RS panel submits GST report; Congress, Left, AIADMK dissent

The Rajya Sabha Committee on GST today submitted its report recommending that one per cent additional tax by states should not be levied on goods for inter-company transfers and favoured compensation to states for five years but Congress, Left and AIADMK gave dissenting notes.

The major recommendation of the 21-member committee was the one relating to Clause 9 as it felt the one per cent additional tax will lead to cascading of taxes. It wanted an explanation to be included in the provision that would make it clear that the one per cent would be on goods sold and not on inter-company inventory transfers.

In its dissent, the Congress favoured a simple 18 per cent GST on all goods including petroleum products and alcohol and opposed states being given powers to levy one per cent additional tax.

AIADMK and Left parties in its notes termed some of the provisions as impinging on the legislative sovereignty of both Parliament and state legislatures. AIADMK also sought keeping out petroleum products and tobacco out of the GST regime.

The report of the Committee, headed by BJP's Bhupender Yadav, which was tabled in the Rajya Sabha, suggested changes in clauses pertaining to compensation but endorsed other 19 provisions like keeping alcohol out of the regime and leaving it to the GST Council to decide on timing of levying GST on petroleum products.

Reacting to the report including the dissent, Finance Minister Arun Jaitley said the government will go ahead with enacting the legislation in Parliament.

"It is hardly a dissent note on the bill, it is a dissent against the Congress party's own proposals which were originally given. Congress MPs are giving a dissent against the suggestions made by their own Chief Ministers," he said.

Hopeful of getting the "revolutionary" bill passed, Jaitley said, "We are going to go ahead with the GST legislation. We will still try and build consensus and explain the rationale and reasoning as far as Congress is concerned."

The Committee agreed to the demand of parties like Trinamool Congress for compensating the states for revenue loss for five years following introduction of the GST. The provision will be incorporated in the Constitution (122nd Amendment) Bill as official amendment.

The bill, which has already been approved by Lok Sabha, will now have to be taken up for passage in the Upper House. As it is a Constitution Amendment Bill, the bill has to be approved by two-third members in the Rajya Sabha.

The government proposes to implement the new indirect tax regime -- which will subsume excise, service tax and other local levies -- from April 1, 2016.

The ruling BJP government does not have a majority in the Rajya Sabha and will have to depend upon support of regional parties and allies for passage of the bill. TMC is supporting the bill, while Congress, AIADMK and Left Parties are opposing it and have submitted dissent notes.

Jaitley said if Congress opposes this bill, "then the country will oppose Congress. Every citizen and trader in the country will oppose Congress".

Being touted as the biggest reform in indirect taxation since Independence, the GST will ensure a single tax structure for goods and service throughout the country and make India a common market.

"Administratively, we are taking all steps... to meet April 2016 deadline. Effort would be to have reasonable rate of GST so that GST experience is a successful experience for the whole country," Revenue Secretary Shaktikanta Das told reporters here.

In its report, the Rajya Sabha Select Committee suggested that the provision in the bill that provided the Centre "may" compensate states for a period up to five years for any revenue loss be substituted by a commitment for compensation for five years. The government has indicated its willingness to incorporate such a change.

As per the current compensation mechanism, the Union Government will give 100 per cent compensation for first three years of GST implementation and thereafter 75 per cent and 50 per cent in the fourth and fifth year.

On a clause relating to levy of 1 per cent additional tax by states, the Committee said, it could lead to cascading of taxes. The Committee suggested it should only be levied on "all forms of supply made for a consideration".

It, however, retained the representation of the Centre and States in the GST Council at the proposed level at one-third and two-third despite demand to reduce Centre's representation to one-fourth.

To increase the resources of states, the Committee suggested that the "band" rate should be defined in the GST laws. The proposal would provide option to states to levy additional taxes within the band on specified goods and services to raise additional resources to meet local needs.

In its dissent note to the RS panel report, the Congress said the bill is "pitted with compromises, exclusions and exceptions that make it impossible for us to extend our support to the Bill in the absence of the amendments we have proposed being incorporated in the bill..."

The party demanded that the GST rate should be capped at 18 per cent to prevent any "unfair burden" on consumers, particularly the poor.

The main opposition party is also against power to states to impose 1 per cent additional manufacturing tax. It has given dissent on eight points.

AIADMK's note said that GST Council as a constitutional body "impinges" on the legislative sovereignty of both Parliament and the States legislatures.

"It also completely jeopardises the autonomy of the states in fiscal matters," the note said, adding "we strongly object to the provision for the GST Council".

The Left Parties demanded that petroleum and petroleum products should be totally kept outside GST and states should also be empowered to levy higher taxes on tobacco and tobacco products.

The note of Left parties further said the states should have leverage for protecting a particular local brand of MSME product and protecting agri-based products for promoting farmers and industry.

Commenting on today's development, PwC Partner (Indirect Tax) Amit Bhagat said "there appears to be no reason why the Bill would not be passed by Rajya Sabha as there seem to be broad consensus".

EY India Tax Partner Bipin Sapra said "the Select Committee's recommendation to retain 1 per cent origin based tax is a regressive step in the GST design and will have a cascading impact".