GST Council’s role only recommendatory, says HC

The Madras High Court ruled that the role of the GST Council is only informative, particularly in product classification.

In Parle Agro’s case, the court decided that ‘flavoured milk’ was subject to a reduced GST tariff of 5%, although the council recommended a higher rate of 12% at its December 22, 2018 meeting. The decision would support taxpayers against GST demands based only on council meetings or even simple clarification circulars.

However, the government can make adjustments, including changes to GST rates, by amending the law or issuing notifications.

According to a founder of a CA Firm, in a GST meeting, the GST council stated that flavoured milk would be subject to a higher GST rate. However, no amendment was made via notification, prompting the HC to rule that the ‘minutes of the meeting’ don’t represent the law.

A similar situation could develop if the GST Council issues a clarification through a circular rather than through an appropriate amendment to an existing law or notification.

The High Court relied on a Supreme Court decision in Mohit Mineral, which stated that GST council recommendations are not binding on the Union and states. It said that rendering the council’s decisions legally binding would bring down financial federalism.

The GST council is not a legislative body, although it is intended to make suggestions to the legislature on how to update the law (by amendment or notification). The HC ruling simply reaffirms this principle.