As the new GST regime will subsume the existing tax regime across India, J&K is caught in a catch-22 situation. If it stays away from the new set-up it will lose lot of revenue and if joins at par with other states the peculiar centre-state relationship will take a hit. Now efforts are underway to find out a middle path.

"We are seeking adequate safeguard to the constitutionally guaranteed special status of J&K before the Empowered Committee firms up its recommendations for constitutional (115th amendment) Bill 2011, which is prerequisite to pave way for the switch over to this latest Tax reforms all over the India," State's Finance Minister Abdul Rahim Rather told the meeting of the Empowered Committee of the state finance ministers in Bhuwnaswar, Odisha.

As the Goods and Services Tax regime will take over, Rather insisted that the case of J&K will be entirely different as compared to the other states. "All other states would be surrendering the exclusive authority to tax goods and, in turn, get the additional authority to tax the hither to out of bound service sector," Rather said.

"But J&K being already competent to tax goods as well as services, unlike other states, would not get any additional authority except a share from the central divisible pool."

Unlike other states, J&K has most of the tax collection in its own kitty and it includes service tax as well. This is because the state enjoys a special status under the Constitution of India's Article 370. Central government is collecting central excise, central VAT and Income tax in the J&K state besides the negligible customs duty. All other taxes are collected by the state set-up. J&K would require promulgated a new law to enable the GST implementation, once it is rolled out across India.

The efficient new regime will subsume almost all the existing taxes and might reduce the overall slabs across the states. However, it will have a dual control system and both manufacturers and traders will have to tackle twin systems managed by central and state governments.

"There is possibility of the two systems reacting differently to similar issues and it can create a lot of friction and initial inconvenience," J&K's former tax commercial Khawaja Bashir Ahmad, who was a member of the draft committee of the GST Committee said. "There is requirement of identifying issues in anticipation, especially in J&K, to prevent any kind of problem."

In the Odisha meeting, states are reported to have demanded deletion of Article 279(b) of the Constitutional Amendment Bill envisaging the provision of dispute settlement authority. Instead, the states wanted the GST council to evolve a mechanism to resolve disputes.

Even the finance minister has strong reservations for the dual control set-up. "It is being perceived as an impediment in the implementation of GST and it is felt this is not a dealer friendly and may not be administratively an efficient tool of recovering the taxes," Rather said. "Though J&K has not much of claim over the CST compensation but it is and has remained irritant between the states and union of India."

States want that there should be only one interface between the tax payer and the government. The Odisha meeting has led to setting up of a committee to look into the positives and negatives of the dual control set up.