The Supreme Court verdict does not entail any changes ‘in any way’ to the functioning of the GST regime and the institutional mechanism for its operation, the Finance Ministry asserted on Thursday, even as some States welcomed the decision for clearly enunciating and safeguarding their rights.
Terming the GST Council ‘the finest example of collaborative and cooperative federalism’, the Finance Ministry said that the apex court had ‘only elaborated’ on its functional mechanism in its observations.
“This judgment does not in any way lay down anything new in so far as the GST institutional mechanism is concerned, does not have any bearing on the way GST has been functioning in India, nor lays down anything fundamentally different to the existing framework of GST,” it noted, seeking to quell anxiety about the future of the indirect tax system introduced on July 1, 2017.
The Council was a collaborative institutional mechanism, and the Centre and States follow its recommendations that are arrived at with consensus, the ministry said, stressing that there has been only ‘a solitary instance’ where a decision required voting.
“Even in this case, the dissenting States implemented the decision of GST Council,” the ministry said in a statement, adding that it would review the 153-page judgement in detail. “In all other instances, which run into more than a thousand, the decisions have been taken with consensus,” it added.
Stressing that the Supreme Court had only elaborated upon the Constitutional Scheme for GST, it said the Court had observed that the Council’s recommendations had persuasive value for primary legislation, but its recommendations were binding for subordinate legislation such as issue of notification, framing of rules, prescribing rates and taxes, etc.
Kerala Finance Minister K.N. Balagopal hailed the SC ruling for upholding the relevance of cooperative federalism and said it would have a far-reaching impact on the country’s tax structure and Centre-State relations.
“Ever since the GST regime came into being, the Centre had been arbitrarily imposing its decisions on the States, affecting their revenue and forcing them to impose treasury restrictions,” he said in Thiruvananthapuram, expressing the hope that this would pave the way for States to be able to protect their rights and ensure financial stability,
Tamil Nadu Finance Minister Palanivel Thiaga Rajan said in Madurai that the verdict safeguarded States’ rights by stating that the recommendations of the GST Council were not binding on the Centre and the State.
“The Council was a only a recommendatory body and cannot supersede the State’s rights and power for enacting the laws with regard to GST,” he pointed out. The State too had powers to enact laws. The Council could only make recommendations and the decision was not binding on the Centre and the State.
Tax experts were tentative about the implications of the verdict. “This would have far-reaching implications on various other matters where the States are not in agreement with the decisions of the GST Council, especially in light of the compensation period coming to an end in June,” said Mahesh Jaising, partner at Deloitte India.
While the verdict lays down that GST Council decisions are not binding on the State legislature, an absence of a legal basis should not hamper the Council’s functioning since most decisions of the Council have been taken by consensus, observed Bipin Sapra, tax partner at EY India.
