Control over territorial waters, inter-state transfers key to GST Bills reaching Parliament

Settling two contentious issues — definition of territorial waters and administration of inter-state transfers — appears key to the passage of the Goods and Services Tax (GST) Bill in the second half of the Budget session, beginning in the second week of March.

Issues over compensation law were cleared by the GST Council last week. It will take up the remaining Bills — Central GST, State GST and Integrated IGST — on March 4 and 5. Resolving these issues would make way for the July 1 rollout of the uniform indirect tax legislation.

The Council has sought the views of a law committee on the matter.

"All GST laws are being vetted. There are areas of concern. Constitutional conflicts that will have to be carefully negotiated," said a senior government official.

On the issue of territorial waters, the Centre has agreed to give states the power to collect taxes on economic activities within 12 nautical miles. But it did not agree to treat these areas as part of the relevant state’s territory. The states have, however, demanded treatment of territorial waters as their territory and sought powers to levy and collect taxes.

The states have argued that a high court had decided the matter in favour of them and the matter was pending in the Supreme Court. "The chairman of the Council, Arun Jaitley, agreed to refer the issue to the law committee to examine it," said a state official.

The panel, with state finance ministers as members, is chaired by Finance Minister Arun Jaitley.

Another issue to be looked into by the law committee is empowering the states to administer cases relating to import and export of goods and services in case of inter-state transfers. The states have sought powers to adjudicate cases pertaining to import or export of goods or services under the proposed IGST Act.

The states argue that they have been administering Central Sales Tax and assessing the genuineness of exports, as it involves refund of taxes paid at the input stage. “Similarly, under the IGST Act also, the state authorities have to be empowered to ascertain the genuineness of export transactions as it involves huge amounts of refund of taxes paid at the earlier stages," another state official pointed out.

In the previous GST Council meeting in Udaipur, the panel had cleared the GST compensation law, which guarantees states compensation for five years for any revenue losses under GST. It will now be taken to the Cabinet for approval before being tabled in Parliament.

Other issues requiring clarifications based on legal vetting include the constitution of the appeals tribunal under the GST, the definition of agriculture, the exemptions that have to be given during the transition phase, delegation of powers under the GST, treatment of the works contract and the fine print of the composition scheme, wherein taxpayers with a revenue threshold of up to ~50 lakh can pay a fixed tax rate and reduce procedural requirements.