The Supreme Court of India delivered a significant verdict in Union of India v.

Mohit
Minerals Pvt. Ltd. on 19th of May, 2022 where it held that the recommendations of GST
Council are not binding on Centre and State Legislatures. This ruling has a far wider
impact than what the Centre might have presumed before bringing the case up for appeal.

The Goods and Services Tax (GST)

The Goods and Services Tax (GST) brought about by the Constitutional (101 st Amendment)
Act, 2016 with the virtue of Article 246A and Article 279A is significantly the biggest
tax reform post-independence in the fiscal history of India. Implementation of GST was
a move to replace a multi-layered set of Central and State taxes levied with one uniform
nation-wide tax. It is an indirect tax. Indirect tax is a tax which can be shifted to another
person. Tax incidence is passed on every stage till the commodity finally reaches the
consumer. It is applied on “supply” of goods and services in India. It is a kind of dual
GST where the Central and the State Government will levy tax on the same product,
simultaneously. The Tax is payable to both the Central and the State Government;
however, the control over the administration of the tax will be exercised by either of
them. GST has replaced multiple indirect taxes which were prevalent in India at both, the
Union and the State level. One of the greatest objectives for implementing GST was that,
all the States in India follows the same fixed rate for any particular commodity. It came
with the aim of removing the cascading effect of taxes. As for the situation before the
implementation of GST is concerned, the taxpayer was struck in a spiral of indirect taxes
which made it difficult for them to set off the tax credit of one tax against the other. With
GST, the tax levy is only on the net value added at each particular stage of the supply
process. GST helps to eliminate the cascading effect of taxes and thus, contributes to the
fluidity of input tax credits over both the goods and the services. GST can only be applied
when the goods or services are supplied for a “consideration”. In the absence of
consideration, the GST will stand nill. The GST system consists of three taxes, the
Central Goods and Services Tax (CGST), the State Goods and Services Tax (SGST) or
the Union Territory Goods and Services Tax (UTGST) in cases of Union Territories, and
the Integrated Goods and Services Tax (IGST).

Intra-State Supply

In cases of intra-state supply, which is, a supply of goods and services within a State or a
Union Territory, the tax levy will be payable to the Central Government as CGST 1 and to
the State Government or the Union Territory as SGST or UGST.

Inter-State Supply

1
Sec 9 cgst act
In case of inter-state supply, which is, supply from one State or Union Territory to another
State or Union Territory2, the tax levy is payable to Central Government in the form of
IGST.

GST in Other Countries

The concept of a Goods and Services Tax is not new in the global economy. Since the 1950s,
it has been in operation. The French government was the first to implement it. France's
system, on the other hand, is distinct from that implemented by India and other countries.
Apart from India, Canada, New Zealand, and Australia are among the countries that have
moved to a unified taxation strategy in their indirect taxation systems.

Pre-GST Tax evaluation in India

Before the GST regime, goods and services were taxed both by the Central and the State
government, separately. There were a wide range of indirect taxes at both the levels. Tax
at the State level was primarily collected in the form of Value Added Tax (VAT) in the
purview of rules and regulations set by each state, independently. The Central
government taxed the inter-state supply of goods and services by Central State Tax
(CST), customs duty, service tax, and excise duty. Other indirect taxes such as the
entertainment tax, purchase tax, luxury tax, octroi and local tax, and taxes on gambling
and betting were levied together by the state and the centre. These led to a lot of
overlapping of taxes levied by both the state and the centre.

The First Discussion paper on Goods and Services Tax was released by Empowered
Committee in November 2009, which explains the rationale for the need to introduce the
GST.3 The first bill introduced by the Parliament for introducing the GST was the
Constitution (One Hundred and Fifteenth Amendment) Bill 20114, which sought to
amend the provisions of the Constitution to introduce the GST regime. Later, the
Constitution (One Hundred and Twenty-Second Amendment) Bill 2014 was introduced
to replace almost all the indirect taxes that were levied by the State Governments and the
Central Government, with a singular tax system to get rid of the cascading effect of
multiple taxes and to impart a common national market. In 2016, finally, the
Constitutional (101st Amendment) Act brought Article 246A and Article 279A to the
Constitution of India.

Article 246A of the Constitution of India

2
Sec 5 igst act
3
Empowered Committee, First Discussion Paper on Goods and Services Tax, (2009) Pars 1.13-1.14
4
2011 Amendment Bill”
Article 246 read with the Seventh Schedule gives the Parliament and the independent State
Legislatures the power to form laws and regulations on subject matters which are listed in
Seventh Schedule5 of the Constitution of India, 1950. Prior to this, the legislative powers
of the Central government and the State government on taxation were exclusive 6. The
Union List (entry 1 to 81) and the State List both have a group of general legislative
subjects (entries 1 to 44). In both the Union and State lists, the subject heads connected to
taxation are grouped together (entries 82 to 92B in the Union list and entries 45 to 63 in
the State list). There is no entry relating to taxation on the concurrent list. Since the
concurrent list did not include an entry for taxes, the Union and the State could not levy
taxes under the same heading.

The distribution of legislative power between federating units- the Union and the States, is
among the paramount features of a federal Constitution. 7 Article 246A is a "special
provision with respect to goods and service tax" that starts with a non-obstante clause that
overrides Articles 246 and 254. Article 246 establishes the constitutional foundation for
establishing Parliament's and state legislatures' legislative powers. Article 254 establishes
a mechanism for resolving inconsistencies in the Concurrent List between federal and
state laws. The power to legislate on the goods and services tax is vested in Parliament
and state legislatures under Article 246A. The States' power, on the other hand, is
vulnerable to the grant of an exclusive domain to Parliament to impose a goods and
services tax where goods or services are supplied in the flow of interstate supply.

In Union of India v. Mohit Mineral Pvt. Ltd. 8, the Supreme Court recognised that the
Constitution Amendment Act 2016 changed the legislative powers of the Parliament and
state legislatures in relation to indirect taxation. It stated that the amendment "grants the
Union and States concurrent taxing authorities for levying GST on transactions of supply
of goods or services or both." In Baiku v. State Tax Officer, GST 9, the changes in the
constitutional scheme brought by Article 246A were discussed. Article 246A embodies
the constitutional principle of simultaneous levy as distinct from the principle of
concurrence. Concurrence, which operated within the fold of the Concurrent List, was
regulated by Article 254.

Article 279A of the Constitution of India

Article 279A stipulates for the constitution of a council to be called as Goods and Services
Tax Council. It is a joint forum for the Centre and the States to discuss the matters
relating to GST and its recommendations will be a guiding force for the Central and the
5
Seventh schedule Indian cons
6
Hoecst Pharmaceuticals Ltd. v. State of Bihar (1983) 4 SCC 45
7
H.M Seervai, Constitutional Law of India, (NM Tripati Private Limited, 4th Edition, vol 1) 289; SR Bommai
v. Union of India, (1994) 3 SCC 1
8
(2019) 2 SCC 599
9
2019 SCC OnLine Ker 5362
 State Government. 10 The GST Council should consist of the Union Finance Minister as
the Chairperson, the Union Minister of State as in-charge of Revenue or Finance or
taxation or any other11. The role of the GST Council is to make recommendations to the
Union and the States on seven specific categories 12on the subject matter of GST. As
stipulated in clause 6 of Article 279A, the GST Council must make its recommendations
after a unified deliberation among the federal divisions. Unlike other parts of the
Constitution that require suggestions to be presented to the President or Governor, Article
279A requires recommendations to be made to the 'Union and the States.'

Nature of Recommendations made by GST Council

The wording "recommendations to the Union or States" implies that the GST Council is a
consultative group that assists the government in passing legislation on GST. Time and
again the court of law has reiterated the nature of recommendations. Recommendations
always carry a persuasive value13 and not a binding value. The phrase “recommendation”
must be interpreted in contradistinction to a ‘direction’ or a ‘mandate’.14

There would have been an express provision in Article 246A if the GST Council was
intended to be a constitutional body whose recommendations become law without any
intervening legislation. Article 279A does not require that the recommendations be tabled
in the legislature. Only secondary legislation based on the Council's recommendations is
required to be submitted before the Houses of Parliament under the terms of the CGST
Act15 and the IGST Act16.

The provisions of the IGST Act and the CGST Act that require the Central Government to
act on the GST Council's recommendations must be construed in light of the enactment's
objective, which is to create a consistent taxation system. Since different states could
previously offer different tax slabs and exemptions, the GST was implemented. When the
government uses its jurisdiction to publish secondary legislation to give effect to the
uniform taxation system, the GST Council's recommendations become legally binding.
The Council has broad recommendatory powers on subjects pertaining to GST under
Article 279A, including the ability to make recommendations on subject matters that are
outside the scope of the rule-making power under the IGST and CGST Act. The fact that
certain of the GST Council's recommendations are legally enforceable by the government
under the CGST and IGST Acts does not mean that all of the GST Council's proposals
10
Standing Committee on Finance, The Constitution (One Hundred and Fifteenth Amendment) 2011 (73rd
report, 2013)
11
Art 279A (2)
12
Art 279A (3)
13
Naraindas Indurkhya v. State of Madhya Pradesh8 (1974) 4 SCC 788
14
Union of India v. Pradip Kumar Dey, (2000) 8 SCC 580; Kesoram Industries and Cotton Mills Ltd. v. CWT,
(1966) 2
15
Section 166 of the CGST Act
16
Section 24 of the IGST Act
 are. The provisions of the Constitution, which is the nation's Grundnorm, cannot be
interpreted based on the terms of primary legislation as a matter of fundamental principle.
Only the provisions of main legislation can be construed using the Constitution as a
guide. By exercising its constituent power, the legislature alters the Constitution, and by
exercising its legislative authority, it legislates. The constituent power of the legislature is
of a higher constitutional order as compared to its legislative power. Even if Parliament
has passed legislation making the GST Council's recommendations binding on the
Central Government for the purpose of notifying secondary legislation, it does not
indicate that all of the Council's recommendations issued under Article 279A are binding
on the legislature.

Cooperative and Uncooperative Federalism in India

The exclusive power held by the Union and the States on the matters of taxation is an
important feature of fiscal federalism in India. 17 The dual federalism model regards the
constituting units of Central and States as autonomous and independent units. This model
is known as cooperative federalism. According to the theory of cooperative federalism, it
is integration what it seeks to achieve and not autonomy. 18 In the case of State (NCT of
Delhi) v. Union of India,19 it has been observed that India follows cooperative federalism
where the Central and the State Governments need to flush out the differences that arise
in the course of the path of development. The Indian Constitution, being federal, also
provides Centre with a higher share of power in certain situations. However, even if the
federal units are not entirely autonomous as in the traditional federal system, they still
hold power. In practise, the interaction between two constituent parts that are not
independent but rely on one another for survival is not always collaborative or
cooperative. Even if the States have been given less power, they can nevertheless defy the
Union's mandates by engaging in various types of political contestation as permitted by
the Constitution. Such forms of contestation known as uncooperative federalism are also
within the framework of fiscal federalism in India. As a result, if the States disagree with
the Centre's judgement, they can employ several types of contestation. Such contestations
are also permitted under Indian federalism. The GST Council is not only a constitutional
body tasked with overseeing India's indirect tax system, but it is also a vital hub for
promoting federalism and democracy. Articles 246A and 279A were enacted to promote
cooperative federalism and peace between the states and the federal government. The
Centre, on the other hand, has a one-third vote in the GST Council. This, together with
the absence of a repugnancy provision in Article 246A, shows that the GST Council's
recommendations are not enforceable. Such an interpretation would be counterproductive
to the goal of enacting the GST regime, as well as to the delicate balance that underpins
Indian federalism. If GST council’s recommendations are taken as binding, it will
17
SR Bommai v. Union of India (1994) 3 SCC 1
18
Robert A. Schapiro, ‘Justice Steven’s theory of Interactive Federalism’ 74 Fordham L. Rev. 2133 (2006)
19
(2018) 8 SCC 501
 therefore, diminish its role of the as a constitutional body formed to arrive at decisions by
collaboration and contestation of ideas.

Conclusion

Recognizing the nature of Indian Federalism being a dialogue between cooperative and
uncooperative federalism where federals units are at liberty to use different ways of
persuasion ranging from cooperative to contestation, the Supreme Court of India has
delivered its judgment stating that the recommendations made by the GST Council
cannot be binding upon the Central and the State governments. It can only posses a
persuasive value and not a directing value. The ‘recommendations’ of GST Council have
been portrayed as a product of collaborative dialogue between the Centre and the States,
and carry only a ‘recommendatory value’ in nature. Special emphasis on regard of
uncooperative federalism was laid and thus the court of law has given its verdict giving
the Centre and State legislatures the right to decide whether to comply or not to comply
with the recommendations of GST Council.