The GST Council — Cooperative or Coercive Federalism?

Why GST needed a Council in the first place

Before 1 July 2017, India had a patchwork tax structure. Central excise duty, service tax, additional customs duty, central sales tax (CST) operated alongside state-level VAT, entry tax, octroi, luxury tax, entertainment tax — collectively producing a cascading effect, inter-state trade barriers, and an estimated 1-2% drag on GDP.

GST replaced 17 Central and State taxes with a single tax structure. But this required something unprecedented in Indian fiscal history: the Centre and States had to share sovereignty over the same tax base. Both would levy GST simultaneously — CGST and SGST — on the same transaction. Both would benefit. Both would also bear the political cost of any failure.

Such a regime needed a single forum where rates, exemptions, thresholds and rules could be decided jointly. That forum is the GST Council — a sui generis constitutional body created specifically for this purpose.

Article 279A and the 101st Constitutional Amendment

The 101st Constitutional Amendment Act, 2016 inserted three new articles into the Constitution:

• Article 246A — empowers both Parliament and State Legislatures to make laws with respect to GST. This is the constitutional source of simultaneous Centre-State law-making power.
• Article 269A — Parliament empowered to levy IGST on inter-state supply, with revenue shared between Centre and States as per GST Council recommendation.
• Article 279A — creates the GST Council itself. The President must constitute the Council within 60 days of the Article's commencement.

The Amendment also added a Sixth Schedule provision (special provisions for autonomous tribal areas), modified Article 248 (residuary powers), and incorporated a transitional provision (Section 19 of the Amendment Act) for compensating States for revenue loss for five years.

Composition of the GST Council

Under Article 279A(2), the Council consists of:

• Chairperson — the Union Finance Minister.
• Vice Chairperson — chosen from among the State Finance Ministers; rotates.
• Union Minister of State in charge of Revenue or Finance — as a member.
• Minister in charge of Finance or Taxation (or any other Minister) nominated by each State Government — as members.

This composition is significant: only finance/taxation ministers are members. There is no provision for opposition parties, technical experts, or non-political nominees on the Council itself. Other stakeholders provide input through the GST Council's Secretariat and the Group of State Ministers (GoMs) on specific issues, but voting is restricted to the political Finance Ministers.

As of 2026, the Council includes 29 State Finance Ministers, plus the Finance Ministers of Delhi, Jammu & Kashmir, and Puducherry (UTs with legislatures). The total membership is approximately 33 (including the Union Finance Minister and the Union MoS).

The voting math: a deliberately designed federal compromise

This is where the architecture becomes interesting. Article 279A(9) prescribes that every decision of the Council requires a 3/4 majority of the weighted votes.

The mathematical consequences:

1. Centre alone can block: With 1/3 of weighted votes, the Centre can prevent a 3/4 majority from being reached against its position.
2. States need overwhelming consensus to override Centre: For the States to push a decision opposed by the Centre, they would need to muster all 2/3 of their votes — which means nearly every state Finance Minister needs to agree. Politically near-impossible.
3. No state can be ignored: A single state's vote is small (about 2-3% weighted), but Centre needs at least some state alignment to reach 3/4.
4. In practice, the Council functions by consensus: Of 53+ meetings, virtually every decision has been reached unanimously. The voting machinery has rarely been invoked.

"The architecture of the GST Council represents 'pooled sovereignty' — neither the Centre nor any State alone can dictate; decisions emerge from negotiation." — 13th Finance Commission framing, later adopted in Article 279A debates.

Functions and track record

Under Article 279A(4), the Council shall make recommendations on:

• Taxes, cesses and surcharges to be subsumed under GST;
• Goods and services to be subjected to or exempted from GST;
• Model GST laws, principles of levy, principles governing place of supply;
• Threshold limits below which goods and services may be exempted;
• Rates including floor rates with bands of GST;
• Special provisions for the Northeast, J&K, Himachal, Uttarakhand;
• Mechanism to resolve disputes arising out of its recommendations.

Beyond the headline rates, the Council has:

• Set up the GST Network (GSTN) — the IT backbone for filing, payments, and reconciliation;
• Created multiple Groups of Ministers (GoMs) for rate rationalisation, real estate, lotteries, casino/online gaming, IGST settlement;
• Cleared the Reverse Charge Mechanism, E-Way Bills, composition scheme for small taxpayers;
• Navigated COVID-19 revenue collapse (FY 2020-21) with back-to-back loans of ₹1.1 lakh crore + ₹1.59 lakh crore to compensate States.

The 2022 turning point — Union of India v. Mohit Minerals

The case originated in a dispute over IGST on ocean freight. Importers were being required to pay IGST on the "ocean freight" component of CIF imports — under a delegated legislation Notification issued by the Centre. They argued this amounted to double taxation since IGST was already paid on the imported goods.

The Supreme Court bench led by Justice D.Y. Chandrachud ruled on 19 May 2022 against the Centre. But the more consequential holding came in the obiter — and later confirmed as binding — on the nature of GST Council recommendations:

"The recommendations of the GST Council are not binding on the Union and the States... Article 279A merely uses the word 'recommendations' for the GST Council." — Justice D.Y. Chandrachud, 19 May 2022.

The Court reasoned that:

1. Article 246A grants Parliament and State Legislatures simultaneous law-making power. This power flows from the Constitution itself, not from the Council's recommendation.
2. Article 279A uses "recommendations" — a deliberately weaker word than "decisions." Had the framers intended binding force, they would have used different language.
3. Both Centre and States are free to adopt or reject Council recommendations when enacting their respective GST laws.
4. The 3/4 majority requirement, the weighted voting, and the absence of a tie-breaker mechanism all confirm that the Council was designed as a persuasive forum, not a binding tribunal.

The verdict was hailed by some State governments — particularly Tamil Nadu, Kerala, Punjab — as restoring federal balance. The Centre publicly took the view that the verdict simply confirmed established practice (the Council had always functioned by consensus) but in private, the verdict has measurably emboldened opposition-led States in Council meetings since 2022.

The Compensation Cess and the COVID rupture

Section 18 of the 101st Amendment Act, 2016, guaranteed States compensation for any revenue loss arising from GST implementation. The GST (Compensation to States) Act, 2017 operationalised this — using FY 2015-16 as the base year and guaranteeing 14% year-on-year revenue growth to States for five years (2017-22).

A Compensation Cess was imposed on luxury goods, sin goods, automobiles, and coal to fund the compensation. The cess was originally scheduled to sunset in June 2022.

Then COVID-19 hit. State revenues collapsed in FY 2020-21. Compensation owed to States ballooned to ₹2.35 lakh crore — far exceeding what the cess could fund. The Centre offered two options to the States:

• Option 1: States borrow ₹97,000 cr through a special RBI window; the loan would be repaid from extended cess collections.
• Option 2: States borrow the full shortfall of ₹2.35 lakh cr; only the GST-implementation-related part would be serviced from cess.

This created intense Centre-State tension. Several opposition-ruled States (West Bengal, Kerala, Punjab, Chhattisgarh) initially refused both options, demanding that the Centre borrow directly. Eventually, a modified Option 1 was accepted: the Centre borrowed back-to-back loans of ₹1.1 lakh crore (Oct 2020) + ₹1.59 lakh crore (Jun 2021) and passed them through to States. Cess collections have been extended to repay these loans — currently scheduled to sunset in March 2026.

As of 2026, the question of whether to extend the cess further (and for what purpose — repaying loans, funding rate rationalisation transition, or something else) is the most contested item on the Council's agenda.

Cooperative or coercive? The continuing debate

Both perspectives have substantial empirical support. For UPSC, the high-scoring answer presents both, grounds them in the constitutional text (Articles 246A, 269A, 279A), cites the Mohit Minerals verdict precisely, and concludes with an analytical observation — typically that the Council's success depends on continuing political will to compromise; absent that, the architecture cannot enforce cooperation.

Reform agenda 2026 and beyond

Items currently on the Council's table:

• Rate rationalisation — moving from 5 slabs (0/5/12/18/28) to 3 slabs (5/15/25 or similar). The Group of Ministers report is overdue since 2023.
• Petroleum products inclusion — petrol, diesel, ATF, natural gas currently outside GST. Bringing them in is fiscally transformative but politically fraught.
• Real estate sector — currently outside GST; ongoing GoM on bringing it in.
• Compensation cess sunset — what happens after March 2026? Convert to a "Health and Education Cess" or sunset entirely?
• Dispute resolution mechanism — promised in Article 279A(11) but the GST Appellate Tribunal (GSTAT) was only operationalised in 2024 with continuing teething issues.

UPSC Previous Year Questions

Related reading on Padho.club