New DelhiThe Supreme Court on Thursday said that a federal system is a means of accommodating the needs of a pluralistic society to function in a democratic manner and that Indian federalism is a “dialogue in which the state and the Center interact continuously.”
Delivering the verdict, a bench of Justices DY Chandrachud, Surya Kant and Vikram Nath observed that all the recommendations of the Goods and Services Tax (GST) Council are not binding but have a persuasive value and both the Center and the states are free to do so. law on gst
GST Council, notified With effect from September 12, 2016, is the representative of both the Central and State Governments and makes recommendations on GST rate, exemptions and limits, subsuming of taxes and other matters relating to GST.
The 153-page Supreme Court ruling outlined the powers of federal entities in terms of taxation and commented on the “unequal voting pattern” in the GST Council.
It said that although the Constitution, which is “essentially federal”, “provides the Union with a high share of power in certain situations to prevent anarchy and provide security”, states with less power “still have separate- can oppose the mandate of the Union by using different forms of political rivalry. ,
This, the court said, was permitted by constitutional design and such “competition” advances both “federalism and democracy”.
On the recommendation of the GST Council, the court categorically remarked that treating them as binding “orders” would “inhibit fiscal federalism”, where both the Center and the states have equal power to make laws on GST.
Furthermore, it would “remove the fine balance on which Indian federalism rests”.
The court, while delivering its verdict on an appeal filed by the Central Government challenging the Gujarat High Court’s decision of January 23, 2020, gave its opinion on the nature of the recommendations of the GST Council, upholding the plea of some importers, in which It was claimed that they could not be subjected to it. GST levy.
Petitioner – M/s Mohit Minerals Pvt. Ltd. and others – had challenged the levy of GST on the ground that they have already paid customs duty, which is levied on the component of sea freight and levying IGST on goods carried in course of transport would be double taxation.
While arguing its appeal, the Center argued that the GST was imposed on the recommendations of the GST Council, which is binding. It had argued that if the recommendations were not binding, the entire structure of GST would collapse, as each state would implement a conflicting tax and collection scheme.
The court, however, dismissed and dismissed the Centre’s appeal to uphold the Gujarat HC’s decision. It said: “The argument that if the recommendations of the GST Council are not binding, the entire structure of GST will crumble, does not hold water. Reading the provisions of the Constitution, the role of the GST Council is reduced to that of a constitutional body, constituted to take decisions by collaborating and opposing views.
In response to the Supreme Court order, Revenue Secretary Tarun Bajaj told ThePrint that the GST law nowhere says it will be mandatory. “It is a constitutional body, an executive body created by the Constitution, consisting of the Center and the States. Based on its recommendation, we have made laws related to GST.
The GST Council has always decided issues keeping in mind the cooperative federalism. “GST will complete five years and except for one verdict, all are unanimous. It is written “on the recommendation of the council” in the GST Act, so we believe that the council’s recommendation is the mandate by which state or central legislatures will perform, Bajaj said.
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‘Fiscal federalism’ is an important feature of Indian federalism.
Writing for the bench, Justice Chandrachud explained that “fiscal federalism” is one of the important features of “Indian federalism”. The GST Council, therefore, is “an important focal point for the promotion of federalism and democracy”, and not “a constitutional body limited only to the indirect tax system in India”.
Article 246A, which was included in the Constitution to introduce the GST regime in 2016, empowers both the Parliament and the state legislatures to make laws on GST. Therefore, the recommendations of the GST Council are “the product of a collaborative dialogue” between the Center and the states, the court elaborated.
Although the council was introduced with the aim of increasing cooperative federalism and harmony between the states and the Centre, it does not have the same voting pattern structure, with the states collectively having two-thirds of the voting share and the Centre’s one-third. The court said.
Rejecting the contention of the Center that the recommendation of the GST Council is binding, the court talked about the multi-party-political system prevalent in the country, under which a party in power at the Center may or may not be in power in the states. . The court, therefore, argued that the GST Council is not only an opportunity for the exercise of cooperative federalism, but also causes political competition across party lines. Therefore, deliberations in the council will affect both federalism and democracy, it added.
“When federal units are vested with unequal power, cooperation between them is not necessarily cooperative. Harmonious decisions thrive not only on cooperation but also on rivalry. Indian federalism is a dialogue in which the state and the center engage in constant dialogue. Such dialogues can be held at two ends of the spectrum – cooperative discussion that fosters cooperative federalism at one end of the spectrum and interstitial competition at the other end”, the judgment said.
The court observed that “democracy and federalism are so dependent on each other for their existence that federalism will remain stable only in well-functioning democracies. Additionally, in a federal polity, the constituent units give effective power to a group.” Check each other’s use of power to prevent them from being used.
With regard to the recommendations of the GST Council, the top court said that the legislature has chosen to do away with Article 279B of the Constitution – which proposes to set up a judicial mechanism in the form of the GST Disputes Settlement Authority in case of a dispute. Deviation from the recommendation of the State and Central GST Council, indicates that Parliament intended that the recommendation of the GST Council had only persuasive value.
Further, it said that Parliament went ahead with the insertion of Article 279(11) of the Constitution, which talks of devising its own mechanism for redressal of disputes by the GST Council. This, the court said, was done with the objective that the GST regime would promote cooperative federalism and harmony among the constituent units.
Further, the amended Constitution, after which the GST was introduced, does not contain an adversarial clause to resolve disputes between the Center and state laws on GST. This, the court said, means that the GST Council should ideally work in a cohesive manner to reach a “workable financial model through cooperation and collaboration”.
(Edited by Polomi Banerjee)