Context

The recent ruling of the Supreme Court held that the states were free to use means of persuasion ranging from collaboration to contestation.

 Simultaneous or concurrent powers under Article 246A

• Article 246A confers simultaneous or concurrent powers on Parliament and the state legislatures to make laws relating to GST.
• This article is in sharp contrast to the constitutional scheme that prevailed till 2017.
• It clearly demarcated taxing powers between the Centre and states with no overlaps.
• After 2017, several central and state levies were subsumed into GST.
• Each state was to have its own GST Act, all of them being almost identical to the Central GST Act.
• Inter-state supplies and imported goods are liable to IGST.

Composition of GST Council

• The GST Council has the Union finance minister as the chairperson and the Union minister of state in charge of revenue or finance as a member.
• Centre has one-third voting power, 31 states (including two Union Territories) share the remaining two-thirds of the vote.
• The GST Council has a total of 33 members.
• Out of a total of 33 votes, 11 belong to the Centre and 22 votes are shared by 31 states/UT, with each state/UT having a 0.709 vote.
• Any decision of the GST Council requires a three-fourth majority or a minimum of 25 votes.
• As the Centre has 11 votes, it requires an additional 14 votes.
• Unlike so many statutes, Article 279A has made no provision to make the decision of the majority binding on the dissenting states.
•  Paragraph 2.73 of the Select Committee Report on the 122nd Constitution (Amendment) Bill, 2014, noted that this voting pattern was to maintain a fine balance as, in a federal constitution, the dominance of one over the other was to be disallowed.

Role of GST Council

• Under Article 279A, the GST Council has to make “recommendations” on various topics including the tax rate and exemptions.
• The Union of India argued that the “constitutional architecture” showed that Articles 246A and 279A, when read together, made the GST Council the ultimate policy-making and decision-making body for framing GST laws.
• The GST Council was unique and incomparable to any other constitutional body and its recommendations would override the legislative power of Parliament and state legislatures.
• Neither of them could legislate on GST issues independent of the recommendations of the GST Council.
• The argument went further: On a combined reading of Article 279A, the provisions of the IGST and CGST Acts and the recommendations of the GST Council were transformed into legislation.
• The Supreme Court rightly noted that several sections in the state GST laws, CGST and in IGST, cast a duty even on dissenting states to issue notifications to implement the recommendations of the GST Council.

Observations on federalism

• Delving into legislative history, the court ruled that a draft Article 279B, which provided for a GST Disputes Settlement Authority, was omitted because it would have effectively overridden the sovereignty of Parliament and the state legislatures, and diminished the fiscal autonomy of the states.
• It was desirable, the Court said, to have some level of friction, some amount of state contestation, some deliberation-generating froth in our democratic system.
• Putting to rest any controversy, the court held that the recommendations of the GST Council had only a persuasive value.
• To regard them as binding edicts would disrupt fiscal federalism because both the Union and states were conferred equal power to legislate on GST.
• Rule-making power bound by recommendations of GST Council: The Court held that the state governments and Parliament, while exercising their rule-making powers under the provisions of the State GST Acts, CGST & IGST Acts, are bound by the recommendations of the GST Council.
• States can amend GST laws: But even this did not mean that all recommendations of the GST Council are binding on state legislatures or Parliament to enact primary pieces of legislation on GST.
• In effect, states can amend their GST laws if they so choose.

Way forward

•  If the GST Council meets periodically as mandated and there is active participation of the states in making recommendations, no state will oppose a recommendation that has been carefully deliberated and is in the national interest.

Conclusion

Indeed, there is little chance of cracks developing in the GST edifice as long as the spirit of cooperative and collaborative federalism prevails.

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