A timely reminder: On Supreme Court’s GST verdict

The Centre should be more conciliatory towards States’ fiscal dilemmas and GST concerns

May 21, 2022 12:16 am | Updated 12:24 am IST

Pronouncing its verdict on a protracted dispute over the levy of Goods and Services Tax (GST) on ocean freight charges paid by importers, the Supreme Court on Thursday held that such a tax was untenable. Its 153-page judgment has also dwelt at length on the nature of the recommendations of the GST Council, the constitutional body set up to oversee the operations of the indirect tax regime. Invoking the spirit of cooperative federalism, the Court has held that both the Union and State legislatures have “equal, simultaneous and unique powers” to make GST laws, and the recommendations of the Council, where they have a one-third and two-thirds voting share, respectively, are not binding on them. While amending the Constitution to pave way for the tax system that subsumed multiple central and State levies, Parliament had intended for the Council’s recommendations to only have ‘a persuasive value’, as per the Court. This has sparked fears that individual States can start vetoing the Council’s recommendations that they do not agree with, and refuse to implement them, thus threatening the ‘One Nation, One Tax’ edifice of a reform that took years to bring about. Opposition-ruled States have hailed the verdict as upholding their rights vis-à-vis what a few termed as the ‘arbitrary imposition’ of Centre’s decisions in the Council. The Finance Ministry has sought to quell anxiety by indicating that the Court has only elaborated on the Council’s existing arrangement and the status quo would continue. States can already reject the Council’s decisions but none has chosen to so far, it said.

While North Block undertakes a detailed review of the verdict, it is pertinent that it had argued that if the Council’s recommendations were not binding, it would lead to an impasse and the entire GST structure would crumble. This does not hold water, the Court averred. That it has struck down a tax notified two days prior to the launch of the GST regime just as it is on the verge of completing five years, is perhaps, a fortuitous nudge for introspection on its journey and the way ahead. At worst, it can trigger more contestations in Council meetings, and at best, infuse a fresh sense of responsibility among members. The Centre could strive to be more conciliatory towards States’ concerns and fiscal dilemmas, especially as their assured compensation clock winds down next month, rather than seek to bulldoze over thorny predicaments with the tacit support of NDA-ruled States in the Council. The Council should also meet more often to nurture the critical fiscal federalism dialogue in the right direction and minimise trust deficits. There are many pending reforms that require the Centre to work more cohesively with States to take India’s economy forward and lift those left behind — including, but not limited to, an overhaul of land and labour markets as well as the agrarian sector.

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