Opposition-ruled states say GST verdict upholds federal rights

New Delhi: Opposition-ruled states said the Supreme Court judgement, which ruled that the GST Council's recommendations are not binding on states, upheld the federal rights of states and the people. Experts, meanwhile, said the ruling should not hamper the functioning of the body.

Welcoming the order, Kerala finance minister KN Balagopal said in a series of tweets that the judgement on the "powers of GST Council on taxation and state government's rights is a landmark one".

"This will be a big boost for cooperative federalism. And that is what I feel from the first reading of the verdict that the Supreme Court has given today," Balagopal said, adding that his party, the CPI(M), had always been sceptical about the role of the GST Council. He maintained that he had yet to see the full verdict.

Tamil Nadu finance minister P Thiaga Rajan said the judgement was in line with what he had been flagging and would discuss the way forward after studying the order. Talking to the media, he said the order had highlighted the functioning of the GST Council. In light of the judgement, he tweeted that the GST regime "requires a complete overhaul".

"The Supreme Court has pointed out that the GST Council, a statutory body, has powers to make only recommendations and its decisions could be implemented only after union and state governments make suitable amendments to their respective laws," he said

States said this would have an impact on the way the GST Council's functioning in the future.

"This is a welcome move. This will rejig the way the council functions" said Chhattisgarh finance minister TS Singh Deo.

Expert Take
Experts are divided on the verdict.

"Given that most decisions of the GST Council have been by consensus and in the spirit of cooperative federalism, an absence of a legal basis should not hamper the functioning of the council," said Bipin Sapra, tax partner, EY India.

"This would have far-reaching implications on various other matters where the states are not in agreement with the decisions of the GST Council, especially in light of the compensation period coming to an end in June. This area would need to be closely looked out for," said Deloitte India partner Mahesh Jaising.

Another expert said the verdict put a question mark on the various recommendations of the GST council and would open many more litigation. "It clarifies that the GST Council is an informal body whose inputs should be taken into account, but it does not have a legislative power and laws have to be legislated by the bodies who are empowered to do so i.e., Parliament and state legislative assemblies," said SR Patnaik, partner & head - taxation, at law firm Cyril Amarchand Mangaldas.

Courts would now have to be more proactive in the judicial review of GST legislation, Patnaik added.