GST Council falters on service tax control

Makes headway in area-based exemptions, approves procedural rules

Aconsensus reached between the Centre and states on administering 1.1 million service tax assessees in the first GST Council meeting was short-lived as it broke down on Friday. The high-powered body broadly resolved the issue of area-based exemptions and approved rules for registration and refunds under the proposed regime.

The other thorny issue of procedures for compensation to states in the event of loss because of switchover to the goods and services tax (GST) would be taken up at the next meeting, scheduled for October 18-20. The issue was to be taken up at the Friday meeting earlier. The issue of GST rates and GST Bills would also come up in that meeting.

Separately, the consultative committee of Parliament was told by Finance Minister Arun Jaitley that the government is working on a target date of April 1, 2017, for the roll out of GST.

Briefing reporters after the meeting, Jaitley said there were discussions on interpretation of service tax, division of authority between the Centre and states, but they were inconclusive. He said although in the September 23 meeting the Centre and the states’ dual control was agreed upon, a few states raised concerns on Friday over the service tax assessment method. In the previous meeting, it was decided that state indirect tax officials will have sole power to assess entities with annual turnover up to ~1.5 crore in case of goods. Beyond that, both the Centre and states would have control. In case of services, the central indirect tax officials would have total control. The reason cited was that the Centre currently imposes the service tax and till the time the state officials are trained, it should continue assessing service taxpayers.

However, at least two states opposed it saying they also impose service tax on entertainment and restaurants. These states also said that in some areas such as construction there is no clear demarcation between goods and services and hence they should also have control over them.

“Their concerns pertain to service tax imposed by the states on restaurants and entertainment. They want to continue to administer those services… That discussion was inconclusive and therefore it will continue in the next meeting,” Jaitley said.

THEIR (STATES) CONCERNS PERTAIN TO SERVICE TAX IMPOSED BY THE STATES ON RESTAURANTS AND ENTERTAINMENT. THEY WANT TO CONTINUE TO ADMINISTER THOSE SERVICES ARUN JAITLEY, finance minister, after the second meet of the GST Council in New Delhi on Friday

Jaitley said a technical committee of officers for GST will examine the issue. Revenue secretary Hasmukh Adhia said, “The question is what happens to those cases where there is both goods and services. Now, it will become supply contracts.”

On Friday, initially it was proposed that the minutes of the previous meeting should be put to vote as those objecting to them were far less than those agreeing. However, Jaitley was of the view that decisions in the council, a body broadly comprising Union and state finance ministers, should be taken with consensus.

Uttar Pradesh’s minister for vocational education and skill development Abhishek Mishra said the minutes of last meeting were not approved in entirety.

“We are trying to build every decision through a consensus. And as far as possible there is no voting because in that way federal spirit is maintained. Wherever possible, dissent should not arise. And wherever there is dissent, it should be taken up in next meeting,” Jaitley said. The council broadly thrashed out the issue of area-based exemptions. The entities enjoying them would have to pay tax but would get refunds through government budgets.

This may hit cash flows of these companies. The Centre has given some exemptions from excise duty to 11 North-East and hill states.

Asked if tax exemptions would be grandfathered, Jaitley said: “It is not necessary to grandfather everything.” Which exempted entities will remain or not will be decided by states and the Centre, he said.

Officials said the excise exemption for J&K will expire in 2020 and North Eastern states by 2017. This means that those starting production in say beginning of 2017, will continue to enjoy the excise benefit for the next 10 years till 2027. Although, the exemptions for Himachal and Uttarakhand expired in 2010, the tax waiver will continue till 2020 in many cases.

However, an agreement on distributing the burden of areabased central tax exemptions between the Union government and states is yet to be worked out.