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UNION OF INDIA V. MOHIT MINERALS PRIVATE LIMITED

Union of India v. Mohit Minerals, 2022 SCC Online SC 657

ISSUE:

  • Whether an Indian importer can be subject to the levy of Integrated Goods and Services Tax (IGST) on the component of ocean freight paid by the foreign seller to a foreign shipping line, on a reverse charge basis?
  • Whether GST Council recommendations are binding on Union and States?

RULE:

  • The levy of IGST on the service component of the transaction violates the principle of composite supply under the CGST Act.
  • The four canons of taxation require clear identification of taxable event, person liable to pay, rate of tax, and value to which rate applies.
  • A transaction having territorial nexus with India can be taxed even if some aspects occur outside Indian territory, provided there’s statutory backing.
  • The doctrine of cooperative federalism requires that federal units have equal legislative powers unless explicitly stated otherwise in the Constitution.
  • The principle against double taxation prevents levying tax twice on the same transaction when it’s already included in a composite supply.

FACTS:

  • The government issued notifications making Indian importers liable to pay GST on transportation services provided by foreign shipping lines to foreign exporters in CIF contracts.
  • This was done to create a level playing field between Indian and foreign shipping lines, as Indian shipping lines were paying GST while foreign ones weren’t. The importers challenged these notifications, arguing they weren’t the recipients of these services and were already paying GST on the freight value included in the imported goods’ cost.
  • Court analyzed transactions involving foreign exporters, Indian importers, and shipping lines.
  • First leg of transaction: CIF contract where foreign exporter sells goods to an Indian importer including insurance and freight.
  • Second leg of transaction: Separate agreement between foreign exporter and shipping line for transportation services.

HELD:

  • The first leg of the transaction between the foreign exporter and the Indian importer is a composite supply, while the second leg, between the foreign exporter and the shipping line may, from a perspective, be regarded as a standalone transaction.
  • GST cannot be levied twice on the same component when it’s included in a composite supply
  • GST Council recommendations are not binding on Union and States; only persuasive in nature.
  • While the government can tax transactions with territorial nexus to India, it cannot impose double taxation without explicit statutory authorisation.
  • The IGST levy on service components violates composite supply principle under CGST Act, hence was struck down by the Court.
  • Impugned levy on ocean freight deemed violative of CGST Act and overall GST legislation, hence was deemed unconstitutional.