NOVEMBER 19, 2019

By Akash Mittal, Advocate

THE Parliament of India has enacted the Jammu and Kashmir Reorganisation Act, 2019 whereby on and from the appointed day, the State of Jammu and Kashmir has been reorganised into the Union territory ('UT') of Jammu and Kashmir and the UT of Ladakh. The said Act received the assent of the President on 09.08.2019 and later, 31.10.2019 was notified as the appointed day for the said change to become effective. The said Act was enacted to provide for reorganisation of the existing State of Jammu and Kashmir into the UT of Jammu and Kashmir and the UT of Ladakh.

Vide press release dated 20th September 2019, GST council had recommended suitable amendments to be brought in CGST Act, UTGST Act, and the corresponding SGST Acts in view of creation of UTs of Jammu & Kashmir and Ladakh.

Recently, Ministry of Home Affairs has released the Jammu and Kashmir Reorganisation (Removal of Difficulties) Order, 2019 dated 30.10.2019. Amongst various other things, the said order states-

"AND WHEREAS, the Jammu and Kashmir State Goods and Services Tax Act, 2017 has been made applicable to the Union Territory of Jammu and Kashmir and the Union Territory of Ladakh as specified in the Fifth Schedule to the principal Act. However, the Union Territory of Jammu and Kashmir, being a Union Territory with Legislature shall have its own Goods and Services Tax, Act, 2017 whereas the Union Territory of Ladakh, being a Union Territory without Legislature shall be governed by the Union Territory Goods and Services Tax Act, 2017;

…..

NOW, THEREFORE, in exercise of the powers conferred by section 103 of the Jammu and Kashmir Reorganisation Act, 2019, the President, hereby makes the following Order, namely: -

….

(7) The Jammu and Kashmir Goods and Services Tax Act, 2017 shall be applicable to the Union Territory of Jammu and Kashmir and the Union Territory Goods and Services Tax Act, 2017 shall be applicable to the Union Territory of Ladakh."

Therefore, it can be said that for an assessee carrying out its business in the Union Territory of Jammu & Kashmir, the Jammu & Kashmir GST Act shall be applicable and for an assessee carrying out its business operations in Ladakh shall be covered by the UTGST Act.

Recently, vide Notification No. 51/2019-Central Tax dated 31.10.2019, the jurisdiction of Jammu Commissionerate over UT of J&K and UT of Ladakh has been notified.

Let us now analyse whether the existing legal provisions read with the machinery provisions and amendments notified as on date are sufficient to make GST practically effective in the UT of Ladakh.

It must be noted that the definition of "Union Territory" given under the CGST Act and the UTGST Act has not been amended yet to cover specifically within its ambit the UT of Ladakh. Section 1 of the UTGST Act, 2017 provides that it extends to the Union territories of the Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, Daman and Diu, Chandigarh and other territory. Section 2(114) of the CGST Act and Section 2(8) of UTGST Act define Union territory as

'Union territory" means the territory of,--

(i) the Andaman and Nicobar Islands;

(ii) Lakshadweep;

(iii) Dadra and Nagar Haveli;

(iv) Daman and Diu;

(v) Chandigarh; or

( vi) other territory.

Explanation.-For the purposes of this Act, each of the territories specified in sub-clauses (i) to (vi) shall be considered to be a separate Union territory;"

The question that arises here is whether it can be said that UT of Ladakh will be covered within the phrase 'Other Territory'?

The UTGST Act does not define the said phrase 'Other Territory'. However, Section 2(10) of the UTGST Act provides that words and expressions used and not defined in UTGST Act but defined in CGST Act, IGST Act, the SGST Act, and GST Compensation to States Act, shall have the same meaning as assigned to them in those Acts. Section 2(81) of the CGST Act defines 'other territory' to include territories other than those comprising in a State and those referred to in sub-clause (a) to (e) of section 2(114) of CGST Act (or Section 2(8) of UTGST Act).

Therefore, a view may be taken that since UT of Ladakh is not covered under the jurisdiction of any State and any of the UT mentioned in sub-clause (a) to (e) of Section 2(114) of CGST Act (or Section 2(8) of UTGST Act), such area will be covered under the ambit of "Other Territory" and will be treated as UT for the purpose of GST.

However, there are various fundamental issues with respect to this new UT that have been apparently left unaddressed. Some of these issues have been listed hereunder-

- Whether taxable person supplying goods or services from UT of Ladakh needs to get registered under UTGST Act as 'other territory' or a migration facility will be made available to them? It must be noted that presently portal is not allowing for fresh registration under the category 'other territory'.

- What is the State code of this UT?

- In case the taxable person decides for transition to UTGST Act by applying for registration under "other territory", how will the input tax credit lying in the credit ledger be transferred from earlier registration under J&K SGST Act? Can the same be claimed suo moto by the taxpayers in GSTR 3B?

- Whether the earlier registration under J&K SSGT Act needs to be cancelled?

Therefore, as can be seen from above, though the Reorganization Act has been made effective, there is lack of clarity in respect of an assessee operating from the UT of Ladakh as well as assessee supplying goods or services to a recipient in Ladakh. There is a dire need of clarification/guidelines from the Government's end in view of the teething troubles emerging due to this reorganization. Proper notifications and circulars explaining the mechanism or approach to be adopted for Ladakh residents in respect of GST would be extremely helpful at this point.

(The author is Associate, Lakshmikumaran and Sridharan, New Delhi and the views expressed are strictly personal.)