TAXATION OF J&K SUPPLIES IN FIRST WEEK CONFUSES CENTRE

The taxation of supplies made to and from Jammu and Kashmir in the first seven days of July — when the state had not joined the goods and services tax (GST) regime — has put the central government in a dilemma, with a clarification yet to be issued on the matter.

While one section within the department of revenue is of the view that the integrated GST (IGST) will apply for all supplies to and from J&K, the other section argues that these transactions should be exempt from both the IGST and the central excise.

“A decision is yet to be firmed up. There are two lines of thoughts on this. While one view is that the IGST should not apply on the transactions happened between J&K and the rest of the states (during the first week of July), the other view is that neither will the IGST nor the central excise apply (in the case),” said a senior government official.

The concern is with respect to credit refund availability for supplies made to J&K from the rest of the country. According to the law, the IGST applies to all supplies made from one state to another, which includes J&K. However, the credit may not be available for that one week of supply. The government could consider exempting the IGST for supplies made from the rest of India or allow a credit refund for that.

The J&K government permits availability of input tax credit, and the central government allows settlement.

“The issue is essentially with respect to the settlement on how the two governments will redistribute the input tax credit normally available for the IGST supplies. As long as the government permits credit to IGST supplies received by traders prior to the transition, no additional cost would accrue to J&K dealers,” said Bipin Sapra, partner-indirect tax, EY.

While the GST was implemented from July 1 across the country, it was rolled out from July 8 in J&K. The J&K Assembly passed the State GST Bill on July 7, making it the last state to implement the new indirect tax regime. Unlike the rest of India, J&K having a special constitutional status had to adopt a different procedure for introduction of the GST.

While one section is of view that the integrated GST (IGST) will apply for all supplies to and from J&K, the other section argues that these transactions should be exempt from both the IGST and the central excise