A recent Supreme Court judgement delivered on the issues related to the goods and services tax (GST) is at the centre of a debate about taking away the powers of the GST Council and making it a toothless body.
Delivering its verdict on levying tax on ocean freight, the Supreme Court has concluded that recommendations of the GST Council are not binding on either the Union or the states. “The ‘recommendations’ of the GST Council are the product of a collaborative dialogue involving the Union and States. They are recommendatory in nature,” the SC held in its conclusion.
It added, “To regard them as binding edicts would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST.”
Though the apex court has merely reiterated the existing legal and constitutional provisions and not struck down any provisions of the laws pertaining to the GST, the court’s categorial reaffirmation is being seen as a shot in the arm for states, especially the ones ruled by opposition parties.
The GST Council came into existence by amending the constitution and adding Article 279A to it. It categorically lists out tax-related matters, saying that the council “shall make recommendations to the Union and the States”. Even Article 246A gives equal power to states and the Centre to make laws on the GST.
Advocate J.K. Mittal, who appeared for Mohit Minerals Pvt. Ltd, an imports company which took the matter of double taxation to court, said that originally the issue before the court was not about the powers of the GST Council. “The issue was whether the government could collect integrated GST (IGST) twice on ocean freight. When the Centre lost its case in the Gujarat high court and it was certain that it would lose it in Supreme Court as well, it tried to divert the issue by bringing the argument of the power of the GST Council vis-a-vis cooperative federalism. I think the Centre shot itself in the foot,” he said. Mittal is also a co-chairman of the Indirect Taxes Committee of ASSOCHAM.
N. Venkataraman, additional solicitor general, who appeared in the Supreme Court for the Centre, had said in his submissions, “The GST Council is empowered to decide on every aspect of the GST law. The recommendations of the GST Council are binding on the executive and the legislature while it frames laws relating to GST by the power under Article 246A…”
However, Justice D.Y. Chandrachud, who wrote the judgement, provided a balanced argument on why the GST Council’s recommendations should not be binding. The bench says that the recommendations of the GST Council are not based on a unanimous decision but on a three-fourth majority of the members present and voting. “There are two significant attributions of the voting system in the GST Council. First, the GST Council has an unequal voting structure, where the States collectively have a two-third voting share and the Union has a one-third voting share; and second, 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,” the judgement says.
It adds, “Therefore, the GST Council is not only an avenue for the exercise of cooperative federalism but also for political contestation across party lines. Thus, the discussions in the GST Council impact both federalism and democracy.”
Mittal says that despite clear constitutional and legal provisions, the Centre tried to prove in the court that the GST Council’s decisions were binding on states, because it agrees with the government. “The government has made the GST Council a pawn in its hand. That is why it wanted to make its recommendations binding on states. But the Hon'ble Supreme Court did not let it happen,” he said.
Many people feel that the Centre could take the parliamentary route to assert itself since the Supreme Court’s reaffirmation could give ammunition to states to demand concessions, which, experts feel, will not be easy. “How can a law dictate that whatever the GST Council says should be binding? It is not over and above Parliament. If we say binding, does it mean that we are saying that the legislature has no power once the GST Council has recommended something? This is just absurd,” senior advocate Tarun Gulati, who appeared for one of the contesting parties, says.
Like Mittal, he argues that the GST Council is run by bureaucrats and hardly any discussion takes place on taxation issues. “Whatever the babus present [to the council] is rubber-stamped by the GST Council,” Gulati said.
Gulati argues that different states may have their own taxation issues to deal with while the GST Council takes a common-market approach. He says that each state may want to address its peculiar issues in its own way. “The entire purpose of the GST regime is that it will create a common market. But, the GST authorities are not moving as if it is a common market. There are issues arising on credit, transfer of credit, etc. There are structural issues that need to be looked at in the long run,” he added.
However, for a section of legal experts, the GST Council is a subset to fulfil the constitutional design ingrained in Part XIII of the Constitution, which guarantees free trade throughout India. “The interpretation of the GST-related provisions should be guided by the scheme of Part XIII as much as from the language of Articles 246A and 279A. Part XIII of the Constitution is based on the idea of the national interest and provincial autonomy in the matter of free trade. … The GST Council should be viewed as one such Parliament-sanctioned body which has been entrusted with the mandate to establish a common market in India,” Uday Shankar, professor of Hidayatullah National Law University, Raipur, says.
Shankar is of the view that any attempt to reduce the role of the GST Council will undermine the larger purpose it serves in the constitutional scheme of a common market and potentially disturbs the coherence on the matter of indirect taxation attempted in pursuant to the common market.
Senior advocate Arvind P. Datar, who appeared in the matter for one of the respondent companies, strikes a conciliatory tone when he suggests that a periodic participatory meeting of the GST Council can resolve the issue between the Centre and states. “If the GST [system] has to work, proper consultation should happen, which is not happening because the council is not meeting periodically,” he says.
