The GST Council has decided that a seven-member group of State Finance Ministers will look into Kerala’s proposal to allow imposing additional cess under GST to help meet the cost of reconstruction in the aftermath of heavy damages caused by floods.

Since both the Centre and the States have pooled their sovereignty related with indirect tax policy decision to the GST Council, any proposal to bring in a new rate or impose cess will have to be considered by the Council. The Council is the apex policy-making body for new indirect tax regime.

“Most of the States were extremely sympathetic to the people of Kerala and felt that something should be done,” Finance Minister Arun Jaitley told reporters after 30th meeting of the Council, held through video conferencing.

Since this will be the first time such a cess would be levied and would be taken as precedence, it was felt that there should be wider consultations, he said.

At the meeting, Kerala made a detailed presentation advocating the need for a cess. The committee will need to find answers to five questions — should the entire burden of cess be borne by the affected State only?, should it be an all-India levy and can it be confined to luxury or sin products?, is the National Disaster Relief Fund (NDRF) mechanism sufficient or more can be done?, should there be a distinction between natural calamities?, and what is the legal methodology available?

The members of the GoM include Sushil Kumar Modi, Deputy Chief Minister of Bihar, who is the Convenor of the GoM; Himanta Biswa Sarma, Finance Minister of Assam; TM Thomas Isaac, Finance Minister of Kerala; Sudhir Mungantiwar, Finance & Excise Minister of Maharashtra;, Sashi Bhusan Behera, Finance and Excise Minister of Odisha; Manpreet Singh Badal, Finance Minister of Punjab and Prakash Pant, Finance Minister of Uttarakhand).

The committee is expected to give its recommendations soon and then a decision will be taken by the GST Council in its next meeting.

Special tax

There is provision of special tax under the GST regime. Following a Constitutional Amendment, sub-section (4) (F) of newly inserted article 279 A prescribes: “Any special rate or rates for a specified period to raise additional resources during any natural calamity or disaster.”

The schedule of the Goods and Services Tax (Compensation to States) Act, 2017, provides for imposing a cess up to the rate of 15 per cent ad valorem on “any other supplies”. However, there is no clarity in the text of the law on imposing a cess for purposes other than compensating States in case there is a revenue shortfall. MS Mani, Partner at Deloitte India, hoped that the panel will suggest alternative fund raising measures without disturbing the GST architecture. “Any changes to the GST framework would make it more complex for businesses besides setting up a precedent for similar changes in future,” he said. He, however, felt that the introduction of any cess either at the national level or at state level should be avoided to the extent possible as it would make the entire GST process more complex for all businesses.

Parag Mehta, Partner at NA Shah Associates, said the main apprehension is that the levy should not become a precedent for other States. “The committee will have to look in the Act and make suitable changes to ensure that the same can be introduced without any legal hurdles. Issue for consideration is whether it should be levied only in Kerala or nationwide and on all goods or luxury items like vehicles etc,” he said while advising that the periodicity of the said cess should be fixed, else it will become a cess for perpetuity.

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