Mansi Khurana

“Unity in Diversity”, the phrase signifies that despite all diversities like in terms of colour, customs, clothing, caste, creed and culture the India is united in one thread of unity. Article 1 of our constitution provides that India is Union of States.  Prior to 122nd Constitutional Amendment, both centre and the states had their defined areas in which they had the power to impose. But after the rollout of GST regime, the powers of taxing the goods and services are amended as well.

“Cooperative federalism” denotes that centre, state and local governments cooperatively interact with each other and carve out solutions to the common problems collectively. Government officials and our hon’ble prime minister are constantly mentioning GST as a shining example of Cooperative federalism. But what needs to be seen is that is GST really glorifies the concept of Cooperative federalism or not?

GST is the result of consensus of all the state governments and union government. This means both the centre and the state governments agreed to compromise with their taxing powers e.g. centre gave up its exclusive power of levying service tax and Excise and the states agreed to compromise their exclusive power of levying VAT. Thus, both have agreed to remove the compartmentalization in the indirect taxation regime.

Both centre and state have come together & removed the common problems like cascading effect which was the result of broken credit chain in interstate transactions which earlier attracted VAT in states and CST at centre which ultimately resulted in different tax rates. Also, number of procedural compliances i.e. different taxes having requirements of filing multiple returns coupled with tedious calculations. All these flaws in the earlier tax regime have been catered collectively by both centre and states replacing them with common compliances and uniform rates, forms etc.

The notable feature of GST is establishment of GST council. The council consists of Union finance minister, Union minister of state for finance and Finance ministers of all the states. The voting power is divided in the proportion of 2:1 whereby 2/3rd of voting power is given to States and Centre has only 1/3rd power. This proportion of voting power definitely reflects the spirit of cooperative federalism. It is argued by the officials that till now in all meetings all the decisions have been taken up by the consensus which is as far as now the guiding principle, though the constitution states the decisions are to be taken by 3/4th majority present and voting. It is argued that liquor and petroleum products are kept out of purview of GST only on the recommendations of the states and rates are only fixed on the consensus. The Council’s decisions will only be having the status of recommendations and not binding. This means that the final decisions have to be taken on the consensus of states and centre. As claimed by the Union Finance minister, the decisions of the council were delayed but the negotiations never ceased. This is the beauty of the organization of the structure of the council.

It argued that cooperation of all the states and the centre resulted in outstanding features of the GST law i.e. uniform laws across the country (common definitions, common procedures, common formats and common compliance mechanism). Also, apart from common legal framework, the states and centre have come together for its administration as there are joint implementation committees viz. standing committee, sectoral groups and GST implementation committee having the representation of both centre and state for the effective and speedy administrative actions for implementation of GST. Thus, GST is an economic union having the aim of “One Nation, One Tax, One Market”.

GST resulted in Economic integration of India wherein the entire country have become one market and resulted in free movement of goods and services. Even the state of Jammu & Kashmir also adopted GST and enacted Jammu & Kashmir GST Act, 2017.

When we look at the powers of levying tax by both state and centre in the present form, it can be seen that combined effect of Article 302 and Article 304(b) allows both centre and the states have considerable freedom of putting trade barriers which in result can hinder the process of economic integration and creation of uniform market. At international level like in US, EU, WTO etc, these extensive powers are not given that works as loophole in this new regime of indirect taxation.

The passage of GST was filled with hurdles and was not the real test of cooperative federalism. But now in the changed scenario, it is to be seen whether this cooperative federalism remains intact or not.

Till now, the Government treasuries are not much benefited by the GST as was expected. So, it is usual that states may get nervous. It is reported that the centre will transfer the share of the states only once every months beginning next financial year. Also, the compensation will be transferred only on quarterly basis. Also, the government is trying to convince the states for inclusion of Petro and real estate in GST which would be a very difficult task for the centre. So, these may be the points where the cooperative federalism might be tested.

It is to be noted that now states have to be dependent on the council for any changes in GST regime.

Conclusion: The GST is introduced with the aim of ease of doing business where the tax incidence was expected to be low with minimum number of tax rates. But it seems that this debut of GST is quite disappointing. However, GST has curtailed the taxing powers of the states but at the same time it has also provided with the remedial measures in terms of compensation and 2/3rd voting powers and so on. So, it can be fair enough to state that initially GST represents the spirit of cooperative federalism but whether it will keep on reflecting the same needs to seen in the light of coming time.

Compiled by GSTstreet for #GSTManthan

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