States have equal powers to make GST-related laws: the SC

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

Cooperative Federalism

• The recommendations of the GST Council are the product of a collaborative dialogue involving the Union and the states.
• The recommendations 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.
• Article 246A (which gives the States power to make laws with respect to GST) of the Constitution treat 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,
• Neither the Center nor the states are actually dependent on the other.

The Meaning of Federalism

• The federal system is a means to accommodate the needs of a pluralistic society.
• Democracy and federalism are interdependent to each other.
• Federalism would only be stable in a well functioning democracy.
• The constituent units of a federal polity checks the exercise of powers of one another to prevent one group from exercising dominant power.
• Indian federalism is a dialogue between cooperative and uncooperative federalism where the federal units are at liberty to use different means of persuasion, ranging from collaboration to contestation.

The GST Issue

• The Indian importer is liable to pay IGST on composite supply comprising of the supply of goods and supply of services of transportation, insurance, etc.
• The IGST on ocean freight under the provisions of the notifications was “not permissible in law”.
• Ocean freight is the cost of moving goods internationally to India.
• An agreement is entered into between two foreign parties in this regard.
• The agreement is usually between an exporter, a foreign entity, and a shipping line to transport goods to India.

The SC’s stand

• The GST Council recommendations have only persuasive value.
• There will be a pragmatic approach to the provisions which are subject to judicial review.
• GST on ocean freight paid in case of import of goods is unconstitutional.
• As a corollary, the Indian importers who had paid such tax will be eligible to refund. Those importers who had not paid the tax on import of services will now not be required to pay tax.

Conclusion

As the court has gone ahead to categorically hold that the GST Council recommendations have only persuasive value. There will be a pragmatic approach to the provisions which are subject to judicial review by way of challenge to the constitutionality of such provisions.

Exam Track

Prelims Track

• Cooperative Federalism
• GST Council
• IGST