Supreme Court Validates Article 370 Abrogation: Examining the Ripple Effects on Income Tax and GST

The Supreme Court supported the Central Government's decision to revoke Article 370. Now, let's explore the taxation implications.
Supreme Court - Supreme Court Validates Article 370 Abrogation - Article 370 Abrogation - Ripple Effects - Income Tax - GST - Ripple Effects on Income Tax and GST - taxscan

The Supreme Court of India has upheld the abrogation of Article 370, a constitutional provision that granted special autonomy to the region of Jammu and Kashmir. The 5- bench presided by Chief Justice D.Y. Chandrachud’s decision reaffirmed the constitutional validity of the government’s move to revoke Article 370 in 2019, has far-reaching implications, touching various aspects of governance, including fiscal policies.

Apart from Chief Justice, the bench included Justice Justices Sanjay Kishan Kaul, Sanjiv Khanna, B R Gavai and Surya Kant. The Chief Justice has stated that the Article 370 of the Constitution of India is a temporary provision.

Article 370 of the Indian Constitution granted a special status to Jammu and Kashmir, providing it with a degree of autonomy over its internal affairs. However, in August 2019, the government, led by Prime Minister Narendra Modi, took a historic step by abrogating Article 370, thereby revoking the special status of Jammu and Kashmir and integrating it fully into the Indian Union.

Applicability of Income Tax Act

The Income Tax act, 1961 is applicable in Kashmir even before the abrogation as the act itself states that “This extends to whole India ”. The act was extended to Kashmir through The Taxation Laws (Extension to Jammu & Kashmir) Act, 1954.

The only chapter which is exempted from the income tax in Kashmir is Section 269S which is about the “Acquisition of immovable properties in certain cases of transfer to counteract evasion of tax,”. However, the same was repealed by the Central Government by Jammu and Kashmir Reorganisation (Adaptation of Central Laws) Order, 2020, w.e.f. 18-3-2020.

Thus, provisions limiting the applicability of the Income Tax Act have been eliminated. Jammu and Kashmir is now an integral part of India in every aspect, and the Supreme Court has validated its abrogation.

Applicability of GST Act

An additional crucial tax in the Indian tax landscape is the Goods and Services Tax (GST). The implementation of GST predates the abrogation of Article 370 by two years. Prior to this change, Jammu & Kashmir operated outside the purview of the earlier Service Tax Act delineated in the Finance Act 1994. The state was exempted from the GST Act until July 7, 2017.

However, post 8th July 2017, there was a significant shift. The provisions of the CGST and IGST Act, which were initially not applicable in Jammu & Kashmir, were extended to the state after July 7, 2017. This marked a noteworthy change in the taxation landscape for the region, aligning it more closely with the national tax structure under the Goods and Services Tax.

On July 6, 2017, the President approved the application of GST to Jammu and Kashmir. On July 7, 2017, the Jammu and Kashmir Goods and Services Tax Bill was passed. Two ordinances were issued on July 8, 2017, extending Central GST and Integrated GST to Jammu and Kashmir. This made Jammu and Kashmir part of the GST regime, aligning with the ‘one nation, one tax’ vision. The Central Board of Indirect Taxes and Customs (CBIC) has issued a press release related to the same.

All the above changes are already implemented by the government. And today, the same has been confirmed by the Supreme Court through its landmark decision. The issue was brought before the apex court by the Lok Sabha MP Mohammad Akhbar Lone.

Benefits of Revoking Special powers of Jammu & Kashmir – Tax Perspective

The advantages will be mutual for both the state and central government. The state stands to receive financial support from the central government, alleviating its fiscal concerns. Additionally, the government will no longer be constrained in its actions within Jammu & Kashmir, enjoying the same operational freedom as in other states.

Jammu & Kashmir is a renowned tourist destination that captivates visitors globally, serving as a significant source of income for many residents and contributing substantially to the government’s coffers. Unfortunately, terrorism had deterred tourists from venturing to the state, resulting in a lower-than-expected influx of visitors to this picturesque location.

The complete integration of Jammu & Kashmir by the Central Government has successfully curtailed terrorism, fostering a sense of peace among the residents, regardless of their religious affiliations. Consequently, the region has become significantly safer for both locals and tourists, positively influencing tax collection.

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