Implications of scrapping Article 370 on GST from Jammu and Kashmir

The recently announced historic decision to remove Article 370 from the Indian Constitution has had multi-dimensional implications across different sectors of Indian society. One of them was on Goods and Sevices Tax (GST). 

The Government withdrew the special status for the most sensitive State of our country being Jammu and Kashmir on 5 August 2019. Moreover, the State of Jammu and Kashmir will be reorganised into two Union Territories- Jammu and Kashmir and Ladakh.

The residents of Jammu and Kashmir dwell under a separate set of laws, including fundamental rights, citizenship and property ownership in comparison to the rest of Indian States. Accordingly, Indian citizens from the rest of the states could not buy land or any other property in Jammu and Kashmir.

GST laws comprise the Central GST Act and the Integrated GST Act that apply to entire India. Further, it consists of the respective State GST Acts that apply to the corresponding States.

The Union Territory GST Act that is relevant to only Union Territories. Hence, the law has a separate State Act of itself and the IGST as well as CGST (Extension to Jammu and Kashmir) Act, 2017. These extension laws will enforce limited IGST and CGST provisions for GST registrants of Jammu and Kashmir, respectively.

CGST extension Act dictates that all provisions of the CGST Act apply to the State of Jammu and Kashmir except a few. The exceptions include registration limit and the restriction to set up the State Appellate Tribunal in J&K. Currently, with effect from 1 April 2019, the threshold limit of annual turnover for GST registration in J&K is Rs 40 lakh as against the earlier limit of Rs 10 lakh.

Also Read: The Journey of GST in India

With the withdrawal of the special category status from the State of J&K, the extension Act should technically no longer be enforceable. Also, all the provisions of CGST and IGST Act will apply to its GST registrants via a notification yet to be passed. Both the CGST and the SGST Acts must be amended to that effect.

The Union Territory GST Act will apply to Union territories of Jammu and Kashmir as well as the Union territory of Ladakh. An effective date for the same is 31 October 2019. The parliament recently passed the Jammu and Kashmir Reorganisation Act. It was to enact the division of the State of J&K into two union territories- the Union Territory of Jammu and Kashmir and the Union Territory of Ladakh.

Apart from the legal remodelling required, few existent GST registrants of J&K will have to make a one-time decision. Those taxpayers having threshold annual turnover marginally exceeding Rs 40 lakh may no longer be required to comply with GST mandatorily.

The immediate concern that is affecting the Jammu traders is that they cannot complete the GST return filing including the income tax returns. Their inability is on account of the ongoing chaos following which there is intermittent access to the internet and communication.

Accordingly, the Chamber of Traders Federation (CTF) has formally requested the Union Finance Minister Nirmala Sitharaman to provide a further extension to file various GST returns that were due for the past month and the ones for the upcoming weeks.

It is due to the turnover now being bifurcated between the two Union Territories of J&K and Ladhak. However, a clarification on the same is yet to be released to the public.

With the restrictions removed in J&K, smooth flow of trade and finance will help the State of Jammu and Kashmir flourish.