In a recent landmark ruling, the Madras High Court has clarified the limited authority of the GST council, particularly in matters of product classification. The court’s decision came in response to a petition by Parle Agro challenging the classification of ‘flavored milk’ for GST purposes.

Court Overrides Council’s Recommendation on GST Tariff

Despite the GST council recommending a higher GST tariff of 12% for flavored milk in its December 22, 2018 meeting, the Madras High Court independently determined that the appropriate rate should be a lower 5%. This ruling establishes a crucial precedent, offering protection to taxpayers facing GST demands solely based on council discussions or clarificatory circulars.

Council’s Recommendations Not Binding Law

Citing a Supreme Court ruling in the Mohit Mineral case, the Madras High Court emphasized that GST council recommendations are not binding on the Union and states. Treating these recommendations as binding, the court argued, would disrupt fiscal federalism. The court’s decision highlights the importance of legal amendments or notifications for implementing changes, as the absence of such formalities renders council recommendations non-binding in law.

Implications for Taxpayers and Fiscal Federalism

Sunil Gabhawalla, founder of a CA firm specializing in indirect taxation, noted that the court’s decision underscores the significance of proper legal procedures for implementing GST changes. The ruling safeguards taxpayers from arbitrary decisions based solely on council recommendations, promoting clarity and fairness in the GST regime. Furthermore, it reinforces the constitutional principles of fiscal federalism by limiting the authoritative power of the GST council to advisory roles.