The Supreme Court has dashed the misconception of GST is a one-nation-one-tax. It mentioned the difference between legislative intent and its codification into law. And as usual, the draftsman would be blamed for this goof-up however heads ought to roll on the political level.
A select committee of the Parliament that tested the law is guilty of shoddy work. The Supreme Court held that the recommendations by the GST Council were not binding and satisfactory to the central and state governments and that they only had a persuasive value.
The apex court said that the Parliament and state legislatures could equally legislate and make rules on GST and also said the impugned levy imposed on the ‘service’ aspect of the transaction is in violation of the principle of ‘composite supply’ enshrined under Section 2(30) read with Section 8 of the CGST Act. The bench was headed by Justice Dhananjaya Y Chandrachud, which interpreted the pertinent legal provisions to further hold that the recommendations of the GST Council are not binding on the Centre and states and that such recommendations only have a persuasive value.
This is a landmark judgment that blows to smithereens the first of the twin USPs of the nascent law — “One Nation, One tax” and ceases 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 central government introduced the Notification No.8 of 2017 – ITax (Rate) in June 2017 notifying that the IGST at the rate of 5% will be leviable on the service of transport of goods in a vessel. This notification was quashed by the high court. “The Union and states have simultaneous powers to legislate on GST and the Constitution does not envisage a repugnancy provision and GST council must work in a harmonious manner to achieve a workable solution,” the court said. Can the verdict lead to confusion and chaos if states refuse to accept the council’s decisions or recommendations?
Sushil Modi said that no state can afford to not implement GST and no state has ever disregarded a decision taken in consensus by the council. “We are united by trade. The state that will not accept GST will bear the loss. For example, Tamil Nadu goods are consumed in Bihar and if Bihar won’t get that tax, it will stop trading with Tamil Nadu,” he explained.
The Rajya Sabha lawmaker cited an exception where Kerala asked for voting on the issue of including lottery under GST and the state had to accept the percentage of tax fixed by the council. 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.
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.
The judgment has met with a flurry of responses from economists and policy planners. Here’s a look at what some experts have to say about the ruling.
K.N. Balagopal, Finance Minister of Kerala
“My initial understanding about the verdict is that this is a positive development. And we have to read the full text later. Actually, the GST law, from its inception itself, is against the interest of federalism. This order under the ambit of cooperative federalism has upheld the freedom of the states in taxation which was important,” Balagopal said.
Mahesh Jaising, Partner, Deloitte India
“The decision of the apex court is a welcome judgment for the industry as it has struck down the levy of GST on freight incurred by Indian importer for import of goods. It is important to note that the court has also held that GST Council decisions are only recommendatory in nature and hold only persuasive value.
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. This area would need to be closely looked out for,” Jaising said.
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