Title: The Binding Force of Recommendations of GST Council

Abstract

The Supreme Court of India pronounced a critical judgment declaring that the
recommendations made by the GST Council cannot be held as binding upon the Parliament
and State Legislatures. The present article in the light of above mentioned judicial
pronouncement, firstly, gives an overview of the concept of GST in India following with a
brief comparison of other nations with a goods and services tax system. The aim behind
bringing a single tax system and what has it replaced. Secondly, it throws light on the nature
of recommendations made by GST Council with the help of case laws. Lastly, it talks about
various branches of federalism in India and how the GST was brought in to bolster the same.
The article concludes with a brief conclusion discussing how the apex court reasoned its
verdict on recommendations of GST Council not carrying a binding nature.

The Supreme Court of India delivered an imperative verdict in Union of India v. Mohit
Minerals Pvt. Ltd. on 19th of May, 2022 where it significantly held that the recommendations
of GST Council are not binding on Centre and State Legislatures. This ruling comes with a
call for attention on the newly added articles to the Constitution of India and their
implications.

The Goods and Services Tax (GST)

The Goods and Services Tax (GST) brought about by the Constitutional
(101stAmendment) 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. GST is a move to overcome the negative impact of
taxes and thus, ease the fluidity over both the goods and the services of input tax credits. 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)
and the Integrated Goods and Services Tax (IGST).

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. In case of inter-state supply,
which is, supply from one State or Union Territory to another State or Union Territory 2, the
tax levy is payable to Central Government in the form of IGST.

GST in Other Countries

1
CGST Act § 9 (2017).
2
IGST Act § 5 (2017).
 The concept of a Goods and Services Tax is not new in the global economy. The French
government was the first to implement it. France's system, is distinct from that implemented
by India and other countries. Apart from India, Canada, Brazil, and Australia are among the
countries that have moved to a unified taxation strategy in their indirect taxation systems.

The Indian GST system has been taken from Canada. Looking at the GST model used in
Canada, the country has three tax schemes: federal GST, joint federal, and separate federal.
While in Brazil, GST has a diving rule of taxes between the centre and the state. In Australia,
GST is collected by the highest authority and thereafter distributed amongst the states.
However, in USA, since it is a federal republic, the federal, state and municipal government
all collect taxes separately.

Article 246A of the Constitution of India

Article 246 confers legislating power to the Centre and the States in the matters of
Seventh Schedule3 of the Constitution of India, 1950. In Union of India v. Mohit Mineral Pvt.
Ltd.4, the Supreme Court recognized that the Constitutional Amendment Act 2016 changed
the legislative powers of the Parliament and state legislatures in relation to indirect taxation
by the power to levy GST on the supply of goods and services.

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. The council will give recommendations after an interchange of
discourse between the Union and the States on matters relating to GST. Article 279A states
that the recommendations are 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 value5 and not a binding value. The phrase “recommendation” must be
interpreted in contradistinction to a ‘direction’ or a ‘mandate’.6

For the recommendations given by GST Council, the presence of an express provision in
Article 246A stating that GST Council’s recommendations can be formed as laws without
any scrutiny or intervention is a prerequisite which is absent. The language of Article 279A
provides for the legislations to be made on the basis of recommendations before the Houses

3
INDIAN CONST. art. 246.
4
(2019) 2 SCC 599.
5
NaraindasIndurkhya v. State of Madhya Pradesh (1974) 4 SCC 788.
6
Union of India v. Pradip Kumar Dey, (2000) 8 SCC 580; Kesoram Industries and Cotton Mills Ltd. v.
CWT, (1966) 2.
of Parliament under the terms of the CGST Act7 and the IGST Act8 and not make
recommendations per se legislations.

Certain IGST Act and the CGST Act norms which provides for the Centre to act on the
GST Council's recommendations implies for the objective of GST which is a singular
taxation system to remain intact. 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. 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.9 Where Centre and States are two independent
federal units, and work in competition with each other, the model thus formed is known as
that of cooperative federalism. In the case of State (NCT of Delhi) v. Union of India,10 it has
been observed that to take the road of India to new pathways of development, it is pertinent
to bridge the gap between the Centre and the State by means of cooperative federalism.
However, where two distinct units are present dependently, there cannot always be
cooperation. The Constitution lays certain types of political contestations at the hand of
States in scenarios where it wants to challenge the directions of Union. Such forms of
contestation known as uncooperative federalism are also within the framework of fiscal
federalism in India.

Why the recommendations made by GST Council cannot be held binding?: Analysis

The GST Council was implemented as a tool to bolster federalism which in turn would
make the country as a democracy grow. The centre having one third voting-power in the GST
Council together with the absence of a repugnancy provision in Article 246A shows that the
GST Council's recommendations are not enforceable. Interpreting them as binding 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 therefore, make the objective of formation of a council for promoting cooperation and
contestation between federal units subdued.
7
CGST Act § 166 (2017).
8
IGST Act § 24 (2017).
9
SR Bommai v. Union of India (1994) 3 SCC 1.
10
(2018) 8 SCC 501.
Conclusion

Recognizing the nature of GST Council being a constitutional body to foster the
cooperative and uncooperative federalism, the Supreme Court of India has delivered its
judgment stating that the recommendations made by the GST Council cannot be held binding
upon the Central and the State governments. Different federal units have the autonomy of
decision in regard to cooperation or contestation. The ‘recommendations’ of GST Council
are a result of the interchange between the Union and the State and thus can only carry a
“recommendatory value” in its nature.