Subject:- Starred A.Q. No.686 tabled by Mr. Rajesh Gupta, Hon ble MLA Regarding GST.

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1 Subject:- Starred A.Q. No.686 tabled by Mr. Rajesh Gupta, Hon ble MLA Regarding GST. May kindly peruse the PUC placed alongside the file. The department has received Starred A.Q. No.686 tabled by Mr. Rajesh Gupta, Hon ble MLA Regarding GST placed on CF side. Accordingly, the same was forwarded to Excise/Commissioner Commercial Taxes, J&K, Jammu who in turn has furnished the reply as under:- Question a) the date when the GST was enforced and its overall effects on trade and industry; b) the reasons for not exempting the Toll Tax after enforcement of GST in the state; c) region-wise, the revenue collected from Toll, Sales Tax, Excise and other such Taxes during past two years as also in the current year; and Reply The Goods and Service Tax has been implemented in the country w.e.f. 1 st July 2017 and w.e.f. 8 th July 2017 in the State of Jammu and Kashmir. The implementation of Goods and Service Tax is the most comprehensive indirect tax reform carried out in the country which paved the way for subsuming multiple Central and State taxes. The state boundaries became immaterial for trade and Industry and the cascading of taxes almost vanished. It allowed the transfer of credit of taxes paid in other states against liabilities accruing in states of consumption. Check posts/physical barriers were removed altogether freeing the trade from the shackles of red tape and prolonged detentions. The implementation of Goods and Service Tax Regime shall take some time to stabilize. As of now, the impact of this change on Trade and Industry cannot be quantified. The Toll tax has not been subsumed in GST and the Government is competent to levy Toll under J&K levy of Toll Act, Samvat 1995 as per taxation powers derived from Section 5 of Constitution of Jammu and Kashmir. As such, charge of toll is not violation of Goods and Services Tax norms. No where in the country has toll been abolished as yet. The information of Revenue collected from various taxes during the past two years as also in the current year is shown in Annexure A. d) Region-wise, the The details of region-wise expenditure on

2 expenditure incurred on developmental schemes and major projects? developmental schemes and major projects are enclosed as Annexure B. Accordingly, the draft reply along with the supplementary information prepared is placed on CF side for approval of the authorities.

3 Note for Supplementary (a) 1. The Goods and Service Tax was implemented in the country from 1 st July 2017 and in the State w.ef 8 th July 2017 after more than a decade long deliberation in the Empowered Committee of State Finance Ministers followed by similar deliberations in the GST Council. The Goods and Service Tax is the most progressive reform in the indirect taxation system in the country both at States and Centre level which has taken into its fold most of the multiple taxes levied by state and the Central government and subsumed them into a single tax levied by both Union and the States at a uniform rate on a uniform base. The regime is functioning on IT backbone of Goods and Service Tax Network. By the implementation of Goods and Service Tax the concept of State borders for trade activity has almost vanished and all the check posts across the country monitoring the movement of interstate consignment has disappeared allowing the vehicle laden with goods to move freely without interception and unnecessary halt age. The Trade and Industry is able to take credit of any taxed paid in state of their purchase while liquidating the liabilities of taxes which accrues to them in the state of consumption. The system of goods and service tax has been so devised so that the dealers have minimum interface with the taxes official and as such ushers into the era of self policing without any hassles. 2. As was expected the implementation of Goods and Service Tax Act has seen many ups and downs from the date it was implemented. Amalgamation of the taxation practices prevailing in 29 States and 7 Union Territories into one common taxation system is undoubtly an achievement par excellence. This amalgamation apart from initial teething problems and requirements of various States and Union Territories. Many amendments of the GST Legislations and the Rules framed there under have already been made and many are in pipe- line. It was for the reasons of time required for absorption of the shocks of the change in tax regime that GST Council has devised a mechanism to compensate the States for losses accruing to them for a period of five years from the date of implementation of GST. Obviously, the Trade and Industry shall be the biggest beneficiary of the GST in the long run. Apart from initial hiccups due to slight incompatible IT network and the problems due to change in systems, there has been considerable relief to the Trade and Industry in the new regime. (b) 1. The Goods and Service Tax subsumed most of the Central and State indirect taxes like Central Excise Duty, Additional Excise Duty, Countervailing Duty, Service Tax, Central Sales Tax, Sales Tax, VAT, Entry Tax, Luxury Tax, Taxes on Lottery, Betting the Gambling, Excise Duty on Medicinal and Toiletries Preparations, Cesses and surcharges relating to supply of Goods and Services, Entertainment Tax (other than levied by local bodies). The Government of Jammu and Kashmir levies Toll under Levy of Toll Act Samvat 1995 as per the Legislative powers derived from section 5 of the Constitution of Jammu and Kashmir. The implementation of GST does not come in conflict with the imposition of toll in the State as the tolls and levy of taxes on goods carried by roads have not been subsumed in the goods and service Tax. 2. Even if they compare the legal position in other States where powers are derived from schedule-vii (State list) to the Constitution of India, the corresponding

4 entry at Sr. No.56 and 59 still exist and as such the power to levy tolls and taxes on goods carried by road is available to the other States also. Entry 56 & 59 of Scheduled VII list II (State List) to the Constitution of India is reproduced as under:- 56 Taxes on goods and passengers carried by road or on inland waterways. 59.Tolls. 3. The industrial sector in the State of Jammu and Kashmir is not well developed as compared to the neighbouring States and as such the manufacturing units in the state are not able to compete with the goods manufactured in the neighbouring States and need some protection so that level playing field is provided to them for sustaining completion. The levy of Toll provides the Government a useful tool to protect the local industry so that if can survive. (C) 1.The department of Commercial Taxes administered the following taxes upto :- Value Added Tax, General Sales Tax (GST), Entry Tax, Motor Spirit Tax (MST) Passenger Tax and Stamp Duty. Out of the above taxes VAT,GST, Passenger Tax and Stamps Duty are collected throughout the State. However the tax on sale of Diesel and Petrol was collected at Jammu from three Oils companies namely Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd. And Hindustan Petroleum Corporation by the Petrol Taxation Wing of the Department. The figure of revenue as such cannot be bifurcated on regional basis, Similarly, entry tax used to be collected at entry point of the State only and cannot be bifurcated on regional basis. 2 The figures of revenue reflected in Annexure A has been complied on the basis of returns filed by the dealers which involve utilization of Input Tax Credit also, Since most of the first point taxation in VAT occurs in Jammu division, the entire tax shown to be collected in Jammu factually does not mean that all these taxes are a result of consumption of such commodities in Jammu region alone. 3 With effect from 8 th July 2017 the VAT and Entry Tax were completely subsumed in GST along with General Sales Tax (except on IMFL, ATF and Natural (GAS). The sales tax on IMFL has been abolished w.e.f and an additional assessment fee has been replaced therefore through State Excise Department. The revenue figures under GST for the period July to November 2017 is as under:- Revenue realization on account of SGST/IGST Rs.in crores Month SGST IGST Total Compensation G.Total (transfer) August September October November

5 Total Excise Department 1. With effect from 1 st July 2017 whole country including the State of J&K (w.e.f. 8 th July, 2017) entered into Goods & Services regime. Keeping in mind the federal structure of India, in the new Goods and Services Tax (GST) regime, the Union and the States are vested with concurrent powers to levy GST on intra-state supply of Goods and Services and the Union will be vested with the exclusive power to levy GST on the supply of Goods and Services in the course of Inter-State trade or commerce which includes supply in the course of imports into the territory of India. There is a State Goods and Services Tax (SGST) to be levied by the States and a Central Goods and Services Tax (CGST) to be levied by the Centre for Intra-State supplies and Integrated Goods and Services Tax (IGST) for Inter-State supplies to be levied exclusively by the Centre. There are separate laws for imposing these levies. J&K SGST Act, 2017, has been enacted by the State and the CGST Act, 2017 and IGST Act, 2017 enacted by the Parliament, have been extended to the J&K State. Since CGST and SGST are levied on the same tax base the provisions of these laws are similar so as to have harmony in the working of the system. Therefore, both Centre and States are simultaneously levying GST across the value chain. 2. The power of the Parliament to legislate in respect of the State of Jammu and Kashmir is limited. The power to impose or levy tax on the sale or purchase of goods within the State and to impose tax on services/on entry of goods into the State is within the competence of State legislature. 3. The State of Jammu and Kashmir derives its authority to tax from section 5 of the Constitution of Jammu and Kashmir which reads as under: The executive and legislative power of the State extends to all matters except those with respect to which parliament has power to make laws for the State under the provisions of constitution of India. 4. An enabling provision, for extending any Central Legislation to the State of Jammu and Kashmir, subsequent to amending the constitution of India, has been added to Article 368, which reads as under:- Provided further that no such amendment shall have effect in relation to the State of Jammu and Kashmir unless applied by order of the President under clause 1 of Article Further section (1) of the Constitution (Application to Jammu & Kashmir) Amendment Order, 2017, issued under clause (1) of article 370 of the Constitution of India, for empowering the Union of India to make Laws with respect to Goods & Services Tax to be levied by the Union or for any inter State trade with the Jammu & Kashmir, provides as under:- 1. (1) This Order may be called the Constitution (Application to Jammu and Kashmir) Amendment Order, (2) It shall come into force at once.

6 (3) Notwithstanding anything contained in this Order, the powers of the State of Jammu and Kashmir as per section 5 of the Constitution of Jammu and Kashmir, shall remain intact. 6. With respect to the powers of the State Legislature to impose taxes the Constitution (Application to Jammu & Kashmir) Amendment Order, 2017, provides as under:- 2. In paragraph 2 of the Constitution (Application to Jammu and Kashmir) Order, 1954, (I) in sub-paragraph (6), relating to Part XI, (1) after clause (a), the following clause shall be inserted, namely: (aa) after article 246, the following article shall be inserted, namely: 246A.(1) The Legislature of the State of Jammu and Kashmir shall have powers to make laws with respect to goods and services tax levied by the State. (1A) Notwithstanding anything contained in articles 246 and 254, the Parliament shall have power to make laws with respect to goods and services tax levied by the Union. (2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-state trade or commerce. (3) The Legislature of State of Jammu and Kashmir shall have exclusive powers to make laws in respect of imposition of any taxes as enabled by section 5 of the Constitution of Jammu and Kashmir. 7. By virtue of its special status, as mentioned above, the State of Jammu and Kashmir has the power to levy and impose the taxes in addition to the Goods and Services tax. The Toll tax is being levied under the J&K Levy of Tolls Act, Svt 1995 as amended from time to time. The Toll is being levied on any road, ferry or bridge in the state in respect of men, animals, vehicles, machinery, commodities and goods in any form whatsoever on the rates prescribed by the Government. On the other hand the GST (Goods & Services Tax) is a single tax on the supply of goods and services, right from the manufacturer to the consumer which earlier existed in the form of VAT, Entry Tax, Central Sales Tax, Central Excise Duty etc. The final consumer, in the GST Regime, bears only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. At the Central level, the following taxes have been subsumed in GST: a. Central Excise Duty, b. Additional Excise Duty, c. Service Tax, d. Additional Customs Duty commonly known as Countervailing Duty, e. Special Additional Duty of Customs At the State level, the following taxes are subsumed in GST: a. State Value Added Tax, b. Entertainment Tax (other than the tax levied by the local bodies), c. Central Sales Tax (levied by the Centre and collected by the States), d. Entry tax,

7 e. Purchase Tax, f. Luxury tax, g. Taxes on lottery, betting and gambling. h. Services Tax exclusively for J&K State as it levied Services Tax under General Sales Tax Act. Section 174 of the J&K SGST Act provides as under: Repeal and saving. (1) Save as otherwise provided in this Act, on and from the date of commencement of this Act, (i) the Jammu and Kashmir Value Added Tax Act,2005( III of 2005), (ii) the Jammu and Kashmir Entry Tax on Goods Act,2000 ( IV of 2000) (iii) the Jammu and Kashmir Entertainment Tax (Cinematographic Shows) Act,1962 (XXIII of 1962) (iv)the Jammu and Kashmir Entertainments Duty Act, 2016(IV of 2016) (hereafter referred to as the repealed Acts) are hereby repealed 8. The taxes which are not covered under GST include: 1. Custom Duty.- Basic Customs Duty (BCD) is being charged according to current law only and not GST. 2. Stamp Duty.- The buyer has to the pay stamp duty for the registration of the property, and GST does not cover Stamp duty. 3. Vehicle Tax.- GST does not cover road tax, so the Vehicle Tax is not being charged under GST, and remains under the Motor Vehicle Act. 4. Excise on Liquor.- Liquor has been kept outside the GST. 5. Tax on Sale and Consumption of Electricity. 6. Toll Tax.- GST will not cover the Toll Tax as such taxes like road tax, toll tax, environment tax and others are directly paid by users and will be levied by States directly. 7. Entertainment Tax (Levied by Local Bodies).-The imposition of the extra tax by local bodies is not covered under GST. Hence, in addition to GST, the local body can levy entertainment tax. As would be seen toll is not the only tax which has been kept out of the purview of GST. 9. The Levy of Toll by the J&K State is governed by the J&K Levy of Toll Act Svt It is important for the following reasons:- 1. Total Toll collection for the state of J&K for Financial year was Rs Crores, for was Rs Crores and Total Toll tax projection for the year is Rs. 910 Crores and Toll collected till November, 2017 is Rs Crores. With very less sources of revenue and the total tax base of Rs. 10,000/- Crores, the State of J&K cannot afford to waive off the Toll Tax as there is no other avenues/resources available to compensate the shortfall. The details of Toll collected are as under:- The Toll Tax on goods is charged at various rates at Toll Tax Posts primarily at Lakhanpur, as per toll rates indicated below:-

8 Goods other than Textile, Sheep/ Goat, Edible Oil, Tobacco, Chicken, Cigarette & Bread. Cloth/Textile Sheep/Goat Edible Oil Tobacco Chicken Cigarette Rs.80 per Rs 175 per Rs 175 per Rs 235 per Rs 290 per Rs 900 per Rs 4000 per Rs 1 per loaf The quantum of Toll Tax collected during the last two years under the above components is indicated as under:- Revenue in Crores Item Goods other than Textile, Sheep/Goat, Edible Oil, Tobacco, Chicken, Cigarette & Bread Cloth/Textile Sheep/Goat Edible Oil Tobacco Chicken Cigarette Bread Basic Toll Total However no toll is being charged on rice, wheat, seeds, maize, grams, old household goods, solar energy equipments being exempted by government through various SROs. Similarly no toll is being charged on export of fresh fruits, fresh vegetables, walnut, almonds, basmati rice being exempted by government through various SROs. A higher toll is being charged on demerit goods which include cigarettes, tobacco etc. As compared to demerit goods a nominal toll of Rs.0.80 paisa per kg is being charged on other goods. Polythene and contraband items are banned in import and willow clefts and forest produce are banned in export as per the government policy. The ban on polythene and contraband which are detrimental for the general health of the people are also enforced through toll posts. Therefore the toll posts not only cater the tax collection but are a centre for surveillance and monitoring of goods and vehicles entering and leaving the State. 2. Under GST regime the Union of India shall be compensating the losses/shortfall of such taxes in Tax Collection which have subsumed in the GST, under the GST (Compensation to States) Act, Section 5 of the Act reads as under:- 5. (1) Subject to the provision of sub-sections (2), (3), (4), (5) and (6), the base year revenue for a State shall be the sum of the revenue collected by the State and the local bodies during the base year, on account of the taxes levied by the respective State or Union and net of refunds, with respect to the following

9 taxes, imposed by the respective State or Union, which are subsumed into goods and services tax, namely: (a) the value added tax, sales tax, purchase tax, tax collected on works contract, or any other tax levied by the concerned State under the erstwhile entry 54 of List-II (State List) of the Seventh Schedule to the Constitution; (b) the central sales tax levied under the Central Sales Tax Act, 1956; (c) the entry tax, octroi, local body tax or any other tax levied by the concerned State under the erstwhile entry 52 of List-II (State List) of the Seventh Schedule to the Constitution; (d) the taxes on luxuries, including taxes on entertainments, amusements, betting and gambling or any other tax levied by the concerned State under the erstwhile entry 62 of List-II (State List) of the Seventh Schedule to the Constitution; (e) the taxes on advertisement or any other tax levied by the concerned State under the erstwhile entry 55 of List-II (State List) of the Seventh Schedule to the Constitution; (f) the duties of excise on medicinal and toilet preparations levied by the Union but collected and retained by the concerned State Government under the erstwhile article 268 of the Constitution; (g) any cess or surcharge or fee leviable under entry 66 read with entries 52, 54, 55 and 62 of List-II of the Seventh Schedule to the Constitution by the State Government under any Act notified under sub-section (4),prior to the commencement of the provisions of the Constitution (One Hundred and First Amendment) Act, 2016: Since the Toll Tax does not form part of the GST and hence no compensation is available for losses which the state would suffer in case of waiver of Toll Tax. In case the Toll Tax is waived off for the year , the state would suffer a loss of around Rs. 1,000 crore which can never be compensated by the State. 3. The levy of Toll is an important mechanism to provide protection to the local industrial units as the same is levied on import of goods into the State from other States. Thus, making the good manufactured in the state available to domestic consumers at the much lower rates. This mechanism acts as double edged weapon to protect the local industries and also to give benefits to the local consumers. In case the Toll Tax is waived off, the local industries are going to suffer badly because of the influx of the cheaper product from other states due to abundance of raw material and cheap work force available in these states. The Local Industries cannot afford to compete with the advance production level of the industrial sector in other States which manufacture and supply products at much cheaper rates than the state of J&K and it is only Toll Tax which balances the rates of imported goods, thus providing support to local industries. It is appropriate to mention here that the Jammu Chamber of Commerce and Industry during the Pre-Budget discussions held at Jammu vociferously demanded that the Toll tax on Cement, Steel, Wheat Flour, Mustard Oil, Packing material, Cattle feeds and Paddy should continue so that the Industries manufacturing these products do not face threat of extinction. The Confederation of Indian Industry & Federation of Industries Jammu also

10 pressed for Continuation of toll Tax upon Imports & Exports. The Federation Chamber of Industries, Kashmir was also of the opinion that Lakhanpur Toll Post should continue to collect the toll and check the movement of goods and abolishing it not going to be in the interest of the state and have suggested that the toll collected can be utilized for the developmental works of the state. It is apt to add here that the State Government vide SRO 519 & 521 of 2017 dated 21 st December, 2017, provided budgetary support to the existing eligible manufacturing units in the shape of reimbursement of State GST & 42% of the Central GST paid after adjustment of input tax credit under the J&K State Goods and Services Tax Act, 2017 and Central Goods & Services Tax Act, 2017 respectively. The above action has been taken by the State Government in recognition of the hardships being faced by the local industry located in the Jammu & Kashmir. Under VAT regime also remission was available to such units. It is, therefore, amply clear that the local industrial units cannot survive in case Toll is waived off & budgetary support in their favour, as above, is not granted. 4. The Toll Tax has not been abolished by any state till date as the same is not governed under the Goods and Services Tax regime. The State of J&K is empowered to levy Toll under Article 5 of the Constitution of J&K and rest of the States are empowered to levy the Toll under Article 243(X) of the Constitution of India. Also, the corresponding entries i.e 56 (Taxes on goods and passengers carried by road or on inland waterways) and 59 (Tolls) mentioned in the seventh schedule of constitution of India under state list are still intact even after the implementation of GST which inherently gives every State the power to levy toll besides GST. Entry 56 and 59 of scheduled VII list II (State List) to the Constitution of India is reproduced as under: 56 Taxes on goods and passengers carried by road or on inland waterways. 59. Tolls. Further the unemployment of the skilled/semi skilled work-force, men and women directly or indirectly working with the industrial sector shall also be a grave effect of the abolition of Toll tax. The National Highway Authority of India still continues to collect Toll tax at different Toll plazas across the country as the same is in consonance with the law of the land. In J&K the NHAI collects Toll on vehicles at Ban, Nagrota and at Chennani-Nashri Tunnel. 5. The toll has been in existence from the year 1938 and has always added to the cost of merchandise by a marginal fraction. The change in the regime from VAT to GST, as such has not changed any parameters which can be attributed to make available the goods to the citizen of the State at higher rates as compared to other States in the GST arena. Toll in some cases is being levied on various items from time to time to protect the local industry by giving them a level playing field vis-à-vis imports, so that local industry can flourish. This intern also increases the GDP of the State and provides employment and thereby results in decreasing inflation and as such contributing to the overall welfare of the State.

11 During the Budget speech the Hon ble Finance Minister made following observations regarding continuance of Toll in the Sate:- Post roll out of Goods & Services Tax in the State, there has been a lot of debate in certain sections of trade and business community regarding the continuance of toll in the State. During my pre-budget consultations, the representatives of a few trade and business organisations have even opposed its continuance. As the debate still rages, I will choose this opportunity to set the record straight. The imposition of toll is well within the legislative competence of the State Government and while entry tax and octroi have been subsumed in the GST, toll has been kept outside its scope. There are many States in the country, which continue to levy toll outside the framework of the GST. I hope this clarification will help finally lay all questions surrounding the issue at rest. Further it has been proposed to do away with toll on following commodities: i ii iii iv v vi vii viii ix x xi xii Vegetables, Medicines, Sugar, Salt, Tea Soaps/Detergents, Sanitary items, Water coconut, Wheat seeds Tree spray oil, Newsprint Jaggery (Gur). However, on all other products manufactured by local industry toll will continue to be levied. Further, these products should be taken as identified for purchase through Government departments. With a view to extending relief to general commuters and tourists visiting the State in their own vehicles, basic Rs. 80 presently levied on all Light Motor Vehicles crossing Lakhanpur and Lower Munda, has been proposed to be abolished. While there is no toll on export of apples, other fruits being exported outside State are charged Rs. 80 per quintal. On equity, it has been proposed to abolish toll on export of all types of fruits and gypsum produced within the State. All the above exemptions will cause a revenue loss of more than Rs. 100 crore. Under the J&K Levy of Tolls Act, toll is charged at Lower Munda and Heerpur Toll Posts on intra-state movement of vehicles. The annual toll revenue from these two posts is Rs. 22 crore. People had to encounter a lot of hassles at these posts at the time of commuting. In order to create a unified single market within J&K and to extend relief to the general commuters/ transporters, It has been proposed to abolish Lower Munda and Heerpur Toll Posts.

12 As a protectionist measure to protect the local industry from the onslaught of the competing demands from outside the State, and to encourage local manufacturers, It has been proposed to raise toll from existing slab of Rs. 80 per quintal to Rs. 100 per quintal.