BANARAS HINDU UNIVERSITY

ASSIGNMENT ON:

GOODS AND SERVICES TAX IN VIOLATION OF FEDERALISM

UNDER THE GUIDANCE OF: SUBMITTED BY:

xyz abc

BHU ROLL NO- 12345667

1ST SEMESTER

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 ACKNOWLEDGEMENT
Apart from the efforts of mine, the success of this project depends largely on the
encouragement and guidelines of many others. I take this opportunity to express my deep
gratitude and sincere thanks to our vice chancellor for providing us the good facilities and
resources.

I extend my hearty thanks to Prof (Dr.) Ali Mehdi Sir who guided me and taught everything
so well. I take this opportunity to express my deep sense of gratitude for his invaluable
guidance, constant encouragement, immense motivation, which has sustained my efforts at all
the stages of this project work.

I can’t forget to thank my parents for providing me best of the facilities, support and
encouragement. I will remain indebted to them.

Besides, I would also like to acknowledge my classmates who helped me and provided
valuable advice which helped me to carry out this project successfully.

THANK YOU

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 TABLE OF CONTENTS
1. INTRODUCTION..............................................................................................................4
2. FEDERALISM AS A BASIC FEATURE OF THE CONSTITUTION OF INDIA.............5
2.1. IS THE INDIAN CONSTITUTION FEDERAL IN CHARACTER?.....................................................5
2.2. THE CONCEPT OF THE BASIC STRUCTURE DOCTRINE AND FEDERALISM AS PART OF THE
BASIC STRUCTURE.........................................................................................................................6

2.3. BOMMAI AND FEDERALISM AS BASIC STRUCTURE...............................................................7

3. CONSTITUTIONAL INFIRMITY OF THE 101st AMENDMENT ACT...........................9
3.1. LEGAL PROBLEMS WITH GST COUNCIL................................................................................9
4. CONCLUSION....................................................................................................................12
5. REFERENCES.....................................................................................................................14

INDEX OF AUTHORITIES

Cases

Indira Nehru Gandhi v. Raj Narain, (1975) Supp SCC 1...........................................................6

Kesavananda Bharati v. State of Kerala, (1973) 4 SCC 225.....................................................6
Maharaj Umeg Singh v. State of Bombay, AIR 1955 SC 540...................................................6
N.K. Chauhan v. State of Gujarat, (1977) 1 SCC 308...............................................................6
Naraindas Indurkhya v. State of M.P., (1974) 4 SCC 788.........................................................9
Pratap Singh v. State of Jharkhand, (2005) 3 SCC 551 ..........................................................10
S.R. Bommai v. Union of India, (1994) 3 SCC 1 1994.........................................................4, 8
State of Karnataka v. Union of India, (1977) 4 SCC 608..........................................................7
State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201.................................................9
Supreme Court Advocates-on-Record Assn. v. Union of India, (2016) 5 SCC 1....................12
Yedida Chakradhararao v. State of A.P., (1990) 2 SCC 523...................................................10

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 1. INTRODUCTION
The Constitution (101st Amendment) Act, 2016, ("the 101st Amendment Act") is a radical
re-structuring of the constitutional basis for taxation by the Union and State Governments in
India. Enacted to create a constitutional framework to introduce the Goods and Services Tax
(GST), the 101st Amendment Act grants new powers to the Union Parliament and State
Legislative Assemblies, and also creates institutions that have a significant bearing on the
federal character of the Constitution.
The Constitution, as it was when initially brought into force, had a particular vision in respect
of taxation of goods and services supplied within India; while customs duty and excise on
manufacture were within the scope of the legislative powers of the Union Parliament, 1
taxation of sale and movement of goods was within the exclusive purview of the States. 2 The
demarcation of Union and State taxing powers in List I and List II of the Seventh Schedule
was precise and clear, leaving little room for any overlap in the kind of taxes that the Union
could impose and those that a State could impose. List III or the "Concurrent List" contains
no taxing entries, suggesting that the constitutional scheme of taxation was to allot two
separate, exclusive spheres of taxation for the Union and the States. 3 That States should have
independent taxing powers is a necessary feature of a federal polity, and mere plenary
legislative power, in the absence of the power to impose taxes and raise revenue, would be
meaningless.4
With the coming into force of the GST regime, both the Union and the States will ostensibly
have the power to tax the supply of goods and services. The 101st Amendment Act takes
away neither the Union's nor the States' taxing power but instead gives them the power to
impose taxes on supply of goods and supply of services respectively.
This is a fundamental change has implications for the federal character of India's polity that
must be examined in some depth. More so in light of the fact that the federal character of the
Constitution of India has been held to be a basic feature of the Constitution of India by the
Supreme Court in S.R. Bommai v. Union of India,5 and therefore cannot be abrogated by a
constitutional amendment.
I argue in this project that the 101st Amendment Act fundamentally upsets the federal
structure of the Constitution, and therefore is an abrogation of the basic structure of the
Constitution. I say this for two reasons: one, the GST Council makes States subordinate to the
Union in matters of taxation when they have never been in such a position under the

1
INDIA CONST. Entries 83 and 84, List I, Seventh Schedule. No separate entry for Service Tax existed in the
Constitution at the time it was enacted. Entry 92C was introduced into List I by the Constitution (88th
Amendment) Act, 2004 to clarify that the Union had the exclusive power to impose a service tax.
2
INDIA CONST. Entries 54 and 52, List II, Seventh Schedule.
3
This is not to say that the Union and the State can never tax the same subject matter or transaction. The
Supreme Court's judgments following Federation of Hotel & Restaurant Assn. of India v. Union of India, (1989)
3 SCC 634 allow the State and the Centre to tax the same subject matter but different "aspects" of it. Whether
or not the aspect theory has any place in Indian constitutional law, given the clear division of powers between
Union and the States is also a matter to be examined, but outside the scope of this paper.
4
Nirvikar Singh, Fiscal Federalism, in THE OXFORD HANDBOOK OF THE INDIAN CONSTITUTION 521,
521 (Sujit Choudhary, Madhav Khosla & Pratap Bhanu Mehta eds.).
5
S.R. Bommai v. Union of India, (1994) 3 SCC 1 1994.

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Constitution and; two, a State aggrieved by the decisions of the GST Council has no effective
legal remedy. I argue therefore, that the structure of the GST Council is a violation of the
basic structure of the Constitution, and could therefore be struck down by the Supreme Court
when challenged.
The first part will examine the concept of federalism as enshrined in the Constitution of India
and the aspects of it which constitute a "basic feature" of the Constitution. In doing so, this
part will refer to the history of federalism in India, theories of what federalism is, and the
jurisprudence of the Supreme Court (which heavily examines the Constituent Assembly
debates to arrive at its conclusions) to distil certain core elements of federalism as a basic
feature of the Constitution.
The second part will be an analysis of the 101st Amendment Act and its features, pointing out
how it violates the principles of federalism discussed in the previous part. In doing so, this
part will compare the 101st Amendment Act with its previous iterations to point out what has
changed and why these changes affect the constitutional validity of the 101st Amendment
Act. Further, this section will also briefly mention how countries with a federal Constitution,
which have implemented a GST, namely Australia and Canada, did so within their federal
framework.
The final part will be a summary of the arguments presented, and the possible consequences
of the 101st Amendment Act as it stands.

2. FEDERALISM AS A BASIC FEATURE OF THE CONSTITUTION OF

INDIA
2.1. IS THE INDIAN CONSTITUTION FEDERAL IN CHARACTER?
The Constitution of India describes India as a Union of States.6 Even though the Constitution
allows for the creation of new States, renaming existing States, and alteration of boundaries
of States by Parliament through a regular law, the States themselves are indestructible. 7 The
Union Parliament can, through a constitutional amendment, also remove a State from the list
of States and merge it with another, such as for instance States such as the Punjab and
Erstwhile Patiala States Union (PEPSU) which has now been merged into Punjab. 8 New
States have been carved out several times over the years on a linguistic basis (such as
Karnataka) or for better representation of tribal peoples (such as Jharkhand). The Centre
appoints Governors to States and has the power to dismiss State Governments under Article
356 on the recommendations of the Governor - a much used and abused power. When
Emergency is declared in India, Article 250 permits Parliament to even legislate on subjects
earmarked for the States. Under Article 254, where there is any conflict between a Union law
and State law made on the same subject matter in the Concurrent List, the Union law will
prevail. All of these cast doubt on the claim that the Indian Constitution enshrines the
principles of   federalism.

6
INDIA. CONST. art. 1 cl. 1.
7
INDIA. CONST. art. 3.
8
States Reorganisation Act, 1956.

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Does this necessarily mean that we cannot describe India as a "federal" country? Given the
greater tilt towards the Union, there has been a serious debate in the years after the
Constitution came into force as to whether India is a federal polity at all. Decades of actually
working the Constitution, not to mention the judgments of the Supreme Court, have meant
that the present common consensus is that India is a federal country, but one where the Union
has a greater share of the powers than the States.9
The common consensus that India's Constitution is federal in character cannot be dismissed.
Some features of India's federalism are undeniable:
a. The States have plenary legislative power derived from the Constitution and not from a law
made by the Union Parliament.10
b. The States have their own fields of legislation and a common one with the Union.11
c. The States have the constitutional power to levy tax and raise revenue for their
functioning.12
d. The Constitution guarantees the States freedom to spend their revenue as they see fit.13
e. The States' executive powers are plenary.14

2.2. THE CONCEPT OF THE BASIC STRUCTURE DOCTRINE AND FEDERALISM AS

PART OF THE BASIC STRUCTURE
The federal character of the Constitution being a basic feature of the Constitution of India
was hinted at by the Supreme Court in Kesavananda Bharati v. State of Kerala, where the
Supreme Court first articulated what came to be known as the "basic structure doctrine".
While holding that constitutional amendments could be struck down by the Supreme Court
for violating the basic features of the Constitution, the majority in Kesavananda Bharati also
enumerated the features of the Constitution that they considered "basic" without exactly
going into depth as to what they meant by each of these features. Of the majority in this case,
CJI Sikri, Shelat Grover, and Jaganmohan Reddy JJ., explicitly identify the "federal
character" of the Constitution as one of the basic features of the Constitution. The others in
the majority, H.R. Khanna, K.S. Hegde and AK Mukherjea JJ., do not mention it explicitly
but concede that the basic features enumerated by them are not exhaustive and can be
expanded upon.15
While the basic structure doctrine was accepted as law by the Supreme Court in its
subsequent judgment in Indira Nehru Gandhi v. Raj Narain,16 there was some scepticism
about its scope. On the question as to whether the "basic structure doctrine" could be applied
in a context outside the amendment of the Constitution, in State of Karnataka v. Union of
9
M.P. Singh, The Federal Scheme, in THE OXFORD HANDBOOK OF THE INDIAN CONSTITUTION 464-
6 (Sujit Choudhary, Manav Khosla, & Pratap Bhanu Mehta eds.).
10
Maharaj Umeg Singh v. State of Bombay, AIR 1955 SC 540.
11
INDIA. CONST. art. 246. cl. 2 & 3. INDIA. CONST. List II & III, Seventh Schedule.
12
INDIA. CONST. Entries 45-63, List II of Seventh Schedule delineate the subject matters on which the State
has the power to levy taxes on.
13
INDIA. CONST. art. 202.
14
N.K. Chauhan v. State of Gujarat, (1977) 1 SCC 308.
15
Kesavananda Bharati v. State of Kerala, (1973) 4 SCC 225.
16
Indira Nehru Gandhi v. Raj Narain, (1975) Supp SCC 1.

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India,17 a seven judge bench of the Supreme Court of India answered the question in negative.

2.3. BOMMAI AND FEDERALISM AS BASIC STRUCTURE

The Supreme Court in Bommai dispelled scepticism on both fronts - it asserted that the
federal character of the Constitution was a basic feature of the Constitution and that it could
be used in contexts beyond testing the constitutional validity of amendments. The case came
to court following the dismissal of six State Governments by the Union Government in the
late 80s and early 90s.18 These dismissals were challenged by the respective States in court
and the cases eventually worked their way up to the Supreme Court and were ultimately
decided in 1994. A nine-judge Bench of the Supreme Court held that the State of Rajasthan
case had been decided wrongly, holding that the decision of the President to impose
"President's Rule" on a State could be judicially reviewed and listed out the narrow grounds
on which President's Rule could be imposed. It therefore held the imposition of President's
Rule invalid in the context of three States, but it also upheld the dismissal of three State
Governments on the ground that their actions in helping kar sevaks was an abrogation of
secularism; also a basic feature of the Constitution.
Six opinions were delivered between the nine judges who heard the Bommai case of which at
least three went into some depth in examining the federal character of the Indian
Constitution. Ahmadi, J. (who was in the minority on the issue of the scope of Article 356)
describes the Constitution as "quasi-federal", while Sawant and Kuldip Singh, JJ. (part of the
majority) did not use a specific label in describing India's   federalism, even though they held
that "democracy" and "  federalism" are part of the basic structure of the Constitution.
Ramaswamy, J. while agreeing that   federalism is a basic feature of the Constitution, used
the terms "federal" and "quasi-federal" to describe the relations of States inter se and the
relations of State and Union respectively. Jeevan Reddy and Agrawal, JJ. noted that the
federal character of the Constitution is not just a "convenience" but in fact a principle born
out of a "historical process" and an understanding of the "ground realities". They recognize
that the federal character of the Constitution does indeed have a bias towards the Union
without necessarily rendering the States mere "appendages" to the Union.
"The view that unimportant matters were assigned to the States cannot be sustained in face of
the very important subjects assigned to the States in List II, and the same applies to taxing
powers of the States, which are made mutually exclusive of the taxing powers of the Union
so that ordinarily the States have independent source of revenue of their own. The legislative
entries relating to taxes in List II show that the sources of revenue available to the States are
substantial and would increasingly become more substantial. In addition to the exclusive
taxing powers of the States, the States become entitled either to appropriate taxes collected by
the Union or to a share in the taxes collected by the Union".19
For Ramaswamy, J. also, the "essence of federalism" is the division of legislative and
17
State of Karnataka v. Union of India, (1977) 4 SCC 608.
18
These states were Karnataka, Meghalaya, Nagaland, Madhya Pradesh, Rajasthan and Himachal Pradesh. The
first three had been dismissed owing to defections and alleged loss of support of Chief Minister whereas the
latter three had been dismissed in light of the respective State Government's support for kar sevaks in the events
leading up to the Babri Masjid demolition and communal violence that followed.
19
H.M. Seervai, CONSTITUTIONAL LAW OF INDIA, 301 (N.K Tripathi ed., 4th ed. 1994).

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executive powers of a State between the Union and the States. Reddyand Agrawal, JJ. also
state that "within the powers allotted to them, States are supreme". At the same time, they
noted that the Constitution has made the Union more powerful than the States when it comes
to certain matters, including the matter of taxation, though this is accompanied by an
obligation to turn over a part of the tax proceeds to the States under the mechanism provided
under the Constitution.
All the judges in the majority acknowledged that the Indian constitution is a federal one, and
that the federal structure of the Constitution is a basic feature of the Constitution. All of them
agreed that within the constitutional spheres allotted to them, States are sovereign and
constrained only by the express limitations imposed on them by the Constitution. Sawant and
Kuldip Singh, JJ. go on to identify fiscal independence (as pointed out by Seervai) as one of
the features of federal character of the   Indian Constitution, while Reddy and Agrawal, JJ.
noted that the Constitution couples the Union's greater tax powers with an obligation to turn
over some to the States. What cannot be denied from examining the majority judgments in
Bommai is the conclusion that the core of the federal character of the   Indian Constitution is
found in the fact that the legislative and executive powers of the States are vested in them by
the Constitution, limited only by the Constitution itself and not the Union Government.
It is arguable that though the Supreme Court has recognized the federal character of the
Constitution as a "basic feature", the ultimate basis of the decision was the principle that
judicial review can never be entirely excluded from the decisions of constitutional
functionaries. Nevertheless, the extremely narrow grounds on which President's Rule under
Article 356 has been held permissible is a reiteration of the federal character of the
Constitution. These grounds are a recognition that federalism, where the Union cannot
interfere in the functioning of a State Government, is a basic feature of the Constitution and
may only be abrogated for narrow, exceptional reasons, as articulated in the Constitution
itself and not at the pure discretion of the Governor or the President, acting on the advice of
the Union Government.20
In the specific context of taxation, the Supreme Court's judgment in State of W.B. v. Kesoram
Industries Ltd, is also relevant. Here, the Supreme Court re-iterated the powers of the State
Governments in imposing taxes on mineral rights, even though the power to regulate and
control such minerals was vested with the Union. The court read the relevant entries of List I
and List II of the Seventh Schedule harmoniously, holding that the Union's power to regulate
and control could not be said to have deprived the State of its power of taxation on that
subject. It premised this harmonious interpretation on the federal structure of the
Constitution, acknowledging that there definitely was a bias in favour of the Union in the
federal structure. The Court nonetheless states that interpretation of the Constitution should
avoid "whittling down" the powers of the State.
The Supreme Court in Kesoram does not explicitly discuss whether federalism is a basic
feature of the Constitution (since no constitutional amendment was involved), but nonetheless
operates on the assumption that judicial interpretation of the Constitution must work towards
reinforcing rather than weakening the federal structure of the Constitution. 21
20
S.R. Bommai v. Union of India, (1994) 3 SCC 1 1994.
21
State of W.B. v. Kesoram Industries Ltd., (2004) 10 SCC 201.

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A cumulative reading of these cases suggests the following propositions:
i. Though there is a strong bias towards the Union, there is no doubt that the
Constitution of India envisages a federal polity.
ii. The federal structure of the Constitution is a basic feature of the Constitution that
cannot be abrogated by amendment.
iii. The division of powers between the Union and States is an essential feature of this
federal character.
iv. The political sovereignty of States is inviolate under the Constitution, save for
exceptional circumstances where constitutional rule is itself not possible.
v. States' power to levy taxes and cesses by laws is plenary and part of the federal
character of the Constitution.
What the 101st Amendment Act does, however, in the way in which the GST Council is
structured, is to abrogate States' political sovereignty when it comes to the levy of taxes. As I
argue in the next part, it renders States subservient to the Union in the matter of taxation,
giving the Union the power to dictate taxation laws and the policies of a State.

3. CONSTITUTIONAL INFIRMITY OF THE 101st AMENDMENT ACT

3.1. LEGAL PROBLEMS WITH GST COUNCIL
The 101st Amendment Act which creates the constitutional framework for the GST also
creates a GST Council to resolve issues of implementation. This Council comprises of the
Union Finance Minister as Chairperson, the Union Minister for State for Finance or Revenue,
and all Finance Ministers from the respective State Governments. 22 It has the power to issue
"recommendations" on a range of matters outlined in Article 279A(4) of the Constitution.
Decisions of the GST Council are taken by super-majority of three fourths of the weighted
votes of members present and voting,23 but each State and the Union don't necessarily have
the same voting power. The Union alone has one-third of the votes, while all the States
together have two-thirds of the total votes.24
Before getting into the two main problems with the structure of the GST Council, it is
necessary to address one issue - whether the "recommendations" of the GST Council are in
fact binding upon the Union and States.
There is scope for confusion over whether the "recommendations" of the Council are binding,
since legally, a "recommendation" (in contrast with the word "prescription") would mean that
it is non-binding on the parties concerned.25 Explanation to Article 246A, Article 269A(1),
clauses (4), (5) and (11) of Article 279A(4), and Section 18 of the 101st Amendment Act use
the term "recommendations" or some variation of the same in the context of the GST
Council. This would suggest that the Union and the States are still free to disregard the
recommendation of the GST Council if they so choose.

22
INDIA. CONST. art. 279A. cl. 1.
23
INDIA. CONST. art. 279A. cl. 9.
24
INDIA. CONST. art. 279A. cl. 9(a).
25
Naraindas Indurkhya v. State of M.P., (1974) 4 SCC 788.

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However, a closer examination suggests that this is not so. It is a well-accepted canon of
construction that words must interpreted in the context in which they occur26 and in line with
the intent of the legislature.27 The use of "recommendation" may be an instance of poor
drafting as the intent in introducing the GST Council is quite clearly to make the
recommendations binding. Two reasons can be forwarded for this: one, if the GST Council
can't make binding recommendations, the entire structure of the GST will collapse, as each
State will have a different and possibly conflicting tax levy and collection mechanism. The
GST, as envisioned, is supposed to be uniform, with second order benefits to flow out from
such uniformity. The Union Finance Minister, Mr. Arun Jaitley, in his speech introducing the
101st Amendment Bill in the Rajya Sabha said,
The merits of the system itself are that it would convert India into one uniform economic
market with a uniform tax rate, bring about a seamless transfer of goods and services across
the country, enable us to check evasion and, therefore, enlarge the revenue, as far as the
Centre and the States are concerned.28
The uniform rates promised by the GST would go out of the window if the GST Council can't
ensure uniformity in rates.
Two, the fact that there is a dispute resolution mechanism provided for in Article 279A(11)
suggests that the recommendations are supposed to be binding - if they were merely
recommendatory and non-binding, no legal obligations would arise out of them, and there
would be no dispute to address as the State or the Union would be free to disregard the
recommendations. If the intent was to make the recommendations non-binding there would
be no need to have a dispute settlement body to enforce compliance of recommendations.
Given that the "recommendations" of the GST Council are actually binding on the States, the
manner in which the decisions are taken by the GST Council is constitutionally defective for
two broad reasons.
First, recommendations of the Council are made on the basis of a three fourths majority of the
members of the Council according to Article 279A(9). However, as mentioned not all
members of the Council have an equal vote in the Council. The votes are weighted with the
Union Government's vote having the weight of one-third of the total votes cast and all the
States together having two-thirds of the total votes. With the requirement for majority being
three-fourths of the votes cast, this effectively gives the Centre a veto over all
"recommendations" of the Council as it is mathematically impossible to attain the required
three-fourths majority if the Union does not vote for it.
Considering once again the kinds of subjects that the GST Council has the power to make
binding recommendations on, it implies that the Union Government has veto power over the
law making functions of the States - a concept entirely alien to the federal structure of the
Constitution of India.
Such a mechanism which allows the Union to determine and direct the tax policies of a State

26
Yedida Chakradhararao v. State of A.P., (1990) 2 SCC 523.
27
Pratap Singh v. State of Jharkhand, (2005) 3 SCC 551 .
28
Arun Jaitley, Speech to the Rajya Sabha (Aug. 3, 2016) [Link]
240/03082016/[Link].

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through a binding "recommendation" of the Council is unlikely to pass the "basic structure"
test in that it could amount to a violation of the Constitution's basic feature of federalism. It
directly infringes and violates one of the fundamental tenets of the Constitution's federal
structure - the political sovereignty of the States.
Curiously, this particular feature of the GST Council is of relatively recent vintage. The
earlier version of the 101st Amendment Act, the Constitution (115th Amendment) Bill, 2011
mandates that decisions of the GST Council be taken on the basis of consensus of all parties.
However, this was changed on the basis of a report of the Parliamentary Standing Committee
which recommended a change on the basis that consensus may be difficult to achieve
between the Union and the States.29 The basis for doing so is a "suggestion" made during a
meeting of the Empowered Committee of State Finance Ministers in 2013. However, it was
never clarified in the report if this was a suggestion made by the Empowered Committee
itself or one of the suggestions made at the meeting by a party. Only the view of the
Chairman of the Empowered Committee of State Finance Ministers is reproduced to this
effect and it has never been made clear if this was the decision of the Empowered Committee
or his personal opinion.62 Immediately after that the Report says that it would be preferable to
have a consensus based decision making, but in the ultimate recommendation to the
Government, it suggests the present voting format.
The 115th Amendment Bill which proposes that decisions of the GST Council be taken by
consensus arguably provides for a more constitutionally appropriate method as it treats the
Union and the States as equals instead of placing one above the other. There is no logic or
rationale given by anyone for why the consensus requirement was replaced by the majority
system with a veto for the Union, save for a cursory line in the Standing Committee Report
that some-times consensus may be difficult. Even the dissent note by the member from the
All India Anna Dravida Munnetra Kazhagam party, in the report of the Select Committee
considering the 101st Amendment Act in its Bill form, which criticizes the voting structure in
the GST Council, is not referred to or responded to at all.30
Second, the supremacy of the Union over the States in the GST Council is re-affirmed by the
manner in which disputes arising out of the recommendations of the GST Council are
resolved. The 101st Amendment Act leaves it to the GST Council itself to set up the manner
in which disputes will be resolved. The 101st Amendment Act does not provide for any other
separate procedure by which the dispute settlement mechanism must be decided upon leaving
one to conclude that this too will be subject to the rule of super-majority, with the Union
continuing to enjoy a veto over the decisions of the GST Council. In effect, the Union, which
dominates decision making in the GST Council, will also decide how these decisions may be
challenged by aggrieved States. Given its veto, it can be safely assumed the Union will never
have a grievance against any recommendation of the GST Council and it may, at best, use

29
STANDING COMMITTEE ON FINANCE, 15TH LOK SABHA, SEVENTY THIRD REPORT ON THE
CONSTITUTION (ONE HUNDRED FIFTEENTH AMENDMENT) BILL, 2011
[Link] Constitution%20115/GST%20SC%[Link]
30
SELECT COMMITTEE ON THE CONSTITUTION (ONE HUNDRED AND TWENTY SECOND
AMENDMENT) BILL, 2014, REPORT of THE SELECT COMMITTEE ON THE CONSTITUTION (ONE
HUNDRED AND TWENTY SECOND AMENDMENT) BILL, 2014
[Link] Select%20comm%20report%[Link].

11 | P a g e
this dispute settlement mechanism to enforce the decisions of the Council against States. A
State that is unhappy with a GST Council recommendation is therefore left with little or no
effective legal remedy.
Apart from compounding the subordinate position of the States under the GST Council, the
dispute settlement mechanism could also fall afoul of the Supreme Court's judgment in
Supreme Court Advocates-on-Record Assn. v. Union of India, where the Court struck down
the Constitution (99th Amendment) Act, 2015 for the reason, inter alia, that the Government,
which was the largest litigant had a say in the appointment of judges.31 With the Supreme
Court's jurisdiction over decisions of the GST Council having been excluded by implication
(specifically its jurisdiction under Article 131 in relation to inter-State or Union-State
disputes), it is likely that this might be seen to be an abrogation of judicial review under the
Constitution - a basic feature that has been responsible for all constitutional amendments
struck down so far.
Irrespective of whether the Supreme Court is ultimately going to hold the 101st Amendment
Act as being constitutionally valid or otherwise, the fact remains that the GST, in order to be
functional, requires a massive, coordinated effort on the part of the Union and the States. This
requires both the Union and the States to be on the same page as regards the benefits and
drawbacks of the GST and its operation. A GST Council which is riven by distrust between
parties and suspicion about the motives of the other is unlikely to perform this coordination
function with any real effect. The GST Council, as presently structured, seems to deprive
States of a real say in the decision making around the GST.  

31
Supreme Court Advocates-on-Record Assn. v. Union of India, (2016) 5 SCC 1.

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 4. CONCLUSION
Save for a few stray articles,32 there has not been much public debate about the structure of
the GST Council and its problems. It is likely that the issue may come to the fore when the
States actually attend a meeting of the GST Council and realise that the voting system is
stacked against them and in favour of the Union. 33 With the present voting structure, there is
no reason for the Union to take on board all States and it is quite likely that proposals relating
to the rate of the GST, the exemptions and collection mechanism are likely to cause much
disagreement. More so, since there's already been much public disagreement between so-
called "producer States" and "consumer States" with the former taking a view that a GST is
fundamentally against their interests.34 It is quite likely that a legal challenge could arise
against the GST given the lopsided structure of voting that will leave some State aggrieved.
The legal challenge to the 101st Amendment Act, as this paper has outlined, will not be
without firm legal basis. Given the effort that it took to get thus far on GST, it is quite
unlikely that another round of constitutional amendments will be made by the Government to
rectify the legal defects in the 101st Amendment Act pointed out here. It is quite likely that
when challenged, the effort will be to defend the amendment legally in court.
That said, the 101st Amendment Act does not entirely foreclose the possibility of the States
having a say in the decision making process in the GST Council. The Union still needs a
majority of the States present and voting to agree with it in order to be able to take the
decisions it wishes to in the context of the GST Council. Arguably this still provides some
space for States to bargain with the Union and might save the 101st Amendment Act from
being struck down. However, this risks creating "winners" and "losers" among the States in
respect of the decisions taken by the GST Council. The "losers", the ones who may be
adversely affected by a decision of the Council, will still have no effective remedy against the
decisions of the GST Council given that the same decision making structure which went
against them will also decide how their grievances will be addressed.
Whether the provisions of the 101st Amendment Act are struck down by the Supreme Court
or not, the concerns for the federal structure of the Constitution will not go away. The success
of the GST, in practice, requires high levels of co-ordination and trust between the Union and
the States. This is a task that can-not be taken for granted. The present framework raises some
questions, namely: Will States which feel that their interests have been crushed by a brute
majority not try and throw further spanners into the works? Is the GST not likely to be mired
32
Nilakantan RS, The GST could sound the death knell for federalism in India, THE WIRE, Mar 04,
2019[Link] federalism/. Alok Prasanna Kumar, The Bill that will doom the GST,
BLOOMBERG QUINT, Aug. 5, 2016 [Link] opinion/2016/08/03/the-bill-that-will-
doom-gst.
33
Something of this nature seems to have occurred going by the complaints of the Kerala Finance Minister at
the very first GST Council meeting: Express News Service, Kerala Finance Minister worried about GST
Council's agenda, NEW INDIAN EXPRESS Mar 3, 2019. [Link]
[Link]/states/kerala/Kerala-Finance-Minister-worrired-about-GST-councils-
agenda/2019/03/03/[Link].
34
The concerns of "producing states" has been articulated here: A Sarvar Allam, GST and the States: Sharing
Tax Administration, Vol. LI No 31 ECONOMIC AND POLITICAL WEEKLY, (2019) http://
[Link]/journal/2019/31/web-exclusives/[Link].

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in litigation, not between the assessee and State, but between State and State, and State and
Union over the manner in which it is to be operated?
To re-iterate: India's federal character is not one of "administrative convenience" or mere
accident. It is the result of specific historical circumstances leading up to the enactment of the
Constitution. Indeed, as Ramaswamy J. recognized in his judgment in Bommai, a federal
government was the Constitution makers' attempt at finding an effective way to govern a
country as vast and diverse as India.35 In attempting a large scale (and probably necessary)
reform of indirect taxation, it would seem as if the federal character of the Constitution has
been needlessly tampered with by the Union. If unchecked by the Court, this could have
grave repercussions for the future of India's federal polity.

Also, he GST regime which aims to stitch together a common market by dismantling fiscal
barriers and is eyed as a move to boost investor confidence in the country is certainly not
without hurdles and challenges. Around 160 countries in the world have implemented the
GST, the latest addition to the list being Malaysia, where the implementation of GST became
effective from 1st April 2015. However the taxation system of India which is a two tiered
federal structure (excluding a third tier of rural and urban local bodies) imposes serious
challenges to the overhauling of the existing system to integrate the same into a single
regime. A dual GST has thus been proposed, keeping with the constitutional requirements of
fiscal federalism. It has been argued that GST rates which have been proposed as high as 24-
27%will create apprehension in the minds of paying consumers and may lead to greater tax.
Also the GST appears to be treating unequal states equally by ignoring that the level of
manufacturing activities in states vary greatly and the proposed framework may not be
suitable, keeping in view the heterogeneity and vastness of India. Administration and
complexity issues have been at the centre of most debates opposing the same. Thus,
skepticism still prevails over the suggested reforms as well as regarding the exact nature of
how the fiscal relations between the Centre and state would be altered and redesigned. What
is however evident is that the proposed regime which is working well in most countries
where it has been introduced, would certainly give the GDP a boost, reduce the prices of
goods by eliminating cascading effect of taxes, make the export oriented industries
internationally more competitive and improve the efficiency of tax collection and
administration in the country.

35
See S.R. Bommai, (1994) 3 SCC, 156 (Ramaswamy, J.).

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 5. REFERENCES
BOOKS

 H.M. Seervai, CONSTITUTIONAL LAW OF INDIA, 301 (N.K Tripathi ed., 4th ed. 1994). 7
 M.P. Singh, The Federal Scheme, in THE OXFORD HANDBOOK OF THE INDIAN
CONSTITUTION 464-6 (Sujit Choudhary, Manav Khosla, & Pratap Bhanu Mehta eds.)....6
 Nirvikar Singh, Fiscal Federalism, in THE OXFORD HANDBOOK OF THE INDIAN
CONSTITUTION 521, 521 (Sujit Choudhary, Madhav Khosla & Pratap Bhanu Mehta
eds.)..........................................................................................................................................4

WEB SOURCES

 Arun Jaitley, Speech to the Rajya Sabha (Aug. 3, 2016) [Link]

240/03082016/[Link]................................................................................10
 Nilakantan RS, The GST could sound the death knell for federalism in India, THE WIRE,
Aug. 5, 2016 [Link] federalism/. Alok Prasanna Kumar, The
Bill that will doom the GST, BLOOMBERG QUINT, Aug. 5, 2016
[Link] opinion/2016/08/03/the-bill-that-will-doom-gst.............12
 SELECT COMMITTEE ON THE CONSTITUTION (ONE HUNDRED AND TWENTY
SECOND AMENDMENT) BILL, 2014, REPORT of THE SELECT COMMITTEE ON
THE CONSTITUTION (ONE HUNDRED AND TWENTY SECOND AMENDMENT)
BILL, 2014.............................................................................................................................11
 Something of this nature seems to have occurred going by the complaints of the Kerala
Finance Minister at the very first GST Council meeting: Express News Service, Kerala
Finance Minister worried about GST Council's agenda, NEW INDIAN EXPRESS Sept. 21,
2016. [Link] [Link]/states/kerala/Kerala-Finance-Minister-worrired-
about-GST-councils-agenda/2016/09/21/[Link]................................................12
 STANDING COMMITTEE ON FINANCE, 15TH LOK SABHA, SEVENTY THIRD
REPORT ON THE CONSTITUTION (ONE HUNDRED FIFTEENTH AMENDMENT)
BILL, 2011.............................................................................................................................11

 The concerns of "producing states" has been articulated here: A Sarvar Allam, GST and the
States: Sharing Tax Administration, Vol. LI No 31 ECONOMIC AND POLITICAL

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 WEEKLY, (2016) http:// [Link]/journal/2016/31/web-exclusives/gst-and-states-
[Link].............................................................................................13

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