The Supreme Court’s pronouncement on Thursday that the recommendations of the Goods & Services Tax (GST) Council are not binding on the Centre and the states, and merely have persuasive value, is expected to lead to a lot of interpretational issues. While revenue secretary Tarun Bajaj has said that it doesn’t alter the current GST regime materially, and is just a reiteration of the law as it stands, many experts say the judgment may open a Pandora’s Box, of allowing the states to have amendments specific to their legislation. It will be unfortunate if the apex court’s judgment, borne of a legal question raised in Union of India vs Mohit Minerals, is used to unnecessarily muddy the waters. The concern is that may become the unintended consequence of the judgment, which has merely reiterated the constitutional position.
“The recommendations of the GST Council are the product of a collaborative dialogue involving the Union and States and are precisely that—recommendatory in nature. To regard them as binding would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST,” the court has said. Its reasoning that “it is not imperative that one of the federal units must always possess a higher share in the power for the federal units to make decisions” gives an inflection to Centre-state relations that may be progressive, but lends itself to needless politicisation over the fundamentals of the “one nation, one market” ideal of the GST. To be sure, Indian federalism, as noted by the three-member bench, is indeed “a dialogue between cooperative and uncooperative federalism” where different means of persuasion, “from collaboration to contestation”, may be used. But, that must not help build momentum for making the GST amoebic in form, thanks to political dispensations pulling it in different directions.
The celebration of the SC judgment by the non-BJP finance ministers of a few states suggests that they see the judgment as liberation from a structure skewed in favour of the Centre and agencies such as the Tax Research Unit of the Central Board of Indirect Taxes and Customs. This could be a portent of how politicised GST policy debates could get in the times to come. In a year when the mandate for GST compensation to the states is ending, there is every possibility that each point of difference in the Council will be cast as yet another example of the undermining of the federal structure.
The GST Council may not be a perfect institution, but there are robust mechanisms in place to work around disagreements. Indeed, there is hardly a better example of cooperative federalism than the present GST regime as it has served to build the desired uniformity in indirect taxation across the country. In some ways, the Supreme Court did well to make it clear that subordinate GST legislation will remain the GST Council’s prerogative, even as it underlined the Council’s ‘recommendatory’ status on primary legislation. Article 279A of the Constitution, which gives the Council its recommendatory powers, also makes “development of a harmonised national market for goods and services” its lodestar. Except for one instance, the GST Council decisions have always been by consensus, which speaks volumes of the effectiveness of the arrangement. It is now imperative for the states, especially the ones ruled by non-NDA parties, to work towards the maturing of the GST regime. On its part, the Centre has to be more responsive to the states’ concerns, especially with the compensation mechanism on its way out and a debt-mechanism to cover the revenue shortfall replacing it. GST collections in recent months show India—as a Union of States—has a lot to gain from a stable GST regime. Politicking will have to take a backseat if this momentum is to be retained.