SC: GST Council Recommendations not binding on Centre, States

May 22, 2022

The Supreme Court recently ruled that recommendations of the Goods and Services Tax (GST) Council are not binding on the Centre and states.

What are the highlights of the judgment of the Supreme Court?

The Supreme Court held that recommendations of the GST Council only have a persuasive value and are not binding in nature. To consider the recommendations as binding will disrupt India’s fiscal federalism.

The Supreme Court emphasized that Article 246A (which gives powers to States to tax goods and services) of the Indian Constitution considers the Union and the States as “equal, therefore Parliament and State legislatures posses equal powers to make laws on Goods and Services Tax (GST).

What is the issue about?

Supreme Court was dealing with the case regarding the levy of GST on ocean freight. The Supreme Court agreed to the Gujarat High Court ruling that the Centre cannot levy Integrated Goods and Services Tax (IGST) on ocean freight from Indian importers. In 2017, the Centre issued two notifications regarding the levy of IGST on ocean freight. ‘Ocean freight’ is the cost of moving goods internationally to India. The importers complained that the IGST is being levied on them twice on the same transaction. In 2020, the Gujarat High Court declared the levy on ocean freight ultra vires to the IGST Act, saying that the center lacks legislative competency.

What is the GST council?

It is a constitutional body (Article 279-A) that gives recommendations to the Union and State Government on matters regarding Goods and Service Tax (GST). It is a joint forum of the center and the states with the Union Finance Minister as the Chairperson. Decisions of the GST Council require a majority of not less than three-fourths of the weighted votes of the members present and voting. To conduct any meeting, 50% of the total members of the GST Council is the required quorum.

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