Relevance: GS-2: Statutory, regulatory and various quasi-judicial bodies, GS-3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Key Phrases: Union of India vs Mohit Minerals, Goods and Service Tax, GST Council, Article 279 A, Supreme Court Verdict, Article 246 A

Why in News?

• The Supreme Court, while deciding the correctness of the levy of IGST on ocean freight in the case of Union of India vs Mohit Minerals, had the opportunity to deliberate on one of the most fundamental issues about the role of Goods and Services Tax (GST) Council plays for the implementation of GST laws.
• The Supreme Court has held that the decision of the GST Council is not binding and carries only a persuasive value. Hence, both the Centre and the states retain their independence to legislate GST laws.

What does the Constitution say?

• Article 279A: GST Council to be formed by the President to administer & govern GST. Its chairman is the Union Finance Minister of India with ministers nominated by the state governments as its members.
• The Supreme Court verdict is only a validation of Article 246 A (1) of the Constitution, which says, “Notwithstanding anything contained in Articles 246 and 254 Parliament, and subject to clause (2), the Legislature of every State, have the power to make laws concerning goods and services tax imposed by the Union or such State.”
• Article 279A (9): “Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, by the following principles, namely: -
  1. The weight of the Central Government shall have the weightage of one-third of the total votes cast and,
  2. The votes of all the State Governments taken together shall have the weightage of two-thirds of the total votes cast in that meeting.”

The possible impact of the judgement:

• This may open a Pandora’s Box, allowing the states to have amendments specific to their legislation. This could lead to a loss in uniformity and wreck the very foundation of the GST regime.
• This could lead to different rates being charged by the Centre and states.
• At worst, it can trigger more contestations in Council meetings, and at best, infuse a fresh sense of responsibility among members.
• While it may be tempting for some States to break out and legislate on their own, they should realise that in the long run, such an act will work against their interests, besides causing avoidable chaos for tax-payers.
• The benefits of a common national market for goods and services and profit from the systemic efficiencies that this confers will be lost as check-posts re-emerge at State borders.
• Investors would migrate out of such States due to complexities in doing business.
• The Centre could strive to be more conciliatory toward States’ concerns and fiscal dilemmas.

Some unanswered questions:

• Now that the guaranteed compensation by the Centre to the states for loss of expected revenue is set for expiry in June, can a state decide to have a different rate on the supply of any goods or services to augment its tax collections?
• What impact will it have on IGST rates, which is the sum of the Centre and state GST rates? While the power to legislate on inter-state transactions is with the Centre, the rate is a function of both the Centre and state GST rates.
• How will the distribution of IGST happen among the states if there are different rates?
• Will there be a different IGST rate for the import of goods at ports in different states?
• What impact would it have on the GSTN framework? Currently, filing of returns, availing of input tax credits, issuance of notices, refund claims, etc, are all being undertaken through the common GSTN platform. It could be a Herculean or near-impossible task to operate in an environment where there are different laws and rates.
• Would the states find it worth their while to participate in the discussions of the GST Council? Also, having voting rights loses relevance if the decision cannot be enforced.
• What could be the fate of past decisions made by the GST Council? One could argue that since the same was taken unanimously, the interpretation by the Supreme Court should not have any impact on these.

Why does the Centre seek to downplay the ruling?

• The Centre has sought to play down the judgment as not interpreting anything new and has underlined that individual States have always complied with decisions made in the GST Council even when such decisions went against their interests.
• The last thing the Centre wants is for some States to legislate their tax laws that run counter to the GST. That would begin the process of collapse of the GST which, warts and all, has aided in the formalisation of the economy, improving collections and helping tax-payers avoid the cascading effects of multiple indirect levies.

Need of the hour:

• What we need is statesmanship at the GST Council even if the Court has said that the Council is a place as much for political contestation as for cooperative federalism.
• There are other forums for political contestation. The Council should transcend the political rivalries of the day.
• States should have the right to dissent in the Council and their voice should not be drowned in the pursuit of unanimity in decision-making.
• The Centre can set an example by accommodating the demands of the States in the Council even if it means some sacrifice on its part. After all, the onus is on it to run the Council harmoniously.

Conclusion:

• If the GST has made the taxpayer’s life better — and it certainly has — then the responsibility is on the Centre and the States to make it work. That’s also in their best interests.

Mains Question:

Q. The recent Supreme Court ruling that GST Council decisions are not binding on the Centre or the states, would give states a greater space to take decisions in the federal structure. Critically Evaluate.