All about GST Council

Article 279A of our Constitution gave birth to a new constitutional body called GST Council. The question which always lingers in our mind is whether the decisions taken by the GST council is it binding on the Central and State Governments? Are they obliged to follow all the decisions taken by GST council?

The constitutional role and functions of the GST Council must be understood in the context of the simultaneous legislative power conferred on Parliament and the State legislatures. It is from that perspective that the role of the GST Council becomes relevant.

Evolution of the idea of GST Council

The Thirteenth Finance Commission set up the Task Force on GST. The Task Force recommended that the Empowered Committee of State Finance Ministers may, upon the introduction of GST, be transformed into a permanent constitutional body known as the ‘Council of Finance Ministers’. The Task Force had recommended that:

(i) The Council would be responsible for modification in the design of dual GST regulating the indirect tax system;

(ii) The Council would make decisions on the principle of majority and not unanimity. The initial decision would be approved by the Union and threefourths of the States. The subsequent changes to the decision could be made upon an agreement of the Union and two-third of the States;

(iii) The body would maintain the ‘existing balance of federal fiscal powers’ since both the Union and the States would surrender their fiscal autonomy to change to the GST regime;

(iv) The basis for levy should be common for both the Union and the States upon agreement. This could be on the lines of the GST law in Australia, where both the Union and the States will have to agree before any change in the rate or base of GST could be implemented; and

(v) If the States deviate from the collectively agreed position on GST rates, a mechanism ought to be established by which the defaulting State pays penalty.

The Standing Committee on Finance, Ministry of Finance in its 73rd report on the 2011 Amendment Bill explained the salient features of the Amendment Bill introducing the GST regime. It was noted that the GST Council will be a joint forum for the Union and the States to discuss issues on GST and the recommendations of the GST Council will be a benchmark and guiding force for the Union and State Governments.60 In the same vein, it was observed that the legislature will be free to exercise its power on all issues recommended by the Council.

The Committee also sought the opinion of the Attorney General through the Department of Legal Affairs on whether the recommendations of the GST Council would undermine the power of the legislature. In response, the Attorney General stated that though the GST Council has the power to make recommendations, both Parliament and State legislatures, have the power to either accept or reject those recommendations. The Attorney General stated:

“This is an important point which has been raised and the short answer to it is that it is certainly open to Parliament to approve any recommendation. However, this does not mean that the GSTC recommendations will have no value. Having regarding to the nature of the Constitution of GSTC, the Council would have performed useful role in making recommendations but the ultimate authority whether to accept such recommendations can and must rest only in the Legislatures, namely, Parliament and the State Legislatures. In this view of the matter, the setting up of the GSTC does not strike at the root of the legislative powers over Finance. The powers of the legislature over Finance are sacrosanct and are not affected by the setting up of the GSTC.”

The Committee reiterated in its conclusion that the GST Council would only play a ‘constructive and enabling role’ vis-à-vis the legislature and would not override the role of the legislature:

“The Committee would thus expect the proposed GST Council to follow the principles of cooperative federalism and democratic governance. As this will be a political and a recommendatory body, it would be in a position to play a constructive and enabling role vis-à-vis the Legislature, which needless to emphasise, would remain supreme in matters of legislation including taxation. In the Committee’s view the mandate entrusted to the GST Council under the proposed Article 279A of the Constitution (Amendment) Bill does not in any way alter the existing constitutional scheme in so far as the Legislature, both Union and State, is concerned.”

The GST Council consists of the Union Finance Minister as the Chairperson, the Union Minister of State in charge of Revenue or Finance and the Minister in charge of Finance or Taxation or any other Minister nominated by the State Government. The role of the GST Council is to make recommendations to the Union and the States on seven specific categories revolving around GST including principles of levy and apportionment of GST. Clause (h) of Article 279A(1) also provides the Council with plenary power by which it can make recommendations with respect to ‘any other matter relating to GST’, as the Council may decide. Clause (6) stipulates that the recommendations of the GST Council shall be guided by the ‘need for a harmonised structure of goods and services tax’. One half of the total number of members of the Council shall constitute the quorum for meetings. Clause (9) provides that the Council shall take a decision with three-fourths majority of the members present and voting. The vote of the Union Government is given the weightage of one-third of the total votes cast, and the votes of the State Governments are given a weightage of two-thirds of the total votes.

Parliamentary Debates

The inclusion of Article 279A in the 2014 Amendment Bill raised two important concerns in Parliament: first, the GST Council could effectively override the legislative sovereignty of Parliament and the State legislatures; and second, the fiscal autonomy of the States would be diminished since the Centre has the power to stall a consensus reached by all the States. On 5 May 2015, a Member of Parliament from the State of Tamil Nadu raised the concern that the GST Council would diminish the role of the States in fiscal policy:

“The GST Council as proposed in the Amendment will make recommendations on a whole range of issues relating to subsuming of taxes, cesses and surcharges under GST, exemption for goods and services, model GST laws, etc. This will override the supremacy of the legislature both at the Centre and the States in taxation matters. In the GST Council, the Union Government has one-third weightage in vote and only two-third of the weightage in vote is given to States and Union Territories. Voting rights of States and Union Territories are equal irrespective of their size. We, are therefore, opposed to the idea of GST Council as a constitutional body as it compromises the autonomy of the States including in fiscal matters.”

In response, the Finance Minister had said:

“Once you get into the GST pipeline, the States and the Centre will have to interact together; and once they interact together, the State of Tamil Nadu will be involved in determining and taking decisions relating to the States. So, none of us is going to be surrendering his or her authority or autonomy. We are both going to be pooling our sovereignty together so that we are able to create a new taxation mechanism.”

The Government also submitted that the voting pattern between the Union and the States does not provide unequal power to any one of the constituent units:

“The structure of GST Council represents the federal nature of governance in this country. This has been done as per the recommendations of the Empowered Committee after their meeting in Bhubaneswar in January 2013, and also the recommendations of the Parliamentary Standing Committee. This provision has been consciously adopted to ensure the federal balance in the functioning of the GST Council, and also to enhance co-operative federalism. The existing pattern of vote-share in the GST Council ensures that no decision can be taken by the Council either by the Centre or the States acting on their own. Hence, neither the States nor the Centre alone can take a decision in the Council. Providing 3/4th weightage to the States would upset the federal balance between the Centre and the States. Presently, in the concurrent list, in case of any difference between Central and State legislation, the Central legislation prevails. The present weightage of votes in the GST Council would ensure that neither the Centre nor the States are able to take a decision without the support of the other. In other words both would enjoy a veto.

Role of GST council and paradigm shift in Indian Federalism

Further, with Centre holding only 1/3rd of the votes, the Centre would require support of 20 States/Union Territories to get a resolution passed. This shows that Centre would need co-operation of States to get any decision taken at the GST Council.”

The nature of the recommendations of the GST Council

Indian federalism: Dialogue of cooperative federalism

The arguments in favour of reading the ‘recommendations’ of the GST Council as binding are two-fold: first, if the GST Council cannot make binding recommendations, the entire structure of GST will collapse as each State would then levy a conflicting tax and collection mechanism; and second, if the recommendations are non-binding, then there would be no dispute to be resolved under Article 279(11) as the States would be free to disregard the recommendations. The arguments against interpreting the ‘recommendations’ of the GST Council as binding on the Union and the States are two-fold: first, it would violate the supremacy of Parliament and State legislatures since both have a simultaneous power to legislate on GST; and second, it would violate the fiscal federalism of the States since the Centre has a one-third vote share and the States collectively have a two-third vote share. Therefore, no recommendation on a three-fourths majority can be passed without the consent of the Centre.

Article 246A vests Parliament and the State Legislatures with a unique, simultaneous law-making power on GST. It is in this context that the role of the GST Council gains significance. The recommendations of the GST Council are not based on a unanimous decision but on a three-fourth majority of the members present and voting, where the Union’s vote counts as one-third, while the States’ votes have a weightage of two-thirds of the total votes cast. There are two significant attributions of the voting system in the GST Council. First, the GST Council has an unequal voting structure, where the States collectively have a two-third voting share and the Union has a one-third voting share; and second, since India has a multi-party system, it is possible that the party in power at the Centre may or may not be in power in various States.

Therefore, the GST Council is not only an avenue for the exercise of cooperative federalism but also for political contestation across party lines. Thus, the discussions in the GST Council impact both federalism and democracy. Article 246A treats the Centre and States as equal units by conferring a simultaneous power of enacting law on GST. Article 279A in constituting the GST Council envisions that neither the Centre nor the States can act independent of the other.

The federal system is a means to accommodate the needs of a pluralistic society to function in a democratic manner. It attempts to reconcile the desire of unity and commonality along with the desire for diversity and autonomy. Democracy and federalism are interdependent on each other for their survival such that federalism would only be stable in well-functioning democracies. Additionally, the constituent units in a federal polity check the exercise of power of one another to prevent one group from exercising dominant power. The Indian Constitution, though necessarily federal does confer the Union with a higher share of power in certain situations to prevent chaos and provide security. However, even if the federal units are not entirely autonomous as in the traditional federal system, the units still wield power. The relationship between two constituent units that are not autonomous but rely on each other for their functioning is not in practice always collaborative or cooperative. If the States have been conferred lesser power they can still resist the mandates of the Union by using different forms of political contestation as permitted by constitutional design. Such contestation furthers both the principle of federalism and democracy. When the federal units are vested with unequal power, the collaboration between them is not necessarily cooperative. Harmonised decision thrives not just on cooperation but also on contestation. Indian federalism is a dialogue in which the States and the Centre constantly engage in conversations. Such dialogues can be placed on two ends of the spectrum – collaborative discussions that cooperative federalism fosters at one end of the spectrum and interstitial contestation at the other end.

Such form of contestation commonly known as, ‘uncooperative federalism’ is valuable since “it is desirable to have some level of friction, some amount of state contestation, some deliberation-generating froth in our democratic system.”

Therefore, the States can use various forms of contestation if they disagree with the decision of the Centre. Such forms of contestation are also within the framework of Indian federalism. The GST Council is not merely a constitutional body restricted to the indirect tax system in India but is also an important focal point to foster federalism and democracy.

Recommendations by GST Council

The GST Council which is a constitutional body is entrusted with the duty to make recommendations on a wide range of areas concerning GST. The GST Council has plenary powers under Article 279A (4)(h) where it could make recommendations on ‘any other matter’ related to GST as the Council may decide. The GST Council has to arrive at its recommendations through harmonised deliberation between the federal units as provided in clause 6 of Article 279A. Unlike the other provisions of the Constitution which provide that recommendations shall be made to the President or the Governor, Article 279A states that the recommendations shall be made to the ‘Union and the States’. The recommendation of the GST Council made under Article 279A is non-qualified. That is, there is no explanation on the value of such a recommendation. Yet the notion that the recommendations of the GST Council transform into legislation in and of themselves under Article 246A would be farfetched. If the GST Council was intended to be a decision-making authority whose recommendations transform to legislation, such a qualification would have been included in Articles 246A or 279A. Neither does Article 279A begin with a non-obstante clause nor does Article 246A provide that the legislative power is ‘subject to’ Article 279A.

If the GST Council were intended to be a constitutional body whose recommendations transform into legislation without any intervening act, there would have been an express provision in Article 246A. Article 279A does not mandate tabling the recommendations in the legislature. Only the secondary legislation which is framed based on the recommendations of the Council under the provisions of the CGST Act and IGST Act is mandated to be tabled before the Houses of the Parliament. The use of the phrase ‘recommendations to the Union or States’ indicates that the GST Council is a recommendatory body aiding the Government in enacting legislation on GST.


The above article is an abstract from the judgement of Hon. SC in the case of Union of India Vs Mohit Minerals Pvt Ltd

Author Bio

Qualification: CA in Practice
Location: HOSUR, Tamil Nadu, India
Member Since: 28 Jul 2020 | Total Posts: 16
Has passed out in the year 1999 & has been partner in the firm since November, 2000. Has completed Certification on Service Tax, Certificate Course on GST. Completed one year as Deputy Convenor & one year as Convenor in Hosur CPE Study Circle of SIRC of ICAI and was president of Krishnagiri View Full Profile

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March 2024