Reaffirming State rights in GST

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.

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.