SC judgment is unlikely to change the GST system; Never have the power to reject a council’s recommendation

The Supreme Court’s ruling on the applicability of the GST Council’s decision is unlikely to materially affect the one-nation-one-tax system because it only repeats existing laws that give states the right to accept or reject panel recommendations on taxes – Revenue Secretary Tarun Bajaj said on Thursday. No one has used such power in years.

The constitutional amendment that introduced the Goods and Services Tax (GST) system from July 2017 provided about one and a half dozen central and state councils to submit decisions to a council of the center and the states. According to the constitutional amendment, the recommendations of the GST Council have always been a guideline and have never been binding, Bajaj said.

States, although the council varies in tax rates on a particular product or service, never went back and enacted legislation that did not comply with the panel’s recommendations.

And while the practice is likely to continue unabated, the official said shortly after the Supreme Court’s ruling in the Mohit Mineral Ocean Freight case that the GST Council’s recommendations are not binding and only have a persuasive value. It said that the Parliament and the State Legislative Assembly could legislate on GST equally.

“The GST law says that it will recommend, nowhere is it said that it will make it mandatory. It is a constitutional body, the executive body constituted by the constitution which consists of the center and the state which will recommend and we have made our law based on its recommendation. GST. Bajaj added.

In the last five years, he said, “even where states disagreed and gave a dissenting note in writing, they actually made recommendations the way the council mentioned them and not what they said.”

Bajaj added that the problems could escalate if a state decides not to accept the GST Council’s recommendations. However, he added that there would be an incentive for an organization to implement the recommendations.

Asked if there was a need for any change in the GST Act in the wake of the Supreme Court ruling, the secretary said, “I do not see any (need) at the moment.”

He added that section 9 of the GST Act explicitly states that the decision on tax rate should be based on the recommendations of the council.

“An administrative body created by the constitution cannot have overriding powers over the legislature,” he said, adding that the GST Council’s effectiveness is a very good test where both the center and the state come together in “pool sovereignty”.

At the time of introduction of GST, it was agreed that the Center and the States would work in the spirit of cooperative federalism and take decisions on the basis of consensus.

In the last five years of GST, the council has made all decisions by consensus, excluding tariffs on lotteries where voting took place. At the time of the vote, six states voted against a proposal to raise the tax rate to 28 percent in the lottery.

“Everywhere in the Act it is written ‘on the recommendation of the council’, so we assume that the council’s recommendation is the order by which the state or central legislature performs,” ​​Bajaj said.

Commenting on the observation, Rajat Mohan, a senior partner at AMRG and Associates, said in the GST Act, the term ‘council recommendation’ has been used repeatedly.

“Governments have been informed of some of the decisions taken by the GST Council so far, but the ruling classifies it as a provocative value and not binding on governments. It may deviate from the decisions of the states,” Mohan said.

Athena Law Associates partner Pawan Aurora said the GST Council is a constitutional body for recommending federal and state GST legislation. We need to bring the legislators of our federal government structure on the same platform, otherwise each state will start making laws according to their own policies.

“It is true that the recommendations of the GST Council are not inherently prescriptive and binding. However, leaving the choice to the state and the center would undermine the purpose of the One Nation One Tax,” Aurora said.

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