The Supreme Court today in its landmark judgment ruled that a recommendation of the GST Council isn’t binding on Centre and States and that the council as a body holds persuasive values. A bench led by Justice DY Chandrachud held that the Central government and States have simultaneous powers to legislate on Goods and Service Tax (GST). Providing the great relief to the importers, the SC ruling today has also held that GST on ocean freight paid in case of import of goods is unconstitutional. Also, the Indian importers who had paid such tax will be eligible to refund.
The judgement has met with a flurry of responses from economists and policy planners. Here’s a look at what some experts have to say about the ruling.
K.N. Balagopal, Finance Minister of Kerala
“My initial understanding about the verdict is that this is a positive development. And we have to read the full text later. Actually, the GST law, from inception itself, is against the interest of federalism. This order under the ambit of cooperative federalism has upheld the freedom of the states in taxation which was important,” Balagopal said.
Mahesh Jaising, Partner, Deloitte India
“The decision of the apex court is a welcome judgment for industry as it has struck down the levy of GST on freight incurred by Indian importer for import of goods. It is important to note that the court has also held that GST Council decisions are only recommendatory in nature and hold only persuasive value. This would have far reaching implications on various other matters where the States are not in agreement with the decisions of the GST Council, especially in light of the compensation period coming to an end in June. This area would need to be closely looked out for,” Jaising said.
S R Patnaik, Partner & Head - Taxation, Cyril Amarchand Mangaldas
Patnaik believes that this is a welcome decision since it clarifies the relative powers and authority of the Parliament and the state legislative assemblies vis-à-vis the GST Council. “It clarifies that GST Council is an informal body whose inputs should be taken into account, but it does not have a legislative power and laws have to be legislated by the bodies who are empowered to do so i.e. the Parliament and the state legislative assemblies,” Patnaik said.
“The apex court has observed that the GST Council recommendations have only persuasive value. The courts would now have to be more proactive in the judicial review of GST legislation with the apex court clarifying that the decision of the GST Council is not law and they are mere recommendations. This may also lead to flooding of litigations challenging any discrepancy or unfavourable GST Council decisions,” he added further.
Madan Sabnavis, Chief Economist at Bank of Baroda
Sabnavis believes that this decision by the SC will make decision making more collaborative though reaching decisions will be more time consuming if states have string views. “In fact even tweaking rates for products will become more challenging. We have been speaking of GST on fuel. Here states may not like to relent as they have differential rates,” Sabnavis said.
Arun Kumar, well known economist
“GST council was supposed to decide rates and the structure of the tax, now some states will begin to say that this is not applicable to us and this will destroy the idea of one nation one tax. The entire reason for having GST would be undermined. It will enable the states to do what they like but that will be against the idea of GST,” he said.
Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co
“This is a very significant observation from the Supreme Court as it clearly defines the roles of GST Council, Centre and State and their interplay in GST regime. GST Council is a constitutional body whose role is to advice and recommend on GST issues. To accept such advice and pass appropriate amendments in law is purely the domain of the Central and State legislatures,” Bose said.
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Also read: Recommendations of GST Council are not binding, says Supreme Court