Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. As one indirect tax for the entire country, GST plays a crucial role in the financial structure of India. The GST Council is the key decision-making body concerning all important decisions regarding GST. However, recent judgments from the Supreme Court has necessitated a deeper understanding of this fiscal mechanism.
The Recent Supreme Court Ruling on GST
Recently, a significant Supreme Court judgment emphasized the importance of “Cooperative Federalism” in maintaining a healthy democracy. The court held that both Union and State legislatures possess “equal, simultaneous, and unique powers” to make laws on Goods and Services Tax (GST). Furthermore, it asserted that the recommendations of the GST Council are not binding on them.
This judgment came while confirming a Gujarat High Court ruling stating that the Centre cannot levy Integrated Goods and Services Tax (IGST) on ocean freight from Indian importers. Additionally, the Supreme Court declared that GST on ocean freight paid in case of import of goods is unconstitutional.
Breaking Down the Supreme Court’s Stand
The court categorized the Center and States as “autonomous, independent and even competing units” regarding creating GST laws. It stated that the Union and States are treated as “equal units” under Article 246A of the Constitution, which gives them simultaneous power for enacting laws on GST.
The judgment also highlighted that there are no provisions in the Goods and Service Tax Act, 2017 (GST Act) that address any repugnancy between the laws drafted by the Centre and states.
Delving into Cooperative and Competitive Federalism
Cooperative Federalism refers to a horizontal relationship shared between the Centre and states, where they “cooperate” in the larger public interest. This form of federalism facilitates states’ participation in formulating and implementing national policies. The constitution obliges both Union and states to cooperate with each other on matters specified in Schedule VII of the constitution.
On the other hand, Competitive Federalism characterizes a vertical relationship between the Central and state governments, and a horizontal one amongst state governments. In a free-market economy, the comparative advantages and available resources of states foster a competitive spirit. However, increasing globalization poses a challenge as it amplifies the existing inequalities and imbalances between states. States must compete among themselves and with the Centre for benefits.
The Future Implications of the Ruling
This judgment may alter the landscape of provisions under GST that are subject to judicial review. Since the court has affirmed that the GST Council recommendations have only persuasive value, a more pragmatic approach to the provisions that are subject to judicial review may be adopted. These would include challenges to the constitutionality of such provisions based on GST Council recommendations.
An Analysis of Goods and Services Tax Exemptions
Some goods are exempt from GST to benefit the masses. Examples include articles like edible vegetables, roots and tubers, cereals, fresh fish, meat, tender coconut water, silkworm laying cocoon, raw silk, wool, cotton used in Gandhi Topi and Khadi Yarn, live animals except horses, coffee beans, unprocessed green tea leaves, fresh ginger, and turmeric, among many others. With specific reference to a previous year’s question in the UPSC Civil Services Examination, all items mentioned, except processed and canned fish, are included in the exemptions under GST.