India is a Union of States, modelled along a federal system
of governance where legislative, administrative and executive powers are
distributed between two levels of government, Parliament and States. The Indian
Constitution bifurcates the power to enact laws between the Parliament and State
Legislatures on diverse subjects, as categorised by the three Lists to the
Seventh Schedule. In respect of matters enumerated in List I, Parliament is
delegated exclusive powers to enact laws, while in respect of matters
enumerated in List II, only State Legislatures have power to enact laws. The
prerogative to enact laws pertaining to matters enumerated in List III is
shared concurrently between Parliament and State Legislatures.
Need for the Constitutional Amendment
Prior to the enactment of the Constitutional (One Hundred and
First Amendment) Act, 2016, the States did not possess the authority to levy
tax on the provision of Services or Manufacture of goods, with the exception of
alcoholic liquor for human consumption, opium, Indian hemp, narcotics and other
narcotic drugs. List II does not assign a bare power to tax supply per se to
the States.
Although a separate entry could have been included in the
Concurrent List enabling the levy of taxes on the supply of goods and services,
Article 254(1) provides that any inconsistency between laws enacted by the
Parliament and the State Legislatures, is to be resolved in favour of the
Parliament, rendering the opposing State law void to that extent. In view of
Article 254(1), the addition of such an entry could not have assigned equal and
concurrent powers to both the Parliament and the State Legislatures.
Consequently, this impasse has been addressed by the
introduction of Article 246A in the Constitution, which reads as under:
“246A. (1) Notwithstanding anything contained in articles
246 and 254, Parliament, and, subject to clause (2), the Legislature of every
State, have power to make laws with respect to goods and services tax imposed
by the Union or by such State.
(2) Parliament has exclusive power to make laws with
respect to goods and services tax where the supply of goods, or of services, or
both takes place in the course of inter-State trade or commerce.
Explanation.—The provisions of this article, shall, in
respect of goods and services tax referred to in clause (5) of article 279A,
take effect from the date recommended by the Goods and Services Tax Council.’’
Article 246A empowers both the Parliament and the State
Legislatures to legislate with respect to GST. The Constitution provides for
the creation of the GST Council (GSTC), which shall inter alia make
recommendations to the Union and the States on:
a. model Goods and Services Tax Laws, principles
of levy, apportionment of Integrated Goods and Services Tax and the principles
that govern the place of supply;
b. the rates including floor rates with bands of
goods and services tax;
c. any special rate or rates for a specified
period, to raise additional resources during any natural calamity or disaster;
d. special provision with respect to the States
of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
The role of GSTC is limited to that of a recommendatory body.
Are the recommendations of GST Council binding?
To me, it appears that the recommendations of the GSTC are
mere suggestions or guidelines, which the Parliament or the State Legislature,
as the case may be, may or may not accept and implement.The concept of granting
recommendatory powers to constitutional bodies is not unfamiliar. However, the
existing jurisprudence, discussed herein
below, does not conclusively postulate that the recommendations have to
necessarily be adopted. Therefore, the consequences following non-implementation
of the recommendations by the GSTC will have to be judicially determined.
A) The United States Constitution provides in
Clause 2 of Section 3, known as the “Recommendation Clause”, that the President
shall recommend to the Congress (Parliament) such measures as he shall judge
necessary and expedient. This clause has
been interpreted by the US Supreme Court in the case of Youngstown Sheet
& Tube Co. vs. Sawyer1
to mean that the Recommendation Clause serves as a reminder that the
President cannot legislate unilaterally, and further, that the President merely
has the power to recommend. The prerogative to legislate is possessed
exclusively by the Congress.
B) Similarly, in the Indian context, Article
233(2) of the Constitution provides for the recommendation of the High Court
for appointment of an advocate or a pleader as the district judge. In the case
of Chandra Mohan vs. State of Uttar Pradesh2, the Apex
Court observed that under Article 233(2), the Governor can only appoint a
person recommended by the High Court. On the other hand, in the case of Supreme
Court Advocates vs. Union of India3,
it was observed that, “In cases governed by Article 233(2), normally as a
matter of rule, the High Court’s recommendation must be accepted unless there
exist ‘good and weighty reason’ in which case the executive should communicate
its views to the High Court and give the latter an opportunity to react to the
same.” Therefore, the contours and strength of the recommendation power
prescribed by Article 233(2) to the High Court is amenable to ascertainment by
judicial examination.
Mechanism for Dispute resolution
In cases where the States deviate from the recommendations of
the GSTC and enact an absolutely contrary GST Law, it could lead to utter chaos
and defeat the stated objective of GST, namely, for the provision of a common
national market for goods and services. Whether such a deviation is permissible
or not, and whether the same would withstand judicial scrutiny is something
that only time will tell.
I must however, point out that Article 279A(11) stipulates
that the GSTC shall establish a mechanism to adjudicate any dispute arising
between the Government and the States or between the States out of its
recommendations or implementation thereof. However, the scope of this mechanism
is coloured with opacity. It remains unclear whether it would address a
situation where one State does not follow the recommendations. Further, the
said article does not specifically provide that the resolution of the dispute
under the mechanism would be binding.
It may be relevant to point out that under the Hundred and
Fifteenth Amendment Bill, 2011, Article 279B had proposed that “Parliament
may, by law, provide for the establishment of a Goods and Services Tax Dispute
Settlement Authority to adjudicate any dispute or complaint referred to
it by a State Government or the Government of India arising out of a
deviation from any of the recommendations of the Goods and Services Tax
Council constituted under article 279A that results in a loss of revenue to a
State Government or the Government of India or affects the harmonised
structure of the goods and services tax.”
However, the said Article was not enacted in the
Constitutional Amendment Act and no other mechanism was provided for in such
specific terms.
Is GST a challenge to the ‘Basic Structure Theory’?
Primarily, the GSTC would take decisions on the basis of
majority votes, however, there is a possibility that certain decisions of the
GSTC, which were not accepted by some States or the Centre, are challenged.
Such challenge may have recourse to the theory of “Basic Structure” pronounced
by the Apex Court in the landmark case of Kesavananda Bharati vs. State of
Kerala4 and subsequent judgments building on the principle.
It can be argued that the forefathers of the Constitution had
provided for the division of taxation powers to enable the Parliament and the
State Legislatures to exercise their own freedom. The concept of GST itself may
be challenged on the grounds of impinging upon the freedom of the States and
Base Structure theory.
Non-divestment of powers by the Centre
Further, a subject of intrigue is the possibility of
overlapping concentrations of power. On the one hand, the 101st
Constitutional Amendment Act, 2016 has divested the States of their powers to
tax sale or purchase of goods, except for specified goods, by substituting
Entry 54 of List II of the Seventh Schedule to the Constitution. While on the
other hand, the Union has not divested itself of the power to tax sale/purchase
of any goods in the course of inter-State trade or commerce as also of the
residual power to levy tax of sale/purchase/supply of goods or services, the
supply of which would already have suffered GST. The said entries are
reproduced hereunder for ease of reference:
i) Entry 54 of State List (List II):
Existing Entry:
“Taxes
on sale or purchase of goods other than newspapers, subject to the
provisions of entry 92A of List I.”
Substituted Entry:
“Taxes
on the sale of petroleum crude, high speed diesel, motor spirit (commonly
known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for
human consumption, but not including
sale in the course of inter-State trade or commerce or sale in the course of
international trade or commerce of such goods.”
ii) Entry 92A of the Union List (List I) – to be
retained as it is
“Taxes
on the sale or purchase of goods other than newspapers, where such sale or
purchase takes place in the course of inter-State trade or commerce.”
iii) Entry
97 of the Union List (List I) – to be retained as it is
“Any other matter not enumerated in
List II or List III including any tax not mentioned in either of those
Lists.”
Conclusion
The Constitutional Amendment seems to have been
enacted without the provision of any safeguard, or effective redressal
mechanisms addressing deviations from the recommendations of GST Council,
thereby defeating the very principles underlying the GST reform.
