GST Council Makes Recommendations, Not Mandates: Revenue Secretary

The Supreme Court on Thursday ruled that the state and centre hold simultaneous powers to legislate the Goods and Services Tax. The apex court also upheld that the recommendations of the GST Council are not binding on the union and states, and only hold a persuasive value.

“In the scheme of things, the Constitution and the GST law state what Supreme Court has reiterated,” Revenue Secretary Tarun Bajaj told media, in response to the judgment.

Referring to Section 9 of the CGST Act, Bajaj said, “Nowhere does the section say that the council will mandate… Article 279A allows GST Council to make recommendations.”

The Supreme Court bench headed by Justice DY Chandrachud was presiding over an appeal on whether Indian importers can be subject to the levy of Integrated Goods and Services Tax or IGST on the component of ocean freight paid by the foreign seller to a foreign shipping line, on a reverse charge basis.

The verdict also builds on the principles of cooperative federalism. “To regard them (recommendations made by the council) as binding edicts would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST,” the ruling said.

According to SR Patnaik, partner and head-taxation, Cyril Amarchand Mangaldas, the verdict offers a clarification of the authority of the GST Council and could lead to a flooding of litigations challenging any discrepancy or unfavourable GST Council decisions.

“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. the Parliament and the state legislative assemblies,” Patnaik told BQ Prime.

He expects the verdict to have an impact on the implementation and excise of the GST law.

“The GST Council must act precisely within the confines of the authority given to it under the Act, and the notion of implied intent or the idea of incidental and ancillary power will not be appropriate in the exercise of fiscal power as it affects several taxpayers,” he said.

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