Sumit Gehlot


The demarcation of power in the respective lists[1] clearly shows the intention of constitution makers that all states must be free to adjust the rate of the sales tax according to their respective requirements. Earlier, the state legislature had complete autonomy to decide tax rates on the sales of goods occurring within its territory in the form of Value Added Tax (VAT)[2]. Levying of indirect taxes was one of the major powers given to the state to generate its revenue and utilise it for developmental activities. Therefore, any alteration in this power carries the risk of making states beggars at the doors of the Centre and violating the principle of ‘federalism’. With the advent of Goods and Service Tax (GST) and introduction of “The One Hundred and First Constitutional Amendment act (GST Constitutional Amendment act, 2016)”, adding article 246A[3], 269A and a279A in part XI and XII of the constitution, the financial balance between centre and state are being tested. The newly introduced provisions establish the constitutional framework for the implementation of GST and it also transfers the power of state to fix the tax rates on sales of goods to a constitutional body termed “GST council” constituted vide article 279A[4].  This radical reform  raises some serious questions on the federal structure of the country- what are we then electing state governments for, if they cannot make decisions on political priorities?[5]. Whether the Council will be able to perform as a mediator and provide a conciliation forum or whether it is going to be another means to make inroads into the fiscal powers of the States?[6] This paper would try to answer these questions after thorough analysis of the newly added provisions. .


Every state and union territory has been given one vote in the decision making of the council and the combined total strength of the vote of all the state and union territories is two-third, but the Central government’s vote alone will carry a weightage of one-third of the total votes cast[7]. It is also been provided under the amendment that the council’s decisions will require a three-fourths majority, according, thereby, apparent veto power in the favour of the Union[8]. Concerns have been raised by the manufacturing states that, there revenue would likely to get affected adversely because irrespective of being a manufacturing states they have been provided one vote in the final say of GST council ‘recommendation’. Consumer states will always vote in their own interests[9]. Thus, in this way they would always be at disadvantageous stage.


There is also an ambiguity regarding the language of article 279A. The amendment act uses the word ‘recommendation’ at four different places and doubts have been raised over the binding nature of such recommendations on members states. When the literal meaning of the term ‘recommendation’ is considered, it seems that the Union and the States are still free to disregard the recommendation of the council. However, there is a rule of interpretation that the word should be interpreted in the context in which they occur[10] and in the intent of legislature[11]. Thus, going by this rule of construction, it suggests that the term “recommendation” is binding on all the members state. Otherwise, there was no need of providing a dispute settlement body to enforce the compliance of council recommendation.

It is also ambiguous whether, the legislature, by creating a dispute settlement body excluded the ‘original jurisdiction’ of the Supreme Court[12] or not. If yes, then the legislature should have used the ‘non-obstante clause’ to bar the jurisdiction of all courts as it has been used in Article 262. Thus, the plain reading suggests that the Supreme Court has its original jurisdiction over the council dispute because all preconditions[13] required for article 131 to come into life are fulfilled in case a dispute arises over the council’s recommendations.


India can remain united as a federal democracy only if the autonomy of states is valued. The core of this arrangement is equal and fair participation in the decision making catering to the varied needs of each member state. To ensure the smooth functioning of this indirect tax infrastructure it is essential that the Union does not abuse its disproportionate voting share to settle political scores. As GST is a destination based tax manufacturing states are also apprehensive about its adverse effect on revenue collection. It is a prime responsibility of Union to alley this fear in an equitable manner. Union did provide for revenue compensation scheme to the states but its efficacy is yet to be proved especially since it is only for initial period of 5 years. If there is a failure in this mission, with no independent powers of taxation, such states may be left in the lurch.

[1] List I- Law making power of Union Govt, List II- Law Making power of State government, seventh schedule Constitution of India, 1950.

[2] Entry 54 list II, Seventh schedule Constitution of India, 1950.

[3] Article 246A– Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.

[4] Article 279A(1)- The President shall, within sixty days from the date of commencement of the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services Tax Council.

[5] Neelkantan R.S.,The GST could Sound the death knell for federalism in India (5/08/2016) available at , last seen on 22/01/2018.

[6] DR. K. Gopakumar, GST Council : Conciliatory Forum or Anti-Federal Device [2016] 67 212  (Article).

[7] Article 279A (9), Constitution of India, 1950.

[8] Suhrith Parthasarathy, Taxing times of the state (25/07/2017) available at , last seen on 23/01/2018.

[9] Neelkantan R.S.,The GST could Sound the death knell for federalism in India (5/08/2016) availablt at , last seen on 22/01/2018.

[10] Yedida Chakradhararao v State of A.P., (1990) 2 SCC 523.

[11] Pratap Singh v State of Jharkhand, (2005)3 SCC 551.

[12] Article 131, Constitution of India, 1950.

[13] Article 131 comes to life on the basis of two conditions—the first of which pertains to parties being states and the centre, or between the centre and a few states versus the remaining states, if the second criterion is met, that is, the subject matter of the dispute pertains to a legal right; State of Rajasthan v Union of India AIR 1977 SC 1361.

Compiled by GSTstreet for #GSTManthan

More Under Goods and Services Tax

Leave a Comment

Your email address will not be published. Required fields are marked *