Recently, taxpayers across the country welcomed a landmark decision of the Supreme Court which read down the levy of IGST (Integrated Goods and Services Tax)on ocean freight services in case of CIF-based imports, and declared the same to be in violation of the GST law.
Though the apex court observed the violations in this regard on many fronts, including the absence of proper statutory powers to levy such IGST, the issue of double taxation, etc., the remark of the apex court on the nature of recommendations provided by the GST Council (GSTC) sparked a debate in the legal and tax fraternity, and among lawmakers themselves.
The fundamental discussion around this was triggered when it was submitted before the apex court that the exercise of certain functions under various provisions of the GST law, including the provisions governing the levy of IGST on ocean freight services, has been carefully delegated to the GSTC to meet the end objectives of GST. Consequently, an inference was supposedly drawn that a levy of tax can also find its roots in the recommendations made by the GSTC (which is a Constitutional Body under Article 279A of the Constitution of India (COI) and has been set up to maintain the spirit of collaborative and cooperative federalism) without appropriate backing in the legislature.
A conscious discussion on the above inference would require significant insight into the object of constitutional provisions which led to the enactment of GST law, which was also acknowledged by the apex court as a critical step for interpretation of statutes in the modern world.
At the time of enactment of the GST, the COI was amended to introduce Article 246A which granted simultaneous power to the Union and State Legislatures to legislate on GST. The power of the States in this regard is, however, subject to the conferment of an exclusive domain of Parliament to levy the GST for supply in the course of inter-State trade and commerce. Further, Article 279A was introduced to, among other things, stipulate the provisions relating to the constitution of the GSTC which would give recommendations to the Union and State relating to various matters under GST and provide for developing a mechanism to resolve disagreements between the two amicably.
Value of recommendations
In this regard, the apex court noted that although the term “recommendation” has been used in numerous provisions in the COI in different contexts, the use of such term in the case of GSTC is non-qualified — that is, there is no explanation of the value of such recommendation. Further, the deletion of Article 279B and inclusion of 279(1) in the COI, strengthened the opinion of the apex court that GSTC does not have the power to transform its recommendations into legislation. This was further supplemented by the observation of the apex court that neither Article 279A begin with a non-obstante clause to exercise exclusive jurisdiction nor does Article 246A provide that the legislative power is subject to Article 279A.
Consequently, it was observed that the recommendations of the GSTC can only have persuasive value and cannot be treated as a mandate unless the same is coupled with affirmation in the legislature. While few provisions of the IGST Act, 2017 and of CGST Act, 2017 provide for consultation with GSTC, it cannot be argued that all GSTC’s recommendations would have a binding force on the legislature, as the constituent power of the legislature is always of higher constitutional order as compared to its legislative power.
While the apex court rightly intended to reinforce the supremacy of the legislature over the recommendations of the GSTC, the said observation can be misinterpreted and hence raise some pertinent questions like: (a) would different rates of GST be applied by different States; (b) would this impact the overall uniformity and framework of GST; (c) were States right in seeking an extension in the periodicity of the compensation; etc.
Since the implementation of GST, States have consistently respected the decision of GSTC and promoted the object of cooperative federalism. Further, the recommendation of the GSTC is based on at least three-fourths weighted majority of members wherein the Union and State legislatures have one-third and two-thirds share in weighted votes, respectively.
Thus, while the future impact of the aforesaid observation is yet to be evaluated, the chances of disputes are likely to be minimal.
The writer is Tax Partner, EY. Parul Nagpal, Director, EY, also contributed to the article. Views are personal