Litigation Lounge

[Video] How the President’s Rule drama in Uttarakhand and Arunachal illustrate India’s Centre-State relations

Earlier this year, a constitutional provision returned to the headlines after a brief hiatus. Article 356 was invoked and President’s Rule imposed in the states of Arunachal Pradesh and Uttarakhand. After prolonged political drama, the judges of the Supreme Court and the Uttarakhand High Court struck down these proclamations.

As the situations developed in parallel, it became clear that the Governors of the states played key roles in the use of this constitutional provision as a weapon of political war. This was also evident from a bare reading of the text of Article 356.

What was the constitutional design behind vesting the Governor with these powers? Why did the judiciary not interfere, as Article 356 was repeatedly misused for forty years? What motivated the judges of the Supreme Court and the Uttarakhand High Court to strike the proclamations down?

To answer these questions, we turned to senior advocate and Times Now regular Sanjay Hegde and Alok Prasanna Kumar, the Senior Resident Fellow at the Vidhi Centre for Legal Policy. As they explain judgments of the Supreme Court and narrate tales of political intrigue, you will realise that the history of Article 356 is the history of Centre-State relations in India.


GST concludes indirect tax reform but much depends on implementation by states and model GST law

Gautham_Gururaj_authorThe Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 (“Bill”) seeks to introduce the goods and services tax (“GST”) by conferring concurrent taxing powers on the Union and state governments on every transaction involving the supply of goods or the supply of services or both. It would immediately allow the Union to levy tax on the sale of goods which has been in the domain of the states, and the states similarly would be able to levy tax on services which until now was mostly in the domain of the Union government.

The introduction of the GST in this manner would, without doubt, be the most widespread restructuring of India’s indirect taxation system, which currently involves a multiplicity of taxes as well as cascading effects.

Removal of cascading effects

For instance, the central excise duty component suffered by goods during the manufacturing process and the additional excise duty component on imported goods are included in the value of the goods when the states levy value added tax (“VAT”). The Bill seeks to subsume various central indirect taxes and levies such as central excise duty, additional excise duties, additional customs duty, special additional duty of customs, service tax, and surcharges and cesses in relation to the supply of goods and services. The Bill also simultaneously provides for the subsuming of value added tax or sales tax, entertainment tax, central sales tax, octroi or entry tax, purchase tax, luxury tax, taxes on lottery, betting and gambling, and state cesses and surcharges imposed by the states in relation to the supply of goods and services. The removal of these various taxes and the introduction of a single point GST will thus remove the cascading effect of taxes and also simplify the number of taxes that are levied on a transaction involving goods or services. While the current scheme of the Central Excise Act, 1944 and the Finance Act, 1994 provided for the removal of the cascading effect of taxes in respect of certain central indirect taxes, and the VAT system introduced in states provided for the removal of the cascading effect in respect of tax on the sale of goods, the GST will be the first time that the cascading effect will stand removed in respect of both central and state indirect taxes. The GST, therefore, can be seen as a logical step for having an indirect tax system that seeks to capture only the value addition in the goods and services at each level, and not capture the taxes being levied at each level for the purposes of further taxation.

Types of GST taxes

To implement GST, the Bill proposes the introduction of Article 246A into the Constitution – a non obstante clause that provides that the Parliament, and with the exception of tax on the supply of goods and services in the course of inter-state trade or commerce, the states shall have the power to make laws with respect to goods and services tax to be imposed by the Union or by the states. Keeping in mind the federal structure, the Union and the states will levy the GST at each point of time in the taxation of goods and services, with the Union levying a central goods and services tax (“CGST”) and the states levying a state goods and services tax (“SGST”).


The Union Finance Minister Arun Jaitley introduced the constitutional amendment bill on the goods and services tax in the Lok Sabha on December 19, 2014.

The Bill also proposes an amendment to Article 286 of the Constitution to ensure that the supply of goods and services continues to remain outside the purview of the states’ power to tax if such supply takes place outside the state or in the course of import of goods into India or the export of goods outside India. However, this amendment is merely clarificatory. The substance and the intention of the provision continues to remain the same. Equally important is the amendment proposed to Article 248. The exclusive power of the Parliament to make any law with respect to any matter not enumerated in the Concurrent List or the State List in Schedule VII, including the imposition of tax on such matters, will now be subject to Article 246A. This essentially means that any new matters involving goods or services, including their taxes, will necessarily have to be routed by the Union through the mechanism of the GST; and thereby necessarily enabling the states to tax such matters as well.

Additionally, Article 246A(2) empowers the Parliament with the exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-state trade or commerce. This tax is called the integrated goods and services tax (“IGST”). Hence, every point in taxation will necessarily be subject to CGST, and either SGST or IGST, depending on whether the movement of goods or supply of services involves intra-state or inter-state trade or commerce. Under the proposed Article 269A, the IGST should be levied and collected by the Union but be apportioned between the Union and the States.

The additional tax – a wrong move

The manner of taxation on products such as alcohol and petroleum under the GST mechanism has been a point of disagreement between the Union and the states because of the amount of revenue generated by the states in taxing these products. The Bill has sought to address this issue and keep the states happy by keeping the taxation of alcohol and petroleum outside the purview of GST altogether. This essentially means that the states will continue to tax the sale of alcohol and petroleum under its existing state excise and sale tax laws. Additionally, to address the long standing (but slightly unjustified) concerns of revenue loss to the states, the Bill proposes an additional tax not exceeding 1 per cent on the supply of goods in the course of inter-state trade or commerce to be levied and collected by the Union Government for a period of at least two years, but assigned to the states from where the supply of goods originates. However, since this 1 per cent additional tax is intended to be collected in addition to the IGST under Article 269A, it appears that this 1 per cent additional tax falls outside the purview of the GST framework altogether; else, it could have been specifically incorporated into Article 269A itself.

This is an incorrect move under the Bill and the intention of simplifying the tax net will be partially lost if certain taxes are proposed to be kept outside the GST scheme. Further, if the 1 per cent additional tax is kept outside the GST scheme, then the assessees will not be able to avail credit of the 1 per cent additional tax being paid on the supply of goods in the course of inter-state trade or commerce; and this will become a cost that will eventually be passed on to the end customers.

The council

A commendable and necessary but tricky insertion in the Bill is the creation of the GST Council under the proposed Article 279A of the Constitution. The GST Council is intended to be an all-powerful body comprising the Union Finance Minister, the Union Minister of State for Finance, and the State Finance Minister of each state government to formulate principles and make recommendations on the following aspects of the GST:

(a) the rates, including floor rates with bands of GST;

(b) the goods and services that may be subjected to, or exempted from GST;

(c) model goods and services tax laws for adoption by the Union and the states and principles for the levy and apportionment of IGST;

(d) the threshold limit of turnover below which goods and services may be exempted from GST;

(e) special provisions with respect to the North Eastern States, Jammu and Kashmir, Himachal Pradesh and Uttarakhand; and

(f) any other matter relating to GST, as the GST Council may decide.

iLaw_InternationalCoursesHaving a GST Council of this nature will ensure greater coordination between the Union and states and among states. While the decisions of the GST Council are intended to be binding on the Union and the states, the principal issue here is the extent to which the model GST Law will be binding on and be implemented by the states. If one or more states, for instance, decide to make even procedural changes while adopting and enacting the model GST Law, then one of the purposes of GST – the benefit of uniformity – will be lost on the assessees; not to mention, give rise to much confusion among the assessees who are subject to taxation in multiple states. Secondly, instead of providing floor rates and bands of GST, it would have been advisable that the Bill provided for a fixed rate of taxation under the GST (subject to certain exemptions and abatements, of course). Providing for flexibility in terms of the rates that can be charged as SGST could potentially become the subject matter of much confusion in the hands of the assessees, not to mention a whole lot of business structuring and restructuring around taxation. At the same time, this proposal could lead to a healthy competition between the states and could result in SGST being charged only at the floor rates in the long run. The third and most important issue could arise not with the model GST law itself, but with its implementation. Would an issue under the SGST raised by a state government in respect of an assessee also become an issue under the CGST to be taken note of by the Union government, and vice-versa? What happens if there is a difference of opinion between the CGST authorities and SGST authorities in respect of the same issue involving the same assessee? Can proceedings be commenced only under CGST or only under SGST, or do they necessarily have to be clubbed? Which authorities get jurisdiction over the matter? Does an assessee have to respond to dual proceedings under CGST and SGST in respect of the same cause of action? While one does not expect the Bill to address these issues naturally, one hopes that the model GST law clearly enunciates and addresses such issues; and the GST Council ensures that little or no modifications are made by the states while enacting the model GST law.

Interesting in itself is the mode of decision-making by the GST Council, which has been provided in Article 279A(9). Every decision of the GST Council shall be taken by a majority of not less than three-fourths of the weighted votes of the members present and voting: (A) the vote of the Union government shall have a weightage of one-third of the total votes cast, and (B) the votes of all the state governments taken together shall have a weightage of two-thirds of the total votes cast in that meeting. One wonders how the states acceded to a situation wherein the Union government has a weightage of one-third of the votes cast. And given the current political map of India, this could result in a situation where the majority group at the Union government has complete control over the decision making process of the GST Council.

Concluding step in indirect tax reform

The introduction of the GST is the concluding step in the reformation of the indirect tax system in India. From an assessee and government point of view, GST enables ease of compliance, transparency on the exact amount of tax being suffered by goods and services, and ease of administration. From the perspective of the end consumer, the removal of the cascading effect of taxes will result in an immediate reduction on the overall tax burden on goods and services; and it is hoped that this reduction in the tax burden will in turn help bring down the cost of goods and services, moving ahead.

The Union government has repeatedly said that it intends to rollout the GST with effect from April 1, 2016. Hence, it is unlikely that the Central Government will undertake any major tinkering with the scheme of indirect taxation in the forthcoming Union Budget, especially considering that the it also intends to introduce the Bill in this budget session of the Parliament. Having said that, the forthcoming Union Budget can actually be utilised as a good opportunity to merge certain lesser avenues of taxation into the central excise and services taxes and also do away with a several cesses that form the body of central indirect taxation. Additionally, procedural compliances can be simplified and brought closer to a format that the Union government intends to adopt for compliances under the CGST. Doing so will not only ease the road for the introduction of the GST in its intended form, but also provide assessees a full twelve months to get accustomed to the compliance processes.

Gautham Gururaj is an advocate based in Bangalore.


The Telangana issue


If all goes as the Congress has planned, we should have a new state called Telangana in another four to six months. But if you speak to people who have been active members of the movement for a separate Telangana, the conversation would not be about the creation of a new state. For them, Telangana has always existed as a distinct entity, a fact that the central government has finally woken up to. So it’s less “creation” and more “demerger”. Michelangelo had once said that in every block of stone lies a hidden figure and that it was the sculptor’s job to emancipate it. To the Telangana movement, Andhra Pradesh was the block of stone that enclosed the Telangana region in its grip; now they may have chipped away enough to be free.

Certainly, as a Bengali who has lived in Delhi all his life, with little or no connection to Telangana or Andhra Pradesh, my knowledge of the subject is severely limited; my emotional investment, even more so. However, the Congress’ latest decision has thrust this issue into the national consciousness, which in turn has led to animated (often heated) conversations in social gatherings. But having had these conversations in Delhi, I realised that for most of us, there is just too much physical distance and emotional detachment from the subject for it to really matter. Most people I have spoken to here seem to be against the separation because it would open the door to demands of statehood from every minor region which has ever felt neglected (and there is an unsettlingly large number of them in this country). And even though the slippery slope is, in terms of logic, an informal fallacy, one sees the point. That said, one needs only to look back at history to realise how important this issue is to so many.


Telangana’s peculiar history makes it impossible for us to reasonably compare its situation with that of the other newly formed states. As a part of the princely state of Hyderabad, it was ruled by the Nizam till a rather frustrated Sardar Patel sent the Indian Army in to overthrow him in a mission called Operation Polo (thus named, apparently, because the Hyderabad state had the largest number of polo grounds in India at the time – clearly the Indian Army had set their sights on the most important targets). The ensuing battle lasted all of five days. A part of the Indian union now, in 1956, Telangana was grouped together with other Telugu speaking areas to form the state of Andhra Pradesh. However, what needs to be borne in mind here is that in the two centuries during which Telangana was a part of the Nizam’s Hyderabad, it had developed its own language, traditions, culture and identity, which was quite distinct from Andhra and Rayalseema.

While speaking to a few friends from the area, I realised that the people of Telangana were seen as unintelligent, crass, and coarse by their Andhra neighbours. They were looked down upon and frequently made the butt of some pretty nasty jokes. Telangana is a lot poorer than its coastal cousins, because as opposed to the hilly coast, which gets a substantial amount of rain and has fertile, arable, and productive land, Telangana is hot and arid. Apart from this, thanks to the British, Andhra also benefited from higher standards of institutionalised education. The Telangana dialect was seen as a bastardised version of “pure” Telugu; it was dismissed as a dialect that should never be spoken by “decent people”. A friend tells me that his mother often recounted her experiences of being admonished by her teachers in school for speaking her native Telangana dialect because it was too vulgar. There was clearly some misunderstanding here because, when she got home, she would find her parents and other elders of unquestionable respectability speaking in that same “vulgar” dialect. The subtle trauma of a child being forced to other herself from her family and culture is hard to put in words.

All these concerns were already beginning to bubble up to the surface in 1953 even as the State Reorganisation Commission submitted its report on the viability of a “Visalandhra” state. While Andhra residents were more than happy to have a unified state, Telangana feared two things in particular: being pushed aside and trampled underfoot by the more educated and richer Andhra people, and losing control over the Krishna and Godavari rivers. The concern over Krishna and Godavari still stands. Although Telangana houses almost 70% of the catchment area of each of these rivers and is the largest of all regions of Andhra Pradesh, it gets a minuscule percentage of the water for irrigation purposes, while coastal Andhra gets the lion’s share. And as for being pushed aside by the rest of Andhra, how about this startling fact: in the 56 years of its existence, Andhra Pradesh has had a Chief Minister from Telangana for little more than 10. The powerful and wealthy sections of society have thus far been largely non-Telangana. The people of Telangana feel that the rest of Andhra will do nothing to help them; that they must break away to help themselves.

But the answer isn’t that simple, unfortunately. It never is. Seema-Andhra has a lot of money invested in Hyderabad. Telangana’s separation may cause investors to pull out of Hyderabad, which would be catastrophic for the city and the new state’s economy. Indeed, Seema-Andhra depends on Telangana for water and energy, while Telangana depends on Seema-Andhra for food and money. How this delicate balance will be affected by the impending divorce remains to be seen.

Justice (Retd) B.N. Srikrishna presented the Srikrishna Committee Report on Consultations with political parties and groups in Andhra Pradesh on Telangana issue to P. Chidambaram, who was the the Union Home Minister at that time, on December 30, 2010.
Justice (Retd) B.N. Srikrishna presented the Srikrishna Committee Report on Consultations with political parties and groups in Andhra Pradesh on Telangana issue to P. Chidambaram, who was the the Union Home Minister at that time, on December 30, 2010.

The Congress’ move has predictably raised a storm of controversy on every front, even within its own party cadre (MLA P. Ramesh Babu tendered his resignation yesterday). Is it political opportunism? Well, if it is, it isn’t new. In May, TDP President N. Chandrababu Naidu did an about turn on his legendary father-in-law’s vision for a single unified Andhra Pradesh. And then another TDP leader, Kodela Siva Prasad, went against the party line and said the bifurcation of the state would be “disastrous”. Naidu’s departure from his party’s long held stance was evidently motivated by the fact that TDP’s popularity in the state is falling at an alarming rate. They might as well try to get Telangana on their side. Although one could argue that he could have achieved this had he spent his time as Chief Minister actually working for the upliftment of the Telengana region and not just throwing his considerable resources at Hyderabad alone. Whether or not Congress had similar motivations is a fraught question, but if this proposal is approved by the Parliament, it will have set in motion the wheels of history and we can only hope that the ride won’t be too bumpy.

(Sayak Dasgupta wanders around looking for things to do.)