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How the Supreme Court’s GST Council Verdict Might Upset the One India, One Tax Regime

How the Supreme Court’s GST Council Verdict Might Upset the One India, One Tax Regime

The Supreme Court's observations on the GST Council's recommendations could majorly upset the One India, One Tax regime

Illustration: Raj Verma Illustration: Raj Verma

The unified taxation regime envisaged in the goods and services tax (GST) might be in need of a makeover, after the Supreme Court said that the recommendations of the GST Council are not binding on the Centre and states, and hold persuasive value. A bench led by Justice D.Y. Chandrachud held that the central government and states have simultaneous powers to legislate on GST.

Almost immediately, a debate has been ignited on the implications of the ruling. “The Supreme Court has correctly ruled that the GST Council’s recommendations are not binding on Union and state governments until such recommendations are given effect through relevant notifications/circulars/law amendments, which alone shall have the force in law that is always mentioned in press releases containing recommendations of the GST council,” says CA Inderpal Singh Pasricha, Senior Partner at I.P. Pasricha & Co. Pasricha further adds that this leads to unnecessary litigation—if there is a recommendation in favour of taxpayers, then taxpayers tend to take such benefits, but the tax department does not consider such recommendations until they are formally given effect.

Sandeep Chilana, Managing Partner of Chilana & Chilana Law Offices, says one of the propositions tested by the government was that once the GST Council has recommended levy of GST on ocean freight (which was the case before the bench), “the delegated authorities were mandated to issue respective notifications levying tax and had no flexibility”, which the Supreme Court has negated.

“My initial understanding about the verdict is that this is a positive development; we have to read the full text later,” Kerala Finance Minister K.N. Balagopal told Business Today in an exclusive conversation. “Actually, the GST law from inception itself was against the interests of federalism. This order under the ambit of cooperative federalism has upheld the freedom of the states in taxation, which is important.”

On the other hand, Madan Sabnavis, Chief Economist of Bank of Baroda, believes that this decision by the Supreme Court will make decision-making more collaborative, although reaching decisions will be more time consuming if states have strong views. “In fact, even tweaking rates for products will become more challenging. We have been speaking of GST on fuel. Here, states may not like to relent as they have differential rates,” says Sabnavis.

Looks like the beginning of another long battle for this embattled tax.