The Supreme Court had held that, both Parliament and State have concurrent powers to legislate on GST and in the nature of a simultaneous power.
About the Issue
It was a revenue appeal against the decision of the Gujarat High Court which held that the levy of IGST on ocean freight under reverse charge mechanism on the importer as unconstitutional.
The Supreme Court in its recent landmark decision in the Case of Mohit Minerals, has upheld the decision of the Gujarat High Court.
While doing so, the Court had also analysed the scope and ambit of Article 246A and 279A which is likely to have a far-reaching effect as an interpretation of the plain language in Article 246A and 279A now stands endorsed by the Supreme Court.
Supreme Court’s interpretation
The Supreme Court has held that;
Both Parliament and State have concurrent powers to legislate on GST and in the nature of a simultaneous power.
The constitutional role and functions of the GST Council must be understood in the context of simultaneous legislative power conferred on Parliament and the State legislatures.
Since India has a multi-party system, it is possible that the party in power at the Centre may or may not be in power in various States.
Therefore, the GST Council is not only an avenue for the exercise of cooperative federalism.
The recommendations of the GST Council cannot be binding. The argument that if the recommendations of the GST Council are not binding, then the entire structure of GST would crumble, does not hold water.
The use of the phrase ‘recommendations to the Union or States’ indicates that the GST Council is a recommendatory body, aiding the Government in enacting legislation on GST.
Constitution (101st Amendment) Act, 2016;
In order to suitably implement the GST legislation, this Act resulted in the insertion, deletion and amendment of certain Articles of the Constitution. The following matters were dealt with as a result of these changes:
The delineation of powers to levy and make laws with respect to GST
The applicability and scope of the GST law
The manner of apportionment of revenue from GST among Centre and States
The constitution, powers and duties of the GST Council
The discontinuation of existing taxes to give way for GST
The manner of providing compensation to States for loss of revenue on account of the introduction of GST
Article 279A of the Constitution of India says that Council can make recommendations.
Article 246A: Special Provision for GST
The Parliament of India is given the exclusive power to make laws with respect to inter-state supplies.
The IGST Act deals with inter-state supplies. Further, the article excludes the following products from the scope of GST until a date recommended by the GST Council:
Aviation Turbine Fuel
Article 269A: Levy and Collection of GST for Inter-State Supply
It allows the GST Council to frame rules in this regard. Import of goods or services will also be called as inter-state supplies. This gives the Central Government the power to levy IGST on import transactions.
Benefits for states
While this position of law was well understood, the decision of the Supreme Court will go a long way in shaping the way the GST Council functions in the future.
States would be reinvigorated by this decision since revenue compulsions are different for each state.
It will be easy for the GST Council to take decisions against the issue of compensation; loss of revenue on account of the pandemic; divergent views on new levies or cess.
The GST council;
It is a constitutional body under Article 279A. It makes recommendations to the Union and State Government on issues related to Goods and Service Tax and was introduced by the Constitution (One Hundred and First Amendment) Act, 2016.
The GST Council is chaired by the Union Finance Minister and other members are the Union StateMinister of Revenue or Finance and Ministers in-charge of Finance or Taxation of all the States.
It is considered as a federal body where both the centre and the states get due representation.