A consensus reached between the Centre and states on administering 1.1 million service tax assessees in the first GST Council meeting was short-lived as it broke down on Friday. The high-powered body broadly resolved the issue of area-based exemptions and approved rules for registration and refunds under the proposed regime.

The other thorny issue of procedures for compensation to states in the event of loss because of switchover to the goods and services tax (GST) would be taken up at the next meeting, scheduled for October 18-20. The issue was to be taken up at the Friday meeting earlier. The issue of GST rates and GST Bills would also come up in that meeting.

Separately, the consultative committee of Parliament was told by Finance Minister Arun Jaitley that the government is working on a target date of April 1, 2017, for the roll out of GST.

Briefing reporters after the meeting, Jaitley said there were discussions on interpretation of service tax, division of authority between the Centre and states, but they were inconclusive. He said although in the September 23 meeting the Centre and the states’ dual control was agreed upon, a few states raised concerns on Friday over the service tax assessment method. In the previous meeting, it was decided that state indirect tax officials will have sole power to assess entities with annual turnover up to Rs 1.5 crore in case of goods. Beyond that, both the Centre and states would have control. In case of services, the central indirect tax officials would have total control. The reason cited was that the Centre currently imposes the service tax and till the time the state officials are trained, it should continue assessing service taxpayers.

However, at least two states opposed it saying they also impose service tax on entertainment and restaurants. These states also said that in some areas such as construction there is no clear demarcation between goods and services and hence they should also have control over them.

“Their concerns pertain to service tax imposed by the states on restaurants and entertainment. They want to continue to administer those services… That discussion was inconclusive and therefore it will continue in the next meeting,” Jaitley said.

Jaitley said a technical committee of officers for GST will examine the issue. Revenue secretary Hasmukh Adhia said, “The question is what happens to those cases where there is both goods and services. Now, it will become supply contracts.”

On Friday, initially it was proposed that the minutes of the previous meeting should be put to vote as those objecting to them were far less than those agreeing. However, Jaitley was of the view that decisions in the council, a body broadly comprising Union and state finance ministers, should be taken with consensus.

Uttar Pradesh’s minister for vocational education and skill development Abhishek Mishra said the minutes of last meeting were not approved in entirety.

“We are trying to build every decision through a consensus. And as far as possible there is no voting because in that way federal spirit is maintained. Wherever possible, dissent should not arise. And wherever there is dissent, it should be taken up in next meeting,” Jaitley said. The council broadly thrashed out the issue of area-based exemptions. The entities enjoying them would have to pay tax but would get refunds through government budgets.

This may hit cash flows of these companies. The Centre has given some exemptions from excise duty to 11 North-East and hill states.

Asked if tax exemptions would be grandfathered, Jaitley said: “It is not necessary to grandfather everything.” Which exempted entities will remain or not will be decided by states and the Centre, he said.

Officials said the excise exemption for J&K will expire in 2020 and North Eastern states by 2017. This means that those starting production in say beginning of 2017, will continue to enjoy the excise benefit for the next 10 years till 2027. Although, the exemptions for Himachal and Uttarakhand expired in 2010, the tax waiver will continue till 2020 in many cases.

However, an agreement on distributing the burden of area-based central tax exemptions between the Union government and states is yet to be worked out.

The Council also agreed on five draft rules dealing with issues ranging from registration to invoicing under the new regime. With this, as many as six issues have been settled by the council that has representatives of all the states. The council finalised rules for registration, payments, returns, refund, debit and credit notes.

Recently issued draft rules suggested that businesses will have to file at least three monthly returns for each state and one annual return. Besides, e-commerce companies may have to file multiple registrations for states.

M S Mani, senior director, indirect tax, Deloitte Haskins & Sells said, “While the approval of the draft rules on business processes is welcome, industry hopes that the various representations made on these processes are considered before the final legislation is drafted.”

In fact, it was during the surveys that many individuals decided to declare their unaccounted income or assets. “During surveys, they asked if they could still declare it. We agreed, and that worked,” he said.

In the 1997 tax amnesty scheme — Voluntary Disclosure of Income Scheme (VDIS) — the government had received Rs 33,000 crore in declarations. In contrast, only about 644 declarations worth Rs 4,164 crore were made under the black money window for foreign assets last year, resulting in tax collection of Rs 2,428 crore.

The stiff warning from the Prime Minister against the black money holders earlier this month may have also acted as a trigger for people to avail the one-time Scheme. Modi, in an interview to a private channel, had said, “No one should blame me if I take tough decisions after the 30th (of September).”

The IDS, which charges a one-time effective tax rate of 45 per cent on undisclosed income or property, gave a chance to domestic taxpayers to declare undisclosed income or assets by September 30 and avail immunity from prosecution under the Income-tax Act, Wealth Tax Act and Benami Transactions (Prohibition) Act.