SUPREME COURT ON ROLE OF GST COUNCIL

[Dr. Sanjiv Agarwal]

Very recently, Supreme Court pronounced a judgment on 19.05.2022 in the matter of UNION OF INDIA & ANR. VERSUS M/S MOHIT MINERALS PVT. LTD. THROUGH DIRECTOR [2022 (5) TMI 968 - SUPREME COURT] .

The basic issue was on levy of Goods and Services Tax (GST) and Integrated Goods and Service Tax (IGST) in particular on ‘Ocean Freight’. It was also to be decided that in scope of supply, Ocean Freight would be included as a part of corporate supply. The question before the Apex Court was as to whether an Indian importer can be subject to the levy of IGST on the component of ocean freight paid by the foreign seller to a foreign shipping line, on a reverse charge basis. The apex court reached to the conclusion that the provisions of composite supply in the CGST and IGST laws play a specific role in the levy of GST. The idea of introducing ‘composite supply’ was to ensure that various elements of a transaction are not dissected and the levy is imposed on the bundle of supplies altogether. This also finds specific mention in the illustration provided under Section 2(30) of CGST Act, 2017 where the principal supply is that of goods. Thus, the intent of the Parliament was that a transaction which includes different aspects of supply of goods or services and which are naturally bundled together, must be taxed as a composite supply.

It was observed that courts are bound by the confines of the IGST Act and CGST Act to determine if the supply is a composite supply a not. Court can not ignore the text of Section 8 of the CGST Act and treat the two transactions as standalone agreements. It was also observed that in any CIF contract, the supply of goods is accompanied by the supply of services of transportation and insurance, the responsibility for which lies on the seller (the foreign exporter in this case) - while the impugned notifications are validly issued under Sections 5(3) and 5(4) of the IGST Act, 2017 it would be in violation of Section 8 of the CGST Act 2017 and the overall scheme of the GST legislation.

The gist of the Apex Court judgment can be summarized as follows:

Supreme Court on Legislative Powers v. GST Council’s Powers

Supreme court of India held as follows in land mark judgment dated 18.05.2022 in Union of India v. Mohit Minerals :

• GST Council’s recommendations are only recommendatory and are not binding on centre and states.
• Both centre and states can legislate on GST
• According to article 246A of Constitution of India, both Parliament and state legislature have simultaneous or equal power to legislate on matters of taxation.
• Constitution does not envisage a repugnancy provisions and GST Council must work in a harmonious manner to achieve a workable solution
• Indian federalism is a dialogue in which state and centre always engages in a dialogue.
• GST Council is an area of political contestations. It impacts federalism. Article 246 treats states and centre as equal. Article 279 provides that state and centre cannot act independent of each other. This also points towards competitive federalism.
• GST is not leviable on ocean freight
• Union SLP against Gujarat High Court order which stuck-down levy of GST on dismissed and SLP decided in favour of assessee.

Apex Court on GST Council - Union’s take

• Legal position underlined by Supreme Court is not new and it would not alter the way the GST Council has been functioning It does not lay down anything fundamentally different to the existing GST framework.
• Supreme Court judgment has only established the legal position.
• GST laws state that GST Council will recommend but it had nowhere said that it will mandate.
• GST Council is a Constitutional body created by Constitution comprising of the centre and states which will recommend and based thereon, law will be framed, as per scheme of things.
• While the recommendation of the Council have a pursuance value for framing law, they are binding while framing rules and prescribing rates and taxes.

Apex Court on GST Council - State’s take

• Decision or recommendations of GST Council are not binding on the Centre and the State Governments.
• Decisions of GST Council are only persuasive and not binding.
• Apex court judgment upholds the federal rights of states.
• Opens up the issue of federal flexibility in determining GST rates as well as procedures.
• Holding the constitutional principles of federalism, States have a right to legislate taxation .
• States can take a call not to accept or implement the decisions of GST Council in their states.
• States may demand that the states which are losing revenue should have right to legislate
• Supreme Court judgment may give state Governments the autonomy to regulate their respective GST regimes.
• Opposition ruled states may have a louder voice @ GST Council meetings.

Though the subject matter of Special Leave Petition against Gujarat High Court judgment was mainly on taxability of Ocean Fright, it led the Supreme Court to dwell upon the constitutional role of GST Council and legislative powers of Parliament and State Assemblies to legislate taxation laws. Infact this judgment has become the land mark judgment on the role of GST Council vis-à-vis legislature.