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View | Supreme Court delivers body-blow to naive belief that GST is 'One Nation, One Tax'

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View | Supreme Court delivers body-blow to naive belief that GST is 'One Nation, One Tax'


The Supreme Court has dashed the myth GST is one-nation-one-tax. It has pointed out the discrepancy between legislative intent and its codification into law. As usual draftsman would be blamed for this goof up but heads should roll at the political level. Select committee of the Parliament that examined the law is guilty of shoddy work.

View | Supreme Court delivers body-blow to naive belief that GST is 'One Nation, One Tax'
The Supreme Court on Thursday shook the nation from its smug belief that the Goods and Services Tax (GST) — launched with a lot of fanfare on July 1, 2017, after a midnight joint Parliamentary celebratory session on June 29, 2017 — is after all not "One Nation, One Tax".  This is an earthshaking judgment that blows to smithereens the first of the twin USPs of the nascent law — "One Nation, One tax" and end to the monstrosity of tax-on-tax, aka, cascading effect.
The Supreme Court upheld the Gujarat High Court verdict that quashed the IGST on ocean freight paid by the importers and thus saved the Gujarat importers from its purview.  The SC also tore to pieces the hitherto held sacrosanct view that the GST Council views were binding on both the Centre and the states. It said on the contrary, the council's views were of a recommendatory or persuasive value.
The council prescribes rates and revises them, besides taking a call on what goods and services should be left out of GST. The bench said that as per Article 246A, both Parliament and state legislatures have equal power to legislate on matters of taxation. The bench also waxed eloquent over the federal spirit — states are not obliged to toe the Centre's line. States’ interests and rights cannot be subjugated by those of the Centre.
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In its aftermath, it is possible for the revenue and power-starved Delhi to impose a 5 percent SGST on restaurant bills even as the central CGST stays put at 2.5 percent. As it is, CGST and SGST rates are identical. But hereafter, states — especially those ruled by non-BJP dispensations — would be emboldened to break free of this straightjacket. On jewellery, it is 3 percent equally split between CGST and SGST. Fund-starved states may like to tap this fecund source of revenue with jewels remaining the favourite of women, come what may, for all reasons and seasons. Tamil Nadu may, for instance, hike SGST on jewellery to 10 percent even as the CGST thereon stays put at 1.5 percent.
This may revive the ugly spectacle of tax shopping — buy from the state where taxes are low. Delhiites may dine in Gurgaon and Noida restaurants assuming these two states do not hike the SGST therein, whereas Delhi does. In the US, states like Florida and New Hampshire are a buyer's paradise in view of nil taxes, whereas states like California put a huge shovel into the purchase bills of buyers.
Will the Narendra Modi government watch this denouement bemused or with alarm? How did it get the whole thing so wrong? How did it take it for granted that the seminal GST law was "One Nation, One Tax", when the SC says there is nothing in the law to warrant this impression? Indeed, how did even experts not question the Modi government on this score? Was it a case of bliss of ignorance? Or was it an ostrich-like behaviour all round?
Whatever be the basis of the delusion, the government needs to bestir and undo the damage done by the apex court verdict. I must hasten to add that the damage was not done wantonly. The SC was only making a fine-tooth comb analysis of the GST law and it did right by shining the light on its poor drafting. For the SC has said there was no non-obstante overriding) clause saying that notwithstanding anything to the contrary in any law, the GST Council recommendations shall be binding on all states and the Centre.
The central government must approach the SC asking for time to bring an ordinance, both for constitutional amendment and the GST Act amendment, supplying the missing link between what the Parliament desired and what the draftsman translated the desire into, as it often happens, especially in fiscal laws. Otherwise, the fiscal discipline brought in by the GST would be gleefully wrecked by opposition-ruled states, much to the chagrin of the consumers.  Cars may again be up for arbitrage opportunities much more than dining, given the higher stakes. But there is no denying that the government has been left red-faced. The select committee of Parliament that went into the GST law as well as the constitution amendment prior to that was clearly guilty of slipshod work.
By the way, if the SC view is allowed to hold sway, there would be no letup in the Centre and states piling up revenue by imposing heavy state sales tax on gas, diesel and petrol, should petroleum products be brought under GST.
Note To Readers

Views expressed herein are the author's own.

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