Hamid Rather

With the extension of GST and previous 46 Amendments of the constitution of India, the state of Jammu and Kashmir has no more remained special as envisioned by Article 370 and Instrument of Accession.  Article 370 is the highly perforated or trimmered article in the constitution of India without actually being amended. The Resolution passed by the state Legislature to the effect of extending 101st Amendment on July 5th was later incorporated word by word in the Presidential Order (extension of GST) had ‘ambiguity’ with regard to protecting the financial autonomy of the state. The Presidential Order also misses the vivid safeguards for the same. The present government was in a position not to repeat the mistakes done in the past in the false sense of proving their allegiance to the broader nation hood by adopting changes to their laws without consensus, but acted hurriedly and opposition called it a “fixed match” between PDP and BJP.  It must have worked with other parties to carve proper safeguards for protecting special status and financial autonomy of the state for which it has taken oath. The irony is that when the state Finance Minister claims that the Presidential Order has proper safeguards to protect section-5 and special status of Jammu and Kashmir, the Union Finance Minister says that GST extension is integration of Jammu and Kashmir into India.  The presidential Order has taken the exclusive power of the state legislature and entrusted it on the GST council for deciding any decisions impinging on the constitutional provisions related to the state of Jammu and Kashmir with a minor protection of mandatory concurrence of representative from the state. Moreover, when GST is extended to the state its implementation in a state where there is ‘Internet Ban’ on an average 15 days a month would be interesting to watch.



While the Modi-led NDA government at the center is busy dancing to the beats and jingles of the predicted post-GST India and its spokespersons are decimating the performances of  Congress on national television news channels in bringing revolutionary transformations in the economy and federal systems paving way for more prosperous and a united and integrated India , the trio states of West Bengal, Tamil Nadu and Jammu and Kashmir, on the other hand, are brushing away the much hyped merits of GST and are tight-lipped to protect  their domestic peculiarities. The governments of West Bengal and Tamil Nadu were against the idea of GST from the very beginning but the attitude of the Jammu and Kashmir governments in this regard has not remained constant.

When former Finance Minister Abdul Rahim Rather headed the Empowered Committee of State Finance Ministers on GST, he and his government were seamlessly flying with the tide of the center. During his chairmanship he never rose to talk of protecting the special status and financial autonomy of the state. Ironically, his role is much appreciated in Delhi in building consensus among political parties on GST roll-out and despised in the state for not raising concerns for protecting state’s special status the then. Under his chairmanship, Union Finance Minister, Arun Jaitley was able to broker an agreement with states on GST, before tabling a Constitutional amendment bill in this regard in Parliament. Now, in his own state he and his political party, National Conference, the opposition, were hell-bent for not extending the very law for what he used all his energy and expertise to design it. Perhaps, PDP while analyzing its mandate that being largely from the Kashmir region was supporting half-heartedly the extension of 101st Amendment of the Indian Constitution to the state to prevent possible collapse of the government over disappointing its coalition partner, BJP. The BJP with its manifesto promise of scraping Article 370 that accords special status to the state of Jammu and Kashmir seems to be in an unholy alliance with a political party, PDP, that is a virtual sympathizer to the people of Kashmir valley by strengthening the perception of giving Article 370 a ‘sense of permanency’. The fractured mandate, an unholy alliance and opportunistic opposition have all contributed to give another volcanic setback to the state of Jammu and Kashmir that has now remained no more special, that is against the promise made to it by the founding fathers and the constitution of India itself.  Pertinently, prior GST 46 Amendments of the constitution of India have been extended to the state of Jammu and Kashmir eroding the special status granted under Article 370. Mir Imaad Rafi, in his opinion published on Greater Kashmir on 5th July ( raised a serious concern how law has been used by the governments in power in such a way to render the contents of the Instrument of Accession a mere piece of paper which has stopped to be promising and significant and has started to become a genesis of conflict of thought.

Let us take a panoramic view of GST in India before focusing on Jammu and Kashmir.GST is being touted as the game changer for the country by its proponents. However, we must know that the picture has other side too and many experts view it as the most horrendous thing going to happen in India that will perhaps put some more brakes to the growth potential of the economy in addition to ones added by the demonetization drive. Aravind Datar, a noted tax and corporate lawyer at Madras High Court in his speech at United Way of Chennai viewed ‘GST as the most terrible thing waiting to happen to the country’.  He refuted the tall claims made by proponents that GST is the panacea for all ills ailing the economy and will increase the GDP by 2%.  The talks about reducing tax evasions and broadening the tax base are mere ideal. Whenever there are higher taxes there is tendency in businesses to avoid taxes. Though a major portion of the commodities fall under 12 and 18 percent slab and a mere 20% is covered by 28% rate, the tax rates are still higher as compared to other nations, for instance, Singapore has flat GST rate of 7%. Datar has rightly observed that “while our words are Make in India, our taxes say Quit India”.  Amidst the higher tax rates how come GST will attract the foreign investment when at the same time there are investment markets with very low taxes? The idea of one nation and one tax is not bad and is not disliked as such. But the GST design put in place is actually not GST when the GST world-over is VAT. We don’t have one rate and GST council settled at four brackets of 5%, 12%, 18% and 28%. Moreover, it can go even higher as under Article 246A of the Constitution permits states to levy taxes on goods and services, and hence there is nothing to prevent the states from levying additional GST. Hence, the purpose of uniform tax rate for which GST was introduced may remain a distant dream. The biggest challenge to GST is its implementation that requires coordination between centre and states and among states and UTs and high end cyber security. The prevailing system of bill-less purchase of goods and availing of services will continue to happen under the proposed GST system. The proposed GST system will increase the number of returns that a businessman has to file from two to 49. Under the previous tax laws, a service provider was to file two service tax returns a year. Now under GST, he has to file three returns on the 10th, 15th and 20th of every month – that is 36 returns per year. In addition, the service provider has to file 12 tax deducted at source (TDS) returns and one annual return. This is going to grapple both the businesses and the GST network. GST is disastrous for the domestic industry as the latter can’t stand in competition in market with big corporations and MNCs.  Datar and other experts suggested that GST should first be rolled out on pilot basis in few sectors only. Software should be tested properly and GST regime to be implemented in phases. When the party in power at Center has the numbers that secures its stability it makes the non-resonant states dance to its tunes. States of West Bengal and Tamil Nadu were not even considered in designing the draft GST Amendment Bill before introducing in the Parliament.

Besides the above mentioned concerns, the state of Jammu and Kashmir has a separate tax system from the rest of the country. When all the states derive their taxing powers from Article 246 of the constitution of India, the state of Jammu and Kashmir is empowered with such powers by section-5 of the Constitution of Jammu and Kashmir. The apprehensions were raised by different stakeholders that the extension of the 101st Amendment to the state will lead to surrendering its special taxing powers under section-5. Tax experts view it as a direct attack on the financial autonomy of the state and have a direct bearing on the financial health of the state.  Muhammad Yousuf Tarigami, CPI (M) leader, while participating in discussion on GST in the Assembly said that “Government should have come out with a concrete proposal suggesting way forward on the basis of Section-5 of the Constitution of J&K, which provides residuary powers to our State Legislature”.  The Goods and Services Tax (GST) regime strikes at the federal structure which is the basic structure of the constitution and the powers of the States have been taken away by the Centre in the name of ‘One Nation One Tax’ slogan. Tarigami raised concerns that, “The states, by this constitutional amendment have been reduced to the status of mendicants which is a virtual subversion of the federal polity. Its very mode of enactment is unconstitutional. Article 17 of the Act makes amendment with regard to sales tax which belongs to the state list of the Seventh Schedule. It is not within the jurisdiction of the parliament to make enactments relating to items included in the state list of the Seventh Schedule. In its absence, the parliament enacting on a matter belonging to exclusively to the states, is itself unconstitutional”. Pertinently, the states are the federal units which are not created by the center but by the constitution itself and they are in no way appendages or mere implementing agencies of the center. Supreme Court in various judgments recognised that the constitution of India is extremely federal and states are independent in their domain. S. R. Bommai Judgement of1994 is a landmark in this regard. MLA Kulgam rebuffed  Drabu’s proposal of protecting section 5 by introducing GST council to Article 370 by arguing that in GST Council, for taking any decision including fixing of slabs of tax rates, the union has an overriding  1/3rd vote and mere 2/3rd votes are of State Governments collectively. “Any Government in the Union having majority in some of the States can take a decision with respect to imposition of Goods and Service Tax for whole of the country and will clearly disturb the financial distribution of powers between the Union and the States as originally enshrined in the Constitution of India,” he said. Tarigami also said that the JK enjoys a unique special constitutional relationship with the Union and the legislative powers of the State are different from other States. “So far as State of Jammu and Kashmir is concerned, it has got residuary powers to legislate by virtue of Section 5 of the Constitution of Jammu and Kashmir. The Section provides that the legislative power of the State extends to the matters except where Union Parliament has got powers to legislate. This will clearly indicate that except for those matters where Union List and Concurrent List of the Constitution of India are applicable to the State of Jammu and Kashmir, the other matters fall within the legislative competence of the State. By application of Constitutional Amendment, State has to surrender its powers to legislate on the ‘services’, which at present are being taxed through State’s own legislations,” he said.

Though state Finance Minister, Haseeb Drabu assured the Houses of incorporating proper safeguards to protect financial autonomy of the state on July 5th when the Resolution he introduced for extension of GST to the state in the legislature was called by M. Y. Tarigami as “ambiguous and lacks clarity” for mentioning such protectionist measures, the Presidential order on GST incorporating this proposal word-by word, according to former Finance Minister, Abdul Rahim Rather, has not addressed the concerns raised by the NC, Opposition parties, traders and others. The application of GST to the state of Jammu and Kashmir has wider political ramifications. The apprehensions earlier raised by the opposition and traders federations about its extension that it would further dilute the constitutional protection granted to the state under article 370 were given a deaf ear by this BJP-PDP regime which in itself have made contradictory submissions on Article 370. When the ruling PDP’s Haseeb Drabu boasts of Presidential Order containing enough safeguards to protect section-5, its alliance partner BJP celebrates the GST extension as the beginning for the complete integration with India. The state legislature passed the historic Jammu and Kashmir Goods and Services Tax (JKGST) Bill 2007 by voice vote on July 7th paving the way for joining a new tax regime in the country.  The apprehensions raised about financial autonomy and special status did not seem to be settled as the proviso-3 of Presidential order is ambiguous when it states that “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” and “Notwithstanding anything contained in clause 4 to clause 11 for the purpose of any decision impinging on constitutional provisions relating to the state of Jammu and Kashmir, the concurrence of the representative of the state of Jammu and Kashmir in the Goods and Services Tax (GST) Council shall be mandatory and the procedure provided under Article 370 shall be followed. This way the presidential Order has taken the power of the state legislature and entrusted it on the representative of the state in the GST council for deciding further constitutional relation of the state of Jammu and Kashmir with India. Raising his concerns, the former finance minister, Abdul Rahim Rather says “Government of India has become a partner in Section-5 of Constitution of Jammu Kashmir. Now, our legislature cannot even fix tax rates or threshold slabs. Rather said that the CGST (Central GST) will be applied in the State in “totality” replacing the excise duty levied by the center on the manufacturing units in the state while IGST has replaced the Central Sales Tax (CST) which was levied by the Central Government but collected and appropriated by the state of Jammu and Kashmir government and center having no share in it as per the constitution.

Earlier, National Conference and CPI (M) proposed the idea of a separate GST law to be passed by the state legislature to protect the special status and financial autonomy enjoyed by the state. However, Muzaffer Beigh, senior PDP leader and a parliamentarian views that any attempted to bring in a separate GST law will become a “huge issue” in India. It is a tough terrain as he thinks “If we talk of bringing a separate law, the Centre will have to amend two chapters in the Constitution, to delegate powers of taxation to the state of Jammu and Kashmir. It will become a huge political issue across the country. Besides, it will also entail amending Section 5 of the J&K Constitution, which can’t be done. More so, any attempt at fiddling with Section 5 will open a Pandora’s Box that will have huge political ramifications for J&K in the future.” After the failure of All Party Consultative Group (APCG) to build consensus over GST, the state cabinet approved a resolution drafted by the state Finance Minister, Haseeb Drabu which was passed by the state legislature by voice vote on 5th July. In the Assembly, Finace Minister assures the house that all essential safeguards will be provided for protecting the ‘Special Status’ of the state under Article 370. Drabu said to this reporter, “The way ahead to harmonise GST in the state could be by extension of only such limbs of the Constitutional Amendment 101 to the state which are already applicable to Jammu and Kashmir in one form or another, with some other provisions of technical nature required for harmonisation of our taxation structure with the new tax regime”. However, the resolution itself does not mention such safeguards and there is ambiguity how the inclusion of GST council in Article 370 will protect the special status. In the GST council, the center enjoys an overriding voting weightage of one-third and the states collectively enjoy two-third votes where consensus needs three-fourth majority. This means that BJP government in few states is enough for the Modi government to send symbolic directives to the erring states.  How come such an institution is going to protect the special status and financial autonomy of the state? M Y Tarigami, the only CPI (M) MLA, from Kulgam constituency raised concerns over the ‘ambiguous nature’ of resolution.

GST is an integrated tax system that has replaced 16 taxes levied by the central and state governments. The taxes integrated under GST include central excise duty, duties of excise, additional duties of excise, additional duties of customs, special additional duties of customs, service tax, state VAT, central sales tax, luxury tax, entry tax in lieu octroi, entertainment tax, taxes of advertisement, purchase tax, taxes on lotteries, betting and gambling and state cess. The central customs duty and state excise duty have not been added to GST and will be levied separately.  The finance minister said that in the absence of an alternative trading link, J&K is literally integrated with the mainland Indian market. Entire requirements are imported and everything produced or manufactured in J&K is exported to the same market. His apprehension is that if the state moves away from GST the trading processes will be subjected to twin taxation systems, making everything costly in J&K, a cost that ultimately the consumer shall have to bear. However, in various countries there is no uniform GST model.  Moreover, Hong Kong struck down the idea of introducing GST on 5 December 2006 altogether due to opposition from people and industry.

The economy of Jammu and Kashmir is different from the rest of states in the Indian Union. It is a consumption state and is likely to get benefited from the face value of GST regime as GST is collected in the consuming state and not the producing state. According to 2017 budgetary estimates, the main source of revenue is sales tax that makes a whooping contribution of 75.4% to state GDP.  Haseeb Drabu boasted that the imposition of GST will earn about 2000 crore to the state exchequer.  However, these figures are speculative and not correct amidst the fact that under GST the revenue state collected in the form of state VAT is now being shared with the center on which the later had no power otherwise. In case of losses to the state, the center will compensate for two years as of now under the compensation scheme. Moreover, the sharable IGST between the producing state and the consuming state may cause delays in the actual disbursement as it is collected by the center. In both these fronts, the state of Jammu and Kashmir is at loss.

GST can never be a game changer for a state like Jammu and Kashmir. About 90% of manufacturing sector is unorganized. The state is in no race for attracting foreign investments. Even the domestic investors do not invest in the state amidst political instability. The state has minimal private sector players barring few telecom operators. It is acrimonious to our budding industry. The GST is a technologically driven system and Internet is a primary requirement along with other computer hardware and software. How the implementation can is possible in a state where Internet is banned for months? Under such conditions how the businessmen will be able to file their returns. With the application of GST the government seems to be in rush to please the political masters in Delhi and changing the narrative of Kashmir discourse in the national and international platforms. Thereby, some political analysts view it as a big fraud on the constitution of Jammu and Kashmir. Aravind Datar reiterated that the previous indirect tax system was fine but problems were in the implementation while saying, “The Indian tax system is highly complex and toxic. The tax administration is aggressive and unfriendly as it is target-based. There should not be target for tax collection”. The biggest challenge before GST is implementation. In a state like Jammu and Kashmir, its implementation is almost impossible due to large unorganized sector, less computerization and Internet ban.

There are many countries in the world that have a federal structure like ours and have relevant special protection mechanisms to ensure effective and cordial working and every time the states unlike ours don’t have to prove their allegiance to the broader nationhood by forcefully adopting changes to their laws. The previous 46 amendments of Constitution of India were extended without our knowledge in a systematic abuse of the Article 370. Practically there is no way of reversal but it is also not something to forget. The government at present had a chance to strike a perfect balance between protecting the special status and also achieving taxation reforms as well set a precedent for future, which it missed. The legislature has taken oath to safeguard the interests of the state and its people and GST, howsoever unavoidable or beneficial, should not have become a forced law without consensus.

(Writer can be reached at

Understanding GST in Detail

Hamid Rather

GST (2)

Taxes are of two broad types – Direct and Indirect Taxes. The taxes paid by the tax payer directly are called direct taxes. Income tax, corporation tax, capital gains tax and wealth tax are some direct taxes. Indirect taxes, on the other hand, are paid by the end user of the product or service.  The Goods and Services Tax or GST is a reform in the indirect tax system in the country. The reason for bringing this reform is to integrate the large number of indirect taxes with rates varying from state to state and replacing them with a uniform indirect tax.

Previous Indirect Tax System

Taxing powers are distributed between Centre and states into three lists under Article 246 of the Indian constitution. Indirect taxes are imposed by both centre and states. The exception is the state of Jammu and Kashmir that derives such taxing power under Section 5 of its own constitution. When a good is manufactured, the manufacturer pays Central Excise Tax (imposed as Central VAT) and when that good reaches the sales stage, the state imposes Sales Tax, known as Sate VAT (paid by wholesalers and retailers).

Problems in the previous system

A particular commodity is taxed both by the centre and state in its life cycle and as such requires coordination in-between. Our experience of 70 years with this system shows that there is no coordination between the centre and the states and among the states about the rates to be charged on goods and services. This incongruence produces two problems:

  • No unified tax system in the country
  • Cost cascading effect
  • Multiple archaic laws

No unified tax system

Both the centre and the states fix their own tax rates and commodity groups while imposing the respective taxes. The sales tax for a commodity in Jammu and Kashmir may be different from Karnataka; the same may be different in Maharashtra.  This means there is no unified rates for a particular commodity pan India. This makes doing business difficult in India.

 Cost cascading effect

It means tax on tax. Here the tax paid by a firm is not passed on to another firm that adds value to the commodity.  For example, a producer (firm A) gets a commodity at Rs 100 including a tax of Rs 10. This means that the real value of this input is Rs 90. Now manufacturer (firm B)) produces his final product and prices it at Rs 200 including his value addition of Rs 90 and Rs 10 as taxes. Now a retailer that gets this product at Rs 200 may sell the product at Rs 220 plus small profit. The Rs 20 charged by the retailer here may be a 20% sale tax (Rs 20). This means that the previous taxes paid by the manufactures – A and B (Rs 20) are also added to the price to estimate the final sales tax burden. Such a situation is called tax on tax or cost cascading effect.

The cost cascading effect raises the price of a commodity and hence inflation. The cost cascading effect must be avoided.  A coordinated effort between the centre that imposes tax on the production stage (excise duties) and the states that imposes the sales taxes is enough to end the problem of cascading effect. For this, every activity is to be taxed by deducing the tax imposed at the earlier stage from price. This is possible only if there is input tax credit. The GST gives this input tax credit.

What is GST?

The Goods and Services Tax or GST is a comprehensive tax levied on the manufacture, sale, and consumption of goods and services. It will be “collected on value-added goods and services” at each transactional stage of the supply chain or process. GST belongs to the VAT family. Unlike VAT system, GST includes services also. Similarly, input credits are given while calculating the tax burden.

What are the advantages of GST?

Simplifies tax system:  There are multiple archaic laws, about  32 tax laws, for instance union excise duty, state sales tax, and service tax to mention a few (both state and centre) in the country, which make the tax administration as well as business  difficult. These laws are viewed as obstacles in the economic growth of the country as they check the foreign investment.  GST has replaced all these archaic laws.

Uniform tax system:  GST has integrated all the indirect taxes into a single and uniform tax. This will help tax administrators in better implementation of tax laws. The tax administrators now have to examine whether the tax payer (firm) has paid the GST properly rather than looking into the complex web of several taxes.  GST will help in creating a unified market in the country as the consumers will have to pay the same tax doe a particular commodity in all states and UTs. Indirectly, it will also result in a unified and integrated India.

Will Increase Tax Revenue: GST is technologically driven and gives little opportunity for the tax payer to evade taxes. Hence, tax compliance will improve. Though bringing the businesses into the GST platform may be slightly difficult initially; with time, all producers and sellers will come under the tax network. Moreover, it will broaden the tax base in the country. Both will increase the tax revenue for the state.



It is always easier to make laws but their competency is tested during the implementation stage. The experts raised concerns over the implementation of GST. For better implementation of GST there is need of greater co-ordination between center and states and among states and UTs. The GST council will function as the most powerful federal institution in the fiscal federalism in the country. The overriding power of the center in the form of one-third weightage of total votes should not be used for the disadvantage of states and robbing the states of their fiscal autonomy.

GST implementation is technologically driven and GSTN, a non-profit organisation of Center and states is set up for building the sophisticated IT infrastructure for this purpose. However, the businesses in our country have not been computerized at a large scale. Experts held that at the initial stage of GST implementation, the businesses will suffer as they are required to file GST thrice a month and tax returns quarterly. This will create more pressure on the businesses.

Services will become expensive

Services amid other commodities are going to be expensive with GST laws coming into force. Earlier, services were taxed at 14%, and then from 15th November 2015, swachh bharat cess of .5% was added over all taxable services and the finance bill 2016 levied .5% Krishi kalyan cess taking the new service tax to 15%. Now, under GST the services will be taxed at 5%, 12%, 18% and 28% in accordance with their necessity/luxury nature.

Cyber Threats

Since GST is completely technology driven and requires high end security. Keeping in view the cyber attacks on Indian websites and networks in the past we are putting our economy at grave danger through GST due to our poor cyber security. Any cyber attack will lead to catastrophe in the Indian economy.

(Writer can be reached at

Post a Comment Using Facebook Login

Comments are closed.