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Balance restored with the decision on GST!

The Supreme Court has given a big decision regarding the current system of Goods and Services Tax (GST). However, this decision was buried in the ongoing temple-mosque dispute in the country and there was not much discussion about its effect. But the Supreme Court’s decision has far-reaching implications. The Supreme Court has given a decision affecting the whole principle of ‘One Nation, One Tax’. It has said that from fixing the rate of GST to deciding to put goods and services in different slabs, no decision of the GST Council is binding. It will make recommendations and deliberately prepare the Center and the states to implement them. Till now there was a perception that the decision of the GST Council is final and will have to be accepted by the Center and the states. But actually it was not like this before. Only then, after the Supreme Court’s decision, the Union Revenue Secretary said that the Supreme Court has only given the actual situation and it will not have any effect on the ground situation.

It will be the goodwill of the Central Government or its Revenue Secretary that nothing will change with this decision of the Supreme Court, but in reality it will change a lot. If nothing had to change, then the states ruled by the opposition would not have welcomed the Supreme Court’s decision so enthusiastically. BJP ruled states kept silence but opposition ruled states welcomed it. Now they have got an opportunity to pressurize them to continue the existing system of compensation for the loss of revenue for some more time. Keep in mind that the provision of giving compensation to the states if the recovery of GST is less than the estimate is ending this year. That provision was for five years and in June this year, that system will end as soon as the five years of GST are completed. But many state governments want to increase it. He says that there has been a huge loss of revenue in the last two years due to the corona virus epidemic and therefore the central government should take it forward. The opposition-ruled states are demanding to increase the provision of compensation from two to five years.

In the GST council, majority decisions are taken, but in the current structure, the opposition states are weakened. One-third of the majority of the GST Council is with the Central Government alone and the remaining two-thirds is shared equally by all the states. Even if half of this two-thirds go with the Centre, then the majority decides in its favour. Keep in mind that in most of the states, there is a government of BJP or government of its declared and undeclared allies. Although those state governments are also losing revenue or ending the system of compensation is also a matter of concern for them, but due to political compulsion, they are not able to openly support the demand for continuation of this system. Although the cess levied to raise the compensation amount has been extended till 2026, it has been done to cover the interest on the loan raised to pay the compensation and repay the loan amount. However, the first change that has taken place due to the decision of the Supreme Court is that now the bargaining power of the states has increased in this matter.

It may be that this system is already in place and the Supreme Court has only interpreted it, but it has strengthened the notion of federalism. It has been established that the sovereign authority to levy and collect taxes rests with the Center and the States. Till now there was such a perception that states have delegated their authority to levy and collect taxes on all goods and services except petroleum products and liquor, and they have no authority of their own. This right has been stamped by the decision of the Supreme Court. This simply means that now the states will be able to talk on the tax system with equal authority and will agree to any proposal of the Center or the GST Council only if they see their interest in it. This also means that now no tax proposal can be imposed. It will have to be agreed upon through constant negotiations and talks with the states. This will in a way create a balance between the Center and the states.

The possibility of conflict also arises after the decision of the Supreme Court. It is possible that in view of their interests, the states should make new provisions of tax in their budget and get it passed by the Legislative Assembly, then the same work can also be done by the Central Government in the Union Budget. It is also possible that both may reject the recommendation of the GST Council for a particular tax regime. But its scope is less. Keep in mind that the recommendations of the Finance Commission are also not binding on the states or the center. Many times the states have also objected to the recommendations of the Finance Commission. But in the end the state governments accept it. Similarly, before accepting the recommendation of the GST Council, there may be some discussions, negotiations, some changes may have to be made, but ultimately when the states are bound by this system, they will have to accept its recommendations. The collision will not escalate beyond a limit. Despite this, it can be said that the interpretation of the GST law by the Supreme Court has given power to the states. If this power is used to weaken or destroy the new GST regime, it will suffer a great loss.

Shubham Bangwal

Shubham Bangwal is a Senior Journalist at You can follow him on Twitter @sb_0fficial
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