Union Of INDIA & Anr vs. M/S Mohit Minerals PVT. LTD. Through Director

Held

The Supreme Court held that the recommendations of the GST Council are not binding on the Union and States. This is because the deletion of Article 279B and inclusion of Article 279(1) by the Constitution Amendment Act 2016 indicate Parliament's intent for recommendations to have persuasive value, fostering cooperative federalism. Neither Article 279A nor Article 246A begins with a non-obstante clause, confirming simultaneous legislative power. The Court found that the import of goods on a CIF basis constitutes an 'inter-state' supply, making the importer the recipient of shipping services, as per Sections 2(11) and 13(9) of the IGST Act read with Section 2(93) of the CGST Act. Notification 10/2017 was held to be clarificatory in identifying the importer as the recipient for reverse charge, not specifying a new taxable person. Section 5(4) of the IGST Act was found to enable the Central Government to specify a class of registered persons as recipients, creating a deeming fiction. However, the Court held that the impugned levy on the 'service' aspect (ocean freight) violates the principle of 'composite supply' under Section 2(30) read with Section 8 of the CGST Act. Since IGST is levied on the composite supply of goods (including freight) in a CIF contract, a separate levy on the importer for the 'supply of services' by the shipping line is impermissible double taxation. The appeals were dismissed on this ground.

Facts

The Union of India and others appealed against a High Court judgment that had declared certain notifications unconstitutional. The respondent, M/s Mohit Minerals Pvt. Ltd., challenged notifications issued by the Central Government on the advice of the GST Council. These notifications levied integrated tax at 5% on the supply of transportation of goods in a vessel from outside India to India's customs station. The notifications also categorized the recipient of services for goods supplied by a non-taxable territory to include an importer under the Customs Act, 1962. The respondent, an importer of non-coking coal on a Cost-Insurance-Freight (CIF) basis, argued that these notifications exceeded the powers granted by the IGST and CGST Acts. The dispute centered on the levy of tax on ocean freight as part of the import of goods.

Key Issues

1. Whether the recommendations of the Goods and Services Tax (GST) Council are binding on the Union and States, particularly concerning legislative powers under Articles 246A and 279A of the Constitution. - Petitioner (Union of India) argued that the GST Council's recommendations, while important for cooperative federalism, are not binding on the legislature's power to enact primary legislation. They contended that Articles 246A and 279A grant simultaneous legislative power to Parliament and State legislatures. - Respondent (M/s Mohit Minerals Pvt. Ltd.) implicitly argued for the binding nature of GST Council recommendations by challenging notifications issued on their advice, suggesting a deviation from established council directives would be problematic. 2. Whether the impugned notifications, specifically Notification 10/2017, validly identify the recipient of services for the purpose of reverse charge mechanism under Section 5(3) of the IGST Act and Section 2(93) of the CGST Act. - Petitioner argued that Notification 10/2017 merely clarifies the recipient, which is the importer, and does not specify a different taxable person than what is envisaged in Section 5(3) of the IGST Act. - Respondent argued that the notifications exceeded the powers conferred by the IGST and CGST Acts, implying an improper identification of the taxable person or an overreach of delegated legislation. 3. Whether the levy imposed on the 'service' aspect of a CIF transaction, which includes ocean freight, violates the principle of 'composite supply' under Section 2(30) read with Section 8 of the CGST Act, leading to double taxation. - Petitioner argued that the levy on ocean freight is permissible and has a territorial nexus with India, citing the power to legislate over extra-territorial events with a real connection to India. - Respondent argued that levying tax on the service component (ocean freight) separately, after IGST has already been levied on the entire CIF value of imported goods, constitutes double taxation and violates the concept of composite supply.