TaxTMI 
TaxTMI 
TaxTMI 
When India adopted the GST framework through the 101st Constitutional Amendment, it redefined not just how taxes were levied, but how sovereignty was shared. Eight years on, this framework continues to evolve—not just as an economic reform but as a constitutional experiment in cooperative federalism.
I. Constitutional Balancing Act – The Birth of Dual GST
The Indian Constitution originally envisaged a clear vertical separation of fiscal powers:
List | Taxing Power | Examples |
Union List (List I) | Central Government | Excise, Service Tax, Customs |
State List (List II) | State Governments | VAT, Luxury Tax, Entry Tax |
GST changed this landscape:
- Article 246A gave simultaneous powers to both levels of government to legislate and collect GST.
- This effectively created a dual GST model—CGST and SGST on intra-state supplies, and IGST on inter-state supplies.
?? Key Insight: This was not mere delegation—it was co-sovereignty legislated into the Constitution. A rare innovation in federal taxation globally.
II. GST Council – Constitutional Design vs. Practical Politics
Constituted the GST Council with Union Finance Minister as Chairperson and State FMs as Members |
While the Constitution envisaged a recommendatory role for the Council, in practice it has acted more like a quasi-legislative body. This raises foundational questions:
- Are Council decisions binding? (SC in Mohit Minerals: No)
- Should they override individual State autonomy?
- What is the remedy if consensus fails?
?? Judicial View: The Supreme Court in Union of India & Anr. Versus M/s Mohit Minerals Pvt. Ltd. Through Director [2022 (5) TMI 968 - Supreme Court] ruled that Council recommendations are not binding and merely “recommendatory”, restoring some legislative autonomy to States.
?? Tension Point: Without consensus-based decision-making, the Council risks becoming an arena for political contestation rather than cooperative policy formulation.
III. The Compensation Imbroglio – A Breach of Fiscal Trust?
Under the GST (Compensation to States) Act, 2017, States were promised:
'Compensation for any revenue shortfall below 14% compounded growth for 5 years (till June 2022), from a GST Compensation Cess Fund.'
Yet the COVID-era shortfall revealed systemic vulnerability:
Original Promise | Crisis Response | States Reaction |
Direct compensation from cess proceeds | Centre offered back-to-back loans citing ‘Act of God’ | States like Kerala and Punjab protested dilution of statutory promise |
?? Constitutional Implication: The compensation promise was not merely fiscal—it was foundational, the “deal” that made States surrender their taxation powers.
The erosion of this promise has led to demand for legislative review and a call for a more permanent fiscal adjustment mechanism under the Constitution.
IV. Horizontal Fiscal Imbalance – The Rich-State Poor-State Divide
GST was also intended to create fiscal neutrality across States, but disparities persist.
State Type | GST Dependency | Issue |
Consumption-heavy States (Maharashtra, Karnataka) | Less dependent | Benefited from GST structure |
Manufacturing-heavy / Border States (Punjab, Gujarat) | High dependency | Lost edge due to origin-based tax being replaced |
?? Recommendation: India may need to explore a Finance Commission-style balancing fund to compensate structural imbalances that GST cannot address.
V. Legal Uncertainties in Federal Interpretation
Key unresolved legal questions include:
- Can States deviate from GST Council recommendations?
SC: Yes, but with caution. - What happens when Centre and States issue conflicting notifications?
No mechanism for binding harmonization unless challenged in court. - Is dual control leading to violation of natural justice?
Cases of parallel summons, conflicting audits, and duplicate investigations still abound.
?? Urgent Need: A Centralized GST Dispute Resolution Bench, ideally under Article 323B, to adjudicate inter-governmental GST disputes.
VI. Comparative Constitutional Insights
Country | GST Model | Federal Principle |
Australia | Single rate, administered centrally, shared revenues | Strong federal structure; GST Council has statutory status |
Canada | Dual GST (Federal and Provincial), optional adoption | Provinces may opt-out (e.g., Alberta); GST not uniformly applied |
India | Dual GST with simultaneous taxation powers | Cooperative model; but Centre controls administration, funding, and tech infrastructure |
?? Observation: India’s GST is the most complex yet ambitious federal GST model globally. But it lacks binding conflict-resolution machinery unlike its peers.
VII. What Should Change – Strengthening the Federal Backbone
Challenge | Recommended Reform |
Centre-heavy policy agenda | Empower an independent GST Council Secretariat |
Lack of intergovernmental adjudication | Establish GST Tribunal with federal benches |
Compensation-related trust deficit | Constitutionally mandate post-2027 adjustment formula |
Legal uncertainty on Council powers | Introduce constitutional clarification via Article 279A(8A) (proposed) |
VIII. Final Reflections – A Reform Worth Deepening
GST has challenged and enriched Indian federalism. It has:
- Brought States into fiscal decision-making like never before
- Tested the resilience of political consensus
- Exposed gaps in our constitutional mechanics
But the journey is far from over.
?? If GST 1.0 was about consolidation, then GST 2.0 must be about constitutional maturity.
That includes federal fairness, judicial clarity, and policy stability.
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CA Navjot Singh
+91 9953357999