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GST: COOPERATIVE FEDERALISM

Though Indian states have achieved Political Integration in 1950's with the integration of Princely states in Indian Union, economic Integration was still missing. Passing of GST is a shining example of cooperative federalism where States and Centre have ceded their power to tax and come up with a single tax system to realize the dream of one Economic India with ‘One Market’. Thus, GST once again has shown Unity in Diversity of Indian Society. However, Economic integration is still not achieved as Constitution needs some changes in this regard.

GST: a shining example of Cooperative federalism
In our Federal System both Centre and States have power to impose taxes. The division of such taxation powers is given in Union and State List under 7th Schedule. With the spirit of cooperative federalism, under GST, both Centre and States have given up taxation powers and as a product following taxes have been eliminated.

Central taxes that would be subsumed under the GST are

State taxes that would be subsumed under the GST are

  • Central Excise duty
  • Duties of Excise (Medicinal and Toilet Preparations)
  • Additional Duties of Excise (Goods of Special Importance)
  • Additional Duties of Excise (Textiles and Textile Products)
  •  Additional Duties of Customs (commonly known as CVD)
  • Special Additional Duty of Customs (SAD)
  • Service Tax
  • Central Surcharges and Cesses so far as they relate to supply of goods and services 
  • State VAT
  • Central Sales Tax
  • Luxury Tax
  • Entry Tax (all forms)
  • Entertainment and Amusement Tax (except when levied by the local bodies)
  • Taxes on advertisements g. Purchase Tax
  • Taxes on lotteries, betting and gambling
  • State Surcharges and Cesses so far as they relate to supply of goods and services

The Constitution of India has also been amended accordingly. This fundamental reordering of federal fiscal relations for the cause of common good shows the strength and resolve of the federal structure.

This convergence for the cause of larger public good has been made possible, initially due to the mechanism of the Empowered Committee of Ministers (EC) and later the GST Council. Under the GST regime, the Centre & States will act on the recommendations of the GST Council. GST Council comprises of the Union Finance Minister, Union Minister of State for Finance and all Finance Ministers of the States. 2/3rd of voting power is with the States and 1/3rd with the Centre which reflects the accommodative spirit of federalism.

Though the Constitution provides for decisions being taken by a 3/4th majority of members present and voting, all decisions till now (before july, 1, 2017) have been taken unanimously by consensus. The very fact that there has been no need to resort to voting to take any decisions taken till now in 18 meetings held so far reflects the spirit of "One Nation, One Aspiration, One Determination". In this context it is important to note that credit for the new law does not go to one party or one government but it's a shared legacy of all.

The participation of all States and Centre in the framing of GST laws has led to the following features in the GST Laws. These features signify spirit of cooperative federalism.

  • Harmonisation of GST laws across the country: Even though Centre and each State legislature have passed their own GST Acts, they are all based on the Model GST law drafted jointly by the Centre & the States. Consequently, all the laws have virtually identical provisions.
  • Common Definitions: There are common definitions in the CGST and SGST Act.
  • Common Procedures / Formats: There are common procedures; common formats in all laws, even the sections and subsections in CGST Act and SGST Act are same. UTGST Act provides that most of the provisions in CGST Act, as stated in Section 21 shall apply to UTGST Act also.
  • Common Compliance Mechanism: GSTN, a not-for-profit, non-government company promoted jointly by the Central and State Governments, is the common compliance portal and the taxpayers shall interface with all states as well as Centre through this portal.
    Other significant areas, where such co-operation has been displayed by the Centre and States are as under:
  • Joint Capacity Building Efforts: Joint Capacity Building efforts by Centre as well as all the States are being organised wherein for the first time the training of officers of Centre and State is being conducted under the auspices of National Academy of Customs, Indirect Taxes and Narcotics (NACIN). NACIN has formed a Joint Coordination Committee in each State comprising of Centre, State and NACIN Officers for overseeing Capacity Building efforts.
  • Joint Trade Awareness & Outreach Efforts: Centre along with the State Government Officials has been organising Joint Trade Awareness & Outreach programs wherein for the first time the Officers came together to create GST awareness amongst Trade and other stakeholders.
  • Cross Empowerment of Officers of Centre as well as States: Though GST will be jointly administered by Centre and State, for ensuring ease of doing business, but the individual taxpayer will have a single interface with only one Tax Authority either Centre or State.
  • Joint Implementation Committees: In order to ensure smooth rollout of GST, the GST Council has formed a three tier structure consisting of: the Office of the Revenue Secretary, GST Implementation Committee (GIC) and eight Standing Committees. In addition, eighteen Sectoral Groups representing various sectors of the economy have been set up. All these Committees viz. GST Implementation Committee (GIC), Standing Committees and Sectoral Groups have representation of Centre and State Officers in the spirit of cooperative federalism to ensure quick administrative decisions required before and after the rollout and ensure effective coordination for smooth implementation of GST.
    Indeed, GST in India in its conception, enactment and implementation is an example of real 'co-operative federalism' at work, in tune with the unique character of India - 'Unity in Diversity'.

Economic Integration
Under GST regime the entire country will become one market and it will be an economic integration of India. India would become one uniform market with seamless transfer of goods and services.

GST: Economic Integration of Jammu and Kashmir

With the implementation of the Goods and Service Tax in Jammu and Kashmir, an important chapter has been opened in the history of centre-state relations - a chapter that has completely integrated the state with India in economic terms, though political integration has happened 70 years ago. While other states of the union draw their power to tax from Article 246 of the Indian Constitution, Jammu and Kashmir draws it from Section 5 of its own constitution. However, recently State Assembly has adopted the 101st Constitutional Amendment and enacting a State GST law rendering Section 5 of the Jammu and Kashmir Constitution ineffective for all practical purposes.

However, Constitution still provides room for states to levy tariff and non-tariff barriers. Article 302 gives Parliament the power to restrict free trade between and within states on grounds of public interest. Similarly, Article 304 (b) allows state legislatures to restrict trade and commerce on grounds of public interest. Of course, states can only impose restrictions in areas that are either on the state or concurrent list. The gist of these provisions is that both the Centre and the States have considerable freedom to restrict trade and commerce that hinder the creation of one India. Such Strong power is not found in other International experiences.

The United States has a very strong interstate commerce clause in the Constitution. In US, residuary powers are reserved to the states (and not the Union, as is the case in India), states are constitutionally barred from regulating interstate trade and commerce as it was felt that such power would fundamentally hamper free trade and movement.

Even under European Common Market, it is now accepted that countries within the EU must not, except under narrow circumstances, restrict the four freedoms of movement: of goods, services, capital, and people.

Under WTO which has a membership of 164 countries with widely varying income levels and political systems, and more diversity then Indian states such powers as given in Indian Constitution are not found.

The contrast between Articles 302 and 304 (b) of the Constitution and Article XX of the General Agreement On Tariff and Trade (GATT) WTO show that, reasons for invoking departures from free trade principles are more clearly and narrowly specified in the WTO than in the Constitution which instead refers to an open-ended "public interest". Thus for true economic integration clauses have to be amended

Conclusion
The phrase Unity in Diversity has been the hallmark of Indian Society which embraces diversity in terms of Caste, Creed, Colour, Culture, Customs, Cuisine and Clothing (7C). The new chapter of cooperation has been added within this diversity by implementation of GST through cooperation between Centre and States which economically integrates India and strengthen its unity.

However, economic integration is still not real on the question of creating one economic India, technology, economics, and politics have been surging ahead. Perhaps, it is time for the Constitution to catch up to further facilitate this surging internal integration i.e. Article 302 and 304(b) should be amended. Here again such amendment requires coming together of States and Centre with the spirit of cooperative federalism.

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