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

300 [2022]REPORTS SUPREME COURT 9 S.C.R. 300 [2022] 9 S.C.R.

(Civil Appeal No. 1390 of 2022)

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A 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 B 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-D- H; 391-A] K.P Varghese v. ITO (1981) 4 SCC 173 : [1982] 1 SCR 629; Kalpana Mehta v. Union of India (2017) 7 SCC F 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 B Article 279A(6), in a harmonised manner to reach a workable fiscal model through cooperation and collaboration. [Para 48][392- B-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 C 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 D 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 E 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’ F

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. G 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 H

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A 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 D 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. E 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 F (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 G 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 H

UNION OF INDIA v. M/s MOHIT MINERALS PVT. LTD. THROUGH 309 DIRECTOR earlier provide different tax slabs and different exemptions. The A 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 B 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-D- C H; 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 F 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 G 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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A 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. E 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 F 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 G 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] H

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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 C 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. D 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 E 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 F 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 G 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 H

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A 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 B 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 C 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 D 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 E 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 F “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 G 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] H

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Laghu Udyog Bharati v. Union of India 1999 (6) SCC A 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 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 C 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 D 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. E 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 F 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 G 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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A 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 B 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] C 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 D 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 E 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; 424- A-B, F-G] H

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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, E 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 F 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-A- G C] 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 H

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A “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 extra- territorially. 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. G 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 H to broad language such as “any person as may be prescribed”

UNION OF INDIA v. M/s MOHIT MINERALS PVT. LTD. THROUGH 317 DIRECTOR which was otherwise used in Section 98(2) of the Finance Act A 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. Further, Section 2(93) provides that “any reference to a person to whom supply is made shall be construed as a reference to the recipient”. Hence, where the statute refers to a person to whom a supply is made, it has to be construed as a reference to the recipient of service. The power of the Central Government to designate persons and categories of supply for reverse charge derives from Sections 5(3) and 5(4) of the IGST Act and not Section 24(iii) of the CGST Act which mandates the compulsorily registration as a logical corollary to ensure tax collection. Section 2(98) of the CGST Act, which defines “reverse charge” reiterates that it means the “liability to pay tax by the recipient of supply of goods or services or both instead of the supplier…”. It cannot be construed to imply that any taxable person identified for payment of reverse charge would automatically become the recipient of such goods or service. The deeming fiction of treating the importer as a recipient must be found in the IGST Act. As it currently stands, Section 5(3) of the IGST Act enables the delegated legislation to create a deeming fiction on categories of supply of goods/services alone. F Interpreting the term “by the recipient” vis-à-vis the categories of goods and services identified in Section 5(3) of the IGST Act should necessarily be governed by the principles governing the definition of “recipient” under Section 2(93) of the CGST Act. Contrary to the arguments of the Union Government, such an interpretation would not annihilate the mandate of compulsory G registration under Section 24(iii) of the CGST Act. It would be applicable to suitably worded provisions in the CGST or IGST Act which permit the Central Government to identify a taxable person for a reverse charge. In any event, it would be applicable to all the recipients liable for reverse charge under Sections 5(3) H

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A and 5(4) of the IGST Act. The ineffectiveness of a tax collection mechanism under Section 24(iii) of the CGST Act cannot be argued to obfuscate the concept of a “recipient” of a good or service that is uniformly understood across the IGST Act, CGST Act and tax jurisprudence. The Union Government has argued that the expression “by the recipient” in Section 5(3) of the IGST Act B does not impede the authority of the GST Council in making recommendations for issuance of notifications for identifying such persons who shall be governed by reverse charge and once the identification is complete, such taxable person would automatically be interpreted as “the recipient”. This argument requires the Court to completely discard the principles of determining the recipient of a service and replace it with whichever taxable person is identified. The appellant may argue for such an interpretation to achieve a favourable outcome in this case. However, in matters of inter-state supply when the supplier and recipient are within the territory of India, this Court would have to follow this artificially bifurcated interpretation which identifies recipients vis-à-vis the nature of service and supply in some cases, and by a simple equation of the identified taxable person in others without considering the literal and contextual definition of recipient. This is against settled rules of interpretation and would be an act of judicial legislation. If Parliament’s intention were to designate certain persons for reverse charge, irrespective of them being the recipient of such goods and services, it must make a suitable amendment to confer such power for exercise of delegated legislation. [Paras 112, 115-117][429-H; 430-A-B, G- H; 431-A-H; 432-A-H; 433-A-B] F 4.8 The only argument that supports the case of the appellant is that of Section 13(9) of the IGST Act read together with Section 2(93)(c) of the CGST Act which defines a “recipient”. Section 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 Court is inclined to accept this reasoning and read it into the definition of recipient in Section 2(93) of the CGST Act. Since a reference to a person to whom a supply is made, is a reference to the recipient, the place of supply is critical. By virtue of Section 13(9) of the

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IGST Act, the place of supply is the destination of goods. The A time of supply is then determined through the provisions of Section 13 of the CGST Act. Sections 2(14) and 2(15) of the IGST Act also define the location of the recipient and supplier of services with respect to the physical location where the supply of services is made or received. In such a scenario, when the place of supply B of services is deemed to be the destination of goods under Section 13(9) of the IGST Act, the supply of services would necessarily be “made” to the Indian importer, who would then be considered as a “recipient” under the definition of Section 2(93)(c) of the CGST Act. The supply can thus be construed as being “made” to the Indian importer who becomes the recipient under Section C 2(93)(c) of the CGST Act. This conclusion comports with the philosophy of the GST to be a consumption and destinated based tax. The services of shipping are imported into India for the purpose of consumption that is routed through the import of goods. Although the consideration for shipping is payable by the foreign supplier to the foreign shipping line in CIF contracts, the price is consequently factored into the price of the shipment. The ultimate benefactor of the shipping service is also the importer in India who will finally receive the goods at a destination which is within the taxable territory of India. Thus, the meaning of the term “recipient” in the IGST Act will have to be understood within the context laid down in the taxing statute (IGST and CGST Act) and not by a strict application of commercial principles. [Paras 118 and 119][433-B-D, G-H; 434-A, G-H; 435-A-D] 4.9 Some of the respondents have argued that the possibility of two different recipients of services would create absurdities since whether a supply of service is an inter-state supply under Section 7(3) or intra-state supply under Section 8(2) of IGST Act depends on the location of the supplier and the place of supply, which in most cases is the location of the recipient of service. Since there can effectively be two recipients on a reading of Section 2(93)(a) and (c) of the CGST Act, the respondents argue that the transaction may simultaneously become an inter-state or intra-state supply. This could also mean that two recipients can claim ITC. However, this argument is inapplicable to the case at hand since Sections 7(3) and 8(2) of the IGST Act do not conflate H

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A the concept of imports. Section 8(2) deals with a scenario where the location of the supplier and place of supply are within the same State/Union Territory in India. This is inapplicable to determining imports where the supplier is located outside India. Similarly, Section 7(3) deals with inter-state supply within the territory of India. Further, both these sections are subject to the B provisions of Section 12 of the IGST Act where both- the supplier and recipient are located in India. Section 12 of the IGST Act does not create the deeming fiction under Section 13(9) of the IGST Act which is applicable only when the supplier is located outside India. The applicable section in this case would be Section C 7(4) of the IGST Act which clearly stipulates that “Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce”. Thus, no absurdity is created by the deeming fiction argued by the Union Government. In no scenario would the foreign exporter be claiming ITC in India. The respondents’ D arguments of identification of two recipients do not have any bearing on the determination of the present dispute as the foreign exporter is not sought to be taxed in this case. In the digital age, the concepts of supplier and recipient of service have also been altered and are not necessarily understood as two parties with a E direct chain of supply. The IGST Act tends to create several such deeming fictions to adequately capture such complexities. For instance, Section 5(5) of the IGST Act taxes the electronic commerce operator as the supplier of service in spite of it only being a conduit, in the commercial sense. These deeming fictions need to be respected for the purpose of the statute, as long as F they have constitutional and parliamentary sanction. Section 13 of the IGST Act is critical to effectively meet the aim of the GST statute to tax the destination of supplies, as opposed to their origins. The deeming fiction therein is critical to interpret the charging provision under the IGST Act (Section 5). The G respondents’ argument for the irrelevance of determining the beneficiary of the supply or who has received the supply in view of the definition of ‘recipient’ of Section 2(93) of the CGST Act mis-reads Section 2(93) which identifies the recipient, inter alia, on the basis of the person to whom “supply is made” i.e. the place of supply. [Paras 120-122][435-D-H; 436-A-D, G-H; 437- H A]

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4.10 GST laws mark a departure from the previous policy of taxing sale/consignments and focuses on the taxing of supplies. The concept of a supplycentric and destination-based tax runs through the scheme of the statutory provisions and the proposals issued by the GST Council. Thus, an amendment to the Constitution was introduced in the form of Article 366(12-A) to create a tax on the supply of goods, or services, or both. In the commercial reality of the times, the conceptual lines between goods and services wear thin. Hence, the focus is on the taxation of supply, as opposed to the creation of neat compartments between goods and services. Section 7(1)(c) of the CGST Act specifically characterizes import of services for a consideration to constitute “supply”. The only question that falls for determination is whether the imports of goods on a CIF basis would also constitute import of shipping services, by way of deeming fiction. Section 5(3) of the IGST does not confer the powers on the Central Government to create a deeming fiction vis-à-vis who constitutes the recipient. Section 5(3) 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, Section 13(9) of the IGST Act read with Section 2(93)(c) E of the CGST Act inherently create a deeming fiction of the importer of goods to be the recipient of shipping service. [Para 123][437-B-E]

5. Applicability of Section 5(4) of IGST Act Amended Section 5(4) came into effect on 1 February 2019. F Amending Act 32 of 2018 enables the Central Government to create a deeming fiction of declaring a class of registered persons “as the recipient” of the supply of taxable goods or service. In deploying the language “as the”, and not “by the” recipient, the applicability of the definition of recipient vis-à-vis Section 2(93) G of the CGST Act is no longer necessary for determining the validity of such a notification. The effect of the Amending Act 32 of 2018 has been as follows:- (i) the powers of the Central Government to specify through a notification has been clarified; and (ii) the power to specify a class of registered persons as the recipient H

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A has been recognised. The respondents have argued that the amended and unamended Section 5(4) do not save the impugned notifications since they still make the reference to the term “recipient”. However, the respondents crucially miss out that Section 5(4) employs the language “as the recipient”, in contradistinction to Section 5(3) of the IGST Act which uses “by the recipient”. Recipient includes the importer in Part D of this judgment. Further, Section 5(4) clarifies that it may designate a class of registered persons as the recipient, thereby broadening the scope of Section 2(93) of the CGST Act, which is anyway an inclusive definition since Section 2 is prefaced with “unless the context otherwise requires”. It is settled law that non-reference of the source of power may not vitiate its exercise and application in given facts and circumstances of a case. Thus, as long as a source of power to legislate or issue a notification is available, the lack of a mention, an incorrect reference or mistake does not vitiate the exercise of such power. The impugned notifications were issued with the intention of creating a level playing field between the Indian and foreign shipping lines. [Paras 124, 126, 127, 128 and 129][438-C-E, G; 439-A-C] Union of India v. Tulsi Ram Patel (1985) 3 SCC 398 : [1985] 2 Suppl. SCR 131 – followed. E Titagarh Paper Mills v. Orissa State Electricity Board (1975) 2 SCC 436 – relied on. 6.¹ Composite Supply and Issues of Double Taxation The transaction at hand involves three parties- the foreign exporter, the Indian importer and the shipping line. The first leg of the transaction involves a CIF contract, wherein the foreign exporter sells the goods to the Indian importer and the cost of insurance and freight are the responsibility of the foreign exporter. In other words, the foreign exporter is liable to ensure that the goods reach their place of destination and the Indian importer pays the transaction value to the exporter. The second leg of the transaction involves an agreement between the foreign exporter and the shipping line (whether foreign or Indian) for providing services for transport of goods to the destination, i.e., in the territory of India. Section 2(30) of the CGST Act clearly provides H

UNION OF INDIA v. M/s MOHIT MINERALS PVT. LTD. THROUGH 323 DIRECTOR that a transaction may have two or more taxable supplies, where one of them is a principal supply. The illustration to Section 2(30) further clarifies that a transaction such as the CIF contract for supply of goods reflects a composite supply under the CGST Act, where the principal supply is the supply of goods. Section 8 of the CGST Act provides that the tax liability on a composite supply which comprises of two or more supplies, will only be levied on the ‘principal supply’. In a CIF transaction, the principal supply, according to Section 2(30), is supply of goods. Thus, the tax would be levied as if the transaction was one of supply of goods. Section 20 of the IGST Act provides that the provisions relating to ‘composite supply’ under the CGST Act would apply mutatis mutandis under the IGST Act. By extension, the IGST in a transaction of composite supply would be levied on the principal supply of goods. [Paras 133, 136 - 138][442-G-H; 443-A-B, F-H; 444-C-E] 6.2 The provisions of composite supply in the CGST Act D (and the IGST Act) play a specific role in the levy of GST. The idea of introducing ‘composite supply’ was to ensure that various elements of a transaction are not dissected and the levy is imposed on the bundle of supplies altogether. This finds specific mention in the illustration provided under Section 2(30) of CGST Act, where the principal supply is that of goods. Thus, the intent of the Parliament was that a transaction which includes different aspects of supply of goods or services and which are naturally bundled together, must be taxed as a composite supply. It is true that in this case, 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. Both of them are independent transactions and ordinarily, the IGST could be levied on both sets of transactions- one as supply of goods (under the ambit of composite supply) and the other as supply of services. However, the impugned notifications seek to tax the importer as the deemed recipient of the supply of service. The ASG has advanced an interpretation of Sections 5(3) and 5(4) of the IGST Act, read with Section 2(93) of the CGST Act to contend that the importer can be classified as the ‘recipient’ of the services. On this interpretation, the validity H

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A of the impugned notifications has been upheld under Sections 5(3) and 5(4) of the IGST Act in Section D.2-D.5 of this judgment. This Court is bound by the confines of the IGST and CGST Act to determine if this is a composite supply. It would not be permissible to ignore the text of Section 8 of the CGST Act and treat the two transactions as standalone agreements. In a CIF B contract, the supply of goods is accompanied by the supply of services of transportation and insurance, the responsibility for which lies on the seller (the foreign exporter in this case). The supply of service of transportation by the foreign shipper forms a part of the bundle of supplies between the foreign exporter and the Indian importer, on which the IGST is payable under Section 5(1) of the IGST Act read with Section 20 of the IGST Act, Section 8 and Section 2(30) of the CGST Act. To levy the IGST on the supply of the service component of the transaction would contradict the principle enshrined in Section 8 and be in violation of the scheme of the GST legislation. Thus, while the impugned notifications are validly issued under Sections 5(3) and 5(4) of the IGST Act, it would be in violation of Section 8 of the CGST Act and the overall scheme of the GST legislation. This Court is in agreement 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. [Paras 143-147][446-E-H; 447-A, G-H; 448-A-B; 449- F-G] Federation of Hotels & Restaurant Association of India v. Union of India (1989) 3 SCC 634 : [1989] 2 SCR F 918, BSNL v. Union of India 2006 (3) SCC 1 : [2006] 2 SCR 823 – referred to.

7. Conclusion (i) The recommendations of the GST Council are not binding on the Union and States for the following reasons: G (a) The deletion of Article 279B and the inclusion of Article 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;

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(b) Neither does Article 279A begin with a non-obstante clause nor does Article 246A state that it is subject to the provisions of Article 279A. The Parliament and the State legislatures possess simultaneous power to legislate on GST. Article 246A does not envisage a repugnancy provision to resolve the inconsistencies between the Central and the State laws on B 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. It is not imperative that one of the federal units must always possess a C higher share in the power for the federal units to make decisions. Indian federalism is a dialogue between cooperative and uncooperative federalism where the federal units are at liberty to use different means of persuasion ranging from collaboration to contestation; and D (c) 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 made by virtue of the power Article 279A (4) are binding on the legislature’s power to enact primary legislations; E

(ii) On a conjoint reading of Sections 2(11) and 13(9) of the IGST Act, read with Section 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; F

(iii) 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 person different from the G recipient prescribed in Section 5(3) of the IGST Act for the purposes of reverse charge; (iv) Section 5(4) of the IGST Act enables the Central Government to specify a class of registered persons as the H

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A recipients, thereby conferring the power of creating a deeming fiction on the delegated legislation; (v) The impugned levy imposed on the ‘service’ aspect of the transaction is in violation of the principle of ‘composite supply’ enshrined under Section 2(30) read with Section 8 of the CGST B Act. 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 Section 8 of the CGST Act. [Para 148][449-G-H; 450-A-H, 451-A-E] C McDowell and Company Ltd. v. Commercial Tax Officer 1985 (3) SCC 230: [1985] 3 SCR 791; M/s Electronic Corporation of India v. Commissioner of Income Tax 1989 Supp 2 SCC 642 : [1989] 2 SCR 994; Municipal Corporation of Delhi v. Birla Cotton Spinning and D Weaving Mills [1968] 3 SCR 251; Avinder Singh v. State of Punjab (1979) 1 SCC 441; Union of India v. VKC Footsteps India Private Limited (2022) 2 SCC 603; Union of India v. Jalyan Udyog 1994 (1) SCC 318 : [1993] 2 Suppl. SCR 293; Ispat Industries Ltd. v. E Commissioner of Customs (2006) 12 SCC 583 : [2006] 6 Suppl. SCR 733; Abhiram Singh v. CD Commachen, (2017) 2 SCC 629; Hoecst Pharmaceuticals Ltd. v. State of Bihar (1983) 4 SCC 45 : [1983] 3 SCR 130; Union of India v. Mohit Mineral Pvt. Ltd. (2019) 2 SCC 599 [2018] 13 SCR 139; Baiku v. State Tax Officer, GST F 2019 SCC OnLine Ker 5362; SR Bommai v. Union of India (1994) 3 SCC 1 : [1994] 2 SCR 644; State (NCT of Delhi) v. Union of India (2018) 8 SCC 501 : [2018] 7 SCR 1; Union of India v. Pradip Kumar Dey, (2000) 8 SCC 580 : [2000] 4 Suppl. SCR 465; Kesoram G Industries and Cotton Mills Ltd. v. CWT, [1966] 2 SCR 688; Som Mittal v. Government of Karnataka, (2008) 3 SCC 753 : [2008] 2 SCR 323; State of AP v. T. Gopalakrishnan Murthi, (1976) 2 SCC 883 : [1976] 1 SCR 1008; In re Delhi Laws Act 1912 AIR 1951 SC 332 : [1951] SCR 747; Edward Mills Co. Ltd. v. State H

UNION OF INDIA v. M/s MOHIT MINERALS PVT. LTD. THROUGH 327 DIRECTOR of Ajmer, AIR 1955 SC 25 : [1955] 1 SCR 735; A.N A Parasaran v. State of Tamil Nadu, (1989) 4 SCC 683 : [1989] 1 Suppl. SCR 371 – referred to. Tarun Jain, Goods and Services Tax: Constitutional Law and Policy (EBC 2018) 16, 117; H.M. Seervai, Constitutional Law of India (NM Tripati Private B Limited, 4 th Edition, Vol.¹) 28; Empowered Committee, First Discussion Paper on Goods and Services Tax, (2009) Pars 1.13-1.14; Thirteenth Finance Commission, Report of the Task Force on GST (2009) Para 10.5; Standing Committee on Finance, The Constitution (One Hundred and C Fifteenth Amendment) 2011 (73rd report, 2013) ; Select Committee, Report on the Constitution (One Hundred and Twenty Second Amendment) Bill , 2014, (Submitted to the Rajya Sabha, 2015); Alok Prasanna, ‘For a mess of Potage: The GST’s promise of D increased revenue to states comes at the cost of the federal structure of the Constitution’ National Law School of India Review. Vol. 28, No. 2(2016), pp-97- 113; Ajitesh Kir, ‘India’s Goods and Services Tax: A Unique Experiment in Cooperative Federalism and a Constitutional Crisis in Waiting’ Canadian Tax Journal E (2021) 69:2, 391-445 – referred to. Robert A. Schapiro, ‘Justice Steven’s theory of Interactive Federalism’ 74 Fordham L. Rev. 2133 (2006); Jessica Bulman-Pozen and Heather K. Gerken, ‘Uncooperative Federalism’ Yale Law F Journal, Vol. 118. No. 7 (May, 2009), pp. 1256-1310; Bulman-Pozen and K. Gerken (n 74) – referred to. Case Law Reference [1999] 4 Suppl. SCR 195 followed Para 10(vi) G [1985] 3 SCR 985 relied on Para 10(vi) [1985] 3 SCR 791 referred to Para 10(xx) [1989] 2 SCR 994 referred to Para 10(xxi) [2011] 3 SCR 366 followed Para 10(xxi) H

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A [1968] 3 SCR 251 referred to Para 10(xxv) [1979] 1 SCC 441 referred to Para 10(xxv) (2022) 2 SCC 603 referred to Para 10(xxix) [1999] 3 SCR 1199 held inapplicable Para 11(iii) B [1993] 2 Suppl. SCR 293 referred to Para 11(viii) [2006] 2 SCR 823 referred to Para 11(x) [2006] 6 Suppl. SCR 733 referred to Para 16(iii) [1993] 2 Suppl. SCR 293 referred to Para 16(iv) C (2017) 2 SCC 629 referred to Para 24 [1983] 3 SCR 130 referred to Para 24 [2018] 13 SCR 139 referred to Para 28 [1982] 1 SCR 629 relied on Para 42 D (2017) 7 SCC 295 relied on Para 42 [1994] 2 SCR 644 referred to Para 45 [2018] 7 SCR 1 referred to Para 47 [2012] 12 SCR 850 relied on Para 57 E [1974] 3 SCR 624 followed Para 57 [2000] 4 Suppl. SCR 465 referred to Para 57 [1966] 2 SCR 688 referred to Para 57

F [2008] 2 SCR 323 referred to Para 57 [1976] 1 SCR 1008 referred to Para 57 [1951] SCR 747 referred to Para 84 [1955] 1 SCR 735 referred to Para 84 G [1989] 1 Suppl. SCR 371 referred to Para 84 [1981] 2 SCR 938 relied on Para 90 [1985] 2 Suppl. SCR 131 followed Para 127x [1975] 2 SCC 436 relied on Para 128 H [1989] 2 SCR 918 referred to Para 14

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CIVIL APPELLATE JURISDICTION: Civil Appeal No.1390 of A 2022. From the Judgment and Order dated 23.¹.2020 of the High Court of Gujarat at Ahmedabad in R/SCA No. 726 of 2018. With B Civil Appeal Nos. 1390, 1394, 1417, 1419, 1445, 1414, 1402, 1412, 1411, 1413, 1415, 1418, 1420, 1446, 1447, 1409, 1416, 1395, 1407, 1406, 1398, 1401, 1391, 1403, 1393, 1410, 1405, 1397, 1404, 1400. 1396, 1408, 1399 and 1392 of 2022. N. Venkataraman, ASG, Mukesh Kumar Maroria, Ms. Nisha C Bagchi, Rupesh Kumar, Akshay Amritanshu, Sharath Narayan Nambiar, Ms. Meena Devi, B. Krishna Prasad, Advs. for the Appellants. J. K. Mittal, Ms. Neeha Nagpal, Malak Manish Bhatt, Ms. Vandana Mittal, Ms. Aashna Suri, Joseph Pookkatt, Prashant Kumar, Nilesh Sharma, Dhawesh Pahuja, M/s AP & J Chambers, Uchit Sheth, D Santosh Krishnan, Dr. C. Manickam, Ranjan Kumar, Sanjay Kumar, Kapil Dev Yadav, Rishabh Sancheti, Sharad Kothari, Ms. Padma Priya, Anchit Bhandari, Sushant Rao, K. Paarivendhan, Devendra Singh, Ankit Sachdeva, Vinayak Mathur, Kamal Kumar Arya, Ms. Anishka Gupta, Rahul Jain, G. Natarajan, Rajesh Kumar Gautam, Kartik Jindal, Ms. Pallavi Ganesh, Parmeet Singh, Ms. Deepanwita Priyanka, S. E Suriyanarayanan Iyer, Ms. Garima Bajaj, Advs. for the Respondent.