Establishment of the GST Council
The 101st Constitutional Amendment Act, 2016 laid the foundation for India's unified Goods and Services Tax (GST) regime, replacing a fragmented taxation system with a streamlined one. For its seamless implementation, close collaboration between the central government and states was essential. To foster this coordination through structured consultations, the Act introduced the GST Council.
Specifically, the amendment inserted Article 279A into the Constitution, authorizing the President to establish the Council via executive order. Acting on this provision, the President promptly constituted the GST Council in 2016.
The Council's Secretariat operates from New Delhi, with the Union Revenue Secretary serving as its ex-officio Secretary, ensuring efficient administrative support.
GST Council Vision and Mission
In guiding its operations, the GST Council prioritizes the creation of a unified GST framework and the nurturing of a seamless national market for goods and services. It also defines its own procedures to ensure smooth execution of these responsibilities.
The Council's vision is to embody the pinnacle of cooperative federalism as India's inaugural constitutional body empowered to make binding decisions on all major GST matters, fostering true partnership between the Centre and the States.
Its mission centers on developing a robust, technology-enabled, and user-centric GST system through broad-based consultations, promoting efficiency, transparency, and nationwide adoption.
Composition of the GST Council
The GST Council serves as a pivotal joint forum bridging the Centre and the states, ensuring collaborative decision-making on key fiscal matters. Its composition is deliberately balanced, comprising the Union Finance Minister as Chairperson, the Union Minister of State handling Revenue or Finance, and the Minister in charge of Finance, Taxation, or any other nominee designated by each state government.
To foster equitable representation, the state representatives select one among themselves as Vice-Chairperson, with the flexibility to determine the tenure of this position.
Additionally, the Union Cabinet has designated the Chairperson of the Central Board of Excise and Customs (CBEC) as a permanent invitee to all Council proceedings, affording non-voting participation to infuse expert insights from central tax administration.
Working of the Inter-State Council
The Inter-State Council operates through decisions made at its formal meetings, ensuring collaborative federal deliberation. A meeting requires a quorum of at least one-half of the Council's total membership to proceed.
Every decision demands a robust consensus: a majority comprising not less than three-fourths of the weighted votes cast by members present and voting. This weighted system balances power between the Union and the states. Specifically, the vote of the central government carries one-third of the total votes cast at the meeting, while the combined votes of all state governments account for the remaining two-thirds. This structure underscores the Council's federal ethos, prioritizing state voices in intergovernmental matters.
To safeguard its functioning, the validity of any Council act or proceeding remains unaffected by certain procedural hiccups. These include vacancies or defects in the Council's composition, flaws in a member's appointment, or any irregularity in procedures that does not impact the substance of the decision. Such provisions promote stability and continuity in the Council's operations.
Functions of the GST Council
Established under Article 279A of the Indian Constitution, the GST Council serves as the apex decision-making body for Goods and Services Tax (GST) matters, bridging the Centre and States. Its core mandate is to furnish recommendations to both levels of government on a wide array of critical issues, ensuring harmonious implementation of this transformative tax regime.
Among its primary functions, the Council advises on the taxes, cesses, and surcharges—levied by the Centre, States, and local bodies—that should be subsumed into GST, creating a unified indirect tax structure. It also determines which goods and services ought to be brought under the GST net or exempted entirely, balancing revenue needs with economic accessibility.
Further, the Council outlines model GST laws, principles for levy, the apportionment of GST on inter-state supplies, and rules governing the place of supply—essential for resolving complexities in a federal framework. It sets the threshold turnover limit below which businesses remain exempt from GST, easing compliance for small enterprises. On rates, it recommends the structure, including floor rates with defined bands, alongside provisions for special rates during natural calamities or disasters to mobilize extra resources swiftly.
Recognizing regional disparities, the Council proposes tailored provisions for special category States such as Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, and Uttarakhand. Finally, it retains flexibility to address any other GST-related matters as deemed necessary, adapting to evolving fiscal challenges. Through these recommendations, the Council fosters cooperative federalism, making GST a truly collaborative reform.
Other Functions of the GST Council
Beyond its core responsibilities, the GST Council performs several additional functions that ensure the smooth rollout and operation of India's Goods and Services Tax regime. One key role is to recommend the specific date for levying GST on critical petroleum products—namely, petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas, and aviation turbine fuel. This provision allows for a phased integration of these items, which were initially kept outside the GST framework to address economic sensitivities.
The Council also plays a vital adjudicatory role in resolving disputes. Whenever disagreements arise over its recommendations or their implementation, it must establish an effective mechanism to settle them. Such disputes may involve the Centre and one or more states; the Centre alongside certain states against other states; or conflicts directly between two or more states. This dispute-resolution process underscores the Council's commitment to cooperative federalism.
Finally, the Council is tasked with recommending compensation to states for any revenue losses incurred due to the introduction of GST. This support is extended for a five-year transitional period. Parliament then formalizes these recommendations through legislation, as it did by enacting the relevant compensation law in 2017.