Constitution says centre should levy iGST: Law Ministry

NEW DELHI: States’ demand for a share in the administration of the tax on inter-state transfer of goods and services under the GST regime has been red-flagged by the law ministry, saying such a move will not be in consonance with the constitutional amendment.

The amendment provides that the interstate tax, or integrated goods and services tax (iGST), is to be levied and collected by the central government, a senior government official said. “So it should be administered by the Centre,” the official told ET.

The Centre, which is keen to break the impasse over the division of tax administration, had sought the law ministry’s opinion on the states’ demand.

The opinion will bolster its case and provide some help in solving the tax administration issue that has held up the GST law.

The GST Council, a body of states and the Centre that is apex decision-making body for this tax, will meet on December 22 and 23 to approve the GST law and also try and solve the stalled issue of administration. The Centre has offered an equal distribution of GST administration to states.

It is likely to offer to the GST council exchange of detailed memoranda, defining the contours of the division between Centre and states to ensure taxpayers, especially small traders, do not have to deal with dual authorities.

At present, states levy value added tax on a turnover of 8-10 lakh, Centre levies excise duty on turnover above `1.5 crore on goods, and service tax on turnover over `10 lakh. States want exclusive control over administration of taxpayers below Rs 1.5 crore turnover threshold and above that divided equally between central and state authorities.

The Centre on the contrary is keen to bring the physical interface less in tax administration, on the lines of income tax where in a taxpayer doesn’t have to know his assessing officer unless his case is picked for scrutiny, that will allow only one authority to deal with an assessee for all taxes.

The constitutional amendment to pave way for the GST empowers both states and Centre to levy tax on goods and services at point of sale, thereby relying on dual administration. The Centre is of the view that this constitutional objective laid down in the amendment can be effectively achieved with “cross-empowerment”.

Under this model, tax administrators will use a formula to decide at the beginning of the financial year which assessees they will audit. Other functions such as handling of new assesses and investigation also follow a formula-based approach to ensure physical interface of taxpayer is restricted to one authority.

States, particularly West Bengal, Tamil Nadu and Kerala, have not favoured this model, saying it will hurt small taxpayers. Tax experts say this is a non-issue. “More than 90% of goods will not face any interface with the department….

Constitution has empowered both the Centre and states to administer the new tax. How can any law or administrative arrangement disempower one of them?” said SD Majumder, former chairman at Central Board of Excise and Customs.