Introduction
The Supreme Court’s recent decision in the case of Mohit Mineral Pvt. Ltd. v. Union of India has raised concerns about the functioning and stability of the Goods and Services Tax (GST) regime in India. This landmark ruling has shed light on the nature of recommendations made by the GST Council and addressed issues related to excessive delegation and the validity of certain provisions under the IGST Act. The implications of this decision are far-reaching and can shape the future development of the GST regime.
Background: One Nation, One Tax
The 101st Constitution Amendment introduced the necessary changes to enable the implementation of the GST regime, which aimed to bring uniformity to India’s indirect taxation system. The concept of “One Nation, One Tax” was at the heart of these changes. For five years, the GST Council’s recommendations were followed unanimously by the states, ensuring a harmonized taxation structure. However, the recent Supreme Court decision has clarified that the GST Council’s recommendations are only recommendatory, potentially destabilizing the entire GST regime.
Facts of the Case: CIF Basis and Taxation
The case involved Mohit Mineral Pvt. Ltd., an importer of non-coking coal into India. The company supplied these goods to various businesses within the country. The appellant contended that they were not obligated to pay Integrated Goods and Services Tax (IGST) on transportation done on a Cost-Insurance-Freight (CIF) basis, as both the recipient and the supplier were foreign entities. They argued that this violated Article 5(3) of the IGST Act. The challenge was made against Notifications 08/2017 and 10/2017, which made ocean freight taxable under the reverse charge mechanism.
Analysis: Nature of GST Council’s Recommendations
The Supreme Court examined the nature of the GST Council’s recommendations and whether they were mandatory or recommendatory. The appellant argued that the recommendations were mandatory due to the objective of maintaining tax uniformity across states. However, the court held that the simultaneous power of taxation had to be exercised collaboratively. The court emphasized that the word “recommendation” in the constitution had a persuasive value and was not meant to be mandatory for all decisions. While some recommendations may be binding, the court concluded that not all recommendations carry the same level of obligation.
Excessive Delegation and Validity of Notifications
The court also addressed concerns regarding excessive delegation of power to the GST Council. It held that the essential legislative function of determining the rate of taxation, levy of tax, taxable persons, subject matter, and value had been adequately provided for in the relevant statutory provisions. Consequently, the court ruled that the impugned notifications were clarificatory and did not engage in excessive delegation.
Validity of Ocean Freight Taxation
Regarding the validity of taxing ocean freight, the court examined whether imported goods procured on a CIF basis constituted an inter-state supply. It concluded that the supply included the import of service under the IGST Act. The court held that the taxation had a territorial nexus to India since the place of supply was in India. It also clarified that the deeming fiction of the recipient of service applied appropriately in accordance with the destination-based tax principle of the GST regime.
Composite Supply and Double Taxation
The issue of double taxation arose concerning the treatment of the transaction as a composite supply under the IGST Act. The court rejected the argument that the tax on freight could be treated as a separate category, stating that it would violate the provisions of the CGST Act. The court emphasized that the legislative intent was to bundle similar goods and services together rather than treating them as separate transactions.
Conclusion: A Crossroads for the GST Regime
The Supreme Court’s ruling in the Mohit Mineral case has significant implications for the future of the GST regime in India. It presents a critical moment that can either lead to the destruction or strengthening of the GST regime. The key lies in the prudence of the states and the center. The states should not create unnecessary obstacles and should strive to comply with the recommendations of the GST Council. Simultaneously, the center should consider the opinions and needs of the states, fostering cooperative federalism. Only through such cooperation can the GST regime realize its true potential.
The ruling serves as a reminder that the GST regime requires constant attention and careful decision-making to maintain its integrity and effectiveness in achieving the objective of “One Nation, One Tax.”