Constitutional Issues under the GST Amendment: A Primer

The Constitution (One Hundred and First Amendment) Act, 2016 (‘Amendment’) has been passed by both Houses of the Parliament. This important Constitution Amendment has been passed to introduce the Goods and Services Tax (GST) – a tax system designed to turn India into a single common market. The GST will subsume most indirect taxes and is expected to eliminate the cascading of taxes. Readers may refer to this FAQ released by the Finance Ministry for a brief explainer on GST.

In this post, I will discuss some constitutional issues raised by the Amendment. The bill in its latest form is not available presently. Readers may instead view the version passed by the Lok Sabha, along with the amendments made in the Rajya Sabha.

The issues center around the constitution and the working of the GST Council. The GST Council is a council envisaged under the Amendment, with powers to ‘recommend’ (it is unclear if the recommendations are binding) tax rates, goods and services to be to subjected to or exempted from GST, taxes to be subsumed under the GST, matters of apportionment, etc. The Council consists of the Union Finance Minster, Union Minister of State for Finance/Revenue, and Finance Ministers of each State (State includes Union Territories with Legislatures, like Delhi).

As per the Amendment, every decision of the GST Council is to be approved by a majority of at least 3/4th of the weighted votes of the members. The vote of the Central Government has a weightage of 1/3rd of the votes; and votes of the State Governments have a weightage of 2/3rd of the votes. As Alok Prasanna points out here, this effectively grants the Central Government a veto over the fiscal policies State Governments, thereby violating the fiscal autonomy of the states. However, it is important to remember that even the State Governments have a veto over the Centre – in fact, if a little over 3/8th of the State Governments present and voting dissent, no decision can be taken by the GST Council. Of course, no individual state will have a veto, and fiscal policies can be imposed on the dissenting state government.

A separate controversy pertains to the dispute resolution mechanism. Under the earlier draft of the Bill passed by the Lok Sabha, it was provided that: “The Goods and Services Tax Council may decide about the modalities to resolve disputes arising out of its recommendations”. However, under the new draft, passed in both the Houses, it is mandated that a mechanism to adjudicate disputes be instituted by the GST Council. This mechanism will apply to disputes between the Union and State(s), between two or more States, and between Union and State(s) on one side and State(s) on the other – if it relates to the recommendation of the GST Council or its implementation. It is uncertain whether the GST Council will enact a delegated legislation to give effect to such a power. Former Finance Minister Mr. Chidambaram alluded to this concern in the Upper House, but it was not addressed. The Memorandum Regarding Delegated Legislation provided in the Bill did not refer to any such delegated legislation by the GST Council.

One question that immediately arises – and it was raised by Mr. Chidambaram as well – is the role of Article 131. Ordinarily, such disputes between Union and State(s) are to be adjudicated under Article 131, which grants original jurisdiction to the Supreme Court. It is useful to note that Article 131 begins with: “Subject to the provisions of this Constitution…”. Perhaps it may be argued that the Amendment precludes the operation of Article 131. Moreover, as was recently explained in the recent Delhi HC case on the powers of the Lt. Governor, it is “only when a legal, not a mere political, issue arises touching upon the existence or extent of a legal right that Article 131 is attracted” (citing State of Rajasthan v. Union of India). As Finance Minister Mr. Jaitley stated in the Rajya Sabha, the dispute resolution clause was inserted on the presumption that disputes arising out of the recommendations of the GST Council are political disputes, that can be resolved internally (i.e., without reference to the judicial branch). This might be an additional reason to preclude operation of Article 131.

This can be a concern. However, there is always a possibility that disputes may be raised vide a writ petition under Articles 32 and 226. The GST Council is after all a constitutional body, and any State aggrieved by its recommendation may approach the constitutional courts. In addition, if the dispute is referred to the mechanism instituted by GST Council, the conclusion reached by such a body may also be challenged vide a writ petition. Powers of judicial review under Articles 32 and 226 have been repeatedly upheld as being part of the basic structure, and it is unlikely that the writ jurisdiction will be affected by the Amendment.

One comment

  1. Thaks for this informative post today GST are applicable to all business and they need to GST solution for their business. I want to suggest a GST solution that is Gen GST Software

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