In its judgment striking down the levy of ocean freight on import of goods, the Supreme Court of India also clarified that the notion that all the recommendations of the GST Council transform into legislation is far-fetched.
The constitutional role and functions of the GST Council must be understood in the context of the simultaneous legislative power conferred on Parliament and the state legislatures.Supreme Court of India
GST Council Recommendations Are Not Binding: Supreme Court
Having explained the simultaneous power of centre and the states to legislate, the court moved on to the structure of the GST Council and whether its recommendations would override the power granted to the states and the centre under Article 246A.
The central government during the hearing took the stand that the recommendations of the council were mandatory in nature and bound both the legislature and the executive.
The GST Council is the ultimate decision-making body in framing the GST law, since it is a constitutional body that acts as a converging platform for the Union and the states.Central Government
The argument, however, did not find favour with the court which emphasised on the federal nature of the Constitution, including in the domain of fiscal policy.
The bench pointed out to deliberations prior to enactment of the law, including the opinion of the Attorney General of India, which said that the recommendations of the council would not override the powers of the legislatures.
The bench also pointed out to the unequal voting structure in the GST council where the central government has one-third voting share and the states collectively have the remaining two-third.
Further, the bench pointed out that the language of Article 246A that gives law-making powers to centre and states in the GST framework does not make it subject to the recommendations of the GST Council.
Neither, does the provision giving the council the powers to make recommendations override the legislature‘s role in law-making, the bench pointed out.
If the GST Council was intended to be a decision-making authority whose recommendations transform to legislation, such a qualification would have been included in Articles 246A or 279A.Supreme Court of India
While the tax experts said that states do have the power to differ from the council’s recommendations, they also caution that the purpose of the GST framework should not be defeated.
Deloitte's Roy pointed out that the decisions of the council till now have been unanimous barring an exception in the case of the GST rate for lottery.
"Technically, yes, it is possible that states can decide to have different rates. But the purpose around the GST is to have a uniform tax," Roy said. "And because of its composition, typically, the discussions have all been unanimous apart from one instance on tax rates for lottery."
Bose of Shardul Amarchand Mangaldas weighed in.
"The recommendations have a persuasive value, but it does not mean that the centre and the states have to blindly follow it," he said. "This may lead to an undesirable situation where one or two states for whatever reason say that we are not going to follow a recommendation on a particular tax rate. That has to be avoided."
The top court in its judgment, too, gave similar advice.
"Since the Constitution does not envisage a repugnancy provision to resolve inconsistencies between the Central and State laws on GST, the GST Council must ideally function -- as provided by Article 279A(6) -- in a harmonised manner to reach a workable fiscal model through cooperation and collaboration," it said.
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