Written by Neeraj Bagri
The Supreme Court had the opportunity to discuss the most fundamental issue regarding the role of the Goods and Services Tax (GST) Council in deciding the correctness of the sea freight IGST tariff in the case of Union v. Mohit Minerals of India. GST works for law enforcement. GST was introduced as a pan-Indian indirect tax law, replacing multiple laws like central excise, service tax, VAT, etc. The objective was a common law and procedure and uniform rates that enable and eliminate the ease of doing business. The complexity of the previous system.
Under the previous law, the power to levy taxes was divided between the center and the states. With the abolition of these laws, GST was regulated by both the center and the state in the spirit of cooperative federalism and was intended to legislate.
To this end, Article 279A, which provides for the formation of a GST Council with representation from both the Center and the States, was inserted in the Constitution. As per the decision of the GST Council, every issue related to implementation like law, rate and procedure has been discussed and implemented. There are provisions for differential voting rights and in case of any difference of opinion, the matter was decided by a three-fourths majority. This way of working has ensured uniformity of GST law across India.
But the question remains whether the decision of the GST Council is only of a persuasive nature or binding on the Center and each state. This question has huge implications because the notion of a uniform law would be seriously flawed if the GST Council’s decision loses its applicable character.
The question of whether the decisions of the GST Council are binding or persuasive is a perplexing one. For this purpose it is important to identify the evolution of the GST Council. It went through several trials and tribulations before it was included in the constitution. The purpose of the GST Act was to introduce various laws empowered by the Center and the States separately. An attempt was made to strike a fine balance to ensure that there is a combination of purpose and intention without compromising the autonomy of the legislature. Therefore, the important question of dealing with differences of opinion was initially resolved through a dispute resolution authority.
The idea of a separate dispute settlement authority was not acceptable to the states because they feared losing their autonomy, and so a formula for dispute resolution was created within the structure of the GST Council consisting of representatives from the center and the states. . It was necessary to enable the voting power to come to a decision on the basis of majority without following a complete consensus. Therefore, an attempt was made to resolve the subtle question of autonomy versus uniformity by enabling the GST Council to make a decision.
Not only sound education but his alertness and dedication too are most required. This uniformity provides a huge advantage to the most important stakeholder i.e. the taxpayer. Therefore, the applicability of the decision of the GST Council has implications in addition to the issue of the rule-making authority.
The Supreme Court has said that the decision of the GST Council is not binding and that it carries only a persuasive price. Therefore, both the Center and the States have retained their freedom to legislate in the GST Act.
The non-binding nature of the decisions of the GST Council may result in the following judgment.
– Will it open a Pandora’s box, allowing states to make specific amendments to their laws? This could lead to loss of uniformity and destroy the very foundation of the GST system.
– Could this result in different rates being taken by the Center and the States? Now that the Centrally Guaranteed Compensation to the States for the expected revenue loss is scheduled to expire in June, can a State decide on a different rate for providing a product or service to increase its tax collection?
– What will be the effect of IGST rate, which is the sum of central and state GST rates? While the power to legislate on inter-state transactions rests with the center, the rate is a function of both the center and the state’s GST rate. How will IGST be distributed among the states if there are different rates?
– Will there be different IGST rate for import of goods in different state ports?
– What effect will this have on the GSTN framework? Currently, filing returns, getting input tax credit, issuing notices, claiming refunds, etc. are all being done through the common GSTN platform. Working in an environment with different laws and rates can be a Herculean or almost impossible task.
Will the states consider it appropriate to participate in their GST Council discussions? Also, having the right to vote loses relevance if the decision cannot be implemented.
What could be the fate of past decisions of the GST Council? One could argue that since it was taken unanimously, the Supreme Court’s interpretation should have no effect on these.
These will be just some of the leading questions, and many more that will be raised in the coming days. The design of the GST Act is such that it is important not to lose sight of the fact that both the Center and the States have twin, a common nervous system. The day GST was introduced, the fortunes of the Center and the States merged. Evolution over the last five years has further strengthened this fundamental character of GST. Whether it is the question of rates, submission of returns, administration of GST law, everything has been brought under one common umbrella. Any attempt to separate them can expose the isolation and structure of identical character that is designed to perpetuate the identity.
Author Partner (Indirect Tax), Dhruv Advisors LLP. Opinions are personal.