On Saturday, 14th May the National Law School of India University, Bangalore held its 9th Annual NLSIR Symposium on ‘Goods and Services Tax: The Changing Face of Fiscal Federalism in India’. The theme of the first session was ‘Constitutional Challenges and Concerns’. The speakers for this session were Mr. N. Venkataraman (Senior Advocate, Supreme Court of India), Prof. (Dr). Sudhir Krishnaswamy (Professor, Azim Premji University) and Mr. Alok Prasanna Kumar (Senior Fellow, Vidhi Centre for Legal Policy).
Mr. N Venkataraman began the session by making three points. First, he pointed out that classification disputes before the courts are one of the major hurdles before any tax advocate and that the GST model resolves this by merging all types of indirect tax, including excise duties and sales tax, into a GST. Secondly, Mr. Venkataraman said that the issue of inter-state trade and commerce and its subsequent taxation has been a question before many courts, which this model attempts to solve by making the GST a destination based tax. Thirdly, he also raised his concerns regarding the form in which this amendment has been made to the Constitution. He pointed out that this amendment is essential to the substantive provisions of the Constitution, i.e. Article 246, to entrust a ‘simultaneous’ powers over taxation by the center and the state. Whereas, an alternate amendment form would be to add an entry in List III of the Seventh Schedule, giving state and the center ‘concurrent’ powers.
Dr. Sudhir Krishnaswamy in his remarks also raised three questions; first, he enquired into the constitutional validity of the Constitution (122nd Amendment) (GST) Bill, 2014 i. The core question that the panel had to address was : is the new model consistent with the concept of fiscal federalism – many claim that fiscal federalism is part of the basic structure of the Constitution, Dr. Krishnaswamy responded to this by questioning the existence of fiscal federalism in the Indian Constitution and hence challenging the same on the basis of violation of the basic structure would be futile. Nonetheless, he argued that a basic structure challenge could be based on federalism alone. Secondly, he argued that fiscal federalism still has an important institutional value if not a constitutional value. In order to implement the institutional design of fiscal federalism, Dr. Krishnaswamy said that the content of fiscal federalism must be clearly laid down, the following being vital elements: fairness in center-state financial relations, where form follows function and an existence of a grand bargain to ensure equity between the center and the states. Thirdly, he raised questions about the composition and decision-making process of the proposed GST council. He observed that although the composition of the GST council is similar to the National Development Council (NDC), its decision-making process is quite different and poses risks of political partisanship. While the NDC and the Empowered Committee (which drafted the GST council provisions) both function on consensus, the GST council functions through voting. Dr. Krishnaswamy mentioned that even though the institutional landscape for the inter-state bodies is quite varied with the Finance Commission (Art. 280), Inter-State Council (Art. 263) and the National Development Council, the working of these varied interstate bodies in relation to the GST Council still remains a grey area. Though debated widely in the Rajya Sabha, another area which Dr. Krishnaswamy was concerned about was the provision that the decisions of the GST council would be beyond the purview of judicial review.
Mr. Alok Prasanna Kumar, the last speaker, focussed on the decision making the process of the GST Council, especially the voting process involved to pass any resolution. He argued that every successful resolution needed a 3/4th majority where the center would have a 1/3rd vote as a whole, leading to a scenario where the center would always have a veto against any state-initiated resolution. Mr. Prasanna emphasized the threat posed by encouraging an institutional adversarial relationship between the center and the state as a result of the new GST model. He also pointed out that the decentralization of tax collection and expenditure between the state and the local self-government are also moot points on the question of fiscal federalism in this GST model.
NLSIR, the flagship journal of the NLSIU, plans to publish a volume comprising of the papers by the speakers of this symposium.