GST Council Recommendations Not Binding on Centre/ States: Supreme Court

GST Council Decisions: The Supreme Court ruled on May 19, 2022 that the GST Council's recommendations are not binding on the central and state governments. The SC bench stated that the recommendations of the GST Council are a product of collaborative discussion and have persuasive value but it is not imperative that one of the federal units must always possess a higher share. The judgement was given by an SC bench led by Justice DY Chandrachud.

The SC Bench held that both the Parliament and State legislatures can equally legislate on matters related to the Goods and Service Tax. The bench emphasised on the importance of the principles of 'cooperative federalism, saying that Indian Federalism is a dialogue in which state and centre always engage in a dialogue. 

The Supreme Court ruling came on a plea filed by the revenue authorities challenging a Gujarat High Court order related to levying of IGST on ocean freight under the Integrated Goods and Services Tax (IGST) Act, 2007.

READ: 46th GST Council Meeting: GST Council to retain status quo on GST rate on textile to 5% 

Key Highlights of the Case

• The Gujarat High Court had in 2017 quashed a government notification that provided for 5 percent IGST to be imposed on services of transport of goods in a vessel. 
• The revenue authorities had filed a special leave petition against the order in the Supreme Court of India.
• The Supreme Court dismissed the plea by the revenue authorities and upheld the decision of the Gujarat High Court and held that GST on ocean freight in case of import of goods is unconstitutional. 

What does the SC ruling mean?

• The latest SC ruling means that the Indian importers who had not paid the tax on import of service will not be required to pay the tax and those who had such a tax will be eligible for a refund. 
• The value of imported goods generally includes the Cost, Insurance and Freight components along with Customs Duty and GST. However, the Central Board of Indirect Taxes and Customs also sought to levy 5 percent IGST on the value of imported goods, considering 10 percent of the value of imported goods as deemed ocean freight. 
• The importers had challenged this decision as it meant double taxation by the CBIC on the same value of imported goods, once by considering it as goods and second by considering a portion of the same value as services of transportation of goods.

What is GST Council?

The GST Council was notified on September 12, 2016 to recommend on the GST rate, exemption and thresholds, taxes to be subsumed and other matters.

READ ALSO: 45th GST council meeting: Concessional GST rates on COVID-19 related medicines extended till Dec 31st

Members of GST Council 

The GST Council comprises the Union Finance Minister, the Minister of State(Revenue) and the State Finance Ministers.

GST Council Voting Power

The decisions in the GST Council are taken by a majority of not less than three-fourths of weighted votes cast. While the centre holds one-third weightage of the total votes cast, all states take up two-thirds of the weightage of the total votes cast. The GST Council takes all its decisions through consensus.