The Indian indirect tax system before 2017 was a patchwork. The Centre levied excise duty on manufacture, customs duty on imports, and service tax. The States levied sales tax (VAT after 2005), entry tax, entertainment tax, octroi, and luxury tax. Goods moving between States carried Central Sales Tax. Each commodity at each stage of supply attracted a different combination of taxes — with no input credit across the Centre-State divide. The Constitution (One Hundred and First Amendment) Act, 2016 changed all of this. It created the constitutional architecture for a single, unified Goods and Services Tax. New Articles 246A, 269A, and 279A were inserted. The Sixth and Seventh Schedules were amended. The GST regime came into operation on 1 July 2017 — the most ambitious tax reform in Indian constitutional history.
Pre-GST — the broken indirect-tax system
The Constitution as enacted in 1950 divided indirect taxes between the Centre and the States by category. The Centre had exclusive power to levy excise duty (taxes on manufacture, except on alcoholic liquors), customs duty (imports and exports), service tax (introduced 1994 under residuary entry, later given Entry 92C), and Central Sales Tax (taxes on inter-State sales of goods, levied by Centre but assigned to States). The States had exclusive power to levy sales tax/VAT (taxes on intra-State sales), entry tax (taxes on goods entering local areas), entertainment tax, luxury tax, and several others.
The problem was triple. First, cascading — taxes paid at one stage of production could not be offset against taxes payable at the next stage when the two were levied by different governments. A manufacturer paying excise to the Centre could not credit it against State VAT. The result was tax-on-tax, increasing the final price.
Second, fragmentation — different States had different VAT rates, different exemption lists, different procedural rules. A national producer had to deal with State-by-State variation. Inter-State movement of goods carried CST plus entry tax plus VAT in the destination State.
Third, compliance burden — businesses had to register and file returns under multiple taxes with multiple authorities. Each tax had its own administrative apparatus. The economic cost of this fragmentation was estimated to amount to 1-2% of GDP annually.
The case for a unified Goods and Services Tax — one tax, one return, one administrative apparatus, with input credit available across the value chain — had been politically argued since at least the 2007 Empowered Committee of State Finance Ministers. The constitutional architecture took a decade to construct. The 101st Amendment was the constitutional foundation.
The three new Articles — 246A, 269A, 279A
The 101st Amendment inserted three new Articles into the Constitution.
Article 246A — concurrent taxing power. This is the structural foundation of GST. Article 246A(1) gives Parliament and the Legislature of every State concurrent power to make laws with respect to goods and services tax imposed by the Union or by such State. Article 246A(2) provides that Parliament has exclusive power to make laws with respect to GST where the supply of goods or services takes place in the course of inter-State trade or commerce.
This is structurally novel. Most subjects in the Indian federal scheme are allocated exclusively — the Union has the Union List, the States have the State List, and the Concurrent List allows both with Centre prevailing on conflict. Article 246A is different. It creates a simultaneous taxing power on the same subject — both the Centre and the States can tax the same supply of goods or services, with the rates and rules harmonised through the GST Council.
Article 269A — apportionment of inter-State GST. Provides that GST on supplies in the course of inter-State trade is levied and collected by the Government of India (Integrated GST or IGST). The proceeds are apportioned between the Union and the States in the manner that Parliament may by law provide, on the recommendations of the GST Council.
Article 279A — the GST Council. The constitutional body that gives GST its day-to-day operation. Article 279A(1) requires the President to constitute a GST Council. Article 279A(2) provides for its membership: the Union Finance Minister as chairperson, the Union Minister of State for Finance, and the Finance Minister or Minister nominated by each State government. Article 279A(4) lists the matters on which the Council makes recommendations: rates, exemptions, threshold limits, model GST law, principles of place of supply, and "any other matter" the Council may decide.
Article 279A(9) is critical. It provides for decision-making in the Council: every decision shall be taken at a meeting by a majority of not less than three-fourths of the weighted votes of the members present and voting. The Centre's vote has a weightage of one-third; all the States together have a weightage of two-thirds. This means neither the Centre alone nor the States alone can pass a decision — both must agree. The constitutional architecture forces consensus.
What GST replaced — taxes subsumed
GST is a unified tax. To make it unified, several existing taxes had to be eliminated or absorbed.
Central taxes subsumed: Central Excise Duty (except on tobacco and petroleum products), Service Tax, Additional Customs Duty (Countervailing Duty), Special Additional Customs Duty (SAD), Central Sales Tax (CST), surcharges and cesses related to goods and services.
State taxes subsumed: VAT/Sales Tax (except on alcoholic liquor for human consumption and petroleum products), Entry Tax, Entertainment Tax (except when levied by local bodies), Luxury Tax, Taxes on advertisements, Purchase Tax, Taxes on lotteries, betting, and gambling, State surcharges and cesses related to goods and services.
What stayed outside GST: alcoholic liquor for human consumption (still under State VAT under entry 51 of List II); five petroleum products — petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel — kept outside GST initially (the GST Council can later bring them in by recommendation under Article 246A). Stamp duties on certain instruments. Customs duty on imports remains separate from IGST. Tobacco products are within GST but the Centre also levies a separate excise (Cess) on them.
Two things particularly worth holding for the exam. First, petroleum and alcohol are outside GST. They continue to be taxed under the old Centre-State scheme. The GST Council has the power to bring petroleum within GST but has not done so as of May 2026. Second, Article 271 — empowering the Centre to levy a surcharge on certain taxes — was amended to exclude GST from its scope. This was to prevent the Centre from defeating the GST scheme by levying a surcharge.
Compensation to States — the political bargain
The political settlement underlying GST involved a guarantee. States agreed to give up several revenue-yielding taxes (VAT, entry tax, octroi, etc.) on the assurance that they would be compensated for any revenue loss for five years. The constitutional foundation for this compensation was Section 18 of the 101st Amendment Act, which (together with the GST Compensation to States Act 2017 enacted by Parliament) provided for compensation.
The compensation formula: every State's revenue from subsumed taxes in the base year (2015-16) was assumed to grow at 14% per annum for five years. If the State's actual GST revenue plus other taxes did not reach this assumed level, the Centre would compensate the shortfall. The compensation was funded by a special "Compensation Cess" levied on certain luxury and demerit goods (tobacco, aerated drinks, motor vehicles, coal).
The compensation period was originally five years (July 2017 to June 2022). The COVID-19 pandemic disrupted GST revenues and forced extension of the cess (though not the compensation guarantee itself) to support borrowing. The compensation guarantee period ended in June 2022. The Cess continues to be levied to repay the borrowings made during 2020-22 to fund compensation in those years.
The compensation mechanism was crucial to State acceptance of GST. Without it, no State would have agreed to surrender its existing taxing powers. The political bargain — Centre guarantees revenue, States surrender autonomous taxing power — is the political foundation of the GST architecture.
How the GST Council actually works
The GST Council has met regularly since its first meeting on 22-23 September 2016. As of May 2026, the Council has held over fifty meetings. Decisions cover tax rates, exemptions, procedural simplifications, classification disputes, and the broader architecture of GST.
The decision-making rule under Article 279A(9) — three-fourths weighted majority with Centre at one-third and States at two-thirds — means that the Centre cannot impose decisions on the States, and the States collectively cannot override the Centre. In practice, the Council has operated by consensus on most issues. Voting has been rare. Where consensus has not emerged, decisions have been deferred.
The Council has produced four GST tax slabs: 5%, 12%, 18%, and 28%. Some essential items are zero-rated; some luxury/demerit items attract additional Compensation Cess on top of the 28% rate. The structure is more complex than the "single GST rate" originally envisaged but reflects the political constraints of taxing different goods and services differently.
The Supreme Court has held in Union of India v. Mohit Minerals (2022) that the recommendations of the GST Council are not legally binding on the Centre or the States — they are recommendations, even though they shape the laws that both the Centre and the States enact. This judicial reading preserves a degree of legislative autonomy, though in practice no government has departed substantially from a Council recommendation.
GST and federalism — the deepest constitutional shift
The 101st Amendment is constitutionally significant beyond its tax-policy content. It alters the federal balance in two structural ways.
First, it creates concurrent taxing power. Pre-GST, the Indian federal scheme separated taxes by category — the Centre had its taxes, the States had theirs, and there was no overlap. The Concurrent List contained subjects of legislation, not taxes. Article 246A introduces a new model — both the Centre and the States simultaneously tax the same supply of goods or services. This is a more cooperative form of tax federalism than the original constitutional design.
Second, it institutionalises a constitutional body for cooperative federalism. The GST Council under Article 279A is not a constitutional body in the same sense as the Election Commission or the Comptroller and Auditor General — it is a coordinating body. But it has constitutional status. Its membership, decision-making rule, and scope of action are all in the Constitution. This makes it more durable than ordinary inter-governmental coordination mechanisms (like the NITI Aayog or the Inter-State Council).
Critics have argued that the 101st Amendment dilutes State fiscal autonomy. States have surrendered the power to tax goods and services independently. They cannot raise rates on a particular good or service to address a State-specific revenue need. They depend on the GST Council for any change in rates or rules. The compensation guarantee partly offset this loss for five years; with that period ending, the structural reduction in State fiscal autonomy is now operative.
Defenders argue that the loss of formal autonomy has been compensated by gains in administrative efficiency and economic integration. The single national market for goods and services that GST creates was politically valuable. The trade-off — less autonomy, more integration — was the political bargain.
What students must hold
Six points carry the weight. One, the 101st Amendment was passed in 2016 and came into force on 8 September 2016. GST itself came into operation on 1 July 2017.
Two, three new Articles — 246A (concurrent taxing power for GST), 269A (apportionment of inter-State GST), 279A (GST Council).
Three, the GST Council has the Union Finance Minister as chairperson and Finance Ministers of all States as members. Decision rule: three-fourths weighted majority, with Centre at one-third and States collectively at two-thirds. Neither side can impose decisions alone.
Four, GST subsumes most Centre and State indirect taxes — Central Excise (mostly), Service Tax, CST, VAT (mostly), Entry Tax, Entertainment Tax, Luxury Tax, etc. Outside GST: alcoholic liquor, five petroleum products, customs duty on imports.
Five, States were guaranteed compensation for revenue loss for five years (July 2017 to June 2022). Funded by a Compensation Cess on luxury/demerit goods. The cess continues for repayment of pandemic-era borrowings.
Six, the 101st Amendment is structurally significant — it creates concurrent taxing power (a federal innovation) and a constitutional Council for cooperative federalism (Article 279A). For more on related federal-finance issues, see Finance Commission.