Proposals of GST council not binding on Centre, States: SC

The court also held that the Centre & State have simultaneous powers to legislate on GST but council must work in a harmonious manner

NEW DELHI: The Supreme Court on Thursday ruled that the Goods and Service Tax (GST) council’s recommendations are not binding on Union and State but have a persuasive value as the country has a cooperative federal structure.

A bench of Justices DY Chandrachud, Surya Kant, and Vikram Nath also held that the Centre and State governments have simultaneous powers to legislate on GST but the council must work in a harmonious manner to achieve a workable solution.

The bench said that as per Article 246A, both Parliament and the State legislature have equal power to legislate on matters of taxation.

Article 246A treats Centre and State as equal and Article 279 of the constitution says that Centre and State cannot act independent of each other , it said.

The top court said that recommendations of the GST council are a product of collaborative discussions between the Centre and States and it is not imperative that one of the federal units must possess a higher share.

It said that Indian federalism is a dialogue between cooperative and non-cooperative federalism and the Centre and States always engage in dialogue.

The bench pointed out that there are no provisions in the GST Act of 2017 that deal with repugnancy between the laws drawn up by the Centre and State and it is for the council to advise them suitably whenever such occasions come to fore.

The top court ruling came on a batch of pleas as it upheld a Gujarat High Court verdict to quash the levy of Integrated GST (IGST) on the importers on ocean freight under reverse charge.

The High Court had held that no tax can be levied under the IGST on the ocean freight for the services provided by a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station in India.

It had quashed the 2017 notification of the Centre by which IGST of five per cent would be levied on the services of transport of goods in a vessel.

Meanwhile, the Supreme Court ruling on applicability of GST Council’s decisions is unlikely to materially impact the one-nation-one-tax regime as it is only a reiteration of the existing law that gives states the right to accept or reject the panel’s recommendation on taxation -- a power that none has exercised in the last five years, Revenue Secretary Tarun Bajaj said on Thursday.

The Constitutional amendment that brought the Goods and Services Tax (GST) regime from July 2017 by subsuming nearly one-and-a-half-dozen central and state levies, provided for a Council of Centre and states for decision making. The recommendations of the GST Council, as per the Constitutional amendment, were always a guidance and never a mandatory compliance, Bajaj said.

States, even though differing on tax rates on a particular good or service in the Council, never went back and framed legislations that were not in line with the panel’s recommendations.

And this practice is likely to continue unhindered, the official said soon after the Supreme Court ruled in the Mohit Minerals Ocean Freight case that the recommendations of the GST Council are not binding and only have persuasive value. It held that Parliament and state legislatures can equally legislate on GST.

“The GST law says that it will recommend, it had nowhere said that it will mandate. It is a constitutional body, executive body created by constitution which consist of Centre and state which will recommend and based on its recommendation we have created our laws on GST. This is the scheme of things,” Bajaj added.

In last five years, he said, “even where states did not agree and in writing gave a dissenting note, they actually promulgated the recommendations in the manner that the Council mentioned and not in the manner of what they said.”

The SC ruling on applicability of GST Council’s decisions is unlikely to materially impact the one-nation-one-tax regime as it is only a reiteration of the existing law that gives states the right to accept or reject the panel’s recommendation on taxation, Revenue Secretary Tarun Bajaj said