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GST Council Must Uphold Fiscal Federalism


The recent ruling of the Supreme Court held that the states were free to use means of persuasion ranging from collaboration to contestation.


GS-III: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment, Government Budgeting

Dimensions of the Article

  • Simultaneous or concurrent powers under Article 246A
  • Composition of GST Council
  • Role of GST Council
  • Observations on Federalism
  • Way Forward

 Simultaneous or concurrent powers under Article 246A

  • Article 246A confers simultaneous or concurrent powers on Parliament and the state legislatures to make laws relating to GST.
  • This article is in sharp contrast to the constitutional scheme that prevailed till 2017.
  • It clearly demarcated taxing powers between the Centre and states with no overlaps.
  • After 2017, several central and state levies were subsumed into GST.
  • Each state was to have its own GST Act, all of them being almost identical to the Central GST Act.
  • Inter-state supplies and imported goods are liable to IGST.

Composition of GST Council

  • The GST Council has the Union finance minister as the chairperson and the Union minister of state in charge of revenue or finance as a member.
  • Centre has one-third voting power, 31 states (including two Union Territories) share the remaining two-thirds of the vote.
  • The GST Council has a total of 33 members.
  • Out of a total of 33 votes, 11 belong to the Centre and 22 votes are shared by 31 states/UT, with each state/UT having a 0.709 vote.
  • Any decision of the GST Council requires a three-fourth majority or a minimum of 25 votes.
  • As the Centre has 11 votes, it requires an additional 14 votes.
  • Unlike so many statutes, Article 279A has made no provision to make the decision of the majority binding on the dissenting states.
  •  Paragraph 2.73 of the Select Committee Report on the 122nd Constitution (Amendment) Bill, 2014, noted that this voting pattern was to maintain a fine balance as, in a federal constitution, the dominance of one over the other was to be disallowed.

Role of GST Council

  • Under Article 279A, the GST Council has to make “recommendations” on various topics including the tax rate and exemptions.
  • The Union of India argued that the “constitutional architecture” showed that Articles 246A and 279A, when read together, made the GST Council the ultimate policy-making and decision-making body for framing GST laws.
  • The GST Council was unique and incomparable to any other constitutional body and its recommendations would override the legislative power of Parliament and state legislatures.
  • Neither of them could legislate on GST issues independent of the recommendations of the GST Council.
  • The argument went further: On a combined reading of Article 279A, the provisions of the IGST and CGST Acts and the recommendations of the GST Council were transformed into legislation.
  • The Supreme Court rightly noted that several sections in the state GST laws, CGST and in IGST, cast a duty even on dissenting states to issue notifications to implement the recommendations of the GST Council.

Observations on Federalism

  • Delving into legislative history, the court ruled that a draft Article 279B, which provided for a GST Disputes Settlement Authority, was omitted because it would have effectively overridden the sovereignty of Parliament and the state legislatures, and diminished the fiscal autonomy of the states.
  • It was desirable, the Court said, to have some level of friction, some amount of state contestation, some deliberation-generating froth in our democratic system.
  • Putting to rest any controversy, the court held that the recommendations of the GST Council had only a persuasive value.
  • To regard them as binding edicts would disrupt fiscal federalism because both the Union and states were conferred equal power to legislate on GST.
  • Rule-making power bound by recommendations of GST Council: The Court held that the state governments and Parliament, while exercising their rule-making powers under the provisions of the State GST Acts, CGST & IGST Acts, are bound by the recommendations of the GST Council.
  • States can amend GST laws: But even this did not mean that all recommendations of the GST Council are binding on state legislatures or Parliament to enact primary pieces of legislation on GST.
  • In effect, states can amend their GST laws if they so choose.

Way Forward

  •  If the GST Council meets periodically as mandated and there is active participation of the states in making recommendations, no state will oppose a recommendation that has been carefully deliberated and is in the national interest.
  • Indeed, there is little chance of cracks developing in the GST edifice as long as the spirit of cooperative and collaborative federalism prevails.

Source – The Indian Express

February 2024