THIRUVANANTHAPURAM: Chief minister Pinarayi Vijayan on Tuesday announced that his government would not implement the new GST on select food items, but ironically, the new tax rate had already come into effect in the state a week ago. Five per cent GST on “prepackaged and labelled” food items has been effective in Kerala since a notification was issued by the state taxes department on July 18.
The department issued the notification under the Kerala State Goods and Services Act, 2017, in pursuance of the GST Council’s decision. The CM’s announcement cannot be implemented without withdrawing this notification. Also, withdrawing the notification with retrospective effect will result in legal issues because the tax already collected by traders will become ‘unlawful enrichment’ at the expense of the government.
Not just for the notification, the CM’s claim is impractical even otherwise, said a source. A more practical solution, the source said, was to mobilise other states and pressure the Central government for a special session of the GST council to withdraw the decision.
Of course, the Supreme Court ruling on May 19 that Parliament and state legislatures can legislate on GST offers scope for Kerala government to opt for a legislative route to forgo SGST. For this, the KSGST Act has to be amended by convening a special session of the assembly. Still, the state cannot prevent the Centre from collecting its share -- the Central Goods and Services Tax (CGST forms 2.5% of the new 5% rate on selected food items).
“In such a case, there is every possibility that the governor would deny his assent to the Bill. He may reserve the Bill for the President’s consideration as well,” said a source who did not want to be named. The problem doesn’t end with legislation. The GSTN software used by traders across the country for filing returns has to be tweaked exclusively for traders in Kerala.
The GST Council or the Central government are unlikely to approve this idea for two reasons. One, the state government’s move is to overrule the council’s decision. Second, a ‘mere tweaking’ would require much time and effort of the professionals in charge of seamless functioning of the software. Earlier, a similar demand by Kerala to collect flood cess was rejected by the Centre. The government then collected the cess by modifying the pre-GST software. If the traders in the state trust the CM’s words and refuse to file returns in the new format, the state will have to forgo a substantial amount of its tax share. Traders are also at the risk of penal action.