States such as West Bengal and Tamil Nadu opposed the proposal to give the centre full control over all the service tax assessees

Around 33,000 big service tax assessees are emerging as the new bone of contention between the centre and a few states under the goods and services tax (GST). There are an estimated 1.1 million service tax assessees, which are entities that collect service tax and are registered with the Central Board of Excise and Customs. Of these, around 3% are estimated to be big assessees who provide annual taxable services of more than Rs1.5 crore.

At the end of the first GST council meeting on 23 September, finance minister Arun Jaitley had said that as part of the agreement between the centre and the states on dual control, states will administer all value-added tax (VAT) dealers up to a revenue threshold of Rs 1.5 crore. For those above this threshold, a model of cross empowerment will be followed, wherein the control will be divided between the centre and the states. It was also decided that the centre will control all existing registered service tax assessees irrespective of their threshold.

But in the second meeting of the GST council last week, there was some acrimony on this issue, Mint reported on 30 September.

States such as West Bengal and Tamil Nadu opposed the proposal to give the centre full control over all the service tax assessees. Instead, they sought cross empowerment for the big service tax assessees while agreeing to allow the small ones to continue under the centre’s administrative control, said two people who attended the meeting.

“What rattled a few states was the line included in the minutes of the GST council meeting that the centre will administer these existing registered service tax dealers for the next three years,” said a state government official who did not wish to be identified.

“They have sought cross empowerment for bigger service tax assesses. But the question remains whether states have the expertise to control such large service tax providers and if they can be entrusted this responsibility,” he said.

Another official said the centre’s attempt to pass off some items currently being taxed by the states as services has also upset states. This included assessees like restaurants where both service tax and value-added tax is levied.

GST will subsume all indirect taxes levied by the central and the state governments including excise duty, service tax, VAT, luxury tax, entry tax and entertainment tax. However, the challenge remains to keep the administrative compliance burden on the businesses at a minimum and to ensure that every business, while paying both state GST and central GST, has to deal with only one tax authority.

“This problem was always going to arise as there are many such services where states also levy VAT like the tax levied on restaurants, copyright, leasing of goods and works contract. Many service tax assessees also sell goods,” said Bipin Sapra, tax partner at audit and consulting firm EY. “However, dual control will not be welcomed by industry.”