New Delhi: For the second time in as many weeks, the Centre and states today failed to reach a consensus on who will control which set of assessees under GST, a disagreement that threatens to derail the April 1 target for rollout of the new indirect tax regime.
After nailing a four-tier rate structure of 5, 12, 18 and 28 per cent, the second-day of the all-powerful GST Council failed to reach a consensus over which category of assessees should be governed by the Centre and which by states.
The November 9-10 meeting of the Council has been called off. It was to finalise the draft law and supporting legislations for subsuming an array of central and state
levies including excise duty, service tax and VAT. The finance ministers of states will now meet informally on November 20 to evolve a political consensus on the sticky issue.
The next meeting of the GST Council, headed by Finance Minister Arun Jaitley, has been scheduled for November 24-25.
Jaitley, who had previously stated that he hoped for all modalities for the GST to be finalised by November 22, was still hopeful of getting the supporting legislations during the ensuing Winter Session of Parliament from November 16.
"That's the effort. I am endeavouring to do that," he said when asked if the CGST and IGST legislations will come before Parliament in the upcoming session.
"When in the month of August we passed the Constitution amendment, it appeared too challenging because the time was very short. As of today, I am more confident than I was in August. Let me say this because bulk of the spade work has been done. Most of the decisions have been taken. Only one key decision remains," he said.
Differences on the issue of cross empowerment to avoid dual control arose with states demanding control over 11 lakh service tax assessees, and Centre proposing to do away states having exclusive control over all dealers up to an annual revenue threshold of Rs 1.5 crore -- an issue which was settled in the first meeting of the GST Council.
No decision could be arrived at the end of the third meeting of the Council on October 19.
Jaitley said the draft CGST, IGST, SGST and compensation laws will be sent to states after November 15 and the GST Council in November 24-25 meeting will approve them.
He said all pros and cons have to be weighed before deciding on the issues of cross empowerment to ensure single interface under GST, which will subsume excise, service tax, VAT and other local levies.
"In order to resolve it we will have an informal meeting of the ministers, in order to find a political solution to this problem, and we will try and thrash out a solution on the November 20 between these options or may be a hybrid option of this," he said.
"But whatever option is we don't want to take it in a hurry because it has to be a well thought out decision, because administratively, any mistake on this front could be chaotic. So we are going slowly and systematically on this," he added.
In the last meeting of the Council, 5 proposals were discussed, but today the Council has arrived at an option of two proposals-- horizontal division and vertical division.
'Horizontal Division' would mean tax payers would be divided both for administrative and audit purposes based on a cut off turnover. Those with a turnover over Rs 1.5 crore would be administered both by the Centre and states, while those with below Rs 1.5 crore would be administered solely by the state.
The 'Vertical Division' based on ratios assigns tax payers to a tax administration, Centre or state, for a period of 3 years for all purposes including audit. Tax payers could be divided in a ratio which would balance the interest of the Centre and the state, both with respect to revenue and spread of numbers.
Jaitley said the matter is complex and hence the Centre and states do not want to rush through with the final answer as the consequences of this are unforeseen. "You can have neighbouring shopkeepers being assessed by different authorities and therefore what will be the consequence of that?"
According to sources, the Centre feels that horizontal division would be lopsided as 93 per cent of Service Tax assessees and 85 per cent of the VAT tax payers have a
turnover below Rs 1.5 crore.
The GST Council also felt that distinction between goods and services cannot be maintained as works contract, construction contract, restaurants -- all these have VAT and Service Tax and it is not possible to disintegrate them.