Union of India v. Mohit Minerals Pvt. Ltd.
Supreme Court of India · 19 May 2022 · 3 judges
GST Council recommendations are persuasive and do not bind Parliament and State legislatures; IGST on ocean freight levied on importers under CIF contracts violates the composite supply principle in Section 8 of the CGST Act; appeals dismissed.
Facts
The respondents import non-coking coal on a Cost-Insurance-Freight (CIF) basis, where the foreign seller engages and pays the foreign shipping line. Notifications 8/2017 and 10/2017, issued on the GST Council's advice, levied IGST at 5 per cent on transport of goods by vessel from outside India to the customs station and made the importer liable to pay it on reverse charge. The importers already paid IGST on imported goods valued to include freight. The Gujarat High Court, on a petition under Article 226, struck the notifications down. The Union of India appealed, contending among other things that the GST Council's recommendations bind the legislature and that the two legs of the transaction are separate supplies.
Questions before the Court
- Are the recommendations of the GST Council under Article 279A binding on the Union and the States?
- Could the importer under a CIF contract validly be made liable, on reverse charge, to IGST on ocean freight under Sections 5(3) and 5(4) of the IGST Act?
- Does a separate levy on the service of ocean transport, when IGST is already paid on the imported goods, violate the composite supply provisions of the CGST Act?
What the Court held
- GST Council recommendations have persuasive value only. Article 279A has no non obstante clause and Article 246A is not made subject to it; Parliament and State legislatures have simultaneous power to legislate on GST, and treating the recommendations as binding would disrupt fiscal federalism.
- The Government is bound by the Council's recommendations when exercising rule-making power under the CGST and IGST Acts, but that does not make every recommendation under Article 279A binding on the legislature's power to enact primary legislation.
- Import of goods under a CIF contract is an inter-state supply on which IGST can be levied, with the importer as recipient of the shipping service. The notifications were validly issued under Sections 5(3) and 5(4) of the IGST Act and did not suffer from excessive delegation.
- In a CIF contract the transport service forms part of the composite supply of goods on which the importer already pays IGST. A separate levy on that service violates Section 8 read with Section 2(30) of the CGST Act, so the levy cannot stand and the Union's appeals were dismissed.
Why it matters
The judgment explains the constitutional status of the GST Council: its recommendations under Article 279A are the product of collaborative dialogue between the Union and States and are not binding edicts on the legislatures, though they bind the Government in framing rules where the statutes so require. It also applies the composite supply principle to bar a separate tax on ocean freight already included in the value of imported goods.
In the Court's words
Copied from the official judgment; each passage links to its page.
“The 'recommendations' of the GST Council are the product of a collaborative dialogue involving the Union and States. They are recommendatory in nature. To regard them as binding edicts would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST.”
“Merely because a few of the recommendations of the GST Council are binding on the Government under the provisions of the CGST Act and IGST Act, it cannot be argued that all of the GST Council's recommendations are binding. As a matter of first principle, the provisions of the Constitution, which is the grundnorm of the nation, cannot be interpreted based on the provisions of a primary legislation.”
“The supply of service of transportation by the foreign shipper forms a part of the bundle of supplies between the foreign exporter and the Indian importer, on which the IGST is payable under Section 5(1) of the IGST Act read with Section 20 of the IGST Act, Section 8 and Section 2(30) of the CGST Act. To levy the IGST on the supply of the service component of the transaction would contradict the principle enshrined in Section 8 and be in violation of the scheme of the GST legislation.”
Provisions interpreted
Case and bench
- Parties
- Union of India v. M/s Mohit Minerals Pvt. Ltd. Through Director
- Case
- Civil Appeal No. 1390 of 2022
- Decided
- 19 May 2022
- Bench
- Dr Dhananjaya Y Chandrachud, Surya Kant, Vikram Nath
- Opinions
- Unanimous. Judgment of the Court delivered by Dr Dhananjaya Y Chandrachud, J.
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