States have suggested an alternative constitutional amendment plan to roll out goods and services tax, or GST, creating the possibility of breaking the deadlock in their talks with the Centre on this ambitious indirect tax reform.
The empowered committee of state finance minister on Friday proposed in its meeting in Goa that the dispute settlement mechanism and provision for creation of a GST council suggested by the Centre be dropped, as it formally conveyed its objection to the constitutional amendments suggested by the finance ministry.
"States want to drop dispute settlement body and a modification in the role of GST council or complete removal of the provision from the constitutional amendment draft," a government official who attended the panel's meeting in Panaji told ET.
The stalled talks could move forward if the Centre agrees to the suggestion, but experts say this could distort the GST structure.
"Dropping the GST council and common dispute resolution settlement body means eliminating the two important pillars of unified and harmonious GST system," said Prashant Deshpande, leader - indirect tax, Deloitte.
The constitutional amendments have become the main sticking point in the ongoing discussions on the GST, a simple single levy that will replace a plethora of indirect taxes - excise duty and service tax at the Centre's level and value added tax and other levies by states.
The deadlock on the structure of the new tax has already delayed it by a year and possibility of its rollout on the new date of April 1, 2011 also looks impossible.
A facilitating constitutional amendment is needed to allow Parliament and state assemblies to tax goods at retail level and services, respectively. At present, the Centre can impose taxes on goods at the factory gate and services while states can only tax goods at retail level. States do not have the power to levy tax on services
The Centre attempted to address states' concerns and dropped the contentious veto power of finance minister in the GST council proposed in the first draft, but failed to bring them on board.
"We will examine the draft and hopefully attempt to implement the GST from some time next year," revenue secretary Sunil Mitra told reporters on the sidelines of a FICCI conference in the Capital.
However, the Centre may find it difficult to accept the fresh draft as it has already bent backwards to accommodate states' concerns.
The empowered panel will now meet union finance minister Pranab Mukherjee to discuss its proposal. "When we get that (counter proposal on draft constitutional amendments) we shall respond," Mr Mitra said.