YLM-3011: Legal and social science Research Methods

Article on CONSTITUTIONAL SOUNDNESS OF GST

SCHEME

Prepared by:

SHARIQ ANSARI

LLM II year(2 yr course)

Rollno. : 50683
 Constitutional soundness of GST scheme
I. INTRODUCTION:

The scope of this paper is limited to analyzing constitutional soundness of GST scheme,
that is whether the GST scheme as it stands hitherto is in line with the spirit of the
Constitution. The question of fitness of GST scheme arises because it affects one of the
most important aspect of Indian Federalism, namely fiscal federalism, federalism being
avowedly the basic structure of the Constitution and the basic structure doctorine
evolved by the Supreme Court in Keshavnanda Bharti1 case is an explicit limitation,
though judicially evolved, on the power of the Parliament to amend the Constitution. So
the entire controversy boils down to this ‘whether the GST effects Indian Federalism so
much so that it should be held violative of the basic structure of our Constitution’,
because the constitutional amendment falls within the plenary power of the Parliament
under Article 3682, which when exercised in consonance with the with the procedure
specified therein cannot be challenged save only on the basis of basic structure doctrine
evolved by the Hon’ble Supreme Court in Keshavnanda case. However before going to
the strict legal questions involved, it will be a worthwhile exercise to have a brief
overview of the practical effect of GST scheme on Indian Federalism for it will enable us
to appreciate why a particular feature of a Constitution is a basic feature of our
Constitution and to what extent encroachment would be permissible.

II. PRACTICAL IMPICATION OF GST ON INDIA FEDERALISM:

India is a country of heterogeneous and diverse culture so much so that sometimes it is

called a ‘continent disguised as a country’. The consumption pattern and production
pattern of states differs so widely and different states are at different level of
development. Economy of some states has become industrial dominated while some are
still predominantly based on agriculture. Even, some states are on the verge of reaching
1
Keshavnanda Bharti Vs State of Kerala and Another (1973) 4 SCC 225
2
See Article 368, Constitution of India
third stage of their economic development that is becoming a service based economy.
The priority of different sates are different, for example for people of Tamil Nadu the
priority is welfare schemes while for the States of Jammu and Kashmir the priority is a
law and order.

This practical difficulty was realized by our forefathers and therefore they adopted a
federal scheme for our Constitution. Under the original Constitutional scheme, therefore
the basic responsibility of governance was given to the states themselves be it related to
education, health and sanitation, primary education, agriculture, law and order, so on and
so forth. For giving effect to these functions states were given substantial sources of
finance in the form of taxing power. These sources though did not turn out to be self-
sufficient but were indeed substantial. Thus, the states were contemplated to be, so to say,
policy laboratories and therefore were given autonomy in their respective sphere so as to
make them available space to pursue alternate strategies.

With the advent of this GST scheme this autonomy of the states to pursue alternate
strategy as per its own peculiarities and conditions would go away. The states would have
to follow the rates of taxes carved out by the GST Council. Hence, it would be a strange
paradigm that the states would still be having the primary responsibility of basic
governance but would no longer have the financial autonomy for giving effect to those
functions. Further, in all likelihood this policy of making entire country as one tax unit
has a tendency to treat unequals equally which will further amplify the existing vertical
imbalance making them more dependent on the union whilst also catalyzing horizontal
imbalance among states, same of which is against the spirit of federalism.

III. EFFECT OF GST ON INDIAN FEDERALISM IN STRICTLY LEGAL

SENSE:

While analyzing the effect of GST scheme on Indian Federalism, what has to be seen is
whether the GST effects the Indian Federalism so much so that it shall be hold violative
of the basic structure our Constitution for that it effects federalism is beyond any
controversy. The Author, venture to think that this question should be answered in
affirmative and to answer this question, it is felt necessary that three basic contentions
that are raised in favour of the GST being constitutionally valid should be dealt with
which exercise would be self-sufficient to establish that GST is violative of basic
structure doctrine.

However, before answering those contentions it would be gainful to point out that the
basic structure doctrine does not lay down that a legislation would be held to be violative
of basic structure of the Constitution only when one of the basic structure of the
Constitution is completely abrogated. Per Contra, according to basic structure doctrine, as
it holds today, even if there is substantial encroachment of any basic feature of
Constitution, then the legislation shall be held violative of basic structure of the
Constitution and is liable to be struck down. NJAC 3 case and L. Chandra Kumar dictum
are instructive on this point. In NJAC case, it was nobody’s case that the independence of
judiciary, which avowedly is one of the basic structure of our Constitution was
completely taken away. Per contra, the independence of judiciary only with respect to
appointment of judges that too to the extent of undue weightage to the executive, and
involvement of civil society in the appointment of committee, was under siege which
frowned their Lordships to struck down the NJAC Act. A fortiori, in L. Chandra Kumar 4
case it was not that power of judicial review was totally taken away by Constitutional
amendments and law passed under their aegis. Though the judicial review by High courts
was taken away but the judicial review of Supreme Court was saved. But, it was held that
even high courts cannot be divested from their power of judicial review, it being the basic
feature of Constitution. Thus, from the aforesaid authorities it is clear that even if there is
substantial encroachment on one of the basic feature of Constitution, than the legislation
would be ultra vires the Constitution vide basic structure doctrine. Since, there would be
no gain saying that Federalism is one of the basic structure of the Constitution because
it’s a established law vide Keshavananda Bharti and S.R Bommai case, let us
3
Supreme Court advocates on Record Assosiation & Antr Vs UOI, 2016 SCC Vol. 5 Part I
4
L. Chandra Kumar Vs UOi &Others (1997) 3 SCC 261
straightaway refute with the contentions pressed in favour of the constitutional validity of
the GST

A. INDIA IS A QUASI-FEDERAL POLITY:

The first contention in favour of Constitutional validity of GST is that our constitution is
not federal Constitution stricto sensu but only a quasi-fedral one and hence even if the
GST affects the existing federal structure, it should be permissible. For dealing with this
contention it would be worthwhile to understand the nature of Indian Federalism. For that
purpose, I believe the first and sufficient exercise should be to refer to the relevant
portion of the last address of Dr. B.R. Ambedkar to the Constituent Assembly. 5 To wit:

“There is only one point of constitutional import to which I propose to make a reference.
A serious complaint is made on the ground that there is too much of centralisation and
that the States have been reduced to municipalities. It is clear that this view is not only
an exaggeration, but is also founded on a misunderstanding of what exactly the
Constitution contrives to do. As to the relation between the Centre and the States, it is
necessary to bear in mind the fundamental principle on which it rests. The basic
principle of federalism is that the legislative and executive authority is partitioned
between the Centre and the States not by any law to be made by the Centre but by the
Constitution itself. This is what Constitution does. The States under our Constitution are
in no way dependent upon the Centre for their legislative or executive authority. The
Centre and the States are coequal in this matter. It is difficult to see how such a
Constitution can be called centralism. It may be that the Constitution assigns to the

5
It may be noted that there were only two speeches on federalism in our Constitution Assembly
debates, one was by Dr. B.R. Ambedkar as mentioned hereinabove and the other one was by Shri
T.T Krishnamachari
Centre too large a field for the operation of its legislative and executive authority than is
to be found in any other federal Constitution. It may be that the residuary powers are
given to the Centre and not to the States. But these features do not form the essence of
federalism. The chief mark of federalism as I said lies in the partition of the legislative
and executive authority between the Centre and the units by the Constitution. This is the
principle embodied in our Constitution.”
Similarly, Shri T.T. Krishnamachari, a renowned member of the Constituent Assembly,
whilst having debate on the draft Constitution, considered it a very big charge to say that
the Indian Constitution is not a Federal Constitution or that it is a unitary one, namely “I
think it is a very big charge to make that this Constitution is not a federal Constitution,
and that it is a unitary one.” Further he also brought attention to the fact the intention of
making our Constitution Federal was declared by our Father of the nation 18 years back
at Round Table Conference in London. Going further the learned member by applying
the simple test of Federalism in popular in German school of political philosophy, also
concluded that India is a Federal Constitution. To wit:
“The simple definition I have got from the German school of political philosophy is that
the first criterion is that the State must exercise compulsive power in the enforcement of a
given political order, the second is that these powers must be regularly exercised over all
the inhabitants of a given territory, and the third is the most important and that is that
the activity of the State must not be completely circumscribed by orders handed down for
execution by the superior unit. The important words are must not be completely
circumscribed, which envisages some powers of the State are bound to be circumscribed
by the exercise of federal authority. Having all these factors in view, I will urge that our
Constitution is a federal Constitution. I will urge that our Constitution is one in which we
have given power to the units which are both substantial and significant in the legislative
sphere and in the executive sphere. (Emphasis Supplied)”
Apart from the views of the Constituent Assembly members it would be apposite to take
note of the observations of the Hon’ble Supreme Court on Indian Federalism in S.R.
Bommai6 case because it was one of the case in which Indian Federalism was under
serious attack and therefore any discussion on Indian Federalism would be incomplete
without taking those observations in consideration. In this case, the apex Court observed
that List II contains very important subjects including the power to tax which powers are
made mutually exclusive so that ordinarily states have substantial sources to generate
revenue by their own. Further B.P. Jeevan Reddy, J. speaking for himself and Aggarwal
J. cautioned that states are not appendages of the Centre within the spheres allotted to
them. The states are supreme and the Centre cannot temper with their power.
Furthermore, the Apex Court held that merely presence of emergency provisions or
certain special provisions under Article 355 and Article 356 do not rob the Constitution
of its federal nature. To wit:

“100. For our purpose, further it is really not necessary to determine whether, in spite of
the provisions of the Constitution referred to above, our Constitution is federal, quasi-
federal or unitary in nature. It is not the theoretical label given to the Constitution but
the practical implications of the provisions of the Constitution which are of importance
to decide the question that arises in the present context, viz., whether the powers under
Article 356(1) can be exercised by the President arbitrarily and unmindful of its
consequences to the governance in the State concerned. So long as the States are not
mere administrative units but in their own right constitutional potentates with the same
paraphernalia as the Union, and with independent Legislature and the Executive
constituted by the same process as the Union, whatever the bias in favour of the Centre,
it cannot be argued that merely because (and assuming it is correct) the Constitution is
labelled unitary or quasi- federal or a mixture of federal and unitary structure, the
President has unrestricted power of issuing Proclamation under Article 356(1). If the
Presidential powers under the said provision are subject to judicial review within the
limits discussed above, those limitations will have to be applied strictly while scrutinising
the concerned material. (Emphasis Supplied)…”

6
S.R. Bommai v. Union of India 1994 (3) SCC
It will be also be worthwhile to reiterate and quote the stand of the Court in Keshavnanda
case that Federalism is one of the basic feature of the Constitution. The then Chief Justice
Sikri J. whilst giving his inclusive and illustrative list of the basic structure of the
constitution held the federalism to be one of the basic feature of the Constitution. To wit:

“292. ... ... ...The true position is that every provision of the Constitution can be amended
provided inthe result the basic foundation and structure of the Constitution remains the
same. The basic structure may be said to consist of the following features:
Supremacy of the Constitution.
Republican and Democratic form of Government.
Secular character of the Constitution.
Separation of powers between the legislature, the executive and the judiciary;
Federal character of the Constitution.”

It may be noted that along with the Chief Justice certain other judges also included
federalism as one of the basic structure of the Constitution.

The last case which I would like to refer to is a reference under Article 143 7 wherein also
the federal feature of the Constitution was reemphasized. To wit:

“In England, Parliament is sovereign; and in the words of Dicey, the three distinguishing
features of the principle of Parliamentary Sovereignty are that Parliament has the right
to make or unmake any law whatever; that no person or body is recognised by the law of
England as having a right to override or set aside the legislation of Parliament, and that
the right or power of Parliament extends to every part of the Queens dominions (1). On
the other hand, the essential characteristic of federalism is the distribution of limited
executive, legislative and judicial authority among bodies which are coordinate with and
independent of each other. The supremacy of the constitution is fundamental to the
existence of a federal State in order to prevent either the legislature of the federal unit or
those of the member States from destroying or impairing that delicate balance of power

7
(Special Reference No.1 of 1964) AIR 1965 SC 745
which satisfies the particular requirements of States which are desirous of union, but not
prepared to merge their individuality in a unity. This supremacy of the constitution is
protected by the authority of an independent judicial body to act as the interpreter of a
scheme of distribution of powers. Nor is any change possible in the Constitution by the
ordinary process of federal or State legislation (2). Thus the dominant characteristic of
the British Constitution cannot be claimed by a Federal Constitution like ours”
With these authorities in background, it can be safely concluded that India is essentially a
federal polity. The essential of federalism is distribution of legislative and executive
power between Union and States and the plenary power of both Union and States in their
respectively allotted fields. If this scheme is substantially affected, which I think indeed
is done by the GST scheme, it should be considered violation of Constitution. It may be
noted that one of the most important legislative power of the state is regarding taxation
for the power to impose tax is an inherent power of a sovereign as also the necessary
power to discharge it’s duty, albeit in a federal Constitution it is shared between Union
and States. Therefore, in our Constitution, originally no tax was put under concurrent list.
The Apex Court also observed in the Houcht Pharmaceutical8 case that there can be no
overlapping in tax entries. Now, since by the advent of GST, this distribution of taxing
power between Union and States has been done away with and the autonomy of the states
has been taken away, it should be held violative of basic structure of our Constitution. At
this point, it is irrelevant that the power has not been given to the Centre either if looked
in the direct sense, albeit the practical working of GST would suggest otherwise, that is a
clear bias towards Centre. Representation of States in GST Council can never be a
substitute of autonomy of states.

B. REQUIRED NUMBER OF STATES HAVE RATIFIED THE 101

CONSTITUTIONAL AMENDMENT

This is also an inherently fallacious and misplaced contention in that while judging a
constitutional amendment or any law, for that matter, we are not only concerned with

8
M/s. HoechstPharmaceuticals Ltd and Ors. v. State of Bihar and Ors. (1983) 4 SCC 45,
whether or not the procedure given under the Constitution for amendment or for passing
any law has been complied with but also whether the Parliament has the substantive
competence to pass a law. Substantive competence has to seen from two points. As
discussed above there is no explicit limitation on the power of Parliament to amend the
Constitution save only created by our supreme court in the form of basic structure
doctrine. So put, ratification by states is of no significance. Ratification by states is only a
procedural compliance which has to be made under certain circumstances. The said
ratification cannot make the Parliament competent to make any law violating the basic
structure doctrine. As, we have seen above, this Bill being in violation of basic structure,
the contention dealt herein is of no help to the advocates of GST. Constitution cannot be
a hand maiden of a special majority and ratifying States.

C. INDIA CONSTITUTIONS ENSHRINES SPIRIT OF CO-OPERATIVE

FEDERALISM:

This contention though appearing prima facie plausible, would also not survive
meticulous scrutiny. It is to be noted at the threshold here that while interpreting a
Constitution, context plays a very important role and the intention of the framers as well.
While interpreting a Constitution, it would be futile to completely import the ideology of
one chapter into another, albeit with a caveat that Constitution has to be read as a whole.
This would be clear from doing juxtaposition of chapter XIII and Chapter XI of the
Constitution. If we look into Chapter XIII from its historical perspective, it was brought
into the Constitution to fetter competition among states and to promote co-operation
among them. Whilst, on the other hand, Chapter XI predominant idea is the distribution
of Legislative power between Union and Sates and plenary power of union and states in
their allotted sphere. Chapter XIII carves out certain exceptions that only in these many
circumstances states may impose restriction on interstate commerce while chapter XI
carves out certain exception that only under these many circumstances (viz. 249, 253,
etc), plenary power of states is effected, which otherwise have complete autonomy in
their field. The point I hereby wish to make is that completely importing idea of one
chapter into another would do damage to at least one of the principle of the Constitution,
which here would be obviously federalism. We can’t read into emergency provision the
idea of fundamental rights, however, a caution is warranted that there would be some
content sharing and exchange of colors like in article 359, it has been provided that rights
given under article 20 and 21 cannot be suspended even while promulgation of
emergency. Similarly, Article 249 has a flavor of co-operative Federalism. Hence, this
contention is also of no help.

All said and argued above I hereby also take the liberty of pointing out that GST is also
colourable exercise of legislative power. While judging legislation on the parameters of
doctrine of colourable legislation, what has to be seen is the competence of legislature. If
that is established then nothing remains to be challenged. So, in this case we have to see
whether the Parliament has the competence to pass the 101 Constitutional Amendment,
that is whether in the garb of making the country a single tax unit, the basic idea of
Federalism is substantially encroached upon. Two things have to be taken into
consideration here. Firstly, that since we are analyzing colourable exercise of power we
have to look behind the veil. If we do that, the practical realities would make it blatantly
clear that the working of the GST Council would have a centralizing tendency. If we
closely examine the Indian polity closely, we will be able to see that State governments in
our country work on party lines. If the Government at the Centre and half of the State
governments are of same party, then the voice of dissenting states would be redundant.
On top of all, Centre has been given one third weightage in voting of GST Council which
in all likelihood would work as a Veto. Secondly, it is also clear that while making law
under one provision of the Constitution, some other provision of the Constitution cannot
be violated. In Balaji case the Hon’ ble Apex Court held that in the garb of making
provision under Article 15(3), Article 13 cannot be violated, It follows therefore, that
while promoting one idea of constitution namely co-operation among states, some other
principle of Constitution cannot be violated, to wit federalism, and to be more precise,
distribution of power between Union and States and plenary power of both in their
allotted fields. This approach may seem to be quite unconventional and unprecendented
but we have to keep in mind that we are interpreting Constitution which is an organic
document. It is therefore submitted that sometimes unconventional approach has to be
taken, take the case of State of Rajasthan Vs. Union of India. It also remains to be seen
whether the doctrine of colourable legislation can be stretched so far so as to determine
constitutional validity of Constitutional amendment itself on the touchstone of basic
structure doctrine. Hence, it can be a novice issue for courts to consider.

CONCLUSION:

Hence, it can be concluded in few words that the GST scheme is violative of basic
structure of the Constitution, it being substantially affecting the federal scheme of our
Constitution vis-a-vis both the distribution of power between states and union and
autonomy of states at the least. Therefore, it is suggested that the 101 Constitutional
Amendment and laws passed under it aegis be struck down. The ratification by States
cannot be any justification either. Constitution is not for governments in presenti, it is for
generations and generations. Our Constitution is for “WE THE PEOPLE OF INDIA”