Ruling more known for court’s comment on GST Council
The government is exploring all options including filing a review petition against the Supreme Court ruling that struck down levy of IGST on Ocean Freight on transportation of goods by vessel from a place outside India to a place in India.
IGST means Integrated Goods & Services Tax and levied on all inter-State supplies of goods and/or services. It is applicable on any supply of goods and/or services in both cases of import into India and export from India. The Supreme Court gave its ruling on May 19 which also include famous observation stating recommendations of the GST Council are not binding on the governments,
“No decision has been taken on the said ruling. All options are being considered including filing a review petition,” a senior government official said. Further he said the matter is unlikely to be placed before GST Council. Options include, rescinding the notification, amend the law to negate the Supreme Court ruling and making the change retrospectively or challenge the ruling through filing a review petition.
First option can be done through an executive order while for second option, the government will need to go to Parliament. In case review petition is filed and accepted, then the matter will be heard before larger bench. If review petition is rejected, the Centre can file curative petition, which will come before a five judge bench.
In the matter of Mohit Minerals Pvt Ltd, the Supreme Court pronounced judgment by eliminating levy of IGST under reverse charge on Ocean Freight on transportation of goods by vessel from a place outside India to a place in India. It was given in a matter when Centre filed an appeal against judgment of the Gujarat High Court, deeming the importer of goods as the recipient of shipping services in case of import of goods on a Cost-Insurance-Freight (CIF) basis. The apex court agreed 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.
The top court concluded that the government while exercising its rule-making power under the provisions of the CGST Act and IGST Act is bound by the recommendations of the GST Council. However, that does not mean that all the recommendations of the GST Council are binding on the legislature’s power to enact primary legislations. IGST Act and the CGST Act define reverse charge and prescribe the entity that is to be taxed for these purposes. The specification of the recipient – in this case the importer – by a notification is only clarificatory.
It also said that said levy imposed on the ‘service’ aspect of the transaction is in violation of the principle of ‘composite supply’. Since the Indian importer is liable to pay 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 GST law.
Keeping all in these in mind, the Supreme Court dismissed the appeal filed by the Centre and agreed 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.
Published on June 09, 2022