UPSC Daily Editorial Analysis | 8 June 2022

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What the article is about?

  • Talks about the recent Supreme Court ruling regarding GST Council decisions.

Syllabus: GS-III Indian Economy, GST, Fiscal federalism

GST Council:

  • Article 279A stipulates the creation of the GST Council and its functions. The Council has to function as a platform to bring the Union and State governments together, and as a mark of cooperative federalism, the Council shall, unanimously or through a majority of 75% of weighted votes, decide on all matters pertaining to GST and recommend such decisions to the Union and State governments.
  • The purpose of GST, as a harmonised commodity tax, is to make India a single market
  • Article 246A gives powers to the Union and State governments simultaneously to legislate on the GST. In other words, the two tiers of the Indian Union can simultaneously legislate on matters of the GST (except the IGST, which is in the legislative domain of the Union government); obviously it can be inferred that neither of the legislations can supersede each other. 

Recent SC ruling:

  • In Union of India Anr. vs Mohit Minerals Pvt. Ltd., the Supreme Court of India on May 19, 2022 while deciding on a petition relating to the levy of Integrated Goods and Services Tax (IGST) on ocean freight paid by the foreign seller to a foreign shipping company, ruled, “The recommendations of the GST Council are not binding on either the Union or the States…”.
  • The judges of the Supreme Court have recorded, “Since the Constitution does not envisage a repugnance provision to resolve inconsistencies between the Central and State laws on GST, the GST Council must ideally function, as provided by Article 279A(6) in a harmonised manner to reach a workable fiscal model through cooperation and collaboration.” 

Concerns associated GST:

  • It is a fact that States have not got full compensation for the shortfall in GST revenue collection during the COVID-19 pandemic period and that States wanted to extend GST compensation beyond June 2022 given the current recession and widely expected slow growth in effective revenue under the GST.
  • The Union government holds one-third weight for its votes and all States have two- thirds of the weight for their votes, gives automatic veto power to the Union government because a resolution can be passed with at least three-fourths of the weighted votes.
    • This imbalance in the voting rights between the Union and State governments, makes democratic decision-making difficult.This creates another political problem as the smaller States with lesser economic stakes can be easily influenced by interest groups. 

Way Ahead:

  • Goods and Services Tax Council shall be guided by the need for a harmonised structure of GST and for the development of a harmonised national market for goods and services.
  • The power of the recommendations rests on the practice of cooperative federalism and collaborative decision-making in the Council. 

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