The opinion of the GST Council is not binding, says the Supreme Court; Revenue Secretary in the verdict

The Supreme Court on Thursday ruled that the Goods and Services Tax (GST) Council’s recommendations are not binding on the central government and states but have an incentive value because the country has a cooperative federal structure. The central and state governments have the power to legislate simultaneously on GST, but the council must work in a harmonious manner to find an effective solution, the court said.

Although Union Revenue Secretary Tarun Bajaj said the ruling did not change the GST governance architecture included in the relevant laws, it could affect the council’s effectiveness. Sources in the Ministry of Finance said that the recommendations of the GST Council would have only persuasive value for the enactment of primary legislation, such as enactment of legislation, its recommendations are mandatory on subordinate legal matters such as issuing notices, formulation of rules, fixed rates and taxes. .

“It is clear that the Supreme Court has elaborated on the constitutional project related to GST. As stated in Article 279A, the Council Model GST Act, tariff policy, distribution of GST duty on interstate supplies, policy regarding supply space, GST rates and special provisions for specific states, ”they added.

Differences of opinion between the center and the states, especially among the opposition, have become more frequent in recent months, as the 5-year revenue protection system for the states expires on June 30, 2022, and a massive overhaul of the GST. The rate is under active consideration of the Slab Council.

Noting that “the legal interpretation of the judgment is awaited,” Bajaj said Section 9 of the CGST Act clearly states that the rate decision should be based on the council’s recommendation.

Analysts say the ruling could affect tax provisions based on the GST Council’s recommendations, which may not be supported or intended by the GST law, including some judicial review.

A bench of Justices DY Chandrachur, Surya Kant and Vikram Nath said that under Article 246A, both the Parliament and the State Legislative Assembly have equal power to legislate on tax matters. “Article 246A treats the center and the state as equals and Article 279 of the constitution states that the center and the state cannot function independently of each other,” the court said.

The verdict came in a case related to the imposition of interstate GST (IGST) on marine freight products. While dismissing the Centre’s special leave application challenging the Gujarat High Court’s decision in favor of the taxpayers, the apex court said that the IGST imposed on marine freight products in case of import of goods was unconstitutional due to lack of legislation.

Tarun Gulati, Managing Partner, PDS Legal, said:

“This will have far-reaching implications for many other areas where states do not agree with the GST Council’s decision, especially in light of the compensation period ending in June. This area needs to be looked at closely, “said Mahesh Jaysing, a partner at Deloitte India.

According to the Constitution (One Hundred and First Amendment) Act, 2016, in the case of a vote, each decision of the GST Council must be taken by a majority of not less than three-quarters of the votes weighed by the members present. The central government weighs one-third of the total votes cast, and all state governments weigh two-thirds of the total votes cast at that meeting. The voting provision has been implemented only once so far – in December 2019, six states voted against the 28% uniform tax for lotteries, but the differential tax system prevailed in the majority vote.

The GST Compensation State Act, 2017 provides for exemption of tax against the tax paid on GST for five years ending June 30, against an annual increase of 14% over revenue in 2015-16.

The council will meet soon to discuss tax rates and the rationalization of slabs to increase revenue at the level of how much revenue can be obtained at a neutral rate. While both the Center and the States have been given the power to make GST laws in their respective domains, a dispute resolution process was created to resolve possible differences between the Center and the States in accepting the Council’s recommendations, but it has not yet been implemented.

Charanya Lakshmikumaran, partner, Lakshmikumaran and Sridharan Attorney, said, “In sum, it is recognized that prudence in enacting legislation on matters assigned between Parliament and the State Legislatures is crucial and thus, can only serve the decisions of the Council.” As a guiding principle. “

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