FinMin suggests forming an FM-headed council

The finance ministry has suggested forming a GST council, headed by the Union finance minister, to address disputes between the Centre and the states in the proposed GST regime.

The government is planning to bring GST in a fourth list of division of powers between the Centre and states under the Constitution. This one will provide equal rights to both the Centre and the states for levying GST, and the council would ensure powers of one do not prevail over the other.

“A council should be there whose approval would be required to change the agreed principles of GST. We are suggesting it should be headed by the Union finance minister with representatives from all the states. The decision of the council would be considered a collective decision of all the states. So they need not fear losing their supremacy with regard to levy of state taxes,” said a finance ministry official on the condition of anonymity.

Earlier, the government had planned to seek a Presidential reference for amending the Constitution so that all possibilities of litigation at a later stage were eliminated. The Centre feared, if it failed to bring even a single state on board, that might lead to the entire Constitutional amendment process being challenged in the court. The “long process” of taking a Presidential reference, however, could have made it difficult for the government to meet its revised deadline of April 2011 for GST rollout.

The government is planning to give a legal status to the council in the GST Bill. It will discuss the idea with the empowered committee of state finance ministers in their meeting on May 21.

Experts say a Constitutional amendment will be required even if state legislatures ratify GST and the council is given legal status. “Apart from states, other stakeholders can also challenge the changes made to the Constitution, and if the court finds it unconstitutional the entire effort of putting in place GST would go waste,” said Atul Gupta, senior director (indirect tax), Deloitte.

The law ministry is in the process of defining GST under the fourth list. At present, the Centre has the power to levy taxes on the items mentioned in the Union List, whereas states tax the goods under the States List. There is also a third list, called Concurrent List, under which both the Centre and the states can levy tax. The states would not let the government put GST items in the Concurrent List because views of Parliament (which means Union government) prevail over the states in case of a dispute.