A recent Supreme Court ruling on the authority of the GST Council has made the business community and taxation experts happy, as they feel that the court has endorsed the concerns they have been raising about the way the Center has encroached upon the rights of the GST Council.
In a May ruling, the Supreme Court had held that Parliament and state legislatures could both equally legislate on matters pertaining to the goods and service tax (GST). The apex court bench, led by Justice D.Y. Chandrachud, had stated that the “recommendations” of the GST Council are the product of a collaborative dialogue involving the Union and states and are recommendatory in nature. The GST Council is a joint forum of the Centre and the states with the Union finance minister at the helm as the chairperson and ministers in-charge of finance or taxation from every state as members.
The Supreme Court was hearing a case where Mohit Minerals, an imports company, had brought up the issue of the Centre collecting integrated GST twice on ocean freight. While making its point, the Centre had said that it could levy double tax as it was well in line with the Council’s recommendations which were binding on both states as well as the Centre.
While the Supreme Court rejected the Centre’s arguments with its ruling on the council’s power, the argument itself was picked up and strongly contested by several companies which were party to the case.
Centre’s Clashing Claims
The companies allege that the Centre had introduced several changes in the GST without the GST Council’s recommendations.
As per Article 279A (4) of the Constitution, the council was set to make recommendations to the Union and the states on important issues related to the GST, like the goods and services that may be subjected or exempted from tax regime, model GST laws, principles that govern place of supply, threshold limits, GST rates, including the floor rates with bands, special rates for raising additional resources during natural calamities/disasters and special provisions for certain states among other issues.
The official communications available in the public domain suggest that the Centre issued several notifications without any recommendations from the GST Council—which got Council’s approval on later dates.
Besides new notifications, many amendments have been made to various provisions of the Central Goods and Services Act and the Integrated Goods and Services Tax Act over the past few years. However, there are no records on whether these amendments were done on the recommendation of the GST Council.
For instance, one part of the minutes of meeting of the 36th GST Council meeting said, “The Secretary informed that, it was decided that the notifications, Circulars and Orders which were being issued by the Central Government with the approval of the competent authority should be forwarded to the GST Council Secretariat, for information and subsequent deemed ratification by the GST Council.” This suggests that the notifications and orders had not gone through the council before being issued.
Some say that in 2020, when the Centre had floated the idea of decriminalisation of certain offences under the GST laws and discussions were held with various business bodies, the GST Council was not even remotely involved in the whole issue.
T.M. Thomas Isaac, former finance minister of Kerala, says that during the initial days of the council’s meetings, a decision was taken that the government could issue clarifications on routine matters of the council’s proceedings because many things can spring up between two council meetings. “I think the government stretched it too far and started taking decisions on substantial issues. These decisions were forced on the states, which they had to abide by. The Centre has a very authoritative approach,” says Isaac, adding that the Supreme Court order might change the scenario now where the states can refuse to go by the Centre’s notifications and enjoy their financial autonomy.
Legal and tax experts say that there is no provision in the GST-related laws which states that the Centre can issue notifications without the GST Council's recommendations and get it ratified by the Council at a later date. Advocate J.K. Mittal, who appeared for Mohit Minerals in the Supreme Court, says that he had highlighted these violations in his submissions to the court.
Mittal, who is also the co-chairman of the National Council of Indirect Taxes, Assocham, argues that the government even issued a notification contrary to the recommendation of the GST Council on the issue of reverse charge on legal services. He says that it was only when he took the matter to the Delhi high court and the court passed an order on November 14, 2017, that the government had to make corrections in the notification.
To make his point better, Mittal cites the example of a notification issued by the Central Board of Indirect Tax and Customs (CBIC) on May 17, 2022, which said: “The Commissioner, on the recommendation of the Council, hereby extends the due date for furnishing the return in FORM GSTR - 3B for the month of April 2022 till the 24th day of May 2022.”
“The GST Council meeting was not even held and [the GST Council] never recommended this extension. It was incorrect on the part of the CBIC to claim so in its notification,” Mittal points out.
Just like Mittal, senior advocate Traun Gulati says that he has challenged notifications in courts which were then struck down because they were not issued following the due process of law. “The government is taking decisions on rates and it does not take the industry's view at all. These decisions are not being deliberated in the council’s meeting but they merely get a stamp of approval from the council,” says Gulati.
The GST Council, which is a constitutional body, does not have a consultative approach on the several issues related to levying tax on goods and services, says Mittal. “There is a stark difference between what is there in the law book and what is being practised. I think there is too much bureaucratic interference,” he adds.