GST Council | A healthy debate on Supreme Court’s decision will reinforce strength of Centre-state ties

The GST Council has been a symbol of co-operative federalism at its best, and the recent decision of Supreme Court in the case of Mohit Minerals has re-initiated a debate on the legal sanctity in support of GST.

While nothing changes from a perspective of law or the strength of the GST Council, it re-initiates the debate regarding the ability of the state or Centre to go beyond the decision of GST Council and create inefficiencies in the current GST structure. However, before we discuss that in detail, let’s understand the judgment, and what it purports to lay down.

The issue involved was whether Integrated Goods and Services Tax (IGST) can be separately levied and collected from Indian importers on ocean freight paid by foreign exporters to a foreign shipping line, where customs duty together with the IGST has been already discharged on the value of imported goods.

The apex court concluded that:

• The recommendations of the GST Council are not binding on the Union and States.

• On a conjoint reading of Sections 2(11) and 13(9) of the IGST Act, the import of goods by a CIF contract constitutes an ‘inter-state’ supply which can be subject to IGST where the importer of such goods would be the recipient of shipping service.

• The IGST Act and the CGST Act define reverse charge and prescribe the entity that is to be taxed for these purposes. The specification of recipient by the notification is only clarificatory. The government by notification did not specify a taxable person different from the recipient prescribed in Section 5(3) of the IGST Act.

• Section 5(4) of the IGST Act enables the Union government to specify a class of registered persons as the recipients, thereby conferring the power of creating a deeming fiction on the delegated legislation.

• Since the Indian importer is liable to pay the IGST on the ‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc. in a CIF contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of Section 8 of the CGST Act.

The main issue which has attracted the interest of industry is that the recommendations of GST Council are not binding on the Centre and states. The question is whether this is a new law laid down, or it is only an observation made by the Supreme Court with respect to the powers of the council.

The GST Council has plenary powers under Article 279A where it can make recommendations on ‘any other matter’ related to the GST. The council has to arrive at its recommendations through harmonised deliberation between the Centre and the states. The recommendation of the GST Council made under Article 279A is non-qualified i.e., there is no explanation on the value of such a recommendation.