SC decision on GST emphasizes cooperative federalism and strengthens case for states in fiscal management

The panel composed of Justices DY Chandrachud, Surya Kant and Vikram Nath emphasized that the TSG Council’s “recommendations” are the result of a collaborative dialogue involving the Union and the States and that, therefore, to consider them as edicts Binding would disrupt fiscal federalism, where both the Union and the states have equal power to legislate the GST.

The court further asserted that it is not imperative that one of the federal units must always hold a higher share of the decision-making power of the federal units. Indian federalism is a dialogue between cooperative and non-cooperative federalism where federal units are free to use different means of persuasion ranging from collaboration to contestation.

Many states, especially the opposition-ruled states of Kerala, Bengal, Delhi and Punjab, have complained about the Centre’s authoritarianism in GST-related tax issues. The compensation to be provided to the states for the loss of tax revenue due to the adoption of the new GST system has been a constant irritant between the Center and the states.

The Center has pledged to compensate states every two months for any shortfall they incur during the first five years of GST implementation given a 14% growth in subsumed indirect taxes. But the Center has defaulted on a variety of pretexts, including accusing it of resorting to ways and means or borrowing from the market to manage its acute budget pressure.

Virginia S. Braud