Constitutional Foundation of GST: Articles, Powers & Cooperative Federalism

By Balraj Kaur Goods and Services Tax Articles September 24, 2026

Summary: The Goods and Services Tax introduced on July 1, 2017 fundamentally restructured India’s indirect tax system by replacing the earlier fragmented division of taxing powers between the Centre and States with a constitutional framework permitting concurrent taxation of supplies. The Constitution (One Hundred and First Amendment) Act, 2016 introduced Articles 246A, 269A and 279A as the principal constitutional foundations of GST. Article 246A confers concurrent legislative power on Parliament and State Legislatures over GST while reserving inter-state supplies to Parliament. Article 269A governs levy, collection and apportionment of GST on inter-state supplies and treats imports as inter-state supplies. Article 279A establishes the GST Council and provides the institutional framework for recommendations on rates, exemptions, model laws and other GST matters. The Supreme Court’s decision in Union of India v. M/s Mohit Minerals Pvt. Ltd. examined this constitutional structure and held that GST Council recommendations have persuasive rather than binding value, emphasising cooperative federalism and the legislative autonomy of the Union and States. The framework nevertheless faces issues concerning State fiscal autonomy, the Council’s weighted voting mechanism and the continued exclusion of petroleum products and alcoholic liquor from the complete GST chain. Strengthening dispute resolution, considering the gradual inclusion of excluded petroleum products and maintaining effective Centre-State consultation are presented as important measures for preserving fiscal federalism.

Introduction to India's Indirect Tax Revolution
Key Constitutional Provisions Governing GST
Judicial Interpretation and the Mohit Minerals Benchmark
Structural Challenges and Federal Friction
Erosion of State Fiscal Autonomy
Voting Distribution Mechanics
Excluded Goods and Unbroken Chains
Looking Ahead: Strengthening Fiscal Federalism

Introduction to India’s Indirect Tax Revolution

The implementation of the Goods and Services Tax on July 1, 2017, marked the most radical overhaul of indirect taxation in independent India. Prior to this landmark reform, the nation’s tax architecture was deeply fragmented along constitutional lines. The Central Government retained exclusive rights to tax manufacturing through Central Excise Duty and services through Service Tax. Meanwhile, State Governments held exclusive authority over intra-state sales of goods via Value Added Tax, along with entry taxes like Octroi.

This rigid division produced significant economic friction. Businesses faced severe tax cascading, where taxes were repeatedly levied on top of previous taxes at every stage of the supply chain. Interstate commerce was heavily burdened by state border checkpoints, tax rate disparities, and administrative inefficiencies.

Eliminating this multi-layered setup required a fundamental restructuring of the Constitution of India. Under the original 1950 framework, neither Parliament nor State Legislatures possessed concurrent powers to levy tax on the supply of both goods and services simultaneously. Bridging this gap necessitated the Constitution (One Hundred and First Amendment) Act, 2016, which introduced core provisions like Articles 246A, 269A, and 279A, thereby recalibrating the economic relationship between the Centre and the States.

Key Constitutional Provisions Governing GST

The constitutional validity of the GST architecture rests primarily on three pivotal articles added by the 101st Amendment:

1. Article 246A and the Concept of Concurrent Power- Article 246A acts as the primary power source for the entire GST structure. It contains a non-obstante clause, overriding the traditional legislative division in Articles 246 and Schedule VII. Clause (1) of Article 246A grants concurrent authority to both Parliament and State Legislatures to make laws regarding goods and services tax. Clause (2) gives Parliament exclusive legislative authority over inter-state trade and commerce. This departure from exclusive legislative lists allowed both levels of government to tax the same transaction simultaneously.

2. Article 269A and Inter-State Transactions- To handle cross-border commerce seamlessly, Article 269A dictates that GST on inter-state supplies known as Integrated GST or IGST is levied and collected solely by the Union Government. The proceeds are subsequently apportioned between the Union and the consuming State based on statutory rules recommended by the GST Council. Crucially, the explanation to Article 269A(1) establishes that imports of goods or services into India are treated as inter-state supplies, bringing cross-border trade into the IGST framework.

3. Article 279A and the GST Council- To ensure institutional coordination, Article 279A empowered the President to constitute the GST Council. Comprising the Union Finance Minister, the Union Minister of State for Finance, and Finance Ministers from every State, the Council acts as a federal decision-making body. Under Article 279A(4), the Council makes recommendations on tax rates, exemption thresholds, model tax legislation, and special rules for specific regions.

Judicial Interpretation and the Mohit Minerals Benchmark

The practical application of these constitutional principles reached a major milestone with the Supreme Court’s landmark judgment in Union of India v. M/s Mohit Minerals Pvt. Ltd. (2022).

The controversy centered on notifications issued by the Central Government attempting to levy IGST under the Reverse Charge Mechanism on Indian importers for ocean freight services supplied by foreign shipping lines to foreign exporters under Cost, Insurance, and Freight (CIF) contracts. Importers argued that taxing a foreign transportation service provided outside India exceeded statutory authority and infringed upon constitutional boundaries.

In resolving the dispute, the Supreme Court provided definitive insights into the constitutional nature of GST:

First, the Court analyzed the language of Article 279A(4) and held that recommendations of the GST Council carry persuasive value rather than binding authority on primary lawmaking. Parliament and State Legislatures retain their sovereign power to enact and modify tax laws.

Second, the judgment emphasized that Article 246A embodies a model of cooperative federalism. Because both the Union and States share equal, concurrent power, treating GST Council decisions as unalterable mandates would strip state legislatures of their constitutional autonomy.

Third, the Court highlighted that the constitutional design relies on dialogue and mutual agreement. While uniformity is desirable, the legal framework accommodates differences, ensuring that states retain legislative independence within the federal balance.

Structural Challenges and Federal Friction

Despite successfully unifying the national market, the constitutional framework faces several operational and political challenges:

Erosion of State Fiscal Autonomy

Before GST, individual states could alter tax rates or introduce incentives to address localized economic downturns. Under the present architecture, states surrendered significant tax-setting powers to maintain national rate uniformity. During fiscal emergencies, individual states have limited room to raise additional revenue through indirect taxes independently.

Voting Distribution Mechanics

Article 279A(9) requires a 75% weighted majority for any GST Council decision. The Central Government holds one-third (33.33%) of the total vote weight, while all States combined share two-thirds (66.67%). This voting setup grants the Central Government an effective veto power over any proposal, as no decision can pass without Union backing. Conversely, a coalition of states holding more than 25% of the total vote can block central proposals, occasionally leading to policy standstills.

Excluded Goods and Unbroken Chains

Certain key economic sectors remain deliberately excluded from the GST net under Article 246A(5), including crude petroleum, high-speed diesel, petrol, natural gas, aviation turbine fuel, and alcoholic liquor for human consumption. Because these items remain under traditional taxation, businesses in energy-intensive industries face broken input tax credit chains and embedded tax costs.

Looking Ahead: Strengthening Fiscal Federalism

The 101st Constitutional Amendment reshaped India’s economic landscape by creating a single tax regime across state lines. However, as demonstrated by judicial rulings and policy debates, the system’s ongoing stability depends on respecting the constitutional equilibrium between Union and State powers.

To foster long-term stability, the GST Council should establish a formal dispute resolution body under Article 279A(11) to resolve Centre-State and inter-state tax disputes neutrally. Furthermore, the Council should outline a clear roadmap for gradually integrating excluded petroleum products into the GST framework under Article 246A(5) to complete the input tax credit chain across manufacturing and logistics sectors. Finally, maintaining rigorous pre-legislative consultation within the GST Council will help prevent unnecessary litigation and preserve the spirit of cooperative federalism.

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