GST Council

1. Constitutional foundation and purpose

GST replaced a fragmented system of Union and State indirect taxes with a coordinated tax on supplies of goods and services. Before GST, the Union principally taxed manufacture and services, while States taxed sales and several other transactions. This division created overlapping tax burdens and barriers to an integrated market. GST required a constitutional arrangement under which both levels of government could tax the same supply while coordinating essential features of the system.

The Constitution (One Hundred and First Amendment) Act, 2016 inserted Articles 246A, 269A and 279A. Article 246A grants Parliament and State legislatures power to legislate on GST, notwithstanding Articles 246 and 254. Parliament has exclusive power over GST on inter-State supplies. Article 269A provides for Union levy and collection of inter-State GST and its apportionment between the Union and States. Imports are deemed inter-State supplies for this purpose.

Article 279A required the President to constitute the GST Council within sixty days of commencement of the amendment. It is a constitutional institution, not merely an executive conference or a statutory committee. Its central purpose is to reconcile a harmonised national tax framework with India’s federal distribution of legislative authority. GST became operational on 1 July 2017 through Union and State legislation.

2. Composition, quorum and voting

The Council consists of the Union Finance Minister as Chairperson, the Union Minister of State in charge of Revenue or Finance, and the minister in charge of finance or taxation, or another minister nominated by each State government. State representatives choose one among themselves as Vice-Chairperson for a period they determine. Article 366(26B) extends the meaning of State to Union territories with legislatures for the relevant GST provisions.

One-half of the total number of Council members constitutes the quorum. The Council determines its own procedure. Article 279A also protects its proceedings against invalidation merely because of a vacancy, a defect in constitution or appointment, or a procedural irregularity that does not affect the merits of the case.

Decisions require a majority of not less than three-fourths of the weighted votes of members present and voting. The Union government’s vote carries one-third of the total weight; all State governments’ votes together carry two-thirds. Consequently, the Union cannot secure a decision alone, and the States cannot collectively pass a decision against the Union’s opposition. Conversely, Union support is insufficient without substantial support from States. Individual States do not possess a veto.

Although formal voting is constitutionally available, the Council has generally emphasised consensus. Aspirants should distinguish consensus as a decision-making practice from unanimity as a legal requirement: the Constitution prescribes weighted voting, not a mandatory unanimous vote.

3. Functions and the boundaries of GST

Under Article 279A(4), the Council recommends which Union, State and local-body taxes, cesses and surcharges may be subsumed in GST. It recommends goods and services to be taxed or exempted, model GST laws, principles of levy, principles governing apportionment of inter-State GST and rules relating to the place of supply. It also recommends the threshold turnover below which supplies may be exempted.

Its responsibilities extend to rates, including floor rates with bands; special rates for a specified period to raise resources during a natural calamity or disaster; and special provisions concerning the States listed in Article 279A(4)(g). It may consider other GST-related matters it decides to address. Article 279A(6) directs it to be guided by the need for a harmonised GST structure and a harmonised national market.

Alcoholic liquor for human consumption is constitutionally excluded from GST under Article 366(12A). Petroleum crude, high-speed diesel, petrol, natural gas and aviation turbine fuel occupy a different position: Article 279A(5) requires the Council to recommend the date from which GST should apply to them. Thus, their treatment is not identical to the constitutional exclusion of alcoholic liquor for human consumption.

The Council is not itself a legislature or a tax-collection department. Parliament and State legislatures enact GST laws; competent governments issue notifications under those laws; and tax administrations assess and collect tax. The GST Network provides technological support and is distinct from the Council.

4. Recommendations, judicial interpretation and disputes

In Union of India v. Mohit Minerals Pvt. Ltd. (2022), the Supreme Court examined an IGST levy on ocean freight associated with certain imports. It held that GST Council recommendations are not binding on Parliament and State legislatures. Articles 246A and 279A must be read together: the former grants legislative power, while the latter creates an institution for dialogue and coordination.

The Court described the recommendations as having persuasive value and stressed that cooperative federalism involves negotiation between constitutional units. The ruling did not abolish the Council or render its work legally irrelevant. Nor did it mean that executive authorities could disregard requirements imposed by GST statutes.

A crucial distinction is between a recommendation’s constitutional effect on a legislature and a statutory condition governing executive action. Where a GST Act authorises a government notification only on the Council’s recommendation, the executive must comply with that statutory requirement. For examination purposes, avoid both extremes: Council recommendations are neither automatically binding legislation nor necessarily inconsequential advice.

Article 279A(11) requires the Council to establish a mechanism to adjudicate specified disputes arising from its recommendations or their implementation. These may be between the Union and one or more States, between combinations of the Union and States on opposing sides, or between States. This intergovernmental mechanism must not be confused with the GST Appellate Tribunal, which addresses tax appeals under GST legislation.

5. Federal significance and fiscal tensions

The Council institutionalises joint decision-making in a field central to governmental autonomy: taxation. States gained the ability to tax services under the GST framework, while both levels accepted coordination over tax bases, rates and procedures. A broadly common framework supports input-tax credit, reduces cascading and facilitates inter-State trade. However, it also limits the practical space for States to independently tailor major indirect taxes.

Compensation was central to this federal bargain. Section 18 of the 101st Amendment Act required Parliament, on the Council’s recommendation, to provide compensation for GST-related State revenue losses for five years. The Goods and Services Tax (Compensation to States) Act, 2017 used 2015–16 as the base year and assumed annual protected revenue growth of 14 per cent. The five-year compensation period ended in June 2022; continuation of the compensation cess for repayment purposes should not be confused with an extension of that entitlement.

COVID-19 exposed tensions over revenue shortfalls, borrowing and the allocation of fiscal risks. Such episodes show that a common market requires credible arrangements for distributing both revenues and shocks. Predictable transfers, transparent revenue estimates, reasoned recommendations and effective dispute resolution can strengthen trust. The Council is therefore best understood as a forum of negotiated fiscal federalism rather than an institution superior to the Union and State legislatures.

Previous year questions

No UPSC question has been asked directly on this micro-topic yet. Use the practice questions below.

Practice questions