The Centre should be more understanding of states’ budgetary difficulties and GST worries
The Supreme Court ruled on Thursday that the imposition of a Goods and Services Tax (GST) on ocean freight rates paid by importers was unsustainable. Its 153-page decision also went into great detail on the nature of the GST Council’s recommendations, the constitutional body charged with overseeing the indirect tax system’s operations. The Court has concluded that both the Union and state legislatures have “equal, simultaneous, and unique capabilities” to establish GST legislation and that the Council’s recommendations, when they have a one-third and two-thirds voting share, respectively, are not binding on them. According to the Court, Parliament intended for the Council’s suggestions to merely have ‘a persuasive value’ when revising the Constitution to make way for a tax structure that included several national and state taxes. This has raised worries that individual states could begin to block Council suggestions they disagree with and refuse to adopt them, jeopardising the ‘One Nation, One Tax’ reform architecture that took years to achieve. The judgement has been praised by opposition-ruled states as preserving their rights against what some have described as the ‘arbitrary imposition’ of the Centre’s choices in the Council. The Finance Ministry has attempted to assuage fears by stating that the Court has just clarified the Council’s existing agreement and that the status quo would be maintained. States may already reject the Council’s decisions, but none have done so, according to the report.
While North Block conducts a thorough examination of the decision, it is worth noting that it had contended that if the Council’s recommendations were not binding, the GST system would come to a halt. The Court stated that this is not true. It is perhaps a serendipitous prod for reflection on its path and the road ahead that it has knocked down a tax announced two days earlier to the start of the GST system just as it is about to complete five years. At worst, it may lead to more squabbles at Council sessions, while at best, it may instil a renewed sense of duty among members. Instead of attempting to bulldoze through tricky predicaments with the implicit assistance of NDA-ruled States in the Council, the Centre may endeavour to be more sympathetic toward States’ concerns and economic challenges, particularly as their promised compensation clock ticks down next month. The Council should also convene more often in order to keep the crucial fiscal federalism conversation on track and reduce trust deficiencies. Many outstanding changes, including an overhaul of land and labour markets, as well as the agricultural sector, need the Centre to engage more cohesively with States to move India’s economy ahead and raise people left behind.