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2022 (5) TMI 968

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....upesh Kumar, Adv. Mr. Sharath Nambiar, Adv. Mr. Ashutosh Jain, Adv. 4 Mr. Kartikey Singh, Adv. Mr. Mukesh Kumar Maroria, AOR For the Respondent : Mr. Harish N. Salve, Sr. Adv Mr. JK Mittal, Adv. Ms. Neeha Nagpal, Adv. Mr Malak Manish Bhatt, AOR Ms. Vandana Mittal, Adv Ms. Aashna Suri, Adv Mr. Apurva Mehta, Adv. Mr. Shashank Shekhar, Adv. Mr. Tushar Joshi, Adv. Mr. Rajat Mittal, AOR Mr. Vikram Nankani, Sr. Adv. Mr. Mahesh Agarwal, Adv. Mr. Anshuman Srivastava, Adv. Mr. Rohan Talwar, Adv. Mr. Abhinabh Garg, Adv. Mr. E. C. Agrawala, AOR Mr. Arvind P. Datar, sr. Adv. Mr. Harish Bindumadhavan, Adv. Mr. Pawanshree Agrawal, AOR Ms. Shrayshree Thyagarajan, Adv. Mr. Kumar Visalaksh, Adv. Mr. Harsh Shah, Adv. Ms. Ruchita Shah, Adv. Mr. Udit Jain, Adv. Mr. Arihant Tater, Adv. Mr. Archit Gupta, Adv. Mr. Ajitesh Dayal Singh, Adv. Mr. Abhishek Vikas, AOR Mr. Rishabh Sancheti, Adv. Ms. Padma Priya, Adv. Mr. Anchit Bhandari, Adv. Mr. Suyash Jain, Adv. Ms. Saloni Bhandari, Adv. Mr. Zeeshan Ali, Adv. Mr. K. Paari Vendhan, AOR Mr. Ranjan Kumar, AOR Mr. Kapil Dev Yadav, Adv. Mr. Sanjay Kumar, Adv. Mr. Avushka Singh, Adv. Mr. Simranjeet Singh, Adv. Ms. Rhea Dube, Adv. Ms. Rudrakshi Deo, Adv. 5 Mr. Mi....

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....ocured on a CIF basis constitute an inter-state supply or is it an extra-territorial tax? ................................................................ 115 D.4.(b) Are importers service recipients under CIF contracts? ..................... 125 D.5 Applicability of Section 5(4) of IGST Act .................................................... 135 D.6 Composite Supply and Issues of Double Taxation..................................... 141 E Conclusion ........................................................................................................ 150 A Introduction 1 The Union of India "Union Government" or "Central Government" is in appeal against a judgment of a Division Bench of the Gujarat High Court dated 23 January 2020. The High Court allowed a petition instituted by the respondents under Article 226 for challenging the constitutionality of two notifications of the Central Government. The bone of contention is whether an Indian importer can be subject to the levy of Integrated Goods and Services Tax "IGST" on the component of ocean freight paid by the foreign seller to a foreign shipping line, on a reverse charge basis. 2 The respondents import non-coking coal ....

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....when customs duties are levied on the goods under Section 12 of the Customs Act 1962 "Customs Act". Section 11 of the IGST Act stipulates that the place of supply of goods in the case of goods imported into India shall be the place of the importer. Section 13(9) of the IGST Act contemplates that the place of supply of services, in the case of transportation of goods shall be the destination of the goods. The respondent alleges that the impugned notifications create an element of double taxation, as ocean freight is included in the value of goods for the purpose of customs duty which the importer is liable to pay. The respondent does not dispute the liability of integrated tax on supply of service of transportation when it imports goods on an FOB basis. 6 The respondent filed a writ petition before the Gujarat High Court challenging Notification 8/2017 and Notification 10/2017 Collectively referred as "impugned notifications" on the grounds that: (i) the notifications are ultra vires the IGST Act and CGST Act; (ii) customs duty is levied on the component of ocean freight and the levy of IGST on the freight element in the course of transportation would amount to double taxation; (ii....

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....es of transportation of goods shall be place of destination of such goods. Transaction is liable for tax as the place of supply is India. Tax will be paid under reverse charge and can be claimed as input tax credit. Export Foreign Section 13(9) of the IGST Act - the place of supply of services of transportation of goods shall be place of destination of such goods. Since the place of supply will be outside India, the transaction is not liable for tax. 9 The Division Bench of the Gujarat High Court held that the impugned notifications are unconstitutional for exceeding the powers conferred by the IGST Act and the CGST Act. The High Court held: (i) The importer of goods on a CIF basis is not the recipient of the transport services as Section 2(93) of the CGST Act defines a recipient of services to mean someone who pays consideration for the service, which is the foreign exporter in this case; (ii) Section 5(3) of the IGST Act enables the Government to stipulate categories of supply, not specify a third-party as a recipient of such supply; (iii) There is no territorial nexus for taxation since the supply of service of transportation of goods is by a person in a non-taxable ....

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....s imports; (ii) Article 269A enables the Union Government to levy GST on inter-state supplies. The explanation to Article 269A(1) creates a deeming fiction that a supply of goods or services in the course of imports is to be considered as a supply of goods or services or both in the course of interstate trade; (iii) Article 269A(5) enables Parliament to formulate the principles for determining the place of supply and when a supply of goods and services or both takes place in the course of inter-State trade or commerce. This constitutional mandate finds legislative effect in the IGST Act; (iv) As contemplated in Article 286(2) read with Article 269A(1), the IGST Act enacts provisions relating to the levy and collection of integrated tax (Section 5(1)), export of goods [Section 2(5)], export of services [Section 2(6)], import of goods [Section 2(10)], import of services [Section 2(11)], location of recipient of services [Section 2(14)] and location of supplier of services [Section 2(15)]; (v) In terms of Article 269A(5), the IGST Act contemplates provisions for determining the nature of inter-State supply (Section 7), supplies in territorial waters (Section 9), place of suppl....

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....under reverse charge" and not "persons who are recipient of services under Section 2(93) of the CGST Act 2017"; (xi) Section 5(3) of the IGST Act and Section 9(3) of the CGST Act permit the Government, on the recommendation of the GST Council, to specify the categories of goods or services or both, the tax for which shall be paid on reverse charge basis by the recipient of such goods or services or both; (xii) Presently, neither the provisions nor the rules have identified the taxable persons for reverse charge. Hence, the impugned notifications are a legitimate exercise of delegated legislation. Notification 10/2017 identifies an importer as a recipient for the purposes of reverse charge. The power to issue such a notification can be traced back to Sections 5(3) and 5(4) of the IGST Act; D. Inter-state supply and Place of Supply (xiii) The import of service in this case is an inter-state supply in terms of Section 7(4) read with Section 13(1) and 13(9) of the IGST Act. Although the contracting parties are foreign, the critical limb of the transaction happens in the taxable territory, namely, India. Hence, the transaction can also fall under Section 7(5)(c) read with Sectio....

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....85 (3) SCC 230 ["McDowell"] has held that a single element can constitute the basis of a levy and can also form part of the value for another transaction. This cannot be termed as double taxation. G. Extra-territoriality (xxi) There is sufficient territorial nexus for the purpose of taxation since the importer is the final beneficiary of a service provided by a foreign shipping line by way of transportation up to the customs station of clearance in India. The transaction between the foreign exporter and the foreign shipping line has a nexus to the taxable territory of India. The importer is the beneficial owner of the goods at the time of clearance. The appellant relies on the decisions of this Court in M/s Electronic Corporation of India v. Commissioner of Income Tax 1989 Supp 2 SCC 642 and GVK Industries v. Income Tax Officers 2011 (4) SCC 36 ["GVK Industries"] where this Court has upheld taxing statutes having a territorial nexus to India; H. Service recipient (xxii) There are six reasons to term an Indian importer as the recipient of service: (a) Section 2(93)(c) of the CGST Act envisages a recipient of an intangible service as one who does not pay consideration. In CI....

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....he provisions of the Act would apply to such a recipient; (xxiv) It is admitted that the impugned notifications do not refer to Section 5(4) of the IGST Act. However, it is settled law that once a power is available to grant or identify the taxable person, taxable event, rate and measure, non-reference of the source of power will not vitiate its exercise and application in given facts and circumstances of the case; J. Parliamentary legislation v. Excessive delegation (xxv) This Court in Municipal Corporation of Delhi v. Birla Cotton Spinning and Weaving Mills 1968 (3) SCR 251 and Avinder Singh v. State of Punjab 1979 (1) SCC 441 has held that only essential legislative functions, such as policy guidelines and framework, need to be performed by Parliament and the state legislatures. Once these are made available through the exercise of plenary power, the rest of the details can always emerge through the exercise of delegated powers; (xxvi) The constitutional mandate of Articles 269A and 286 finds effect under the IGST Act. The IGST Act, and specifically Section 5(1) therein, has defined the subject matter of taxation (inter-state supply of goods and services), the taxable pe....

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....slate GST laws is only with the Union of India and the States. Neither can Article 279A override Article 246A nor can Article 246A be made subject to Article 279A. Judicial interpretation must strike a harmony such that Parliament, the state legislatures and the GST Council work in unison and harmony; and (xxxiii) The constitutional scheme therefore envisages a two-step process. At the first level of the GST Council, Article 279A(6) envisages cooperative federalism and in the absence of either a non obstante clause in Article 279A or a 'subject to' clause in Article 246A, the need or requirement is that both the Union and the States should be supportive of this cooperative federalism through the process of collaborative federalism; and (xxxiv) Section 5(1) of the IGST Act, by design, chooses to delegate certain functions to the GST Council in order to achieve the legislative object. Even though Article 246A does not subject Article 246A to Article 279A, the Union and States after exercising their legislative power and discretion under Article 246A(1) have agreed to go by the recommendations of the GST Council in every aspect of the GST law wherever required. This is the spirit ....

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.... in assessment practices. It is only a reference or a guideline for making assessments. Even if it were to be held inapplicable, the revenue can assess the transaction under Rule 31 of the CGST Rules. Thus, Notification 8/2017 does not impinge on Rule 31 of the CGST Rules but only aids uniformity; (v) The respondents rely on Section 2(87) of the CGST Act and Section 5 of the IGST Act to argue that prescription can only be through rules, and not notifications. However, Section 15(1), (2) and (3) of the IGST Act prescribes values. Section 15(4) and 15(5) of the IGST Act deals with cases where the valuation cannot be determined under Section 15(1). Rule 31 of the CGST Rules also enables the valuation to be conducted through "reasonable means". Thus, delegation is envisaged in the statutory mechanism; (vi) If the expression "by the recipient" is to be given a static meaning as those falling under Section 2(93) of the CGST Act, then one would be denuding the power to notify persons for reverse charge under Sections 5(1) and 5(3) of the IGST Act read with Section 24(iii) of the CGST Act. (vii) Alternatively, the concept of reverse charge and notifying persons liable for reverse cha....

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....le 279A embodies the spirit of collaborative federalism. The GST Council is constitutionally mandated, particularly under Article 279A(6), to promote harmony and alignment amongst the federal partners; (xiii) Under Article 279A(4), decisions of the GST Council transform into recommendations to the Unions and the States. The GST Council is the only constitutional body that acts as a converging space or platform for the federal units to work in a harmonious matter. The principal function of the GST Council is to take decisions, which are conveyed as recommendations. These recommendations have a unique constitutional status and they are overridden in exceptional circumstances; (xiv) It was contended by the respondents that instead of course correcting the input tax mechanism, the revenue has chosen to tax the Indian importer on reverse charge. This is more a policy than a perceptional issue. As long as the tax is legal and valid, the manner and mode of taxation need not be questioned. A better manner and mode would not result in the exercise of legislative discretion being declared to be invalid or illegal; and (xv) The integrated tax was introduced to ensure a level playing fie....

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....n 5(3) clearly stipulates that (i) the tax shall be paid on a reverse charge basis and (ii) the tax is payable by the recipient; (iv) GST laws contemplate only one recipient for one supply: (a) The interpretation of the ASG that the foreign exporter is the recipient under clause (a) of Section 2(93) of the CGST Act and the Indian importer is the recipient under clause (c) of Section 2(93) of the CGST Act leads to absurdity; (b) Under Section 2(93) of the CGST Act, a 'recipient' is defined with reference to three situations- (a) where consideration is payable for the supply of goods or services or both, (b) where no consideration is payable for the supply of goods and (c) where no consideration is payable for the supply of a service. Clauses (a), (b) and (c) of Section 2(93) are mutually exclusive and cannot apply simultaneously. In case the supply of goods or services is for consideration, clause (a) applies and the recipient is the person who is liable to pay the consideration; (c) The question of who is the beneficiary of the supply or who has received the supply are irrelevant in determining the 'recipient' under Section 2(93) of the CGST Act; (d) Whether a supply of s....

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....goods or services or both; and (c) Each transaction has to be evaluated independently to determine its taxability. The transaction of supply takes place between the contracting parties, that is, at whose instance the supply is made; (vii) The CGST Act does not envisage a taxable supply without consideration, other than those specified in Schedule I: (a) Clause (a) of Section 7(1) of the CGST Act defines the term 'supply' as all forms of supply of goods or services made for a consideration in the course of or in furtherance of business. Clause (b) of Section 7(1) of the CGST Act provides that import of service for a consideration will be included in the term 'supply' even if it is not made in the course or furtherance of business. Clause (c) provides that activities specified in Schedule I will be included in the term 'supply' even if they are made without consideration; (b) Clause (a) requires two conditions to be satisfied: (i) that the activity has been made in the furtherance of business and (ii) made for a consideration. In clause (b), the condition of the supply being made in the course of business is absent. In clause (c), the condition of supply being made for a cons....

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....ort of services under Section 2(6)(a) of the IGST Act or an import of services under Section 2(11), read with Section 7(4) of the IGST Act; or an inter-State supply of service, is not determined by Section 13(9); (x) Notification 10/2017 has been issued on the recommendation of the GST Council under Section 5(3) of the IGST Act and not under Article 279A of the Constitution. If the GST Council intended to make a recommendation deeming the importer as recipient of supply, then the proper course of implementation would be to make an amendment in the IGST Act and seek Parliamentary approval; (xi) The objective of the tax or levy cannot validate an ultra vires levy: (a) The Government has contended that the levy of tax on services of transportation of goods into India provided by a person in a non-taxable territory to a person in a non-taxable territory, has been introduced to create parity for Indian shipping lines with foreign shippers; (b) The notification for the levy and reverse charge has been lifted from the erstwhile service tax regime into the GST regime without considering the changes in language in Section 5(3) of the IGST Act as opposed to Section 68(2) of the Finan....

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.... (xv) Serial No. 9(ii) of Notification 8/2017 read with Para 4 and Serial No. 10 of Notification No. 9 of 2017-Integrated Tax (Rate) dated 28 June 2019 describe the services as provided by a person located in a non-taxable territory to a person located in a non-taxable territory. These notifications recognise the exporter as the recipient of the service of ocean freight; (xvi) The argument of the ASG that the IGST paid on goods at the time of import is a customs duty and not a tax, and thus, there is no dual levy of tax recovered on ocean freight from the exporter is erroneous: (a) The present case involves outright purchase of goods and thus, it is a supply of goods under GST and an import of goods according to customs law. The issue is whether the transaction is an import of goods under customs law, but a supply of service under GST law; (b) Section 5(1) of the IGST Act is the charging section. The proviso to Section 5(1) states that integrated tax on goods imported into India shall be levied and collected in accordance with Section 3 of the Customs Tariff Act on the value as determined under the Customs Tariff Act and at the point when duties of customs are levied under Se....

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....destination specified in the contract. The essence of the contract is that a seller having shipped the goods in accordance with the contract, can fulfil his part of the bargain by tendering to the buyer the proper shipping documents. If he does this, he is not in breach even if the goods are lost before such tender. In the event of a loss, the buyer must pay the price on tender of documents and his remedies lie against the carrier but not the seller; (ii) A CIF contract has two components: (i) price is paid for the freight, and (ii) the buyer is never obligated to pay it. The owner of the vessel who enters into a contract of affreightment has a privity of contract with the supplier of goods and is rendering a service to the supplier. If the service is not received, then the question of reverse charge does not arise; (iii) Sections 5(3) and 5(4) of the IGST Act are merely machinery provisions for collection of tax, and not the charging provision: (a) Section 5(1) is the charging section which levies IGST. Since there is no separate levy under Section 5(1) on ocean freight, as it is an import of goods which already suffers IGST on CIF value, the question of reverse charge does ....

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....10% of the CIF value, which is contrary to Section 15(1) of the CGST Act which says 'transaction value'; (xi) Article 366(12A) defines goods and services tax as involving only supply of goods or services or both. Section 7 of the IGST Act has made a clear distinction between standalone supply of goods, standalone supply of services and standalone supply of 'goods or services or both'. Section 7(4) treats standalone services imported into India as inter-State supply and does not artificially bifurcate by assuming ocean freight in the transaction of import of goods; (xii) Section 13 of the IGST Act has no application in the case which relates to import of goods and not services standalone. Section 13 applies to place of supply of services, referring to standalone services, and does not use the term 'both' to apply to supply of goods or services; and (xiii) IGST Act has no extra-territorial application as the Act extends to the whole of India. Under Section 2(109) of the CGST Act, taxable territory means the territory to which the Act applies. Further, GVK Industries (supra) states that Parliament may exercise its powers with respect to an extra-territorial aspect when it has a ....

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.... it has extra-territorial operation. However, the expression 'law made by the Parliament' does not include executive notifications, even if made on the recommendations of the GST Council; and (h) Tax can be levied outside the territory of India by way of primary legislation. For instance, under Sections 6 and 7 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act 1976, a legal fiction is created by which India has the power to levy tax in the Exclusive Economic Zone and Continental Shelf. Pursuant to this fiction, notifications levying customs duty on supplies made to oil drilling rigs in the Continental Shelf have been issued. In the absence of a primary legislation or statutory provision to this effect, notifications cannot impose duties on activities occurring outside India; (ii) The value of a CIF contract is indivisible, making the computation of tax on such a contract impossible: (a) The only way to artificially dissect the value of a CIF contract is by way of statute, which is absent in this case; (b) If such a division is allowed, then the Government will be able to tax not just ocean freight, but also insurance services....

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....o those supplies for which consideration is not paid as mentioned in Schedule I of the CGST Act. This schedule enumerates the activities deemed as supplies without consideration. (v) Imposition of IGST on ocean freight will lead to double taxation: (a) Section 3(7) of the Customs Tariff Act states that goods imported into India will be subject to IGST under Section 5 of the IGST Act, on the value as determined by Section 3(8) and Section 3(8)(a). Under Section 3(8), the value includes value of freight; and (b) Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules 2007 includes cost of transportation and insurance in the value of goods, which forms the basis of the levy of IGST under the proviso to Section 5 of the IGST Act. The impugned levy of IGST on ocean freight would thus amount to double taxation on the same transaction; (vi) The ASG's reliance on 'aspect theory' to justify the impugned levy is erroneous: (a) The ASG relied on the 'aspect theory' and submitted that the impugned notification taxes the 'service' element of ocean freight, while the 'goods' element is taxed under the proviso to Section 5 of the IGST Act. However, such an appr....

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....d outside India is not chargeable under Section 5(1) read with the proviso and Section 7(4) read with Section 2(11) of the IGST Act. Thus, Notification 8/2017 is ultra vires and Notification 10/2017, providing for reverse charge is also ultra vires the IGST Act; (iv) Section 13(9) of the IGST Act, which states that the place of supply of services of transportation of goods is the destination of the goods, cannot be read in isolation. Read with Section 7(4) of the IGST Act, it implies that in case of import of services, the supplier must be outside India while recipient must be in India; and (v) The test of 'ultimate beneficiary' relied upon by the ASG does not have statutory backing since the charging section, that is Section 5, makes the recipient of the services liable to pay tax. The Indian importer is not a party to the CIF contract between the foreign exporter and the shipping line. 16 Mr Uchit Sheth, counsel appearing on behalf of the respondents In SLP(C) No. 3540/2021, SLP(C) No. 1281/2021, SLP(C) No. 1277/2021, SLP(C) No. 2242/2021, SLP(C) No. 2198/2021, SLP(C) No. 2736/2021 submitted: (i) The importers in a CIF contract do not have any privity of contract with the ....

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.... GST on import transactions was by way of an incentive to Indian shipping lines. Thus, it cannot now be contended that the level playing field has been affected because of this levy. 18 Similar submissions have been addressed by Dr C Manickam Appearing for the respondent in SLP(C) No. 3680/2021, Mr Rajat Mittal Appearing for the respondent in SLP(C) No. 1798/2021and Mr Abhishek A Rastogi Appearing on behalf of the intervenor in IA No. 74108/2021 in SLP(C) No. 13958/2020, which we have not recorded separately for the sake of brevity. 19 The rival submissions will now be analysed. C Constitutional Architecture of GST 20 Before we proceed to analyse the vires of the impugned notifications, it is pertinent to contextualize the constitutional architecture of the GST. The Constitution (One Hundred and First Amendment Act) 2016 "Constitution Amendment Act 2016" was enacted on 8 September 2016 introducing Article 246A and 279A. Article 246A stipulates that both the Parliament and the State legislatures have the power to legislate on GST: "246A. Special provisions with respect to goods and services tax (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, su....

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....nd services tax; (f) any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster; (g) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and (h) any other matter relating to the goods and services tax, as the Council may decide. (5) The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel. (6) While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the need for a harmonised structure of goods and services tax and for the development of a harmonised national market for goods and services. (7) One-half of the total number of Members of the Goods and Services Tax Council shall constitute the quorum at its meetings. (8) The Goods and Services Tax Council shall determine the procedure in the performance of its functions. (9) Every decision of the Goods and Services....

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....6A, the latter would not override the former. The core theme of GST law - as it emanates from Article 279(6) - is cooperation and harmony. A system premised on cooperation cannot provide inter se supremacy. Therefore, Article 279A has rightly not been given an overriding effect over Article 246A; and (b) Article 246A vests the Parliament and the State legislatures with the power to enact laws on GST. This function, if delegated would amount to abdication of the Parliament's constitutional function. Therefore, Article 246A cannot be made subject to Article 279A. (iv) The ordinary legislative process for enacting a statute is that bills are introduced and voted on by the legislature. However, Article 264A departs from this as the framing of the policy, discussion on the policy, and decision making are vested with the GST Council. The Parliament or the State Legislature cannot legislate a law on GST under Article 246A independent of the recommendations of the GST Council. A reading of Sections 5, 6 and 22 of the IGST Act indicates that the legislature and the executive are bound by the recommendations of the GST Council on three preliminary provisions, namely charge, exemption and....

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....sential that the States should be given the power of levy of taxation of all services. This power of levy of service taxes has so long been only with Centre. A Constitutional Amendment will be made for giving this power also to the States. Moreover, with the introduction of GST, burden of Central Sales Tax (CST) will also be removed. The GST at the State-level is, therefore, justified for (a) additional power of levy of taxation of services for the States, (b) system of comprehensive set-off relief, including set-off for cascading burden of CENVAT and services taxes, (c) subsuming of several taxes in the GST and (d) removal of burden for CST. Because of the removal of taxes in the GST, the burden of tax under GST on goods will, in general, fall." 23 Parliament introduced the Constitution (One Hundred and Fifteenth Amendment) Bill 2011 "2011 Amendment Bill" which sought to amend the provisions of the Constitution to introduce the GST regime. The Speaker of the Lok Sabha referred the 2011 Amendment Bill to the Parliamentary Standing Committee on Finance. The Constitution (One Hundred and Twenty-Second Amendment) Bill 2014 "2014 Amendment Bill" was introduced after incorporating the ....

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....d in the Seventh Schedule of the Constitution. Before the introduction of Articles 246A and 279A by the Constitution Amendment Act 2016, the legislative powers of the Union and the States on taxation were exclusive. The general subjects of legislation constitute one group in the Union List (entries 1 to 81) and the State List (entries 1 to 44). The subject heads related to taxation are clubbed together in both the Union and the State lists (entries 82 to 92B in the Union list and entries 45 to 63 in the State list). The concurrent list does not include any entry related to taxation. Entry 47 of the concurrent list mentions that "fees in respect of any of the matters in this List, but not including fees taken in any court." For example, while the Union primarily has the power to impose income taxes, except from agriculture Entry 82 of List I, the State has the power to impose tax on agricultural income Entry 46 of List II. Therefore, both the Union and the States had a separate and an exclusive domain over specific heads of taxation. The Union and the State could not impose tax under the same head since the concurrent list did not include an entry for taxes. This Court, in its decis....

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....at the two laws viz. sub-section (3) of Section 5 of the Act and para 21 of the Control Order issued by the Central Government under sub-section (1) of Section 3 of the Essential Commodities Act, operate on two separate and distinct fields and both are capable of being obeyed. There is no question of any clash between the two laws and the question of repugnancy does not come into play." 26 In the pre-GST regime, the Union had the exclusive power to impose indirect taxes, that is, on inter-state sale of goods, customs duty, service tax, and excise duty. The States had the exclusive power to impose tax on intra-State sale of goods, luxury tax, entertainment tax, purchase tax, and taxes on gambling and betting. The GST regime has subsumed all the indirect taxes. Article 246A which was introduced by the Constitution Amendment Act 2016 vests the Parliament and the State legislatures with the concurrent power to make laws with respect to GST. 27 The distribution of legislative power between federating units- the Union and the States, is among the paramount features of a federal Constitution. H.M Seervai, Constitutional Law of India, (NM Tripati Private Limited, 4th Edition, vol 1) 289;....

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....arliament and State legislature, it was observed that the power under Article 246A can be exercised simultaneously by the State legislature and Parliament and none hold any 'unilateral or exclusive' legislative power Paragraph 22 of the judgment. 29 In its decision in VKC Footsteps (supra), this Court noticed the changes in the constitutional scheme introduced by Article 246A. One of us (Dr DY Chandrachud) writing for the two-judge Bench observed: "52. Article 246-A has brought about several changes in the constitutional scheme: 52.1.Firstly, Article 246-A defines the source of power as well as the field of legislation (with respect to goods and services tax) obviating the need to travel to the Seventh Schedule. 52.2.Secondly, the provisions of Article 246-A are available both to Parliament and the State Legislatures, save and except for the exclusive power of Parliament to enact GST legislation where the supply of goods or services takes place in the course of inter-State trade or commerce. 52.3.Thirdly, Article 246-A embodies the constitutional principle of simultaneous levy as distinct from the principle of concurrence. Concurrence, which operated within the fold of the....

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.... have to agree before any change in the rate or base of GST could be implemented; Thirteenth Finance Commission, Report of the Task Force on GST (2009) Para 10.5 and (v) If the States deviate from the collectively agreed position on GST rates, a mechanism ought to be established by which the defaulting State pays penalty Ibid, paragraph 9.8. 32 The 2011 Amendment Bill sought to include Article 279A in the Constitution which constituted the GST Council. The provision stipulated the constitution of the Council, the role of the Council and the quorum necessary for making decisions: "279-A. Goods and Services Tax Council.- (1) The President shall, within sixty days from the date of commencement of the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services Tax Council. (2) The Goods and Services Tax Council shall consist of the following members, namely:- (a) the Union Finance Minister - Chairperson; (b) the Union Minister of State in charge of Revenue or Finance - Member; (c) the Minister in charge of Finance or Taxation or any other Minister nominated by each State Government- Members. (3) The Members....

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....monised structure of the GST. The draft provision also provided that Parliament may by law provide that no Court other than the Supreme Court shall exercise jurisdiction in respect of the dispute. The draft of Article 279B, as in the 2011 Amendment Bill, reads as follows: "279B. (1) Parliament may, by law, provide for the establishment of a Goods and Services Tax Dispute Settlement Authority to adjudicate any dispute or complaint referred to it by a State Government or the Government of India arising out of a deviation from any of the recommendations of the Goods and Services Tax Council constituted under article 279A that results in a loss of revenue to a State Government or the Government of India or affects the harmonised structure of the goods and services tax. (2) The Goods and Services Tax Dispute Settlement Authority shall consist of a Chairperson and two other members. (3) The Chairperson of the Goods and Services Tax Dispute Settlement Authority shall be a person who has been a Judge of the Supreme Court or Chief Justice of a High Court to be appointed by the President on the recommendation of the Chief Justice of India. (4) The two other members of the Goods and S....

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....e their power on all issues recommended by the Council. One-third of the total number of Members of the Council will constitute the quorum of GST council. It is further provided that the decisions of the GST Council shall be with the consensus of all members present at the meeting. This is to protect the interests of each State and the Centre when the Council takes a decision. (d)In exercise of their powers, these legislative bodies may deviate from the recommendations of the Council and may act in a manner which is prejudicial to the harmonious working of GST or which adversely impacts the revenue of some other State/Central Government. Such deviations or actions are required to be kept to the minimum, if the objective of having a common national market and smooth working of GST is to be achieved. It is accordingly proposed to set up Goods & Services Tax Dispute Settlement Authority (Article 279B), which may be approached by the affected Government (whether the Centre or the States) seeking redressal for any loss caused by any action due to a deviation from the recommendations made by the Goods & Services Tax Council or for adversely affecting the harmonious structure and implem....

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....stitution confers autonomy on the Parliament and the State Legislatures to legislate within the respective fields assigned to them and the fact that a statute enacted by a competent Legislative body can be called into question on grounds of deviations from the recommendations of an essentially executive body, albeit Constitutional, is being construed as undermining the supremacy of the Legislature. Keeping in view the concerns expressed by the States, and the fact that the proposed provision of GST Dispute Settlement Authority will affect the fiscal autonomy of the Parliament and the State Legislatures, the proposed Article 279B providing for GST Dispute Settlement Authority may be omitted. However, any dispensation involving multiple partners does require a mechanism to resolve disputes. A provision can be made in Article 279A itself empowering the GST Council to decide about the mechanism to resolve the disputes arising out of its recommendations." (emphasis supplied) 37 The Committee reiterated in its conclusion that the GST Council would only play a 'constructive and enabling role' vis-à-vis the legislature and would not override the role of the legislature Ibid, para....

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.... be diminished since the Centre has the power to stall a consensus reached by all the States. On 5 May 2015, a Member of Parliament from the State of Tamil Nadu raised the concern that the GST Council would diminish the role of the States in fiscal policy: Speech of T.G Venkatesh Babu in Lok Sabha on 05.05.2015 "The GST Council as proposed in the Amendment will make recommendations on a whole range of issues relating to subsuming of taxes, cesses and surcharges under GST, exemption for goods and services, model GST laws, etc. This will override the supremacy of the legislature both at the Centre and the States in taxation matters. In the GST Council, the Union Government has one-third weightage in vote and only two-third of the weightage in vote is given to States and Union Territories. Voting rights of States and Union Territories are equal irrespective of their size. We, are therefore, opposed to the idea of GST Council as a constitutional body as it compromises the autonomy of the States including in fiscal matters." In response, the Finance Minister had said Speech of Mr. Arun Jaitley in Lok Sabha on 08.08.2016: "Once you get into the GST pipeline, the States and the Centr....

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....by the Council either by the Centre or the States acting on their own. Hence, neither the States nor the Centre alone can take a decision in the Council. Providing 3/4th weightage to the States would upset the federal balance between the Centre and the States. Presently, in the concurrent list, in case of any difference between Central and State legislation, the Central legislation prevails. The present weightage of votes in the GST Council would ensure that neither the Centre nor the States are able to take a decision without the support of the other. In other words both would enjoy a veto. 2.69 Further, with Centre holding only 1/3rd of the votes, the Centre would require support of 20 States/Union Territories to get a resolution passed. This shows that Centre would need co-operation of States to get any decision taken at the GST Council." 42 Though the traditional view of interpretation of statutes is that legislative history is not readily used in interpreting a law, the modern trend of thinking on the subject has enabled courts to look into the history of a legislation to understand the full purport of the words used and the mischief sought to be remedied by the law. In K.P....

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.... be resolved by modalities including mediation and arbitration. The Standing Committee of Finance in its report specifically recommended the deletion of Article 279B due to the concerns raised by the States; and (ii) Under the 2011 Amendment Bill, the GST Council could recommend only when a unanimous decision would be reached. However, the Standing Committee of Finance had recommended that since it would be difficult to arrive at a consensus due to the socio-economic diversity amongst the States, the recommendations be made with a majority instead of unanimity. While making this recommendation, it was observed that if the GST Council functions like the present Empowered Committee where the differences are resolved amicably in an institutional mode, it would foster the spirit of cooperative federalism. C.2 The nature of the recommendations of the GST Council Indian federalism: Dialogue of cooperative federalism 44 The arguments in favour of reading the 'recommendations' of the GST Council as binding are two-fold Alok Prasanna, 'For a mess of Potage: The GST's promise of increased revenue to states comes at the cost of the federal structure of the Constitution' National Law Scho....

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....[...] (k) The view that unimportant matters were assigned to the States cannot be sustained in face of the very important subjects assigned to the States in List II, and the same applies to taxing powers of the States which are made mutually exclusive of the taxing powers of the Union so that ordinarily the States have independent source of revenue of their own. The legislative entries relating to taxes in List II show that the sources of revenue available to the States are substantial and would increasingly become more substantial. In addition to the exclusive taxing powers of the States, the States become entitled either to appropriate taxes collected by the Union or to a share in the taxes collected by the Union." Justice PB Sawant writing for himself and Justice Kuldip Singh in SR Bommai v. Union of India (1994) 3 SCC 1, referred to the exclusive and equal legislative distribution of heads of taxation to establish the federal nature of the Indian Constitution. Prasanna (n 69) Therefore, the exclusive powers held by the States and the Centre on matters of taxation was regarded as an important feature of India's federal polity. The Constitution Amendment Act 2016 alters the le....

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....h other. Proponents of the cooperative federalism model argue that it is a mistake to view each unit as a separate autonomous entity. According to the theory of cooperative federalism, integration and not autonomy is the objective that federalism seeks to achieve. Robert A. Schapiro, 'Justice Steven's theory of Interactive Federalism' 74 Fordham L. Rev. 2133 (2006) While dual federalism is termed as 'layer cake federalism' due to the delineation of the structures of power, cooperative federalism is known as 'marble cake federalism' due to the integrated approach of the federal units. Jessica Bulman-Pozen and Heather K. Gerken, 'Uncooperative Federalism' Yale Law Journal, Vol. 118. No. 7 (May, 2009), pp. 1256-1310 This Court in State (NCT of Delhi) v. Union of India (2018) 8 SCC 501 , has observed that India follows the model of cooperative federalism where the Union and the State Governments need to iron out the differences that arise in the course of the path of development. Chief Justice Dipak Mishra elucidated on the concept of cooperative federalism: "119. Thus, the idea behind the concept of collaborative federalism is negotiation and coordination so as to iron out the diffe....

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....desire of unity and commonality along with the desire for diversity and autonomy. Democracy and federalism are interdependent on each other for their survival such that federalism would only be stable in well-functioning democracies. Additionally, the constituent units in a federal polity check the exercise of power of one another to prevent one group from exercising dominant power. The Indian Constitution, though necessarily federal does confer the Union with a higher share of power in certain situations to prevent chaos and provide security. Seervai (n 50) However, even if the federal units are not entirely autonomous as in the traditional federal system, the units still wield power. The relationship between two constituent units that are not autonomous but rely on each other for their functioning is not in practice always collaborative or cooperative. If the States have been conferred lesser power they can still resist the mandates of the Union by using different forms of political contestation as permitted by constitutional design. Such contestation furthers both the principle of federalism and democracy. When the federal units are vested with unequal power, the collaboration b....

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....h the absence of the repugnancy provision in Article 246A indicates that recommendations of the GST Council cannot be binding. Such an interpretation would be contrary to the objective of introducing the GST regime and would also dislodge the fine balance on which Indian federalism rests. Therefore, the argument that if the recommendations of the GST Council are not binding, then the entire structure of GST would crumble does not hold water. Such a reading of the provisions of the Constitution diminishes the role of the GST Council as a constitutional body formed to arrive at decisions by collaboration and contestation of ideas. The contextual meaning of 'recommendations' 52 The phrase 'recommendation' is used in numerous provisions in the Constitution but the import of the phrase differs contextually. Based on the submission of the Union Government, there are five categories into which the phrase 'recommendation' has been deployed in the Constitution: (i) Category 1: Recommendation by the President prior to laying before the Parliament for voting: Articles 3, 109, 111, 113, 117, 203, 207, 255 and 274 discuss the recommendations of the President or the Governor. Here the author....

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.... an explanation memorandum. (iv) Category 4: Non-qualifying recommendation: The Presidential Order to establish an Inter State Council dated 28 May 1990 issued by the Ministry of Home Affairs, and Article 263. Article 263 provides that the President may, in public interest, establish an Inter-State Council which shall make recommendations for better coordination of policy and action. The Inter-State Council was constituted by the Inter-State Council Order 1990 consisting of the Prime Minister, Chief Ministers of all States, Chief Ministers of Union Territories and six Ministers of Cabinet rank. (v) Category 5: Recommendations which are obligatory in nature: Articles 270, 275, 344, 349 and 371A: Article 344 establishes the Commission and Committee of Parliament on Official Languages. Article 344(2) states that it shall be the duty of the Commission to make recommendations to the President on the usage of official languages. Clause 3 states that recommendations shall be made having due regard to the industrial, cultural and scientific advancement of India and the claim of non-Hindi speaking persons. Article 344(4) constitutes a Committee of the members of the Lok Sabha and Rajya ....

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....T Council transform into legislation in and of themselves under Article 246A would be farfetched. If the GST Council was intended to be a decision-making authority whose recommendations transform to legislation, such a qualification would have been included in Articles 246A or 279A. Neither does Article 279A begin with a non-obstante clause nor does Article 246A provide that the legislative power is 'subject to' Article 279A. 55 The Constitution employs the phrase 'consultation' in certain contexts. For example, Article 320(3) states that the Public Service Commission shall be 'consulted' on matters relating to civil posts. Article 320(3) reads as follows: "(3) The Union Public Service Commission or the State Public Service Commission, as the case may be, shall be consulted- (a) on all matters relating to methods of recruitment to civil services and for civil posts; (b) on the principles to be followed in making appointments to civil services and posts and in making promotions and transfers from one service to another and on the suitability of candidates for such appointments, promotions or transfers; [...]" (emphasis supplied) 56 If the GST Council were intended to be ....

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....nature and can ultimately produce prejudicial results including misconduct within the relevant service rules and invite minor and/or major penalty." In Naraindas Indurkhya v. State of Madhya Pradesh (1974) 4 SCC 788, a Constitution Bench observed that a 'recommendation' has persuasive value. In this case, this Court was dealing with the question of whether textbooks 'recommended' by the Board could be held to be in effect immediately. The Court observed: "15. ... there is a basic distinction between recommendation and prescription of a text book. When a text book is prescribed by an appropriate authority having legal power to do so, it has to be followed by the schools. Prescription of a text book carries with it a binding obligation to follow the text book. There is no such obligation when a text book is merely recommended. Recommendation has merely a persuasive effect, it being open to the schools to accept the recommendation or to reject it as they think fit. The schools may use the recommended text book or they may not according as the Principals choose. That is why no conferment of statutory power is needed to enable the Board to recommend text books and no question of ultr....

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....rlier provide different tax slabs and different exemptions. The recommendations of the GST Council are made binding on the Government when it exercises its power to notify secondary legislation to give effect to the uniform taxation system. The Council under Article 279A has wide recommendatory powers on matters related to GST where it has the power to make recommendations on subject matters that fall outside the purview of the rule-making power under the provisions of the IGST and CGST Act. 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. It is only the provisions of a primary legislation that can be interpreted with reference to the Constitution. The legislature amends the Constitution by exercising its constituent power and legislates by exercising its legislative power. The constituent power of the legislature is of a higher constit....

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....d collection of tax on inter-State supplies of goods or services. The power to impose such tax is derived from Article 286(2) read with Article 269A(1). Sub-Section (1) of Section 5 provides for the levy of the integrated goods and services tax on all inter-State supplies of goods or services or both. Section 5 reads as follows: "5. Levy and collection.- (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person: Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section....

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....f. 1 February 2019 and reads as follows: "(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both." 65 On 28 June 2017, the Central Government issued Notification 8/2017, in exercise of its powers under Section 5(1), Section 6(1) and Section 20 of the IGST Act, read with Section 15(5) and Section 16(1) of the CGST Act. Entry 9(ii) of Notification 8/2017 reads as follows: SI No. Chapter, Section or Heading Description of Service Rate (per cent) Condition 9 Heading 9965 (Goods transport services) [...] [...] [...]     (ii) Transport of goods in a vessel including services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transpor....

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.... pay the consideration; and (iii) whether the import of goods constitutes a composite supply, among others. 68 The provisions of the IGST Act apply to the whole of India as provided under Section 1. Section 5 of the IGST Act is the charging section. Sub-section (1) of Section 5 provides that the levy of IGST shall be paid by the taxable person. The term 'taxable person' is defined in Section 2(107) of the CGST Act: "(107) "taxable person" means a person who is registered or liable to be registered under section 22 or section 24" 69 Section 2(98) of the CGST Act defines 'reverse charge': "(98) "reverse charge" means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub- section (4) of section 5 of the Integrated Goods and Services Tax Act;" As defined in the above clause, under the reverse charge mechanism, the liability to pay is on the recipient of the supply of goods or services, as opposed to the supplier of goods or services. Section 24(iii) of the CGST Act provides for compulsory registration of "pers....

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....establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the receipt of the supply; and (d) in absence of such places, the location of the usual place of residence of the recipient; (15) "location of the supplier of services" means,-- (a) where a supply is made from a place of business for which the registration has been obtained, the location of such place of business; (b) where a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere), the location of such fixed establishment; (c) where a supply is made from more than one establishment, whether the place of business or fixed establishment, the location of the establishment most directly concerned with the provision of the supply; and (d) in absence of such places, the location of the usual place of residence of the supplier;" 73 Chapter IV of the IGST Act determines the nature of the supply. Section 7 of the IGST Act determines the nature of supply as inter-State supply, Section 8 provides for intra-State supply and Section 9 provides for supplies in territorial wate....

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....ance of business; [and] (c) the activities specified in Schedule I, made or agreed to be made without a consideration;" (emphasis supplied) The term 'taxable territory' is defined in Section 2(22) of the IGST Act to mean the "territory to which the provisions of this Act [IGST Act] apply". 76 Section 13 of the IGST Act deals with determining the place of supply of services where the location of supplier or location of recipient is outside India: "13. Place of supply of services where location of supplier or location of recipient is outside India.- (1) The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India. (2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services: Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services. (3) The place of supply of the following services shall be the location where the services are a....

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....y, time and value of supply, shall apply mutatis mutandis to integrated tax. In this regard, the time of supply of services is provided in Section 13 of the CGST Act, while the value of taxable supply is determined under Section 15 of the CGST Act. 78 Section 13 of the CGST Act states that the liability to pay tax on services arises at the time of supply. Sub-section (3) of Section 13 provides for the time of supply when tax is paid on a reverse charge basis: "13. Time of supply of services. [...] (3) In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely:-- (a) the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or (b) the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier: Provided that where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be the date of entry in the books of account of the r....

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....rmulate principles for determining when there is a supply of goods or services as prescribed by clause (1): "286(1): No law of a State shall impose, or authorize the imposition of, a tax, or authorize the imposition of, a tax on the supply of goods or services or both, where such supply takes place a) outside the State; or b) in the course of import of the goods or services or both into, or export of the goods or services or both out of, the territory of India. (2) Parliament may by law formulate principles for determining when a supply of goods or of services or both in any of the ways mentioned in clause (1)." 81 Article 269A provides that GST on supplies in the course of inter-state trade or commerce shall be levied and collected by the Union Government. The manner of apportionment between the Union and the States has to be provided by Parliament on the recommendations of the GST Council. The explanation to Article 269A(1) states that supply of goods or services in the course of import shall be deemed to be supply in the course of inter-State trade or commerce. Clause (5) provides that Parliament may by law formulate principles for determining the place of supply and wh....

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.... service recipient for the purposes of Section 5(3), it is ultra vires the parent Act on the ground of excessive delegation. 84 The legislature is required to perform its essential legislative functions. Once the skeletal structure of the policy is framed by the legislature, the details can emerge through delegated legislations. Municipal Corporation of Delhi v. Birla Cotton Spinning and Weaving Mills, AIR 1968 SC 1232; Avinder Singh v. State of Punjab, 1979 1 SCC 137 It is a settled position that the legislature cannot delegate its 'essential legislative functions'. In re Delhi Laws Act 1912, AIR 1951 SC 332; Edward Mills Co. Ltd. v. State of Ajmer, AIR 1955 SC 25; A.N Parasaran v. State of Tamil Nadu, (1989) 4 SCC 683 The essential legislative functions with respect to the GST law are the levy of tax, subject matter of tax, taxable person, rate of taxation and value for the purpose of taxation. The principles governing these essential aspects of taxation find place in the IGST Act: Section 5(1) identifies the subject matter of taxation as inter-State supplies of goods, services or both; Section 2(107) of the CGST Act identifies a taxable person; Section 5(1) provides a maximum c....

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....m that which is prescribed in Section 5(3) of the IGST Act for the purposes of reverse charge. D.3 Charging Section: taxable person, taxable rate and manner of determining value 87 In determining the vires of the impugned notifications, a few preliminary contentions raised by the respondents would have to be addressed. The respondents have argued that no charge has been created for the ocean freight transaction to be taxed in the hands of the importer. It has been alleged that only Section 5(1) is a charging provision and Sections 5(3) and 5(4) cannot independently create a charge. 88 In assessing this claim, this Court is bound by a decision of the Constitution Bench in Mathuram Agrawal (supra) which has identified three essential elements of taxation: (i) The subject of the tax; (ii) The person who is liable to pay the tax; and (iii) The rate at which the tax is to be paid. This test has been further elaborated by a two-judge Bench of this Court in Gobind Saran Ganga Saran (supra) by further requiring the designation of the measure or the value to which the rate of the tax will be applied. Thus, the four canons of taxation are as follows: (i) The taxable event; (ii) The ....

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....reverse charge on a "recipient of service" and broadly impose it on "the persons who are required to pay tax under reverse charge". Since the impugned notification 10/2017 identifies the importer as the recipient liable to pay tax on a reverse charge basis under Section 5(3) of the IGST Act, the argument of the failure to identify a specific person who is liable to pay tax does not stand. 92 The decision in Laghu Udyog (supra), rendered by a two-judge Bench of this Court, invalidated certain service tax rules formulated under the Finance Act 1997 to give effect to the collection of service tax. Section 66 read with Section 68(1)(a) of the Finance Act 1997 specifically identified the taxable person to include only those persons responsible for collecting the service tax. The rules had sought to effect a reverse charge by identifying the customers of goods transport operators and of clearing and forwarding agents as the assessee, even though they were not responsible for collecting the service tax. The basis for nullifying the rules was that the Finance Act 1997 did not enable the imposition of such a reverse charge on the person who is not supplying the service. The Court held: "....

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....ible is in consonance with the definition of that expression occurring in Section 65 of the Act. However, with regard to the services rendered by the clearing and forwarding agents and the goods transport operator the definitions contained in Rule 2(d)(xii) and (xvii), which seek to make the customers or the clients as the assessee, are clearly in conflict with Sections 65 and 66 of the Act." (emphasis supplied) The decision in Laghu Udyog (supra) has no applicability to the facts of the present case since Parliament has statutorily incorporated the concept of a reverse charge under Sections 5(3) and 5(4) of the IGST Act. The impugned notification 10/2017 clearly specifies a taxable person who is liable to pay a reverse charge that is envisaged in the statute. Thus, the impugned notifications cannot be invalidated for an alleged failure to identify a taxable person. Taxable value 93 By a corrigendum dated 8 June 2016, Notification 8/2017 was amended to include the measure of taxable value to be ten per cent of the CIF value. Section 5(1) of the IGST Act enables the taxable value to be determined under Section 15 of the CGST Act. The respondents have argued that the value has t....

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.... the CGST Rules 2017. Thus, the impugned notification 8/2017 cannot be struck down for excessive delegation when it prescribes 10 per cent of the CIF value as the mechanism for imposing tax on a reverse charge basis. D.4 Taxable event: Is an ocean freight transaction for import of goods a valid category of supply of services under Section 5(3) of IGST Act? 95 The other limb for contesting the validity of the impugned notification is with respect to its identification of a "taxable event". The question that falls for the determination is whether the impugned notifications issued in 2017, under Section 5(3) of the IGST Act, validly prescribe a taxable event that constitutes an inter-State supply of goods and services with the importer being a recipient of shipping services in CIF transactions. 96 The analysis of whether import of goods under CIF contracts constitutes a valid import of service has to be answered on two prongs: (i) whether classification of imports as a specific category of supply of shipping service is valid under Section 5(3) read with Section 5(1) of the IGST Act; and (ii) whether the recipient of the imported goods is also a recipient of shipping services in CIF....

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.... (1) For the purposes of this Act, the expression "supply" includes-- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; [(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration. Explanation.--For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;] [(b) import of services for a consideration whether or not in the course or furtherance of business; [and] (c) the activities specified in Schedule I, made or agreed to be made without a consideration; [....] (3) Subject to the provisions of sub-sections (1), (1-A) and (2)....

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....mporter of the service of shipping which is liable to IGST on inter-state supply, if the activity falls within the definition of "import of service" for the IGST Act and CGST Act. 102 The term 'importer' is not defined in the IGST Act or the CGST Act. Section 2(26) of the Customs Act defines an 'importer' as: "(26) "importer", in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes [any owner, beneficial owner] or any person holding himself out to be the importer" The term 'import of goods' is defined in Section 2(10) of the CGST Act as: "(10) "import of goods" with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India" "Import of services" is defined in Section 2(11) of the CGST Act as: "(11) ''import of services" means the supply of any service, where-- (i) the supplier of service is located outside India; (ii) the recipient of service is located in India; and (iii) the place of supply of service is in India;" The conditions for an "import of service" would entail three aspects: (i) the supplier of service must be located outside India....

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....ly" of import of service without consideration, other than the ones specified in Schedule 1, this would be inapplicable to importers with CIF contracts as the consideration is paid by the exporter. Thus, the importer of goods cannot be said to be an importer of shipping service since the latter is not an import of service for a consideration under Section 7(1)(b) of the CGST Act. However, this argument misses out on some crucial definitions. The term 'supply' has been defined in the IGST Act with reference to the CGST Act. Thus, the three conditions for "import of services" under Section 2(11)(iii) must be understood with reference to the provisions of the CGST and IGST Acts, including the provisions for determination of place of supply under Section 13(9) of the IGST Act. As mentioned previously, Section 13(9) of the IGST Act creates a deeming fiction of place of supply of transportation services to be in India when the destination of goods is in India. In this case, it is clear the supplier of service- the foreign shipping line - is located outside India; and the place of supply is India. Accordingly, Section 13 of the CGST Act would be applicable to determine the time of such su....

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....ction 5(1) as 'supply of goods', there remains no territorial nexus of the transportation service with the Indian territory. An extension of this argument is that in case Parliament seeks to levy a tax outside its territory, it makes a deeming fiction in the statute and not by way of delegated legislation. 107 A Constitution Bench in GVK Industries (supra), considered the question whether Parliament is competent to enact legislation with regard to extra-territorial aspects of certain events. Answering the question in affirmative, Justice B Sudarshan Reddy, speaking for the Constitution Bench, held: "124. [...] The answer to the above would be yes. However, Parliament may exercise its legislative powers with respect to extra-territorial aspects or causes-events, things, phenomena (howsoever commonplace they may be), resources, actions or transactions, and the like-that occur, arise or exist or may be expected to do so, naturally or on account of some human agency, in the social, political, economic, cultural, biological, environmental or physical spheres outside the territory of India, and seek to control, modulate, mitigate or transform the effects of such extra-territorial as....

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....espondents submitted that though the levy may have a nexus with the Indian territory, the levy of tax extra-territorially must be provided by Parliament through statute and not by the Union Government through delegated legislation. We do not find any applicability of this submission to the facts at hand. As stated above, the IGST Act under Section 13(9) recognises the place of supply of services as the destination of goods when the supplier is located outside India. Since the destination of goods is India, the statute itself is broad enough to cover a taxable event that has extra-territorial aspects, which bears a nexus to India. 110 In determining the vires of the impugned notifications, the only question that falls for determination is whether the importer of goods can be considered as the recipient of the service of shipping in CIF contracts. D.4.(b) Are importers service recipients under CIF contracts? 111 The impugned notification 8/2017, inter alia, identifies several categories of supply of services such as hotels, restaurants, transportation by rail/road/air and legal and accounting services. The respondents, as importers of goods under CIF transactions, are aggrieved by....

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....emphasis supplied) Thus, the language employed in Section 2(93)(a) of the CGST Act clearly stipulates that when a consideration is payable for the supply of services, the recipient would mean the person who is liable to pay that consideration. However, when no consideration is payable for the supply of a service, Section 2(93)(c) states that the recipient shall be the person to whom the service is rendered. Further, Section 2(93) provides that "any reference to a person to whom supply is made shall be construed as a reference to the recipient". Hence, where the statute refers to a person to whom a supply is made, it has to be construed as a reference to the recipient of service. 113 In a CIF transaction, the foreign exporter contracts with a foreign shipping line. The service of shipping is rendered by the foreign shipping line to the foreign exporter and the consideration is accordingly payable by the latter to the former. The cost of such shipping may form a component of the price that is eventually charged to the importer, based on the negotiated terms. If an FOB contract were to be negotiated, the importer would independently avail of the service of shipping and pay for the c....

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....ecipient of such goods or service. The deeming fiction of treating the importer as a recipient must be found in the IGST Act. As it currently stands, Section 5(3) of the IGST Act enables the delegated legislation to create a deeming fiction on categories of supply of goods/services alone. 116 Interpreting the term "by the recipient" vis-à-vis the categories of goods and services identified in Section 5(3) of the IGST Act should necessarily be governed by the principles governing the definition of "recipient" under Section 2(93) of the CGST Act. Contrary to the arguments of the Union Government, such an interpretation would not annihilate the mandate of compulsory registration under Section 24(iii) of the CGST Act. It would be applicable to suitably worded provisions in the CGST or IGST Act which permit the Central Government to identify a taxable person for a reverse charge. In any event, it would be applicable to all the recipients liable for reverse charge under Sections 5(3) and 5(4) of the IGST Act. The ineffectiveness of a tax collection mechanism under Section 24(iii) of the CGST Act cannot be argued to obfuscate the concept of a "recipient" of a good or service that ....

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....ds are delivered or made available, or to whom possession or use of the goods is given or made available; and (c) where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied;" (emphasis supplied) Since a reference to a person to whom a supply is made, is a reference to the recipient, the place of supply is critical. By virtue of Section 13(9) of the IGST Act, the place of supply is the destination of goods. The time of supply is then determined through the provisions of Section 13 of the CGST Act. Sections 2(14) and 2(15) of the IGST Act also define the location of the recipient and supplier of services with respect to the physical location where the supply of services is made or received. "(14) ―location of the recipient of services means,-- (a) where a supply is received at a place of business for which the registration has been obtained, the location of such place of business; ....

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....e (IGST and CGST Act) and not by a strict application of commercial principles. 120 Some of the respondents have argued that the possibility of two different recipients of services would create absurdities since whether a supply of service is an inter-state supply under Section 7(3) or intra-state supply under Section 8(2) of IGST Act depends on the location of the supplier and the place of supply, which in most cases is the location of the recipient of service. Since there can effectively be two recipients on a reading of Section 2(93)(a) and (c) of the CGST Act, the respondents argue that the transaction may simultaneously become an inter-state or intra-state supply. This could also mean that two recipients can claim ITC. However, this argument is inapplicable to the case at hand since Sections 7(3) and 8(2) of the IGST Act do not conflate the concept of imports. Section 8(2) deals with a scenario where the location of the supplier and place of supply are within the same State/Union Territory in India. This is inapplicable to determining imports where the supplier is located outside India. Similarly, Section 7(3) deals with inter-state supply within the territory of India. Furth....

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....eet the aim of the GST statute to tax the destination of supplies, as opposed to their origins. The deeming fiction therein is critical to interpret the charging provision under the IGST Act (Section 5). The respondents' argument for the irrelevance of determining the beneficiary of the supply or who has received the supply in view of the definition of 'recipient' of Section 2(93) of the CGST Act mis-reads Section 2(93) which identifies the recipient, inter alia, on the basis of the person to whom "supply is made" i.e. the place of supply. 123 GST laws mark a departure from the previous policy of taxing sale/consignments and focuses on the taxing of supplies. The concept of a supply-centric and destination-based tax runs through the scheme of the statutory provisions and the proposals issued by the GST Council. Thus, an amendment to the Constitution was introduced in the form of Article 366(12-A) to create a tax on the supply of goods, or services, or both. In the commercial reality of the times, the conceptual lines between goods and services wear thin. Hence, the focus is on the taxation of supply, as opposed to the creation of neat compartments between goods and services. Secti....

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.... 29 January 2019. Amending Act 32 of 2018 enables the Central Government to create a deeming fiction of declaring a class of registered persons "as the recipient" of the supply of taxable goods or service. In deploying the language "as the", and not "by the" recipient, the applicability of the definition of recipient vis-à-vis Section 2(93) of the CGST Act is no longer necessary for determining the validity of such a notification. The effect of the Amending Act 32 of 2018 has been as follows:- (i) the powers of the Central Government to specify through a notification has been clarified; and (ii) the power to specify a class of registered persons as the recipient has been recognised. 125 The Union Government has argued that Notifications 8/2017 and 10/2017 dated 28 June 2017 issued under Section 5(3) may also be read as issued under Section 5(4) of the IGST, in which case, the importers would be liable to tax with effect from 1 February 2019 though exempted for the period 13 October 2017 - 31 January 2019. 126 The respondents have argued that the amended and unamended Section 5(4) do not save the impugned notifications since they still make the reference to the term "recipi....

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....he order refers to only one of them, the validity of the order should be upheld by construing it as an order passed under both those provisions. Further, even the mention of a wrong provision or the omission to mention the provision which contains the source of power will not invalidate an order where the source of such power exists. (See Dr Ram Manohar Lohia v. State of Bihar [AIR 1966 SC 740 : (1966) 1 SCR 709, 721 : 1966 Cri LJ 608] and Municipal Corporation of the City of Ahmedabad v. Ben Hiraben Manilal [(1983) 2 SCC 422 : (1983) 2 SCR 676, 681] .) The omission to mention in the impugned orders the relevant clause of the second proviso or the relevant service rule will not, therefore, have the effect of invalidating the orders and the orders must be read as having been made under the applicable clause of the second proviso to Article 311(2) read with the relevant service rule. It may be mentioned that in none of the matters before us has it been contended that the disciplinary authority which passed the impugned order was not competent to do so." (emphasis supplied) 128 Similarly, in Titagarh Paper Mills v. Orissa State Electricity Board 1975 2 SCC 436, a three-judge Bench ....

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.... on an average. Under GST too, it was decided that the liability to pay GST on such transportation service provided by a foreign shipping line to a foreign supplier shall be of the importer in India and the notifications are being issued accordingly. It is proposed that the similar provision deeming value of such service at 10% of the CIF value may be incorporated in the IGST notification. Considering the nature of the service, this provision is not required in the CGST, SGST or UTGST notifications. The Council approved the proposal. [....] 8(v).....in respect of agenda item 3 the Council approved to incorporate a provision in the IGST notification that in cases where the goods are imported by an importer in India on CIF basis and the service of transportation of goods by a vessel from a place outside India up to the customs station in India is provided by a person located in non-taxable territory (a foreign shipping line) to a person located in non-taxable territory (overseas supplier/exporter of goods) and in case the importer did not know the amount of freight charged by the foreign shipping line from the foreign supplier the deemed value of such service shall be 10% of the ....

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....nsure that the goods reach their place of destination and the Indian importer pays the transaction value to the exporter. The second leg of the transaction involves an agreement between the foreign exporter and the shipping line (whether foreign or Indian) for providing services for transport of goods to the destination, i.e., in the territory of India. 134 On the first leg of the transaction, between the foreign exporter and the Indian importer, the latter is liable to pay IGST on the transaction value of goods under Section 5(1) of the IGST Act read with Section 3(7) and 3(8) of the Customs Tariff Act. Although this transaction involves the provision of services such as insurance and freight it falls under the ambit of 'composite supply'. We note from the written submissions of the Union that the ASG has fairly submitted that this transaction would include value elements of freight and insurance, and yet the IGST is levied as a tax on supply of goods only. Such transactions are termed as "composite supply" under the CGST Act. 135 Section 2(30) of the CGST Act defines "composite supply" as "(30) "composite supply" means a supply made by a taxable person to a recipient consisti....

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....impugned levy is on the second leg of the transaction, which is a standalone contract between the foreign exporter and the foreign shipping line. Thus, the Union has urged that the contract between the foreign exporter and the foreign shipping line- of which the Indian importer is not a party- cannot be deemed to be a part of 'composite supply'. While the first leg of the transaction, between the foreign exporter and Indian importer, is (according to the submission) a composite supply, the second leg is an independent transaction. In this regard, the Union has relied on the decision of this Court in McDowell (supra) to contend that a single element can constitute a levy and a part of the value for another transaction. Further the Union Government has urged that the levy is on different aspects of the transaction. 140 We are unable to agree with the Union Government on this count. The aspect theory that the Union Government has relied on finds its place in various decisions of this Court, such as in Federation of Hotels & Restaurant Association of India v. Union of India (1989) 3 SCC 634 and BSNL (supra). 141 In Federation of Hotels & Restaurants Association of India (supra), a ch....

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....e transaction cannot be assessed to sales tax." 142 In the present case, the question is whether the imposition of IGST on supply of services can be sustained when there is a concomitant imposition of IGST on supply of goods. However, we must first analyse the context in which the IGST is levied on the import of goods in this case. 143 The provisions of composite supply in the CGST Act (and the IGST Act) 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 finds specific mention in the illustration provided under Section 2(30) of CGST Act, 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. 144 It is true that in this case, the first leg of the transaction between the foreign exporter and the Indian importer is a composite supply, while the second leg, between the foreign exporter and the shipping line may, from a perspect....

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....ian importer as a recipient of services while on the other hand, treating the two legs of the transaction as independent when it seeks to tide over the statutory provisions governing composite supply. 145 This Court is bound by the confines of the IGST and CGST Act to determine if this is a composite supply. It would not be permissible to ignore the text of Section 8 of the CGST Act and treat the two transactions as standalone agreements. In a 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). 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. Based on this reason, we are of the opinion that while the impugned ....

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....d senior counsel are right in their submission that if such an erroneous impression is not corrected and if such a trend continues, then in future even the other components of supply of goods, such as, insurance, packaging, loading/unloading, labour, etc. may also be artificially vivisected by the delegated legislation to once again levy the GST on the supply on which the tax is already collected. [...] 215. Thus, having paid the IGST on the amount of freight which is included in the value of the imported goods, the impugned notifications levying tax again as a supply of service, without any express sanction by the statute, are illegal and liable to be struck down." (emphasis supplied) 147 We are in agreement with the High Court to the extent that a tax on the supply of a service, which has already been included by the legislation as a tax on the composite supply of goods, cannot be allowed. E Conclusion 148 Based on the above discussion, we have reached the following conclusion: (i) The recommendations of the GST Council are not binding on the Union and States for the following reasons: (a) The deletion of Article 279B and the inclusion of Article 279(1) by the Consti....