Library / Goods and Services Tax: The Professional's Master Guide

2. Constitutional Framework and the GST Council

GST needed a change in the Constitution because the old scheme divided taxing powers sharply: the Centre could tax manufacture and services, the States could tax sale of goods. Neither could tax the whole value of a supply. This chapter explains the constitutional provisions, the GST Council, and how a practitioner should read the law and the many instruments issued under it.

2.1 The 101st Constitutional Amendment

The Constitution (One Hundred and First Amendment) Act, 2016 inserted new Articles and amended the Seventh Schedule. The provisions a practitioner should know are these.

Article	What it provides
Article 246A	Parliament and every State Legislature both have power to make laws on GST imposed by the Union or that State. Parliament alone can make laws on GST where the supply is in the course of inter-State trade or commerce.
Article 269A	GST on inter-State supplies (and on imports, which are deemed inter-State) is levied and collected by the Centre and apportioned between the Centre and the States as Parliament provides on the Council's recommendation.
Article 279A	Constitutes the GST Council and lists the matters on which it makes recommendations.
Article 366(12A)	Defines GST as any tax on supply of goods, or services or both, except tax on supply of alcoholic liquor for human consumption.
Article 366(26A)	Defines services as anything other than goods.
Article 286	No State law may tax a supply that takes place outside the State or in the course of import into or export out of India. Parliament may lay down the principles for this.

Two older provisions remain important. Article 265 says no tax shall be levied or collected except by authority of law. Every demand must therefore rest on a charging section read with a valid rate notification; a circular or FAQ cannot create a levy. Article 14 (equality) and Article 19(1)(g) (freedom of trade) are the usual grounds when a provision is challenged in a writ petition.

The Seventh Schedule was also changed. Central excise now covers only tobacco and the five petroleum products; State sales tax covers only the petroleum products and alcoholic liquor; and entertainment tax by States survives only to the extent levied by local bodies.

2.2 Compensation to States

States gave up VAT, entry tax and other levies and were worried about loss of revenue. Section 18 of the Amendment Act required Parliament to provide compensation for five years. The GST (Compensation to States) Act, 2017 guaranteed each State a 14% annual growth on its 2015-16 base revenue for five years ending 30 June 2022, funded by a compensation cess on luxury and demerit goods such as tobacco, pan masala, aerated drinks, coal and motor cars. Because collections fell short during the pandemic, the Centre borrowed and passed the funds to States, and the cess was continued beyond June 2022 to repay those loans. Under GST 2.0 the cess was removed on all goods other than tobacco from 22 September 2025, and it ended on tobacco and pan masala from 1 February 2026 (Chapter 3).

2.3 The GST Council

Article 279A sets up the GST Council as a joint forum of the Centre and the States. Its composition is:

the Union Finance Minister, as Chairperson;
the Union Minister of State in charge of Revenue or Finance; and
the Minister in charge of Finance or Taxation, or any other Minister nominated, by each State Government (including the Union territories with a legislature).

The Council recommends on the taxes to be subsumed, goods and services to be exempted, model GST laws, principles of levy, apportionment of IGST and place of supply, the threshold for registration, rates including floor rates and bands, special rates for natural calamities, special provisions for certain States, and the date from which GST will apply to the petroleum products. Half of the members form the quorum.

Voting

Every decision is taken at a meeting by a majority of not less than three-fourths of the weighted votes of members present and voting. The vote of the Centre has a weight of one-third of the total votes cast, and the votes of all the States together have a weight of two-thirds. The result is that neither side can carry a proposal alone: the Centre needs the support of a large majority of the States, and the States together cannot pass a proposal against the Centre.

Illustration 5: Weighted voting in the Council

Assume 31 States and Union territories with a legislature are present and voting, along with the Centre. Each State's weight = two-thirds divided by 31 = 2.1505% of the total.

Step 1: Centre plus 20 States vote in favour: 33.3333% + (20 x 2.1505%) = 76.34%. This is more than 75%, so the proposal is carried.

Step 2: Centre plus 19 States: 33.3333% + (19 x 2.1505%) = 74.19%. Less than 75%, so it fails.

Step 3: All 31 States without the Centre: 66.67%. Less than 75%, so it fails.

Result: The Centre in effect has a veto, and it needs at least 20 of the 31 States to carry a proposal. In practice almost all Council decisions have been taken by consensus.

2.4 Are Council recommendations binding?

For some years it was assumed that a Council recommendation automatically bound Parliament and the State Legislatures. The Supreme Court settled the position in 2022.

Judicial view: Council recommendations are persuasive

Union of India v. Mohit Minerals (P) Ltd. (Supreme Court, 2022): The Court held that Article 246A gives Parliament and the State Legislatures simultaneous power to legislate on GST, and that recommendations of the GST Council are not binding on them. They have persuasive value and are the product of a collaborative dialogue; Indian federalism is described as cooperative as well as contested. The Council itself is not a body whose decisions override the legislature.

On the facts, the Court struck down the levy of IGST under reverse charge on ocean freight paid by the foreign seller in a CIF import. The importer already pays IGST on the CIF value, which includes freight. Taxing the freight again separately offends the composite supply principle in section 8 of the CGST Act.

Practical relevance: Recommendations become law only through the Acts, Rules and notifications. When advising a client, check the notification, not the press release of the Council meeting.

Illustration 6: Double tax struck down in Mohit Minerals

An importer in Gujarat imported coal on CIF terms. CIF value Rs. 1,00,00,000 included ocean freight of Rs. 6,00,000 paid by the foreign seller to a foreign shipping line. Basic customs duty 10% and social welfare surcharge 10% of that duty are assumed.

Step 1: Value for IGST at customs = Rs. 1,00,00,000 + Rs. 10,00,000 + Rs. 1,00,000 = Rs. 1,11,00,000. IGST at 5% (the rate then applicable to coal) = Rs. 5,55,000. This value already includes the freight element.

Step 2: The notifications also made the importer pay IGST at 5% under reverse charge on the freight: 5% of Rs. 6,00,000 = Rs. 30,000.

Result: The Supreme Court held that the second levy of Rs. 30,000 could not be collected. Importers who paid it can rely on the ruling in refund claims, subject to limitation.

2.5 How GST law is made

GST law comes in layers. Each layer draws its power from the one above it and cannot go beyond it.

Instrument	Made under	Binding on
Constitution	Parliament (amendment)	Everyone
CGST, IGST, UTGST, SGST Acts	Articles 246A and 269A	Everyone
CGST Rules, 2017 (and State rules)	Section 164 of the CGST Act	Everyone, if within the Act
Notifications (rate, exemption, procedural)	Sections 9, 11, 148, 164 and others	Everyone, if within the Act
Circulars and instructions	Section 168 of the CGST Act	Department only
Removal of difficulty orders	Section 172 of the CGST Act	Everyone, if within the Act
FAQs, press releases, flyers	No statutory force	No one (guidance only)
Advance rulings	Sections 95 to 106 of the CGST Act	Applicant and its jurisdictional officer
Court judgments	Constitution	Supreme Court binds all; High Court within its State

Notifications

Notifications are of three kinds. Rate notifications prescribe the rate for goods and services. For CGST, goods were covered by Notification 1/2017-Central Tax (Rate) until 21 September 2025; from 22 September 2025 it was superseded by Notification 9/2025-Central Tax (Rate). Services remain under Notification 11/2017-Central Tax (Rate), amended many times, most recently for GST 2.0. Exemption notifications exempt specified goods or services: for goods, Notification 2/2017-Central Tax (Rate), superseded from 22 September 2025 by Notification 10/2025-Central Tax (Rate); for services, Notification 12/2017-Central Tax (Rate), as amended. For a supply made before 22 September 2025, the 2017 goods notifications still decide the rate. Procedural notifications (Central Tax series) appoint dates, extend due dates, prescribe forms and notify classes of persons. Each CGST notification has a matching SGST notification issued by each State and an IGST notification; a practitioner handling a State demand should check that the State notification exists and has the same effect.

Circulars

CBIC issues circulars under section 168 to ensure uniformity in implementation. A circular binds the officers, not the taxpayer or the courts. A beneficial circular can be relied on against the department even when the officer disagrees with it. A circular that is contrary to the Act has no legal effect.

Judicial view: Circulars bind the department

Commissioner of Central Excise v. Ratan Melting and Wire Industries (Supreme Court, 2008, Constitution Bench): Circulars and instructions issued by the Board are binding on the department, but not on the Court or the taxpayer. A circular contrary to a statutory provision has no existence in law, and the Court will declare the law as it reads.

Practical relevance under GST: When a show cause notice takes a view against a CBIC circular that favours the taxpayer, the reply should cite the circular and this ruling. When a circular is against the taxpayer, it can be challenged as contrary to the Act.

Advance rulings

An advance ruling by the Authority for Advance Ruling (AAR) or the Appellate Authority (AAAR) binds only the applicant and the jurisdictional officer in respect of the applicant (section 103). Each GSTIN is a separate person, so a ruling obtained by a company's Gujarat registration does not bind the officers of its Maharashtra registration. Rulings in one State are often contrary to rulings in another. They show how officers think, but they are not precedents. Until the National Appellate Authority is set up, section 101A(1A), inserted by the Finance Act, 2026, allows an existing authority to hear appeals under section 101B.

Illustration 7: Scope of an advance ruling

Kavya Foods Pvt. Ltd. has registrations in Gujarat and Maharashtra. The Gujarat registration obtained an advance ruling that its product is taxable at 5%. The Maharashtra registration sells the same product, with annual turnover of Rs. 2,00,00,000.

Step 1: The ruling binds only the Gujarat GSTIN and its officer. The Maharashtra officer may classify the product at 18%.

Step 2: Exposure in Maharashtra if 18% is upheld: 13% of Rs. 2,00,00,000 = Rs. 26,00,000 a year, plus interest.

Result: The Maharashtra registration should apply for its own ruling or keep a clear classification note and evidence, instead of relying on the Gujarat ruling.

2.6 Sources to check and in what order

When a client asks whether a transaction is taxable and at what rate, the following order avoids most errors:

the charging section and the relevant definition in the CGST or IGST Act, including Schedules I, II and III;
the current rate notification and exemption notification, as amended up to date (for GST 2.0 changes, check the September 2025 amendments and any later corrigendum);
the Rules, where valuation, time or procedure is in issue;
CBIC circulars on the point, and whether any later circular has withdrawn or modified them;
Supreme Court and jurisdictional High Court decisions, including pre-GST decisions where the principle carries over;
advance rulings, FAQs and Council minutes, as guidance only.

Practice note

Keep a dated copy of the notification and circular relied on in the client file. Rates and conditions change often, and a demand notice two or three years later will be judged by the law as it stood on the date of supply.

2.7 Interpretation of taxing statutes

Courts read a charging provision strictly. There is no tax by implication: if a case does not clearly fall within the words of the charging section, no tax arises, and a doubt in the charge goes in favour of the taxpayer. Exemptions are read differently. A person claiming an exemption must show that he clearly falls within it, and a doubt in an exemption goes in favour of the revenue. Procedural provisions are read more liberally so that substantive benefits are not lost over technical lapses. Definitions in the Act apply unless the context requires otherwise; where a term is not defined, the meaning in common or commercial usage is taken.

Judicial view: Exemptions are construed strictly

Commissioner of Customs v. Dilip Kumar and Co. (Supreme Court, 2018, Constitution Bench): An exemption notification must be interpreted strictly. The burden of proving that a case falls within the exemption is on the person claiming it, and where there is ambiguity in an exemption notification, the benefit goes to the revenue. The contrary view in the earlier Sun Export case was overruled.

Practical relevance under GST: Claims under the exemption notifications (for example, health care, education or charitable activities) should be supported by evidence of each condition. A reasonable but uncertain reading of an exemption will not be accepted merely because another view is possible.

Chapter summary

• The 101st Amendment gave the Centre and the States simultaneous power to tax supply (Article 246A); inter-State supplies and imports are taxed by the Centre as IGST (Article 269A).

• GST excludes alcohol for human consumption by definition (Article 366(12A)); services are anything other than goods (Article 366(26A)).

• The GST Council decides by three-fourths of weighted votes; the Centre has one-third weight and the States two-thirds.

• Council recommendations are persuasive, not binding (Mohit Minerals); they take effect only through Acts, Rules and notifications.

• Circulars bind the department only; advance rulings bind only the applicant GSTIN and its officer.

• Charging provisions are read strictly in favour of the taxpayer; exemptions are read strictly against the claimant (Dilip Kumar).