Functioning of The GST Council LLM

FUNCTIONING OF THE GST COUNCIL:
A CRITICAL ANALYSIS
A Dissertation submitted to Rajiv Gandhi National University of

Law, Punjab in partial fulfillment for the award of degree of Master
of Laws (LL.M) with specialisation in Business Law
Supervised by Submitted by
Dr Manoj Kumar Sharma Kumar Aditya
Associate Professor of Law Roll No. 23546
RAJIV GANDHI NATIONAL UNIVERSITY OF LAW, PUNJAB

SIDHUWAL, BHADSON ROAD, PATIALA
i
DECLARATION
I declare that the dissertation titled “Functioning of the GST Council: A Critical
Analysis” submitted by me in partial fulfilment of the requirement for the award of
Master of Laws (LL.M) with specialisation in Business Law to the Rajiv Gandhi
National University of Law, Punjab under the guidance of Dr Manoj Kumar Sharma,
Associate Professor of Law, Rajiv Gandhi National University of Law, Punjab is an
original and bona fide research conducted by me. This work or any type thereof has
not been submitted by me or anyone else in part or in full for the award of another
degree from either this university or any other university.
Date:
Place: Signature of the Student
Kumar Aditya
23546
Rajiv Gandhi National University of Law, Punjab
ii
CERTIFICATE
This is to certify that this dissertation titled “Functioning of the GST Council: A
Critical Analysis” submitted to the Rajiv Gandhi National University of Law,
Punjab by Divya Pradhan in partial fulfilment for the award of Master of Laws
(LL.M) with specialisation in Business Law is carried out under my guidance and
supervision. This dissertation or any part thereof has not been submitted elsewhere for
any degree.
I wish her success in future endeavours.
Date
Place Signature
Dr Manoj Kumar Sharma
Associate Professor of Law
Rajiv Gandhi National University of Law, Punjab
iii
ACKNOWLEDGEMENT
It is often a colossal task to acknowledge the assistance of all in a major work such as
this one. Apart from the grace of the almighty, many people have been profusely
generous and helpful to me in the course of my research tenure. In the first place, I feel
tremendously excited to record my sincerest and profound gratitude to my adroit
supervisor, Dr Manoj Sharma, Associate Professor of Law, RGNUL Punjab who has
been a guiding light for me in this journey of completing this dissertation.
I would also like to thank the LL.M. Coordinators at RGNUL, Punjab for providing
valuable guidelines and encouragement, which were helpful to me. I would also like
to extend my gratitude to the RGNUL’s library staff, for aiding and assisting in my
research by facilitating access to the robust collection of literature available in the
RGNUL’s Library.
Further, I am greatly indebted to the Author of the books and articles in the preparation
of this work. Now I would like to take this opportunity to thank my family, which
provided me with constant support and encouragement to pursue my interest in legal
research. I am grateful to them for providing me with all the facilities to work towards
my goals. I would like to acknowledge my gratitude to my friends for giving me hope
during the difficult days and being my constant support. I am earnestly thankful to the
almighty, my parents, my sisters, my friends my seniors, and my batchmates for their
blessings, inspiration and moral support.
iv
LIST OF ABBREVIATIONS
GST Goods & Service Tax
MoS Ministry of State
NCT National Capital Territory
USA United States of America
VAT Value Added Tax
NDMC New Delhi Muncipal Corporation
CJ Chief Justice
UOI Union of India
CTO Commercial Tax Officer
STO Salex Tax Officer
KVAT Kerala Value Added Tax Act, 2003
GSTC Goods & Service Tax Council
FRBM Fiscal Responsibility and Budget
Management
CGST Central Goods & Service Tax
SGST State Goods & Service Tax
RNR Revenue Neutrality Rate
IGST Integrated Goods and Services Tax
UTGST Union Territory Goods and Services Tax
CENVAT Central Value Added Tax
MoS Minister of State
GoFMs Group of States' Finance Ministers
GoMs Groups of Ministers
v
LIST OF CASES
1. A.N. Parasuraman v. State of T.N., (1989) 4 SCC 683
2. Adlapati Venkateswarlu v. State of A.P., 1992 Supp (1) SCC 74
3. Amrit Banaspati Co. Ltd. v. State of Punjab, (1992) 2 SCC 411
4. Automobile Transport v. State of Rajasthan , AIR 1962 SC 1406
5. Avinder Singh v. State of Punjab, (1979) 1 SCC 137
6. Baiju A.A. v. STO, 2019 SCC OnLine Ker 5362
7. Coffee Board v. C.T.O , (1969) 3 SCC 349 : AIR 1971 SC 870
8. Carmichael v. Sothern Coal & Coke Co., 1937 SCC OnLine US SC 112 : 81 L
Ed 1245 : 301 US 495 (1937)
9. Delhi Laws Act, 1912, In re, 1951 SCC 568

10. Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., (2000) 5 SCC 694
11. Dhruv Krishan Maggu v. Union of India, (2021) 87 GSTR 410
12. Edward Mills Co. Ltd. v. State of Ajmer, AIR 1955 SC 25
13. Elel Hotels & Investments Ltd. v. Union of India, (1989) 3 SCC 698
14. Facebook v. Delhi Legislative Assembly, (2022) 3 SCC 529: 2021 SCC
OnLine SC 456
15. ITC Ltd. v. Agricultural Produce Market Committee , (2002) 9 SCC 232
16. Jagannath Baksh Singh v. State of U.P., AIR 1962 SC 1563
17. Jindal Stainless Ltd. v. State of Haryana (2017) 12 SCC 1
18. K.P. Varghese v. ITO (1981) 4 SCC 173 : 1981 SCC (Tax) 293
19. Kalpana Mehta v. Union of India (2017) 7 SCC 295 : (2017) 7 SCC 302
20. Kesavananda Bharati v. State of Kerala (1973) 4 SCC 225
21. Kuldip Nayar v. Union of India, (2006) 7 SCC 1
22. M. Nagaraj v. Union of India, (2006) 8 SCC 212 :
23. MCD v. Birla Cotton Spg. & Wvg. Mills, AIR 1968 SC 1232
24. M'Culloch v. Maryland, 4 L Ed 579 : 17 US 316 (1819)
25. Mohit Minerals v. Union of India (2022) 10 SCC 700 : 2022 SCC OnLine SC
657
26. NDMC v. State of Punjab (1997) 7 SCC 339
27. Offshore Holdings (P) Ltd. v. Bangalore Development Authority, (2011) 3
SCC 139
vi
28. P.B. Samant v. Union of India, 2009 SCC OnLine Bom 400 : (2009) 3 Bom
CR 133 : (2009) 4 AIR Kant R (NOC 617) 217 : (2009) 3 AIR Bom R 71
29. Powers, Privileges & Immunities of State Legislatures, In re (Special
Reference No. 1 of 1964), AIR 1965 SC 745 : (1965) 1 SCR 413
30. Rajendra Diwan v. Pradeep Kumar Ranibala , (2019) 20 SCC 143 : 2019 SCC
OnLine SC 1586
31. S.R. Bommai v. Union of India, (1994) 3 SCC 1
32. Samsher Singh v. State of Punjab, (1974) 2 SCC 831 : 1974 SCC (L&S) 550
33. Skill Lotto Solutions (P) Ltd. v. Union of India, (2021) 15 SCC 667 : 2020
SCC OnLine SC 990
34. Skill Loto Solutions Pvt Ltd v Union of India, WP (C) No. 961/2018
35. Special Reference No. 1 of 1964) [(1965) 1 SCR 413 : AIR 1965 SC 745
36. State of Telangana v. Tirumala Constructions 2023 SCC OnLine SC 1376
37. State (NCT of Delhi) v. Union of India, (2018) 8 SCC 501
38. State of Karnataka v. Union of India, (1977) 4 SCC 608
39. State of Punjab v. Governor of Punjab, (2024) 1 SCC 384: 2023 SCC OnLine
SC 1531
40. State of West Bengal. v. Kesoram Industries Ltd., (2004) 10 SCC 201 : AIR
2005 SC 1646
41. State of West Bengal v. Union of India , AIR 1963 SC 1241
42. State of U.P. v. Synthetics and Chemicals Ltd., (1991) 4 SCC 139
43. Swaraj Abhiyan (V) v. Union of India, (2018) 12 SCC 170 : 2017 SCC OnLine
SC 782
44. State of Rajasthan v. Union of India, (1977) 3 SCC 592 : (1978) 1 SCR 1
45. Teesta Distribution v. Union of India, WP No. 18424(W) of 2016
46. Union of India v. Mohit Mineral (P) Ltd, (2019) 2 SCC 599
47. Union of India v. VKC Footsteps (India) (P) Ltd., (2022) 2 SC
vii
TABLE OF CONTENTS
DECLARATION................................................................................................................ ii
CERTIFICATE ................................................................................................................. iii
ACKNOWLEDGEMENT ................................................................................................ iv
LIST OF ABBREVIATIONS ............................................................................................. v
LIST OF CASES ............................................................................................................... vi
CHAPTER 1: INTRODUCTION ...................................................................................... 1
1.2. LITERATURE REVIEW........................................................................................... 7
1.3. STATEMENT OF PROBLEM ................................................................................. 10
1.4. RESEARCH OBJECTIVES .................................................................................... 10
1.5. SCOPE OF THE STUDY ........................................................................................ 10
1.6. RESEARCH QUESTIONS ..................................................................................... 11
1.7. HYPOTHESIS ........................................................................................................ 11
1.8. RESEARCH METHODOLOGY ............................................................................. 11
1.9. CHAPTERISATION ............................................................................................... 11
CHAPTER 2: INDIAN FISCAL FEDERALISM ........................................................... 12

2.1. INTRODUCTION................................................................................................... 12
2.2. FEDERALISM IN THE INDIAN CONSTITUTION ............................................... 13
2.3. JUDICIAL PERSPECTIVE ON FEDERALISM ..................................................... 20
2.4. FISCAL FEDERALISM ......................................................................................... 28
2.5. CONCLUSION ....................................................................................................... 31
CHAPTER 3: GST UNDER THE INDIAN CONSTITUTION...................................... 33

3.1. INTRODUCTION................................................................................................... 33
3.2. HISTORY OF GST ................................................................................................. 34
3.3. 115th CONSTITUTIONAL AMENDMENT............................................................. 38
3.4. COMPARISON OF RECOMMENDATIONS OF VARIOUS BODIES ON

INTRODUCING A GST REGIME ................................................................................. 43
3.5. 122nd CONSTITUTIONAL AMENDMENT ............................................................ 44
3.6. COMPARISON OF THE 2014 BILL, 2011 BILL, AND THE

RECOMMENDATIONS OF THE STANDING COMMITTEE ...................................... 48
viii
3.7. GST PROVISIONS UNDER THE INDIAN CONSTITUTION ............................... 50
CHAPTER 4: ROLE OF THE GST COUNCIL ............................................................. 55

4.1. INTRODUCTION................................................................................................... 55
4.2. GST COUNCIL IN THE INDIAN CONSTITUTION .............................................. 58
4.3. PROCEDURE & CONDUCT OF BUSINESS REGULATIONS OF THE GST

COUNCIL ..................................................................................................................... 59
4.4. PASSING OF RESOLUTION IN MEETING .......................................................... 65
4.5. ANALYSING 38th GST COUNCIL MEETING ..................................................... 66
4.6. ROLE OF GoM ....................................................................................................... 71
4.5 CONCLUSION ........................................................................................................ 78
CHAPTER 5: RECOMMENDATION OF THE GST COUNCIL WHETHER

BINDING OR NOT ......................................................................................................... 80
5.1. INTRODUCTION................................................................................................... 80
5.2. FACTS OF MOHIT MINERALS v. UNION OF INDIA .......................................... 81
5.3. RATIO DECIDENDI............................................................................................... 82
5.4. ANALYSING THE JUDGMENT ............................................................................ 83
5.4. IMPLICATION OF THE JUDGMENT ................................................................... 91
CHAPTER 6: CONCLUSION & SUGGESTIONS ........................................................ 93

6.1. CONCLUSION ....................................................................................................... 93
6.2. SUGGESTIONS ................................................................................................... 102
BIBLIOGRAPHY .......................................................................................................... 103
ix
CHAPTER 1: INTRODUCTION
The GST Council was introduced by the 122nd Constitutional Amendment Bill in 2016.
The GST Council (GTSC) got a constitutional framework after the Constitution
(Hundred and First Amendment) Act, 2016 received assent from the president on the
8th of September, 2016.1 The GST Council was to be constituted by the constitution
within 60 days under Article 279A(1) of the Constitution. The GST Council is a joint
forum of the centre & the states consisting of three classes of members i.e.,
Chairperson, Vice-Chairperson, & Members. The chairperson of GSTC is the Union
Finance Minister; The Vice Chairperson shall be chosen by the ministers of state
government; and the members shall be the Ministry of State (MoS) and all Ministers
of Finance of each State & Ministers of Finance of each Union Territory with the
legislature. The Council has a duty to make recommendations to the union and states
on questions of importance pertaining to GST. The quorum as the law prescribed is
50% with the voting weightage of states to be 2/3 and union to be 1/3. The majority
mark to undertake the decision is prescribed to be 75%.
“There are two significant attributions of the voting system in the GST Council. First,
the GST Council has an unequal voting structure, where the States collectively have a
two-third voting share and the Union has a one-third voting share; and secondly, no
resolution can be passed without taking the union in confidence which confers a veto
power to the union. The constitutional design of the Constitution Amendment Act,
2016 is sui generis since it introduces unique features of federalism. 2 Article 246-A
treats the Centre and States as equal units by conferring a simultaneous power of
enacting a law on GST. Article 279-A in constituting the GSTC envisions that neither
the Centre nor the States can act independently of the other.”
The function of GSTC can be understood in the light of the federalism. Federalism is
a governance system where authority is divided between a central governing body and
various constituent units within the nation. This division of power enables the
1
“GST: A look at the changes proposed to the Constitution (122nd Amendment) Bill, 2014 The
Hindu (2 Aug 2014)
2
Srinivas Kotni, ‘Supreme Court’s judgment on GST Council: Does it promote or hinder
cooperative federalism?’ (The Leaflet, 31 May, 2022) https://theleaflet.in/supreme-courts-
judgment-on-gst-council-does-it-promote-or-hinder-cooperative-federalism/ accessed 21 May
2024
1
distribution of authority across different levels of government within an entity. 3 In
contrast, unitary governments either have a single level of government or subordinate
sub-units to the central authority. In our Constitution, this allocation is detailed in Part
XI along with the Seventh Schedule.
In India, federalism operates with adaptations to suit the nation's unique needs and
circumstances, rather than adhering strictly to traditional models. While federal
principles are enshrined in the Constitution, they are subject to limitations and control
outlined within the constitutional framework. The Supreme Court in the case of Jindal
Stainless Ltd. v. State of Haryana,4 held that the Indian Constitution is federal in form
and has marked traditional characteristics of a federal system, namely, the supremacy
of the Constitution, division of power between the Union and the States, and the
existence of an independent judiciary. The court said, “Federalism is one of the basic
features of the Indian Constitution. However, the history of the Constitution including
the debates in the Constituent Assembly indicates that the distribution of powers was
given shape with creating a strong Centre with the object of unity and integrity of
India. The States are sovereign in the allotted fields.”
The nature of federalism in India has been envisioned with a centre bias i.e., the
distribution of power has been with the object of unity and integrity of India which
results in creation of a strong centre. However, The Constitution of India gives states
sovereignty in the allotted fields. The detailed analysis of the Indian Constitution
points to the aspect of divided sovereignty, which is between the Centre and the States.
The divided sovereignty as conferred along the lines of Part XI along with the Seventh
Schedule results in separate constituents, owing their fiscal sovereignty without being
subdued by others, horizontally or vertically. The constitutional scheme invariably
leads to the conclusion that at times these institutions meet and interact at various
levels to achieve the cherished constitutional goal of cooperative federalism. 5 Indeed,
while the federal principle is a cornerstone of our Constitution, The foremost
understanding of federalism is acknowledge that this form of federalism tends to favor
a robust central authority. This inclination towards a strong centre contrasts with the
concept of strong federalism, where power is more evenly distributed between the
3
International Institute for Democracy and Electoral Assistance, “Federalism International IDEA
Constitution-Building Primer’ (2017) (International IDEA)
4
Jindal Stainless Ltd. v. State of Haryana [2017] 12 SCC 1
5
Swaraj Abhiyan (V) v. Union of India [2018] 12 SCC 170
2
central and state governments. The Supreme Court in State of W.B. v. Union of
India6 has observed that our Constitution is not of a true or a traditional pattern of
federation. In a similar vein are other judgments of the Court, like State of
Rajasthan v. Union of India7 This reflects the essence of our Constitution: while it
may seem federal in structure, the distribution and exercise of powers often lean
towards a more unitary system. Despite the appearance of federalism, the practical
application of powers and their utilization tends to centralize authority rather than
distribute it among different levels of government.
The two models of federalism can be understood as competitive federalism & co-
operative federalism, with competitive federalism being understood as “layer cake
federalism” because precise portrayal of the power structure while cooperative
federalism is understood as “marble cake federalism” due to the integrated approach
of the federal units. 8
The Supreme Court has acknowledged that collaborative federalism was an integral
part of the working of the Indian Constitution. 9 The Supreme Court in the case of State
(NCT of Delhi) v. Union of India10 observed that India follows the model of
cooperative federalism which is the integrated approach of the federal units that can
be done by ironing out the differences that arise in the course of the path of
development.11 The fundamental aspect of cooperative federalism is the objective to
iron out the differences, rather than confrontation and state of contestation. The
Supreme Court has held that wherever legislative powers are so distributed, situation
may arise where two legislative fields might overlap, it is then the duty of the courts,
however, difficult it may be, to ascertain to what degree and to what extent, the
Authority to deal with the matters falling within these classes of subjects exist in each
legislature and to define, in the particular case before them, the limits of respective
powers.12
6
[(1964) 1 SCR 371 : AIR 1963 SC 1241] (SCR at p. 396)
7
[(1977) 3 SCC 592 : (1978) 1 SCR 1] (SCR at pp. 4 G and 33 F)
8
Jessica Bulman-Pozen and Heather K. Gerken, “Uncooperative Federalism” [2009] 118 Yale
Law Journal 1256, 1310
9
Facebook v. Delhi Legislative Assembly [2022] 3 SCC 529
10
State (NCT of Delhi) v. Union of India [2018] 8 SCC 501
11
M. Nagaraj v. Union of India [2006] 8 SCC 212
12
Offshore Holdings (P) Ltd. v. Bangalore Development Authority [2011] 3 SCC 139
3
The fiscal sovereignty as discussed earlier further engenders collaborative federalism
into federalism with the characteristics of fiscal federalism. The Constitution of India
demarcates the legislative power over taxation. The evolution of cooperative
federalism has been influenced by developments in fiscal federalism. The principle of
decentralization has been a fundamental aspect of fiscal federalism. 13 The Supreme
Court in the case of Union of India v. Mohit Minerals (P) Ltd.,14 held that one of the
important features of Indian federalism is “fiscal federalism”.
Before the coming of the 101st Constitutional Amendment, which was termed the
greatest reform in indirect taxation, there has been debate for almost more than a
decade. Federalism was a major contentious issue; however, the tax rate was also
significantly an important issue because the approach was inspired by the economies
where GST was uniform. However, the federal character of the implementation of GST
became a point of friction, which added GST compensation that would have been the
revenue paid for the loss that occurred to the state. These were the strings that the
Union could pull to bring states to a consensus.
The 13th Finance Commission was assigned the task of incorporating the impact of the
proposed implementation of the GST into its overall recommendations. The
recommendation of the 13th Finance Commission can be summarised as "both the
Centre and the States should conclude a Grand Bargain to implement the model
GST".15
The 115th Constitutional Amendment Bill introduced the creation of the Union Finance
Minister's Council with the Union Finance Minister as its chairperson. The finance
ministers of the states were members with the veto power presiding with the
chairperson. 16 The 101st Amendment Act created the GST Council, which is similar
to the Union Finance Minister's Council moved away from the consensus to voting
with voting weightage of states to be prescribed as 2/3 and union to be 1/3 with the
majority mark to undertake the decision is prescribed to be 75%.17
13
Richard A. Musgrave, ‘Economics of Fiscal Federalism, [1971] 10 Nebraska Journal of
Economics and Business, 3, 13
14
Mohit Minerals v. Union of India [2022] 10 SCC 700
15
Thirteenth Finance Commission 2010–2015, Volume I: Report, (2009), Ch 5 Goods and Service
Tax Para 5.48
16
Constitution (One Hundred and Fifteenth Amendment) Act, 2011, s. 12
17
Constitution of India, a 279A (9)
4
The weightage voting system can be understood by examining the mechanism and
functioning of the same. The abovementioned clause 9 of Article 279A, 18 can be
understood as follows:
Firstly, the total weighted votes of all the members shall be an aggregate of the
weighted votes of the union and states. Thus, the same can be understood as T= U+S
wherein t shall be the total weighted votes of all the members; u shall be the weighted
votes of the union; and s shall be the weighted votes of the states.
Secondly, there shall be a need to determine the value of the weighted votes of the
states and unions. The total number of members of the Council is 33. The 33-member
committee comprises of union minister of finance, union minister of finance (state),
and finance minister from the states and UTs with state legislature, with J&K being an
exception which is currently represented by Advisor to Lieutenant Governor in the
state of J&K. The 31 member from minister of finance from states can be summed as
minister of finance of 28 states, 2 minister of finance from the UT for NCT of Delhi
& Puducherry, and 1 Advisor to Lieutenant Governor for State of J&K due to no
legislature being elected since the dissolution of the legislative assembly in 2018, and
abrogation of article 370 in 2019.
The weighted vote of the centre as prescribed by the law is one-third and State
Governments taken together shall have a weightage of two-thirds of the total votes
cast. Thus, the voting weightage is as follows:
T=C+S wherein C shall be one-thirds of the total vote cast with S being two-thirds of
the vote cast. The question herein shall be to understand the rationale in arithmetic
form, to understand the delicacy of the context in which the voting power has to be
decided. The C = 1/3 = 33.33% with S = 2/3=66.67%. The C shall be one single bloc
considering the union weighted shall be applied in one bloc, however, the S is to be
divided in number of states to draw the voting right of each state with having an inverse
relation of number of states with their voting value.
The total number of voting weighted for the states shall be divided by the number of
states, to draw a value per state. Thus, S1 = 66.67/31=2.15 wherein S1 shall be the
voting weightage per state. The voting value of each state is 2.15 which can fluctuate
18
Ibid
5
as the number of states is increased or reduced. The total majority mark which is
required to make a decision is three-fourths i.e., 75 out of the 100 if all present and
voting or three-fourth of the total present and voting members in the GST council.
The two clear takeaways that can be drawn out without hesitation are that first, the
union cannot by itself pass a decision and use the GST council as a forum for
legitimizing the policies undertaken by themselves; and second, the states cannot pass
a decision by themselves by subverting the interest of the union. Thus, the undisputed
takeaway can be that the GST council shall only function when there is cooperative
federalism being practiced, with the interests of states and unions equally considered
during the deliberations of the GST council.
The next analysis must be to understand the voting weightage required for deciding in
the GST Council. The majority markup shall be three-fourths i.e., the only single
possibility is that the same shall be passed by the union and a certain number of states.
The intriguing question shall be that how much of states comprise of ‘certain’ number
of states. The T=C+(S1+S2+S3….Sn) to pass the law shall be three-fourths i.e., C +
Sx=75, assuming present and voting shall be all.
In that case, 33 + Cx=75 i.e., Cx=75-33=42. The vote weightage required for passing
the decisions shall be union and total weightage of 42 of the states. Thus, Tv/Sf wherein
Tv shall be the total vote required, and Tf shall be the total states voting in Favor shall
be 20. This implies that the union shall have a consensus-building with 20 state
members to pass a decision in the GST Council. The same requisite is the special
majority building consensus among the member states, thus envisaging a federal
structure, with consensus building and passing of no decisions without taking others
on board. A two-thirds vote is an adequate weightage to pass a resolution in the GST
council. This framework ensures that there are no decisions made on the sole basis of
the union overpowering states, and cumulative state overpowering the union.
The role of the GST Council is to issue “recommendations” on a range of matters

outlined in Article 279A(4) of the Constitution. 19 Decisions of the GST Council are
taken by a super-majority of three-fourths of the weighted votes of members present
19
The Constitution of India 1950
6
and voting. The Union alone has one-third of the votes, while all the States together
have two-thirds of the total votes.
In India, there has been no uniform taxation like New Zealand's broad-based GST
which was introduced on October 1, 1986, and has proved remarkably stable. New
Zealand’s GST has a single standard rate that applies to almost all supplies including
those that are in the vast majority of countries either outside the tax base, exempt, or
lowly taxed.20 The GSTC in the 45th GSTC meeting established the GoM on GST rate
rationalization in September 2021.21 The GoM constituted has been a seven-member
panel with the objectives to: Simplify the GST rate structure, Correct the inverted duty
structure, Review the GST exemption list, Increase GST revenues, and Reduce
classification-related disputes.
1.2. LITERATURE REVIEW
Author, Alok Prasanna22 (2016) in "For a Mess of Potage: The GST's Promise of
Increased Revenue to States Comes at the Cost of the Federal Structure of the
Constitution," National Law School of India Review: Vol. 28: Iss. 2, Article 6 provides
an understanding of Constitution (101st Amendment) Act, 2016 which provided a
framework for the levy of Goods and Services Tax in India. The author outlines the
structure of the paper on federalism, with dealing two distinct antithetical models i.e.,
competitive federalism and cooperative federalism. The author contends GST Council
is a serious blow to federalism as the GST Council makes States subordinate to the
Union in matters of taxation when they have never been in such a position under the
Constitution and; two, a State aggrieved by the decisions of the GST Council has no
effective legal remedy. The author further contended that the structure of the GST
Council was in violation of the basic structure of the Constitution, and could therefore
be struck down by the Supreme Court when challenged. However, there have been
eight years since the constitutional amendment was passed, and the same has been
20
Centre for Tax Policy and Administration, New Zealand VAT rate 2022, OECD Consumption
Tax Trend 2022, https://www.oecd.org/tax/consumption/consumption-tax-trends-new-
zealand.pdf
21
Ministry of Finance, “Recommendations of 45th GST Council Meeting (PIB 17 SEP 2021) <
https://pib.gov.in/PressReleasePage.aspx?PRID=1755925#:~:text=The%20Council%20decided
%20to%20set,of%20revenue%20augmentation%2C%20from%20GST.> accessed 22 May 2024
22
Alok Prasanna, "For a Mess of Potage: The GST's Promise of Increased Revenue to States Comes
at the Cost of the Federal Structure of the Constitution," [2005] National Law School of India
Review 28
7
under serious scrutiny from the Supreme Court. The Supreme Court in the landmark
judgment of Union of India v. M/s Mohit Minerals Pvt. Ltd.,23 has held that the GST
Council’s decisions are not binding on the Centre or the states. Thus, the top court
upheld the fiscal autonomy of the state. However, after eight years of GST, the
Supreme Court has opened a Pandora's box of questions that requires serious scrutiny
and examinations on the constitutional question of the GST Council in the context of
voting rights.
Author, Chanchal Kumar Sharma, 24 in The Political Economy of India’s Transition to

Goods and Services Tax, German Institute of Global and Area Studies (GIGA) (2021)
The study explored the complex political dimensions surrounding the implementation
of the GST, focusing on the shifts in political strategies by the central government. It
analyzed the interplay between political power dynamics, changes in economic policy
paradigms, and evolving political landscapes. Furthermore, the research delved into
the implications of India's transition to a concurrent dual GST system, which has
significantly altered the foundational principles, rules, frameworks, and institutional
mechanisms governing fiscal interactions between different levels of government.
Author, Greg Smith, 25 in The GST as a secure source of revenue for the States and
Territories published in eJournal of Tax Research vol. 18, no. 1, pp. 27-44 27 deals
with Goods and services tax in the federal structure of Australia. The author deals with
the hypothecation of GST revenues in this way providing a reasonably secure
foundation for federal financial relations in Australia. The author notes the changes
occurring in Australia’s federation by continuing changes in the vertical sharing of
government functions, costs, and revenues, and State fiscal security is potentially
vulnerable in these changing circumstances. The advantages and disadvantages of the
GST revenue arrangements have themselves changed over time since the GST was
introduced in 2000, with implications both for the GST as a tax and for the evolution
of the Australian federation. This article discusses these developments and some
possible future directions. This article must be understood in the context of different
23
24
Chanchal Kumar Sharma, ‘The Political Economy of India’s Transition to Goods and Services
Tax’ German Institute of Global and Area Studies [2021]
25
Greg Smith, ‘The GST as a secure source of revenue for the States and Territories’ [2018] 18
eJournal of Tax Research 27, 44
8
forms of political state to elaborate on the applicability of GST in the federal structure
of government.
Author, Andrian Sawyer, 26 in the article New Zealand's successful experience

introducing GST: Informative guidance for Hong Kong? Published in Hong Kong Law
Journal 43 Hong Kong L.J. (2013), P 161 compares the prospects of GST in Hong
Kong and illustrates the reasons why the GST Model of New Zealand is the benchmark
for comparative analysis. The author noted the proposal of the Government of the
Hong Kong Special Administrative Region (HKSAR) on goods and services tax (GST)
in 2006. Following extensive opposition, the proposal was dropped and an opportunity
to reform the HKSAR tax system was lost. This paper, through its comparative
analysis, offered lessons for the HKSAR from the NZ experience.
Author, Aslam P S Libison K B, in Demystifying GST Council Meetings Deliberations

Crucial Perspectives,27 noted that the meetings of the GST council significantly
influence India's economic landscape, and its deliberative and consensus-based
decision-making process is vital for preserving fiscal harmony and bolstering the
nation's economic growth. With 49 meetings conducted thus far, the decisions made
by the GST council have had a substantial impact on the implementation of GST in
India. Therefore, it is imperative to assess how these meetings are conducted and the
documentation produced. This article aimed to provide insights into the first 49 GST
council meetings and critically analyze various aspects such as the number of
meetings, meeting frequencies, voting mechanisms, and member participation.
However, The article limits the exploration and does not expand the same towards the
state of consensus building at the GST Council.
Author, Richard A. Musgrave, in Economics of Fiscal Federalism, 28 He examines the
concept of Federalism, which entails collaborative efforts among regions within a
nation, allowing for local autonomy where feasible and establishing joint policies
where necessary. He contends that Federalism should not be seen merely as a
26
Andrian Sawye, ‘New Zealand's successful experience introducing GST: Informative guidance
for Hong Kong?’ Hong Kong Law Journal [2013] 43 Hong Kong Law Journal 161
27
Aslam P S Libison K B, ‘Demystifying GST Council Meetings Deliberations Crucial
Perspectives, [2024] 59 Economic & Political Weekly
28
Richard A. Musgrave, Economics of Fiscal Federalism, [1971] 10 Nebraska Journal of
Economics and Business 3, 13
9
compromise between complete centralization and decentralization, but rather as a
constructive approach to delegate responsibilities to the most appropriate level of
government. He emphasizes that Federalism goes beyond being a mere agreement
between independent entities, akin to treaties between foreign nations. Instead, it is a
structural framework established within a national context, where national duties and
rights extend to all members of subordinate jurisdictions who, despite residing in
different areas, are citizens of the same nation. This perspective should guide the
interpretation of his proposal for fiscal Federalism. Nevertheless, it is essential to
evaluate it within the broader framework of federalism and constitutional principles.
1.3. STATEMENT OF PROBLEM
It has been seven years since the implementation of the GST. The same has ever since
going through a phase of change and alteration, considering the financial nature
attached to the same. The problems that is evident after seven years of the GST are as
follows, firstly, composition of the GST Council, Secondly, the voting power of the
constituted members, and lastly, the implication of the non-binding nature of the
recommendations made by the GST council. These problems are at the core of the GST
as it brings the debate on the plank of federalism, and role of GST council for the
mandate as provided in the constitution after the 101 st constitutional amendment.
1.4. RESEARCH OBJECTIVES
The objectives for the research are as follows:
a. To explore the contours of Indian fiscal federalism.

b. To analyse the constitutional provisions relating to the GST under the
constitution.
c. To analyse the role and functioning of the GST Council.
d. To examine the binding nature of the recommendations made by the GST Council
e. To suggest recommendations for improvement of the functioning of GST
Council.
1.5. SCOPE OF THE STUDY
10
The scope of the study is to undertake an analytical study of the functioning of GST
Council.
1.6. RESEARCH QUESTIONS
a. What is the nature of Indian fiscal Federalism?

b. What is the character of the GST under the Indian Constitution?
c. What is the role and functioning of the GST Council?
d. What is the nature of the recommendations passed by the GST Council?
e. What are the suggestions for the improvement in functioning of the GST
Council?
1.7. HYPOTHESIS
The Constitution (One Hundred First Amendment) Act, 2016 established GST Council
as a body for co-ordinating the indirect tax structure in India and for making
recommendation to the Union and states regarding indirect taxes, rate of taxes etc. The
structure and functioning of GST Council has promoted cooperative federalism in
India but the council has not been able to provide efficacious solution to various GST
issues confronting Union and States.
1.8. RESEARCH METHODOLOGY
The research methodology opted by the researcher is doctrinal.
1.9. CHAPTERISATION
Chapter 1: Introduction
Chapter 2: Indian Fiscal Federalism
Chapter 3: GST under the Indian Constitution
Chapter 4: Role of the GST Council
Chapter 5: Nature of Recommendations of the GST Council
Chapter 6: Conclusion and Suggestion
11
CHAPTER 2: INDIAN FISCAL FEDERALISM
2.1. INTRODUCTION
In India, the distribution of powers tends to favor the Union Government, resulting in
a strong Central bias. The powers of the States are subject to various restrictions,
limiting their decision-making sovereignty even within their designated spheres as
outlined by the Constitution's distribution of powers.29 Despite the central bias in the
distribution of powers, the relationship between the Indian Union and the States
exhibits elements of cooperative federalism and fiscal federalism.
Cooperative federalism, as Birch describes it, involves administrative collaboration
between the central and regional governments, often facilitated by financial transfers
from the central government. Moreover, through conditional grants, the central
government often encourages developments in areas constitutionally assigned to the
states.30
The evolution of cooperative federalism has been influenced by developments in fiscal
federalism. The principle of decentralization has been a fundamental aspect of fiscal
federalism. 31 The Constitution inherently creates a vertical imbalance between the
Centre and the States through its taxation provisions. This imbalance is not intended
to strengthen the Centre but rather to establish a unified economic space in the country.
There is a concern that granting more powers to the States might lead to the erection
of barriers within this economic space. 32 The level of development can vary
significantly from state to state due to factors such as the availability of natural
resources and historical backgrounds. These disparities can result in horizontal
imbalances between states, where some states may be more developed than others.
The Supreme Court in the case of Union of India v. Mohit Minerals (P) Ltd.,33 held
that one of the important features of Indian federalism is “fiscal federalism”. This
chapter will explore the contours of Indian fiscal federalism. The same shall be dealt
29
K.C. Wheare, Modern Constitution, 2 (Oxford University Press, London 1945)
30
A.H. Birch, Federalism, ‘Finance, and Social Legislation in Canada, Australia, and the United
States [1955].
31
Economics and Business 3, 13
32
Ibid
33
12
with in the context of understanding the nature of federalism, judicial precedents, and
the intersection of collaborative federalism with the fiscal sovereignty of the states.
Thus, federalism in India is a cornerstone of its governance structure, reflecting the
diverse cultural, linguistic, and socio-economic fabric of the nation. The character of
federalism is enshrined in the Constitution, as the Constitution delineates powers
between the central government and the states, ensuring a balance of authority while
fostering unity amidst diversity. At its core, Indian federalism operates on the
principles of distribution of powers, which are classified into three lists: Union List,
State List, and Concurrent List.
One of the fundamental features of Indian federalism is its asymmetric nature. Not all
states enjoy the same degree of autonomy. Moreover, Indian federalism is
characterized by cooperative federalism, emphasizing collaboration between the
center and the states. In conclusion, federalism in India is a dynamic arrangement that
accommodates diversity while promoting national unity. This chapter shall deal with
the origin and evolution of federalism, understanding the federal character of the
constitution with respect to judicial perspective on federalism, cooperative federalism,
and fiscal federalism in the Indian background.
2.2. FEDERALISM IN THE INDIAN CONSTITUTION
Prior to 1935, India functioned under a unitary system of governance. However, the
introduction of the Government of India Act in 1935 marked a significant shift towards
federalism, representing India's inaugural venture into a federal structure. Our
Constitution, heavily influenced by the provisions of the Government of India Act,
1935, meticulously outlines the distribution of taxes, non-tax revenues, and borrowing
powers, along with provisions for Union grants-in-aid to the States. The primary aim
of this distribution is to ensure a fair allocation of financial resources between the
federal units, departing from the conventional federal model where resources are
typically divided into distinct compartments.
Despite this, the decentralization and delegation of authority had already begun with
the earlier Government of India Act in 1919.34 The federal system in India did not arise
from a treaty or agreement among its constituent states. Rather, it evolved from a
unitary system to a federal one through the allocation of specific powers and
34
M.P. Singh, Outlines of Indian Legal and Constitutional History (Wadhwa and Co, Nagpur,
2003)
13
responsibilities to the states under the Constitution. The architects of the Indian
constitution aimed to establish a federal structure, considering the country's social
diversities and immense size. 35 As the fissiparous tendencies posed a significant threat
to national unity. To counteract these tendencies, it became crucial to address the
legitimate grievances of states within the framework of the Federal Constitution. When
crafting the Constitution, the Constituent Assembly had various models to consider,
but it made a prudent decision to use the Government of India Act, 1935 as the
foundation for the new constitution. 36
The particularity of India's federal experiment since the 1950s has drawn the attention
of serious scholars of comparative federalism. Carl Friedrich noted the federalising
process in India in terms of what he called "increasing differentiation" in the course of
democratizing of a society, regional and linguistic-cultural communities become more
which "federal diversity" increased in India: "... a recurrent feature of this process is
that in the course of the articulate and demand recognition in the form of a set of
political institutions, including safeguards of the identity of the particular community."
Despite poverty, illiteracy, economic inequalities and regional disparities in
development, India, a country of manifold social and cultural diversities, has not
disintegrated. The post-colonial state in India has withstood many challenges, and has
remained integrated. This contrasts sharply with many post- colonial countries in
Africa and Asia, and also the former USSR and East European "socialist" states.37
In every federal system, the allocation of powers between the Union and state
governments is essential. Federalism is a governance system where authority is divided
between a central governing body and various constituent units within the nation.
Thus, federalism in contradistinction to centralism is a concept that envisions a form
of Government where there is a distribution of powers between the States and the
Union. The fundamental idea of federalism has been that the states must enjoy freedom
and sovereignty in decision-making as much as possible and at the very least be on an
equal footing with the Union.
This division of power enables the distribution of authority across different levels of
government within an entity. In contrast, unitary governments either have a single level
35
M.V. Pylee, Constitutional Government in India (S. Chand & Company, New Delhi, 2011)
36
H.M. Seervai, Constitutional Law of India (Universal Law Publishing, New Delhi, 2008)
37
Friedrich, C.J., Trends of Federalism in Theory & Practice, London The Mall Press. (1968)
14
of government or subordinate sub-units to the central authority. The Indian
Constitution prescribes a federal structure that provides for division of powers between
the States and the Centre, but with a slight tilt towards the Centre. This unique quasi-
federal structure is inherent in the various provisions of the Constitution as it was felt
by the Framers of our Constitution keeping in mind the needs of independent India and
that is why, the residuary powers in most, if not all, matters have remained with the
Centre.
In our Constitution, this allocation is detailed in Part XI along with the Seventh
Schedule wherein both the central and state governments are cooperating and
coordinating entities, possessing independence and expected to exercise their powers
with mutual adjustment, respect, understanding, and accommodation.
This, however, is not unconditional as the Constitution has provided for a federal
balance between the powers of the Centre and the States so that there is no unwarranted
or uncalled-for interference by the Centre that would entail encroachment by the
Centre into the powers of the States. The need is for federal balance which requires
mutual respect and deference to actualise the workability of a constitutional provision.
The interest of the States inherent in a federal form of Government gains more
importance in a democratic form of Government as it is absolutely necessary in a
democracy that the will of the people is given effect to. To subject the people of a
particular State/region to the governance of the Union, that too, with respect to matters
that can be best legislated at the State level goes against the very basic tenet of a
democracy.
The Indian Constitution embodies a federal structure, reflecting traditional federal
system traits such as constitutional supremacy, the distribution of powers between the
Union and state governments, the presence of an impartial judiciary, and a strict
amendment procedure. This establishes a dual governance framework, delineating
specific areas of authority for the Union and states to operate within. Tensions and
conflicts between the interests of the central government and respective units are
inherent to federalism. An independent judiciary plays a pivotal role in adjudicating
disputes between the Union and states, as well as among states themselves i.e., an
15
independent judiciary has a significant role in enforcing federalism horizontally and
vertically. 38
The Article 1 of the Constitution explicitly labels India as a “Union of State”39
underscoring the interconnected and integral status of each state within the country.
India's political framework combines elements of both federalism and unitarism. A key
aspect of coherence between these systems is the division of powers between the
Union Government and the State Governments, which is a fundamental characteristic
of federal governance.40
The Articles 246 and 254 are pivotal in discussions regarding the federal nature of the
Indian Constitution. Article 246-A introduces a "special provision with respect to
goods and services tax" and begins with a non-obstante clause, overriding Articles 246
and 254. Article 246 delineates the legislative competence of Parliament and State
Legislatures within the constitutional framework. Federalism in our Constitution is
primarily manifested in the distribution of legislative powers, as evidenced by various
articles. The significance of federalism becomes apparent in the context of the
allocation of legislative powers outlined in Article 246.41
Article 254 outlines the mechanism for resolving inconsistencies between central and
state laws on matters within the Concurrent list. Article 246-A empowers both
Parliament and State Legislatures to legislate on goods and services tax. However,
states' authority is contingent upon Parliament's exclusive jurisdiction to levy the
goods and services tax in cases of inter-state trade and commerce. Therefore, Indian
federalism was crafted with a strong centre in mind.42 The distribution of legislative
power between federating units, the Union and the States, is among the paramount
features of a federal Constitution. 43
Federalism underscores decentralization in administration, dividing authority between

the Center and the states. Initially, the Constitution established a two-tier system
comprising the Union Government, representing the Union of India, and the State
governments. Subsequently, a third tier was introduced with Panchayats and
38
Justice V. Dhanapaln, “Basic Structure of the Indian constitution - An Analysis” 8 SCC (J) 2 [2014].
39
Constitution of India 1950
40
S. Rukmini Madegowda v. State Election Commission and Others, [2022] SCC OnLine SC 1218.
41
ITC Ltd. v. Agricultural Produce Market Committee [(2002) 9 SCC 232] )
42
P.C. Das, Understanding Federalism in India, [2015] 76 The Indian Journal of Political Science, 779,
781
43
S.R. Bommai v. Union of India, [1994] 3 SCC 1
16
Municipalities. However, the introduction of a third tier of government, consisting of
Panchayats and Municipalities, through the 73rd and 74th constitutional
amendments,44 has added a distinctive element to Indian federalism. This three-tiered
structure sets Indian federalism apart from other federations globally. It reflects a
tailored approach to address the specific needs of the country, providing innovative
solutions to diverse challenges.
The Indian government is based on a tiered system defined by the Constitution, which
specifies the subjects over which each tier of government holds executive authority.
Presently, the Seventh Schedule of the Indian Constitution outlines the subjects under
the jurisdiction of each level of government, categorizing them into three lists:
The Union List encompasses subjects of national significance, such as the defense of
the country, foreign affairs, banking, communications, and currency. Exclusive
legislative authority over the matters listed in the Union List rests with the Union
Government; only it can enact laws pertaining to these subjects.
The State List comprises subjects of state and local importance, such as police, trade,
commerce, agriculture, and irrigation. Legislative jurisdiction over the matters
enumerated in the State List is vested solely in the State Governments, empowering
them to enact laws concerning these subjects.
The Concurrent List comprises subjects of mutual interest to both the Union
Government and the State Governments, including education, forests, trade unions,
marriage, adoption, and succession. Both the Union and State Governments possess
the authority to legislate on the matters listed in this category. In the event of
conflicting laws, however, the legislation enacted by the Union Government takes
precedence.
Cooperative Federalism & Competitive Federalism

The architects of the Indian Constitution were well acquainted with the challenges
associated with competitive federalism and the transition towards cooperative
federalism observed in older federations. Recognizing that in a federation, there exists
no direct line of command from the Centre to the states, they understood that the most
44
Constitution (74th Amendment) Act, 1992
17
effective approach to implementing common policies across various governments is
through discussion, agreement, and compromise.
Therefore, they astutely chose to establish agencies to coordinate inter-governmental
actions, especially in areas where state actions transcend state boundaries and where
national interests necessitate a unified approach. Such mechanisms are crucial not only
for resolving inter-governmental disputes and differences but also for enabling states
to fulfill their functions towards achieving social and economic objectives for the
welfare of the people. The framers of the Constitution, thus, incorporated into the
constitution, provisions to promote co-operation and coordination and several
provisions of the Constitution have tried to secure the concept of Centre-State co-
operation.
This has been done in two ways—
i. By, inserting provisions for securing national interests and integrity by adopting
unitary features of governance.
ii. By, adopting provisions for co-operation and establishment of various agencies
of co-operative nature
The Indian Constitution includes provisions aimed at fostering cooperative federalism
by establishing constitutional bodies and other statutory entities. These bodies are
designed to facilitate inter-governmental cooperation and coordination. 45
The Constitution of India does not declare India as a federation, but as "Union of
States." This of course, did not make India less federal than countries declared as such.
To begin with, the structurally as well as functionally. The fact that the term
"federation" was not used was because the term connoted constitutive aspects of
federations which were absent in the Indian case. First, as Dr. B. R. Ambedkar himself
pointed out, the Indian federation was not the result of an agreement by the units, and
second, the component units had no right to secede.46
The Constitution of India describes the country as a “Union of States” suggesting that
it possesses characteristics of federalism, albeit with some elements of unitarism. To
manage the diverse interests within the nation, coordination between the Central
Government and the States is crucial. Cooperative federalism is thus vital for effective
45
Fasih Raghib Gauhar and Shamsul Rahman, “Indian Political System and Concept of
Cooperative Federalism; An Analysis in the light of Constitution of India’ [2020] 28 ALJ 95,
104
46
DD Basu, (1997)” Introduction to the Constitution of India. ( Prentice Hall of India 1997)
18
governance, with a strong Centre being essential to support the strength of the states.
This form of federalism entails cooperation and interdependence between the Centre
and the States, ensuring smooth governance and harmonious relations among the
diverse population.
Moreover, the Constitution delineates the legislative and taxation powers of the
Central and State Governments through the categorization into three lists i.e., Union
list, State list, and Concurrent List - thereby providing a framework for cooperation
and delineating areas of authority.47
In a Welfare State, there is a great necessity of collaborative federalism. Martin

Painter, a leading Australian proponent of collaborative federalism, lays more stress
on negotiations for achieving common goals amongst different levels of governments
and, thus, says:
“The practical exigencies in fulfilling constitutionally sanctioned functions
should bring all governments from different levels together as equal partners based
on negotiated cooperation for achieving the common aims and resolving the
outstanding problems.”48
Thus, the essence of collaborative federalism lies in negotiation and coordination to
resolve differences that may arise between the Union and State Governments in their
respective development pursuits. Both levels of government should strive to tackle
common challenges with the aim of finding solutions through statesmanship, joint
action, and genuine cooperation. In this framework, there should be a shared
commitment from both Union and State Governments to work towards common
objectives. In a well-functioning Constitution, authorities should demonstrate genuine
concern to prevent conflicts. This principle becomes particularly important when
relying on constitutional provisions as sources of authority. 49
The idea of cooperative/collaborative federalism is also not new to India. M.P. Jain in
his book50, in a different manner, sets forth the perception thus:
47
Cooperative Federalism vis-a-vis Establishment of Authorities Under Consumer Protection Act,
2019, 7.1 RSRR (2021) 177, 178
48
Martin Painter, “Collaborative Federalism : Economic Reform in Australia in the 1990s
(Cambridge University Press, 2009)
49
50
MP Jain, ‘Indian Constitutional Law ( 3 1978)
19
“Though the Constitution provides adequate powers to the Centre to fulfil its
role, yet, in actual practice, the Centre can maintain its dynamism and initiative
not through a show of its powers — which should be exercised only as a last resort
in a demonstrable necessity — but on the cooperation of the States secured through
the process of discussion, persuasion and compromises. All governments have to
appreciate the essential point that they are not independent but interdependent,
that they should act not at cross-purposes but in union for the maximisation of the
common good.”
Ensuring a balanced and equitable relationship between the Center and the states is
vital for the functioning of a democracy. The framers of our Constitution envisaged a
union of states governed by the principles of separation of powers and mutual
cooperation between the Union and state governments to tackle common challenges.
The principles of separation of powers and mutual cooperation are upheld through
collaborative efforts and cooperation across all levels of government. Cooperative and
competitive federalism can coexist as long as they operate within defined boundaries,
without exceeding their limits. Both the Union and states should have the autonomy to
act and legislate within their respective domains, while adhering to the principles of
constitutionalism.
2.3. JUDICIAL PERSPECTIVE ON FEDERALISM
The Judiciary played a significant role in shaping and evolving Indian federalism.
Federalism is widely appreciated by political stakeholders and the public as a
mechanism for striking a balance between national unity and regional diversity. 51
The essence of the Constitution has been subject to scrutiny before the judiciary in
various Constitution Benches, where the Court has highlighted the fundamental
aspects of the Indian Constitution pertaining to federalism. The Supreme, Court in the
case of Powers, Privileges & Immunities of State Legislatures, In re (Special Reference
No. 1 of 1964),52 affirmed that a key feature of federalism is the division of executive,
legislative, and judicial powers among entities that are separate and independent of
each other. The Supreme Court further held that the legislatures do possess plenary
powers, but these powers are constrained by the basic concepts of the written
51
Manish Tiwari and Rakhi Saxena, “The Supreme Court of India: The Rise of Judicial Power and
the Protection of Federalism, Courts in Federal Countries, Federalists or Unitarists? (2017
University of Toronto Press)
52
Powers, Privileges & Immunities of State Legislatures, In re (Special Reference No. 1 of 1964),
[1965] 1 SCR 413
20
Constitution and must be exercised within the legislative domains assigned to them by
the three Lists under the Seventh Schedule. There cannot be an overreach by
legislatures i.e., the legislatures cannot exceed the power conferred in the Lists. They
can exercise their full legislative authority and perform their legislative duties as
granted by the Constitution, but their power is fundamentally derived from the
Constitution which limits the power of the constituents. Additionally, the legislative
supremacy of our legislatures, including Parliament, is generally regulated by the
provisions in Part III of the Constitution. Thus, if they trespass on the fundamental
rights of the citizens in a manner not justified by the constitutional provisions, their
legislative actions are liable to be struck down by courts. Therefore, it is essential to
recognize that although our legislatures have broad powers, they operate within the
boundaries set by the Constitution's relevant provisions. The court further held that the
key feature of federalism is the division of executive, legislative, and judicial powers
among bodies that are both coordinated and independent. The supremacy of the
Constitution is crucial for a federal State's existence, as it prevents the legislatures of
either the federal unit or the Member States from disrupting the delicate balance of
power that allows States to unite without losing their individual identities. This
constitutional supremacy is upheld by an independent judicial body that interprets the
distribution of powers
In the landmark judgment of Kesavananda Bharati v. State of Kerala,53 Constitutional

principles took on a new dimension when the Court, through a majority verdict,
declared that the fundamental features of the Constitution could not be altered through
a constitutional amendment. The Supreme Court recognised federalism as part and
parcel of the basic structure i.e., the fundamental character of the Constitution which
cannot be altered.
In State of Karnataka v. Union of India,54 The Supreme Court noted that the
Constitution doesn't exhibit a purely federal structure, where distinct, autonomous
states unite to establish a nation, akin to the United States of America or certain other
countries. This is why it's occasionally described as quasi-federal.
53
[1973] 4 SCC 225
54
(1977) 4 SCC 608
21
Recently, the case of State of Punjab v. Governor of Punjab,55 the court relied on
In S.R. Bommai v. Union of India,56 which held that federalism constitutes an integral
component of the Constitution's basic structure. Federalism and democracy, both
intrinsic to this structure, are interdependent. Any weakening of one jeopardizes the
other. The harmonization of democracy and federalism is crucial for upholding the
fundamental rights and aspirations of our people. Any harm to either element disrupts
the framework of constitutional governance.
The judicial deliberation has been inconsistent while analysing the federal character of
the Indian Constitution. In the case of P.B. Samant v. Union of India,57 the court held
that our constitution is a Federal Constitution. The Supreme Court interpreted the
federal nature of India in the case of S.R Bommai v. Union of India,58 wherein it said
that the core of a federation lies in the presence of both the Union and the States, along
with the allocation of authority between them. Consequently, federalism
fundamentally involves the delineation of powers within a federal agreement. The
court relied on the delineation as the basis of construing the Indian constitution as the
federal constitution. However, the court also noted that the existence of the principle
of repugnancy tilts the power dynamics in the favour of the union with union and states
both being conferred the power to make rule thereupon entries of the concurrent list.
The Supreme Court in the case of Automobile Transport v. State of Rajasthan,59
interpreted the impact of Article 301 of the Constitution said that the Indian
constitution is a federal constitution and observed:
“The evolution of a federal structure or a quasi-federal structure necessarily involved,

in the context of the conditions then prevailing, a distribution of powers and a basic
part of our constitution relates to that distribution with the three legislative lists in the
Seventh Schedule. The constitution itself says by Art. 1 that India is a Union of States
and in interpreting the constitution one must keep in view the essential structure of a
federal or quasi-federal constitution, namely, that the units of the Union have also
certain powers as has the Union itself.”
55
[2024] 1 SCC 384: 2023 SCC OnLine SC 1531
56
[1994] 3 SCC 1
57
[2009] SCC OnLine Bom 400
58
[1994] 3 SCC 1
59
AIR 1962 SC 1406
22
Later the Supreme Court in the case of ITC Ltd. v. Agricultural Produce Market
Committee,60 the Court observed that the Constitution of India deserves to be
interpreted, language permitting, in a manner that it does not whittle down the powers
of the State Legislature and preserves federalism while also upholding the central
supremacy. The ratio was carried forwarded in Kuldip Nayar v. Union of India,61
wherein the court articulated that while the federal principle is indeed prominent in our
Constitution and regarded as one of its fundamental features. However, at the same
time, it is also important to recognize that federalism in the Indian context tends to
favor a robust central authority. This characteristic contradicts the notion of a strictly
federal structure. Consequently, it was affirmed that India does not adhere strictly to
the traditional concept of a federal state, nor does it represent a genuine federation
formed through agreements among states.
This characteristic of favoring a robust central authority has been a reason for the
characterisation of Indian federalism as a quasi-federation as it combines both federal
and unitary characteristics, with a tendency towards the latter. The remarks of Dr.
Ambedkar to Constituent Assembly were highlighted in the case of Samsher
Singh v. State of Punjab,62 wherein the court held that the framers of our Constitution
embraced a parliamentary system with quasi-federal characteristics, opting against a
presidential-style executive.
In State of West Bengal v. Union of India,63 When faced with a legal challenge from
the state government regarding the Coal Bearing Areas (Acquisition and
Development) Act of 1957, which allowed the Union Government to acquire specific
coal mines held by the state, the Supreme Court sided with the Union. Despite the state
government's assertions regarding the federal structure of the Indian constitution, the
shared sovereignty between states and the center, and the Union's alleged lack of
authority to acquire state-owned assets, the majority of the Supreme Court dismissed
these arguments. Consequently, it was determined that the Union possessed the power
to acquire the coal mines owned by the state of West Bengal.
60
ITC Ltd. v. Agricultural Produce Market Committee [2002] 9 SCC 232
61
[2006] 7 SCC 1
62
[1974] 2 SCC 831 : 1974 SCC (L&S) 550
63
AIR 1963 SC 1241
23
The majority judgment was disappointing with respect to federalism because the court
did not consider the Indian Constitution as a federal constitution. Justice Subba Rao's
dissenting opinion and subsequent judgments from the Supreme Court have affirmed
that it is indeed federal. 64 This evolution in judicial interpretation underscores the
dynamic nature of constitutional law and the importance of dissenting opinions in
shaping legal discourse.
In the case of Swaraj Abhiyan (V) v. Union of India,65 the Supreme Court observed
that when states enforce Union laws, it often raises challenging issues regarding the
continuity of cooperative federalism, a principle that we have embraced as
fundamental to our constitution.
In Jindal Stainless Ltd. v. State of Haryana,66 a nine-judge Bench of this Court has
reiterated the principles of cooperative federalism in India in the following manner:
“190. Cooperative federalism envisaged under our Constitution is a result of
pick-and-choose policy which our Framers abstracted from the wisdom of working
experience of other Constitutions.”
The supreme court in the case of Facebook v. Delhi Legislative Assembly,67 held that
it could not be seriously disputed before us that collaborative federalism was an
integral part of the working of the Indian Constitution as emphasised by the Court.
The principle of federal balance which is entrenched in our Constitution has been
reiterated on several instances holding that the Centre and the States must act within
their own spheres. In Powers, Privileges and Immunities of State Legislatures, In re,
Special Reference No. 1 of 1964,68.
The US Supreme Court in Carmichael v. Sothern Coal & Coke Co.69 asserted that the
enactment of a State Unemployment Statute wasn't compelled by the adoption of the
Social Security Act, emphasizing that the United States and individual states like
Alabama coexist within the same territory. Unemployment concerns are shared by both
entities. While the methods and approaches of the federal and state governments may
64
State of West Bengal v. Union of India [1964] 1 SCR 371 (Subba Rao J)
65
Swaraj Abhiyan (V) v. Union of India [2018] 12 SCC 170
66
67
Facebook v. Delhi Legislative Assembly [2022] 3 SCC 529
68
Powers, Privileges and Immunities of State Legislatures, In re, Special Reference No. 1 of 1964,
AIR 1965 SC 745
69
Carmichael v. Sothern Coal & Coke Co., [1937] SCC OnLine US SC 112 : 81 L Ed 1245 : 301
US 495 (1937)
24
differ, their overarching goal remains consistent. It's imperative for governments at all
levels to remain focused on this constitutional objective, guiding them towards
harmonious coexistence and interdependence. These principles form the foundation of
collaborative federalism, essential for maintaining the effectiveness of constitutional
governance in a Welfare State.
In State of Rajasthan v. Union of India,70 the Court took cognizance of the concept of
cooperative federalism as perceived by G. Austin and A.H. Birch when it observed :
“58. Mr Austin thought that our system, if it could be called federal, could be
described as “cooperative federalism”. This term was used by another author, Mr
A.H. Birch,71 to describe a system in which:
‘… the practice of administrative cooperation between general and regional
Governments, the partial dependence of the regional Governments upon payments
from the general Governments and the fact that the general governments, by the
use of conditional grants, frequently promote developments in matters which are
constitutionally assigned to the regions.’”
The expression “pragmatic federalism” in the Indian context has been used by A.M.
Ahmadi, J. in S.R. Bommai72 It was noted that the Indian Constitution embodies a
blend of federalism and unitarism. While it allocates legislative powers and delineates
the areas of governance for both state and central governments, it also incorporates
significant unitary elements. These unitary features are highlighted by Parliament
holding residual legislative powers, the central government's authority to appoint
certain constitutional officials such as judges, and its ability to issue directives to state
governments. In emergency scenarios, it can even supersede state legislatures and
governments, as outlined in Articles 352 to 360 of the Constitution.
Pragmatic federalism can be understood as a practical approach to federal governance,
characterized by sensibility and realism. It entails adopting strategies and policies that
are feasible and effective in achieving constitutional objectives. This form of
federalism emphasizes practicality and adaptability, aiming to implement measures
70
[1977] 3 SCC 592
71
Anthony Harold Birch, Federalism, Finance and Social Legislation in Canada, Australia and
the United States, p. 305, (Clarendon Press 1955)
72
S.R. Bommai v. Union of India (1994) 3 SCC 1
25
that are both permissible and practical within the existing framework of laws and
regulations. 73
The basic feature of pragmatic federalism is that it possesses an inherent capacity to
adapt continually to evolving needs and circumstances. This dynamic nature renders
it particularly suitable for a diverse body politic like ours. The primary objective of
this concept is to devise innovative solutions to the challenges that arise within any
federal system.
In the case of State (NCT of Delhi) v. Union of India,74 the court relied UCO
Bank v. Dipak Debbarma,75 The Court has commented on the federal nature of our
Constitution and emphasized the importance of preserving the balance between the
Centre and the States as envisioned in our Constitution to prevent any undue
concentration of power. It was ruled that the federal framework outlined in the
Constitution can counteract any inadvertent intrusion by parliamentary legislation on
a matter governed by State legislation, particularly when the primary legislation is
enacted by the State. The court relied on ITC Ltd. v. Agricultural Produce Market
Committee,76 on the attempt to keep the aforesaid constitutional balance intact and give
a limited operation to the doctrine of federal supremacy.
The court relied on S.R. Bommai v. Union of India,77 wherein The court noted that
although the Constitution grants greater authority to the Centre compared to the States,
it does not imply that States are subordinate to the Centre. Within their designated
jurisdiction, States hold supreme authority, which cannot be interfered with by the
Centre. Specifically, the courts should avoid interpretations that diminish the powers
reserved for the States. Therefore, the Court's role in upholding the federal equilibrium,
as mandated by the Constitution, is crucial. The majority in the State (NCT of Delhi)
v. Union of India 78 held that while NCTD could not be accorded the status of a State,
the concept of federalism would still be applicable to NCTD:
“122. We have dealt with the conceptual essentiality of federal cooperation as
that has an affirmative role on the sustenance of constitutional philosophy. We may
further add that though the authorities referred to hereinabove pertain to the
73
State (NCT of Delhi) v. Union of India (2018) 8 SCC 501
74
Ibid
75
Ibid
76
ITC Ltd. v. Agricultural Produce Market Committee (2002) 9 SCC 232
77
S.R. Bommai v. Union of India [1994] 3 SCC 1
78
State (NCT of Delhi) v. Union of India (2018) 8 SCC 501
26
Union of India and the State Governments in the constitutional sense of the term
“State”, yet the concept has applicability to the NCT of Delhi regard being had to
its special status and language employed in Article 239-AA and other articles.”
This can be understood as our federalism model which hinges on fostering cooperation
between the central Union and the constitutionally recognized democratic units at the
regional level. The essence of cooperative federalism entails both sets of democratic
governments working together to resolve governance challenges and collaborate
effectively. Just as cooperation is essential between the Union and the states, a similar
spirit of cooperation is needed between the Union and the National Capital Territory
of Delhi (NCTD).
Interpreting the Constitution in a manner that bolsters both federalism and democracy
is paramount. This approach to interpretation finds its roots in the State (NCT of Delhi)
v. Union of India,79 emphasizing the importance of enhancing the spirit of federalism
and democracy in tandem., 80 wherein the opinion of the majority held as follows :
“284. … 284.7. Our Constitution contemplates a meaningful orchestration of
federalism and democracy to put in place an egalitarian social order, a classical
unity in a contemporaneous diversity and a pluralistic milieu in eventual
cohesiveness without losing identity. Sincere attempts should be made to give full-
fledged effect to both these concepts.”
The court emphasized that in upholding the spirit of cooperative federalism, the Union
of India must adhere to the constitutional boundaries delineating its powers. The
National Capital Territory of Delhi (NCTD), with its distinctive federal model, should
be permitted to operate within the parameters established by the Constitution. The
relationship between the Union and the NCTD is characterized by a unique form of
federalism.
Based on the observations made by the Supreme Court over the years, it is evident that
the highest judicial authority has emphasized the significance of collaboration between
the Center and States, given the federal nature of governance. The court has upheld the
essence of cooperative federalism using various terms such as 'collaborative,'
'pragmatic,' 'coequal,' and similar expressions, all of which essentially convey the same
concept.
79
Ibid
80
Ibid
27
The argument presented here underscores the unique nature of federalism within the
Indian Constitution. Unlike classical federations like the United States, India's federal
structure doesn't emerge from a voluntary agreement among states to form a union.
Additionally, there's no concept of dual citizenship, which is a hallmark of some
federal systems.
The principles of democracy and federalism are essential features of our Constitution
and form a part of the basic structure.81 Federalism in a diverse nation like India serves
to ensure the representation of varied interests stemming from its multicultural,
multireligious, multiethnic, and multilingual populace. It acts as a mechanism to
balance the pursuit of common goals with the desire for regional autonomy, thereby
accommodating diverse needs within a pluralistic society. By recognizing and
accommodating regional aspirations, federalism strengthens national unity and
embodies democratic principles.
2.4. FISCAL FEDERALISM
In a federal system like India's, the distribution of powers tends to favor the Central
government, resulting in a strong Central bias. The powers of the States are subject to
various restrictions, limiting their decision-making sovereignty even within their
designated spheres as outlined by the Constitution's distribution of powers.82 Despite
the central bias in the distribution of powers, the relationship between the Indian Union
and the States exhibits elements of cooperative federalism and fiscal federalism.
Cooperative federalism, as Birch describes it, involves administrative collaboration
between the central and regional governments, often facilitated by financial transfers
from the central government. Moreover, through conditional grants, the central
government often encourages developments in areas constitutionally assigned to the
states.83
The evolution of cooperative federalism has been influenced by developments in fiscal
federalism. The principle of decentralization has been a fundamental aspect of fiscal
federalism. 84 Lord Bryce characterized the Federal and State Governments as "distinct
and separate in their action." Additionally, he likened the system to a large factory
81
S.R. Bommai v. Union of India [1994] 3 SCC 1
82
83
A.H. Birch, Federalism, Finance, and Social Legislation in Canada, Australia, and the United
States (1955).
84
28
where two sets of machinery operate independently, with their wheels seemingly
intertwined and their bands crossing each other, yet each set performs its own tasks
without interfering with or hindering the other.85
Fiscal federalism aids governmental organizations in achieving cost efficiency by
leveraging economies of scale in delivering public services that align closely with the
preferences of the people.86 From an economic perspective, fiscal federalism
establishes a unified common market that stimulates increased economic activity.
However, challenges arise from factors such as the degree of decentralization in
relation to the level of development, the heterogeneity of the population, the
harmonization of preference patterns, the allocation of functions and financial
resources to different levels of government, the resolution of vertical and horizontal
imbalances, and the institutional mechanisms for conducting inter-governmental
relations.87 Federal finance calls adequacy and elasticity with respect to resources. This
implies that there exist sufficient resources for discharging constitutional
responsibilities, and elasticity implies the expansion of resources in response to the
growing needs of the government.88 The division of tax powers has practically resulted
in denying both characteristics to the States. The Constitution inherently creates a
vertical imbalance between the Centre and the States through its taxation provisions.
This imbalance is not intended to strengthen the Centre but rather to establish a unified
economic space in the country. There is a concern that granting more powers to the
States might lead to the erection of barriers within this economic space. 89 The level of
development can vary significantly from state to state due to factors such as the
availability of natural resources and historical backgrounds. These disparities can
result in horizontal imbalances between states, where some states may be more
developed than others.
The Union and State lists encompass taxation powers as well. The Union List
enumerates taxation powers such as income tax (excluding agricultural income),
excise duties, customs duties, and corporate tax. Service tax was included in
recognition of the declining significance of customs duties. On the other hand, the
85
Morton Grodzins, “The Federa Federalism in Perspective (Little Brown & Company, Boston
1967)
86
B.P.R. Vithal, M.L. Sastry, Fiscal Federalism in India (2001)
87
Ibid
88
Ibid
89
Ibid
29
State List includes powers such as land revenue, excise on alcoholic beverages,
taxation on agricultural income, estate duty, sales tax, vehicle tax, professional tax,
luxury tax, entertainment tax, and stamp duties. Two important points of debate arise
from this arrangement:
(i) That there is a mismatch between the functions allocated to the centre and to
the states, their powers of taxation, and
(ii) That the more buoyant tax areas have been assigned to the centre. But, it has
also been pointed out that “the Constitution recognizes that the division of
resources and functions between the Union and the states was such that there
would be imbalance between them” and that “the Finance Commission
periodically corrects the imbalance bringing about an alignment between
them”
The Constitution of India distinguishes between the legislative power to impose a tax
and the authority to appropriate the revenue generated from that tax. Consequently, the
powers of a legislature in these two aspects are not identical. For example, while the
State Legislature has the authority to impose an estate duty on agricultural lands under
Entry 48 of List II, the power to impose an estate duty on non-agricultural land belongs
to Parliament under Entry 87 of List I.
Similarly, the State Legislature is empowered to impose a tax on agricultural income
under Entry 46 of List II, whereas Parliament has the authority to impose income tax
on all incomes other than agricultural income under Entry 82 of List I.
The PART XI of the Indian Constitution deals with the Distribution of Revenues
between the Union and the States. In the pre-GST regime, the Union had the exclusive
power to impose indirect taxes, that is, on inter-State sale of goods, customs duty,
service tax, and excise duty. The States had the exclusive power to impose tax on intra-
State sale of goods, luxury tax, entertainment tax, purchase tax, and taxes on gambling
and betting. The GST regime has subsumed all the indirect taxes. Article 246-A which
was introduced by the Constitution Amendment Act, 2016 vests Parliament and the
State Legislatures with the concurrent power to make laws with respect to GST. 90
In Baiju A.A. v. STO,91 In a writ petition challenging the legality of notices and
assessment orders issued under the Kerala Value Added Tax Act, 2003 ("KVAT Act")
90
91
Baiju A.A. v. STO, 2019 SCC OnLine Ker 5362
30
for the Assessment Years 2010-11 and 2011-12, the Kerala High Court was tasked
with determining the jurisdiction of the authorities to issue them. The challenge was
based on the argument that amendments made to Section 25(1) of the KVAT Act
through the Kerala Finance Acts, 2017, and 2018 did not have retrospective effect. The
key question before the Kerala High Court was whether the Kerala State Legislature
possessed the legislative competence to amend the KVAT Act after the introduction
of Article 246-A to the Constitution, and the subsequent repeal of the KVAT Act
pursuant to the amendment. The Court observed that Article 246-A introduced a
special power allowing Parliament and State Legislatures to simultaneously enact
laws. It further explained the "simultaneous" nature of this power, stating that both the
State Legislature and Parliament can exercise their powers under Article 246-A
concurrently, without either holding any unilateral or exclusive legislative authority.
2.5. CONCLUSION
Fiscal federalism, the division of fiscal responsibilities and resources between central
and subnational governments, is not just a bureaucratic arrangement; it's a cornerstone
of collaborative federalism.
This system, which empowers both levels of government while fostering cooperation,
is crucial for the effective functioning of a diverse nation like India.
The Fiscal federalism empowers the subnational governments by decentralizing

financial powers, allowing subnational governments to have control over revenue
generation and expenditure. This empowerment ensures that states have the autonomy
to address local needs effectively. By giving states, the authority to manage their
finances, fiscal federalism promotes a sense of ownership and accountability, leading
to better governance.
The effective approach employed within Fiscal federalism is opting for tailored policy
by tackling socio-economic challenges and even innovating for fostering Competition
and economic growth as they have control over their finances, they can implement
innovative policies to improve their business environment and attract investors. This
competition not only benefits individual states but also contributes to overall economic
development at the national level.
Fiscal federalism is fiscal sovereignty as they have sovereign decision making power
which tends to control, utilise, and allocate resources efficiently as the decentralization
31
of fiscal powers enables resources to be allocated more efficiently based on local
priorities and needs. This is because subnational governments are better positioned to
understand the needs of their constituents and allocate resources accordingly. This
ensures that resources are utilized optimally, leading to improved service delivery and
infrastructure development.
Lastly, Fiscal federalism promotes accountability and Transparency in governance

because transparency is dependent upon the accountability and transparency as
accountability fosters transparency in financial management and encourages
governments to prioritize the public interest over vested interests.
In Conclusion, India’s fiscal federalism faces several challenges. The Seventh

Schedule of the Indian Constitution delineates governance functions into three lists.
This schedule allocates legislative and financial authorities between the union and the
states.
This has taken the form of a formal act through, for example, constitutional
amendments like the 42nd Amendment of the Constitution, which shifted the subjects
of forest and education from the State List to the Concurrent List. There have been
other ways in which the original demarcation has been altered.
India entered an era of entitlement-based stand-alone legislation. The classic examples

are the Mahatma Gandhi National Rural Employment Guarantee Act of 2005, the
Right of Children to Free and Compulsory Education Act of 2009 and the National
Food Security Act of 2013. This was the area where fiscal authorities should have
intervened, as employment, education and food were originally intended to be the
domain of subnational governments. Over the years there has been an enlargement of
the Concurrent List and the Centre’s spending on State Subjects presumably on the
grounds that such expenditure will serve national priorities better.
The autonomy of the State, if one were to use that expression, has been severely
circumscribed the moment they become a party to and indeed voted for the
constitutional amendments enlarging not only the Concurrent List but enlargement in
the Central government spending on State governments subject.
32
CHAPTER 3: GST UNDER THE INDIAN CONSTITUTION
3.1. INTRODUCTION
The Constitutional (122nd Amendment) Bill was introduced in Parliament and passed
by the Rajya Sabha on 3rd August 2016, followed by passage in the Lok Sabha on 8th
August 2016. The Bill was subsequently passed by more than 15 states, after which
the Honorable President granted assent to “The Constitution (101st ) Act, 2016” on 8th
September 2016. Following this, the GST Council was notified, establishing the
constitutional body responsible for deciding issues related to GST. This marked a
significant milestone in the journey towards the implementation of GST in India. 92
The Goods and Services Tax (GST) Council is a constitutional body in India
responsible for making decisions on issues related to GST. It was established under
Article 279A of the Constitution of India and was constituted shortly before the GST
was implemented on July 1, 2017.
The Council comprises representatives from both the central and state governments,
with the Union Finance Minister serving as the Chairperson. The primary function of
the GST Council is to recommend policies and regulations concerning GST, aiming to
streamline indirect taxation in the country.
On September 16, 2016, the Government of India issued notifications to bring into
effect all the sections of the Constitutional (122nd Amendment) Bill, firmly setting in
motion the process of rolling out the GST. The Bill comprised 21 clauses for which
the Committee was tasked with submitting a report. These clauses proposed
amendments to the Constitution of India by introducing new Articles - 246A, 269A,
and 279A, which pertain to the special provisions for GST, levy, and collection of GST
in interstate trade or commerce, and the formation of the GST Council, respectively.
Additionally, the Bill aimed to amend several other articles of the Constitution,
including Articles 248, 249, 250, 268, 269, 270, 271, 286, 366, and 368. The bill also
proposed amendments to the Sixth and Seventh schedules of the Constitution.
Furthermore, the Bill sought to repeal Article 268A of the Constitution. This
92
Chiranjivi Chakraborty, ET Online, Rajya Sabha passes historic GST Constitution Bill, Aug 04, 2016,
https://economictimes.indiatimes.com/news/politics-and-nation/rajya-sabha-passes-historic-
gst-constitution-bill/articleshow/53528735.cms?from=mdr
33
comprehensive Bill aimed to lay the groundwork for the implementation of the GST
regime in India by making necessary amendments to the Constitution and relevant
schedules. This chapter shall deal with the history of GST, a comparative study of both
the bills introduced in the parliament, a comparative study of the recommendations
produced by different relevant committees, and provisions relating to the GST under
the Indian Constitution.
The amendment inserted article 246A as a special provision with respect to goods and
services tax. The article started with non-obstante stating that notwithstanding
anything contained in articles 246 and 254, Parliament, and, subject to clause (2) i.e.,
Parliament has exclusive power to make laws with respect to goods and services tax
where the supply of goods, or of services, or both takes place in the course of inter-
State trade or commerce, the Legislature of every State, have power to make laws with
respect to goods and services tax imposed by the Union or by such State.
The amendment inserted article 269A which dealt with levying and collection of goods
and services tax in course of inter-State trade or commerce. The amendment also
inserted article 279A for Goods and Services Tax Council.
3.2. HISTORY OF GST
“The first idea of a single common Goods & Service Tax was conceived in the year
1999 during a meeting between the then Prime Minister Atal Bihari Vajpayee and his
economic advisory panel, which included three former RBI governors IG
Patel, Bimal Jalan and C Rangarajan. In 2000, The then prime minister Vajpayee
set up a committee headed by the then finance minister of West Bengal, Asim
Dasgupta to design a GST model for review on GST, which was asked to prepare the
complete model of GST.93”
The recommendation to empower the GST Council to resolve disputes aligns with
suggestions put forth by the Kelkar Task Force, which proposed the concept of a
nationwide Goods and Services Tax (GST) in India. After the enactment of the Fiscal
Responsibility and Budget Management (FRBM) Act, the Government formed a Task
93
L Jalaja, ‘GST And ITS Implications on Indian Economy, Dept .of Commerce St. Mary’s
Centenary Degree College, [2017] Journal of Business and Management, 67, 73
34
Force led by Dr. Vijay Kelkar. The Task Force was tasked with designing a medium-
term framework for fiscal policies to meet FRBM targets. Additionally, it was asked
to develop annual targets outlining the adjustment path and necessary policy measures.
The Task Force submitted its report in July 2004, laying the groundwork for fiscal
policy adjustments and recommending the implementation of a nationwide GST
system.
Later on, from 2002 to 2004, The Kelkar Task Force on Implementation of Fiscal
Responsibility & Budget Mgmt. (FRBM) Act, 2003 suggested an all-India goods and
services tax (GST), on the basis of a ‘grand bargain’ with States, whereby States will
have the concurrent powers to tax services, subject to certain principles that will help
foster a national common market. The objective was to replace the prevailing complex
and fragmented tax structure with a unified system that would simplify compliance,
reduce tax cascading, and promote economic integration. 94
In 2006, the idea to implement a GST by April 1, 2010, was initially proposed in the
Central Budget of the fiscal year 2006-07 by the then Union Minister, P. Chidambaram.
Subsequently, in 2007, the Empowered Committee of State Finance Ministers made
the decision to establish a Joint Working Group. This group had the then Adviser to
the Union Finance Minister and the Member-Secretary of the Empowered Committee
serving as Co-convenors, while the concerned Joint Secretaries from the Department
of Revenue of the Union Finance Ministry and all Finance Secretaries of the States
were appointed as its members..95
The establishment of the committee marked a crucial stride in tackling the challenge
of cascading taxation effects. This problem primarily arose from the imposition of
multiple taxes, leading to what is often termed as "tax on tax." The issue originated
from the taxation of inputs at the initial stage, followed by taxation on the final output,
thus resulting in a cascading effect. This complication was further exacerbated by the
framework of sales taxation, especially in a system characterized by multi-point sales
taxation across various stages of distributive trade.
94
Report of the Task Force on Implementation of the Fiscal Responsibility and Budget
Management Act, Ministry of Finance, Government of India, (2003)
95
ET Bureau, Long-drawn agenda, put by Manmohan govt, Aug 04, 2016, ET Bureau, Long-drawn
agenda, put by Manmohan govt, Aug 04, 2016, <
https://economictimes.indiatimes.com/news/politics-and-nation/gst-long-drawn-agenda-put-by-
manmohan-govt/articleshow/53533195.cms?from=mdr>
35
In this scenario, along with the burden of input tax, the sales tax paid on purchases at
each level was also added, exacerbating the cascading effect even further. By forming
the committee to examine these issues, steps could be taken to address the
inefficiencies and complexities within the taxation system, ultimately aiming to
mitigate the cascading effects and streamline the tax structure for greater efficiency
and fairness:96
“The report justified GST on the following grounds i.e., gaining of revenue which was
on the basis of widening of the dealer base by capturing value addition in the
distributive trade and increased compliance. The report recommended a dual GST
structure with defined functions and responsibilities of the Centre and the States
wherein there shall be a lower rate for necessary items and goods of basic importance
and standard rate for goods in general, and a special rate for precious metals. 97
Considerable discussion centered on the revenue-generating potential of a single-rate
versus multiple-rate taxation model. This issue received extensive attention in the
report prepared by the Kelkar Task Force, which drew upon the analyses conducted by
Bogetic and Hassan. Their study encompassed a diverse set of 34 countries, evaluating
various VAT structures and their revenue outcomes. The countries were categorized
into two groups based on their VAT structure: those with single rates and those with
multiple rates. Drawing from revenue performance data and the prevailing preference
among tax experts for single rates, the report examined whether the available evidence
on VAT supported the notion that countries with single rates mobilized more revenue
compared to those with multiple rates. multiple rates. The empirical results confirm
that the dispersion of rates if found to negatively affect VAT revenues.”
The findings further validate the conventional wisdom that, all else being equal,
countries with a single VAT rate tend to generate higher revenue compared to those
with multiple rates. The observed disparity in the estimated models for these two
groups of countries is statistically significant, suggesting a fundamental difference in
structure. Consequently, the recommendation is to implement a VAT system with a
single rate, applied across as broad a base as feasible, to maximize revenue.
96
EY, GST Transformation: Road Ahead, (2022) < https://assets.ey.com/content/dam/ey-sites/ey-
com/en_in/topics/tax/gst-compliance-technology/ey-gst-transformation-the-road-ahead.pdf>
97
Naseema P K, ‘History Constitutional Framework and Evolution of Indian Tax System and
Goods and Service Tax – A Study [2016] Bharati Law Review
36
Additionally, this approach must be complemented by robust tax administration
measures to ensure effective enforcement and compliance. 98
“The Group acknowledged the significance of lessening the tax load on consumption
for low-income families. Nevertheless, it opted against proposing a reduced tax rate or
exemption specifically targeting products consumed by these households. This choice
was made on the basis that items consumed by low-income households are also
commonly consumed by middle and high-income households. Introducing a reduced
tax rate or exemption for goods consumed by low-income households might result in
an escalation of the standard tax rate. Furthermore, since low-income households also
buy items subject to tax at the standard rate, the overall burden on their collective
consumption would remain unchanged despite the exemption or reduced rate for
common goods. The Group recognized that low-income households usually purchase
their essential items from small local retail shops with relatively modest turnovers.
Consequently, to mitigate the GST burden on consumption by low-income households,
the Group proposed offering a moderate threshold exemption for dealer registration.
This strategy aims to ease the tax burden on low-income households while upholding
fairness and efficiency in the tax system.”
“The worry was that such a system would be notably regressive in a nation like ours,
where there's a sizable low-income populace. Typically, goods commonly consumed
are subject to lower bands of Value Added Tax (VAT). Under a single-rate system, the
revenue-neutral rate would probably be much higher than the current rates at the lower
bands. Consequently, taxation on items consumed by average citizens would rise,
while the tax rate on luxury goods would decline. Introducing a regressive tax during
an economic downturn could worsen the situation. Moreover, in countries where a
transition to a single rate has occurred, there has been an uptick in tax evasion.
Advocates for a single-rate GST focused on economic efficiency and growth might be
overlooking the negative distributional effects. Ultimately, the adoption of a single-
rate GST would likely be unpopular among ordinary citizens due to its regressive
nature and its potential to disproportionately burden low-income households.”
“consumption tax has the potential to disproportionately impact individuals with lower
incomes. To address this, the tax structure should be crafted to alleviate the tax pressure
98
Bogetic, Zeljko and Fareed Hassan, ‘Determinants of Value-Added Tax Revenue: A Cross-
Section Analysis’ [1993] The World Bank Working Paper 1203
37
on consumption for those with lower earnings. One approach is to identify goods and
services predominantly consumed by lower-income individuals and either exempt
them from GST or subject them to a reduced tax rate. However, this approach may
yield a regressive outcome, as it would apply the same tax rate to both affluent and
less affluent consumers at the point of sale, without differentiation. Another strategy is
to set a moderate threshold for dealer registration under the GST. This would exempt
small dealers from GST obligations, resulting in relatively lower tax incidence on
products sold through them. Given that lower-income individuals typically purchase
goods from these smaller, unregistered dealers, their consumption would bear a
reduced tax burden compared to wealthier individuals. Consequently, the Kelkar Task
Force proposed establishing Central GST (CGST) and State GST (SGST) rates at a
uniform rate of 5 percent and 7 percent, respectively.”
3.3. 115th CONSTITUTIONAL AMENDMENT
“In 2010, during the Finance Minister's speech, it was announced that the Goods and
Services Tax (GST) would be introduced in April 2011.99 Subsequently, in 2011, the
Constitution 115th Amendment bill was introduced in the Lok Sabha to levy GST on
all goods and services except specified goods. This bill aimed to amend the
Constitution to facilitate the introduction of GST. The key provisions of the bill
allowed both Parliament and state legislatures to enact laws related to GST. Parliament
would have exclusive authority to levy GST on imports and interstate trade. This
amendment marked a significant step towards implementing GST in India, with the
aim of streamlining the indirect tax system and promoting economic efficiency.”
The Constitution 115th Amendment Bill introduced the creation of a Goods and
Services Tax Council, comprising state Finance Ministers, the Union Finance Minister,
and the Union Minister of State for Revenue. This council was tasked with making
recommendations regarding GST implementation. Additionally, the Bill proposed the
establishment of a Dispute Settlement Authority to resolve disputes arising between
states or between states and the Union concerning GST matters. Appeals from
decisions made by this Authority would have been heard by the Supreme Court. These
provisions aimed to facilitate the smooth implementation of GST by providing
mechanisms for consultation, coordination, and dispute resolution.
99
Business Standard, GST's shifting deadlines, Jan 20, 2013, <https://www.business-
standard.com/article/opinion/gst-s-shifting-deadlines-111011700029_1.html>
38
The Centre needs to play a proactive role in this regard. The Committee is of the view
that any tax reform should have an objective of improving economic efficiency,
encouraging economic activity, and benefiting the common man and should be put in
place giving due regard to the constitutional scheme of distribution of powers and
fiscal autonomy of the States. In a federal setup, implementation of a comprehensive
tax reform like GST hinges on mutual trust and cooperation between Centre and State
Governments.
“The Constitution 115th Amendment Bill proposed exemptions for certain
commodities from GST, such as petroleum products and alcoholic liquor for human
consumption. Additionally, it recommended the formation of the GST Council, tasked
with recommending harmonized tax rates. Disputes related to these rates would be
adjudicated by the Dispute Settlement Authority, with the option for appeals to the
Supreme Court. This structure, where executive and judicial bodies play a role in
determining tax rates, could potentially encroach upon the authority of legislatures.
The involvement of non-legislative bodies in setting tax rates raises questions about
the separation of powers and the balance of authority between different branches of
government. Critics may argue that such a system undermines the democratic process
by limiting the direct involvement of elected representatives in tax policy decisions.
The Committee noted that the proposed Bill envisaged harmonization of the indirect
tax regime by subsuming a variety of taxes levied by the Centre and the States. The
implementation of GST would have allowed the Centre and State Governments to
avoid multiple layers of taxation that currently exist in India leading to the creation of
a single market. The most important aspect of the Bill was that the consensus required
with all the States in the design of the GST structure and all the other contours. The
Committee notes that there has been a divergence in views amongst States, which have
serious apprehensions about the erosion of state autonomy. A fine balance is therefore
required to be maintained between the imperatives of a common market with a unified
tax structure vis-à-vis the fiscal requirements of States.100”
“The Committee emphasizes the necessity for proactive involvement from the Centre
in initiating tax reforms. It stresses that any tax reform should aim to enhance
economic efficiency, stimulate economic activity, and ultimately benefit the common
100
Standing Committee on Finance (2012-13), Fifteenth Lok Sabha, Ministry of Finance
(Department of Revenue) The Constitution (One Hundred Fifteenth Amendment) Bill, 2011,
Seventy-Third Report, (2013)
39
citizen. Moreover, the implementation of such reforms should adhere to the
Constitutional Scheme of distribution of powers and respect the fiscal autonomy of the
States. In a federal system, the successful implementation of a comprehensive tax
reform like the GST relies heavily on mutual trust and cooperation between the Centre
and State Governments. This underscores the importance of collaboration and
coordination between different levels of government to ensure the smooth execution
of tax reforms that serve the interests of the nation as a whole.”
“The Committee was of the opinion that before proceeding to enact “The Constitution
(One Hundred and Fifteenth Amendment) Bill, 2011, broad consensus on key issues
concerning the implementation of GST should have been arrived at between the Centre
and the State Governments. While designing the desired tax reforms, the Government
should have also learned from the experience in other countries, while taking into
account the political, social, and economic variations occurring in our country.
Adequate groundwork would thus been essential before setting upon to operationalise
the proposed GST regime. 101”
“Keeping in view the apprehensions expressed by States, a credible study was also
proposed to evaluate the impact of the GST regime on the revenues of States because
the states contended that the same must be done for replicating the success of VAT in
the States. Thus, noting that there must be enough flexibility and fiscal space for the
States while also suggesting to make GST optional for States as was done in the case
of VAT. In the succeeding paras, the Committee commented upon specific issues
arising out of some of the clauses in the Constitution (Amendment) Bill and has
suggested changes, wherever required.”
“The Committee noted that differences had emerged between the Centre and States on
account of CST compensation to the States arising out of phasing out of CST. Further,
during their interactions with State Governments, the Committee observed that one of
the major concerns over the implementation of GST is the Revenue Neutrality Rate
(RNR). Some States generating high tax revenue have expressed apprehensions about
the possibility of suffering revenue losses after the implementation of GST. 102”
The Committee expressed concern over the absence of a structured mechanism to
address this issue. It recommends the establishment of a well-defined automatic
101
Ibid
102
Ibid
40
compensation mechanism to ensure that revenue trajectories are maintained, at least in
the short term. Such a mechanism would provide a safety net to mitigate any potential
revenue shortfalls resulting from the implementation of tax reforms or changes in
economic conditions. By implementing this automatic compensation mechanism, the
government can provide stability and predictability in revenue streams, thereby
promoting fiscal sustainability and effective governance.103
Suitable amendments may accordingly be made in the Bill providing for a built-in
permanent compensation mechanism to address the legitimate revenue concerns of
States. For this purpose, a GST Compensation Fund may be created under the
administrative control of the GST Council.
“The Committee agreed with the perspective that for the smooth implementation of
the Goods and Services Tax (GST), essential prerequisites include a seamless IT
infrastructure, consistent administrative paradigms, and a unified tax credit clearing
mechanism. It noted the establishment of an Empowered Group on IT Infrastructure
led by Shri Nandan Nilekani. This group was tasked with expeditiously developing a
robust IT infrastructure for GST within a specified timeframe. This proactive measure
aims to address critical technological requirements to facilitate the effective rollout
and operation of the GST system.104 The Committee emphasized the importance of
providing technical assistance and capacity building at the state level to ensure the
smooth and effective implementation of the Goods and Services Tax (GST). This
support would have aided in developing robust IT practices, encompassing various
aspects such as e-filing of tax returns and tax audit procedures. Enhanced IT
capabilities at the state level would have contributed to improved GST collections.”
In furtherance, it was crucial to recognize that without a well-designed IT

infrastructure spanning across the country, the full benefits of GST may not be realized.
Therefore, the Committee urged the Central Government to prioritize technical
assistance and capacity building initiatives to strengthen IT practices at the state level,
thereby facilitating the successful implementation and operation of GST nationwide.
103
Ibid
104
Press Information Bureau, Nandan Nilekani Submits TAGUP Report to the Finance Minister,
Government of India, Ministry of Finance, February 04, 2011,
https://pib.gov.in/newsite/PrintRelease.aspx?relid=76960
41
“The Committee suggested considering an alternate model proposed by the Task Force
on GST, established by the 13th Finance Commission. This alternative model aims to
simplify and streamline compliance and administrative processes, thereby reducing the
burden on taxpayers. Additionally, it seeks to establish a smooth clearing house
mechanism between states to facilitate the Integrated Goods and Services Tax (IGST)
process. The recommendation to explore this alternate model underscores the
Committee's commitment to enhancing the effectiveness and efficiency of the GST
framework. It highlights the importance of continuously evaluating and refining GST
mechanisms to ensure they align with evolving economic and administrative needs.
Ultimately, any decision regarding the adoption of this alternate model would be
subject to thorough consideration and discussion within the GST Council.105”
“In addition, considering that the destination-based Integrated Goods and Services Tax
(IGST) model tends to benefit consumer states more than producer states, it's essential
to address the revenue concerns of the latter. The objective of the recommendation was
that the proposed model should not inadvertently discourage or disincentivize states
with a robust manufacturing base. To ensure fairness and balance in the distribution of
GST revenues among states, it's crucial to factor in the specific economic
circumstances of each state and provide adequate mechanisms for addressing any
revenue disparities. One such mechanism could be the establishment of a GST Dispute
Settlement Authority which would have assignded the task related with resolving
disputes in context of GST revenues and ensuring that states receive their fair share of
GST proceeds. By providing a platform for resolving revenue-related issues, the
Dispute Settlement Authority can help maintain harmony and equity among states
within the GST framework.
In essence, the Committee dismisses concerns regarding the proposed elevation of the
GST Council to a constitutional body, asserting that it is designed to function as an
advisory body. The Committee anticipates that the GST Council will operate in
accordance with the principles of cooperative federalism and democratic governance.
As it is intended to be a political and advisory entity, the GST Council can contribute
constructively alongside the Legislature, which will retain its supreme authority over
legislative matters, including taxation. Overall, the Committee argues against
105
Thirteenth Finance Commission 2010–2015 Volume I: Report, (2009)
42
including specific details such as rates, exemptions, thresholds, and administrative
arrangements in the Constitutional (Amendment) Bill. Instead, these aspects should be
addressed through separate laws and regulations rather than being enshrined in the
Constitution of India.106”
3.4. COMPARISON OF RECOMMENDATIONS OF VARIOUS BODIES ON

INTRODUCING A GST REGIME
Empowered 13th Finance 14th Finance
Committee Commission Commission
(2009) (2009) (2015)
Coverage All transactions Most goods and Universal
of goods and services, application of GST
services (except including over the medium
exempted goods, petroleum and long term.
and transactions products, natural
below threshold gas, alcohol and
limits). tobacco
Products on Tobacco High-speed Not addressed.
which tax in diesel, motor
addition to GST spirit, aviation
may be levied turbine fuel,
alcohol, and
tobacco
Goods to be Petroleum Unprocessed No specific
exempt from products, i.e. food items & recommendations.
GST motor spirit, Public services
aviation turbine (excludes
fuel, high speed railways, public
diesel, Alcoholic sector
beverages enterprises),
Service
transactions,
106
Ibid
43
Health and
education
services.
Integrated GST Centre to levy Tax collected by Not addressed.
(in interstate CGST plus the consuming
trade) SGST. The state. Inter-state
Modified Bank transactions to be
Model to be zero rated.
followed
Compensation to Compensation Compensation Independent
states for five years, for five years, To compensation fund
Could be special be based on for a limited
grants to be devolution period.,
released to the formula, Fund to Compensation to
states every be under the GST states to be (i)
month, Based on Council 100% in the first 3
a neutrally years; (ii) 75% in
monitored the fourth year; and
mechanism. (iii) 50% in the fifth
and final year.
3.5. 122nd CONSTITUTIONAL AMENDMENT

To implement the Goods and Services Tax (GST), the Constitutional (122nd
Amendment) Bill was introduced in Parliament and passed by the Rajya Sabha on 3rd
August 2016, followed by passage in the Lok Sabha on 8th August 2016. The Bill was
subsequently passed by more than 15 states, after which the Honorable President
granted assent to "The Constitution (One Hundred and First Amendment) Act, 2016"
on 8th September 2016. Following this, the GST Council was notified, establishing
44
the constitutional body responsible for deciding issues related to GST. This marked a
significant milestone in the journey towards the implementation of GST in India.107
On September 16, 2016, the Government of India issued notifications to bring into
effect all the sections of the Constitutional (122nd Amendment) Bill, firmly setting in
motion the process of rolling out the Goods and Services Tax (GST). This notification
established a deadline, setting an outer limit of one year until September 15, 2017, for
the implementation of GST. This marked a significant step towards the culmination of
the GST implementation process, signalling the government's commitment to the
timely rollout of this major tax reform.
In the year 2014, The consequential dissolution of the 15th Lok Sabha resulted in the
lapse of the GST Bill – approved by the standing committee for reintroduction. On 1
May 2015, the Lok Sabha passed the Constitution Amendment Bill, paving way for
GST.108 However, the GST Bill was again sent back to the Select Committee of
the Rajya Sabha due to disagreements on several statements in the Bill relating to
taxation. Finally in August 2016, the Amendment Bill was passed. After the Bill was
passed in both the Houses of the Parliament by two-thirds majority, the Constitutional
Amendment Bill was sent to State Legislatures for ratification. The ratification by at
least 50% of the State Legislature was required before the proposed amendments are
brought in effect.
“In 2014, the Constitution 122nd Amendment Bill was introduced in the Lok Sabha
for the levy of the Goods and Services Tax (GST) on December 19, 2014. 109 The Bill
comprised 21 clauses for which the Committee was tasked with submitting a report.
These clauses proposed amendments to the Constitution of India by introducing new
Articles - 246A, 269A, and 279A, which pertain to the special provisions for GST,
levy, and collection of GST in interstate trade or commerce, and the formation of the
107
Chiranjivi Chakraborty, ET Online, Rajya Sabha passes historic GST Constitution Bill, Aug 04,
2016, https://economictimes.indiatimes.com/news/politics-and-nation/rajya-sabha-passes-
historic-gst-constitution-bill/articleshow/53528735.cms?from=mdr
108
PTI, GST Bill to be taken up in Parliament in few days: Arun Jaitley, Apr 22, 2015,
https://economictimes.indiatimes.com/news/economy/policy/gst-bill-to-be-taken-up-in-
parliament-in-few-days-arun-jaitley/articleshow/47012693.cms?from=mdr
109
Express News Service, Goods and Services Tax (GST) Bill, explained, October 19, 2016,
https://indianexpress.com/article/explained/gst-bill-parliament-what-is-goods-services-tax-
economy-explained-2950335/
45
GST Council, respectively. Additionally, the Bill aimed to amend several other articles
of the Constitution, including Articles 248, 249, 250, 268, 269, 270, 271, 286, 366,
and 368. It also proposed amendments to the Sixth and Seventh schedules of the
Constitution. Furthermore, the Bill sought to repeal Article 268A of the Constitution.
This comprehensive Bill aimed to lay the groundwork for the implementation of the
GST regime in India by making necessary amendments to the Constitution and
relevant schedules.”
This bill represented the next significant step towards comprehensive indirect tax
reform in the country following the introduction of the Value Added Tax (VAT) system.
Over the last two decades, India's indirect tax system has undergone a series of reforms
aimed at modernization and streamlining. One of the key reforms was the
implementation of the Central Value Added Tax (CENVAT) at the central level, which
allowed for the credit of tax paid on inputs and capital goods up to the manufacturing
stage.
Subsequently, in 1994, the Central Government introduced a tax on services,

commonly known as Service Tax. Over time, the scope of Service Tax expanded to
cover a wider range of services, encompassing approximately 115 service categories.
This expansion contributed to a significant growth in revenue from Service Tax
collection.
In 2004, the input tax credit scheme for CENVAT and Service Tax was merged,
allowing for the seamless flow of credit across these taxes. Meanwhile, at the state
level, there was a transition from a multiple-point Sales Tax system to a Value Added
Tax (VAT) regime, covering all transactions of goods sale within the state up to the
retail stage. This transition to VAT was implemented gradually, starting from the fiscal
year 2005-06. Overall, these reforms have aimed to simplify tax administration,
improve compliance, and create a more efficient and uniform indirect tax system in
India. The introduction of the GST bill represented a significant milestone in this
ongoing process of tax reform.
For the levy of CGST, SGST and IGST, Enactment of enabling legislation in the Centre
and States was there i.e., a set of three laws would need to be enacted. CGST and IGST
laws would need to be enacted by the Parliament, and the SGST law would have to be
enacted by each of the State Legislatures.
46
The Ministry of Finance, Department of Revenue has clarified that the rates of Goods
and Services Tax (GST) cannot be fixed in the Constitution, as they are dynamic
variables. Instead, the rates of GST will be recommended by the GST Council based
on various factors such as economic conditions and revenue buoyancy. However, every
effort will be made by the GST Council to ensure that the rate of GST remains
reasonable. Furthermore, certain goods, such as demerit goods like tobacco or luxury
goods, attract a higher rate of GST.
The Revenue Neutral Rate (RNR) was calculated by the National Institute of Public
Finance and Policy (NIPFP) before the introduction of the GST Constitution
Amendment Bill. NIPFP, along with the Committee headed by the Chief Economic
Advisor, who were working on determining the rates under GST in accordance with
the provisions of the Bill. Regarding petroleum products, they have been included
under the definition of "goods and services tax" provided in the proposed clause (12A)
of article 366. The term revenue neutral rate (RNR) is that single rate which preserves
revenue at current levels. Thus, it is appropriate to think of the RNR as a single rate. It
is a given single rate that gets converted into a whole rate structure, depending on
policy choices about exemptions, what commodities to charge at a lower rate and what
to charge at a very high rate. The RNR is distinguished from the “standard” rate defined
as that rate in a GST regime which is applied to all goods and services whose taxation
is not explicitly specified. The RNR suggested was at 15-15.5%.110 India’s GST
Council has over the years reduced several tax rates, resulting in the lowering of the
average rate to about 11.5 percent from the so-called revenue-neutral rate of 15
percent. As per a report by the RBI, the weighted average GST rate fell from 14.4 per
cent at the time of inception to 11.6 per cent in 2019 as a consequence of a series of
tax cuts between November 2017 and December 2018.111
An explanation has been added in proposed article 246A to clarify that GST will not
be levied on petroleum and petroleum products until a future date recommended by
the GST Council. This decision was made after a meeting between the Finance
Minister and State Finance Ministers on December 15, 2014, and is in line with the
110
Ministry of Finance, Report on the Revenue Neutral Rate and Structure of Rates for the Goods
and Services Tax (GST), December 4, 2015
111
Ministry of Finance, Economic Survey 2022-23, Government of India [2023]
47
recommendations of the Empowered Committee to safeguard the revenue streams of
the States.
3.6. COMPARISON OF THE 2014 BILL, 2011 BILL, AND THE

RECOMMENDATIONS OF THE STANDING COMMITTEE
Constitution (115th Standing Constitution
Amendment) Bill, Committee (122nd
2011 recommendations Amendment) Bill,
on 2011 Bill 2014
Coverage of GST All goods or No All goods and
services except: recommendation services, except:
Alcoholic liquor for on goods to be Alcoholic liquor
human exempt. Goods for human
consumption. exempted from consumption. GST
Petroleum crude, GST should not be is to be levied on
high speed diesel, specified in the petroleum crude,
motor spirit, natural Constitution high speed diesel,
gas, aviation Amendment Bill as motor spirit,
turbine fuel. Centre this would make natural gas,
to impose the GST regime aviation turbine
additional levy on rigid. fuel at a later date.
tobacco Centre to impose
additional levy on
tobacco.
Integrated GST Only centre to levy Instead, the Same as 2011 Bill.
and collect tax. Tax Modified Bank
collected to be Model
divided between the recommended by
centre and the 13th Finance
states. Commission to be
considered.
Additional Tax No provision. Not addressed Tax (up to 1%) on
(in interstate the supply of goods
trade in inter-state trade
48
will be given to
supply states, for
two years or more
Compensation to No provision An automatic and Parliament may
states permanent GST provide for
Compensation compensation to
Fund under the states for a
GST Council could maximum of five
be created years.
GST Council Functions: Functions: Should Functions: Also
Recommendations include floor rates, includes model
on taxes to be special provisions GST laws,
subsumed, for some states. principles of levy
exempted goods, Decisions: 3/4th and place of
threshold limits, weighted votes; 1/3 supply,
rates. Decisions: By weightage to apportionment of
consensus centre, 2/3 to IGST. Decisions:
states. Standing
Committee
recommendations
incorporated
Dispute GST Dispute Omit GST Dispute Standing
Resolution Settlement Settlement Committee
Authority to Authority. GST recommendations
determine disputes Council to decide incorporated.
between centre and upon the modalities
states. Parliament to resolve disputes
may restrict the
jurisdiction of all
courts other thathe
n Supreme Court
49
3.7. GST PROVISIONS UNDER THE INDIAN CONSTITUTION
“The 122nd Constitution Amendment Bill, 2014 has been passed by the Parliament
and upon ratification by at least fifty percent of the States, it was enacted as the 101st
Constitution Amendment Act of 2016.112 The Parliament passed the Central Goods and
Services Tax (CGST) Bill, Integrated Goods and Services Tax (IGST) Bill, and Union
Territory Goods and Services Tax (UTGST) Bill. Additionally, each state, including
Union territories with a legislature, was required to pass its own State Goods and
Services Tax (SGST) Bill.”
“The amendment inserted article 246A which dealt with the special provision for GST.
The law stated that the Legislature of every State, have power to make laws with
respect to goods and services tax imposed by the Union or by such State subject to
clause (2) i.e., Parliament has exclusive power to make laws with respect to goods and
services tax where the supply of goods, or of services, or both takes place in the course
of inter-State trade or commerce with The provisions of this article to take effect from
the date recommended by the Goods and Services Tax Council. 113”
In its decision in VKC Footsteps,114 this Court noticed the changes in the constitutional
scheme introduced by Article 246-A wherein Dr D.Y. Chandrachud writing for the
two-Judge Bench observed :
“52. Article 246-A has brought about several changes in the constitutional
scheme:
52.1. Firstly, Article 246-A defines the source of power as well as the field of
legislation (with respect to goods and services tax) obviating the need to travel to
the Seventh Schedule.
52.2. Secondly, the provisions of Article 246-A are available both to
Parliament and the State Legislatures, save and except for the exclusive power of
Parliament to enact GST legislation where the supply of goods or services takes
place in the course of inter-State trade or commerce.
52.3. Thirdly, Article 246-Aembodies the constitutional principle of
simultaneous levy as distinct from the principle of concurrence. Concurrence,
112
PTI, Requirement of 50% states ratifying GST bill complete, Economic Times, Sep 01, 2016,
https://economictimes.indiatimes.com/news/economy/policy/requirement-of-50-states-
ratifying-gst-bill-complete/articleshow/53963756.cms?from=mdr
113
State of Telangana v. Tirumala Constructions 2023 SCC OnLine SC 1376 2
114
Union of India v. VKC Footsteps (India) (P) Ltd., (2022) 2 SCC 603
50
which operated within the fold of the Concurrent List, was regulated by Article
254.”
Article 246-A grants concurrent legislative authority to both Parliament and State
Legislatures over GST. It includes a non-obstante provision that takes precedence over
Article 254. Unlike Article 254, which specifies that Parliament's law on a Concurrent
list subject supersedes conflicting state laws, Article 246-A lacks a repugnancy clause.
Thus, it doesn't outline how inconsistencies between Parliament and State Legislature
GST laws should be resolved. The concurrent authority under Article 246-A is termed
"simultaneous power" to distinguish it from Article 246's concurrent power, which is
“subject to the Article 254 repugnancy clause. Understanding the constitutional role
of the GST Council is essential within the framework of the simultaneous legislative
power conferred on Parliament and State Legislatures. This perspective underscores
the relevance of the GST Council's role in coordinating and harmonizing GST-related
policies between the Centre and the states.”
The Council is responsible for modification in the design of dual GST regulating the
indirect tax system. The Council make decisions on the principle of majority and not
unanimity. The initial decision would be approved by the Union and three-fourths of
the States. The subsequent changes to the decision could be made upon an agreement
of the Union and two-third of the States.
The Supreme Court Union of India v. Mohit Minerals (P) Ltd.,115 held that the
Committee also sought the opinion of the Attorney General through the Department
of Legal Affairs on whether the recommendations of the GST Council would
undermine the power of the legislature. In response, the Attorney General stated that
though the GST Council has the power to make recommendations, both Parliament
and State Legislatures, have the power to either accept or reject those
recommendations. The Attorney General stated:
“63. …‘This is an important point which has been raised and the short answer
to it is that it is certainly open to Parliament to approve any recommendation.
However, this does not mean that the GSTC recommendations will have no value.
Having regard to the nature of the Constitution of GSTC, the Council would have
performed useful role in making recommendations but the ultimate authority
115
51
whether to accept such recommendations can and must rest only in the
legislatures, namely, Parliament and the State Legislatures. In this view of the
matter, the setting up of the GSTC does not strike at the root of the legislative
powers over Finance. The powers of the legislature over Finance are sacrosanct
and are not affected by the setting up of the GSTC.’ ”
The Supreme Court in the case of Skill Lotto Solutions (P) Ltd. v. Union of India,116
noted that The 2017 Act is an Act of Parliament in exercise of power of Parliament as
conferred under Article 246-A of the Constitution.
The supreme court in the case of Union of India v. Mohit Minerals (P) Ltd.,117 held
that If the GST Council were intended to be a constitutional body whose
recommendations transform into legislation without any intervening act, there would
have been an express provision in Article 246-A. Article 279-A does not mandate
tabling the recommendations in the legislature like the provisions in Category 3, where
the recommendations have to be mandatorily tabled in the legislature along with an
explanatory note. The use of the phrase “recommendations to the Union or States”
indicates that the GST Council is a recommendatory body aiding the Government in
enacting legislation on GST.
The Supreme Court in the case of Dhruv Krishan Maggu v. Union of India,118 held that
there is also no conflict between the operation of Articles 246-A and Article 246 as a
non-obstante clause has been added to Article 246-A to clarify that both Parliament
and the State Legislatures have simultaneous powers in relation to goods and services
tax. Accordingly, this power has to be liberally construed empowering the Parliament
to make laws with respect to goods and services tax and it remains unaffected by the
distribution of legislative power as provided in Articles 246 and 254.
The Supreme Court in Rajendra Diwan v. Pradeep Kumar Ranibala,119 noted that by
virtue of the power conferred by Article 248 of the Constitution of India, Parliament
has, subject to Article 246-A of the Constitution, exclusive power to make any law
with respect to any matter not enumerated in the Concurrent List or State List. The
residuary power of legislation thus rests with Parliament.
116
(2021) 15 SCC 667 : 2020 SCC OnLine SC 990
117
118
(2021) 87 GSTR 410 : 2021 SCC OnLine Del 241 : (2021) 277 DLT 604
119
(2019) 20 SCC 143 : 2019 SCC OnLine SC 1586
52
The article 269A was inserted to Levy and collect goods and services tax in the course
of inter-State trade or commerce. The power to tax goods and services tax on supplies
in the course of inter-state trade or commerce shall be levied and collected was
conferred to the Government of India and such tax shall be apportioned between the
Union and the States in the manner as may be provided by Parliament by law on the
recommendations of the Goods and Services Tax Council which was constituted by
the President within sixty days from the date of commencement of the Constitution
(One Hundred and First Amendment) Act, 2016.120
“The Constitution Amendment created a GST Council consisting of the Union Finance
Minister and representatives from all states to implement GST. The Council decides
upon subjects including: (i) GST rates, (ii) taxes to be subsumed under GST, (iii) goods
and services to be covered under GST, (iv) model laws to be passed by Parliament and
state assemblies, (v) apportionment of IGST, and (vi) special provisions for the North-
Eastern or Himalayan states.”
“Article 279A deals with the Goods and Services Tax Council. The article created a
timeline that the President shall, within sixty days from the date of commencement of
the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute
a Council to be called the Goods and Services Tax Council. The members of The
Goods and Services Tax Council shall consist of the following members, namely:—
(a) the Union Finance Minister — Chairperson; (b) the Union Minister of State in
charge of Revenue or Finance — Member; (c) the Minister in charge of Finance or
Taxation or any other Minister nominated by each State Government — Members.”
“The functions of the Goods and Services Tax Council shall make recommendations
to the Union and the States on— (a) the taxes, cesses, and surcharges levied by the
Union, the States and the local bodies which may be subsumed in the goods and
services tax; (b) the goods and services that may be subjected to, or exempted from,
the goods and services tax; (c) model Goods and Services Tax Laws, principles of levy,
apportionment of Goods and Services Tax levied on supplies in the course of inter-
State trade or commerce under article 269A and the principles that govern the place of
supply; (d) the threshold limit of turnover below which goods and services may be
exempted from goods and services tax; (e) the rates including floor rates with bands
120
C.A. Upender Gupta, Integrated Goods and Services Tax, National Law School of India Review,
Volume 28 Issue 2 Article 9, (2016)
53
of goods and services tax ; (f) any special rate or rates for a specified period, to raise
additional resources during any natural calamity or disaster; (g) special provision with
respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand;
and (h) any other matter relating to the goods and services tax, as the Council may
decide.”
“The constitutional provision emphasizes the guiding principle of establishing a

harmonized structure for the Goods and Services Tax (GST) and fostering the
development of a unified national market for goods and services. According to the law,
the quorum for meetings of the Goods and Services Tax Council shall consist of one-
half of the total number of its members. The Council is empowered to determine its
own procedure for the performance of its functions. Decisions of the Goods and
Services Tax Council are to be made at meetings, with each decision requiring a
majority vote of not less than three-fourths of the weighted votes of the members
present and voting.”
“This decision-making process is governed by the following principles: (a) The vote
of the Central Government carries a weightage of one-third of the total votes cast. (b)
The votes of all State Governments collectively carry a weightage of two-thirds of the
total votes cast in the meeting. These provisions ensure a balanced and representative
decision-making process within the Goods and Services Tax Council, with due
consideration given to both the Central Government and the State Governments.”
“A mechanism to adjudicate any dispute was to be established by the Goods and

Services Tax Council shall establish a mechanism to adjudicate (a) between the
Government of India and one or more States; or (b) between the Government of India
and any State or States on one side and one or more other States on the other side; or
(c) between two or more States, arising out of the recommendations of the Council or
implementation thereof.”
In the case of Union of India v. Mohit Minerals (P) Ltd., the Supreme Court interpreted
the provisions of the Integrated Goods and Services Tax (IGST) Act and the Central
Goods and Services Tax (CGST) Act in light of the overarching goal of establishing a
uniform taxation system. The introduction of the GST aimed to streamline taxation
practices across states, eliminating variations in tax rates and exemptions. The Court
54
emphasized that while the Union Government is mandated to act on the
recommendations of the GST Council when notifying secondary legislation to enforce
the uniform taxation system, this obligation does not extend to all recommendations
of the Council. Article 279-A grants the GST Council broad recommendatory powers
concerning GST matters, even those beyond the scope of rule-making authority under
the IGST and CGST Acts. The Court clarified that although certain recommendations
of the GST Council are binding on the Government under the CGST and IGST Acts,
not all recommendations carry the same binding force. It underscored the principle that
constitutional provisions, being the foundation of the legal framework, cannot be
interpreted solely based on provisions of ordinary legislation. The distinction between
constituent power and legislative power was highlighted, emphasizing that
constitutional amendments, exercising constituent power, hold precedence over
legislative enactments. Even if Parliament enacts laws binding the Central
Government to the GST Council's recommendations for secondary legislation, it does
not imply that all recommendations of the Council, made under Article 279-A, are
inherently binding on the legislature.
CHAPTER 4: ROLE OF THE GST COUNCIL

4.1. INTRODUCTION
“The Goods and Services Tax (GST) Council is a constitutional body comprising
representatives from all 29 states and 2 union territories with legislatures. It serves as
a forum for making recommendations to both the Union and State Governments on
issues pertaining to GST. The Council consists of three classes of members:
Chairperson: The Chairperson of the GST Council is the Union Finance Minister. Vice
55
Chairperson: The Vice Chairperson is selected by the ministers of the state
governments. Members: The Members of the GST Council include the Minister of
State (MoS) for Finance from the Union Government and all Finance Ministers of the
states. This composition ensures representation from both the Union and State
Governments, enabling collaborative decision-making on GST-related matters.”
The introduction of the GST Council came through the Constitutional (122nd
Amendment) Bill in 2016. Following the assent from the President, the GST Council
gained its constitutional framework through the Constitution (101st Amendment) Act,
2016. According to Article 279A(1) of the Constitution, the GST Council was
mandated to be constituted within 60 days. This council is responsible for deciding on
various matters, including GST rates, the integration of taxes under GST, the inclusion
of goods and services within GST, the formulation of model laws for approval by
Parliament and state assemblies, the distribution of Integrated Goods and Services Tax
(IGST), and the implementation of special provisions for states in the North-Eastern
or Himalayan regions.
The establishment of the GST Council in its current form was the outcome of extensive
deliberations on its nature, structure, and functioning. The concept of the GST Council
was initially proposed in the Constitution (115th Amendment) Bill, 2011, introduced
in the Parliament. However, due to a lack of consensus among the members of
Parliament, the amendment was referred to a standing committee for further
examination. After thorough deliberations, the standing committee submitted its
recommendations in 2013. Subsequently, the Constitution (122nd Amendment) Bill,
2014, which included provisions for the GST Council, was introduced and passed by
both houses of Parliament. Additionally, the Bill was ratified by more than half of the
states, paving the way for the establishment of the GST Council as a constitutional
body.121 This process highlights the collaborative effort and consensus-building
required to establish a mechanism like the GST Council, which plays a crucial role in
the implementation and management of the Goods and Services Tax regime in
India..122
121
PTI, Requirement of 50% states ratifying GST bill complete, Economic Times, Sep 01, 2016,
https://economictimes.indiatimes.com/news/economy/policy/requirement-of-50-states-
ratifying-gst-bill-complete/articleshow/53963756.cms?from=mdr
122
Ibid
56
The inaugural meeting of the GST Council took place on September 22 and 23, 2016,
in New Delhi, where discussions were held regarding different facets of GST
implementation, such as policy adjustments, tax rates, compliance procedures, and
related provisions. These meetings are convened periodically with a consensus-driven
approach to foster cooperative federalism, with every decision requiring majority
approval. The GST Council serves as a key entity in ensuring uniformity in tax rates
and procedures nationwide, providing a platform for central and state governments to
engage in negotiations on various GST-related matters like compensation and dispute
resolution. Endowed with the authority to revise tax rates based on economic
conditions, revenue needs, and other factors, the council also implements measures
aimed at enhancing tax compliance, which encompass simplifying processes,
lessening compliance burdens, and tackling business-related challenges. 123
The decisions of the GST Council are taken by a majority of three-fourths of the
weighted votes of members present and voting with the Union alone has one-third of
the votes, while all the States together have two-thirds of the total votes.
Constitution Standing Constitution (122nd

(115th Committee Amendment) Bill,
Amendment) Bill, recommendations 2014
2011 on 2011 Bill
GST Council Decisions by the Decisions by 3/4th Decisions by
consensus weighted votes; 1/3 Standing
weightage to centre, Committee
2/3 to states. recommendations
incorporated
Article 279A of the Constitution (115th Amendment) Bill, 2011, clause (8) stipulates
that every decision of the Goods and Services Tax (GST) Council taken at a meeting
must be made with the consensus of all the members present. However, the Standing
Committee recommendations on the 2011 Bill suggested a different approach,
proposing that voting should be the primary method for reaching decisions within the
GST Council. This highlights a fundamental difference in opinion regarding the
decision-making process within the GST Council. While the Bill initially mandated
123
Aslam P S Libison K B, Demystifying GST Council Meetings Deliberations Crucial
Perspectives, Economic & Political Weekly, Vol. 59, Issue No. 5, 9 March 2024
57
consensus-based decision-making, the Standing Committee recommended a shift
towards a voting mechanism. This divergence reflects the complexities and challenges
involved in establishing a consensus among the members of the GST Council, given
the diverse interests and priorities of the stakeholders involved. Ultimately, the
decision on the preferred approach would depend on the deliberations and negotiations
among the concerned parties involved in the legislative process.124
“Since the enactment of the Constitution (101st Amendment) Act, 2016, the GST
Council has operated on a decision-making basis requiring a majority of not less than
three-fourths of the members present and voting. Under this system, the Central
Government holds one-third of the total votes cast, while the States collectively hold
two-thirds. This ensures that every decision necessitates agreement from both the
Central Government and the States. Notably, during the GST rollout, the Union
Finance Minister, who also chairs the GST Council, adopted a distinctive approach.
Instead of relying on voting, the Chairperson prioritized consensus-building for every
decision. This emphasis on consensus underscores the collaborative decision-making
ethos of the GST Council, highlighting the significance of cooperation between the
Central Government and the States in GST implementation. Even contentious matters
underwent extensive discussions, demonstrating a commitment to inclusive decision-
making aligned with the principles of cooperative federalism.”
4.2. GST COUNCIL IN THE INDIAN CONSTITUTION

“As per Article 279A (1) of the amended Constitution, the GST Council has to be
constituted by the President within 60 days of the commencement of Article 279A.
The notification for bringing into force Article 279A with effect from 12th September,
2016 was issued on 10th September, 2016.”
According to the amended Constitution's Article 279A, the GST Council, a

collaborative body comprising representatives from both the Central and State
governments, will comprise the subsequent members:
Chairperson: Union Finance Minister
124
Nistula Hebbar, ET Bureau, Let voting rather than consensus run GST council: Panel, Jun 27,
2013
58
Member: Union Minister of State, overseeing Revenue or Finance Members: Ministers
responsible for finance, taxation, or any nominated Minister from each State
Government
“The Article 279A (3) states that the Members of the Goods and Services Tax Council
referred to in sub-clause (c) of clause (2) shall, as soon as may be, choose one amongst
themselves to be the Vice-Chairperson of the Council for such period as they may
decide.”
“As per Article 279A(4), The Goods and Services Tax Council has the power to make
recommendations to the Union and the States of Union and the States on important
issues related to GST, such as (a) the taxes, cesses and surcharges levied by the Union,
the States and the local bodies which may be subsumed in the goods and services tax;
(b) the goods and services that may be subjected to, or exempted from, the goods and
services tax; (c) model Goods and Services Tax Laws, principles of levy,
apportionment of Goods and Services Tax levied on supplies in the course of inter-
State trade or commerce under article 269A and the principles that govern the place of
supply; (d) the threshold limit of turnover below which goods and services may be
exempted from goods and services tax; (e) the rates including floor rates with bands
of goods and services tax ; (f) any special rate or rates for a specified period, to raise
additional resources during any natural calamity or disaster; (g) special provision with
respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand;
and (h) any other matter relating to the goods and services tax, as the Council may
decide.”
4.3. PROCEDURE & CONDUCT OF BUSINESS REGULATIONS OF THE GST

COUNCIL
“The GST Council, a constitutional body tasked with advising on matters concerning
the implementation of the Goods and Services Tax in India, held its inaugural meeting
on September 22-23, 2016. Since then, it has convened regularly to discuss and decide
upon various GST-related issues.”
“Rule 6 of the Procedure & Conduct of Business Regulations of the GST Council
addresses the frequency of meetings, mandating that the Council convene at least once
every quarter of the financial year. Chapter II outlines the procedures for Council
meetings, with Rule 3 specifying the process for issuing meeting notices. Under this
59
rule, the Secretary, with the Chairperson's approval, sends a notice to each Member
detailing the meeting's date and location. The notice must be dispatched at least seven
days prior to the meeting, while agenda notes must be circulated at least three days in
advance. In exceptional circumstances, the Secretary, with the Chairperson's approval,
may convene an emergency meeting with a notice period of two days.”
“Rule 5 of the Procedure & Conduct of Business Regulations of the GST Council deals
with the duly constituted meeting which are as follows: (1) A meeting of the Council
is duly constituted when it is presided over by the Chairperson with at least one-half
of the Members of the Council being present. (2) The Chairperson may also convene
a meeting of the Council through video conferencing: Provided that where a proposal
under discussion is required to be decided by voting, it shall be deferred and taken up
in the next physical meeting of the Council.”
“The Procedure & Conduct of Business Regulations of the GST Council were ratified
during its inaugural meeting on 22-23 September 2016, in accordance with Article
279A(8) of the Constitution. Significant amendments were proposed and ratified by
the council, including changes to Rule 2, which deals with Definitions. Initially, the
term "Chairman" was utilized to denote the Council's leader, prompting objections
from a minister from Jammu and Kashmir.”
“This minister suggested replacing "Chairman" with "Chairperson" to align with the
language of Article 279A of the Constitution (One Hundred and First Amendment Act)
of India. Furthermore, a new clause, 2(1)(iv), was introduced to address scenarios
where a State is under President's Rule.”
The existing clause (iii) referenced the Minister-in-charge of Finance or Taxation, or

any other Minister designated by each State Government. However, in the absence of
a functional government during President's Rule, such a Minister would be absent. To
remedy this, it was agreed that a person appointed by the State's Governor would
assume the powers of a Minister.
Consequently, clause (iv) was incorporated into the Rules, stipulating that any
individual nominated by the Governor of the State during a proclamation of emergency
under Article 356 of the Constitution of India would also possess the authority to act
as a Minister in the GST Council.
60
The deliberation on Rule 16 primarily focused on the matter of vote weighting, which
essentially conferred veto authority to the Union Government. The apprehensio n
regarding unequal voting privileges stems from the provision in the law requiring a
75% majority threshold. This setup dictates that the Central Government's vote holds
a weight equivalent to one-third of the total votes cast, while the combined votes of all
State Governments collectively carry a weight equal to two-thirds of the total votes
cast in a meeting.
“The disproportionate allocation of voting authority has prompted inquiries into the
equity and equilibrium of decision-making processes within the GST Council.
Although the aim might have been to guarantee representation and agreement between
the Union Government and the States, certain voices contend that it bestows undue
sway upon the Central Government. Consequently, discussions and considerations
have emerged regarding methods to tackle this concern and establish a fairer voting
framework within the GST Council.”
The weightage voting system can be understood by examining the mechanism and
functioning of the same. The abovementioned clause 9 of Article 279A, can be
understood as follows:
Firstly, the total weighted votes of all the members shall be an aggregate of the
weighted votes of the union and states. Thus, the same can be understood as T= U+S
wherein t shall be the total weighted votes of all the members; u shall be the weighted
votes of the union; and s shall be the weighted votes of the states.
“Secondly, it will be necessary to establish the value of the weighted votes of the states
and union territories. The total membership of the Council consists of 33 individuals.
This 33-member body comprises the Union Minister of Finance, the Union Minister
of State for Finance, and finance ministers from states and Union Territories (UTs)
with a state legislature. Notably, Jammu and Kashmir (J&K) is represented by an
exception, currently by the Advisor to the Lieutenant Governor, given the absence of
a legislative assembly since its dissolution in 2018 and the revocation of Article 370
in 2019. The 31 members from the states' finance ministers can be divided as follows:
finance ministers from the 28 states, two finance ministers from the UTs for the
National Capital Territory of Delhi and Puducherry, and one Advisor to the Lieutenant
Governor for the State of J&K.”
61
The weighted vote of the centre as prescribed by the law is one-third and State
Governments taken together shall have a weightage of two-thirds of the total votes
cast. Thus, the voting weightage is as follows:
T=C+S wherein C shall be one-third of the total vote cast with S being two-thirds of
the vote cast. The question herein shall be to understand the rationale in arithmetic
form, to understand the delicacy of the context in which the voting power has to be
decided. The C = 1/3 = 33.33% with S = 2/3=66.67%. The C shall be one single bloc
considering the union weighted shall be applied in one bloc, however, the S is to be
divided in number of states to draw the voting right of each state with having an inverse
relation of number of states with their voting value.
The total number of voting weighted for the states shall be divided by the number of
states, to draw a value per state. Thus, S1 = 66.67/31=2.15 wherein S1 shall be the
voting weightage per state. The voting value of each state is 2.15 which can fluctuate
as the number of states is increased or reduced. The total majority mark which is
required to make a decision is three-fourths i.e., 75 out of the 100 if all present and
voting or three-fourth of the total present and voting members in the GST council.
“The two clear takeaways that can be drawn out without hesitation are that first, the
union cannot by itself pass a decision and use the GST council as a forum for
legitimizing the policies undertaken by themselves; and second, the states cannot pass
a decision by themselves by subverting the interest of the union. Thus, the undisputed
takeaway can be that the GST council shall only function when there is cooperative
federalism being practiced, with the interests of states and unions equally considered
during the deliberations of the GST council.”
The Minister from Tamil Nadu expressed reservations regarding the voting weightage,
emphasizing its bestowment of veto power to the Union Government.
However, the Chairperson noted that this concept originated from the Bhubaneswar
Empowered Committee meeting in 2013 and was subsequently enshrined in the
Constitution.
“This provision mandates both the Union and the States to achieve consensus on
decisions. The rationale behind granting veto power to the Union Government
stemmed from the principle that the Union of India should not be excluded from
taxation policy decisions. This ensured the Union Government's significant role in
62
shaping tax-related decisions, thereby upholding its authority and influence in matters
of national importance.”
“Article 279A, clause (9) specifies that every decision of the Goods and Services Tax
Council shall be made at a meeting by a majority of not less than three-fourths of the
weighted votes of the members present and voting. The constitutional provision
stipulates that "the votes of all the State Governments taken together shall have a
weightage of two-thirds of the total votes cast, in that meeting.”
“In light of this, Ministers from Tamil Nadu and Uttar Pradesh proposed a
differentiation in the weightage of votes for States within the two-thirds share allocated
to the States, drawing parallels with the approach followed for Rajya Sabha
membership.”
“However, several states objected to this proposal. The Minister from Meghalaya
emphasized the importance of avoiding inequality among States. Similarly, the
Minister from Assam strongly opposed the suggestion, highlighting each State's
significant role in the Union, even citing the contributions of smaller states like
Arunachal Pradesh to India's security.”
“The Chief Minister of Puducherry also voiced objection to the proposal. Most other
States supported the stance that all States should hold an equal vote.”
“The Chairperson noted that this issue was deliberated upon by the Select Committee
of the Rajya Sabha during the examination of The One Hundred and Twenty-Second
Constitutional Amendment Bill, which recommended equal votes for all States.
Consequently, consensus prevailed within the council, leading to the decision that all
States would have an equal vote within the two-thirds share in the inaugural GST
Council Meeting. 125”
“Each decision made by the GST council must be approved in a meeting with a
majo-rity vote of not less than three-fourths of the weighted votes of the members who
are present and voting. This decision-making process follows the following principles:
(i) The vote of the union government is given a weight equal to one-third of the total
votes cast. (ii) The votes of all the state governments combined are given a weight
equal to two-thirds of the total votes cast in that particular meeting. Article 279A,
125
Ibid
63
Clause 7 states that a meeting of the GST council will be considered valid if at least
half of its members are present.”
The Council has been instrumental in deciding key issues related to the GST such as
tax rates, exemptions, thresholds, and administrative procedures. During its meetings,
the GST Council takes major of its decisions through a consensus-based approach as
every decision of the GST Council shall be taken by a majority of not less than three-
fourths of the weighted votes of the members present and voting with a weightage of
one-third of the total votes cast to the Centre and a weightage of two-thirds of the total
votes cast to the States, promoting the spirit of the co-operative federalism.
“Chapter IV delineates the protocol for proposing recommendations to the GST

Council, with Rule 9 focusing on the notice required for such proposals: (a)
Recommendations seeking the Council's endorsement must be presented in writing by
any Member to the Secretary. (b) These submissions can be made at any juncture. (c)
All proposals must encompass a background note, specify the relevant sub-clause and
Article of the Constitution conferring powers on the Council for making
recommendations, furnish justification for the proposal, and delineate specific points
on which the Council's recommendation is sought. Rule 10 delineates the prerequisites
for the validity of proposals seeking recommendation: (i) The proposal must pertain to
one or more of the ensuing subject matters: (a) Taxes, cesses, and surcharges imposed
by the Union, States, and local bodies that may be integrated into the GST. (b)
Commodities and services that may be subject to or exempted from the GST. (c) Model
GST Laws, principles of levy, allocation of GST on inter-State trade or commerce
under Article 269A, and principles governing the place of supply. (d) Threshold limit
of turnover below which commodities and services may be exempted from GST. (e)
Rates, encompassing floor rates with bands, of GST. (f) Any special rate or rates for a
stipulated period to mobilize additional resources during natural calamities or
disasters. (g) Special provisions for certain States. (h) Any other matter associated with
GST as determined by the Council. (i) The date on which GST will be imposed on
specified petroleum products. (j) Mechanism to arbitrate disputes between the
Government of India and States, or between States, arising from Council
recommendations or their implementation. (ii) If the proposal contains a statement, the
Member submitting it is accountable for its accuracy.”
64
“Rule 11 delineates the protocol for circulating proposals seeking recommendations to
all Members and the consolidation of received comments: (a) Upon reception of a
proposal seeking recommendation from a Member, the Secretary shall seek approval
from the Chairperson to disseminate the proposal to each Member. (b) Subsequently,
the Secretary shall gather any comments, if forthcoming, from all Members regarding
the proposal and compile them. (c) Inclusion of the proposal seeking recommendation
in the agenda of the Council meeting necessitates approval from the Chairperson. (d)
The consolidated comments received from Members shall be disseminated to all
Members prior to the date on which the pertinent proposal is slated for discussion in
the Council. Rule 12 ensures that proposals put forth do not become obsolete: If no
resolution is reached by the GST Council concerning a proposal during a particular
meeting, the same proposal may be carried forward for deliberation at subsequent
meetings. Rule 13 permits the withdrawal of a proposal: A Member who has submitted
a proposal reserves the right to retract it with the consent of the Chairperson.”
“Chapter V addresses Divisions, with Rule 14 outlining the nature of decisions on

proposals: All proposals brought before the Council will undergo thorough discussion.
Following this, the Chairperson will present the question and invite Council Members
to vote by a show of hands. If any Member requests a division on a proposal, the
Chairperson will conduct a vote through a secret ballot. The decisions made by the
Chairperson in accordance with these Regulations are final and not subject to
challenge.”
4.4. PASSING OF RESOLUTION IN MEETING

“Rule 20 of the Procedure and Conduct of Business Regulations of the GST Council
outlines the fundamental principles guiding decision-making within the Council.
These principles emphasize the importance of establishing a harmonized structure for
goods and services tax and fostering the development of a unified national market for
goods and services.”
“Proposals within the GST Council are thoroughly discussed, following which the
Chairperson facilitates a voting process by show of hands. If any member requests a
division on a proposal, a secret ballot is conducted.
“Rule 15 governs the Division of proposals and stipulates certain principles for
determining the outcome:
65
a) The Central Government's vote carries a weightage of one-third of the total votes
cast in the meeting;
b) The combined votes of all State Governments hold a weightage of two-thirds of the
total votes cast in the meeting.
c) The proposal is deemed approved if the total weighted votes of the Members present
and voting in favor of the proposal equal or exceed three-fourths.”
4.5. ANALYSING 38th GST COUNCIL MEETING

The GST Council has conducted 52 meetings since its establishment on September
22-23, 2016, until the most recent session on October 7, 2023. Throughout this period,
nearly 1,200 decisions were made, all achieved through consensus except for one
instance concerning the taxation of lotteries, where a vote was required due to the lack
of agreement.
While unanimity hasn't always been achieved, the Council has effectively resolved
disagreements by referring matters to the Group of States' Finance Ministers (GoFMs)
for further discussion.
“The Council consistently respects the recommendations of the GoFMs, illustrating a

commitment to collaborative decision-making and ensuring mutual acceptance of
decisions. During the 38th Meeting of the GST Council held on December 18, 2019,
in New Delhi, chaired by the Union Finance Minister, several significant issues were
addressed.”
“One of the most contentious matters was the taxation of lotteries under the GST
regime, a longstanding point of contention. The discussions during this meeting were
anticipated to be challenging, reflecting the complexity and diverse opinions among
Council members regarding the appropriate tax treatment of lotteries under GST.
Given the importance of this issue and its potential impact on various stakeholders,
including lottery operators, state governments, and consumers, the deliberations
during the 38th GST Council meeting were crucial for reaching a consensus or
determining a course of action regarding lottery taxation under the GST framework.”
“During the 33rd GST Council Meeting on February 24, 2019, Dr. Thomas T M Isaac,
Kerala's Minister, mentioned that the Group of Ministers (GoM) proposed
implementing a unified GST rate for lotteries, replacing the current dual-rate system.
66
Additionally, considering lotteries as sin and demerit items, the GoM recommended
imposing a higher tax rate of either 18% or 28%, subject to the GST Council's decision.
However, a conclusive resolution on this matter was not reached during the meeting,
prompting the Council to refer the issue back to the GoM for further discussion. “
“Dr. Isaac explained that within the GoM, consensus couldn't be reached due to
divergent opinions among the states. He highlighted that Assam, Arunachal Pradesh,
Goa, and Maharashtra favored implementing a single GST rate, whereas Kerala,
Punjab, West Bengal, and Karnataka advocated for maintaining the current dual-rate
system for lotteries.”
“Consequently, the GoM's chairperson instructed that the issue be brought before the
GST Council to determine the appropriate rate structure for lottery supplies. The
recommendations presented by the GoM at the 35th GST Council Meeting included a
lack of consensus regarding the necessity for a new GST rate on lotteries.”
“While Assam, Arunachal Pradesh, Goa, and Maharashtra advocated for a single GST
rate, Kerala, Punjab, West Bengal, and Karnataka favored maintaining the existing
dual-rate system. Punjab expressed readiness to explore a lower uniform rate in case
legal issues arose with rate differentiation. Consequently, the GoM's chair directed the
matter to be brought before the GST Council for a decision on the appropriate rate
structure for lottery supplies. Considering the nature of lotteries as sin goods, the
proposed tax rate should be high, either 28% or 18%.”
“Secondly, the GoM recommended that any constitutional challenge to the dual-rate
structure should be vigorously defended. The issue also involved Skill Loto Solutions
Pvt Ltd v Union of India, filed in the Hon’ble Supreme Court, relating to the levy of
GST on lotteries. The Supreme Court upheld the levy of GST on lottery and observed
that the impugned provisions of the GST law are not contrary to the legal meaning of
goods and are neither illegal nor unconstitutional.”
“The GST Council stated that the GST on lotteries should be imposed after excluding
the prize money component of the lottery ticket since the said amount never formed
part of income in the lottery trade. Furthermore, the levy of GST on lotteries at two
different rates was deemed a violation of the Constitution of India, and it was suggested
that all lotteries be taxed at a uniform rate.”
67
“In the 35th GST Council Meeting held on June 21, 2019, the Minister from Kerala
circulated a 15-page note explaining the rationale behind the differential treatment of
the two types of lotteries, 'State Run Lottery' and 'State Authorized Lottery,' in terms
of actionable claims. The council decided on the current differential rate structure of
12% and 28%, which was upheld by the Hon’ble High Court of Kolkata.”
“Therefore, in his view, there was no need for a uniform rate on the two types of
lotteries. The Assam Minister pointed out that while Kerala operated its own lottery
(State Run Lottery), the North-Eastern States lacked the necessary infrastructure to do
the same. Consequently, they had to rely on outsourcing for lottery operations. He
argued that despite the justification for maintaining differential GST rates on lotteries,
having two different rates discriminated against the North-Eastern States. Therefore,
he advocated for a vote to resolve the issue. Additionally, he suggested that considering
lotteries as sin goods, a higher GST rate of 28% might be appropriate.”
“The Minister from Goa expressed that the debate on this issue had been extensive
within the Council. He emphasized that regardless of whether lotteries were classified
as State Run or State Authorized, they essentially constituted one product, not two
distinct goods, and thus should be subject to the same tax rate. He highlighted that,
akin to the North Eastern States, Goa was also experiencing losses due to the differing
GST rates on lotteries.”
“Additionally, he cautioned the Council about the potential consequences of imposing

a higher 28% tax rate on lotteries, suggesting that it might drive legitimate businesses
underground and foster an increase in illicit activities. Regarding the matter of casinos,
he noted that the GoM had not addressed it, as referred by the Council, and proposed
that the Council forward the issue to the Law Committee for consideration.”
“The Deputy Chief Minister of Gujarat emphasized that the implementation of GST
was premised on the principle of 'One Nation, One Tax,' and the existence of
differential tax rates of 12% and 28% on lotteries contradicted this principle. He
pointed out that thus far, all decisions related to GST had been reached through
consensus within the Council, and it had never been necessary for the courts to
intervene in decision-making.”
“He stressed the importance of maintaining this consensus-driven approach and urged
the Council to resolve the current issue through consensus once again. He suggested
68
that a single standard rate could be established for lotteries, proposing that, given their
categorization as sin goods, a higher GST rate of 28% could be applied to increase
revenue for both the Centre and the States simultaneously.”
“The Minister from Uttar Pradesh stated that the matter should be decided by
consensus instead of division of votes and that the supply of lottery should attract a
uniform rate of 18% or 28%. The Chief Minister of Puducherry stated that the issue of
GST on lottery had been deliberated in various Council Meetings. He stated that the
differential rate on ‘State Run Lottery’ and “State Authorised Lottery’ was arrived after
long deliberation in the Council.“
“He added that in his view, a State authorising private parties to run its lotteries, taxed
at higher GST rate, should not dictate terms to other States running their own lotteries
taxed at lower GST rate and that it would be illogical and unacceptable. Therefore, in
his view, they could continue to attract two different GST rates.”
“The Deputy Chief Minister of Haryana noted that while lotteries were prohibited in
Haryana, considering their categorization as sin goods, they should indeed be taxed at
the highest rate slab. He emphasized the importance of upholding the Council's
tradition of consensus-based decision-making for ensuring its smooth functioning.
Therefore, he suggested that the matter be resolved through consensus rather than
resorting to a division of votes.”
“The Minister from Punjab expressed a neutral stance on the issue but acknowledged
the suggestion of some states for a division. In an attempt to propose a solution, he
recommended levying GST rates of 12% and 18% on State Run Lottery and State
Authorized Lottery, respectively.”
“This proposal aimed to narrow the gap between the tax rates to only 6%. Additionally,
he suggested considering the imposition of a compensation cess on lotteries, given
their classification as sin goods.”
The Minister from Kerala reiterated that there were political considerations preventing
him from agreeing to a single rate on lotteries, emphasizing their opposition to private
entities in the sector. He expressed willingness for the Council to decide on the matter
and requested a division on the issue.
69
“The Minister from Madhya Pradesh noted that lotteries were banned in their state.
Similarly, the Minister from Tamil Nadu, despite their state not running any lotteries,
voiced support for a uniform GST rate on lotteries. The Minister from Arunachal
Pradesh reaffirmed the recommendation made by the GoM to have a uniform GST rate
on both State Run Lottery and State Authorized Lottery. Similarly, the Minister from
Manipur expressed support for a single GST rate on lottery, despite not having lotteries
in their state. Lalchamliana, the Minister of Mizoram, echoed the sentiments of the
Minister from Assam regarding the North Eastern States and reiterated their state's
support for a single GST rate on lottery.”
“The Minister from Jharkhand emphasized that while his state didn't have lotteries, he
supported a uniform GST rate on them and advocated for a nationwide ban on lotteries.
Similarly, the Minister from Karnataka, despite their state not running lotteries,
suggested allowing states with differing stances on lotteries to decide after consulting
stakeholders. The Minister from Telangana highlighted the prevailing sentiment
among many states favoring a uniform GST rate on lotteries and urged the Minister
from Kerala to reconsider division. The Chairperson sought final input from the
Ministers of Assam and Kerala after considering the opinions expressed by other
members regarding division and consensus. The Minister from Kerala reiterated that
the issue was raised based on representation from the lottery association, and they
couldn't compromise on it. Therefore, he insisted on proceeding with a division. The
Minister from Assam expressed agreement with the division of votes for deciding on
the issue."
“The Chairperson inquired whether the Council should proceed based on the
consensus or opt for a division. The Member from Goa proposed that if the Council
Member from Kerala disagreed, they could note a dissent and proceed according to the
consensus of the majority. However, the Minister from Kerala pointed out that the
regulations established by the GST Council stipulated that if any Member requested a
division on a proposal, it must be honored.”
“The Chairperson reassessed the sentiment of the Council and asked the Members for
their opinions on how to proceed. Several Members from various States, including
Uttar Pradesh, Gujarat, Bihar, Puducherry, Haryana, Uttarakhand, and Goa, expressed
their preference to maintain the tradition of consensus in the Council. The Minister
70
from West Bengal suggested that allowing States to retain autonomy in deciding their
taxation policies on lotteries could help resolve the deadlock. Despite appeals from the
Chairperson and other Members to reconsider, the Minister from Kerala remained firm
on his request for a division.”
“The Chairperson directed the Secretary to conduct the proceedings accordingly.

Thereafter, the Secretary put forth the question before the Council to vote i.e. “Do you
support the proposal to levy a uniform rate of tax on the State Run Lottery and the
State Authorised Lottery?”.”
Then the Secretary requested the Members to indicate their decision by the show of
hands if they supported the proposal. The Secretary then read out the names of the
States who voted for the proposal.
In favor of the Against the Abstained

Proposal Proposal
Do you support the proposal 21 7 3
to levy a uniform rate of tax
on the State Run Lottery
and the State Authorised
Lottery?”.
“The Secretary declared the voting outcome, indicating that among the 28 states
present and participating in the vote, 21 states had supported the proposal to implement
a uniform rate on lottery. As per the Procedure and Conduct of Business Regulations
of the Goods and Services Tax Council, a minimum of 18 affirmative votes was
necessary for the proposal to be approved. With the required number of states voting
in favor, the proposal was considered passed by the GST Council. The Secretary also
identified the 7 states that opposed the proposal and mentioned that Punjab, Rajasthan,
and Meghalaya abstained from voting..”
4.6. ROLE OF GoM

The principle of unanimity has been employed in the GST Council. There exists the
diversity of the needs and resource bases of the States, Thus, it is only natural that there
71
would be differences of opinion among the States. In a situation where such
concurrence was not possible, the Council devised the following methods to achieve
the objective.
The constitution of the Groups of Ministers(GoMs) has been an important means of

consensus building as whenever concurrence of the members of the Council was hard
to achieve, or when an issue required in-depth discussion or wider consultation, the
Council formed sub-groups of Ministers similar to Parliamentary Committees, to look
into the issues and build consensus. Till now, 15 such Groups of Ministers have been
formed to consider specific issue
Name of GoM Year GST Approval

Council
Meeting
GoM on Digital 2018 27th Final Report approved in 29th GST
Payment Council Meeting
GoM for cess on 2018 27th Approved to await the opinion of
sugar the Attorney General of India
(AG) regarding the Constitutional
validity of imposition of Cess
under GST in 28th GST Council.
Later, Supreme Court in UOI v.

Mohit Mineral Pvt. Ltd. upheld the
Constitutional validity of Goods
And Services Tax (Compensation
To States) Act, 2017, as well as the
Goods and Services Tax
Compensation Cess Rules, 2017,
as framed under the Act.
GoM for MSME 2018 29th Final Report Approved by the
GST Council, and introduced on
pilot basis in 32nd GST Council
Meeting
72
GoM on Analysis of 2019 31st Deferred
Revenue from GST
GoM for boosting 2019 32nd Deferred
Real Estate
GoM on Lottery 2019 32nd Passed with Division in 38th GST
Council Meeting
GoM on the 2019 37th Final Report approved in 43rd GST
movement of Gold Council Meeting
and Precious Stones
GoM to examine the 2019 - Deferred
issue of IGST
Settlement
GoM on 2021 43rd Final Report Approved in 45th
concessions/ GST Council Meeting
exemption from GST
to COVID relief
material
GoM on Casinos, 2021 - Final Report Approved in 50th
Race Courses and GST Council Meeting
Online Gaming
GoM on levy of 2021 43rd Deferred
Covid Cess on power
and pharma sector in
Sikkim
GoM report on 2021 - Final Report Approved in 49th
Capacity Based GST Council Meeting
Taxation and Special
Composition Scheme
GoM on GST 2021 45th Deferred
System Reforms
GoM on Rate 2021 45th Interim Report Approved in 47th
Rationalization GST Council Meeting
73
GoM on Goods and 2022 47th Final Report Approved in 49th
Service Tax GST Council Meeting
Appellate Tribunal
(GSTAT)
Summary on GoM:
Total No. of Final Report Interim Division on Deferred

GoM Approved Report GoM
Approved
15 7 2 1 5
There has been only one instance of a full member participation council meeting, while
30 meetings before and after GST implementation saw less than 75% member
attendance. The majority of discussions, suggestions, and decisions were conducted
with below 75% member participation. Despite an increase in GST collection in the
northeastern states, their participation in the council remains low. Additionally, union
territories without legislation attended only one out of the 51 meetings, contradicting
the principle of cooperative federalism that India should uphold. The current voting
mechanism in the GST council deviates from consensus decision-making, as the union
government's voting weight accounts for one-third, and any decision must garner the
support of at least three-fourths of the weighted votes from participating and voting
members. Even if all states collectively endorse a resolution, it necessitates the backing
of the union government for passage. A significant drawback thus far has been the
untapped potential of the GST council as a platform for states to collaborate on
intergovernmental initiatives and actively forge subnational agreements on indirect
taxation.
Full Attendance More than 75% Less than 75%

Number of 1 20 30
Meetings
74
The absence of participation from some members reduces the collective wisdom and
regional viewpoints in decision-making. Northeastern states such as Nagaland,
Sikkim, Mizoram, Tripura, Meghalaya, and Arunachal Pradesh have lower ministerial
involvement in the GST Council. Consequently, decisions made without their input
may not adequately address the diverse economic, social, and cultural contexts of
different states in India. Infrequent meetings, extensive agendas, limited state
participation, and the absence of other stakeholders hinder the inclusive growth of the
GST Council.
The Goods and Services Tax (Compensation to States) Act, 2017 was enacted to
provide compensation to the States for revenue losses incurred due to the
implementation of the goods and services tax, as mandated by the provisions of the
Constitution (One Hundred and First Amendment) Act, 2016. According to this Act,
the projected nominal growth rate of revenue subsumed for each State during the
transition period is set at fourteen percent per annum. For the purpose of determining
the compensation amount payable in any financial year during this transition period,
the financial year ending on March 31, 2016, is considered the base year. The Act
stipulates that the projected revenue for any year in a State is to be calculated by
applying the projected growth rate to the base year revenue of that State.
“The genesis of the GST compensation lies in the deliberations of the GST Council
where it emerged as an important convergence point for the States to agree with the
rollout of GST. In fact, if the history of the introduction of GST is analyzed it may
emerge that the solemn guarantee by the Central Government to provide for
compensation to the States for any revenue loss that may arise on account of
introduction of GST was the sole binding force that paved the way for the commitment
by the States to agree to the introduction of GST in the country. The same was
enshrined in the 101st Constitutional Amendment Act, 2016 and was thereby given a
constitutional status. The legal obligation of the Central Government to provide for
this compensation to the State has been captured in the GST (Compensation to States)
Act which was enacted in 2017 on the recommendation of the GST Council. The Act
empowers the levy of the Compensation Cess on goods and services the proceeds of
which will be utilized for the payment of the compensation to the States. As per the
Goods and Services Tax (Compensation to States) Act, 2017, the states are to be
75
compensated for any loss of revenue arising on account of implementation of GST for
the period of first five years.”
“June 30, 2022, marked the conclusion of the transition period during which States
received compensation for any revenue losses due to the implementation of GST. This
compensation was calculated as the difference between the projected revenue, based
on a 14% annual growth rate with 2015-16 as the base year, and the actual GST
revenue. Therefore, during this period, States were guaranteed a minimum annual
revenue increase of 14%. The compensation was funded by a GST compensation cess
levied on specified goods and services.”
“The requirement for GST compensation has varied widely across States. During the
five-year transition period the top five compensation receiving States were
Maharashtra, Karnataka, Gujarat, Tamil Nadu and Punjab. However, the States which
are likely to be most adversely affected by the end of the compensation regime are
Puducherry, Punjab, Delhi, Himachal Pradesh, Goa and Uttarakhand for which the
share of GST compensation in tax revenue has exceeded 10 per cent on an average.
Overall, the north-eastern States have been the biggest beneficiaries in the GST
regime, recording a compound annual GST revenue growth rate of 27.5 per cent since
the implementation of the GST (2017-18 to 2022-23) as against 14.8 per cent for all
States.126”
Name of State Revenue in Base Projected Compensation Paid

Year (2015-16) Revenue (20- [in crores]
[in crores] 21) [ in crores] (by 20-21)
Andhra Pradesh ₹ 13449.62 ₹ 25896.09 ₹ 8868
Assam ₹ 5985.50 ₹ 11524.56 ₹ 4615
Bihar ₹ 12620.56 ₹ 24299.81 ₹ 15441
Chhattisgarh ₹4724 ₹ 9095.65 ₹ 11254
Delhi ₹ 16784 ₹ 32316.15 ₹ 23743
Goa ₹2337 ₹ 4499.69 ₹ 3271
Gujarat ₹19823 ₹ 38167 ₹40024
126
RBI, Fiscal Position of the II State Governments, Jan 16, 2023
<https://m.rbi.org.in/Scripts/PublicationsView.aspx?id=21635>
76
Haryana ₹ 15168 ₹ 29204.68 ₹ 17447
Himachal Pradesh ₹3229 ₹ 6217 ₹ 7385
Jammu & Kashmir ₹ 4766.30 ₹ 9196.35 ₹ 7942
Jharkhand ₹5356 ₹ 10312.52 ₹ 7310
Karnataka ₹20237 ₹ 38964 ₹ 54263
Kerala ₹ 16821.37 ₹ 32388.11 ₹ 20808
Madhya Pradesh ₹ 15329 ₹ 29514 ₹ 18296
Maharasthra ₹ 60504.60 116496.43 ₹ 54263
Meghalaya ₹ 636.17 ₹ 1224.89 ₹ 633
Odisha ₹ 11,049.34 21273.90 ₹ 15362
Punjab ₹ 14975 ₹14975 ₹ 34107
Rajasthan ₹ 17158.62 ₹ 33037.45 ₹ 18593
Tamil Nadu ₹29,786.36 ₹57351.09 ₹ 30544
Telengana ₹16,109 ₹ 31016.50 ₹ 7541
Tripura ₹ 1287 ₹ 2541.40 ₹ 833
Uttar Pradesh ₹65420 ₹ 125960 ₹ 25235
Uttarakhand ₹ 4,961.22 ₹ 9551.98 ₹ 9768
West Bengal ₹ 43,013 ₹ 82817.85 ₹ 18251
[Sources: Revenue in Base Year (2015-16 from state goods and services tax
department, Compensation Paid (by 20-21) from Department of Revenue, Government
of India, Ministry of Finance, Lok Sabha Unstarred Question – 2785, 21/03/2022 on
payment of GST Compensation)
The requirement for GST compensation has varied widely across States. During the
five-year transition period (July 2017 to June 2022), the top five compensation
receiving States were Maharashtra, Karnataka, Gujarat, Tamil Nadu and Punjab.
However, the States which are likely to be most adversely affected by the end of the
compensation regime are Puducherry, Punjab, Delhi, Himachal Pradesh, Goa and
Uttarakhand for which the share of GST compensation in tax revenue has exceeded 10
per cent on an average. Overall, the north-eastern States have been the biggest
beneficiaries in the GST regime, recording a compound annual GST revenue growth
77
rate of 27.5 per cent since the implementation of the GST (2017-18 to 2022-23) as
against 14.8 per cent for all States.
It is pertinent to mention here that the GST Council had endorsed the agenda in the
42nd meeting of the GST Council, for extension of levy of GST Compensation Cess
beyond the transition period i.e. beyond June, 2022 till the entire shortfall is covered
with periodic review of the extension. Thus, The GST compensation cess ended in July
2022, despite the GST Council extending the levy period until March 31, 2026, to
repay back-to-back loans taken during the pandemic to address the shortfall in
compensation cess collections.
4.5 CONCLUSION
The Goods and Services Tax Council in India is a constitutional body responsible for
making recommendations to the Union and State Governments on issues related to
GST, including tax rates, exemptions, and amendments to the GST laws. The council
meets periodically to discuss various agendas aimed at streamlining the GST regime
and addressing challenges faced by stakeholders. The key agendas which are to be
discussed by the GSTC are, firstly, simplification of tax rates and slabs for assessing
and evaluation of the GST slabs for ensuring revenue neutrality and economic stability;
secondly, to assess the exemptions and threshold limits for simplifying compliance for
small traders and promote ease of doing business, and evaluate exemptions for
maximising the revenue. These are two fundamental issues needs to be assessed by the
GSTC for accomplishing the objectives of Goods and Service Tax.
While the GSTC plays a crucial role in shaping the GST regime and addressing various
challenges, its functioning has encountered several problems over the years which can
be summed up as, uneven Representation as the GST Council aims to provide equal
representation to all states, the voting mechanism based on a two-thirds majority often
leads to larger states wielding more influence. This can marginalize the concerns of
78
smaller states and undermine the principle of cooperative federalism. However, the
barring of one GSTC, the decision-making has been done based on consensus. The
consequence of consensus building is that it results in the complex decision-making
process in the GST Council involving consensus-building among diverse stakeholders
with conflicting interests. This complexity is compounded by the need to reconcile the
revenue requirements of states with the overarching goal of promoting economic
growth and simplifying the tax system.
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CHAPTER 5: RECOMMENDATION OF THE GST COUNCIL
WHETHER BINDING OR NOT
5.1. INTRODUCTION
Article 269A explicitly uses the term “recommendation” as in the goods and services
tax on supplies levied in the course of inter-state trade or commerce which shall be
levied and collected by the Government of India and with the same being apportioned
between the Union and the States in the manner as may be provided by Parliament by
law on the recommendations of the Goods and Services Tax Council. Further, (4) states
that the Goods and Services Tax Council shall make recommendations to the Union
and the States. The Supreme Court in the case of Union of India v Mohit Minerals 127
Private Limited struck down the levy of Integrated Goods and Service Tax (“IGST”)
on Ocean Freight. The landmark judgment went on to reject the notion that GST
council decisions were binding. The Supreme Court alluded to the principles of
cooperative and fiscal federalism and held that: “the recommendations of the GST
Council transform into legislation in and of themselves under Article 246A [of the
Constitution] would be farfetched. The recommendations of the GST Council are made
binding on the Government only when it exercises its power to notify secondary
legislation to give effect to [such recommendation] in the uniform taxation system”
127
80
The Supreme Court, regarding the recommendations put forth by the GST Council,
made the following determinations:
a. The GST Council's recommendations do not hold binding force on either the Union
or the States. The Constitution suggests that Parliament intended for these
recommendations to possess only persuasive value, particularly when viewed in light
of the GST regime's objective to promote cooperative federalism.
b. Both Parliament and State legislatures have concurrent authority to legislate on GST
matters. The role of the GST Council should be understood within the context of this
concurrent legislative power outlined in Article 246A of the Constitution.
c. While the Government is obliged to follow the recommendations of the GST
Council when exercising its rulemaking authority under the CGST Act and IGST Act,
this does not imply that all recommendations made under Article 279A(4) of the
Constitution are binding on the legislature's ability to enact primary legislation.
5.2. FACTS OF MOHIT MINERALS v. UNION OF INDIA
The respondent, Mohit Mineral Pvt. Ltd., was an importer of noncoking coal from
overseas exporters by ocean transport on a ‘Cost-Insurance-Freight’ (“CIF”) basis i.e.,
the exporter was liable to bear the freight charges on the goods. This arrangement is
called CIF (“Cost-Insurance-Freight”) where the exporter pays the freight and
insurance charges. which was then supplied to domestic industries. Notification
No.8/2017- Integrated Tax (Rate) dated 28 June 2017 was issued effective from 1 July
2017, which levied IGST at the rate of 5% on the supply of services, including
transportation of goods, in a vessel from a place outside India up to the customs station
of clearance in India.
Previously, the party in question paid two forms of taxes on the freight's value: customs
duties as per the Customs Act of 1962 and the relevant IGST on the goods' value. Prior
to the implementation of the GST Acts in 2017, service tax on ocean freight was
exempt from taxation. However, with the issuance of Notification 08/2017 and
Notification 10/2017 by the Central Government, it became taxable under a Reverse
Charge Basis, wherein the recipient of the service becomes liable for tax payment.
While the appellant did not contest the IGST payment for goods transported on a Free
on Board (FOB) basis, they argued against the obligation to pay IGST for goods
transported on a Cost, Insurance, and Freight (CIF) basis, as both the recipient and
supplier were foreign entities. They claimed this contravened Article 5(3) of the IGST
81
Act. Consequently, the respondents challenged Notifications dated 08/2017 and
10/2017 as exceeding legal authority. The main point under consideration was whether
an Indian importer could be subjected to Integrated Goods and Services Tax (IGST)
on the portion of ocean freight paid by a foreign seller to a foreign shipping line, under
a reverse charge mechanism.
5.3. RATIO DECIDENDI

“The suggestions put forth by the GST Council do not carry mandatory weight for both
the Union and the States due to several reasons. Firstly, the restructuring of Article
279B and the introduction of Article 279(1) through the Constitution Amendment Act
of 2016 signify Parliament's intention for the Council's recommendations to serve as
persuasive rather than binding, especially when considering the GST regime's aim to
promote cooperative federalism and unity among its constituent entities. Secondly,
neither Article 279A nor Article 246A includes provisions indicating supremacy over
the recommendations of the GST Council. Both the Parliament and State legislatures
possess concurrent authority to legislate on GST matters, without any provisions for
resolving conflicts between Central and State GST laws. The recommendations of the
GST Council emerge from collaborative discussions involving both Union and State
representatives, maintaining a recommendatory nature. Treating them as obligatory
directives would disrupt fiscal federalism, where both Union and States share equal
legislative authority over GST matters. In Indian federalism, decision-making involves
a dialogue between cooperative and uncooperative federalism, allowing federal units
to employ various methods of persuasion, ranging from cooperation to confrontation.
Thirdly, while the Government is obliged to adhere to the GST Council's
recommendations while exercising rule-making powers under the CGST and IGST
Acts, this doesn't imply that all recommendations made under Article 279A(4)
constrain the legislature's authority to enact primary legislation. Moreover, a combined
interpretation of Sections 2(11) and 13(9) of the IGST Act along with Section 2(93) of
the CGST Act establishes that goods imported under a CIF contract are considered
interstate supplies, subject to IGST, where the importer is deemed the recipient of
shipping services.”
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5.4. ANALYSING THE JUDGMENT
The Supreme Court in the case of Union of India v. Mohit Minerals (P) Ltd128 noted
that the traditional view of interpretation of statutes is that legislative history is not
readily used in interpreting a law, the modern trend of thinking on the subject has
enabled courts to look into the history of a legislation to understand the full purport of
the words used and the mischief sought to be remedied by the law.
The court relied on K.P. Varghese v. ITO,129 this Court held that :
“8. … the speech made by the mover of the Bill explaining the reason for the
introduction of the Bill can certainly be referred to for the purpose of ascertaining the
mischief sought to be remedied by the legislation and the object and purpose for which
the legislation is enacted.”
In Kalpana Mehta v. Union of India,130 Dipak Misra, C.J. held that reports of the
Parliamentary Committees and the speeches made in Parliament can be referred to
identify the circumstances that led to the enactment of the legislation along with the
intention of the legislature :
“129. We have referred to these authorities to highlight that the reports or speeches
have been referred to or not referred to for the purposes indicated therein and when
the meaning of a statute is not clear or ambiguous, the circumstances that led to the
passing of the legislation can be looked into in order to ascertain the intention of the
legislature. It is because the reports assume significance and become relevant because
they precede the formative process of a legislation.”
Thus, The Supreme Court relied on the parliamentary debates and the legislative
history of the Constitutional amendment, for interpretating the object of the
amendment brought in the backdrop of the 101st constitutional amendment in the
Indian constitution. Thus, the court noted that the committee reports on Articles 246-
A and 279-A indicate that:
The draft of Article 279-B, in the 2011 Amendment Bill, which sought to introduce a
GST Dispute Settlement Authority to adjudicate on any dispute “arising out of
deviation” from the recommendations of the GST Council was deleted. The current
Article 279A(11) provides that the GST Council shall devise a mechanism to
128
129
(1981) 4 SCC 173 : 1981 SCC (Tax) 293]
130
(2017) 7 SCC 295 : (2017) 7 SCC 302
83
adjudicate on any dispute that “arises out” of the recommendations of the Council. The
deletion of Article 279-B while introducing the 2014 Amendment Bill and the
inclusion of Article 279(11) in the text of the Constitution has brought about two
substantial changes : one, that instead of the creation of a dispute settlement authority,
the Council is vested with the power to decide on “modalities” of dispute resolution;
and second, while Article 279-B stipulated that the authority shall adjudicate on
“disputes arising out of the deviation from the recommendations”, Article
279A(11)states that the disputes arising out of recommendations shall be resolved.
The phrase “deviation” has been omitted. Before the Select Committee of the Rajya
Sabha, the Government had stated that disputes shall be resolved by modalities
including mediation and arbitration. The Standing Committee of Finance in its report
specifically recommended the deletion of Article 279-B due to the concerns raised by
the States.
Whereas under the 2011 Amendment Bill, the GST Council could recommend only
when a unanimous decision would be reached. However, the Standing Committee of
Finance had recommended that since it would be difficult to arrive at a consensus due
to the socio-economic diversity amongst the States, the recommendations be made
with a majority instead of unanimity. While making this recommendation, the court
observed that if the GST Council functions like the present Empowered Committee
where the differences are resolved amicably in an institutional mode, it would foster
the spirit of cooperative federalism.
Indian federalism: Dialogue of cooperative federalism
The court dealt with the question of recommendation heavily. The arguments in favor
of reading the “recommendations” of the GST Council as binding are twofold 131: first,
if the GST Council cannot make binding recommendations, the entire structure of GST
will collapse as each State would then levy a conflicting tax and collection mechanism;
and second, if the recommendations are non-binding, then there would be no dispute
to be resolved under Article 279(11) as the States would be free to disregard the
recommendations.
The arguments against interpreting the “recommendations” of the GST Council as
binding on the Union and the States are twofold 132: Implementing a framework where
131
132
Ajitesh Kir, “India's Goods and Services Tax : A Unique Experiment in Cooperative Federalism
and a Constitutional Crisis in Waiting”, [2021] 69 Canadian Tax Journal 391, 445.
84
recommendations of the GST Council are binding would encounter two significant
challenges: Violation of Supremacy of Parliament and State Legislatures: Both entities
possess concurrent legislative authority over GST.
The Supreme Court noted that granting binding status to GST Council
recommendations would undermine this concurrent power structure. The court
interpreted the same leading to be in the violation of Fiscal Federalism as the GST
Council operates on a consensus basis, with the Centre holding one-third voting power
and the States collectively holding two-thirds. Any decision requiring a three-fourths
majority would necessitate the Centre's consent, preserving its authority in the
decision-making process.
“The Supreme Court underscored one crucial feature of a federal system is the
allocation of legislative authority between the central government and the states
because of the exclusive taxation powers granted to the states. This implies that the
states aren't merely delegated authority over secondary matters but hold substantive
legislative powers, reinforcing India's federal structure.”
The view that unimportant matters were assigned to the States cannot be sustained in
face of the very important subjects assigned to the States in List II, and the same applies
to taxing powers of the States which are made mutually exclusive of the taxing powers
of the Union so that ordinarily the States have independent source of revenue of their
own. The legislative entries relating to taxes in List II show that the sources of revenue
available to the States are substantial and would increasingly become more substantial.
In addition to the exclusive taxing powers of the States, the States become entitled
either to appropriate taxes collected by the Union or to a share in the taxes collected
by the Union.”
P.B. Sawant, J. writing for himself and Kuldip Singh, J. in S.R. Bommai v. Union of
India,133 referred to the exclusive and equal legislative distribution of heads of taxation
to establish the federal nature of the Indian Constitution. 134 The Constitution
Amendment Act of 2016 reshapes the legislative division between the central and state
governments regarding indirect taxation, granting them "simultaneous powers"
without provisions for repugnancy.
133
S.R. Bommai v. Union of India, (1994) 3 SCC 1
134
85
Article 246-A affirms that both Parliament and State Legislatures have equal authority
to legislate on GST-related matters. The Union contends that recommendations of the
GST Council should be binding on these legislative bodies precisely due to this equal
distribution of power. Without such binding recommendations, it argues, conflicting
central and state legislations could govern the same domain, leading to potential
impasses.
The court interpreted Article 246-A which vests Parliament and the State Legislatures
with a unique, simultaneous law-making power on GST. The court relied on Article
246A to understand the role of the GST Council gains significance. The court held that
the recommendations of the GST Council are not based on a unanimous decision but
on a three-fourth majority of the members present and voting, where the Union's vote
counts as one-third, while the States' votes have a weightage of two-thirds of the total
votes cast.
Therefore, the GST Council is not only an avenue for the exercise of cooperative
federalism but also for political contestation across party lines. Thus, the discussions
in the GST Council impact both federalism and democracy. The constitutional design
of the Constitution Amendment Act, 2016 is sui generis since it introduces unique
features of federalism. Article 246-A treats the Centre and States as equal units by
conferring a simultaneous power of enacting law on GST. Article 279-A in
constituting the GST Council envisions that neither the Centre nor the States can act
independent of the other.
The court's reliance on the principles of the dual federalism model, also known as the
autonomy model, views the constituent units of the Centre and States as autonomous,
independent, and competitive entities. This model, sometimes referred to as
competitive federalism, suggests that these units "compete" with each other.
On the other hand, proponents of the cooperative federalism model argue against
viewing each unit as a separate autonomous entity. According to the theory of
cooperative federalism, federalism aims to achieve integration rather than
autonomy. 135 While dual federalism is termed as “layer cake federalism” due to the
delineation of the structures of power, cooperative federalism is known as “marble
cake federalism” due to the integrated approach of the federal units. This Court in State
135
Robert A. Schapiro, “Justice Steven's theory of Interactive Federalism”, 74 Fordham L Rev 2133
(2006).
86
(NCT of Delhi) v. Union of India,136 has observed that India follows the model of
cooperative federalism where the Union and the State Governments need to iron out
the differences that arise in the course of the path of development. Dipak Misra, C.J.
elucidated on the concept of cooperative federalism :
“119. Thus, the idea behind the concept of collaborative federalism is negotiation and
coordination so as to iron out the differences which may arise between the Union and
the State Governments in their respective pursuits of development. The Union
Government and the State Governments should endeavour to address the common
problems with the intention to arrive at a solution by showing statesmanship,
combined action and sincere cooperation. In collaborative federalism, the Union and
the State Governments should express their readiness to achieve the common objective
and work together for achieving it.
The Indian Constitution has sometimes been characterized as quasi-federal or as
having a "centralizing drift." This perception arises because, when the Constitution is
examined as a whole, it appears to grant the Union a larger share of power.
Examples of this centralizing tendency can be found in Articles 254, 248, and 353.
However, there are also instances, such as Article 246-A, where the Centre and the
States are granted equal power. It's important to note that just because certain
provisions of the Constitution allocate more power to the Union, it doesn't mean that
provisions where federal units are meant to have equal power should be interpreted in
favor of the Union.
The court observed that both the Union and the States have simultaneous power to
legislate on GST. Thus, the GST Council has the authority to make recommendations
on various aspects of GST. Since the Constitution does not provide a mechanism to
resolve inconsistencies between Central and State laws on GST, the GST Council must
operate in a harmonious manner, as outlined in Article 279-A(6), to establish a
functional fiscal model through cooperation and collaboration.
The federal system serves as a mechanism to address the requirements of a diverse
society, allowing it to function democratically. It strives to balance the aspirations for
unity and uniformity with those for diversity and autonomy. Democracy and
federalism are mutually dependent, with federalism thriving in well-functioning
democratic environments. In a federal polity, constituent units serve as checks on each
136
87
other's power, preventing any one group from exerting dominant authority. While the
Indian Constitution is inherently federal, it does allocate a greater share of power to
the Union in certain scenarios to maintain stability and security and prevent chaos.137
The court delineated that in a system where federal units are not entirely autonomous,
they still hold significant power. The relationship between such units, although
interdependent, may not always be collaborative or cooperative in practice. Even if
states have been allocated lesser authority, they can still challenge Union mandates
through various forms of political contestation allowed by the constitutional
framework. Such contestation serves to uphold both the principles of federalism and
democracy. In instances where federal units possess unequal power, collaboration
between them may not always be cooperative. Effective decision-making relies not
only on cooperation but also on healthy contestation and dialogue.
In conclusion, Indian federalism is a dialogue in which the States and the Centre
constantly engage in conversations. Such dialogues can be placed on two ends of the
spectrum — collaborative discussions that cooperative federalism fosters at one end
of the spectrum and interstitial contestation at the other end. Jessica Bulman and
Heather K., in their essay connote interstitial contestation as “uncooperative
federalism”. 138 They argue that the States which possess lesser power could use
licensed dissent, dissent by using regulatory gaps or by civil disobedience such as
passing a resolution against the decision of the Central Government as means of
contestation. Differentiating the forms of cooperative federalism from the dissent in
uncooperative federalism, the authors state:
“We think the best proxy for distinguishing dissent from routine negotiations is
whether the State's action can be fairly understood as an effort to change national
policy. An attempt to obtain an accommodation or modification of federal policy
within the State should usually be understood as an example of cooperative
bargaining. An attempt to contest and alter national policy is rightly understood as
dissent.”
Such form of contestation or as the authors term it, “uncooperative federalism” is
valuable since “it is desirable to have some level of friction, some amount of State
137
H.M. Seervai, Constitutional Law of India, (N.M. Tripati Private Limited, 4th Edn., Vol. (1)
289;
138
88
contestation, some deliberation-generating froth in our democratic system.”.139
Absolutely, states have recourse to various forms of contestation within the framework
of Indian federalism if they find themselves at odds with decisions made by the Centre.
This ability to contest decisions ensures that federalism remains vibrant and responsive
to the diverse needs and interests of different regions. The GST Council, far from being
solely a body overseeing the indirect tax system, serves as a crucial platform for
promoting federalism and democracy by facilitating dialogue, negotiation, and
consensus-building among the Centre and the states.
Lastly, The introduction of Articles 246-A and 279-A was indeed aimed at fostering
cooperative federalism and ensuring harmony between the Centre and the states.
However, the composition of the GST Council, where the Centre holds a one-third
vote share, along with the absence of a repugnancy provision, suggests that the
recommendations of the Council cannot be inherently binding.
This interpretation is crucial not only to maintain the delicate balance of Indian
federalism but also to uphold the principles of collaboration and contestation upon
which the GST Council operates. While some may argue that non-binding
recommendations could undermine the GST structure, such concerns are outweighed
by the need to preserve the integrity of federal decision-making processes and ensure
that all voices, both from the Centre and the states, are heard and respected within the
Council.
Interpretation of “recommendation”
“The contention of the Union was that the recommendations of the GST Council are
binding since Parliament and the State Legislatures have agreed to align themselves
with the recommendations as is evident from the provisions of the IGST Act and the
CGST Act. Certain provisions of the IGST Act, the CGST Act, and the SGST Acts
expressly provide that the rule-making power delegated to the Government shall be
exercised on the recommendations of the GST Council.”
“Section 5 of the IGST Act stipulates that the taxable event, taxable rate, and taxable
value must be notified by the Government based on the "recommendations of the
Council." Additionally, under Section 6 of the IGST Act, the Central Government's
authority to exempt goods or services, or both, from the levy of tax is contingent upon
the recommendations of the GST Council.”
139
89
Section 22 provides that the Government may exercise its rule-making power on the
recommendations of the GST Council. The CGST Act also provides for similar
provisions in Sections 9, 11 and 164.
The Supreme Court ruled that the provisions of the IGST Act and the CGST Act, which
mandate that the Union Government act on the recommendations of the GST Council,
should be interpreted in light of the purpose of creating a uniform taxation system. The
introduction of GST aimed to standardize taxation across states to eliminate variations
in tax slabs and exemptions.
Thus, when the Union Government exercises its power to notify secondary legislation
to implement the uniform taxation system, the recommendations of the GST Council
become binding. Under Article 279-A, the GST Council has broad recommendatory
powers on GST-related matters, extending beyond the rule-making power under the
IGST and CGST Acts. However, not all recommendations made by the GST Council
carry binding force. Only those specifically mandated by the IGST and CGST Acts
are binding on the Government. This has been essential to recognize that the
Constitution, being the supreme law of the land, cannot be interpreted based solely on
provisions of primary legislation. The legislature's constituent power, used to amend
the Constitution, holds precedence over its legislative power. Even if Parliament enacts
laws making certain GST Council recommendations binding for notifying secondary
legislations, it doesn't imply that all recommendations made under Article 279-A hold
binding force on the legislature.
With this background and context, the court proceeded to analyse the scheme of the
GST legislation and whether the impugned levy, was imposed on the recommendations
of the GST.
The court noted that the legislature is required to perform its essential legislative
functions. Once the skeletal structure of the policy is framed by the legislature, the
details can emerge through delegated legislation. 140 It is a settled position that the
legislature cannot delegate its “essential legislative functions”. 141 The essential
legislative functions with respect to the GST law are the levy of tax, subject-matter of
tax, taxable person, rate of taxation and value for the purpose of taxation. 142
140
MCD v. Birla Cotton Spg. & Wvg. Mills, AIR 1968 SC 1232;
141
Delhi Laws Act, 1912, In re, 1951 SCC 568; Edward Mills Co. Ltd. v. State of Ajmer, AIR 1955
SC 25; A.N. Parasuraman v. State of T.N., (1989) 4 SCC 683.
142
Avinder Singh v. State of Punjab, (1979) 1 SCC 137.
90
In Conclusion, the Supreme Court ruled that the recommendations of the GST Council
are not legally binding on either the Union or the States. This decision was based on
the deletion of Article 279-B and the inclusion of Article 279(1) by the Constitution
Amendment Act, 2016, which indicates that Parliament intended for the
recommendations of the GST Council to only carry persuasive value. This
interpretation aligns with the objective of the GST regime to promote cooperative
federalism and harmony among the constituent units. Article 279-A does not begin
with a non-obstante clause, and Article 246-A does not state that it is subject to the
provisions of Article 279-A. Both Parliament and the State Legislatures have
concurrent power to legislate on GST, and there is no provision in Article 246-A to
resolve inconsistencies between central and state laws on GST. The recommendations
of the GST Council are the result of collaborative dialogue between the Union and the
States and are of a recommendatory nature. Treating them as binding directives would
disrupt fiscal federalism, where both the Union and the States have equal legislative
authority over GST. In Indian federalism, it is not necessary for one federal unit to
always have greater decision-making power. Instead, federalism operates as a dialogue
between cooperative and uncooperative federalism, where federal units have the
freedom to employ various means of persuasion, from collaboration to contestation.
5.4. IMPLICATION OF THE JUDGMENT
A legal challenge to two notifications issued by the union government on the taxation
of ocean freight led to the extent that the very governance structure of the Goods and
Services tax (GST) Council was in put under scrutiny.
This is the finding that could potentially lead to the unraveling of the GST Council
itself, and in this column, I argue that though the Supreme Court’s interpretation of
“recommendation” is legally tenable, its consequences have not been fully appreciated
by the Court. Part of the problem has been the underlying flaw in the design of
the GST Council that, while paying lip service to cooperative federalism, has created
the basis for many unions–state conflict on this matter. While the Gujarat High Court
did go into a discussion on the history of the GST and how it came in India, the basis
for the decision remained the union government’s lack of legal authority to issue the
notification under the IGST Act. In the Supreme Court, however, the union
government took an additional ground for defending the legal validity of the two
notifications—that they have been issued on the basis of the recommendation of
91
the GST Council, which is binding on the union and state governments (apart from the
legislatures themselves). This contention, however, did not find favour with the union
government.
In the Court’s view, a “recommendation” cannot be binding since it would upset

the GST framework and the larger federal structure of the Constitution. In one sense,
the Supreme Court was caught in a cleft stick, not of its own-making. On the one hand,
interpreting the recommendation to mean a “binding direction” on the union and state
legislatures would fundamentally undermine the democratic and federal character of
the Constitution. Especially, given that the GST Council allows the union a de facto
veto over its decisions. This would have amounted to the state legislatures being put
in a subordinate position to the union, acting through the GST Council. Such a state of
affairs would go against the basic features of the Constitution, and large parts of the
101st Amendment Act would have had to be struck down as a consequence.
On the other hand, by treating the recommendations as “non-binding,” the Court kept
the provisions of the 101st amendment alive but substantially diluted them. The Court
considered the other places where the Constitution uses the word “recommendation”
and notes that in certain instances they are intended to be binding, but in certain
instances, not necessarily so.
In the specific context of the 101st Amendment, the Court relies on the principles of
federalism to hold that the “recommendations” of the GST Council are just non-
binding on either the union government or the state legislatures.
The GST Council is so structured as to allow for majority decision-making between

the union and states; it needs such decisions to be binding in order to ensure uniformity
in the GST system. Given that there is no requirement for the union and states to
compromise and arrive at a consensus, there has to be some way to get states that
disagree to follow the decision of the majority. This was done by making the term
“recommendation” binding and having a disputes settlement mechanism to address
among states or between the union and states in relation to the implementation of
the GST Council’s recommendations.
Without this mechanism, the states will be free to interpret and apply
the GST Council’s recommendations as they see fit, let alone instances where they
might ignore it entirely. This argument was raised by the union but brushed by the
92
Court somewhat unsatisfactorily in a long discussion about competitive and
cooperative federalism. The Court hopes that the ideal situation it paints of the union
and states working together in harmony on their own, while using the GST Council as
only a site of political contestation—without fundamentally dismantling
the GST structure for their own ends—will prevail.
In Conclusion, the Supreme Court emphasized the pivotal role of the GST Council in
the implementation and administration of the GST regime. The Court reaffirmed the
constitutional framework that established the Council as a deliberative body
comprising representatives from both the Union and State governments, tasked with
formulating policies and making recommendations on various GST-related matters.
Furthermore, the Court underscored the importance of cooperative federalism in the
functioning of the GST Council. It recognized that the Council operates as a forum for
consensus-building and decision-making, wherein the diverse interests of the Union
and State governments are harmonized to promote the overarching objectives of the
GST regime, including streamlining taxation, fostering economic growth, and
ensuring equitable distribution of tax revenue.
Thus the judgment highlighted the need for a balanced interpretation of the provisions
governing the powers and functions of the GST Council. While affirming the Council's
authority to recommend tax rates and other measures, the Court emphasized the
importance of respecting the constitutional autonomy of the Union and State
governments in matters of taxation. Overall, the conclusion Supreme Court reaffirmed
the significance of the GST Council as a key institutional mechanism for cooperative
decision-making in the realm of indirect taxation. It underscored the principles of
federalism, cooperation, and consensus-building as essential pillars of the GST
framework, ensuring a harmonized approach to tax policy and administration across
the country.
CHAPTER 6: CONCLUSION & SUGGESTIONS

6.1. CONCLUSION
The principle of federalism has been enshrined within the Constitution with provisions
demarcating the functioning of the state and union within their respective assigned
power as conferred by the Constitution. Taxation is a peculiar subject for the
93
functioning of the state, and within a federal democratic framework fiscal sovereignty
of the states is one of the inherent traits of federalism. Federalism in India espouses a
strong centre, even though the constitution demarcates the separation of subjects on
which political constituents can make laws. The Supreme Court in the plethora of
judgments recognised the federal character of the Indian constitution as part and parcel
of the basic structure.143 The federal character of the constitution can be recognised
from the provisions of the constitution which exhibits autonomy in policy-making on
the subject conferred by the constitution. The nature of federalism is of collaborative
because the fundamental principle of the constitution is to work in a cooperative
manner with political constituents i.e., state and union being equal partners based on
negotiated cooperation for achieving the common aims and resolving the outstanding
problems. Thus, the idea behind the concept of collaborative federalism is negotiation
and coordination so as to iron out the differences which may arise between the Union
and the State Governments.144
The making of Goods and Service Tax has been a textbook example of federalism
transforming from theory into practice. The process which culminated in the passing
of the 101st Constitutional Amendment Act, 2016 evolved around extensive debates
and deliberations for streamlining the indirect taxes, without undermining the federal
character of the Constitution. The constitutional amendment established GSTC for
making recommendations on the subjects of GST. The Constitution of India
demarcates the legislative power over taxation. The evolution of cooperative
federalism has been influenced by developments in fiscal federalism. The principle of
decentralization has been a fundamental aspect of fiscal federalism. 145 The Supreme
Court in the case of Union of India v. Mohit Minerals (P) Ltd.,146 held that one of the
important features of Indian federalism is “fiscal federalism”.
The clear demarcates the law-making power by enforcing the principle of fiscal
federalism. However, the principle gets diluted when the autonomy of the state is
diluted by transferring a subject from the state list to the union list. Thus, the usage of
constitutional amendment not only enlarges the law-making power of the Union but
143
144
State (NCT of Delhi) v. Union of India
145
146
94
also enlarges the capital expenditure of the Union on the subjects of state government.
These overreaching policies not only tend to dilute the state autonomy, but further
extend to contest and confrontation.
The GST Council was established under the 101st Constitutional Amendment, 2016
for purpose of making recommendations to the union, states, and UT with the
legislature. The composition of the GSTC depicts a joint forum of centre and states
exhibiting collaborative federalism. Although, the GSTC prescribes the voting
weightage and division as a medium for making of the recommendations. The GSTC
has adhered to the harmonious manner for discussion and deliberation barring one
exception of 38th GST Council Meeting wherein the resolution was put on the vote.
However, the GSTC has adhered to collaborative federalism by ironing out the
differences by setting up GoM, and reluctant on the passing of the resolution on the
basis of the division. The veto power was provided in the 114th Constitution Bill, 2011
which was later recommended by the standing committee in 2013 that the voting shall
be the method employed rather than consensus. The 101 st Constitution Amendment,
2016 provides the weightage system on voting i.e., 1/3 rd shall be voting weightage of
the Union whereas 2/3rd shall be the voting weightage of the states with the
requirement of super-majority i.e., 3/4th to be exercised for passing of the resolution.
The criticism of the unequal voting power is that the weightage system provides a veto
power to the union. However, the reason for the veto power being subscribed with the
union is that the feasibility of the taxation policy without union in the favour shall be
inadequate and unrealistic.
The questions have been on the nature of the recommendation of the GST Council.
The Supreme Court held that a “recommendation” cannot be binding as it would
disrupt the GST framework and the broader federal structure of the Constitution. The
Supreme Court found itself in a difficult position, not of its own making.
On one hand, interpreting the recommendation as a “binding direction” for the union
and state legislatures would fundamentally undermine the Constitution's democratic
and federal character. This is particularly problematic given that the GST Council
effectively grants the union a veto over its decisions. Such an interpretation would
place state legislatures in a subordinate position to the union, acting through the GST
95
Council. This scenario would violate the Constitution's basic features, potentially
necessitating the invalidation of large parts of the 101st Amendment Act.
Thus, The Supreme Court by treating the recommendations as “non-binding,” the

Court kept the provisions of the 101st amendment alive but substantially diluted them
by stating that the use of the phrase “recommendations to the Union or States”
indicates that the GST Council is a recommendatory body aiding the Government in
enacting legislation on GST.
The interpretation of recommendation clarifies the law. However, the fact that the
decision in the GST Council have predominantly been reached through consensus
through minimizing the friction and scope for dissatisfaction among the states. The
exceptional case of 38th GST Council Meeting which was brought upto division, the
GSTC decided to review the tax system six months after implementation, possibly
aimed at appeasing dissenting voices from smaller states like Goa and Sikkim.
In favor of the Against the Abstained

Proposal Proposal
Do you support the proposal 21 7 3
to levy a uniform rate of tax
on the State Run Lottery
and the State Authorised
Lottery?”.
The decision to review suggests consensus as the underlined principle for the
functioning of the GSTC. Thus, the Council is guided by the need for a harmonized
structure of goods and services tax which can only be opted when there is a
collaboration and consensus with the political constitents.
For over half a decade, the GST Council has been instrumental in reshaping India's
fiscal landscape as the GSTC serves as a collaborative platform for discussions
between the union and states, showcasing a model for cooperative decision-making
within a diverse federal system.
96
Out of the 49 scheduled meetings, 10 extended across two days each, with seven
occurring before the GST implementation on July 1, 2017. Notably, there were four
pairs of meetings with intervals exceeding 100 days between them. The longest
interval was 227 days between the 42nd and 43rd meetings. Such lengthy breaks can
disrupt momentum and slow down decision-making processes. Moreover, subsequent
meetings tend to be overloaded with agendas, creating a stressful atmosphere and
leading to less effective outcomes. For instance, the 43rd meeting addressed 18
agendas in a single day, an impractical number for thorough deliberation. Other
notable intervals include 178 days between the 46th and 47th meetings, 170 days
between the 47th and 48th meetings, and 104 days between the 45th and 46th meetings.
Infrequent meetings risk missing potential opportunities
The regularity and frequency of council meetings are crucial, especially when timely
decisions are paramount. Irregular meetings, coupled with a decline in frequency, not
only impede decision-making but also diminish the momentum established in previous
sessions.
Number of Full Attendance More than 75% Less than 75%

Meeting
51 1 20 30
The GSTC is a forum of discussion and deliberation on the subject matter pertaining
to be of importance for the fiscal decision making of the state. The 51 GSTC Meeting
have only 20 meeting with more than 75% of attendance, and 30 meeting with less
than 30% of attendance. The significance of each policy align with the priorities of
states and union territories can only be possible if there is a threadbare discussion by
the direct as well indirect stakeholders. The lack of participation from certain members
diminishes collective wisdom and regional perspectives in the decision-making
process. Northeastern states like Nagaland, Sikkim, Mizoram, Tripura, Meghalaya,
and Arunachal Pradesh show lower ministerial involvement in the GST Council.
Decisions made without their input may not effectively address the diverse economic,
social, and cultural contexts of various states in India. Infrequent meetings, numerous
agendas, limited state participation, and absences from other stakeholders impedes the
inclusive growth of the GST Council.
97
There is a need for rationalising the GST tax rate. Thus, the GSTC in the 45th GSTC
meeting established the GoM on GST rate rationalization in September 2021. 147 In the
45th meeting of the GST Council in September 2021, the Council formed a Group of
Ministers (GoM) focused on GST rate rationalization. The objectives of the GoM
ranges from simplifying the GST rate structure, correcting the inverted duty structure,
review the GST exemption list, increase GST revenues, and reduce classification-
related disputes. The need to rationalising of the tax rates has been because of five-rate
taxation system, dropping of weighted GST from 14.4 per cent at the time of inception
to 11.6 per cent in 2019. The has been majorly because of the series of tax cuts, that
the GoM is reviewing the GST exemption list.148 The problem with dropping of
weighted GST below 14.4 which was already below 15-15.5 benchmark is that the
same fiscal capacity of the states will be put on constraint once the compensation for
the GST rollout has been ceased. Thus, the increasing of the GST revenue must be by
employing a taxation rate wherein the weight GST is near to RNR.
This is backed by the suggestion of the Revenue Neutral Rate (RNR) Committee,
which approximated the RNR (a uniform rate ensuring current revenue levels) for the
entire country to be between 15% and 15.5%. However, internal assessments within
states indicate a higher RNR of 18.3%. In contrast, the Reserve Bank of India (RBI)
reported the weighted GST rate to be merely 11.6% as of June 2021. The consistent
decrease in the effective tax rate under GST (11.6%) adds complexity, particularly
when compared to the state's RNR of 18.3%.
The GST Council has opted to defer, then to decide on the matter of divisions.
According to Article 279A (5) of the Constitution, the Goods and Services Tax Council
will propose the date for imposing GST on petroleum crude, high-speed diesel, motor
spirit, natural gas, and aviation turbine fuel. Hence, although these petroleum products
are constitutionally part of GST, the timing of their inclusion is decided by the GST
Council. As per Section 9(2) of the CGST Act, bringing all currently excluded
petroleum products, such as petrol and diesel, into the ambit of GST necessitates a
147
Ministry of Finance, “Recommendations of 45th GST Council Meeting (PIB 17 SEP 2021) <
https://pib.gov.in/PressReleasePage.aspx?PRID=1755925#:~:text=The%20Council%20decided
%20to%20set,of%20revenue%20augmentation%2C%20from%20GST.> accessed 22 May 2024
148
Ministry of Finance, Economic Survey 2022-23, Government of India [2023]
98
recommendation from the GST Council. The concerns of the states are, firstly, loss of
revenue and secondly, loss of autonomy.
Excise Duty Petrol
April 17 % Share of Feb 21 % Share of

Total Total
Taxes devolved 9.48 44% 1.4 4%

to states
Cess and 12 56% 31.5 96%

surcharge levied
by centre
Excise Duty Diesel
April 17 % Share of Feb 21 % Share of

Total Total
Taxes devolved 11.33 65% 1.8 6%

to states
Cess and 6 35% 30% 94%

surcharge levied
by centre
The five petroleum products namely crude oil, motor spirit, diesel, aviation turbine
fuel and natural gas are presently outside the ambit of GST. It has been observed that
the nature of taxation over the said goods has been fundamentally changed. Levy of
cess and surcharge has led to reduction in tax component of Excise Duty by 40% in
petrol and by 60% in diesel. Because these levies are not included in the devolution as
advised by the 15th Finance Commission, this practice has caused a decrease in the
99
allocation of funds to the States, despite a notable rise in excise duty collection from
these products. Consequently, there's a necessity to reassess the system of imposing
cesses/surcharges on the excise duty of these products.
Firstly, the union has increased the cess and surcharges, and subsequently diminished
the part which requires to be devolve to the states. Secondly, the reason for the same
can be understood as accumulation of capital without the liability to share the revenue
with the states. This has been a reason for increment in cess and surcharge by 500%
from 2017 to 2021. The states too tax the petrol and diesel, with the breakup being
around 54% of the retail price of petrol comprises central and states taxes. For diesel,
this figure stands at approximately 49%. Petroleum product production is taxed by the
central government, whereas their sale is taxed by states. The central government
imposes an excise duty of Rs 32.9 per litre on petrol and Rs 31.8 per litre on diesel.
These duties constitute 31% and 34% of the current retail prices of petrol and diesel,
respectively. The states taxes on petroleum varies, and goes upto 35%. Thus, the
concerns are with the states losing potential revenues even with the highest GST rate
of 28%.
There have been problems with the IGST settlement i.e., dispersal of claim to the
states. The audit of Union accounts for the fiscal years 2017-18 and 2018-19 revealed
misclassifications in revenue expenditure, the implementation of an erroneous method
for apportioning IGST to states, insufficient transfer of cesses to Reserve Funds, and
failure to reconcile transactions in suspense related to Defence pensions. These
discrepancies affect deficit calculations. The Audit of Union Accounts for 2017-18 and
2018-19, disclosed misclassification of revenue expenditure, adoption of an erroneous
process of devolution/apportionment of IGST to states, short transfer of cesses to
Reserve Funds and non-adjustment of transactions in suspense relating to Defence
pensions, which have an impact on deficit calculations. 149
As per the scheme of IGST, revenues collected as IGST are to be apportioned between
States and the Centre after making settlements for cross-utilisation of IGST for
CGST/SGST, refund payments etc. There is no provision for assignment of share of
149
Report of the Comptroller and Auditor General of India on Compliance of the Fiscal
Responsibility and Budget Management Act, 2003 for the Year 2017-18 and 2018-19, Union
Government, Department of Economic Affairs (MInistry of fInance), Report No. 6 of 2021
100
net proceeds of IGST to States, and devolution to States is to be done only from the
share of the Centre of IGST as per Finance Commission formula. However, this
procedure was not followed both during 2017-18 and 2018-19 as reported in the
CAG’s Audit Report No.2 of 2019 on the Union Accounts of 2017-18 and later
elaborated in CAG’s Report No 11 of 2019 for 2017-18 and in Report No.4 of 2020
on the Union Accounts for 2018-19.
“In 2017-18 after settlement of ITC (Input Tax Credit) cross utilisation from IGST,
apportionment of IGST and advance apportionment, there was a balance of `1,76,688
crore of which `67,998 crore was devolved to States and `1,08,690 crore was retained
un-apportioned in the consolidated fund of India. Audit had held that the devolution
was not consistent with the scheme of GST/IGST. Instead, IGST was to be apportioned
as per the procedure prescribed in the IGST Act and devolution was to be made to the
States/UTs only from the Centre’s share of IGST. Audit of the Union Accounts of
2018-19, revealed that the erroneous process of devolution had continued and `15,001
crore had been devolved to the States/UTs. It was also noted that `13,944 crore was
left un-apportioned and retained in the CFI, though a process of ad-hoc apportionment
existed. Ministry stated (June 2020) that a Group of Ministers has been constituted to
examine the issue of IGST settlement and corrective action has been taken to redress
the anomaly. In course of the audit of 2019-20 accounts it has been noted that the
Ministry has computed the amount of IGST15 due to States and UTs pertaining to
2017-18, to be `57,450 crore. The Ministry has initiated a process of
adjustment/payment in the accounts for FY 2019-20 which is separately under
review.150”
“However, The Union have always contended that here has been no delay in
transferring of IGST to the States including the State of Tamil Nadu. GST collection
consists of CGST, SGST and IGST. CGST is credited to Consolidated Fund of India
(CFI) while SGST is credited to the Consolidated Fund of respective States. IGST is
being levied and collected by the Centre. The IGST (Domestic + Imports) so collected
is apportioned / settled between the Union and the States/UTs on monthly basis (by
the end of every month), on the basis of place of consumption and cross utilization of
ITC (Input Tax Credit) as envisaged under Goods and Services Tax Settlement of
150
Ibid
101
Funds Rules, 2017. For the amount of IGST remaining un-apportioned,
provisional/advance settlement is done from time to time on an ad-hoc basis between
Centre and States/UTs in the ratio of 50:50.”
“The government has extended the goods and services tax (GST) compensation cess
until March 31, 2026. Originally scheduled to end on June 30, 2022, the cess was
extended last September by the GST Council to help states repay loans taken to cover
the shortfall in compensation cess collections due to the pandemic. While the
compensation to states ends on June 30, the cess will continue to address shortfalls
from the past two years. The notification, effective July 1, allows the compensation
cess to persist on various goods until March 2026.”
“This cess applies to goods such as automobiles, air conditioners, and "sin goods" like
aerated drinks, coal, pan masala, and cigarettes, attracting the highest 28% GST. The
problem with the Cess on these the rate of Compensation Cess was earlier a part of the
State taxes. For example, cigarettes attracted Basic Excise Duty (BED) and Additional
Excise Duty (AED) as Central taxes in pre-GST regime and the rates were according
to the length of cigarettes. VAT @ 33% was levied on cigarettes in the State of Punjab.
Under GST regime, cigarettes are taxable @ 28%., while the rate of State Goods and
Services Tax (SGST) is only 14%. This has also resulted in revenue shortfall for the
State.151”
6.2. SUGGESTIONS
1. The 1/3rd of GoM reports has been deferred since the constitution of the GST
Council. Thus, there is a need for impact assessment for conducting regular
assessments of the impact of GST policies and decisions on various
stakeholders, including businesses, consumers, and the economy as a whole.
This can help identify areas for improvement and inform future decision-
making.
151
MEMORANDUM TO GOODS AND SERVICES TAX COUNCIL A Case for Extending Goods
and Services Tax (GST) Compensation: Punjab
102
2. The Petroleum products should be included within the ambit of GST. The same
should be carried forward through a "grand bargain approach" wherein both
the States and Union concede and compromise. The Union would need to
compensate for the revenue loss, and states could impose a cess on petroleum
products to offset the shortfall. Thus, the transition can be possible to include
petrol in the 28% tax rate and impose a compensation cess to offset the revenue
loss.
3. There is a need for reviewing the GST exemption list, and constrain the
populist tax measure and monitor the tax rate in a pragmatic manner. There is
a need to maximise the revenue by finding a balance between high-taxes and
high-coverage. This, to attain economies of scale for raising the revenue for
Union as well as states,
4. There is a need to amend the tax structure, synchronise the taxation rate
structure with norms in alignment with the idea of ‘a good and simple tax’.
Thus, rate structure the goods and services of 12% and 18% can be merged into
a single slab. Thus, proposing a GST featuring only three slabs: zero, 5%, and
a standard rate, with luxury and sin goods being the exceptions.
5. There is a need to increase the weighted GST rate for making the state self-
independent on raising of revenue and not depending on compensation from
the Union.
BIBLIOGRAPHY
ARTICLES
A.H. Birch, Federalism, Finance, and Social Legislation in Canada, Australia, and the
United States (1955).
103
Ajitesh Kir, India's Goods and Services Tax : A Unique Experiment in Cooperative
Federalism and a Constitutional Crisis in Waiting, Canadian Tax Journal, 69(2),
(2021) 69
Alok Prasanna, For a Mess of Potage: The GST's Promise of Increased Revenue to
States Comes at the Cost of the Federal Structure of the Constitution, National Law
School of India Review, 28(2), (2016)
Andrian Sawye, New Zealand's successful experience introducing GST: Informative
guidance for Hong Kong?, Hong Kong Law Journal 43 Hong Kong L.J., (2013)
B.P.R. Vithal, M.L. Sastry Fiscal Federalism in India (2001)
Bogetic, Zeljko and Fareed Hassan, Determinants of Value-Added Tax Revenue: A
Cross-Section Analysis, The World Bank Working Paper No.1203. (1993)
C.A. Upender Gupta, Integrated Goods and Services Tax, National Law School of
India Review, Volume 28 Issue 2 Article 9, (2016)
Chanchal Kumar Sharma, The Political Economy of India’s Transition to Goods and
Services Tax, German Institute of Global and Area Studies, (2021)
Fasih Raghib Gauhar and Shamsul Rahman, Indian Political System and Concept of
Cooperative Federalism; An Analysis in the light of Constitution of India, 28 ALJ
(2020-21) 95, 104
IL Jalaja, GST And ITS Implications on Indian Economy, Dept. of Commerce St.
Mary’s Centenary Degree College, Secunderabad, IOSR Journal of Business and
Management (IOSR-JBM) e-ISSN: 2278-487X, p-ISSN: 2319-7668 PP 67-73, (2017)
Jessica Bulman-Pozen and Heather K. Gerken, Uncooperative Federalism, Yale Law
Journal, Vol. 118. No. 7, pp. 1256-1310, (2009)
Manish Tiwari and Rakhi Saxena, The Supreme Court of India: The Rise of Judicial
Power and the Protection of Federalism, Courts in Federal Countries, Federalists or
Unitarists? University of Toronto Press, (2017)
Morton Grodzins, "The Federalism in Perspective, Little Brown & Company, Boston
p. 261, (1967)
P.C. Das, Understanding Federalism in India, The Indian Journal of Political Science,
October-December, 2015, Vol. 76, No. 4 (October-December, 2015), pp. 779-781
Richard A. Musgrave, Economics of Fiscal Federalism, Nebraska Journal of
Economics and Business , 10(4), (1971)
104
Robert A. Schapiro, “Justice Steven's theory of Interactive Federalism”, 74 Fordham
L Rev 2133 (2006)
V. Dhanapaln, “Basic Structure of the Indian constitution - An Analysis” 8 SCC (J) 2
(2014).
Federalism, Finance and Social Legislation in Canada, Australia and the United States,
p. 305
BOOKS
B.P.R. Vithal, M.L. Sastry Fiscal Federalism in India (2001)
Durga Das Basu, Introduction to the Constitution of India 369 (22nd ed.)
H.M. Seervai, Constitutional Law of India (Vol.I) 286 (Universal Law Publishing,
New Delhi, 2008)
Jain, 1968
Martin Painter, Collaborative Federalism : Economic Reform in Australia in the 1990s,
Cambridge University Press, 2009.
M.P. Singh, Outlines of Indian Legal and Constitutional History 169 (Wadhwa and Co,
Nagpur, 2003)
M.V. Pylee, Constitutional Government in India 29 (S. Chand & Company, New Delhi,
2011).
Pratiyogita Darpan, Indian Polity, 76 (2003).
COMISSION & COMMITTEE REPORTS
Srinivasan Committee, 2002.

Bagchi Committee, 2001
Thirteenth Finance Commission 2010–2015 Volume I: Report, (2009)
Thirteenth Finance Commission 2010–2015, Volume I, December 2009
Report of the Task Force on Implementation of the Fiscal Responsibility and Budget
Management Act, Ministry of Finance, Government of India, (2003)
STATUTUES
Constitution of India
115th Constitution Amendment Bill
105
122nd Constitution Amendment Bill
GST Council Procedure Rules, 2016
The Goods and Services Tax (Compensation to States) Act, 2017
ONLINE RESOURCES
 Srinivas Kotni, Supreme Court’s judgment on GST Council: Does it promote

or hinder cooperative federalism?, The Leaflet, May 31, 2022,
https://theleaflet.in/supreme-courts-judgment-on-gst-council-does-it-promote-
or-hinder-cooperative-federalism/
 Centre for Tax Policy and Administration, New Zealand VAT rate 2022, OECD
Consumption Tax Trend 2022,
https://www.oecd.org/tax/consumption/consumption-tax-trends-new-
zealand.pdf
 Centre for Tax Policy and Administration, New Zealand VAT rate 2022, OECD
Consumption Tax Trend 2022,
https://www.oecd.org/tax/consumption/consumption-tax-trends-new-
zealand.pdf
 https://gstcouncil.gov.in/sites/default/files/Signed%20Minutes%20-
%2038th%20GST%20Council%20Meeting.pdf
 Memorandum to Goods and Services Tax Council: A Case for Extending
Goods and Services Tax (GST) Compensation: Punjab
https://prsindia.org/theprsblog/petrol-and-diesel-prices
 Nistula Hebbar, ET Bureau, Let voting rather than consensus run GST council:
Panel, Jun 27, 2013 <
https://economictimes.indiatimes.com/news/economy/policy/let-voting-
rather-than-consensus-run-gst-council-
panel/articleshow/20790297.cms?from=mdr>
 PTI, Requirement of 50% states ratifying GST bill complete, Economic Times,
Sep 01, 2016,
https://economictimes.indiatimes.com/news/economy/policy/requirement-of-
50-states-ratifying-gst-bill-complete/articleshow/53963756.cms?from=mdr
106
 Press Information Bureau, Nandan Nilekani Submits TAGUP Report to the
Finance Minister, Government of India, Ministry of Finance, February 04,
2011, https://pib.gov.in/newsite/PrintRelease.aspx?relid=76960
 Ministry of Finance, “Recommendations of 45th GST Council Meeting (PIB
17 SEP 2021) <
https://pib.gov.in/PressReleasePage.aspx?PRID=1755925#:~:text=The%20C
ouncil%20decided%20to%20set,of%20revenue%20augmentation%2C%20fr
om%20GST.>
 Chiranjivi Chakraborty, ET Online, Rajya Sabha passes historic GST
Constitution Bill, Aug 04, 2016,
https://economictimes.indiatimes.com/news/politics-and-nation/rajya-sabha-
passes-historic-gst-constitution-bill/articleshow/53528735.cms?from=mdr
 RBI, Fiscal Position of the II State Governments, Jan 16, 2023
https://m.rbi.org.in/Scripts/PublicationsView.aspx?id=21635
 Press Information Bureau, Nandan Nilekani Submits TAGUP Report to the
Finance Minister, Government of India, Ministry of Finance, February 04,
2011, https://pib.gov.in/newsite/PrintRelease.aspx?relid=76960
 Shishir Sinha, GST Council: collective consensus, The HinduBusiness Line
November 13, 2023, https://www.thehindubusinessline.com/news/gst-council-
collective-consensus/article67427328.ece
 PIB, Cabinet approves creation of GST Council and its Secretariat ; First
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national Capital, Ministry of Finance, Sep 12, 2016 <
https://pib.gov.in/newsite/PrintRelease.aspx?relid=149732>
ONLINE DATABASE
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FUNCTIONING OF THE GST COUNCIL:

A Dissertation submitted to Rajiv Gandhi National University of

RAJIV GANDHI NATIONAL UNIVERSITY OF LAW, PUNJAB

Place: Signature of the Student

Rajiv Gandhi National University of Law, Punjab

I wish her success in future endeavours.

Dr Manoj Kumar Sharma

Associate Professor of Law

Rajiv Gandhi National University of Law, Punjab

9. Delhi Laws Act, 1912, In re, 1951 SCC 568

1.3. STATEMENT OF PROBLEM ................................................................................. 10

1.4. RESEARCH OBJECTIVES .................................................................................... 10

1.5. SCOPE OF THE STUDY ........................................................................................ 10

1.6. RESEARCH QUESTIONS ..................................................................................... 11

1.7. HYPOTHESIS ........................................................................................................ 11

1.8. RESEARCH METHODOLOGY ............................................................................. 11

1.9. CHAPTERISATION ............................................................................................... 11

CHAPTER 2: INDIAN FISCAL FEDERALISM ........................................................... 12

2.2. FEDERALISM IN THE INDIAN CONSTITUTION ............................................... 13

2.3. JUDICIAL PERSPECTIVE ON FEDERALISM ..................................................... 20

2.4. FISCAL FEDERALISM ......................................................................................... 28

2.5. CONCLUSION ....................................................................................................... 31

CHAPTER 3: GST UNDER THE INDIAN CONSTITUTION...................................... 33

3.2. HISTORY OF GST ................................................................................................. 34

3.3. 115th CONSTITUTIONAL AMENDMENT............................................................. 38

3.4. COMPARISON OF RECOMMENDATIONS OF VARIOUS BODIES ON

3.5. 122nd CONSTITUTIONAL AMENDMENT ............................................................ 44

3.6. COMPARISON OF THE 2014 BILL, 2011 BILL, AND THE

CHAPTER 4: ROLE OF THE GST COUNCIL ............................................................. 55

4.2. GST COUNCIL IN THE INDIAN CONSTITUTION .............................................. 58

4.3. PROCEDURE & CONDUCT OF BUSINESS REGULATIONS OF THE GST

4.4. PASSING OF RESOLUTION IN MEETING .......................................................... 65

4.5. ANALYSING 38th GST COUNCIL MEETING ..................................................... 66

4.6. ROLE OF GoM ....................................................................................................... 71

4.5 CONCLUSION ........................................................................................................ 78

CHAPTER 5: RECOMMENDATION OF THE GST COUNCIL WHETHER

5.2. FACTS OF MOHIT MINERALS v. UNION OF INDIA .......................................... 81

5.3. RATIO DECIDENDI............................................................................................... 82

5.4. ANALYSING THE JUDGMENT ............................................................................ 83

5.4. IMPLICATION OF THE JUDGMENT ................................................................... 91

CHAPTER 6: CONCLUSION & SUGGESTIONS ........................................................ 93

6.2. SUGGESTIONS ................................................................................................... 102

BIBLIOGRAPHY .......................................................................................................... 103

The role of the GST Council is to issue “recommendations” on a range of matters

1.2. LITERATURE REVIEW

Author, Chanchal Kumar Sharma, 24 in The Political Economy of India’s Transition to

Author, Andrian Sawyer, 26 in the article New Zealand's successful experience

Author, Aslam P S Libison K B, in Demystifying GST Council Meetings Deliberations

1.3. STATEMENT OF PROBLEM

1.4. RESEARCH OBJECTIVES

The objectives for the research are as follows:

a. To explore the contours of Indian fiscal federalism.

1.5. SCOPE OF THE STUDY

1.6. RESEARCH QUESTIONS

a. What is the nature of Indian fiscal Federalism?

1.8. RESEARCH METHODOLOGY

The research methodology opted by the researcher is doctrinal.

Chapter 2: Indian Fiscal Federalism

Chapter 3: GST under the Indian Constitution

Chapter 4: Role of the GST Council

Chapter 5: Nature of Recommendations of the GST Council

Chapter 6: Conclusion and Suggestion

Federalism underscores decentralization in administration, dividing authority between