The Supreme Court ruling on the applicability of GST Council's decisions is unlikely to materially impact the one-nation-one-tax regime as it is only a reiteration of the existing law that gives states the right to accept or reject the panel's recommendation on taxation -- a power that none has exercised in the last five years, Revenue Secretary Tarun Bajaj said on Thursday.
The Constitutional amendment that brought the Goods and Services Tax (GST) regime in July 2017 by subsuming nearly one-and-a-half-dozen central and state levies, provided for a Council of Centre and states for decision making. The recommendations of the GST Council, as per the Constitutional amendment, were always guidance and never mandatory compliance, Bajaj said.
States, even though differing on tax rates on a particular good or service in the Council, never went back and framed legislation that was not in line with the panel's recommendations.
And this practice is likely to continue unhindered, the official said soon after the Supreme Court ruled in the Mohit Minerals Ocean Freight case that the recommendations of the GST Council are not binding and only have persuasive value. It held that Parliament and state legislatures can equally legislate on GST.
"The GST law says that it will recommend, it had nowhere said that it will mandate. It is a constitutional body, an executive body created by the constitution which consists of the Centre and state which will recommend and based on its recommendation we have created our laws on GST. This is the scheme of things," Bajaj added.
In the last five years, he said, "even where states did not agree and in writing gave a dissenting note, they actually promulgated the recommendations in the manner that the Council mentioned and not in the manner of what they said."
Bajaj further said the problems can get compounded if any state decides not to accept the recommendation of the GST Council. However, he added that there will be an incentive for an entity to implement the recommendations.
Asked if there is any need for change in the GST law in wake of the Supreme Court's ruling, the Secretary said, "I don't see any (need) at this point."
He added that Section 9 of the GST Act clearly says that the tax rate decision should be based on the recommendations of the Council.
"An administrative body created by the Constitution cannot have an overriding right on the legislature," he said, adding the GST Council's functioning is a very good experiment where both Centre and states come together in a "pooled sovereignty".
At the time of the introduction of GST, it was agreed that the Centre and states would function in the spirit of cooperative federalism and take decisions on the basis of consensus.
In the last five years of GST, the Council has taken all decisions on the basis of consensus, with the exception of the levy on the lottery in which voting took place. During the voting, six states voted against the proposal of hiking the tax rate on the lottery to 28 per cent.
"Everywhere in the Act it is written 'on the recommendation of council', so we presume that council recommendation is the mandate by which the legislature of state or Centre perform," Bajaj said.
Commenting on the observations, AMRG & Associates Senior Partner Rajat Mohan said in the GST Act, that the words 'on the recommendations of the Council' have been used time and again.
"In practice, till now whatsoever the GST Council has decided, has been notified by the governments. But this judgement has categorised this only as a persuasive value and not binding on the governments. This may lead to deviations by the states from the decisions of the Council," Mohan said.
Athena Law Associates Partner Pawan Arora said the GST Council is a constitutional body for recommendations in framing GST laws by the Centre and states. It is required to bring the lawmakers of our federal government structure on the same platform, otherwise, every state would start to make laws according to their own policies.
"It is true that GST Council recommendations are recommendatory in nature and not mandatory. However, leaving the choice to state and Centre will defeat the purpose of One Nation One Tax," Arora said.
