Goods and Services Tax (GST)

States have equal powers to make GST-related Laws: SC

Note4Students

From UPSC perspective, the following things are important :

Prelims level : GST Council

Mains level : Read the attached story

The Supreme Court has held that Union and State legislatures have equal, simultaneous and unique powers to make laws on Goods and Services Tax (GST) and the recommendations of the GST Council are not binding on them.

What is the case?

  • The apex court’s decision came while confirming a Gujarat High Court ruling that the Centre cannot levy Integrated Goods and Services Tax (IGST) on ocean freight from Indian importers.

Key takeaways of the Judgment

  • The recommendations of the GST Council are the product of a collaborative dialogue involving the Union and the States.
  • They are recommendatory in nature. They only have a persuasive value.
  • To regard them as binding would disrupt fiscal federalism when both the Union and the States are conferred equal power to legislate on GST.

Basis of the Judgment

  • The court emphasised that Article 246A of the Constitution gives the States power to make laws with respect to GST.
  • It treats the Union and the States as “equal units”.
  • It confers a simultaneous power (on Union and States) for enacting laws on GST.
  • Article 279A, in constituting the GST Council, envisions that neither the Centre nor the States are actually dependent on the other.

What are the articles added/modified to the Constitution by the GST Act?

(1) Article 246A: Special Provision for GST

  • This Article was newly inserted to give power to the Parliament and the respective State/Union Legislatures to make laws on GST respectively imposed by each of them.
  • However, 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. Thus, the power to make laws under the IGST Act will rest exclusively with the Parliament.
  • Further, the article excludes the following products from the scope of GST until a date recommended by the GST Council:
  1. Petroleum Crude
  2. High-Speed Diesel
  3. Motor Spirit
  4. Natural Gas
  5. Aviation Turbine Fuel

(2) Article 269A: Levy and Collection of GST for Inter-State Supply

  • While Article 246A gives the Parliament the exclusive power to make laws with respect to inter-state supplies.
  • The manner of distribution of revenue from such supplies between the Centre and the State is covered in Article 269A.
  • 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.
  • Import of goods was subject to Countervailing Duty (CVD) in the earlier scheme of taxation.
  • IGST levy helps a taxpayer to avail the credit of IGST paid on import along the supply chain, which was not possible before.

(3) Article 279A: GST Council

  • This Article gives power to the President to constitute a joint forum of the Centre and States called the GST Council.
  • The GST Council is an apex member committee to modify, reconcile or to procure any law or regulation based on the context of GST in India.

(4) Article 286: Restrictions on Tax Imposition

  • This was an existing article which restricted states from passing any law that allowed them to collect tax on sale or purchase of goods either outside the state or in the case of import transactions.
  • It was further amended to restrict the passing of any laws in case of services too.
  • Further, the term ‘supply’ replaces ‘sale or purchase’.

(5) Article 366: Addition of Important definitions

Article 366 was an existing article amended to include the following definitions:

  1. GST means the tax on supply of goods, services or both. It is important to note that the supply of alcoholic liquor for human consumption is excluded from the purview of GST.
  2. Services refer to anything other than goods.
  3. State includes Union Territory with legislature.

Back2Basics: GST Council

  • The GST Council is a federal body that aims to bring together states and the Centre on a common platform for the nationwide rollout of the indirect tax reform.
  • It is an apex member committee to modify, reconcile or to procure any law or regulation based on the context of goods and services tax in India.
  • The GST Council dictates tax rate, tax exemption, the due date of forms, tax laws, and tax deadlines, keeping in mind special rates and provisions for some states.
  • The predominant responsibility of the GST Council is to ensure to have one uniform tax rate for goods and services across the nation.

How is the GST Council structured?

  • The GST is governed by the GST Council. Article 279 (1) of the amended Indian Constitution states that the GST Council has to be constituted by the President within 60 days of the commencement of the Article 279A.
  • According to the article, the GST Council will be a joint forum for the Centre and the States. It consists of the following members:
  1. The Union Finance Minister will be the Chairperson
  2. As a member, the Union Minister of State will be in charge of Revenue of Finance
  3. The Minister in charge of finance or taxation or any other Minister nominated by each State government, as members.

Terms of reference

  • Article 279A (4) specifies that the Council will make recommendations to the Union and the States on the important issues related to GST, such as the goods and services will be subject or exempted from the Goods and Services Tax.
  • They lay down GST laws, principles that govern the following:
  1. Place of Supply
  2. Threshold limits
  3. GST rates on goods and services
  4. Special rates for raising additional resources during a natural calamity or disaster
  5. Special GST rates for certain States

 

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