# UNION OF INDIA & ANR v. M/s MOHIT MINERALS PVT. LTD. THROUGH DIRECTOR

- **Citation:** [2022] 9 S.C.R. 300
- **Court:** Supreme Court of India
- **Decided:** 2022-05-19
- **Case number:** Civil Appeal No. 1390 of 2022
- **Bench:** Dr. Dhananjaya Y Chandrachud, Surya Kant, Vikram Nath
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-anr-v-m-s-mohit-minerals-pvt-ltd-through-director-36587
- **Pages:** 152

## Headnote

Constitution of India - Articles 246A and 279A - Constitution
(One Hundred and First Amendment Act) 2016 - Central Goods
and Services Tax Act, 2017 - Integrated Goods and Services Tax
Act, 2017 - Recommendations of Goods and Services Tax Council
- Nature of - Held: Recommendations of the GST Council are not
binding on the Union and States - Deletion of Art. 279B and the
inclusion of Art. 279(1) by the Constitution Amendment Act 2016
indicates that the Parliament intended for the recommendations of
the GST Council to only have a persuasive value, particularly when
interpreted along with the objective of the GST regime to foster
cooperative federalism and harmony between the constituent units
- Neither does Art. 279A begin with a non-obstante clause nor does
Article 246A state that it is subject to the provisions of Article 279A
- Parliament and the State legislatures possess simultaneous power
to legislate on GST - Art. 246A does not envisage a repugnancy
provision to resolve the inconsistencies between the Central and
the State laws on GST - The 'recommendations' of the GST Council
are the product of a collaborative dialogue involving the Union
and States - They are recommendatory in nature - To regard them
as binding edicts would disrupt fiscal federalism, where both the
Union and the States are conferred equal power to legislate on
GST - 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 made by virtue of
the power Art. 279A (4) are binding on the legislature's power to
enact primary legislations.
Constitution of India - Constitution (One Hundred and First
Amendment Act) 2016 - Articles 246 A and 279A - Central Goods
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[2022] 9 S.C.R. 300
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and Services Tax Act, 2017 - ss.2(30), 2(93), 8 - Integrated Goods
and Services Tax Act, 2017 - ss.2(11), 5(3), 13(9) - Impugned
notifications (Notification 8/2017 and 10/2017) issued by Central
Government on the advice of the GST Council levied an integrated
tax at the rate of 5 per cent on the supply of specified services,
including transportation of goods, in a vessel from a place outside
India up to the customs station of clearance in India and categorized
the recipient of services of supply of goods by a person in a nontaxable territory by a vessel to include an importer u/s. 2(26) of the
Customs Act, 1962 - Respondents-importers of non coking coal on
a Cost-Insurance-Freight (CIF) basis, filed writ petition challenging
the notifications - High Court held that the impugned notifications
are unconstitutional for exceeding the powers conferred by the IGST
Act and the CGST Act - On appeal, held: Government in exercise
of its power u/s.5(3) of the IGST Act issued the impugned Notification
10/2017 specifying the 'categories of the supply' which shall be
subject to reverse charge - The notification, besides specifying the
criteria also mentioned the corresponding recipient in those
categories - 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 the recipient- in this case the importer- by Notification
10/2017 is only clarificatory - The Government by notification did
not specify a taxable entity different from that which is prescribed
in s.5(3) of the IGST Act for the purposes of reverse charge - 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 - Further, 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 - Also, Constitution
Bench decision in GVK Industries recognises the powe

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UNION OF INDIA & ANR.
v.
M/s MOHIT MINERALS PVT. LTD. THROUGH DIRECTOR
(Civil Appeal No. 1390 of 2022)
MAY 19, 2022
[DR. DHANANJAYA Y CHANDRACHUD, SURYA KANT
AND VIKRAM NATH, JJ.]
Constitution of India - Articles 246A and 279A - Constitution
(One Hundred and First Amendment Act) 2016 - Central Goods
and Services Tax Act, 2017 - Integrated Goods and Services Tax
Act, 2017 - Recommendations of Goods and Services Tax Council
- Nature of - Held: Recommendations of the GST Council are not
binding on the Union and States - Deletion of Art. 279B and the
inclusion of Art. 279(1) by the Constitution Amendment Act 2016
indicates that the Parliament intended for the recommendations of
the GST Council to only have a persuasive value, particularly when
interpreted along with the objective of the GST regime to foster
cooperative federalism and harmony between the constituent units
- Neither does Art. 279A begin with a non-obstante clause nor does
Article 246A state that it is subject to the provisions of Article 279A
- Parliament and the State legislatures possess simultaneous power
to legislate on GST - Art. 246A does not envisage a repugnancy
provision to resolve the inconsistencies between the Central and
the State laws on GST - The 'recommendations' of the GST Council
are the product of a collaborative dialogue involving the Union
and States - They are recommendatory in nature - To regard them
as binding edicts would disrupt fiscal federalism, where both the
Union and the States are conferred equal power to legislate on
GST - 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 made by virtue of
the power Art. 279A (4) are binding on the legislature's power to
enact primary legislations.
Constitution of India - Constitution (One Hundred and First
Amendment Act) 2016 - Articles 246 A and 279A - Central Goods
300
[2022] 9 S.C.R. 300
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and Services Tax Act, 2017 - ss.2(30), 2(93), 8 - Integrated Goods
and Services Tax Act, 2017 - ss.2(11), 5(3), 13(9) - Impugned
notifications (Notification 8/2017 and 10/2017) issued by Central
Government on the advice of the GST Council levied an integrated
tax at the rate of 5 per cent on the supply of specified services,
including transportation of goods, in a vessel from a place outside
India up to the customs station of clearance in India and categorized
the recipient of services of supply of goods by a person in a nontaxable territory by a vessel to include an importer u/s. 2(26) of the
Customs Act, 1962 - Respondents-importers of non coking coal on
a Cost-Insurance-Freight (CIF) basis, filed writ petition challenging
the notifications - High Court held that the impugned notifications
are unconstitutional for exceeding the powers conferred by the IGST
Act and the CGST Act - On appeal, held: Government in exercise
of its power u/s.5(3) of the IGST Act issued the impugned Notification
10/2017 specifying the 'categories of the supply' which shall be
subject to reverse charge - The notification, besides specifying the
criteria also mentioned the corresponding recipient in those
categories - 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 the recipient- in this case the importer- by Notification
10/2017 is only clarificatory - The Government by notification did
not specify a taxable entity different from that which is prescribed
in s.5(3) of the IGST Act for the purposes of reverse charge - 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 - Further, 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 - Also, Constitution
Bench decision in GVK Industries recognises the power of Parliament
to legislate over events occurring extra-territorially - The only
requirement imposed is that such an event must have a real
connection to India - In the present case, the impugned levy on the
supply of transportation service by the shipping line to the foreign
exporter to import goods into India has a two-fold connection: first,
the destination of the goods is India and thus, a clear territorial
nexus is established with the event occurring outside the territory;
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and second, the services are rendered for the benefit of the Indian
importer - Thus, the transaction does have a nexus with the territory
of India - On a conjoint reading of ss.2(11) and 13(9) of the IGST
Act, r/w ss.2(93) of the CGST 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 - s.5(4) of the IGST Act enables the Central
Government to specify a class of registered persons as the recipients,
thereby conferring the power of creating a deeming fiction on the
delegated legislation - Validity of the impugned notifications upheld
u/ss.5(3) and 5(4) of the IGST Act - However, the impugned levy
imposed on the 'service' aspect of the transaction is in violation of
the principle of 'composite supply' enshrined u/s.2(30) r/w s.8, CGST
Act and the overall scheme of the GST legislation - Double taxation
- Customs Act 1962 - s.2(26).
Integrated Goods and Services Tax Act, 2017 - Statutory
provisions and Scheme of the Act - Discussed.
Constitution of India - Constitution (One Hundred and First
Amendment Act) 2016 - Legislative History - Discussed.
Integrated Goods and Services Tax, Act 2017 - ss.2(11), 13(9)
- Central Goods and Services Tax, Act 2017 - s.2(93) - Whether
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 - Held: Yes.
Constitution of India - Power of Parliament to levy tax over
events occurring extra-territorially - Discussed - Central Goods
and Services Tax, Act 2017 - Integrated Goods and Services Tax,
Act 2017.
Central Goods and Services Tax, Act 2017 - s.2(93) -
Integrated Goods and Services Tax, Act 2017 - ss.5(3), 5(4) - Plea
of respondents that the amended and unamended s.5(4) do not save
the impugned notifications since they still make the reference to the
term "recipient" - Held: s.5(4) employs the language "as the
recipient", in contradistinction to s.5(3) of the IGST Act which uses
"by the recipient" - Recipient includes the importer - Further, s.5(4)
clarifies that it may designate a class of registered persons as the
recipient, thereby broadening the scope of s.2(93) of the CGST Act,
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which is anyway an inclusive definition since s.2 is prefaced with
"unless the context otherwise requires" - It is settled law that nonreference of the source of power may not vitiate its exercise and
application in given facts and circumstances of a case.
Integrated Goods and Services Tax Act, 2017 - s.5(3), 13(9)
- Central Goods and Services Tax, Act 2017- s.2(93)(c) - Whether
the imports of goods on a CIF basis would also constitute import of
shipping services, by way of deeming fiction - Held: s.5(3) of the
IGST Act does not confer the powers on the Central Government to
create a deeming fiction vis-à-vis who constitutes the recipient - It
merely enables the Central Government to identify certain categories
of goods and services, where the recipient of such services is subject
to a reverse charge, as opposed to the usual mode of taxation where
the supplier of the service is charged on a forward charge basis -
However, s.13(9) of the IGST Act r/w s.2(93)(c) of the CGST Act
inherently create a deeming fiction of the importer of goods to be
the recipient of shipping service.
Constitution of India - "Recommendations"- Articles 3, 109,
111, 113, 117, 203, 207, 255 and 274; Article 233; Articles 243I,
243Y, 280, 281, 338, 338B and 340; Article 263; Articles 270, 275,
344, 349 and 371A - Nature and contextual meaning of - Discussed.
Constitution of India - Constitutional role and functions of
the GST Council, in the context of the simultaneous legislative power
conferred on Parliament and the State legislatures - Discussed.
Constitution of India - Constitution (One Hundred and First
Amendment Act) 2016 - Articles 246A, 279A - Held: GST Council
is not only an avenue for the exercise of cooperative federalism but
also for political contestation across party lines - Thus, the
discussions in the GST Council impact both federalism and
democracy - The constitutional design of the Constitution
Amendment Act 2016 is sui generis since it introduces unique features
of federalism - Article 246A treats the Centre and States as equal
units by conferring a simultaneous power of enacting law on GST
- Article 279A in constituting the GST Council envisions that neither
the Centre nor the States can act independent of the other.
Constitution of India - GST Law - Essential legislative
functions - Excessive delegation of, if any - Constitution (One
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Hundred and First Amendment Act) 2016 - Central Goods and
Services Tax, Act 2017 - Integrated Goods and Services Tax, Act
2017 - Whether the impugned notifications are ultra vires the IGST
Act on the grounds of excessive delegation - Held: 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 - Legislature cannot
delegate its 'essential legislative functions - 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 - Principles governing these essential aspects
of taxation find place in the IGST Act - Both the IGST and CGST
Act clearly define reverse charge, recipient and taxable persons -
Thus, the essential legislative functions vis-à-vis reverse charge have
not been delegated.
Integrated Goods and Services Tax, Act 2017 - Central Goods
and Services Tax, Act 2017 - ss. 2(30) and 8 - Impugned levy
seeking to impose IGST on the 'service' aspect of the transaction, if
in violation of the principle of 'composite supply' incorporated u/
s.2(30) r/w s.8 of the CGST Act - Held: Yes - 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 s.8 of the CGST Act - Double taxation.
Central Goods and Services Tax, Act 2017 - s.2(93)(c) -
Integrated Goods and Services Tax, Act 2017 - s.13(9) - Held: The
only argument that supports the case of the appellant is that of
s.13(9) of the IGST Act r/w s.2(93)(c) of the CGST Act which defines
a "recipient" - s.13(9) of the IGST Act creates the deeming fiction
of place of supply of service to be the destination of goods when
they are transported by means other than mail or courier - No specific
exemptions for importers have been carved out - This reasoning is
accepted and read into the definition of recipient in s.2(93) of the
CGST Act.
Central Goods and Services Tax, Act 2017 - s.24(iii) -
Integrated Goods and Services Tax Act, 2017 - ss.5(3), (4) - Held:
Power of the Central Government to designate persons and
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categories of supply for reverse charge derives from ss.5(3) and
5(4) of the IGST Act and not s.24(iii) of the CGST Act which mandates
the compulsorily registration as a logical corollary to ensure tax
collection.
Central Goods and Services Tax Act, 2017 - s.2(93) -
Integrated Goods and Services Tax Act, 2017 - s.5(3) - Held:
Interpreting the term "by the recipient" vis-à-vis the categories of
goods and services identified in s.5(3) of the IGST Act should
necessarily be governed by the principles governing the definition
of "recipient" u/s.2(93) of the CGST Act.
Interpretation of Statutes - Legislative history, Parliamentary
debates, Committee Reports - Held: 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 - Constitution of India - Articles
246A, 279A - Constitution (One Hundred and First Amendment Act)
2016 - Central Goods and Services Tax Act, 2017 - Integrated
Goods and Services Tax Act, 2017.
Words and Phrases:
"Recommendations"- Constitution of India - Interpretation
of, vis-à-vis the provisions of IGST Act and CGST Act - Integrated
Goods and Services Tax Act, 2017 - Central Goods and Services
Tax Act, 2017.
'Cooperative federalism'; 'Dual federalism'; 'Fiscal
federalism' - Discussed.
Dismissing the appeals, the Court
HELD: 1. 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. [Para 42][386-H; 387-A]
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2.1 The nature of the recommendations of the GST Council
 Article 246A vests Parliament and the State Legislatures
with a unique, simultaneous law-making power on GST. It is in
this context that the role of the GST Council gains significance.
The recommendations of the GST Council are not based on a
unanimous decision but on a three-fourth majority of the members
present and voting, where the Union's vote counts as one-third,
while the States' votes have a weightage of two-thirds of the total
votes cast. There are two significant attributions of the voting
system in the GST Council. First, the GST Council has an unequal
voting structure, where the States collectively have a two-third
voting share and the Union has a one-third voting share; and
second, since India has a multi-party system, it is possible that
the party in power at the Centre may or may not be in power in
various States. Therefore, the GST Council is not only an avenue
for the exercise of cooperative federalism but also for political
contestation across party lines. Thus, the discussions in the GST
Council impact both federalism and democracy. The constitutional
design of the Constitution Amendment Act 2016 is sui generis
since it introduces unique features of federalism. Article 246A
treats the Centre and States as equal units by conferring a
simultaneous power of enacting law on GST. Article 279A in
constituting the GST Council envisions that neither the Centre
nor the States can act independent of the other. [Para 46][390-DH; 391-A]
K.P Varghese v. ITO (1981) 4 SCC 173 : [1982] 1 SCR
629; Kalpana Mehta v. Union of India (2017) 7 SCC
295 - relied on.
2.2 The Indian Constitution has sometimes been described
as quasi-federal or a Constitution with a 'centralising drift'. This
is because when the Constitution is read as a whole, the Union is
granted a larger share of the power. Instances of this centralising
drift can be traced to Articles 254, 248, and 353. However, there
are instances such as Article 246A, where the Centre and the
States are conferred equal power. Merely because a few provisions
of the Constitution provide the Union with a greater share of
power, the provisions in which the federal units are envisaged to
possess equal power cannot be construed in favour of the Union.
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The Union and the States have a simultaneous power to legislate
on GST. The GST Council has the power to make
recommendations on a wide range of subjects relating to GST.
Since the Constitution does not envisage a repugnancy provision
to resolve inconsistencies between the Central and State laws
on GST, the GST Council must ideally function, as provided by
Article 279A(6), in a harmonised manner to reach a workable
fiscal model through cooperation and collaboration. [Para 48][392B-E]
2.3 One of the important features of Indian federalism is
'fiscal federalism'. A reading of the Statement of Objects and
Reasons of the 2014 Amendment Bill, the Parliamentary reports
and speeches indicate that Articles 246A and 279A were
introduced with the objective of enhancing cooperative federalism
and harmony between the States and the Centre. However, the
Centre has a one-third vote share in the GST Council. This
coupled with 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. [Para 51][393-G-H; 394-A-C]
2.4 The contextual meaning of 'recommendations'
The GST Council which is a constitutional body is entrusted
with the duty to make recommendations on a wide range of areas
concerning GST. The GST Council has plenary powers under
Article 279A (4)(h) where it could make recommendations on
'any other matter' related to GST as the Council may decide.
The GST Council has to arrive at its recommendations through
harmonised deliberation between the federal units as provided
in clause 6 of Article 279A. Unlike the other provisions of the
Constitution which provide that recommendations shall be made
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to the President or the Governor, Article 279A states that the
recommendations shall be made to the 'Union and the States'.
The recommendation of the GST Council made under Article 279A
is non-qualified. That is, there is no explanation on the value of
such a recommendation. Yet the notion that the recommendations
of the GST 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. If the GST
Council were intended to be a constitutional body whose
recommendations transform into legislation without any
intervening act, there would have been an express provision in
Article 246A. Article 279A does not mandate tabling the
recommendations in the legislature like the provisions in category
3, where the recommendations have to be mandatorily tabled in
the legislature along with an explanatory note. Only the secondary
legislation which is framed based on the recommendations of the
Council under the provisions of the CGST Act79 and IGST Act80
is mandated to be tabled before the Houses of the Parliament.
The use of the phrase 'recommendations to the Union or States'
indicates that the GST Council is a recommendatory body aiding
the Government in enacting legislation on GST. [Paras 54 and
56][396-H; 397-A-D, G-H; 398-A-B]
Naraindas Indurkhya v. State of Madhya Pradesh
(1974) 4 SCC 788 : [1974] 3 SCR 624 - followed.
Manohar v. State of Maharashtra (2012) 13 SCC 14 :
[2012] 12 SCR 850 - relied on.
2.5 Interpretation of 'recommendation' vis-à-vis the
provisions of IGST Act and CGST Act
The provisions of the IGST Act and CGST Act which provide
that the Union Government is to act on the recommendations of
the GST Council must be interpreted with reference to the
purpose of the enactment, which is to create a uniform taxation
system. The GST was introduced since different States could
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earlier 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. [Para 59][400-DH; 401-A]
3.1 Statutory Provisions and Scheme of the IGST Act
The IGST Act enables the Central Government to impose
IGST on inter-state supply of goods and services. In aiding the
levy and collection of IGST, the IGST Act provides for a
comprehensive scheme for determining the nature of supply, time
of supply and place of supply. Statutory interpretation will
determine whether the IGST Act confers the powers on the
Central Government, in consultation with the GST Council, to
designate imports as a supply of services under Section 5(3) of
the IGST and whether the importer can be considered as the
recipient of such supply, liable to pay tax on a reverse charge
basis. Further, it will determine if the Central Government, in
consultation with the GST Council, has the powers to designate
the importer as a recipient of a service under 5(4) of the IGST
Act, when goods are imported on a CIF basis. The critical fact in
this case is that the service of shipping in these CIF contracts is
availed by the non-taxable exporter who engages and pays a
foreign shipping line of their choice, without the involvement of
the importer. In contrast, in FOB contracts, the Indian importer
pays for the services of shipping and directly deals with the
shipping line. The respondents herein are importers of non-coking
coal on a CIF basis. [Paras 61 and 62][401-C-G]
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3.2 Do the impugned notifications suffer from excessive
delegation?
Article 286(1) stipulates that the State shall not levy tax
when the supply of goods or services takes place outside the
State or in the course of import or export of goods or services
from the territory of India. Clause (2) of Article 286 states that
Parliament may by law formulate principles for determining when
there is a supply of goods or services as prescribed by clause
(1). 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
when the supply of goods or services takes place in the course of
inter-state trade or commerce. Articles 269A stipulates that
Parliament may by law formulate principles for determining: (a)
the place of supply and; (b) when the supply of goods or services
or both takes place in the course of inter-State trade or commerce.
Article 286(1) empowers Parliament to formulate the principles
by law for determining when a supply of goods or services, or
both, takes place (a) outside the state; and (b) in the course of
import into or export outside the territory of India. Parliament
enacted the IGST Act prescribing the principles as required
under Articles 269A and 286(1). The provisions of the IGST Act
deal with the levy and collection of tax (Section 5(1)), export of
goods and services (Section 2(5) and 2(6)), import of goods and
services (Section 2(10) and 2(11)), identification of the location
of the supplier and recipient of services (Sections 2(14) and
2(15)), determination of the nature of inter-State supply (Section
7), supplies in territorial waters (Section 9), place of supply with
respect to import to India and export from India (Section 11),
and place of supply of services where the location of the supplier
and recipient is in India and outside India (Sections 12 and 13).
[Paras 80-82][412-F-G; 413-B-D, H; 414-A-C]
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3.3 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. It is a settled position that the legislature
cannot delegate its 'essential legislative functions'.87 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 cap of 40% as the rate of taxation; and Section 5(1)
stipulates that the value of taxation be determined under Section
15 of the CGST Act. Section 2(98) of the CGST Act defines
"reverse charge" as the liability of the recipient of the supply of
goods or services or both to pay tax instead of the supplier.
Section 2(93) of the CGST Act defines "recipient" with reference
to three situations (i) when consideration is payable for the supply
of goods or services or both; (ii) when no consideration is payable
for the supply of goods; and (iii) when no consideration is payable
for the supply of services. In the first situation, the recipient is
the person by whom consideration is payable. In the second
situation, the recipient is the person to whom (a) the goods are
delivered or made available; or (b) possession or the use of the
goods is given or made available. The CGST Act also stipulates
a two-fold requirement for a recipient to be taxed on reverse
charge basis- the recipient must be a 'person' as defined under
Section 2(84) of the CGST; and the person is a "taxable person"
only if registered or is liable to be registered under Section 22 or
Section 24. Section 24(iii) of the CGST Act states that persons
who are required to pay tax under reverse charge must be
registered. Therefore, both the IGST and CGST Act clearly define
reverse charge, recipient and taxable persons. Thus, the
essential legislative functions vis-à-vis reverse charge have not
been delegated. Section 5(3) of the IGST Act provides the
Government the power to specify categories of supply of goods
or services or both on which tax shall be paid on a reverse charge
basis by the recipient. The Government is to exercise this power
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on the recommendation of the GST Council. The Government in
exercise of its power under Section 5(3) of the IGST Act issued
the impugned Notification 10/2017 specifying the 'categories of
the supply' which shall be subject to reverse charge. The
notification, besides specifying the criteria, has also mentioned
the corresponding recipient in those categories. The IGST Act
and the CGST Act define reverse charge and prescribe the entity
that is to be taxed for these purposes. Therefore, the stipulation
of the recipient in each of the categories is only clarificatory. The
Government by notification did not specify a taxable entity
different from that which is prescribed in Section 5(3) of the IGST
Act for the purposes of reverse charge. [Paras 84-86][414-E-G;
415-A-G]
3.4 Charging Section: taxable person, taxable rate and
manner of determining value
Taxable person
The respondents have alleged that the importer cannot be
validly termed as a taxable person. However, this argument has
to fail on a close reading of the impugned notifications alongside
Sections 2(107) and 24 of the CGST Act. Section 24(iii) of the
CGST Act mandates persons required to pay tax under reverse
charge to be compulsorily registered under the CGST Act.
Section 2(107) of the CGST Act defines a "taxable person" to
mean a person who is registered or liable to be registered under
Section 24 of the CGST Act. Neither Section 2(107) nor Section
24 of the CGST Act qualify the imposition of 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. 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. [Paras 91 and
92][417-C-F; 419-C-D]
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Laghu Udyog Bharati v. Union of India 1999 (6) SCC
418 : [1999] 3 SCR 1199 - held inapplicable.
Mathuram Agrawal v. State of Madhya Pradesh 1999
(8) SCC 667 : [1999] 4 Suppl. SCR 195 - followed.
Gobind Saran Ganga Saran v. Commissioner of Sales
Tax AIR 1985 SC 1041 : [1985] 3 SCR 985; CIT v.
B.C. Srinivas Setty AIR 1981 SC 972 : [1981] 2 SCR
938 - relied on.
Taxable value
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 to be strictly
determined by Section 15(1) of the CGST Act and not by way of
delegated legislation. However, Sections 15(4) and 15(5) enable
delegated legislation to prescribe methods for determination of
value, on the recommendations of the GST Council. Rules 27 to
31 of Chapter IV of the CGST Rules 2017, prescribe the manner
of determining value of supply. Rule 31 also provides for residual
powers to the GST Council for prescribing modes of valuation.
The respondents have urged that the determination of the value
of supply has to be specified only through rules, and not by
notification. However, this would be an unduly restrictive
interpretation. Parliament has provided the basic framework and
delegated legislation provides necessary supplements to create
a workable mechanism. Rule 31 of the CGST Rules 2017
specifically provides for a residual power to determine valuation
in specific cases, using reasonable means that are consistent with
the principles of Section 15 of the CGST Act. This is where the
value of the supply of goods cannot be determined in accordance
with Rules 27 to 30 of 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. [Paras 93
and 94][419-D-F; 420-D-F]
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4.1 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?
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
transactions under Section 5(3). [Para 96][421-A-B]
4.2 Do imported goods procured on a CIF basis constitute
an inter-state supply or is it an extra-territorial tax?
Section 7 of the CGST Act defines the term "supply" with
a broad brush and provides for an inclusive definition. Section
7(1)(b) of the CGST Act considers import of services for a
consideration to constitute "supply". Section 7(1)(c) of the CGST
Act captures any and all activities in Schedule 1 of the CGST Act,
irrespective of whether they are made for a consideration.
Additionally, Section 7(3) confers the power on the Central
Government to specify which transactions are to be treated as a
supply of goods and not a supply of services, and vice-versa.
Section 7(4) of the IGST Act states that supply of services
imported into India would be considered as a supply of services
in the course of "inter-State trade or commerce". Thus, an Indian
importer could also be considered as an importer 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. The term 'importer' is not defined in
the IGST Act or the CGST Act. The term 'import of goods' is
defined in Section 2(10) of the CGST Act. "Import of services"
is defined in Section 2(11) of the CGST Act. The conditions for
an "import of service" would entail three aspects: (i) the supplier
of service must be located outside India; (ii) the recipient of the
service must be located in India; and (iii) the place of supply of
service ought to be in India. [Paras 101 and 102][423-G-H; 424A-B, F-G]
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4.3 Chapter V of the IGST Act provides for methodologies
to determine the place of supply of goods or services or both.
Section 13 of the IGST Act provides the place of supply of services
where the location of the supplier or location of recipient is outside
India. Section 13(9) of the IGST Act appears to create a deeming
fiction, where in case of supply of services of transportation of
goods by a supplier located outside India, the place of supply
would be the place of destination of such goods. The supplier,
the foreign shipping line, in this case would be a non-taxable
person. However, its services in a CIF contract for transport of
goods would enter Indian taxable territory as the destination of
such goods. The place of supply of shipping service by a foreign
shipping line, would thus be India. [Para 103][425-A-B, F-G]
4.4 The respondents argued that since Section 7(1)(b) of
the CGST Act does not define "supply" 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 supply. [Para 104][425-G-H; 426-AC]
4.5 The respondents have argued that the ocean freight
transaction cannot be considered as "supply" since Section 7(1)(b)
of the IGST act requires the import of service to be for a
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"consideration". The definition of "consideration" in Section 2(31)
of the CGST Act is instructive. Section 2(31) of the CGST Act
defines 'consideration' to include payment made or to be made,
in money or any other form, for the inducement of supply of goods
or services to be made by the recipient or by any other person.
Thus, in the case of goods imported on a CIF basis, the fact that
consideration is paid by the foreign exporter to the foreign
shipping line would not stand in the way of it being considered as
a "supply of service" under Section 7(4) of the IGST Act which is
made for a consideration, thereby constituting "supply of service"
in the course of inter-state trade or commerce that can be subject
to IGST under Section 5(1) of the IGST Act. [Para 105][426-D;
427-A-C]
4.6 The decision in GVK Industries clearly recognises the
power of Parliament to legislate over events occurring extraterritorially. The only requirement imposed by the Court is that
such an event must have a real connection to India. The impugned
levy on the supply of transportation service by the shipping line
to the foreign exporter to import goods into India has a two-fold
connection: first, the destination of the goods is India and thus, a
clear territorial nexus is established with the event occurring
outside the territory; and second, the services are rendered for
the benefit of the Indian importer. Thus, the transaction does
have a nexus with the territory of India. 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. [Paras 108 and 109][107, 108 and
109]
GVK Industries v. Income Tax Officers [2011] 4 SCC
36 : [ 2011] 3 SCR 366 - followed.
4.7 Are importers service recipients under CIF contracts?
Section 5(3) of the IGST Act enables taxation of the
recipients of certain specified categories of supply of services on
a reverse charge basis. It is pertinent to note that the tax is
payable "by the recipient" of such services, in contradistinction
to broad language such as "any person as may be prescribed"
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which was otherwise used in Section 98(2) of the Finance Act
1994 which taxed services. The term "recipient" of a supply of
service has been exhaustively defined by Section 2(93) of the
CGST Act. 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.