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    Supreme Court says states are NOT bound to follow GST Council recommendations

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    Supreme Court says states are NOT bound to follow GST Council recommendations

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    A bench led by Justice DY Chandrachud held that the Parliament intended that the recommendations of the GST Council will have persuasive value. The SC also held that both the Parliament and the State legislatures can equally make laws in relation to GST.

    The Supreme Court on Thursday held that the recommendations of the GST Council are not binding on the Centre and the state governments. A bench led by Justice DY Chandrachud held that the Parliament intended that the recommendations of the GST Council will have persuasive value as India is cooperative federalism. The SC also held that both the Parliament and the State legislatures can equally make laws in relation to GST.
    In the order, the apex court said, "The recommendations of the GST Council are not binding on the Union and States ... The deletion of Article 279B and the inclusion of Article 279(1) by the Constitution Amendment Act 2016 indicates that the Parliament intended for the recommendations of the GST Council to only have a persuasive value ... The Parliament and the State legislatures possess simultaneous power to legislate on GST. Article 246A does not envisage a repugnancy provision ... The ‘recommendations’ of the GST Council are the product of a collaborative dialogue involving the Union and States. They are recommendatory in nature. To regard them as binding edicts would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST."
    Welcoming the ruling, Abhishek A Rastogi, Partner at Khaitan & Co, who argued for the petitioners before Gujarat High, Court Supreme Court and several other courts said, "This judgement may change the landscape of those provisions under GST which are subject to judicial review. As the court has gone ahead to categorically hold that the GST Council recommendations have only persuasive value, there will be a pragmatic approach to the provisions which are subject to judicial review by way of challenge to the constitutionality of such provisions based on GST Council recommendations."
    Reacting on Supreme Court verdict, Tamil Nadu’s finance minister Palanivel Thiagarajan said, "The judgement is in line with the comments I made on May 28, 2021. I had mentioned then in the GST Council that we have arrived at a constitutional and historical oddity. The current GST system and Council functions with an omni-potent and all-encompassing mandate not envisioned in the Constitution of India. GST system is deeply limited by a structural design and technology platform that are far from adequate to the important task. Oddity is truly alarming as the actual Council is becoming in some ways a mere ceremonial seal, a rubber-stamp authority. The real power to create policy abrogated to (Constitutionally) ad-hoc agencies such as TRU of the CBIC, feeble GST Secretariat, and quasi-Governmental GST Network. I had questioned question how this has happened despite the herculean efforts of so many learned people at every stage."
    Citing the essence of GST's original concept to creat a 'one tax, one country' vision, Senior economist Arvind Virmani said, "If States legislate different #GST rates for different Goods & services, the original concept of one tax one country is dead(😭). Is there a flaw in the constitutional amendment or the GST law that implements it? If the latter, it can & must be corrected immediately!
    Meanwhile, in what could mean an end to the pitched battle between the government and importers, the apex court upheld the Gujarat high court order to quash the levy of the Integrated Goods and Services Tax (IGST) on ocean freight on a reverse charge basis.
    Ankur Gupta, Practice Leader ( Indirect Tax), SW India was of the view: "The Supreme Court by setting aside the levy of IGST on Ocean freight has provided major relief for the impacted taxpayers. The Court also observed the powers of GST council stating that these are merely recommendatory in nature and not binding considering the federal tax structure of India. The only worry is now that similar to past instances, the Government might bring in a retrospective amendment in GST law to negate the SC ruling and confirm taxability of ocean freight. However, till the time amendment is proposed, companies can explore the option to claim refund of tax paid under RCM for such ocean freight services which is lying in their electronic credit ledger."
    The spat largely pertained to two notifications issued on June 28, 2017, levying IGST on ocean freight. Subsequently, the Gujarat high court in January 2020 declared the levy ultra vires t to the IGST Act.
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