The Supreme Court’s ruling that the GST (Goods and Services Tax) Council’s recommendations are not binding on the central and state governments and have only “persuasive value” is an assertion of the federal principle which is at the heart of the Constitution. The judgement only reiterates and further clarifies what is already stated in Articles 246A and 279 of the Constitution. Article 246A states that “the Legislature of every state have power to make laws with respect to goods and services tax imposed by the Union or by such state.” Article 279, which lays down the procedure for the formation of the GST and prescribes its composition, powers and responsibilities, also clearly states that the Council “shall make recommendations to the Union and the states…” regarding various aspects of the tax. It does not say that the recommendations are binding. So, the court’s view that they are not binding on the governments and that the “Union and state legislatures have equal, simultaneous and unique powers’’ to make GST laws is in line with the idea of GST spelt out in the Constitution.
The court’s ruling came in the wake of an appeal against a Gujarat High Court judgement which said that a 5% GST on ocean freight was unconstitutional. This was a limited matter, but the court thought it prudent to place the GST law within the constitutional framework and explain it in those terms. Both the Centre and the states surrendered their taxation powers to realise the idea of “one nation, one tax”. The powers they surrendered could not be considered as lost but should remain inherent in the resulting tax system. This is because the states have as much stake in a unified national market as the Centre in a union of states. It should be noted that the states as a whole have two-thirds voting power in the GST Council against the Centre’s one-third share.
The judgement should serve as a reminder to the states and the Centre, especially the latter, of their equal stakes in the GST system. Article 279A also says that the GST Council shall be “guided by the need for…the development of a harmonised national market for goods and services”. It will be wrong to assume that the judgement will prompt the states to veto the Council’s recommendations and refuse to implement them, leading to the collapse of the GST system. It should instead prompt all partners in the system to be more sensitive to, and accommodative of, each other’s needs and views. The Centre should especially be receptive to the states’ concerns at a time when the scheme of assured compensation for the loss of their taxation power ends next month.