Understanding the Goods and Services Tax Council in India

Overview of the Goods and Services Tax Council

This article provides an analysis of the Goods and Services Tax (GST) Council established by the President of India as per Article 279A of the Constitution.

Creation of the GST Council

According to Clause (1) of Article 279A of the Indian Constitution, the President is mandated to constitute a GST Council within sixty days of the commencement of the Constitution (One Hundred and First Amendment) Act, 2016.

Membership Composition

Clause (2) of Article 279A specifies the composition of the GST Council, which includes:

Union Finance Minister: Chairperson
Union Minister of State for Revenue or Finance: Member
State Ministers: Those in charge of Finance or Taxation, or any other Minister nominated by each State Government.

Appointment of the Vice-Chairperson

Clause (2) of Article 279A further provides that the members mentioned in sub-clause (c) will elect one member from among themselves to serve as the Vice-Chairperson for a term they determine.

Powers of the Council

The GST Council operates as a constitutional body, deriving its powers from the Constitution.

Objectives of the Council

The rationale for the GST Council, as outlined in the Statement of Objects and Reasons of the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, encompasses:

Replacing various indirect taxes imposed by the Union and State Governments with a unified Goods and Services Tax.
Granting concurrent taxation authority to both the Union and State Governments, including Union territories with legislation, to impose GST on every transaction involving goods or services.
Eliminating the cascading effect of taxes.
Creating a unified national market for goods and services.

Per Clause (6) of Article 279A, the Council's functions are to be conducted with the intention of promoting a harmonized structure for GST and fostering a cohesive national market.

Unilateral decisions by the Union and States regarding GST would impede the achievement of these objectives. Article 279A was added by the Constitution (One Hundred and First Amendment) Act, 2016 to establish a framework for cooperative federalism in this regard.

Functions of the GST Council

The GST Council executes its constitutionally assigned functions through representatives from:

The Union Government
Each State
Each Union Territory with its Legislature

Decisions are made during meetings where a quorum is established by half of the total Council members. Decisions require a minimum of three-fourths of the weighted votes from members present and voting, consistent with Clause (9) of Article 279A.

The GST Council is tasked with making recommendations on various GST-related issues, including:

The effective date for implementing Article 246A regarding taxes on petroleum products, including high-speed diesel, petrol, natural gas, and aviation turbine fuel.
The allocation method of GST collected during inter-State trade, including goods or services imported into India.
The date GST will apply to specified petroleum products.
Additional GST matters outlined in Clause (4) of Article 279A:
- Taxes, cesses, and surcharges to be included under GST.
- Goods and services eligible for GST exemption.
- Model GST laws and principles governing inter-State trade taxation under Article 269A.
- Turnover thresholds for GST exemptions.
- GST rates and special provisions during natural disasters.
- Specific provisions for particular States such as Arunachal Pradesh, Assam, and others.
- Any other matter concerning GST as decided by the Council.
Compensation for States' revenue loss due to GST implementation for a period of five years.

Limitations on the Council's Decision-Making Powers

As a constitutional entity, the GST Council must adhere to the provisions of the Constitution. Decisions must follow the guidelines of Clause (9) of Article 279A. Notably:

The Council cannot alter the areas of jurisdiction for levying GST.
Recommendations on specific matters outlined in Sub-clauses (a) to (g) of Clause (4) require Council approval, with Sub-clause (h) allowing discretion on other GST matters not explicitly mentioned.

Binding Nature of Provisions for the GST Council

Recommendations by the GST Council on any matter are mandatory and binding. Clause (4) of Article 279A specifies that the Council "shall make recommendations," emphasizing its obligation to discharge its duties as defined in the article. The Council was created with distinct functions, making adherence to these provisions essential.

Binding Nature of GST Recommendations for Union and States

Decisions made during Council meetings involve the Union Minister of State for Revenue or Finance and various State Ministers. This cooperative approach serves the national interest, ensuring that decisions hold constitutional significance. Given that GST is a destination-based consumption tax, allowing independent state decisions would undermine the goal of a uniform GST framework. The Constitution aims to create a harmonized GST structure, and any deviations from Council recommendations counteract this objective, potentially hindering the removal of tax cascading effects and the establishment of a unified national market. Consequently, powers granted in Article 246A must align with the GST Council’s recommendations under Article 279A, establishing these recommendations as obligatory for the Union and the States.

Conclusion

Continued cooperation and adherence to the GST Council's recommendations are essential for achieving the constitutional aims of a unified goods and services tax and a seamless national market.