In May 2022, the Supreme Court of India ruled in a landmark case that the recommendations of the Goods & Services Tax (GST) Council are not mandatorily binding on either the Union or state governments, rejecting the Center’s argument that the entire structure of GST would crumble in this case.

The bench held that the recommendations of the Council shall only have ‘persuasive value’ that will help foster federalism and administrative harmony between various units. This is a significant observation as it redefines the roles of the GST Council and its relationship with the Center and states within the GST framework.
 

Article 279A: Role of GST Council

In 2011, the Amendment Bill sought to include Article 279A in the Constitution of India; this was the provision for the establishment of the GST Council. The provision enumerated details about the constitution of the Council and the quorum/voting rights for passing decisions. The main role of the GST Council was laid out as follows:

• All decisions regarding GST to be taken with the consensus of all members present at the meeting.
• Establishment and function of a GST Dispute Settlement Authority to adjudicate over any complaint referred to it by the central or state government.
• No court other than the Supreme Court to have jurisdiction in respect of the dispute.
• Responsibility for modification in the design of GST regulating indirect taxation.
• Maintaining fiscal federalism since the Union and states would surrender their autonomy for change to the Council in the GST regime.

 

Binding vs. Non-Binding: Pros & Cons

Arguments were made for both – treating the GST Council recommendations as ‘binding’ and treating them as ‘non-binding’ in nature.

For binding (two-fold)

• If the recommendations are not considered as binding, then the states will levy a conflicting tax and collection mechanism that will render the entire structure of GST futile.
• If the recommendations are non-binding, it will render Article 279A (11) useless as there will be no disputes to resolve for the adjudicating body as the states would simply disregard any recommendation and/or dispute.

Against binding (two-fold)

• It may supersede the supremacy of the Parliament and state legislatures since both have the simultaneous power to legislate on aspects of GST.
• It will violate the fiscal federalism of states because the Center has a one-third vote, while the states, collectively, have a two-third vote share. No recommendation can be passed on three-fourths majority without the Center’s consent.

 

Interpreting ‘recommendation’ in this case

• No explanation on the value of ‘recommendation’: The recommendation value of the GST Council is not mentioned under Article 279A, i.e., there is no explanation on the value or influence of such recommendation on the Union or states. Therefore, the notion that the recommendations could turn into legislations through the power vested in Article 246A has no fundamental basis.
• Intent to give Council decision-making authority not explicit: If the legislative intent of the Parliament was to give the Council decision-making authority whose recommendations could take the shape of legislations, such intent would be explicitly included in either Article 246A (special provision regarding GST) or 279A. Neither does Article 279A begin with a non-obstante clause nor does Article 246A provide that the legislative power is ‘subject to’ Article 279A.
• Aid vs. Mandate: By using the phrase ‘recommendations to the Union or States’, it is indicated that the GST Council is only a recommendatory body which ‘aids’, but does not ‘mandate’, governments to enact legislation on GST.
• ‘Recommendation’ has ‘persuasive value’ only: The court relied on precedent to interpret the word ‘recommendation’. It observed that in Manohar v. State of Maharashtra, a two-judge Bench ruled that the phrase ‘recommendation’ must be interpreted to be in contradistinction to ‘direction’ or ‘mandate’. Similarly, in Naraindas Indurkhya v. State of Madhya Pradesh, a Constitution Bench observed that the word ‘recommendation’ has only persuasive value. In numerous other cases, the court observed, enough evidence is prevalent to suggest that recommendations do not create a mandate or direction that makes it binding and enforceable by law.

 

Conclusion: The court ruling

After thorough analysis, the court ruled that recommendations of the GST Council are not binding on the Union and states due to the following reasons:

• Few Acts do not bind all: Certain specific legislations such as the IGST Act, CGST Act and SGST Act expressly provide for rule-making power of the government to be exercised on the recommendations of the GST Council. However, these recommendations are made binding only when the power is exercised to notify ‘secondary legislation’ to give effect to and enhance the uniform tax system. The court stated that: ‘Merely because a few of the recommendations of the GST Council are binding on the Government under the provisions of the CGST Act and IGST Act, it
  cannot be argued that all of the GST Council’s recommendations are binding.’
• Legislative intent: Article 279A’s reading indicates that the Parliament only meant for the GST Council’s recommendation to be of persuasive value when interpreted with the objective of the GST regime. The intention is to foster cooperative federalism and harmony between various units within the GST framework.
• Article 279A & 246A: Both articles are framed in a way that make it seem that they are unrelated. Article 279A has no ‘non-obstante’ clause in lieu of 246A and similarly, Article 246A does not say ‘subject to...’ for relation with 279A. Thus, the Parliament and the states possess simultaneous power to legislate on GST. The recommendations by the Council are a product of dialogue involving the Union and states. To regard them as binding would disrupt the federal nature of legislating on GST.

The judgment does not hamper the existing mechanism and working of GST, nor does it introduce anything new or lay down anything fundamentally different. This outlook by the Supreme Court simply attempts to maintain the fiscal federal structure of the states and the Union in matters of GST.