Role of GST Council in Cooperate Federalism

The concept of federalism in our constitution involves the sovereignty of the units within their respective territorial limits, it is not possible for them to remain in complete isolation from each other and the very exercise of internal sovereignty by the units require recognition by coordination of each unit of the federation. Federal Constitutions, which usually provide certain rules for co-operation which the units are expected to take into consideration while dealing with each other and thus we can say this type of coordination between the States and the Centre to be co-operative federalism.

The very basic purpose to introduce GST in India was to remove the multiple tax system which was a part of central and as well as the state government and rather to bring uniformity in the tax system of the country and provide more of a uniform tax system in the country. Goods and Services Tax which is commonly known as GST was introduced in India on 1^st July 2017. The present model is divided into different tax slabs which range from 0% to 28%.

Through this paper, it has been highlighted that how the principle of federalism is the basic structure but the principle is not rigid and it can be interpreted in different ways as have been done in different federations which have helped in to incorporate the concept of co-operative federalism on the lines of which the centre intended to form goods and services tax regime to replace the former complicated of the same and to include states in it so in order to device a co-operative mechanism.

Unity in Diversity has always been considered as the benchmark of Indian Society which has embraced diversity in terms of Caste, Culture, Customs, Cuisine and Clothing. The very concept of cooperation that has been added within such rich diversity by the implementation of GST is through Centre and States cooperation which economically integrates and strengthen the unity.

Economic integration in India has still not been the real question of creating rather one economic India, but when it comes in terms of technology, economics, and politics have been surging far ahead. We can say this to be the right time to catch up further and rather help to facilitate the surging internal integration i.e. Article 302 and 304(b) should rather be amended. Once again the amendments require the coming of States and centres on the same platform for promoting the spirit of cooperative federalism.

Talking about the concepts of federalism our constitution involves the sovereignty of the units within their respective territorial limits, it is not possible for them to remain in complete isolation from each other and the very exercise of internal sovereignty by the units require its recognition by co-ordination of each unit of the federation. Federal Constitutions, which usually provide certain rules for co-operation which the units are expected to take into consideration while dealing with each other and thus we can say this type of coordination between the States and the Centre to be co-operative federalism

The very basic purpose to introduce GST in India was in order to remove the multiple tax system which was a part of the central and as well as the state government and rather to bring more uniformity in the existing tax system of the country. Goods and Services Tax which is commonly known as GST was introduced in India on 1^st July 2017. The present model has been divided into various tax slabs ranging from 0% to 28%.

India’s GST model is based more on the lines of the Canadian GST model though some people consider this to be a failure because a country like Canada has more uniformity and the same culture is followed but taking the example of a country like India which has a rich cultural diversity and is not uniform throughout, as a costume to cuisine to language changes in India from north to south. Just by mere implications of GST uniformly in India perhaps it may lead to some adverse impacts as the demands vary in different areas and also considering the humungous population of ours.

In our Federal System where both centres and States have the power to impose taxes. The division of the taxation powers is provided in the Union and State List under the 7th Schedule. Going by the true spirit of cooperative federalism, under GST, both Centre and States have given up their taxation powers and as result, the indirect taxes have rather been eliminated.

Indian Constitution has also been amended accordingly and the fundamental reordering of the federal fiscal relations for the cause of the common good shows the strength and resolve of the federal structure.

This convergence for the cause of larger public good has been made possible, initially due to the mechanism of the Empowered Committee of Ministers (EC) and later which turned on to be the GST Council. Under the GST regime, both the Centre & States will be acting on the recommendations of the GST Council. In the GST regime, the tax amount is transferred and is utilized by the very state administration where goods or services or both are consumed ultimately and the tax burdens are to be borne by the people, making it not only a consumption-based tax but also to be a destination-based tax and thus we can say the literal understanding of article 301 strengthens the argument.

The destination-based tax’s idea falls under the question of federalism because how much say a state will have is actually a matter of concern and this could be resolved by giving each state a separate mandate which the Parliament cannot disturb but in this case article 269(5) gives Parliament the power to formulate principles to determine the working of the tax regime in the inter-state trade or commerce. This is in principle is somehow perhaps against the idea and spirit of federalism as states are derived of the theoretical consideration required to maintain the indirect tax regime which is destination-based and is dependent upon movement from one state to another.

Another issue here pertains to article 279A (9) which give the following power to decide the matters of GST Council on the basis of vote:

The vote of the Central Government shall have a weightage of one-third of the total votes cast, and
The votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast.

This clearly indicates that the centre will have 33% votes and the States combine will be having 66% votes and the requirement to take a decision is 75%. The centre is having a suo moto veto power such that even if all the States pool together they cannot take a decision without the consent of the centre. This is on the fact that clause (2) which has elaborated on the position of members makes the Union Finance Minister the Chairperson of the Council.

The Goods and Services Tax Council has also been empowered to create a mechanism under the clause (11) of article 279A to adjudicate any of the disputes between the centre and the state or states; or between centre along with a state versus a state or a group of states; or between two states. Thereby, centre having a veto in the decision making of the GST Council which will clearly be on the bias side in case there is a dispute between the centre and a state again which is considered as prominent issue in case of any such tussle.

The objective of the goods and services tax, the distribution of powers between the centre and the state in the GST regime and the cascading effect that was intended to remove shows that the central supremacy to take over the indirect tax regiment is evident and this factor will decrease the state’s autonomy thereby creating discrepancies and repugnancy’s between the CGST Act and the SGST Act and destroys the principle of federalism.

The principle of federalism has always been held to be a part of doctrine of the basic structure. The contention that raises here is that the principle of federalism in the country’s context does not mean that there is no centralizing tendency and in fact it works more effectively if there is a centre that by law has powers exclusive to the powers of the government as in article 246A.

To understand the idea we should begin by recapitulating different interpretations of the said principle. The Supreme Court in the case of West Bengal v. Union of India[1] projected the traditional view of federalism and characterized the constitution as not being “true to any traditional pattern of federalism.”

BY taking the example of traditional pattern the Canadian constitution by the interpretation of Privy Council, weakened the centre and exalted the Provinces, an approach that has been at times inconvenient and has been embarrassing to the Centre, mainly in the area of economic mattes and foreign relations.

The framers of our constitution did not adopted a doctrinaire approach based on the out-model concept of classical federalism but rather they adopted a functional approach and devised a system in tune with the peculiar needs, traditions and aspirations of the people making it a sui generis system. Several provisions of the constitution show that the founding fathers wanted to create a strong centre and that does not deter the federal structure as whole even if we call it a quasi-federal. In the case of Karnataka v. Union of India[2], it was stated that “Our Constitution has, despite whatever federalism may be found in its structure, so strongly unitary features also in it…” It has been further observed that federalism in the country is not a matter of administrative convenience, but one of a principle’.

Again the justification for the 66^th Amendment can be structured into the concept of cooperative federalism that has been derived from the factors that the very concept of federalism in the country is not rigid or traditional but adaptive to the modern times and also constitutes of centralizing tendency.

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Cooperative federalism

The common law system has seen Federalism in the U.S.A., Canada and Australia where the concept of ‘competitive federalism’ has emerged, embarking a spirit of competition and rivalry between the Centre and the State. This idea has been now developed in ‘cooperative principle’ that resides majorly on three principles:

The exigencies of war when for national survival, national effort takes precedence over fine points of Centre-State division of powers;
The emergence of the concept of a social welfare state in response to public demand for various social services involving huge outlays which the governments of the units could not meet by themselves out of their own resources.

In our country states has a vast field of administration and decision-making and thus in order to create an agency to co-ordinate intergovernmental action in those fields at least where the repercussions of a State action would not be just confined to its own boundaries but would be felt outside the State action as well, or where national interests demand rather a more uniform based approach. In this regard, the formulation of the Goods and Services Tax mandate was extensively elaborated under article 279A. Also in the year 1990, in the case of Dabur India Ltd. v. State of Uttar Pradesh,[3] Supreme Court suggested that the setting up of a Council under art 263 to discuss and sort out problems related to Central-State taxation.

GST regime has created institutional as well a Constitutional framework for cooperative federalism in the indirect taxation system and the concept of federalism has been able to provide flexibility to an otherwise rigid constitutional framework which now enables it to cooperate with the newly emerging demands and challenges.

The framers of the constitution intended to incorporate into the Constitution, and infrastructure in order to promote co-operative and coordination, and minimum tensions, among the various governments and several other features and provisions of the Constitution have been deliberately designed to institutionalize the concept of Centre-State co-operation.

The provisions for enabling the Parliament to legislate in the State area on the request of two or more States, the scheme of financial relations between the Centre and the State, grants-in-aid under article 282, the scheme of Centre-State administrative relationship along with the provision for all-India services, are one of the major instruments designed in order to promote inter-governmental co-operation and introduce such flexibility in such rigid federal system.

Talking about Centre-State co-operation is the case of Jaora Sugar where Parliament had used its own legislative power to validate the State tax on entry of sugarcane into the premises of sugar mills, which later on was declared invalid by the Supreme Court.[4]

All we can say is that the present form of the Imperial Council, the Goods and Services Tax Council to outline an indirect tax composition for the supply of goods and services is more within the context and principle of cooperative federalism.

Conclusion: Goods and Services Act does not violate federalism

The GST regime is dependent upon the insertion of articles 246A, 269A and 279A in the constitution. Article 246A gives state and centre equal power to legislate over the goods and services tax. Clause (2) does not violate federalism as clause (1) uses the term ‘subject to clause (2). Article 269A forms the Goods and Services Tax Counsel in the course of inter-State trade and commerce. It is made in order to restrict the discrepancy between two states. It has to be noted that the term inter-State trade or commerce as per article 301 talks about the movement of goods and the interpretation of GST calls it a destination-based tax more along with a consumption-based tax.

Article 279A (2) assigns members of the goods and services council that includes the state’s revenue or finance minister and along with the chairperson who would be the union finance minister. It is further just a recommendatory body and have not been arbitrarily set up but has been elaborately formed. There is a provision that also restricts any procedural irregularity of the Council so that is does not effects the merits.[5]

Hence, we can conclude that the principle of federalism is the basic structure but the principle is not rigid and it can be interpreted in different ways as have been done in different federations which has helped in to incorporate the concept of co-operative federalism on the lines of which the centre intended to form goods and services tax regime to replace the former complicated of the same and to include states in it so in order to device a co-operative mechanism.

This has been backed by constitutional amendments and a constitutional body which had the mandate and the decision making power being divided between the centre and the state equally, giving it an elaborative and illustrative mandate.