The GST Council is set to approve both State-GST (SGST) and Union Territories-GST (UTGST) laws during the meeting today. Few stakeholders, tax consultants and business owners have started wondering why did the GST Council recently introduced the UTGST laws, considering the fact that launch of GST is already around the corner!
Well, The Constitution (One Hundred and first Amendment) Act, 2016, has inserted a new clause, namely Clause 26B on “State” in Article 366. As per this clause, “State” with reference to Articles 246A, 268, 269, 269A, and 279A includes a Union territory with Legislature. Even ‘State’ for the purposes of GST, includes a Union territory with Legislature.
Therefore, technically SGST cannot be levied in a Union Territory without legislature. This applies to the following Union Territories of India:
- Daman and Diu
- Dadra and Nagar Haveli
- Andaman and Nicobar Islands
To plug this loophole, GST Council has decided to have Union Territory GST Law (UTGST) – which would be at par with SGST. However, SGST can be applied in Union Territories such as New Delhi and Puducherry, since both have their individual legislatures, and can be considered as “States” as per GST process.
As per Article 246(4) of Constitution, the Parliament has powers to make laws with respect to any matter for any part of the territory of India, which is not included in the State, including the matters enumerated in State List. Therefore, it is quite obvious that post approval from the GST Council, the Central Government shall forward the UTGST Law in the Parliament. Once approved by the Parliament, there could be the following combination of taxes applicable for any transaction:
- For Supply of goods and/or services within a state (Intra-State): CGST + SGST;
- For Supply of goods and/or services within Union Territories (Intra-UT): CGST + UTGST;
- For Supply of goods and/or services across States and/or Union Territories (Inter-State/ Inter-UT): IGST
Order of utilization of Input Tax Credit of UTGST would be the same like SGST. This means, Input Tax Credit of SGST or UTGST would first set-off against SGST or UTGST respectively. Output Tax liabilities and balance, if any, can be set-off against IGST Output Tax liabilities.