ONE NATION, WHOSE TAX? THE UNEVEN GROUND OF TRADE AND CONSUMER WELFARE
ABSTRACT
The Goods and Services Tax (GST) was established in India as a constitutional framework to normalise the indirect tax space, to provide a dimension of cooperative federalism. The core focus of GST is the GST Council, established under Article 279A, to provide a mechanism for consensus-based tax administration between the Centre and the States. Yet, the strong centre under GST, as evidenced in the dispute over the compensation cess issue and affirmed in the Mohit Minerals case, has entrenched a structurally skewed fiscal imbalance at the expense of state autonomy. This paper aims to unravel the structure and legal history of the GST Council, and discuss the economic implications of the GST, with a focus on the distortions in interstate trade, uneven tax enforcement and uneven pricing from a consumer perspective. If fiscal federalism continues to regress in the name of efficiency, can the GST regime continue to claim itself as a truly united economy?
KEY WORDS
GST council, fiscal federalism, indirect tax system, compensation cess, uneven pricing
INTRODUCTION
With the introduction of the Goods and Services Tax (GST) in 2017, India witnessed a landmark reform to unify the country’s complex indirect tax regime into a unified system. Designed towards the concept of “One Nation One Tax,” GST set out to promote economic integration by lifting the interstate trade barriers as well as ushering in a new era in fiscal federalism, with the incorporation of the GST Council., which was established with the provisions of Article 279A of the Constitution, to serve as a collaboration platform for the Centre and States, to make decisions regarding tax rates, exemptions, and policies. While protecting the overarching national interest and yet providing enough space for the States to maintain their autonomy.
However, as MP Akshith candidly observed in the Lok Sabha, “If I am a citizen of India, I have to pay tax on the money I earn, I have to pay the tax on the money I spend, I have to pay tax on the things I buy, and pay tax on the things I sell, and moreover pay tax on the things that are already taxed bought with the money that is already taxed.”
This statement summarises the lived experience of taxpayers in the tax system in India, which is layered, cyclical, and potentially redundant. It requires us to consider if the GST Council’s legal and institutional structure is amplified complexity and whether its centralism is counter to the core tenets of economic simplicity and federal equity.
Nonetheless, soon after the initial excitement of the federally promised GST, the centralisation of decision-making powers in the GST Council began to raise concerns. The evidence and the criticism in academia highlighted that the structure of the GST Council favoured the Union government, and circumstances sometimes produced very limited representation of several States, particularly those that took a stand against the Centre. The challenges of COVID-19 only served to magnify the tensions and disputes that erupted across the states with the care and feeding of the compensation cess which was supposed to protect the States’ income by the Centre. On one occasion, the Centre implemented a unilateral directive on borrowing to address the cessation of service, which posed a challenge to cooperative federalism. The Supreme Court case (Union of India v. Mohit Minerals) from 2022 was representative of this, allowing for the recognition that GST Council recommendations are no longer binding. As a consequence, the case further legitimised the Centre’s subjugation of independent State decision-making, thus raising legitimate issues of the fiscal federal balance.
Besides the constitutional and legal bases, these institutional imbalances carry a real economic consequence. These imperfections of interstate trade illustrate to us how the best of a single national market remains incomplete, given the inefficiencies of interstate trade, the delay in processing tax refunds, and varied enforcement practices that contribute to price differences, leading to consumer confusion. An article in the Journal of Political Science in 2024 describes how these variations in our fiscal and administrative spaces have the potential to reinforce economic inequalities by the State and jeopardise the GST’s broader objectives of more inclusive growth.
This article takes a critical look at the legal composition of the GST Council and its centralised nature, and its implications for federalism in India. It looks at the constitutional and judicial history of the GST Council, assesses the legal aspects of disputes concerning the compensation cess, and estimates economic friction in interstate trade using empirical information.
GST COUNCIL: A CONSTITUTIONAL STRUCTURE WITH POWER IMBALANCE
Under Article 279A of the Constitution, inserted via the 101st Amendment Act of 2016, the GST Council was designed to be cooperative. Both the Centre and States were envisioned to cooperate to shape India’s direct taxation system. The GST Council, which is headed by the Union Finance Minister, includes the Finance Ministers of all States, and the Minister of State for Finance Union has inscribed powers, such as making final decisions about the GST rate, exemptions, applying thresholds, revenue sharing, IGST allocation and procedures to resolve disputes between the States and the Centre. In terms of required consensus, the GST Council’s decisions require a simple weighted 75% majority, where one-third of the votes are assigned to the Centre, and two-thirds of the votes are assigned to the States.
In theory, this structure presents a balancing act. In practice, however, the Centre has greater powers over common governance arrangements via procedures, which include agenda setting, directing the Secretariat, and scheduling meetings, and are meaningful determinants of whether a proposal gets considered or not. The GST Council has thus adopted a relatively slower decision-making procedure, and proposals by States that oppose the political fortunes of the Centre are often delayed or dismissed.
An illustrative case is Kerala’s proposal that was presented during the meeting of the Council in June 2024. The State framed its proposal in terms of revenue sharing, asking the Council to change from a 50-50 to a more State-friendly 40-60 distribution. Notably, Kerala raised a technical but monetarily important issue, that of e-commerce platforms failing to pay the destination-state IGST as a result of bum GSTR-8 filings and loss of revenue. While the Council agreed to amend GSTR-8 forms so that they could report state-wise separation, the revenue-sharing proposal was ignored altogether. This showed how technical issues, even when legitimate, require considerable evidence and constructs to gain traction; meanwhile, large structure proposals are put off with hardly any discussion.
The COVID-era compensation cess fiasco further reflected procedural biases. States like Punjab, Kerala, Rajasthan, Madhya Pradesh, Chhattisgarh, and Delhi noted that they were owed ₹50,000 crore in cess that was legally owed to them, and their entreaty for disbursement was often met with a borrowing with conditions that neglected the Council altogether, and forced decisions onto the States, whereby impacting the principle of cooperative federalism.
Southern and opposition-led States raised significantly broader governance issues. Southern States were now seeing lower divisible revenue shares post-GST and raised the issue concerning non-divisible cesses and surcharges with no distributable revenue. Officials warned that unchecked power could shift cooperative federalism into coercive federalism.
While States effectively control two-thirds of the voting power, the Centre uses procedural levers of agenda control, data and data reporting requirements, quorum management and scheduling tools to influence decision-making. Getting approvals for even well-documented grievances often requires a cumbersome bureaucratic approval process.
Moreover, while procedurally responsive, the adjustment of GSTR-8 had little substantive impact. For example, it revealed a conceptual procedural asymmetry in which states have to provide considerable evidence to even begin the discussion, only to have, even when that evidentiary burden is met, structural issues typically dismissed in a procedural setting.
There is a crucial paradox here: while the Council is formally a federal body, in practice, it was designed to operate as a monopoly. Asymmetries in the process can often lend prominence to the Centre’s preferred outcomes, in matters where fewer States expressed interest. It also makes it difficult for State-level requests with compelling fiscal rationale to receive the same consideration.
These recurring examples of procedural asymmetries, that is, States routinely provide empirical justifications to justify their fiscal entitlements and receive acceptance in response, have transformed the working reality of the GST Council. The constitutional framework indicates equality, but the operational framework is more a centralised mode of governance, and is produced through institutional inertia and procedural inflexibility. Over time, it has revealed a deeper vulnerability in India’s federal tax regime, the lack of neutral and independent adjudicating structures to deal with Centre–State disputes. As the Council aims to work through more complicated and contested fiscal issues, this institutional gap exposes itself as more than merely a technical failing; it imperils the underlying principles of cooperative federalism.
INSTITUTIONAL GAPS AND THE ABSENCE OF A GST APPELLATE TRIBUNAL
India’s GST architecture was conceived to be more than a harmonised tax policy, but rather a coherence of checks and balances – one which entailed resolving disputes in a swift but also fair manner, and incorporated an appellate forum. The appellate forum in the GST context is the GST Appellate Tribunal (GSTAT) laid out in Section 109 of the CGST Act and envisaged by Article 323B of the Constitution, which was to serve as the judicial platform. However, as we approach nearly eight years post-implementation of GST, the Tribunal is absent, not in literature but in practice.
With the absence of any Tribunal, the judiciary has intervened. In Team Computers Pvt Ltd v Union of IndiaThe Supreme Court issued a formal notice in December 2024, directing the Centre to inform the Court as to when the Tribunal would be in place and the reasons for the delay. The intervention by the Court recognises the fact that silence by an institution ought to be analysed and called to account in a system of governance built on cooperative federalism.
In the absence of GSTAT, taxpayers are forced to seek recourse from High Courts, many of which are already overwhelmed with litigation, and are not uniformly accessible across the country. Consequently, a new form of inequity has developed: a taxpayer in a state with better legal infrastructure or faster benches is now better off; an unintentional inequality has developed between taxpayers in different states. Some procedural voids have quietly matured into structural voids.
Some High Courts have been forced to confront the real consequences of this absence. In M/s BPD Steel Syndicate v. Union of India (Orissa High Court, WP(C) 6518/2023), the Court issued a stay of tax recovery proceedings stating that without an appellate body, the taxpayer would suffer procedural injustice. In Sekh Aminur Islam v. Commissioner, the same High Court granted a stay of proceedings with a deposit of 20% recognising that the absence of GSTAT is no longer just a technical issue, but also a reality.
Not having a tribunal at the national level also affects a consistent interpretation of GST law. Right now, disputes involving input credits, classifications, and refund entitlements are being resolved a disorganized combination of silos; some taxpayers receive relief in one state and others are having strict interpretations put upon them elsewhere. This inconsistency is undermining the “One Nation, One Tax” narrative without anyone saying it out loud.
Early in 2025, administrative measures were embraced, such as straightening out procedural guidelines and proposing some digital infrastructure for e-filing and virtual hearings, but still, many benches are not functioning, and appointments are sitting in inactive states due to procedural issues. The problem isn’t that things take time to implement, they always do, but is it a problem of time because there could be unease about setting up an avenue for appeal when the Centre is, on occasion, the respondent?
Some constitutional scholars have pointed out that the delay may be inadvertently shifting the locus of power. Where GST disputes stay in High Courts, states’ abilities to counter Council decisions in a specialised venue are limited. Businesses also have to carry on in an inequitable landscape while they wait for supposed procedural clarity to be defined and various aspects of blame sorting.
Comparative federalism can shed light on these issues. In Australia, the Administrative Appeals Tribunal is institutionally separated, has clear rules for selection to the Tribunal, has the power to run itself without concern, and has guaranteed representation from the states. In Canada, the Tax Court is similarly insulated, With many of the same rights and structures as the tribunal process in Australia. In India, without any of these structural and procedural rights, even a tribunal that was functioning could replicate many of the longstanding asymmetries that it’s expected to resolve.
All of that said, one must give credit where it’s due. Judicial forums have acted quickly to fill the void, and the government has hinted at an evolving pathway to full implementation. Our more profound question, however, remains: when we agree that procedural rights exist in law but not in practice, the promise of a cooperative federalism exists in condition. The procedural rights to cooperative federalism exist in form but not in substance.
Ultimately, the discussion isn’t about blame but about follow-through. The tribunal is a necessity, not merely an optional component in a developing GST framework. The tribunal’s operation with independence, a developing infrastructure, and an inclusive dialogue may finally find the equilibrium between legal design and operational practice; between policy intention and political reality.
The procedural control and asymmetries of power built into the GST Council are not just institutional quirks but also have concrete implications for the legal and fiscal implications of India’s GST. The equilibrium terms of the GST regime faced a serious challenge from the Supreme Court ruling in Union of India v. Mohit Minerals (2022), which stated that the recommendation of the Council is advisory and not binding. The legal reassessment caused tremors throughout Centre-State relations and modified the tenor of cooperative federalism in India.
With the States issuing a new discretionary power, further inquiries arise: could varying courses of action by States effectively destroy the “One Nation, One Tax” logic? What uncertainties will businesses face where GST expectations differ from State to State? How lucky would the GST situation be in a legally uncertain world?
In unpacking the Mohit Minerals ruling and determining the legal implications, we begin the journey of looking at how the judicial movements give rise to economic inequalities and problems generated by consumers. The legal and the practical have a different identity, in that they affect each other and are affected by each other as part of the story of GST in India.
MOHIT MINERALS AND THE LEGAL REINTERPRETATION OF THE GST COUNCIL
The GST Council, brought into existence through Article 279A, was intended to be a cooperative and federal body, recognising national uniformity with State independence. Yet, in Union of India v. Mohit Minerals Pvt. Ltd. (2022) 4 SCC 1, the Supreme Court delivered a momentous ruling: the recommendations of the Council are not legally binding.
While this was primarily a case relating to the applicability of IGST on ocean freight under CIF import contracts, the Court’s reasoning went far beyond this. It took the opportunity to clarify and formally identify that while the GST Council is recognised in the Constitution, it does not necessarily mean that its recommendations can control the legislative competence of States and Parliament. The GST Council’s recommendations, therefore, are not mandatory.
On an implicit yet substantial level, this interpretation reopens the state-level discretion. This leads to some level of federal empowerment, but there is a problem. If states choose not to follow the Council recommendations, the “One Nation, One Tax” vision runs the risk of creating a patchwork of separate taxes.
This change adds an element of uncertainty for businesses. Uniformity, a cornerstone of GST, is now reliant on political cooperation, whereas the Constitution previously guaranteed it. For businesses operating in multiple States, tax regulations are now potentially different and compliance uncertain, presenting more operational risk.
The decision also presents States with a new tactical opportunity. Opposition and smaller parties, and those who have felt like they were pushed aside, can now take advantage of this judicial interpretation and put forth fiscal demands. While it could improve federal equity outcomes, it also creates a potential for disunity if too many acts in a deviant way.
The ruling also highlights a major institutional void: a GST Appellate Tribunal. Because the Council’s recommendations are not binding, there is no dedicated forum in the system with the ability to properly consider disputes stemming from them. Consequently, all appeals go to the High Court, with many Courts suffering from overload and not uniformly accessible across the country. Not only does this tax the competency of the judiciary, but it also has implications regarding consistency in adjudication and fairness in access to justice.
Even with these changes, though, GST remains structurally stable since most states continue to follow Council recommendations to keep the system together. However, the Mohit Minerals decision shows that greater procedural clarity, dispute resolution, and trust among governments are needed to keep the federation together.
ECONOMIC FALLOUT: GST’S UNEVEN IMPACT ON INTERSTATE TRADE AND MARKET EFFICIENCY
The introduction of the GST was heralded as a giant step towards the establishment of a national market by removing internal barriers to trade and encouraging economic efficiencies. While the GST regime has been less complicated than the myriad of indirect taxes previously imposed, the economic ramifications of GST, particularly the function of interstate trade and the new market conditions, are more complicated. Further, the myth of a “One Nation, One Tax” has become fragmented by infrastructure disparities, compliance discrepancies, and stress in specific sectors (such as car sales) on top of questions of who benefits, and at what cost.
A notable reform introduced under the GST has been the e-Way Bill mechanism, which became mandatory in April 2018. The e-Way Bill process requires electronically documented evidence of the movement of goods over ₹50,000 in value to be documented electronically-bound to limits on enforcement agency intervention. In theory, this has improved logistics: a 2024 report has shown that transit times have improved by 25%, and costs have declined as transport companies endure fewer stops and less paperwork. Amazon and Flipkart, for instance, recorded reductions of 15–20% in last-mile delivery times as a result of the interstate movement of products after GST.
Despite efforts to improve compliance, the technology that enables an economy to make full use of the system is not equally distributed. There are many SMEs, especially those working in semi-urban and rural areas, who have little to no internet access, minimal technical literacy, and higher compliance costs per unit. A 2024 JETIR study found that almost 37% of small traders reported experiencing delays or financial penalties with e-Way Bill generation, often because attempts to generate the e-Way Bill were affected by unclear glitches or unintentional mismatches in the system. For many smaller entities, while the larger players that are digital natives are flourishing in their upsides, they are still left dealing with ‘compliance penalties’, making the switch to formality with no upside.
The e-Way Bill is also indicative of a larger issue: there is significant infrastructure bias towards the logistics giants who have the systems and people who can work through the mass of digital complexities created by GST. Flipkart’s intrusiveness in the global supply chain and Amazon’s automated e-invoicing systems allow them to overcome delays and decrease costs. Effectively, their gains in efficiency result in logistics-allies-able things that no longer exist in the process. Over the same period, it has simply meant market consolidation, where it is compliance capacity, and not the capacity of entrepreneurial innovation, that matters.
Regional differences exacerbate the unequal allocation of GST benefits. States with better conceived infrastructure, infrastructure that would enable the efficiencies required to actualize e-Way Bills and also receive refunds promptly, states such as Gujarat, Maharashtra and Haryana, are likely to extract these efficiencies quicker than lagging states like Assam, Bihar and Odisha, where logistical delays make already poor digital connectivity and enforcement issues worse. A 2022 NIPFP study noted huge differences in GST compliance (by returns filed) among the states.The state that declared the highest compliance had a compliance rate that was higher than the state with the lowest compliance by 23 %. Such variance undermines expectations of a ‘level’ internal market across India.
A second fundamental concern is delayed input tax credit (“ITC”) refunds as previously reported in prior years, mainly in industries with long supply chains: textiles, electronics, pharmaceuticals, etc. The Economic Times in May 2025 reported- GST refunds owed to MSMEs are more than ₹20,000 crore, and total GST refunds made were only ₹27,210 crore from total GST collections of ₹2.01 lakh crore – only 13.5% of total collections were refunded. For small exporters and traders, these delays are more than simply inconvenient; they threaten their sustainability because many businesses depend on GST refund payments for liquidity, payroll and raw material supply. As noted in a 2024 PAC report, it was determined that the delays in GST refunds were associated with higher SME loan defaults, which essentially converts tax compliance/refund failure into a liquidity trap.
These financial barriers are particularly disruptive to MSMEs, which arguably operate on narrower margins than most other firms. They do not have the cushion of maturity to absorb interrupted cash flow like the larger firms do. Research has indicated that nearly 42% of small businesses were suffering from working capital stress due to late GST refunds. Thus, in essence, the GST system has led to the cash flow fracture of India’s small-scale economy, even though it clearly showed a seamless credit chain in theory.
On paper, the goods may move with less friction, but there are still operational frictions in the form of arbitrary inspections, uncoordinated documents, and divergent interpretations by states of provisions under GST. Countless truckers reported being stopped for a surprise inspection in Uttar Pradesh and Jharkhand, with nothing but valid e-Way (which would comply with the law) documentation. In summary, the frictions made delivery outcomes unpredictable and costly, eroding the idea of having a single market. A recent Journal of New Dimensions (2025) reported that 34% of the logistics firms surveyed incurred “unsubstantiated detention” of goods in an interpretation of compliance issues that were far too state-determined.
Furthermore, sectors like agriculture and small-scale manufacturing, which frequently depend on informal supply chains, have particularly struggled with GST’s digital and documentation requirements. Many of these traders are now, purposefully, operating below threshold levels in order to avoid registration. This has culminated in two economies: the formal, digitised and rationalised economy, and the informal, fragmented and cash-dependent economy. If anything, the GST has brought complexity that produces a disincentive for small players to formalise their businesses in the informal sector rather than bringing them into it. Most importantly, the design of GST assumed uniform state and sectoral readiness, which is a very bad assumption to make. There is harmonisation in law but no harmonisation in the economy. The fact that a logistics company based out of Mumbai may work for them means there is no absolute stability for a trader based out of Guwahati. GST imposed tax collection at the Central level, and there was a lack of uniformity in enforcement and ineffective grievance mechanisms, which generated structural inefficiencies for smaller economic agents, like traders. Like all data, the data does not lie; although big players have scaled faster after GST, it is MSMEs, which contribute over 30 percent to India’s GDP and provide employment for over 111 million people and face increasing barriers to accessing the benefits of GST. In addition to compliance burden and cash flow mismatches, the operational uncertainty is negatively impacting businesses, while reducing tax buoyancy long-term by curtailing growth at the base.
In conclusion, while GST may have diminished the variety of tax systems in India, economic implementation has resulted in a multi-speed character of the market, one that relies on digital readiness and scale, and punishes fragmentation and informality. Left alone, this could lead to the development of a two-tier economy of efficiency, where some organisations benefit from others’ exclusion. Equally, reforms in future will require an equalisation of infrastructure, digitalisation for MSMEs, and simplifying processes to allow for an equitable sharing of the economic benefits of GST.
PRICE DISTORTIONS AND CONSUMER IMPACT
GST claimed to reduce prices, promote transparency, and provide clarity to consumers; on average, the experience on the ground has been mixed across consumer staples and discretionary items.
- GST Did Not Reduce Prices Across The Board
GST was designed to replace cascading taxes, which, in theory, should lead to reduced prices. Yet, many fast-moving consumer goods items had final prices that were more expensive after GST was implemented. Items like shampoos and detergents remained in the 28% GST slab and therefore accepted the higher cost to maintain margins, instead of passing the reduced cost on to consumers. CavinKare’s C.K. Ranganathan explained that margins were probably compressed by 5 pp even though he expected consumers would see a reduction now that they were no longer paying a cascading tax. At the same time, HUL and Patanjali initially reduced their MRP when the government lowered GST rates in 2017, but quickly returned to the original MRP, suggesting any consumer savings were short-lived and only a temporary blip.
- Popcorn Case: Confusion with Slabs and a Consumer Backlash
The popcorn tax debacle exemplified how GST’s multi-slab composition creates inconsistent pricing for products. In December 2024, Reuters reported that the GST Council clarified that popcorn has various rates: 5% for unbranded salted/spiced popcorn, 12% for branded and pre-packaged popcorn, and finally 18% for caramel popcorn since it is considered ‘sweetened’ due to sugar. This sparked fierce criticism even from former policy makers since it demonstrated the undue complexity of the system for negligible revenue. What was meant to clarify the scene ended up creating consumer confusion and mockery; examples abounded on memes, political censure, and requests to make GST simple.
- Food & Restaurant Sector: Pricing Confusion
Dining out and food delivery have created added complications. Standalone restaurants are subject to normal 5% GST, while luxury hotels’ restaurants are subject to 18% GST. Further, food delivery aggregators have sometimes charged 18% GST on the delivery fee itself, for which the GST council apparently was discussing lowering back to 5% in late 2024. Customers and undertakers face disjunctive or inconsistent ways of billing, undermining trust. Without binding rules and invoicing rules, the GST consumer-friendly appearance is broken.
- Multi-Slab Structure and Consumption Behaviour
The five-tier tax structure of GST- 0%, 5%, 12%, 18%, and 28% – creates large price discrepancies between almost equivalent products. For example, branded snacks are generally in a higher slab compared to unbranded snacks, driving price-sensitive customers towards unbranded snacks. The popcorn comparison demonstrates the smallest difference of a minor ingredient, a bit of added sugar, increasing the slab tax paid by consumers, tilting purchasing behaviours and distorting consumer choices. Rather than reflecting economic behaviour, GST slabs shape it.
- Consumer Trust and Perception
Complicated slab systems, inconsistent billing practices, and no clear tax breakdown for consumers lead to a loss of consumer confidence. For example, it is common for restaurants to present their menu prices excluding GST, with only the final price shown during the billing process. This presents the consumer with the ability to make accusations of hidden pricing. This issue goes directly against the promise of GST to provide a clear price for consumers, and raises questions about its legitimacy in the social consciousness.
PROPOSALS FOR A BALANCED AND EFFICIENT GST FUTURE
The aspiration of the Goods and Services Tax (GST) as a “one nation, one tax” system was ambitious but inevitably compromised by structural deficiencies. As GST matures, the need for new ideas about its architecture increases in importance to bring about federal equity, legal certainty, economic flexibility, and institutional transparency. The following recommendations seek to future-proof India’s GST through several discrete actions.
(i) Legal: Reforming the Decision-Making Process of the GST Council
The GST Council, which is an innovative intergovernmental institution, is central to the GST’s quasi-federal compromise. The current scheme of voting (Centre gets 1/3 weight, states get 2/3 weight, and decisions require a 75% majority) results in a lopsided system that disproportionately empowers the Union, given its one-block status, as opposed to the various fragmented states.
One approach to correct the imbalance might be:
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- Weighted Voting for States: Larger states could have slightly higher weights, while smaller states could have a guaranteed floor.
- Independent Rotation of Chair: Rotating the chair between the Centre and the states would preserve the symbolism and hopefully also the process of being an equal.
- Deliberative Democracy Features: Imposing mandatory deliberation before voting and recording a minority position could transform the Council from a majoritarian institution to one that is interested in opinions and consensus.
The reforms would reaffirm the spirit of “cooperative federalism,” rather than an empty mantra.
(ii) Institutional: GST Tribunal Creation with Federal Safeguards
Despite GST being launched several years ago, there continues to be a lack of a GST Appellate Tribunal, meant as a forum to resolve tax disputes. Taxpayers are forced through the long process of petitioning the High Courts, further burdening the judicial system and causing delays.
To fill this void:
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- Use Independent GSTAT Benches: With equal representation of the Centre and states, along with judicial and technical members, an independent tribunal must mean independence in terms of both structure and function.
- Establish Zonal Distribution: By creating benches regionally, in North, South, East, West and Northeast, will allow for accessibility and resolve jurisdictional constraints.
- Timely Disposal Mandate: Procedural timelines, in a similar manner to the NCLT or CAT, should be prescribed for dispute resolution.
The Tribunal should not just be another tax court, but also be a forum to restore taxpayers’ faith and provide accountability in the GST ecosystem.
(iii) Economic: Floor-and-Ceiling Price Bands for State Flexibility
The GST’s principle of uniformity has been subjected to continued criticism that it is overly centralised and limits the state’s fiscal autonomy. Nevertheless, the rational outcome of the GST, a common market, cannot be reached with an unrestricted rate.
The compromise could be to allow:
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- Price Bands on Selected Goods/Services: States could fix GST on selected items like petroleum, tobacco or luxury items with floor-to-ceiling price bands that have been pre-approved.
- Triggers to ensure Revenue-Neutrality: The bands should contain these indexed variations, given the revenue pressures states have, and disaster considerations, should have inputs from the formulae made available.
- Sunset Clauses and Review Mechanism: If it is permissible for states to vary GST rates, it should be contained by time it be to the sake of sunset clause, and subject to a review by independent experts.
This model reflects arrangements undertaken by other federations such as Canada and Australia, and will allow for flexibility through fiscal restraint.
(iv) Transparency: The publication of Dissent Notes from GST Council meetings
The opaque decision-making of the GST Council may undermine political and public confidence and accountability. It is possible to create an obligation to publish minutes from its meetings in detail, along with dissenting opinions, and it will help regularise the internal discussions and transparency of the mutual deliberation on public policies. Accompanying this with a post-meeting debrief with stakeholders will make the decision-making process of the GST Council less opaque and more amenable to public engagement and democratic legitimacy.
(v) Accountability: Establishing an independent GST Impact review body
An independent, standing GST Review Commission would fill a massive gap in evaluating public policy post-implementation. It could provide periodic reviews of the impacts of major general directions in GST on the economy and society. It would be charged with intimidation by the GST Council on evidence about past impact analysis or planned GST policy changes. The GST Board may be comprised of economists, members of industry with experience in ordering issues arising from the GST, and representatives of civil society. Thus, providing equal outside scrutiny in GST policy development before any decision is made indirectly holds the National government accountable for GST deteriorated issues.
CONCLUSION
India’s Goods and Services Tax was publicised as the most ambitious attempt at tax reform in decades, a shift toward tax simplicity, uniformity and prosperity for all. However, beneath the slogan of “one nation, one tax,” has been a more insidious drift toward centralisation of fiscal authority in the hands of the Union, sacrificing state autonomy. A theoretical critique of fiscal centralisation has played out in state budgets, constraints on fiscal revenues and paralysis of reform.
The pandemic years highlighted the vulnerability of states under the GST structure. As compensation guarantees lapsed and further scope for tinkering with rates was limited, states found themselves wedged between demands for increased welfare spending and diminished tax bases. At the same time, increasing dependence on the Centre deepened vertical fiscal imbalances and revealed the fragility of India’s federal compact. States, as the true laboratories of public service delivery, must now function within a tax system that offers no flexibility and financial confidence.
The structural imbalance is not by chance; it is a result of choices made in the design of the constitution, institutions, and economy, which together caused GST to be weakened at the outset. The voting structure of the Council, the lack of Tribunal, the narrow rate bands and the lack of transparency in deliberations all point to a centralised and structurally-determined model that must be rapidly recalibrated. Reforming GST is no longer just an administrative convenience: it is now a constitutional necessity.
Revisiting the constitutional model should be the first order of business to restore the power to the States. Re-designing the GST Council voting model and providing leveraged autonomy in rate-setting gives sub-national governments their fiscal agency back. Next, institutional shortcomings must be addressed, including a lack of a separate GST Tribunal or independent review body for dispute resolution, impact evaluation, and a mechanism for systemic course correction. Finally, economic reforms must be enacted in order to provide flexibility, e.g. implementing flexible, band-based, time-bound rate bands and rationalised compensation frameworks to achieve uniformity and allow some flexibility.
These are not radical ideas; these are just the minimums needed to protect the federal promise guarantees in a constitution. GST 2.0 cannot be a mere fix. It needs to be generationally better: from control to cooperation, from no transparency to full transparency, from rigidity to resilience.
Indian federalism is not only reliant upon the Centre giving up fiscal space, but also the states demanding and negotiating that space. For GST to succeed in its foundational purpose, it needs to evolve into a system that is diverse, flexible, and equitable, to turn GST from a tax reform to just another advance in democratic history.
India is on the brink of this second opportunity. GST 2.0 cannot be merely a technical reform; it must be a political vision of a federalist dream.
N0tes:
1 India Constitution. art. 279A.
2 Joseph, K. J. & Kumary, Anitha L., India’s GST Paradigm and the Trajectory of Fiscal Federalism: An Analysis with Special Reference to Kerala, NIPFP (2022)
3 GST and Fiscal Federalism, Drishti IAS Daily News & Editorial (21 May 2022) https://www.drishtiias.com/daily-/news-editorials/gst-and-fiscal-federalism
4 Shoaib Daniyal, ‘Uncooperative federalism: Compensation debacle shows how GST Council offers little space to states’ Scroll.in (19 October 2020) https://scroll.in/article/976130/uncooperative-federalism-compensation-debacle-shows-how-gst-council-offers-little-space-to-states
5 Wasim, Six Years of GST: Compensation Cess Still Needs to Be Sorted Out (ForumIAS Blog, 4 August 2023) (last modified 29 August 2023) https://forumias.com/blog/six-years-of-gst-compensation-cess-still-needs-to-be-sorted-out/
6 Union of India & Anr v M/s Mohit Minerals Pvt Ltd [2022] SCC Online SC 657
7 D Ananda, ‘Goods and Services Tax and Its Implications for Fiscal Federalism in India’ (International Journal of Political Science and Governance Vol 6 Issue 2 (2024)
8 India Constitution. art. 279A.
9 GST Council – Government of India https://gstcouncil.gov.in/
10 GST Council meeting: States should get 60 per cent share of GST, says Kerala, Business Standard (23 June 2024) https://www.business-standard.com/economy/news/gst-council-meeting-states-should-get-60-share-of-gst-says-kerala-124062300514_1.html
11 States Should Get 60 Per Cent Share Of GST, Says Kerala FM During 53rd GST Council Meeting, Outlook Business https://www.outlookbusiness.com/economy-and-policy/states-should-get-60-per-cent-share-of-gst-says-kerala-fm-during-53rd-gst-council-meeting
12 Cess on luxury items is crucial for Punjab’s revenue: Cheema, Hindustan Times (Chandigarh, 17 October 2024) https://www.hindustantimes.com/cities/chandigarh-news/cess-on-luxury-items-is-crucial-for-punjab-s-revenue-cheema-101729105012543.html
13 Central Goods and Services Tax Act, No. 12 of 2017, § 109 (India).
17 The Goods and Services Tax Appellate Tribunal: A Concept Note (DAKSH India, April 2022) https://www.dakshindia.org/wp-content/uploads/2022/05/ Concept-Note-2.pdf
18 Manu Sharma, ‘Confusion Over Listing after Orissa High Court Pauses GSTAT Judicial Member Selection’ Taxscan (21 June 2025) https://www.taxscan.in/top-stories/confusion-over-listing-after-orissa-high-court-pauses-gstat-judicial-member-selection-1425663
19 Thomas A Falcone, ‘A Comparative History of the Tax Court in Canada’ (2023) 10(1) Journal of International and Comparative Law 63.
20 Union of India & Anr v M/s Mohit Minerals Pvt Ltd [2022] SCC OnLine SC 657
21 India Constitution. art. 279A.
22 Utkarsh Anand and Gireesh Chandra Prasad, ‘SC Says GST Council Decisions Not Binding on Centre and States’ LiveMint (20 May 2022) https://www.livemint.com/politics/news/sc-says-gst-council-decisions-not-binding-on-centre-and-states-11652986527842.html .
23 Rohit Jain, Gopal Mundhra and Parth Parikh, ‘ELP Tax Update – Supreme Court strikes down levy of IGST on Ocean Freight’ (Economic Laws Practice, 20 May 2022) https://elplaw.in/leadership/elp-tax-update-supreme-court-strikes-down-levy-of-igst-on-ocean-freight
24 Niraj Bagri, ‘SC judgement on GST Council: The unravelling of GST’s uniformity promise’ Financial Express (20 May,2022)https://www.financialexpress.com/opinion/sc-judgement-on-gst-council-the-unravelling-of-gsts-uniformity-promise/2531472/
25 Kunal Khureja, ‘The Supreme Court’s Judgment on GST – Explained, Pointwise’ (ForumIAS, 27 May 2022) https://forumias.com/blog/the-supreme-courts-judgment-on-gst/
26 R Naveen Prakash and David Stalin Kumar, ‘A Study on GST Impact on Supply Chain Management at Amazon.com’ (2024) Trends in Banking, Accounting and Business 3(1), 471.
27 Himanshi Bansal, ‘The E‑Way Bill System: A SWOT Analysis & Its Impact on Goods Movement in India’ (2024) J Emerging Tech & Innovation Res Vol 11, issue 12.
28 Santosh Kumar Dash and Kiran Kumar Kakarlapudi, ‘What Explains Interstate Variation in GST Collection?’ NIPFP Working Paper (Dec 2022).
29 Impact of GST on the Logistics Industry (GEP Blog) https://www.gep.com/blog/mind/impact-gst-logistics-industry
30 Sapna Agarwal, ‘Consumer goods firms hold off on price hikes despite GST impact’ LiveMint (updated 10 July 2017) https://www.livemint.com/Industry/LCeiBAJMFBdyCugREufxNN/Consumer-goods-firms-hold-off-on-price-hikes-despite-GST-imp.html
31 John Sarkar and Sidhartha, ‘Facing flak, FMCG companies reduce prices for now’ Times of India (New Delhi, 22 November 2017) https://timesofindia.indiatimes.com/business/india-business/facing-flak-fmcg-cos-reduce-prices-for-now/articleshow/61747210.cms
32 Nikunj Ohri, ‘How to tax popcorn? India’s formula sparks outrage against GST system’ Reuters (23 December 2024) https://www.reuters.com/world/india/how-tax-popcorn-indias-formula-sparks-outrage-against-gst-system-2024-12-23/
33 Tripti Lahiri, ‘A “National Tragedy” in India: Popcorn Is Taxed Three Ways’ (Wall Street Journal, 22 January 2025) https://www.wsj.com/world/india/popcorn-tax-india-government-three-rates-6b6499eb
34 Reuters, India tax panel may consider lowering GST on online food delivery fees, report says (16 December 2024) https://www.reuters.com/world/india/india-tax-panel-may-consider-lowering-gst-online-food-delivery-fees-report-says-2024-12-16/
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Author: Achuda Manickam | 3rd Year B.B.A., LL.B. (Hons.) | SASTRA Deemed University
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