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of <h1>Indian importers cannot be subjected to IGST levy on ocean freight under reverse charge mechanism</h1> <h3>Union of India & Anr. Versus M/s Mohit Minerals Pvt. Ltd. Through Director</h3> Union of India & Anr. Versus M/s Mohit Minerals Pvt. Ltd. Through Director - 2022 (61) G.S.T.L. 257 (SC), [2022] 101 G S.T.R. 262 (SC), (2022) 10 SCC 700 Issues Involved:1. Constitutionality of GST notifications.2. Excessive delegation of powers.3. Validity of taxable events under GST.4. Interpretation of 'recipient' in CIF contracts.5. Applicability of Section 5(4) of IGST Act.6. Composite supply and double taxation.Detailed Analysis:1. Constitutionality of GST Notifications:The Union of India challenged the Gujarat High Court's decision that deemed two GST notifications unconstitutional. The core issue was whether an Indian importer could be subject to IGST on ocean freight paid by a foreign seller to a foreign shipping line on a reverse charge basis. The Supreme Court examined the legislative history and the constitutional architecture of GST, noting that while the GST Council's recommendations are significant, they are not binding on the Union and States. The Court emphasized that the recommendations are persuasive, aiming to foster cooperative federalism without disrupting fiscal federalism.2. Excessive Delegation of Powers:The respondents argued that Section 5(3) of the IGST Act only allows the government to specify categories of goods or services for reverse charge, not to designate the recipient of the supply. The Court held that the essential legislative functions, such as identifying the taxable event, person, rate, and value, were not delegated. The notifications were found to be a legitimate exercise of delegated legislation, clarifying the recipient within specified categories.3. Validity of Taxable Events under GST:The Court examined whether the import of goods on a CIF basis constitutes a valid import of service under Section 5(3) of the IGST Act. It was held that the supply of transportation services by a foreign shipping line to a foreign exporter, with the destination of goods being India, has a sufficient territorial nexus. The place of supply, as per Section 13(9) of the IGST Act, is the destination of goods, thus making the import of services taxable.4. Interpretation of 'Recipient' in CIF Contracts:The Court analyzed whether the importer could be considered the recipient of shipping services under CIF contracts. It was concluded that the importer, as the ultimate beneficiary of the shipping service, can be deemed the recipient under Section 2(93)(c) of the CGST Act. This interpretation aligns with the destination-based tax philosophy of GST, making the importer liable for IGST on the transportation service.5. Applicability of Section 5(4) of IGST Act:The Union Government argued that the notifications could derive validity from Section 5(4) of the IGST Act, which allows specifying a class of registered persons as recipients. The Court noted that the amended Section 5(4) clarifies the government's power to designate recipients, thereby validating the notifications even if the importers do not qualify as service recipients.6. Composite Supply and Double Taxation:The respondents contended that the impugned levy results in double taxation, as IGST is already paid on the transaction value of goods, including freight. The Court agreed, stating that the supply of goods in a CIF contract is a composite supply under Section 2(30) of the CGST Act. Thus, levying IGST on the supply of services separately violates the principle of composite supply and the scheme of GST legislation.Conclusion:1. The recommendations of the GST Council are persuasive but not binding on the Union and States.2. The notifications are a legitimate exercise of delegated legislation, specifying categories of supply and recipients.3. The import of goods on a CIF basis constitutes a taxable event under GST, with the importer being the recipient of shipping services.4. Section 5(4) of the IGST Act validates the notifications by allowing the designation of recipients.5. The impugned levy violates the principle of composite supply, leading to double taxation.The appeals were dismissed, and the notifications were deemed valid under Sections 5(3) and 5(4) of the IGST Act but invalidated due to the principle of composite supply.
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