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GST Council Has Unequal Voting Structure, Can Be An Avenue For Political Contestation : Supreme Court

Manu Sebastian
19 May 2022 4:38 PM GMT
Issue Of Notice Of Hearing Is A Statutory Requirement Under Section 75(4) Of CGST Act Before Imposition Of Tax Or Penalty: Andhra Pradesh High Court

While holding that the recommendations of the Goods and Services Tax(GST) Council are not binding on the Centre and the States, the Supreme Court has highlighted the unequal voting structure and the possibility of political contestations in the Council.

The Court noted that the recommendations of the GST Council are not based on a unanimous decision but on a three-fourth majority of the members present and voting, where the Union's vote counts as one-third, while the States' votes have a weightage of two-thirds of the total votes cast.

"There are two significant attributions of the voting system in the GST Council. First, the GST Council has an unequal voting structure, where the States collectively have a two-third voting share and the Union has a one-third voting share; and second, since India has a multi-party system, it is possible that the party in power at the Centre may or may not be in power in various States", the judgment delivered by a bench led by Justice DY Chandrachud stated.

Therefore, the bench added that the GST Council is not only an avenue for the exercise of cooperative federalism but also for "political contestation" across party lines.

Significantly, the Supreme Court judgment also acknowledged that all States may not have equal share of power in the GST council.

"It is not imperative that one of the federal units must always possess a higher share in the power for the federal units to make decisions", the Court said.

In this context, it is relevant to note that the GST council meetings have witnessed instances of intense disagreements between the Centre and the States.

Last year, the Finance Minister of Tamil Nadu P Thiaga Rajan opposed the "one state, one vote" scheme in GST council and demanded that the vote share of the states should be proportionate to their population or its manufacturing capability, consumption, or per capita income. He also pointed that states which are governed by the same governing party at the Centre were getting more accommodation in the council meetings.

West Bengal Finance Minister Amit Mitra made an allegation in a letter to the Union Finance Minister Nirmala Sitharaman last year that the GST council meetings have become "acrimonious, vexing and almost toxic with erosion of mutual trust between the Centre and States". In this backdrop, the Former Kerala Finance Minister had said that a dispute resolution mechanism and an independent secretariat was needed in the GST council.

Seen in this background, the Court makes certain interesting observations about "uncooperative federalism" and how the friction between Centre and States may not actually be an undesirable factor in a federal structure.

"'Uncooperative federalism' is valuable since "it is desirable to have some level of friction, some amount of state contestation, some deliberation-generating froth in our democratic system", Justice Chandrachud said quoting Jessica Bulman and Heather K.

"When the federal units are vested with unequal power, the collaboration between them is not necessarily cooperative. Harmonised decision thrives not just on cooperation but also on contestation. Indian federalism is a dialogue in which the States and the Centre constantly engage in conversations.

The States can use various forms of contestation if they disagree with the decision of the Centre. Such forms of contestation are also within the framework of Indian federalism", the judgment stated.

"Indian federalism is a dialogue between cooperative and uncooperative federalism where the federal units are at liberty to use different means of persuasion ranging from collaboration to contestation", the Court added.

"If the States have been conferred lesser power they can still resist the mandates of the Union by using different forms of political contestation as permitted by constitutional design. Such contestation furthers both the principle of federalism and democracy. When the federal units are vested with unequal power, the collaboration between them is not necessarily cooperative. Harmonised decision thrives not just on cooperation but also on contestation", the judgment further stated.

The bench, also comprising Justices Surya Kant and Vikram Nath, held that the 'recommendations' of the GST Council are the product of a collaborative dialogue involving the Union and States and that they are recommendatory in nature.

"To regard them as binding edicts would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST", the Court stated in the judgment.

For more about the judgment, refer this report

Case Title : Union of India and Anr versus M/s Mohit Minerals Through Director

Citation : 2022 LiveLaw (SC) 500

Click here to read/download the judgment

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