The Supreme Court bench presided over by Justice DY Chandrachud, has in the case pertaining to the levy of service tax and integrated GST on ocean freight held that the recommendations of the GST council are not binding on the centre or the states.
We all know that after a lot of struggle GST was introduced in India w.e.f, July 1, 2017. The rate of GST comprises in equal parts the CGST and SGST for all intra-state transactions of supply of goods and services. As regards inter-state transactions, the IGST is levied, which is again a summation of CGST and SGST. The structure of GST in India has been designed keeping in view the federal structure of our country.
Article 279A of the Constitution facilitated the formation of the GST Council. Therefore, for all purposes, practical or otherwise, the GST Council has been a constitutional body. It was at the fountainhead of the GST structure in India, calling most of the fiscal shots in the realm of indirect taxes.
Till now, the GST Council, which is comprised of the Union Finance Minister and the Finance Ministers of all States, has made recommendations on various matters concerning, rates, procedures, forms, etc.
It is noteworthy to mention that the GST Council was at the fountainhead of the GST system in India binding the union and states in cooperative federalism as they were forced to sit together and decide on their common fiscal agenda irrespective of their regional and political differences. To the common man, it seemed as if everything is smooth and well oiled, till the council which is a collaborative body is in charge of the decisions relating to GST.
The GST Council, which to date operated as a high-powered governing body, had 33 members out of which 2 members represent the centre and 31 members are from 28 states and 3 Union territories. The Council is headed by the Union Finance Minister and is assisted by the Finance Ministers of the State.
I happened to notice news appearing on various news channels and news websites which all pointed towards the high decibel impact of the judgment which in no uncertain terms held that the recommendations of the GST Council are not binding either on the centre or on the states. I am yet to read the entire fine print of the judgment but a perusal of the articles coming out one by one from all the leading news stables points towards the following findings of the Supreme Court while coming to such a conclusion:
1) Both Parliament and state legislatures have parallel powers to legislate on GST.
2) The court did not agree with the Centre's argument that recommendations of the GST council should be binding on all parties.
3) The court is of the view that though the role of the GST Council is significant, the decisions are never unanimous. In the effect court held that there is a possibility that the minority view in the council meetings may be buried in the din.
4) The court discussed at length the relevant Article 246A which treats states and the centre as equal. Article 279 provides that states and the centre cannot act independently of each other. This also points towards competitive federalism.
5) The court noted the argument that the GST council must ideally function in a harmonised manner and that the federal system needs harmonised work as all units in a federal system depend on each other even if they are autonomous.
6) After noting the competing arguments, the Supreme Court held that the recommendations of the GST council are not binding on the union and the states.
7) To come to this conclusion court banked on the intention of the Parliament holding that it intended the recommendations to have persuasive value.
8) That the Parliament and the state legislatures have simultaneous powers to legislate on GST.
9) That the recommendation of the GST council is based on collaboration.
10) Indian federalism is a dialogue between cooperative and non-cooperative federalism.
11) That all recommendations of the GST commission are not binding.
12) While upholding the decision of the Gujarat High Court, quashing the levy of IGST on ocean freight under reverse charge in the case of Mohit Minerals Private Limited, the court held that the import of goods under a CIF contract is an interstate contract under IGST.
Without strictly going into the legality of the judgment and without questioning the wisdom of the court in passing this judgment, I most humbly feel that this judgment will have far-reaching ramifications on our economy which is already reeling from the impact of many negatives.
Let me ask myself a question, why was GST brought in the first instance as a one nation one tax?
Let us for a moment ignore all the teething troubles and transitional nightmares. We had started understanding the law and the way it operates. We had just started to respect the GST Council as the saviour to whom we can approach with our difficulties and confusions. They were receptive and were holding meaningful sessions and meetings and coming up with their recommendations. It had already emerged as an institution to look to for ameliorating us from many a GST nightmare.
We are now back to square one with this judgment. What it means for the trade and industry is that the olden days of multiple tax rates and multiple interpretations are back again, which are without a doubt a pain for all concerned.
They have to again negotiate their way through the bureaucratic red tape of the states and the centre at different levels. There is an imminent possibility after this judgment that the interpretation of the identical facts and legal provisions may be different by the centre and the states. I can clearly see that we will be struggling with multiple codes and multiple rates leading to enormous difficulty in operation for multi-locational businesses.
The judgment may be very polished and maybe a master class on cooperative federalism. But, on the ground, it will have different and difficult ramifications. In a democracy, the minority view doesn’t prevail. Can we ever say that the majority decision can be ignored just because the minority holds a different view? We cannot bury our reforms in fiscal matters. The mere fact that the states and the centre both are part of the council was good enough to understand that it was very much representative in every possible way in a grand democracy like India. The decisions taken more often than not were after due consultation and debate. The entire teeth are taken from the GST council by this judgment.
It may be unintended, but in my view, the judgment would divide the country further economically and politically. By rendering the recommendations of the council non-binding, the constitutionally mandated institution which was carefully designed by the legislature has been knowingly or unknowingly dismantled in a single stroke.
Whatever harmony or semblance of it was there in the council, I feel will evaporate. I get a feeling that what is going to happen is exactly the opposite of what the court suggested. I have a feeling that collaborative federalism may come under threat once the institution is rendered teeth less. Let us see how the executive and legislature would react if not immediately but after due pre-meditation. Whatever may be the path, the country and its economy will face the music at least in the interregnum, irrespective of the fact who will have the last laugh Judicial activism or executive adventurism.
(Views are personal. Srinivas Kotni is a senior practitioner and advocate in trade laws. He has also authored India's first comic book on GST.)
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