NEW DELHI: The Supreme Court opened a can of worms on Thursday when in the course of delivering a verdict in a case, it held that the GST Council’s recommendations have only persuasive value and are not binding.
“The Parliament and the state legislatures possess simultaneous powers to legislate on GST. Article 246A of the Constitution does not envisage a repugnancy provision to resolve the inconsistencies between the Central and state laws on GST. The recommendations of the GST Council are the product of a collaborative dialogue involving the Union and states. They are recommendatory in nature,” the court observed.
The bench made the observation while upholding a Gujarat High Court order to revoke Integrated GST (IGST) on ocean freight from Indian importers. It held that the IGST paid on ocean freight is unconstitutional and those who have already paid it will be eligible for refund.
Some state finance ministers from non-BJP states had in the past questioned the authority of the GST Council and even termed the GST (in its current form and shape) as against the federalism. In May 2021, Tamil Nadu Finance Minister Palanivel Thiagarajan had berated the GST system and council saying they function with an omnipotent and all-encompassing mandate not envisioned in the Constitution.
Tax experts believe the SC’s observation might increase the state vs Centre tussle on many GST issues. Mahesh Jaising, Partner, Deloitte India said, “This would have far reaching implications on various other matters where 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.”
Article 279A of the Constitution specifies that the GST Council will only make recommendations to states and the Centre on taxes, cesses and surcharge levied by them, which may be subsumed in the GST Act.
However, Sushil Modi, who has played a crucial role in shaping the GST as a member of the council while he was finance minister of Bihar, says the court’s observation will not make much of a difference.
“The Supreme Court’s ruling is not new. It is already there in the Constitution. There won’t be any adverse implication of this amendment as no state would like to deviate from the majority for the fear of being at disadvantage or being singled out,” he said.
Dialogue in federalism
“Indian federalism is a dialogue between cooperative and uncooperative federalism where the federal units are at liberty to use different means of persuasion,” the ruling said.