be addressed to implement the GST smoothly in the two UTs.

The official cited above said there would be other changes like setting up a GST Appellate Tribunal. “Earlier, J&K was required to set it up on its own, now the Centre will have to set it up,” he said.

Jain said companies in Jammu and Kashmir with a presence in Ladakh would require separate registrations, execute other procedural formalities for a split, and also levy a GST for any supply between such business places.

He said other industry players may need to make minor procedural changes like state code amendments, nature of tax as UTGST vis-a-vis SGT for supplies to J&K etc.  

Each state has its unique GST number registered with GSTNetwork. 

Under the GST law, a State has been defined to include a Union Territory having a Legislature. Given that both, Delhi and Pondicherry have State Legislatures, they are treated as States under GST.

GST in J&K was not levied on July one, 2017, unlike other states. IT was levied a few days after when the state assembly adopted a resolution to implement GST, bringing the state’s indirect taxation into the new unified tax regime. Earlier, no service tax was imposed in J&K. 

Then the resolution moved by then state finance minister Haseeb Drabu was adopted through a presidential order calling on the Centre to safeguard the special status and exclusive taxation powers of the state.

Ironically, Drabu had told the assembly that Article 370 of the constitution, giving J&K special status, is not compromised in any way through the presidential order. 

“This House resolves that the government of Jammu and Kashmir may give consent to the adoption of GST regime by application of relevant amendments made to the Constitution of India in a modified form to safeguard existing constitutional position of J&K in the Union of India and the legislative powers under Constitution of J&K,” Drabu had read from the resolution.

The resolution was adopted by a voice vote even as the National Conference and the Congress protested against implementing the new indirect tax regime in the state in its present form.