GST Council and State autonomy by Rajan singh

Rajan singh

Together we stand, divided we fall”

To ease out the process of business transactions and to pave the way for a common national market-one that would amalgamate the indirect taxes in existence at the Union level and at the state level into one single tax, India has enacted the GST tax.

The 101st Amendment to the constitution has brought GST framework and has created  GST Council(hereinafter, referred as Council) to resolve the issues arising in the implementation of GST.  This Council has the power to issue “recommendations”on issues mentioned in Art 279A(4) of the Constitution. This Council comprises of the Union Finance Minister as its chairperson, the Union Minister for state for finance or revenue and finance ministers from the  state governments.

Before getting into how GST violates state autonomy, we need to see whether the recommendation given by  Council are legally binding on the states or not. This can be clearly seen from Art 279A(11) of the constitution which provides a dispute resolution mechanism. Thus, If the Council’s recommendations were not binding, then no legal obligations would originate from them and hence, there would be no dispute to resolve, as the states would be free to reject those recommendations. If the intention was to make the recommendations non-binding, then there was no need to have a dispute resolution body in form of the Council. This shows, that the recommendations are binding.

Why is GST Council violative of State Autonomy?

Subordination of States’ sovereignty : 

As per Art 279A(9), the recommendations of the council are made on basis of 3/4th majority of the members of the council. But all members don’t have equal votes. Union government’s vote has 1/3rd weightage of the total votes cast, and the states, in total, have 2/3rd of the total votes cast. Now, the requirement of the majority is 3/4th of the total votes cast. Thus, mathematically, it is not possible to attain the desired majority if Union doesn’t vote for the recommendation. In fact, Union can veto the recommendations of the Council.

The above implies that the Council has the power to make binding recommendations, and Union has attained veto over the law making power of the States. This is in clear violation of concept of federal structure of the Constitution of India. This is a clear abrogation of the fundamental tenet of the Constitution’s federal structure viz. the political sovereignty of states.

The Supreme Court^[1] had held that federalism is a part of the basic structure of the constitution and can’t be abrogated by constitutional amendments. The court had held that the states and the union are co-equal and each is supreme within its own sphere. The court also held^[2] that the Union’s power to regulate can’t deprive a state of its power of taxation. The court had held fiscal federalism to be a feature of federalism.

In the absence of power to impose taxes and raise revenue, the state’s sovereignty is meaningless. It would mean that the states are subservient to the Union in matters of taxation and the Union has the power to dictate the taxation laws and policies of a state.

States have no legal remedy

The supremacy of union over the states in the  Council is also visible from the manner in which the Council would resolve disputes arising out of its recommendations. The 101st amendment has empowered the Council to decide itself the manner in which the disputes would be resolved by it. The 101st amendment doesn’t mention any other separate procedure in which the dispute resolution can happen. This implies that here too, the Union would have a veto power over the decisions rendered by the Council. Consequently, the Union, as it dominates the decision making in the GST Council, would decide the manner in which these decisions can be challenged by the aggrieved states.

Seeing the veto power of the Union, it would be safe to assume that the Union would never have any grievance against the recommendations of the Council. So, this provision in the 101st amendment is meant to enforce the decision of the Union against the states. Thus, a state which is unhappy with the recommendation of the GST Council has no legal remedy.

This has impliedly excluded the jurisdiction of the Supreme Court under Art 131 of the constitution, in relation to inter-state and Union-state disputes. Hence, it is an attempt to exclude the judicial review under the constitution- which is in fact, a part of the basic structure of the constitution.

In Defence of the GST:

The above said, however, doesn’t mean that the 101st amendment closes all the possibilities of the states to have a say in the decision making part of the Council. The Union needs a majority of the states present which are voting to agree with it in order to take the decisions in the context of the Council. But this provides very little space for the states to bargain with the Union and is perhaps, the only ground on which the 101st amendment may be prevented from being struck down.

Regardlesss of the fact whether the Supreme Court is going to strike down the 101st amendment or not, the fact remains that the Council which is creating a distrust between the centre and the states, is not likely to perform the coordination function with any real effect. The Council seems to deprive the states of having a real say in the decision making of the Council.

To conclude, the court needs to see that in attempting a large scale(and perhaps, perhaps, a necessary) reform of indirect taxes in the nation, it should be seen that the federal structure of the constitution has not been distorted by the Union. If left unnoticed, this could lead to grave and heinous consequences for the India’s federal governance.

[1] in SR Bommai v Union of India (1994 2 SCR 644)

[2] in State of West Bengal v Kesoram Industries case (2004) 10SCC 201

Compiled by GSTstreet for #GSTManthan