Reaffirming State rights in GST

If there is one serious legislation that has dominated the debate and discussions among all strata of society in India, it would be GST. Since inception, GST has been the topic in social media, memes, films, public debates and amongst professionals.

The popular belief in segments who are not directly dealing with GST in any capacity is that GST Council is the Thanos of this tax universe.

Far to the contrary, the Constitution did not confer such authoritative powers. The GST Council is clearly a brilliant initiative as it fosters cooperative federalism.

However, Article 279A of the Constitution of India is quite clear that the GST Council can make recommendations. While many in the professional field believed that these are not binding, it is testimony to the states that they honoured the decisions in letter and spirit.

It was a simple revenue appeal against the decision of the Gujarat High Court which held that the levy of IGST on ocean freight under reverse charge mechanism on the importer as unconstitutional. The Supreme Court in its recent landmark decision in the case of Mohit Minerals, has upheld the decision of the Gujarat High Court. While doing so, the Court had also analysed the scope and ambit of Article 246A and 279A which is likely to have a far-reaching effect as an interpretation of the plain language in Article 246A and 279A now stands endorsed by the Supreme Court.

Drawing the lines

The Supreme Court has held that (i) Both Parliament and State have concurrent powers to legislate on GST and in the nature of a simultaneous power.

(ii) The constitutional role and functions of the GST Council must be understood in the context of simultaneous legislative power conferred on Parliament and the State legislatures.

(iii) Since India has a multi-party system, it is possible that the party in power at the Centre may or may not be in power in various States. Therefore, the GST Council is not only an avenue for the exercise of cooperative federalism but also for political contestations across party lines.

(iv) The recommendations of the GST Council cannot be binding. The argument that if the recommendations of the GST Council are not binding, then the entire structure of GST would crumble, does not hold water.

(v) The use of the phrase ‘recommendations to the Union or States’ indicates that the GST Council is a recommendatory body, aiding the Government in enacting legislation on GST.

Good news for States

While this position of law was well understood, the decision of the Supreme Court will go a long way in shaping the way the GST Council functions in the future. States would be reinvigorated by this decision since revenue compulsions are different for each state.

The GST Council is required to be guided by the need for a harmonised structure of GST and for the development of a harmonized national market for goods and services. It is unfortunate that multiple amendments are made to the rate of tax notifications based on the Council’s recommendations, leaving a trail of confusion and avoidable interpretation.

GIC, which is the GST Implementation Committee, takes a number of decisions post GST Council meetings. Simply adopting decisions taken by the fitment committee or any other sub-committee without discussions will be a thing of the past. In future, it may not be easy for the GST Council to take decisions given the fact that the issue of compensation; loss of revenue on account of the pandemic; divergent views on new levies or cess are likely to dominate the agenda.

(The author is an advocate and can be reached at vaithilegal@gmail.com)

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