The enactment of the 101st Constitutional Amendment Act, 2016 introduced the Goods and Services Tax (GST), replacing a patchwork of central and state indirect levies with a unified destination-based consumption tax, realizing the ideal of “One Nation, One Tax, One Market”.

Significance of the 101st Constitutional Amendment Act

• Elimination of Cascading Taxes: Subsumed multiple central taxes (Central Excise, Service Tax, Countervailing Duty) and state taxes (VAT, Entry Tax, Octroi, Luxury Tax), mitigating the “tax on tax” effect through an integrated input tax credit (ITC) chain.
• Creation of a Unified National Market: Abolishing interstate transit check-posts and border entry duties reduced freight logistics costs and improved turnaround times for interstate cargo movement.
• Technology-Driven Tax Compliance: Operates through the GST Network (GSTN), an IT platform providing electronic invoices, automated returns, and data analytics that reduce evasion and expand the formal tax base.
• Shared Sovereign Taxation Powers (Article 246A): Conferred simultaneous powers on both Parliament and State Legislatures to levy and collect indirect taxes on transactions, moving away from rigid mutually exclusive tax lists.

To What Extent It Reflects the Accommodative Spirit of Federalism

1. Accommodative Federal Dimensions (Cooperative Federalism)

• The GST Council as a Collaborative Federal Institution (Article 279A):
  • Chaired by the Union Finance Minister with State Finance Ministers as voting members. The voting structure allocates one-third weight to the Centre and two-thirds combined weight to the States, requiring a 75% weighted majority to pass any decision. This ensures neither tier can unilaterally impose fiscal rules without the other’s concurrence.
• Consensus-Driven Decision-Making: The GST Council has taken the vast majority of its decisions through cross-party consensus, demonstrating cooperative compromise.
• Accommodation of State Revenue Shocks (Compensation Mechanism):
  • To address state revenue concerns, the Centre enacted the GST (Compensation to States) Act, guaranteeing compensation for five years based on a 14% compounded revenue growth rate, financed via a dedicated Compensation Cess.
• Regional Exceptions and Crisis Relief:
  • The Council has accommodated regional variations (e.g., higher exemption thresholds for Northeastern and Hill States) and permitted temporary state disaster cesses (such as Kerala’s flood cess in 2018).

2. Emerging Tensions and Frictions

• Surrender of State Fiscal Autonomy: States gave up independent powers to alter sales tax and VAT rates according to local fiscal needs, leaving petroleum, alcohol, and real estate stamp duties as their remaining autonomous indirect revenue sources.
• Disputes Over Compensation Delays: Delays in releasing compensation cess funds during economic downturns (e.g., the COVID-19 pandemic) created intergovernmental strain.
• Central Reliance on Non-Shareable Cesses: The Centre’s increased use of cesses and surcharges on direct and fuel taxes—which bypass the divisible pool shared with states under Article 270—has heightened concerns regarding fiscal balance.
• Judicial Clarification on Council Authority: In Union of India v. Mohit Minerals (2022), the Supreme Court held that GST Council recommendations are persuasive rather than binding on state legislatures, preserving sub-national legislative debate.

The 101st Amendment represents a significant pooled-sovereignty fiscal arrangement in Indian federalism. Preserving its cooperative character requires regular consultation and equitable revenue dispute resolution.