SC rules federal govt and states have equal authority to enact GST laws

19 May, 2022 | Riya Girdhar

The Supreme Court construed the relevant legal requirements to declare that the GST Council's recommendations are not binding on the Centre or the states, and that they only have persuasive value.

The Supreme Court declared on Thursday that the federal government and states have equal and coordinated power to legislate on topics of the Goods and Services Tax (GST), a major decision clarifying the rights of federal entities in a democratic system.

The Supreme Court, led by Justice Dhananjaya Y Chandrachud, construed the relevant legislative requirements to conclude that the GST Council’s recommendations are not obligatory on the Centre or the states and that they only have persuasive value.

The court noted that the Goods and Service Tax Act, 2017 (GST Act) makes no provisions for instances in which the laws of the Centre and states conflict, and that it is up to the GST Council to provide appropriate advice if such scenarios arise.

“The Union and state legislatures have concurrent powers to legislate on GST,” the court said. “The constitution does not include a repugnancy provision, and the GST council must work in harmony to establish an acceptable solution.”

The court judgement came while upholding a decision by the Gujarat high court in 2020 to block the imposition of IGST on importers on ocean freight under reverse charge.

The Gujarat high court held in Mohit Minerals Pvt Ltd vs Union of India that under the IGST Act, 2007, no tax is levied on ocean freight for services provided by a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India. According to the high court, the levying and collecting of tax on such ocean freight under the contested Notifications is illegal.