Introduction: When Theory Meets Reform
Tax reform is never merely administrative—it is philosophical. Every tax system carries within it an idea of justice: who should pay, how much they should pay, and how clearly they should understand their obligation. Long before modern fiscal policy developed, Adam Smith articulated the classical canons of taxation, among which Equity and Certainty stand as enduring pillars.
When India introduced the Goods and Services Tax under the Constitution (One Hundred and First Amendment) Act, 2016, it was hailed as a structural revolution. The reform promised a simplified, transparent, and nationally harmonised indirect tax regime. But beyond administrative success, a deeper question remains: does GST reflect the classical ideals of fairness and predictability?
To answer this, GST must be evaluated not only as legislation under the Central Goods and Services Tax Act, 2017 and the Integrated Goods and Services Tax Act, 2017, but as a tax philosophy in action.
The Classical Foundation: What Do Equity and Certainty Demand?
Equity: Fairness in Contribution
The principle of Equity requires that taxation should be just and proportionate. It functions in two dimensions:
- Horizontal Equity – taxpayers in similar economic positions should bear similar tax burdens.
- Vertical Equity – those with greater ability to pay should contribute more.
Indirect taxation complicates this principle because taxes are imposed on consumption rather than income. Nonetheless, the design of rates, exemptions, and credits must attempt to soften regressive effects and prevent unequal treatment.
Certainty: Predictability as a Safeguard
Certainty demands clarity. A taxpayer should know:
- What is taxable
- How liability is calculated
- When it must be discharged
- What compliance procedures are required
A tax system that constantly shifts creates instability. Economic planning becomes difficult, compliance costs rise, and litigation increases. Certainty is therefore not merely procedural—it is economic assurance.
GST and Equity: Has Fairness Improved?
National Uniformity and Horizontal Equity
Before GST, India’s indirect tax framework was fragmented. Different states imposed varying rates, classifications differed, and inter-state transactions involved complex adjustments. GST replaced this patchwork with a coordinated structure comprising Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), and Integrated Goods and Services Tax (IGST).
This harmonisation strengthened horizontal equity. Businesses operating in different states now function within a largely uniform tax environment. Interstate trade barriers were reduced, and cascading taxes were addressed.
However, uniformity in structure does not eliminate interpretational disputes. Rate classification disagreements continue to arise, indicating that true horizontal equity requires both legislative clarity and administrative consistency.
Rate Structure and Vertical Equity
GST operates through multiple slabs—commonly 5%, 12%, 18%, and 28%. Essential goods are taxed at lower rates or exempted, while luxury and sin goods attract higher rates. This graduated structure attempts to reflect vertical equity by shielding necessities and imposing higher burdens on discretionary consumption.
Yet indirect taxation has inherent limits in achieving distributive justice. A consumer purchasing a product at a 12% rate pays the same percentage regardless of income level. Thus, while GST attempts vertical differentiation, it cannot replicate the redistributive strength of progressive income taxation.
Moreover, periodic rate rationalisation by the GST Council introduces transitional inconsistencies that may temporarily affect sectors unevenly.
Input Tax Credit and Economic Neutrality
A defining strength of GST lies in the seamless flow of Input Tax Credit (ITC). By allowing credit across the supply chain, GST reduces cascading taxation and promotes neutrality.
However, restrictions under Section 17(5) of the Central Goods and Services Tax Act, 2017, which lists blocked credits, reintroduce certain distortions. When ITC is disallowed on specified goods or services, embedded tax costs may be passed to consumers. This limits the full realisation of equity within the system.
GST and Certainty: Stability Versus Evolution
Codified Framework and Structural Clarity
From a statutory standpoint, GST offers comprehensive legislation. The taxable event, place of supply, time of supply, and procedural requirements are clearly defined under the Central Goods and Services Tax Act, 2017 and related enactments.
Such codification enhances formal certainty. The legal architecture itself is detailed and accessible.
Frequent Amendments and Administrative Fluidity
However, certainty is measured not only by written provisions but by stability over time. Since implementation, GST has undergone numerous amendments, notifications, and circulars. While these changes aim to refine the system, their frequency can create compliance unpredictability.
Businesses must constantly adapt to evolving guidelines. This dynamic quality, though reflective of responsiveness, may dilute long-term predictability.
Judicial Intervention and Restoring Balance
Indian courts have played a stabilising role in GST interpretation.
In Union of India v. Mohit Minerals Pvt. Ltd., the Supreme Court clarified that recommendations of the GST Council are not binding, reinforcing the principle of cooperative federalism while preserving legislative authority.
In Eicher Motors Ltd. v. Union of India, the Supreme Court recognised that credit lawfully earned constitutes a vested right. Though delivered under a previous regime, its reasoning continues to influence GST-related disputes concerning transitional credit.
Similarly, Arise India Ltd. v. Commissioner of Trade and Taxes protected bona fide purchasers from denial of credit due to supplier default. Such decisions enhance certainty by preventing arbitrary denial of statutory benefits.
Judicial insistence on adherence to natural justice—particularly in cases involving cancellation of registration or denial of Input Tax Credit—further reinforces procedural fairness.
Constitutional Safeguards
GST derives constitutional authority from the Constitution (One Hundred and First Amendment) Act, 2016. Fiscal federalism under GST requires coordination between the Union and States while preserving legislative competence.
Additionally, taxation measures must comply with Article 14 of the Constitution of India, which prohibits arbitrariness. Any discriminatory or unreasonable application of GST provisions invites constitutional scrutiny.
Thus, both equity and certainty are not merely theoretical ideals but constitutionally protected expectations
A Balanced Assessment
India’s GST framework represents meaningful progress toward harmonisation and transparency. Horizontal equity has improved significantly compared to the pre-GST era. Structural clarity has strengthened the formal certainty of tax obligations.
However, multiple rate slabs, blocked credits, evolving compliance requirements, and interpretational disputes reveal that the system remains in transition. Equity is partially realised; certainty is evolving rather than absolute.
GST is not static—it is a reform in motion.
The Way Forward
If GST is to align more closely with classical taxation principles, certain refinements may be considered:
- Gradual rationalisation of rate slabs to reduce complexity
- Reconsideration of blocked credits under Section 17(5)
- Enhanced legislative stability
- Clearer drafting of notifications and circulars
- Simplification of compliance mechanisms
Tax legitimacy depends not only on enforcement but on trust. Predictability and fairness build voluntary compliance.
Conclusion: Reform with Reflection
Equity and Certainty remain timeless standards in tax philosophy. India’s GST framework reflects an ambitious attempt to modernise indirect taxation while respecting federal balance.
Although imperfections persist, GST has moved India closer to a unified and transparent tax environment. Continued refinement, guided by classical principles and constitutional values, will determine whether GST ultimately fulfils its promise.
A tax system succeeds not merely when it collects revenue efficiently, but when it does so fairly and predictably.
References
- Constitution (One Hundred and First Amendment) Act, 2016
- Central Goods and Services Tax Act, 2017
- Integrated Goods and Services Tax Act, 2017
- Union of India v. Mohit Minerals Pvt. Ltd.
- Eicher Motors Ltd. v. Union of India
- Arise India Ltd. v. Commissioner of Trade and Taxes
- GST Council Reports and Notifications
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Author: Priya Jassi, 4th year Law student, BA LLB, Lovely Professional University
