In News: Recently, the Supreme Court of India (SC), held that Union and State legislatures have equal, simultaneous and unique powers to make laws on Goods and Services Tax (GST) and the recommendations of the GST Council are not binding on them.

What’s in today’s article:

• Goods and Services Tax (About, types, some important Constitutional provisions)
• News Summary (Background, SC ruling, impact)

Goods and Services Tax (GST):

• About:
  • It is an indirect tax (not directly paid by customers to the government), that came into effect from 1 July 2017 through the implementation of the 101st Amendment to the Constitution of India.
  • It has actually replaced various indirect taxes such as - service taxes, VAT, excise and others in the country.
  • It is levied on the manufacturer or seller of goods and the providers of services.
  • The sellers usually add the tax expense into their costs and the price the customers pay is inclusive of GST. Thus, one ends up paying a tax even if s/he is not an income taxpayer.
  • It is divided into five different tax slabs for collection of tax - 0%, 5%, 12%, 18% and 28%.
• Types of GST:
  • State Goods and Services Tax (SGST): It is charged by the state government for intrastate services and goods transactions and this revenue is generally given to the state.
  • Central Goods and Services Tax (CGST): It is also charged for any kind of intrastate transaction of services and goods and it is collected by the central government.
  • Integrated Goods and Services Tax (IGST): It is generally charged on the inter-state transactions of services and goods and is applied on exports and imports and both the State and Centre governments share this revenue.
• Some important Constitutional provisions:
  • Article 246A - Special Provision for GST:
    • This Article give power to the Parliament and the respective State Legislatures to make laws on GST respectively imposed by each of them.
    • However, the Parliament of India is given the exclusive power to make laws with respect to inter-state supplies (IGST).
    • Further, the article excludes some products (Petroleum Crude, High-Speed Diesel, Motor Spirit, Natural Gas, Aviation Turbine Fuel) from the scope of GST until recommended by the GST Council.
  • Article 269A - Levy and Collection of GST for Inter-State Supply:
    • While Article 246A gives the Parliament the exclusive power to make laws with respect to inter-state supplies, the manner of distribution of revenue from such supplies between the Centre and the State is covered in Article 269A.
    • It allows the GST Council to frame rules in this regard.
    • Import of goods or services will also be called inter-state supplies. This gives the Central Government the power to levy IGST on import transactions.
  • Article 279A - GST Council:
    • This Article gives power to the President of India to constitute a joint forum of the Centre and States called the GST Council, consisting of the -
      • Union Finance Minister - Chairperson
      • The Union Minister of State, in-charge of Revenue of finance - Member
      • The Minister in-charge of finance or taxation or any other Minister nominated by each State Government - Members
    • The GST Council is an apex committee to modify, reconcile or to make recommendations to the Union and the States on GST, like the goods and services that may be subjected or exempted from GST, model GST laws, etc.
    • Decisions in the GST Council are taken by a majority of not less than three-fourth of weighted votes cast.
      • Centre has one-third weightage of the total votes cast and all the states taken together have two-third of weightage of the total votes cast.
      • All decisions taken by the GST Council have been arrived at through consensus.

News Summary:

• Background:
  • The apex court’s decision came while confirming a Gujarat High Court ruling that the Centre cannot levy Integrated Goods and Services Tax (IGST) on ocean freight from Indian importers.
  • The value of imported goods includes the Cost, Insurance and Freight components and Customs Duty and GST are levied on that value.
  • However, the Central Board of Indirect Taxes and Customs proposed levying GST at 5% on the value of imported products, with 10% of the value of imported goods regarded to be ocean freight.
  • This meant a 0.5% GST on the value of imported products as services, in addition to Customs duty and GST, which is roughly 28% and charged as goods.
• The apex court ruling:
  • The Union and State legislatures have equal, simultaneous and unique powers to make laws on GST.
    • Article 246A of the Indian Constitution treats the Union and the States as equal units, conferring a simultaneous power (on Union and States) for enacting laws on GST.
    • Article 279A (constituting the GST Council) envisions that neither the Centre nor the states are actually dependent on the other.
  • The recommendations of the GST Council are the product of a collaborative dialogue involving the Union and the states.
    • They are recommendatory in nature and only have a persuasive value.
    • To regard them as binding would disrupt fiscal federalism.
  • The decision also ended the government's long-running battle with companies to implement its IGST on ocean freight (cost of moving goods internationally to India) on a reverse charge basis.
    • The importers had complained that the IGST was being levied on them twice on the very same transaction by segregating portions of it.
    • Giving relief to the importers, the court held that since the Indian importer is liable to pay IGST on composite supply, a separate levy on Indian importers for the supply of services by the shipping line would be in violation of the Central GST Act.
• Possible impact of the apex court ruling:
  • Given that the court has categorically stated that the GST Council recommendations have only persuasive value, this judgement may change the landscape of those provisions under GST which are subject to judicial review.
    • This is because the constitutionality of such provisions can be challenged based on GST Council recommendations.
  • The judgement will strengthen the spirit of cooperative federalism as it emphasised the importance of cooperative federalism, which is an essential component for the well-being of democracy.