The Supreme Court ruled that the Goods and Services Tax Council’s recommendations only had a “persuasive value” and were not binding on the Centre and the state governments, in a landmark verdict that is being seen as a huge victory for cooperative federalism.
The Parliament and the state legislatures have “equal, simultaneous and unique powers” to make laws on GST, a three-judge bench presided over by Justice D Y Chandrachud said in a 153-page judgment on Thursday.
"To regard them (GST Council recommendations) as binding edicts would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST," said the bench, which also included Justices Surya Kant and Vikram Nath."Indian federalism is a dialogue between cooperative and uncooperative federalism where the federal units are at liberty to use different means of persuasion ranging from collaboration to contestation," the bench pointed out.
Many South Indian politicians agreed.
“This opens up a lot of possibilities to make GST more federal and democratic,” said former Kerala Finance Minister Thomas Isaac, adding that in the past, the voting structure of the GST Council was such that “no decision could be made without the Centre’s support.”
Tamil Nadu Finance Minister PTR Palanivel Thiaga Rajan, who had always maintained that the GST Council was “a constitutional and historical oddity”, also welcomed the verdict.
“I am happy to note that the judgment of the Supreme Court has upheld the constitutional rights of the elected governments,” Rajan said. “On the other hand, I wonder why a judgment that basically reiterates what is said in the Constitution is receiving such a reaction. Were we all suffering from wilful blindness when things were happening in contradiction to the Constitution?”
Some said the verdict could bring some relief to the states seeking extension of GST revenue compensation beyond June this year and change the landscape of the GST framework.
"This would have far-reaching implications on various other matters where the states are not in agreement with the decision 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," said Mahesh Jaising, Partner & National Indirect tax leader at Deloitte India.
Some others said the ruling could seriously disrupt the way GST works.
“The premise of GST was that the Centre and the state governments vested the GST Council with binding advisory powers. This was the premise. That’s the only way GST will work. If there’s no uniformity and there’s variation from one state to another, the idea of GST will break down,” said Krishna Byre Gowda, the former Congress minister who represented Karnataka in the GST Council.
“One of the problems with the way the GST is functioning is that the current BJP government is not taking the states’ view properly,” Gowda said, echoing Isaac’s views. “A lot of states’ powers are surrendered to GST. In return, our voices aren’t heard adequately.”
Thursday’s ruling might also force the council to establish a dispute resolution mechanism to deal with potential disputes between the Centre and states on GST matters, Deloitte’s Saloni Roy told DH. Such a mechanism is yet to be set up and all decisions in the Council have been taken on the basis of consensus so far.
The ruling could also better define the roles of all the parties involved, legal experts said.
“The Supreme Court ruling clearly defines the role of the GST Council, Centre and states and their interplay in the GST regime. GST Council is a constitutional body, whose role is to advise 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," said Shardul Amarchand Mangaldas Partner Rajat Bose.
(With inputs from ETB Sivapriyan in Chennai, and Bharath Joshi and Dhanya Skariachan in Bengaluru)