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If the Value Added Tax (VAT) is thought to be a significant improvement over the previous national Central Excise Duty and the sales tax system, then there’s the Goods and Services Tax at the next level. GST will be a huge step forward – the next natural step is to implement a comprehensive indirect tax system in the country’s reform.

Keeping this overarching goal in mind, Shri P. Chidambaram, the Minister of Finance, made the announcement in the Central Budget, the then Union Finance Minister (2007-2008), stating that GST would be implemented since April 1, 2010.

GST Council is an apex member council tasked for amending, reconciling, and procuring any legislation or rule pertaining to the context of goods and services tax in India. The council is led by the Union Finance Minister, Nirmala Sitharaman, who is aided by the finance ministers of all other Indian states.

The GST council is the principal decision-making body, which is in charge of making all major GST related decisions. The GST Council establishes tax rates, exemptions, form due dates, tax regulations, and tax deadlines, while taking into account the various unique rates and rules for particular states. The GST Council’s primary function happens to be to guarantee that there is a single consistent tax rate for  the products and services across the nation.

The GST Council is in charge of the Goods and Services Tax (GST). The GST Council must be formed by the President within 60 days after the beginning of Article 279A, according to Article 279 (1) of the modified Indian Constitution. The GST Council, according to the report, would be a combined platform for the Centre and the States.

The GST Council is a constitutional body that was intended to play an important role in the implementation of GST – and to serve as a forum for the Centre and the States to make collective decisions on a variety of GST-related matters. Until now, the Council has made a number of decisions that were required for the transition to the new GST regime. The GST Council’s activity and the shift in constitutional framework brought about by the GST have important ramifications for the budgetary autonomy of state governments.[1]


Prior to the implementation of the GST, both the Centre and the States had the authority to impose a variety of indirect taxes, including excise duty, service tax, entrance tax, and octroi. The Centre and the States had the authority to decide the tax rates that would apply to certain goods, the exemptions that would be given, and so on. Multiple taxes and tax rates resulted in an inefficient and distortive tax structure that promoted tax evasion.[2] The GST was expected to be a solution to these issues since it would be a single tax that would replace a slew of indirect levies.

As the GST replaces a slew of indirect taxes, the Centre and States lose the ability to impose a variety of other indirect taxes, ushering in a substantial shift in India’s federal structure. The Centre has relinquished its sole authority to impose excise duty on a variety of commodities, as well as its authority to impose service tax and customs duty. At the same time, the states have relinquished their authority to impose a variety of taxes, including VAT, entrance tax, octroi, and betting and casino taxes. The Centre and the States continue to have the authority to charge a restricted range of taxes.

While the Centre retains the power to impose excise duty on some defined items, such as tobacco goods[3], the States maintain the ability to impose stamp duty, toll, mandi tax, and amusement tax in addition to the mandated GST rate because the states can no longer impose a variety of indirect taxes[i], they may lose a significant amount of money during the early years of GST implementation. As a result, it was determined that they would be reimbursed by the Centre for any revenue losses that occurred during the first five years of GST implementation.[4]

The GST Council is made up of the Union Finance Minister, the Union Minister of State for Finance, and the Finance Ministers of the state governments. The Finance Minister of India and the Minister of State for Finance serve as the Central Government’s representatives. The Finance Ministers of each state government, on the other hand, operate as representatives of their respective states. The GST Council has the authority, under clause (4) of Article 279A, to make “recommendations” on a wide range of policy issues, including, but not limited to identifying the taxes, cesses, and surcharges that will be incorporated into the GST, establishing the GST rate for various goods and services, and listing the goods and services that are exempt from GST.

The GST Constitutional Amendment Act does not indicate whether the GST Council’s “recommendations” are binding on the Union and State Governments – and whether any variation is acceptable. The term “suggestion” appears four times throughout the Amendment Act. 9 However, clause (9) of Article 279A, which discusses the voting pattern in the GST Council, uses the word “determination.” As a result, there is some uncertainty over whether states can differ from the Council’s recommendations.

Because the GST Council was formed to make collective choices on a variety of policy issues, the GST Council’s “recommendations” are comparable to “decisions” and are binding on the Centre and the States.

The Council makes decisions collectively in line with a predetermined voting pattern, and each State Government has an equal voting right. Because the Council takes decisions jointly, the state governments lose the ability to design their own indirect tax policy. This marks a dramatic shift in federal ties between the Union and the states. Prior to the implementation of the GST, states had the authority to impose different indirect taxes such as VAT and entrance tax, as well as the flexibility to establish the appropriate tax rate, exemptions to be given, and so on.

This freedom to set the tax rate was crucial because it allowed states to collect cash to fulfil their short-term expenditure needs.

However, under the GST framework, the States cannot change the structure and design of the GST on their own, and may only do so in compliance with the GST Council’s decisions. The states do not have the authority to change the GST rate on a specific product and must abide by the rate set by the Council. For example, the GST Council recently approved a four-tiered GST rate structure for various commodities and services.

State governments would no longer have the authority to change the GST rate and would be required to follow the rate set by the Council.

To this degree, the GST erodes the states’ authority in defining their own tax policies and determining the tax rate applicable to certain goods. The only autonomy accessible currently is in the case of specific taxes, such as stamp duty and mandi tax, which have been exempted from the GST. States should have the authority to change the tax rate and make other appropriate changes exclusively with regard to this restricted range of taxes.


The GST Council is made up of 31 State Finance Ministers (including the Finance Ministers of Delhi and Puducherry), with the Union Government represented by the Finance Minister and the Minister of State for Finance. Each state’s finance minister has one vote, and the Union Government has one vote as well. The GST Council’s voting pattern is prescribed in Clause (9) of Article 279A. According to Clause (9), every decision of the GST Council must be supported by at least three-fourths of all members’ weighted votes.[5] The vote of the Central Government, on the other hand, shall be weighted at one-third of the total votes cast, and the votes of all State Governments combined shall be weighted at two-thirds of the total votes cast. 14 As a result, though the Union has a single vote, its vote will be weighted one-third,[6] resulting in a total weighed vote of 10 votes for the Union. This voting method generates a number of situations, each of which has important ramifications for budgetary autonomy. These possibilities will be examined one at a time:

  • If the Union supports a measure (say, reducing several tax slabs and moving toward an unified tax rate) and takes it to a vote before the GST Council, it will need the support of about 21 (out of 31) State Finance Ministers to achieve a binding decision from the Council. Assume that only 21 states approve the idea, while the rest reject it. In such a case, the ruling will be binding on the dissident state governments as well. However, if 11 or more Finance Ministers oppose the idea, it will not be implemented.
  • Consider the following scenario: all states propose imposing an extra cess on a certain category of products and services. The Union, on the other hand, is opposed to this idea. The Union has an effective veto since its total weighted vote is ten votes. As a result, even if all States support a plan, it will not be implemented if the Union rejects it. In this circumstance, the Union effectively has a veto — and no binding action can be taken without its approval.
  • Assume the Union presents a proposal to eliminate several tax slabs and implement a single GST rate for all products and services. This idea, however, is opposed by all states. Because the total weighted vote of all states is roughly 21 votes (two-third weightage), the states will have a collective veto over the Centre in this scenario.

It has been suggested that a one-third weightage of votes in favour of the Union effectively grants it a veto over all GST Council decisions. As indicated in scenario (b), even if all of the states support a proposed action, the Centre can reject it, and the proposal will not be implemented. It has also been claimed that granting the Centre a veto over the economic policies of the state governments would drastically erode their budgetary autonomy and would be contrary to the Constitution’s federal character.[7]

Some members of the Rajya Sabha’s Select Committee, which investigated the GST Constitutional Amendment Bill[8], expressed reservations about the Centre’s veto authority. The members also believed that the Centre’s veto power would have a negative impact on the budget autonomy of the states[9]. As a result, in order to remove the Centre’s veto power, some members recommended that the Centre’s vote weightage be decreased to one-fourth of the total votes cast, rather than one-third.[10]

The Centre’s veto authority may considerably encroach on a single state’s budgetary autonomy, as well as impair the fiscal autonomy of a group of states with a common interest. The following two examples will help to demonstrate this. Let us begin with a scenario in which a single state government requests an increase in the GST rate for particular categories of goods in order to generate extra income. Such a change may occur only with the approval of the Centre, as well as the approval of twenty other state governments.

In such cases, a state government is reliant on the Centre’s vote and loses the ability to change its tax policy on its own.

Second, due to the variety of India, various states may have varied budgetary requirements. For example, the seven northeastern states may have distinct budget needs. Assume that all of the states in the Northeast seek further compensation for revenue losses, or that the tax rate on particular goods be decreased. In such a case, their demand will be met only if the Centre agrees to it. Even if all other state governments agree with the north-eastern states, the Centre will maintain its veto. As a result, the Centre’s veto power may erode the economic autonomy of a group of states with a shared interest.

While worries about the Centre’s veto power and its effects on economic autonomy are the most pressing, it is worth noting that all states jointly wield a veto against the Centre. As stated in scenario (c), a proposal made by the Centre will not be implemented if all of the states oppose it. As a result, the Centre and the States effectively have a veto over each other. In fact, the Centre may not be able to use its veto authority to continually obstruct the requests of state governments.

This is because a quorum of half of the GST Council members is required for each meeting.[11] 20 If the Centre behaves in a way that is damaging to the interests of the State, the States have the option of boycotting Council sessions and, as a result, refusing to work with the Centre. If 16 or more states refuse to attend the conference, even the Centre will be unable to present its ideas and obtain a resolution from the Council. As a result, rather than employing its veto power, the Centre will be compelled to discuss and work with the state governments in order to reach a mutually acceptable solution.

Another feature of the voting procedure is that no State has the ability to exercise an individual veto over Council decisions. A plan will fail only if 11 or more State Finance Ministers oppose it. Because there is no individual veto, the GST Council’s decisions are binding on the opposing State Governments. If such a scenario develops in the future, the dissident state governments will be able to assert that their economic autonomy has been jeopardised.

It is also worth noting that nothing stops states from making requests regarding their budget interests inside the Council. For example, during a recent Council meeting, Kerala Finance Minister Thomas Isaac pushed on a GST rate of 28 percent for lotteries, rather than the agreed rate of 5 percent. Mr. Isaac engaged in long negotiations with the Centre and the other State Finance Ministers to guarantee that his demand was satisfied.[12] As a result, the Council provides a forum for each state to present its budgetary concerns and then bargain extensively to guarantee that its objectives are realised.

To date, all GST Council decisions taken over the course of around 20 sessions have been unanimous, and there has been no need to resort to formal vote[13]. However, in the following months, states may present a variety of demands to the Council if they believe the GST has begun to impair their capacity to generate extra money. In such a case, the Centre will be compelled to consider and negotiate with the States in order to reach a mutually acceptable solution. It will be impracticable for the Centre to use its veto authority to block these requests.

In addition, in the coming months, the Centre may press for the elimination of the many tax slabs that exist under the GST, as well as the rationalisation of GST rates. Certain states may object to these plans because they are concerned about their revenue interests. If 11 or more states oppose these ideas, they will be defeated. As a result, the GST Council’s voting system may be put to the test in the coming months, as well as intensive talks between the Centre and the States.


Since their inception, states’ revenue-generating capacities have been insufficient to cover their expenditure responsibilities.[14] While states have had some autonomy in developing their indirect tax policies, they have always relied on the Centre for budgetary resources and grants.[15] The changes brought about by the GST, as well as the loss of budgetary autonomy, may increase the States’ reliance on the Centre.

The loss of fiscal sovereignty has been justified on the grounds that the GST will broaden the tax base, resulting in greater tax revenues for both the Centre and the States.[16] If the states’ tax receipts grow, they may be willing to surrender their economic sovereignty. However, if there is no major shift in tax collections and revenue growth, states may express worry about their budgetary sovereignty being eroded. If income growth stays sluggish in the following months, states may be obliged to seek alternate revenue sources. The Maharashtra government hiked the automobile registration cost applicable in the state immediately after the implementation of the GST, while the Tamil Nadu government hiked the amusement tax payable on theatres.[17] Other countries may enact similar legislation. States may also increase the rates of other taxes that are not covered by GST, such as stamp duty, tolls, and mandi tax.

If states believe that their revenue interests have been jeopardised, they may refuse to comply with the Council’s decisions.[18] Unlike the 2011 Amendment Bill, the GST Constitutional Amendment Act does not allow any redress against a state that refuses to follow the Council’s determinations.

For example, suppose the GST Council votes to include petroleum items under the scope of the GST. Assume that the state of Tamil Nadu was the only one to oppose this idea. It then refuses to follow the judgement and continues to prohibit petroleum items.

In such a case – when there is a variation from the Council’s judgement – the GST Constitutional Amendment Act allows no redress. As a result, such severe circumstances must be resolved through talks and persuasion inside the Council itself.

The Centre may make multiple recommendations in the coming months to streamline the GST rates on various goods and services29, as well as to bring exempted commodities such as real estate and petroleum products inside the scope of GST. 30 Various states may object to these rulings in order to safeguard their income interests.

These ideas will fail if 11 or more state finance ministers oppose them. In addition, if states’ revenue estimates prove to be underwhelming, the states may make a number of demands to the Council. As a result, we may see substantial talks and discussions inside the Council in the coming months. As previously discussed, the Centre and the States will be obliged to engage in long negotiations — and it will be impracticable for the Centre to obstruct requests by exercising its veto authority.

[1]  The Constitution (One Hundred and First Amendment) Act, 2016, available at,%202016.pdf, last seen on 25/10/2017.

[2] Standing Committee on Finance (2012-13), 15th Lok Sabha, The Constitution (One Hundred and Fifteenth Amendment) Bill, 2011, 73rd Report, at 8. See also Ministry of Finance, Government of India, Report on the Revenue Neutral Rate and the Structure of Rates for the Goods and Services Tax, December 2015, available at, last seen on 25/10/2017.

[3]  Entry 84, List I, Seventh Schedule of the Constitution of India (as amended by the Section 17 of the GST Constitutional Amendment Act).

[4] Section 18, GST Constitutional Amendment Act, 2016. The principles on which such compensation is to be given are laid down in The Goods and Services Tax (Compensation to States) Act, 2017.

[5]  Ibid.

[6]  Ibid.

[7]  Ibid.

[8] Report of the Select Committee, presented to the Rajya Sabha on 22/07/2015, The Constitution (One-Hundred & Twenty Second Amendment) Bill, 2014.

[9]  Ibid, at 97.

[10]  Ibid, at 98.

[11] Clause (7) of Article 279A, the Constitution of India.

[12] Ibid.

[13] GST Explainer: A legal scholar’s view, Ideas for India (17/10/2017), available at, last seen on 25/10/2017.

[14] Nirvikar Singh, Fiscal Federalism, in The Oxford Handbook of the Indian Constitution, 524 (Sujit Choudhary, Madhav Khosla, Pratap Bhanu Mehta, 1st ed., 2016).

[15]  Ibid.

[16] Supra 4

[17]  Supra 6.

[18] The 2011 Constitutional Amendment aimed to establish a GST Dispute Settlement Authority under Article 279B. Article 279B was worded as follows: “279B. (1) Parliament may, by law, provide for the establishment of a Goods and Services Tax Dispute Settlement Authority to adjudicate any dispute or complaint referred to it by a State Government or the Government of India arising out of a deviation from any of the recommendations of the Goods and Services Tax Council constituted under article 279A that results in a loss of revenue to a State Government or the Government of India or affects the harmonised structure of the goods and services tax”


Editor: Kanishka VaishSenior Editor, LexLife India

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