GST Council – A Dispute Settlement Mechanism between the Centre and the States

Introduction:

Since Independence, 2017 will be etched forever in Indian history as the year that witnessed the implementation of the largest and most important economic reform that is the Goods and Services Tax (GST). The law, which took over a decade of intense debate, was eventually introduced with effect from 1 July 2017, subsuming the central and state-level Indirect Taxes. The main agenda of the Indian Government is ‘One Nation One Tax’. The aim is to establish a simplified, single tax regime in line with the tax framework applicable to major economies around the world. The GST rates for various goods and services are applied homogeneously across the country. However, goods and services have been categorized for tax payment under different slab rates.

While luxury and comfort goods are classified under higher slabs, necessities have been included in lower slab rates which include zero tax slab. The main objective of this classification is to ensure a uniform distribution of wealth between residents in India. GST has replaced all other forms of indirect taxation and has become a uniform, comprehensive, and intended form of indirect taxation. The Government of India also formed a GST Council, and the reason for setting up the Council is to ensure that GST rules are implemented in all parts of India and every eligible establishment complies with the GST rules. The GST Council has, therefore, become the governing body for the implementation of GST in India.

GST Council:

The 122nd Constitutional Amendment Bill (CAB) was introduced to implement the GST in the Parliament and passed by Rajya Sabha on 03rd August 2016 and Lok Sabha on 08th August 2016. The CAB was introduced in more than 15 states and the Hon’ble President, on 8 September 2016, gave his assent to the “Constitution (One Hundred and First Amendment) Act, 2016.” Since then, the GST Council has notified the creation of a statutory body to decide matters related to the GST. On 16 September 2016, the Government of India issued notifications bringing into effect all sections of the CAB that are firmly committed to the implementation of the GST. The GST Council is the governing body for the implementation of the rules on GST in India. It is the responsibility of the authorities to make important decisions and changes in GST. The GST Council is authorized to determine the tax rate applicable under the GST model, the tax exemption rules, the due date for the submission of GST forms, the tax-related laws, and deadlines, and special exemptions for some states in India. The GST Council’s overriding duty is to maintain a uniform tax rate for goods and services across the Indian nation[1].

Article 279 of the Constitution:

GST Council governs the Goods and Service Tax (GST). The GST Council structure is determined by Article 279 (1) of the Indian Constitution. This Article states that, within 60 days of the initiation of Article 279A[2], the GST Council should be constituted by the President of India. The Article states that the GST Council should be a joint forum of both the central government as well as the state governments. The GST Council consists of Union Finance Minister as the Chair Person, the member of Council will be Finance Minister of State who would be in charge of Revenue or Finance, and the Minister who is in charge of Finance or Taxation or any other Minister nominated by each state would also be the member of the Council. The Council has to make a recommendation to the Union Government as well as the States Government under Article 279A (4). The Council would determine which goods and services would be included to be charged under GST and which would be excluded from it. Subsequently, the GST Council has to lay down laws and principles relating to the place of supply, threshold limits, special rates of GST for some States of India, applicable levels of GST for different goods and services and special rates of GST during natural disasters, so that additional resources can be collected to meet the financial losses incurred.

Dispute handling by GST Council:

According to the provision laid down under Article 279A (11) of the Constitution, the GST Council must create a mechanism to solve the follows:

1. A dispute between the Union and the State Government;

2. A dispute may be solved between the Central Government and one or more states;

3. A dispute between two or more States that have arisen as a result of some recommendation of the GST Council or as a result of the implementation of the recommendation[3].

GST law says that Council may solve disputes arises between centre and state by dispute resolution mechanism. Under the GST (Compensation to States) Act, 2017[4], section 7 states that any loss of revenue to States due to the GST implementation must be compensated by the Center for a transitional period of five years, and the compensation shall be made every two months. During this time, the estimated nominal revenue growth rate for each State is 14 per cent per annum. According to section 9 of the Central Goods and Services Tax Act, the tax shall be imposed on intra-state supply of goods or services or both, and collected in the manner specified, on the recommendations of the Council to compensate States for loss of revenue resulting from the implementation of the GST. Due to declining GST revenues, the question of cessation of payments and revision of the rate structure has come to the forefront.

States’ biggest fear has been the lack of fiscal autonomy because of the GST. The Constitutional Amendment strikes a delicate balance between states’ demands for fiscal control and the need for separate taxes to be harmonized. The first and foremost reason is that the Center and the states retain the power to implement taxes as they find necessary within the specified structure. The resolution of the GST Council will not be binding on them unless it is recommended. It is observed from this context that the function of the dispute resolution mechanism becomes useless. The second reason is that the states insisted on removing significant chunks of the economy from the GST base such as petroleum, alcohol, electricity, and real estate. Ideally, no exclusions would have been made from the GST base and the states must have had the power to impose additional taxes in the aforementioned sectors. The third reason is that the Member States have retained the autonomy to set GST tax rates within a narrow band of 2%. Finally, the States were assured of compensation for any revenue loss incurred during five years post the commencement of the Act. The design of the GST base and the rates will be the ultimate test of the success of the GST. Governments now need to communicate constructively with other important stakeholders, including the taxpayers. Negotiations between the central and the state government will give way to consultations with those most affected by the levy[5].

The Constitutional validity of the lottery ticket was established in the case of Teesta Distributors & Ors vs. Union of India & Ors[6]. The purchaser, although cannot confer any right though lottery ticket, acquires the transfer of rights like a cinema ticket. So, such right comes under actionable claim; therefore, a lottery ticket can be termed as a good taxable under the GST. In the event of purchasing a lottery ticket, the purchaser becomes the owner of the goods and the person can claim to the conditional interest in the prize money. This resolution was passed by the majority present in the GST Council Meeting under Article 279A (11) which contemplates the establishment of a mechanism to adjudicate any dispute between the Government of India and one or more States. So, Goods and Service Tax Council established under Article 279A of the Indian Constitution states that the lottery was termed as movable property and good, and the rate of tax was imposed on lotteries.

Conclusion:

Since Independence, the historical and biggest Indirect Tax reform was implemented i.e. GST with a strong mission as ‘One Nation One Market and One Tax’. The implementation of GST will give benefits to the industries, consumers, traders, and taxation is rationalized both at the central and state level. It eliminates the burden of taxpayers by eliminating multiple levels of taxes.  It helps to build corruption-free and transparent administration. There may be an inevitable negative impact, but it does not dilute the overall positive impact of the legislation.

Case laws:

[1] Constitution of the GST Council, HOW TO EXPORT-IMPORT,  https://howtoexportimport.com/Constitution-of-the-GST-Council-8502.aspx

[2]  Article 279A-Goods and Services Tax Council, – Constitution of India, TAX MANAGEMENT INDIA, (Aug 6,2020,7:16pm), https://www.taxmanagementindia.com/visitor/detail_act.asp?ID=22796&kw=Goods-and-Services-Tax-Council

[3] GST Council-Goods & Services Tax Council, GST COUNCIL, (Aug 6,2020,7:27), http://gstCouncil.gov.in/gst-Council

[4] The Goods and Services Tax (Compensation to States) Act, 2017, INDIA CODE, (Aug 6,2020,7:30), https://www.indiacode.nic.in/handle/123456789/2253?view_type=browse&sam_handle=123456789/1362

[5] Satya Poddar, How the GST takes the center and states to tango, ECONOMIC TIMES, (Aug 6,2020,7:33pm), https://economictimes.indiatimes.com/blogs/et-commentary/how-the-gst-takes-the-centre-and-states-to-tango/

[6][ 2018] 59 GSTR 35

Kannan Shobika

SASTRA UNIVERSITY