With AIADMK Members of Parliament walking out of the voting on the GST Constitution Amendment Bill in the Rajya Sabha, there is apprehension on whether Tamil Nadu would join the mainstream and implement GST as contemplated.

This has triggered the thought process of whether the dual GST can be implemented successfully, even if any one of the States do not enact the State GST Law as may be recommended by the GST Council.

Any recalcitrant State cannot be forced to adopt the SGST law recommended.

All that the GST Constitution Amendment Act provides in Section 19 ( Transitional Provisions is that “Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or unit expiration of one year from such commencement, whichever is earlier.”

Assuming the State does not adopt the suggested model of SGST, here is some of the consequences / scenarios

• CGST will apply on all intrastate supply of Goods and Service

• The State would continue with levy of VAT (maybe calling it State GST) on intra state supply of Goods and possibly also levy tax on intra state supply of services.

One issue would be - What would be the rate of State Tax?. If maintained at the same rate of VAT as at present, tax rates (CGST+ State Tax) would be unaffordable to the consumer and therefore obviously the State tax will have to be in tune with the rate of SGST agreed to by the GST Council.

• IGST would apply on inter state supply of Goods and Services from the State. With IGST comprising total of State Tax and CGST, to ensure uninterrupted flow of credit, the Centre may have to pay back the State Tax Component to the non participating State. If the State Tax ( SGST) is in variance with the rate of SGST agreed to by all other States, there would be inconsistency in the IGST rate charged by the non participating State and other States.

• On supply of Goods and Services into the State, IGST would be charged by the outside the State supplier. The issue would be passing on the credit of the State, the SGST component and consequent availment of credit by the purchasing dealer.

• Alternatively all interstate sale to the non participating state will have only CGST component. If so, what happens to the SGST or IGST credit of the selling dealer which could have otherwise been set off against IGST?

Well, the consequence of even any one State not participating is far-fetched and confusing scenarios emerge and it is apparent that there has to be consensus on PAN India roll out.

To put simply the consequence of even one state not participating, is that the contemplated flow of credit across India would be affected.

More than the issue of flow of credit, trade and industry of non participating State would be affected adversely.

Will Tamil Nadu join the GST mainstream?

Notwithstanding the walkout of Members of Parliament, there is a stoic silence on the stand of the Tamil Nadu Government on implementing GST. In the absence of explicit statement of staying away from implementing GST it appears that the State is keeping its options open.

The opposition is on infringement of fiscal autonomy of the States and the recurring revenue loss due to the shift of the levy from the point of origin to the point of destination.

Tamil Nadu is also opposed to voting weightage in the proposed council that gives the Centre an effective veto in the GST Council and that the voting weightage of state’should be in proportion to the representation of the state in the Rajya Sabha.

Whatever be the merits of the stand of the Tamil Nadu Government, now that the GST Constitutional Amendment is through, it would be in national interest and in the interest of the Trade and Industry that Tamil Nadu joins the mainstream.

Here is where, the Trade and Industry bodies need to play an active role in sensitizing the political leadership of the need to join the mainstream considering that any revenue loss for five years would be compensated. Unfortunately, there is no visibility of the Trade and Industry bodies in Tamil Nadu of interaction with the State Government.

As is often stated in the context of international experience in implementation of national GST/VAT, it is more about politics than economics.!

I personally believe that Tamil Nadu would join the national roll out of GST

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Date : September 12, 2016

The articles in Editor's page is based on inputs available on the date noted and is to be read in that context. The articles are usually not updated for later development.