Days after a three-judge bench of the apex court, led by Justice D Y Chandrachud, ruled that the recommendations of the GST Council are not binding on the Centre and states, setting off a pushback from some Opposition states, the judge remarked Thursday that he was “intrigued by…articles…on the various facets of” that judgment.
The SC judgment on May 19 included observations on the federal structure and the powers of the Parliament and the state legislatures to legislate on GST. Opposition-ruled states interpreted it as according greater flexibility for states in the broader GST structure.
Justice Chandrachud made the remark Thursday when Senior Advocate Harish Salve mentioned the appeal against an order regarding GST demand by Odisha on goods mined in the state and moved to Mumbai.
Salve told the bench, also comprising Justice Bela M Trivedi, that it was only an interlocutory order but that the court may have to decide the main matter itself.
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Salve said the company paid in Mumbai, but Odisha is now saying that was wrongly done and the company should now pay Odisha Rs 2,600 crore. “This is taking credit to pay from one government to the other government. They can adjust their accounts inter se…,” instead of asking the firm to cough up the amount, Salve contended.
Justice Chandrachud, while telling Salve that the court will hear the matter after the summer vacation, said: “I hope you have seen the judgment. I’m also intrigued by all the articles which are being written on various facets of the judgment, on cooperative federalism and everything”. He added that in the judgment, “ultimately we went on the composite supply argument”.
The term ‘composite supply’ under GST refers to a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. For instance, where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply. In that May 19 judgment, the bench said the separate levy of the Integrated Goods and Services Tax on ocean freight charges violated the “composite supply” concept.
In the order, the SC had said that federalism in India is “a dialogue in which the states and the Centre constantly engage in conversations”, and though the Constitution confers “the Union with a higher share of power in certain situations to prevent chaos and provide security”, the states “can still resist the mandates of the Union by using different forms of political contestation”.
The apex court bench, also comprising Justices Surya Kant and Vikram Nath, ruled that to regard the Council’s recommendations “as binding edicts would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST” and “dislodge the fine balance on which Indian federalism rests”.
The court had pointed out that Article 246A of the Constitution stipulates that both Parliament and state legislatures have “simultaneous” power to legislate on GST — and recommendations of the Council “are the product of a collaborative dialogue involving the Union and States”.
It said the Council has an “unequal voting structure where the states collectively have a two-third voting share, and the Union has a one-third voting share”. Also, “since India has a multi-party system, it is possible that the party in power at the Centre may or may not be in power in various states”, the judgment added.
“…therefore, the GST Council is not only an avenue for the exercise of cooperative federalism but also for political contestation across party lines. Thus, the discussions in the GST Council impact both federalism and democracy,” the court said.
The ruling came on an appeal against a Gujarat High Court order quashing the Central notification levying Integrated Goods and Services Tax (IGST) on importers for ocean freight. The Supreme Court upheld the High Court’s order.
Reacting to the court’s order, Union Revenue Secretary Tarun Bajaj said the GST law provides for recommendation and not mandate. “It is a Constitutional body, an executive body created by the Constitution which consists of Centre and states which will recommend and based on its recommendations we have created our laws on GST,” he said.
Adding that Section 9 of the CGST Act clearly states that the tax rate decision should be based on the recommendation of the Council, Bajaj said problems could get compounded if any state decides not to accept the recommendation of the Council.
Tamil Nadu Finance Minister Palanivel Thiaga Rajan said he had highlighted the issue of the Council being a rubber-stamp authority in his first remarks at the GST council meeting in May 2021. “Taken together, we have arrived at a constitutional and historical oddity — a GST system and Council that function with an omnipotent and all-encompassing mandate not envisioned in the Constitution of India” he had said.
Kerala’s former Finance Minister Thomas Isaac said that the Supreme Court judgment on GST “sets the stage for a fundamental revision of GST implementation and functioning of GST Council from the perspective of cooperative federalism. The Court’s remarks open up the issues of federal flexibility in determining SGST rates and procedures.”
Reacting to the court’s order, Union Revenue Secretary Tarun Bajaj had said after the judgment that the GST law provides for recommendation and not mandate. “It is a constitutional body, an executive body created by the Constitution which consists of Centre and states which will recommend and based on its recommendations we have created our laws on GST,” he said.