GST Council

Also called: Article 279A · Topic: Constitutional Bodies: UPSC, CAG, Finance Commission and Others · NCERT: Beyond NCERT

Meaning

The GST Council is a constitutional body under Article 279A, added by the 101st Constitutional Amendment Act, 2016. In it, the Union Finance Minister and the finance ministers of the states sit together to make recommendations on the Goods and Services Tax (GST). The Union holds one-third of the vote weight and the states together hold two-thirds [3].

It matters because GST is one tax shared by the Union and the states. The Council is where both sides agree on how this tax is designed. It is the main forum of fiscal federalism (how tax money and taxing power are split between the Union and the states) for indirect taxes.

Explanation

How it is set up

• GST (Goods and Services Tax): one tax on the supply of goods and services. It replaced many separate Union and state indirect taxes.
• Time limit: under Art. 279A(1), the President had to set up the Council within 60 days of the 101st Amendment coming into force [3].
• Members:
• the Union Finance Minister, who is the Chairperson;
• the Union Minister of State in charge of Revenue or Finance;

• each state's Finance or Taxation Minister, or another minister the state nominates [2].

• Vice-Chairperson: the state members choose one person from among themselves (Art. 279A(3)) [3].

• Quorum: half of all members (Art. 279A(7)) [3]. Quorum means the smallest number of members who must be present before a meeting can take decisions.

How it votes (Art. 279A(9))

• Weighted vote: the votes do not all count the same.
• The Union holds one-third of the total weight.

• All states together hold two-thirds [3].

• Majority needed: at least three-fourths of the weighted votes of members present and voting [3].

• Why neither side can act alone:
• The Union has about 33%, far below 75%. So it needs most of the states with it.
• All the states together have about 67%, also below 75%. So they need the Union's vote.
• This gives the Union a practical veto (the power to block a decision on its own). If enough states act together, they can block a decision too.

What it recommends (Art. 279A(4) and (6))

• Which taxes, cesses and surcharges of the Union, states and local bodies are replaced by GST (subsumed taxes) [3]
• Which goods and services are taxed under GST and which are exempt
• GST rates, including floor rates with bands (a minimum rate with a range around it) [3]
• The threshold turnover: the sales limit below which a business does not pay GST
• Special provisions for the north-eastern and hill states
• Guiding aim (Art. 279A(6)): a harmonised GST structure and a harmonised national market [3]. Harmonised means the same rules everywhere.

Limits on its power

• Recommendations, not orders. The Council only recommends. Parliament and the state legislatures make the actual GST laws.
• Dispute mechanism not yet set up. Art. 279A(11) says the Council "shall establish a mechanism" to settle disputes about its recommendations. These can be disputes between the Union and states, or among states [3]. This body has not been set up.

In the Constitution and practice

• The 101st Amendment, 2016 added three linked articles:
• Art. 246A: Parliament and the state legislatures can both make GST laws at the same time.
• Art. 269A: GST on supplies between states (IGST) is collected by the Union and then split between the Union and the states.

• Art. 279A: the GST Council.

• Key dates:

• Art. 279A came into force on 12 September 2016. The Union Cabinet approved the Council and its Secretariat on the same day [2].

• The first meeting took place on 22-23 September 2016 in New Delhi [2][4].

• Union of India v. Mohit Minerals (19 May 2022):

• Issue: do Parliament and the state legislatures have to follow the Council's recommendations?
• Holding: the recommendations are persuasive, not binding. Persuasive means they carry weight but are not a legal order.
• Reason: Art. 246A gives both legislatures power at the same time, and neither is placed above the other. "Neither can Article 279A override Article 246A nor can Article 246A be made subject to Article 279A" [1].
• Two-step process:
  • First, the Union and the states bargain in the Council. This is cooperative federalism (Union and states working together), under Art. 279A(6).
  • Second, each legislature makes the law using its own power [1].

• The Union and the states follow the Council because they choose to, not because the law forces them [1].

• Result: the Council is a forum of both cooperative and contestational federalism. In contestational federalism, states can openly bargain with the Union and disagree with it.

Don't confuse with

• Finance Commission (Art. 280): it decides how tax money is shared between the Union and the states. The GST Council decides how one common tax is designed. The Finance Commission is an expert body set up afresh every five years. The GST Council is a permanent body of ministers who vote.
• NITI Aayog / Planning Commission: both were created by an executive resolution (a Cabinet decision) and are neither constitutional nor statutory. The GST Council is constitutional (Art. 279A), so an executive order cannot abolish it.
• Legislative power under Art. 246A: the power to make GST laws belongs to Parliament and the state legislatures. The Council only recommends (Mohit Minerals, 2022) [1].
• Chairperson vs Vice-Chairperson: the Chairperson is the Union Finance Minister. The Vice-Chairperson is chosen by the states from among their own members [3].

Prelims Hooks

• Art. 279A (GST Council), Art. 246A (both legislatures can make GST laws) and Art. 269A (IGST on inter-state supply) were all added by the 101st Amendment, 2016.
• The President had to set up the Council within 60 days of the amendment coming into force. Art. 279A came into force on 12 September 2016, and the first meeting was held on 22-23 September 2016 [2][3].
• Vote weight: Union 1/3, states 2/3. A decision needs 3/4 of the weighted votes of members present and voting. Quorum is half of all members [3].
• Mohit Minerals (2022): GST Council recommendations are persuasive, not binding, because Art. 246A gives Parliament and the states law-making power at the same time [1].
• Trap: "The Union alone can push through a GST rate change." False. One-third is well below three-fourths.
• Trap: "The Art. 279A(11) dispute body is working." False. It has not been set up.

Mains Points

• Pooled sovereignty, uneven trust.
• The states gave up part of their separate taxing power to build one national market.
• But the Union's practical veto and the missing Art. 279A(11) dispute mechanism weaken the states' trust.

• Reform ideas: set up the dispute body, give the Council an independent secretariat, and record the reasons when members disagree.

• Cooperative vs contestational federalism after Mohit Minerals.

• The 2022 judgment kept the states' law-making voice under Art. 246A. The Council became a place to reach agreement, not a body that gives orders [1].

• This protects federalism. But if states pass different GST laws, the single national market that Art. 279A(6) aims for could break up.

• Value of constitutional status. The Planning Commission and NITI Aayog are executive bodies. The GST Council, by contrast, rests on Art. 279A, so the Union executive cannot dissolve it alone. This gives the states a protected seat at the table when tax decisions are made.

Related concepts

• Finance Commission
• Mohit Minerals case

Read more

• The Finance Commission and the GST Council: fiscal-federal bodies in outline