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Intergovernmental financial relationship is a vital, or one may say, even a critical matter since it touches the very heart of modern federalism. With growing economies and rapid development in technology, various disputes can arise. The dispute can be between various authorities or between an authority and a stakeholder and so on. Likewise, with respect to the new GST tax regime also there can arise various differences and disputes between the Central and State Governments on various issues. It can be with respect to cross border transactions, levy and administering of Destination State’s share of revenue, and treatment of Inter-state movement of goods and services and others. Whenever we are saying about ‘disputes’, aligned to it we will be discussing on a dispute settlement mechanism.

Internationally there are two approaches towards disputes. As per the first approach there should be a dispute resolution mechanism and as per the second approach there should be not only a dispute resolution mechanism but also a dispute prevention mechanism. So the next question that arises is as to the differences between the two. In the most simple sense dispute resolution is the process of resolving disputes between the parties. Generally all countries have mechanisms to resolve their tax disputes between the parties. Dispute prevention mechanisms are something which comes as a step prior to this. Most of the countries that have adopted a Value Added tax Structure (GST in India) have a dispute prevention mechanism for the purpose of promoting uniform application of provisions.  GST Council can be understood as a dispute prevention mechanism provided in our new GST regime.


In the Constitutional (122nd Amendment) Bill, Article 279A has been inserted for the introduction of GST Council.  The aim of setting up such a Council can be understood from clause 6 of the Article. It is stated that while it is performing the functions conferred by the Act, the Council shall be guided by ‘the need for a harmonized structure of goods and service tax   and for the need for the development of a harmonized national market for goods and services’.[1] So we can understand that their role is to balance and coordinate the well implementation of the new taxing system.

While at one side the dispute prevention role of GST Council is highlighted, there is another side discussing about its effect on state autonomy. If we look at the constitution of the Council, we can see that there is the Union Finance Minister who will be acting as the Chairperson of the Council, then there are members including the Union Minister of State in charge of Revenue or Finance and also the Minister in charge of Finance or Taxation of each States. The quorum of the meeting is one half of the total number of members. As per Clause 9, every decision of the Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members. The vote of the Central Government shall have a weightage of one-third of the total votes cast and the votes of the State Government cast together shall have a weightage of two-thirds of the total votes cast. So it is a situation where the Union is having a predominance. Sir Ivor Jennings described India as “a federation with a strong centralizing tendency”.[2]  At this instance, the above quote becomes meaningful as a situation of ‘Central veto’ is evident here.

As given in Clause 4 of Article 279 A, the GST Council shall make ‘recommendations’ to the Union and the States on various matters. The use of the word ‘recommendation’ here is creating a subtle confusion. The confusion is as to whether the decisions of the Council are binding. So with regard to state autonomy there arises an issue. If these recommendations are to be treated as not binding, then there comes out an analysis that the state autonomy is not affected. But at the same time, we may also come to a conclusion that the recommendations are binding. Then this  in turn affects the state autonomy. ‘Harmonized structure of GST’ as mentioned in clause 6 will mean that there is no serious conflict between the systems followed by Centre and the States during GST regime.[3] The existence of this confusion will hamper the fulfillment of the above aim of the GST Council.

At this juncture we can come to an analysis that since the decisions of the Council are defined as ‘recommendations’ they are not binding on the States. Clause 11 of Article 279A mentions that the GST Council shall establish a mechanism to adjudicate any dispute arising out of the recommendations of the Council or its implementation. Thereby it is providing for a dispute settlement mechanism to be constituted by the GST Council. So the question here is if the Councils decisions are advisory in nature then why the need of a dispute settlement mechanism. At the same time, it should not be forgotten that disputes are inevitable, especially in a new tax regime and hence there is need for such a dispute settlement mechanism.


The issue of GST Council and State Autonomy seems to be a grey area. As discussed in the preceding section, there arises a situation of double interpretation. Unless this issue is resolved GST Council will not be able to function in a meaningful way. Analysing this issue in a positive manner, it can be made out that the GST Council is providing a space for maintaining balance and equilibrium between the taxing powers allotted by the new GST regime and thereby aiming for establishing a sound federal system.

About Author-  A k Neslin, 6th Semester, BA LLB (Hons), The National University of Advanced Legal Studies (NUALS), Kalamassery, Ernakulam, Kerala

[1] Article 279 A , clause 6 of the Indian Constitution

[2] Pal Chandra, State Autonomy in Indian Federation. Deep and Deep Publication, New Delhi, 1984, p.70

[3] SEVENTY THIRD REPORT of the Standing Committee on Finance (2012-2013), Ministry of Finance, Government of India

Compiled by GSTstreet for #GSTManthan

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June 2024