States have equal powers to make GST related laws
Recently, the Supreme Court, in a judgment championing the importance of “cooperative federalism” for the well-being of democracy, held that Union and State legislatures have “equal, simultaneous and unique powers” to make laws on Goods and Services Tax (GST) and the recommendations of the GST Council are not binding on them.
About the Judgment of the apex court
- The recommendations of the GST Council are the product of a collaborative dialogue involving the Union and the States.
- They are recommendatory in nature. They only have a persuasive value.
- To regard them as binding would disrupt fiscal federalism when both the Union and the States are conferred equal power to legislate on GST.
Article 246A and Article 279A of the Constitution
- The court emphasised that Article 246A of the Constitution gives the States power to make laws with respect to GST.
- It treats the Union and the States as “equal units”.
- It confers a simultaneous power (on Union and States) for enacting laws on GST.
- Article 279A, in constituting the GST Council, envisions that neither the Centre nor the States are actually dependent on the other.
- The Supreme Court said, the Centre and the States were “autonomous, independent and even competing units” while making GST laws.
- Cooperative federalism is treated like a marble cake federalism due to the integrated approach of the federal units.
- The judgment said that though the Centre may have a larger share of power in certain instances to prevent chaos and provide security, the States still wielded power.
- The federal system is a means to accommodate the needs of a pluralistic society… Democracy and federalism are interdependent to each other. Federalism would only be stable in a well functioning democracy. Additionally, the constituent units of a federal polity checks the exercise of powers of one another to prevent one group from exercising dominant power.
- In the GST Council, the States and the Centre have to function in a “harmonious” manner. The discussions in the GST Council cut across party lines and impacted federalism and democracy as a whole. But harmony, necessary for the well-being of the nation, and its fiscal security could be achieved not just by collaboration but also “contestations” between the Centre and the States. Contesting discussions between the Centre and the States could also further the cause of federalism and democracy,
- Indian federalism is a dialogue between cooperative and un-cooperative federalism where the federal units are at liberty to use different means of persuasion, ranging from collaboration to contestation.
Significance of the judgement
- This judgment may change the landscape of those provisions under GST which are subject to judicial review.
- The judgment also resolved a prolonged battle the government has been raging against companies to implement its IGST on ocean freight on reverse charge basis.
- As the court has gone ahead to categorically hold that the GST Council recommendations have only persuasive value, there will be pragmatic approach to the provisions which are subject to judicial review by way of challenge to the constitutionality of such provisions based on GST Council recommendations.
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