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Challange General Service tax in Supreme Court
October, 20th 2009

The Madhya Pradesh government is gearing up to take on Centre over the goods and service tax (GST) issue. If things do not happen its way, the state is likely to challenge the Centre on the issue in the Supreme Court.

According to a senior official, the new system would strip the state of its Constitutional right to levy tax. The GST, if introduced, is against the federal structure and Constitution. The Centre cannot snatch the powers vested in the state to levy tax, the state will have to challenge it in court, the official said.

The state has its logic ready. The GST is being levied on the basis of data that service tax collection has gone up but an analysis readied by the state finance department indicates otherwise.

If you go by the National Accounts Statistics (NAS) compiled by the Central Statistical Organisation (CSO) and analyse manufacturing and consumption data, the expectation of revenue gain from services is not based on facts. Cost of services consumed in the manufacturing activities is included in the value of the manufactured goods.

It is already being taxed both under Cenvat and VAT. Only the consumption of services by the household provides additional tax base in GST over and above the tax base from goods in VAT, said the official.

The state has also come up with some facts that no additional tax base would be available in GST from private final consumption expenditure under the head Hotel and Restaurants over and above the tax base of VAT.

The tax base of GST should be in range of Rs 1300,000 crore to Rs 1600,000 crore. The corresponding RNR (revenue neutral rates) will be in range of 20 per cent to 25 per cent. The collection efficiency will be in the range of 30 per cent to 37 per cent.

The state has also pointed out: For the national GST administered by the federal agency, collection efficiency will be around 35 per cent, but for subnational GST administered by multiple state agencies, collection efficiency will be around 25 per cent-30 per cent only. In this case there is no logic of imposing GST in states; it will lead to revenue losses and make the states financially dependent on the Centre, said the official.

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