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View: Centre & states must work together on GST — there's too much at stake for the country

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View: Centre & states must work together on GST — there's too much at stake for the country

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One would hope that the Supreme Court decision does not result in the unravelling of GST — this will mean fiscal chaos. States should use the decision to make their voices heard — not embark on a path which will undo all that has been achieved. The decision should spur the council to address and resolve issues which strain federal relations.

View: Centre & states must work together on GST — there's too much at stake for the country
The Supreme Court has in decision pronounced today — in an appeal filed by the Centre against an order of the Gujarat High Court — made several critical observations. It has held that the central government and state governments have simultaneous powers to legislate the goods and services tax (GST). The court has gone on to say that the recommendations of the GST Council are not binding on state legislatures. While the detailed judgement is not yet available, the apex court has in effect reiterated the provisions of the Constitution.
The decision has cheered the opposition-ruled states. They believe that the decision is a reaffirmation of the federal nature of Indian polity. Tamil Nadu has in particular emphasised that this is the second decision in two days wherein the court has asserted the power of the states — the first being the decision that the governor is bound by the advice of the state cabinet.
The court’s observations in the GST matter came in the context of the High Court decision which held that Integrated GST (IGST) was not imposable on reverse-charge basis on ocean freight service (reverse charge is a well-accepted taxation sleight of hand, wherein the tax is imposed on the recipient instead of the supplier of the goods or service). The Supreme Court upheld the decision of the High Court and went on to make these observations which have got the tax fraternity buzzing.
The observations have raised a concern — whether this would mean the very unravelling of GST; whether this would mean the very architecture of GST will get impacted.
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As is known, Article 246A of the Constitution was brought in through the 101st Constitutional Amendment Act. This is the amendment through which GST was ushered in. The article categorically states that both Parliament and the legislature of every state "have power to make laws with respect to goods and services imposed by the Union or by such state ".
Incidentally, Article 246A (2) expressly states that Parliament has exclusive power to make laws with respect to GST where the supply of goods or of services, or both, takes place in the course of inter-state trade or commerce.
In this regard, it may be mentioned that the proposed Constitutional Amendment Bill was examined by a select committee. The Empowered Committee of State Finance Ministers (which later morphed into the GST Council) was in agreement with the proposed amendment. It was clearly understood that the purpose was to indeed empower the states.  It was being done not by an entry in the concurrent list but by an insertion of an article in the Constitution itself. The idea being that the states (and the Centre) will act on the recommendations of the Council. This is the very core of GST — a uniform rate of levy across the country.
The SC has gone on to observe that the decisions of the GST Council are not binding on the states. Here again, Article 279A (4) of the Constitution expressly states that "the Goods and Services Tax Council shall make recommendations to the Union and states on... (emphasis added)."
The Article 279A (6) of the Constitution specifies — and which again the apex court has in its observations highlighted — that the council will be guided by the need for a harmonised structure of GST. The Constitution states this will be for "the development of a harmonised national market for goods and services".
Needless to say, one can fulfil the constitutional mandate of a harmonised national market only if there is a uniformity in the fiscal laws and rates across the country. If the recommendations of the council are acted upon by both the Centre and the states. "One Nation, One Tax" was not mere hyperbole. It is this which made it possible to eliminate checkpoints across state borders to eliminate tax arbitrage and reduce evasion.
We should not forget that the GST Council’s decisions thus far have invariably been by consensus, and have been uniformly implemented across the country. Yes, there have been a few decisions wherein voting was necessitated. But is this not a sign of healthy federal relations? Of debate and differences getting resolved democratically?
There is universal agreement that GST was a transformational tax reform — a reform whose time had come; which removed the inefficiencies of the previous taxation system; which had multiple taxes; which did not permit availing of credit, where, in effect, there was tax on tax; and which facilitated tax arbitrage since each state could have its rate of value-added tax (VAT).
It will not be correct to suggest that everything is fine with the GST law. But this was a law that was conceived after several years of close corroboration and discussion between the Centre and the states. The GST council is an outstanding example of cooperative federalism — of how institutions can address vexatious issues.
One would hope that the Supreme Court decision does not result in the unravelling of GST — this will mean fiscal chaos. States should use the decision to make their voices heard — not embark on a path which will undo all that has been achieved. The decision should spur the council to address and resolve issues which strain federal relations.
GST is too important a levy to meet an early demise. And this when we are looking forward to celebrating the completion of five years of the levy with revenue on the upswing.
It is up to the Centre and the states to iron out differences and make GST work. There is too must at stake for the country.
— Najib Shah (retired) is a former chairman of the Central Board of Indirect Taxes & Customs. Views expressed here are personal.
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