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

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A Article 269A of the Constitution which provides for apportionment of GST on inter-state supply of goods or service. If import IGST was a customs duty, then the revenue proceeds would be distributed in accordance with Article 270 of the Constitution; B (j) At the introduction of GST, the understanding of the Government was in consonance with the above legal position and accordingly, the Government issued a notification exempting goods and services imported from an SEZ unit or developer under the IGST Act. Subsequently, the Government rescinded the above exemption notifications and issued separate notifications under the Customs Act and IGST Act; and (k) The Government has also issued various notifications exempting payment of IGST in case of import of goods on lease or temporary import basis. The intention of Government is not to impose IGST in case of import of goods that do not amount to supply.

13Copy pinpoint13. Mr Harish Salve, learned senior counsel, appearing on behalf of the respondent30 has submitted: E (i) A CIF contract is an inclusive price covering cost of goods, insurance and freight payable for carriage of goods to the destination specified in the contract. The essence of the contract is that a seller having shipped the goods in accordance with the contract, can fulfil his part of the F bargain by tendering to the buyer the proper shipping documents. If he does this, he is not in breach even if the goods are lost before such tender. In the event of a loss, the buyer must pay the price on tender of documents and his remedies lie against the carrier but not the seller; G (ii) A CIF contract has two components: (i) price is paid for the freight, and (ii) the buyer is never obligated to pay it. The owner of the vessel who enters into a contract of affreightment has a privity of contract with the supplier of

30 H CA No. 13958 of 2020

UNION OF INDIA v. M/s MOHIT MINERALS PVT. LTD. THROUGH 357 DIRECTOR [DR. DHANANJAYA Y CHANDRACHUD, J.]

goods and is rendering a service to the supplier. If the A service is not received, then the question of reverse charge does not arise; (iii) Sections 5(3) and 5(4) of the IGST Act are merely machinery provisions for collection of tax, and not the charging provision: B (a) Section 5(1) is the charging section which levies IGST. Since there is no separate levy under Section 5(1) on ocean freight, as it is an import of goods which already suffers IGST on CIF value, the question of reverse charge does not arise; C (b) The proviso to Section 5(1) clarifies that the ‘value as determined’ is only the measure of tax and not the subject of tax; and (c) Section 5(3) cannot be treated as the charging section as it would make it possible for the Government to impose separate taxes under Sections 5(1) and 5(3) and charge for the services at both ends; (iv) There must be a taxable event in the CIF contract of the kind contemplated under the IGST Act. In case there is no such event, it cannot be created through delegated legislation by the GST Council. There is an absence of a statutory fiction by which a CIF contract can be split into a contract for supply of goods and services, and creating a second layer of fiction by which the shipper is rendering a service to the supplier of goods. Thus, the question of levy of tax by the GST Council does not arise; F (v) In the transaction of import of coal on CIF basis in the present case, the recipient will fall under clause (a) of Section 2(93) of the CGST Act as consideration is payable for the service of shipping. The mere fact that an Indian is the recipient will not lead to the Indian recipient making the G payment separately under the contract of affreightment. The Indian recipient is only a recipient of goods, not of service; (vi) The law recognises and maintains the integrity of a CIF contract under Section 2(30) read with Section 2(93), and H

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A Section 8. These sections maintain the integrity of a composite contract by providing that where the goods come with insurance and freight, the tax is imposed only on supply of goods; (vii) The High Court has held that that the notifications under B challenge were ultra vires. The Government has not urged that any of these findings are incorrect and has only contended that Section 5(1) of the IGST Act satisfies all ingredients of a valid tax law; (viii) Notification 8/2017 is ultra vires the IGST Act. Section 5(1) C of the IGST Act only empowers the issuance of notifications for rates and requires other provisions to be prescribed. Section 5(1) does not empower the Government to define ‘description of service’ which is an essential legislative function; (ix) Entry 9(ii) of Notification 8/2017 imposes a tax on ocean freight in import of goods. Such a power however, has not been provided in the statute; (x) Para 4 of Notification 8/2017 determines the ‘value of service’ as 10% of the CIF value, which is contrary to Section 15(1) of the CGST Act which says ‘transaction value’; (xi) Article 366(12A) defines goods and services tax as involving only supply of goods or services or both. Section 7 of the IGST Act has made a clear distinction between standalone supply of goods, standalone supply of services and standalone supply of ‘goods or services or both’. Section 7(4) treats standalone services imported into India as inter- State supply and does not artificially bifurcate by assuming ocean freight in the transaction of import of goods; (xii) Section 13 of the IGST Act has no application in the case which relates to import of goods and not services standalone. Section 13 applies to place of supply of services, referring to standalone services, and does not use the term ‘both’ to apply to supply of goods or services; and (xiii) IGST Act has no extra-territorial application as the Act H extends to the whole of India. Under Section 2(109) of the

UNION OF INDIA v. M/s MOHIT MINERALS PVT. LTD. THROUGH 359 DIRECTOR [DR. DHANANJAYA Y CHANDRACHUD, J.]

CGST Act, taxable territory means the territory to which the Act applies. Further, GVK Industries (supra) states that Parliament may exercise its powers with respect to an extra-territorial aspect when it has a nexus with India. It does not however empower delegated legislation to exercise such power. Thus, the activity brought within the tax net by the impugned notifications is contrary to the IGST Act.

14Copy pinpoint14. Mr Arvind Datar, learned senior counsel, appearing on behalf of the respondent31 has submitted: (i) The levy of IGST on ocean freight by way of Notification No. 10/2017-Integrated Tax (Rate) is extra-territorial and ultra vires Section 1 read with Section 2(22) of the IGST Act: (a) The levy imposed is on the service of transportation of goods rendered by the shipping line to the foreign vendor/exporter, occurring outside the territory of D India, that is outside the taxable territory; (b) The only nexus of the service with India is that the service results in the import of goods into India. However, this activity is already subject to IGST under the IGST Act and customs duty under the Customs E Act; (c) For a levy to be imposed under the IGST Act, the service must be a ‘supply’ under the provisions of IGST Act read with Section 7 of the CGST Act. However, Section 1 of the CGST Act and IGST Act F are limited to the territory of India. Thus, any service received outside the territory of India cannot be considered to be ‘supply’ under the IGST Act or the CGST Act; (d) To impose a levy on a service that is extra-territorial, G there has to be a deeming fiction in the form of a statutory provision which deems the supply of transportation by a vessel to a non-resident exporter. In this case, such a deeming fiction does not exist.

31 SLP (C) No. 3462 of 2021 H

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A Thus, the transportation service cannot be deemed as a ‘supply’ under the IGST Act; (e) Only once the service provided outside the territory of India is deemed as a ‘supply’ by way of statute, can there be a determination of the supplier and the B recipient; (f) By way of the impugned notification, the freight charges incurred abroad are sought to be taxed in India on the ground that the service recipient is in India. If this argument is accepted, then any service C (such as insurance or incidental services) rendered abroad can be taxed in India on the ground that the recipient is in India. This practice is in contrast with international taxation laws and will lead to hardship for Indian importers; D (g) Article 245(2) of the Constitution states that a law made by the Parliament will not be invalid on the ground that it has extra-territorial operation. However, the expression ‘law made by the Parliament’ does not include executive notifications, even if made on E the recommendations of the GST Council; and (h) Tax can be levied outside the territory of India by way of primary legislation. For instance, under Sections 6 and 7 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime F Zones Act 1976, a legal fiction is created by which India has the power to levy tax in the Exclusive Economic Zone and Continental Shelf. Pursuant to this fiction, notifications levying customs duty on supplies made to oil drilling rigs in the Continental Shelf have been issued. In the absence of a primary G legislation or statutory provision to this effect, notifications cannot impose duties on activities occurring outside India; (ii) The value of a CIF contract is indivisible, making the computation of tax on such a contract impossible: H

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(a) The only way to artificially dissect the value of a A CIF contract is by way of statute, which is absent in this case; (b) If such a division is allowed, then the Government will be able to tax not just ocean freight, but also insurance services; and B (c) Levy on contracts on a CIF basis will lead to hardships for the Indian recipients. The advantage of entering into CIF contracts is to ensure that the foreign supplier is responsible for arranging transportation and insurance. However, if a CIF C contract is made subject to GST, then the Indian importers will have to make their own arrangements to transport the goods, book an insurance policy and arrange for shipping; (iii) The ASG’s reliance on the nexus theory to justify the levy D of GST on ocean freight, by equating it to the imposition of income tax on income accruing in India or customs duty imposed on goods imported into India- is erroneous: (a) In case of imposition of income tax, the nexus is provided by way of a deeming fiction under Section E 5(2) of the Income Tax Act 1961, where a non- resident is liable to tax only if the income is deemed to accrue or arises in India; (b) In case of customs duty, the taxing event is the goods entering the territory of India; and F (c) In the absence of such a provision, the freight services rendered outside India cannot be deemed to be received in India merely because the recipient is in India. G (iv) The importer is not the ‘recipient’ of services under Section 2(93) of the CGST Act: (a) Under clause (c) of Section 2(93), when there is no consideration payable for the supply of services, then the person to whom the services are rendered is the H

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A service recipient. However, in this case, the importer is not the service recipient as the importer does not pay the consideration or receive the services; (b) The argument of the ASG that the importer is a ‘recipient’ as they are the ultimate beneficiary enlarges the scope of Section 2(93) by adding words that are absent in the statute; (c) Even if the ultimate beneficiary is considered to be the recipient, the importer is not the beneficiary of the service of transportation of goods. Under the terms of a CIF contract, the foreign vendor is obligated to arrange for transportation of goods for which he engages the services of a shipping line. Thus, the foreign vendor is the ultimate beneficiary; (d) The importer is only the beneficiary of the imported goods, whose value is taxable as customs duty under the Customs Tariff Act as well as under the IGST Act; and (e) Additionally, reliance cannot be placed on clause(c) of Section 2(93) as it only refers to those supplies for which consideration is not paid as mentioned in Schedule I of the CGST Act. This schedule enumerates the activities deemed as supplies without consideration. (v) Imposition of IGST on ocean freight will lead to double taxation: (a) Section 3(7) of the Customs Tariff Act states that goods imported into India will be subject to IGST under Section 5 of the IGST Act, on the value as determined by Section 3(8) and Section 3(8)(a). G Under Section 3(8), the value includes value of freight; and (b) Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules 2007 includes cost of transportation and insurance in the value of goods, H

UNION OF INDIA v. M/s MOHIT MINERALS PVT. LTD. THROUGH 363 DIRECTOR [DR. DHANANJAYA Y CHANDRACHUD, J.]

which forms the basis of the levy of IGST under the A proviso to Section 5 of the IGST Act. The impugned levy of IGST on ocean freight would thus amount to double taxation on the same transaction; (vi) The ASG’s reliance on ‘aspect theory’ to justify the impugned levy is erroneous: B (a) The ASG relied on the ‘aspect theory’ and submitted that the impugned notification taxes the ‘service’ element of ocean freight, while the ‘goods’ element is taxed under the proviso to Section 5 of the IGST Act. However, such an approach is impermissible C according to the decision of this Court in BSNL (supra); (b) The aspect theory is inapplicable as the freight element is included by levying IGST; and D (c) The aspect theory in India permits taxation of two different aspects or features of a transaction. For instance, in a catering contract, supply of food was subject to value added tax and the service aspect was subject to service tax. However, the aspect theory does not permit double taxation of the same E amount or value (vii) The GST Council which has been created by Article 279A of the Constitution is a recommendatory body, whose recommendations can be implemented by either amending the CGST Act or the IGST Act or by issuing a notification. F However, notifications issued cannot be ultra vires the parent legislation; (viii) The principles of cooperative federalism are not relevant in this case as they were not adjudicated before the High Court. The appeal must test the correctness of the impugned G judgment without expanding its scope; and (ix) Interpretation of Article 279A of the Constitution was not an issue before the High Court and the present appeal should be restricted to the validity of the impugned notification. H

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15Copy pinpoint15. In addition to the above, Mr Vikram Nankani, learned senior counsel, appearing on behalf of the respondent32 urged the following submissions: (i) Section 7(4) of the IGST Act provides that supply of services imported into the territory of India shall be treated as a supply of services in the course of inter-state trade or commerce. Section 2(11) of the IGST Act defines “import of services” when the supplier of service is located outside India, the recipient of service is located in India and the place of supply of service is in India. When these provisions are read together, it implies that in case of import of services into the territory of India, the location of the supplier of services is outside India and the location of the recipient is in India. Thus the IGST Act covers either import of goods or import of services and not services subsumed into the value of goods imported into India; D (ii) The IGST Act was never intended to apply to the importer of goods on a CIF basis as the services are provided and consumed before the goods reach India and have no nexus with the Indian importer; (iii) The transaction between two persons located outside India E is not chargeable under Section 5(1) read with the proviso and Section 7(4) read with Section 2(11) of the IGST Act. Thus, Notification 8/2017 is ultra vires and Notification 10/ 2017, providing for reverse charge is also ultra vires the IGST Act; (iv) Section 13(9) of the IGST Act, which states that the place F of supply of services of transportation of goods is the destination of the goods, cannot be read in isolation. Read with Section 7(4) of the IGST Act, it implies that in case of import of services, the supplier must be outside India while recipient must be in India; and G (v) The test of ‘ultimate beneficiary’ relied upon by the ASG does not have statutory backing since the charging section, that is Section 5, makes the recipient of the services liable to pay tax. The Indian importer is not a party to the CIF contract between the foreign exporter and the shipping line. H 32 SLP(C) No. 843/2021

UNION OF INDIA v. M/s MOHIT MINERALS PVT. LTD. THROUGH 365 DIRECTOR [DR. DHANANJAYA Y CHANDRACHUD, J.]

16Copy pinpoint16. Mr Uchit Sheth, counsel appearing on behalf of the A respondents33 submitted: (i) The importers in a CIF contract do not have any privity of contract with the supplier of the transportation service since they neither make payment of consideration to the service provider, nor avail any service. The importers only purchase and import goods; (ii) The impugned levy is contrary to the object and purpose of the IGST Act. Section 5 of the IGST Act clarifies that so far as imported goods are concerned, IGST is levied at the point of clearance of goods for home consumption and on the total value (including value additions till that point). This was also clarified by Circular no. 3/1/2018-IGST dated 25 May 2018 issued by the Central Board of Indirect Taxes and Customs. The impugned levy of IGST on the freight element of CIF contracts and high seas purchase contracts is ultra vires as IGST is paid on the total value of goods; D

(iii) In Ispat Industries Ltd. v. Commissioner of Customs34, in the context of imposition of customs duty, it was held that in a CIF contract, the freight is part of the price paid to the seller and further addition of transportation charges is contrary to the statutory provisions; and E

(iv) The judgment of this Court in Union of India v. Jalyan Udyog35 which states that a legal fiction can be created even by delegated legislation, is inapplicable as in that case, the fiction created was within the parameters of the parent provision. In this case, the fiction violates Section 5(3) of F the IGST Act.

17Copy pinpoint17. Mr Rajesh Kumar Gautam, learned counsel appearing on behalf of the intervenor36 in SLP(C) No. 13958/2020, has submitted that the argument of the ASG that the levy has been introduced to create a level playing field is fallacious as: G

33 In SLP(C) No. 3540/2021, SLP(C) No. 1281/2021, SLP(C) No. 1277/2021, SLP(C) No. 2242/2021, SLP(C) No. 2198/2021, SLP(C) No. 2736/2021 34 (2006) 12 SCC 583 35 (1994) 1 SCC 318 36 IA No. 118754/2021 in SLP(C) No. H

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A (i) Prior to 2016, all import transportation, whether undertaken by Indian or foreign shipping lines was outside the scope of levy. Service tax was imposed on import transactions undertaken by Indian shipping lines only to allow them to avail CENVAT credit. This credit was protected even though no service tax was payable on export transportation. B Further, Indian importers availing services of foreign shipping lines were liable to pay service tax under reverse charge. This position continued under the GST regime and the only transaction outside the ambit was when the foreign exporter availed the services of a foreign shipping line to transport C goods to India; and (ii) The introduction of levy of service tax or GST on import transactions was by way of an incentive to Indian shipping lines. Thus, it cannot now be contended that the level playing field has been affected because of this levy.

18Copy pinpoint18. Similar submissions have been addressed by Dr C Manickam37, Mr Shashank Shekhar38 and Mr Abhishek A Rastogi39, which we have not recorded separately for the sake of brevity.

19Copy pinpoint19. The rival submissions will now be analysed.

E C Constitutional Architecture of GST

20Copy pinpoint20. Before we proceed to analyse the vires of the impugned notifications, it is pertinent to contextualize the constitutional architecture of the GST. The Constitution (One Hundred and First Amendment Act) 201640 was enacted on 8 September 2016 introducing Article 246A and F 279A. Article 246A stipulates that both the Parliament and the State legislatures have the power to legislate on GST: “246A. Special provisions with respect to goods and services tax (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services G tax imposed by the Union or by such State. 37 Appearing for the respondent in SLP(C) No. 3680/2021 38 Appearing for the respondent in SLP(C) No. 1798/2021 39 Appearing on behalf of the intervenor in IA No. 74108/2021 in SLP(C) No. 13958/ 2020 H 40 “Constitution Amendment Act 2016”

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(2) Parliament has exclusive power to make laws with respect to A goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce. Explanation: The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of Article 279A, take effect from the date recommended by the Goods and Services B Tax Council.” Article 279A constitutes the GST Council which shall make recommendations to the Union and the States on a wide range of subjects relating to GST: C ‘‘279A. (1) The President shall, within sixty days from the date of commencement of the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services Tax Council. (2) The Goods and Services Tax Council shall consist of the D following members, namely:— (a) the Union Finance Minister...................... Chairperson; (b) the Union Minister of State in charge of Revenue or Finance................................................................ Member; (c) the Minister in charge of Finance or Taxation or any other E Minister nominated by each State Government............Members. (3) The Members of the Goods and Services Tax Council referred to in sub-clause (c) of clause (2) shall, as soon as may be, choose one amongst themselves to be the Vice-Chairperson of the Council for such period as they may decide. F

(4) The Goods and Services Tax Council shall make recommendations to the Union and the States on— (a) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax; G

(b) the goods and services that may be subjected to, or exempted from the goods and services tax; (c) model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in H

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A the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply; (d) the threshold limit of turnover below which goods and services may be exempted from goods and services tax; (e) the rates including floor rates with bands of goods and services B tax; (f) any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster; (g) special provision with respect to the States of Arunachal C Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and (h) any other matter relating to the goods and services tax, as the Council may decide. (5) The Goods and Services Tax Council shall recommend the D date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel. (6) While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the need for a E harmonised structure of goods and services tax and for the development of a harmonised national market for goods and services. (7) One-half of the total number of Members of the Goods and Services Tax Council shall constitute the quorum at its meetings. F (8) The Goods and Services Tax Council shall determine the procedure in the performance of its functions. (9) Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in G accordance with the following principles, namely:— (a) the vote of the Central Government shall have a weightage of one third of the total votes cast, and (b) the votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting. H

UNION OF INDIA v. M/s MOHIT MINERALS PVT. LTD. THROUGH 369 DIRECTOR [DR. DHANANJAYA Y CHANDRACHUD, J.]

(10) No act or proceedings of the Goods and Services Tax Council A shall be invalid merely by reason of— (a) any vacancy in, or any defect in, the constitution of the Council; or (b) any defect in the appointment of a person as a Member of the Council; or B (c) any procedural irregularity of the Council not affecting the merits of the case. (11)The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute — C (a) between the Government of India and one or more States; or (b) between the Government of India and any State or States on one side and one or more other States on the other side; or (c) between two or more States, arising out of the recommendations of the Council or implementation thereof.’’ D

21Copy pinpoint21. The Union Government has contended that the recommendations of the GST Council are binding on the legislature and the executive. It was submitted that since the recommendations are binding, the rule making power of the Government under the provisions of the IGST Act and CGST Act, exercisable on the ‘recommendations’ E of the GST Council, are also very wide. The arguments of the Union Government are as follows: (i) A combined reading of Articles 246A and 279A elucidates that the GST Council is the ultimate decision-making body in framing the GST law since it is a constitutional body that acts as a converging platform for both the Union and the F States; (ii) The functions and role of the GST Council are unique and incomparable to other constitutional bodies. Therefore, interpretations of other provisions of the Constitution do not have precedential value while interpreting the role of G the GST Council; (iii) The power of the Parliament and the State Legislature under Article 246A and the power of the GST Council under Article 279A must be balanced and harmonised, such that neither overrides the other: H

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A (a) Though Article 279A does not begin with a non- obstante clause overriding Article 246A, the latter would not override the former. The core theme of GST law – as it emanates from Article 279(6) – is cooperation and harmony. A system premised on cooperation cannot provide inter se supremacy. B Therefore, Article 279A has rightly not been given an overriding effect over Article 246A; and (b) Article 246A vests the Parliament and the State legislatures with the power to enact laws on GST. This function, if delegated would amount to abdication of the Parliament’s constitutional function. Therefore, Article 246A cannot be made subject to Article 279A. (iv) The ordinary legislative process for enacting a statute is that bills are introduced and voted on by the legislature. However, Article 264A departs from this as the framing of the policy, discussion on the policy, and decision making are vested with the GST Council. The Parliament or the State Legislature cannot legislate a law on GST under Article 246A independent of the recommendations of the GST Council. A reading of Sections 5, 6 and 22 of the IGST Act E indicates that the legislature and the executive are bound by the recommendations of the GST Council on three preliminary provisions, namely charge, exemption and rule- making power. Therefore, Parliament bound itself to the recommendations of the GST Council by enacting the IGST Act and CGST Act; and F (v) The recommendations by the GST Council are transformed into legislation on a combined reading of Article 279A and Sections 5,6, and 22 of the IGST Act 2017 and Sections 9,11, and 164 of the CGST Act.

G C. 1 Legislative History of the Constitution Amendment Act 2016 Statement of Objects and Reasons

22Copy pinpoint22. As early as in 2004, the Task Force on implementation of the Fiscal Responsibility and Budget Management Act 2003 had recommended a shift to consumption taxes to increase efficiency in

UNION OF INDIA v. M/s MOHIT MINERALS PVT. LTD. THROUGH 371 DIRECTOR [DR. DHANANJAYA Y CHANDRACHUD, J.]

production and enhance international competitiveness of Indian goods and services. The need for such an enormous change in the tax regime arose out of the distortions in the then existing indirect tax regime which suffered from the drawback of multiplicity of taxes, taxable events, compliances, and authorities. For instance, the rate of the sales tax and value added tax on the same goods would differ across India. Several B states would impose entry taxes on goods before the goods entered their boundaries. The First Discussion Paper on Goods and Services Tax in India released by the Empowered Committee in November 2009 explained the rationale for introducing the GST regime in the following terms:41 “The introduction of GST at the Central level will not only include comprehensively more indirect Central Taxes and integrate goods and service taxes for the purpose of set-off relief, but may also lead to revenue gain for the Centre through widening of the dealer base by capturing value added addition in the distributive trade and increased compliance. In the existing State-level VAT structure there are also certain short comings as follows. There are, for instance, even now, several taxes which are in the nature of indirect tax on goods and services, such as luxury tax, entertainment tax, etc., and yet not subsumed n the VAT. Moreover, in the present State-level VAT scheme, CENVAT load on the goods remains included in the value to be taxed under State VAT, and contributing to that extent a cascading effect on account of CENVAT element. This CENVAT load needs to be removed. […] However, for this GST to be introduced at the State-level, it is essential that the States should be given the power of levy of taxation of all services. This power of levy of service taxes has so long been only with Centre. A Constitutional Amendment will be made for giving this power also to the States. Moreover, with the introduction of GST, burden of Central Sales Tax (CST) will also be removed. The GST at the State-level is, therefore, justified for (a) additional power of levy of taxation of services for the States, (b) system of comprehensive set-off relief, including set-

41 Empowered Committee, First Discussion Paper on Goods and Services Tax, (2009) Pars 1.13-1.14 H

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A off for cascading burden of CENVAT and services taxes, (c) subsuming of several taxes in the GST and (d) removal of burden for CST. Because of the removal of taxes in the GST, the burden of tax under GST on goods will, in general, fall.”

23Copy pinpoint23. Parliament introduced the Constitution (One Hundred and B Fifteenth Amendment) Bill 201142 which sought to amend the provisions of the Constitution to introduce the GST regime. The Speaker of the Lok Sabha referred the 2011 Amendment Bill to the Parliamentary Standing Committee on Finance. The Constitution (One Hundred and Twenty-Second Amendment) Bill 2014 43 was introduced after incorporating the recommendations of the Standing Committee. The 2014 C Amendment Bill was introduced to replace almost all the indirect taxes that were levied by the State Governments and the Union Government, with a singular tax system to eliminate the cascading effect of multiple taxes and to provide for a common national market. The Statement of Objects and Reasons of the 2014 Amendment Bill reads as follows: D “The Constitution is proposed to be amended to introduce the goods and services tax for conferring concurrent taxing powers on the Union as well as the States including Union territory with Legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both. The E goods and services tax shall replace a number of indirect taxes being levied by the Union and the State Governments and is intended to remove cascading effect of taxes and provide for a common national market for goods and services. The proposed Central and State goods and services tax will be levied on all transactions involving supply of goods and services, except those which are kept out of the purview of the goods and services tax.” (emphasis supplied)

24Copy pinpoint24. The Finance Minister while introducing the 2014 Amendment Bill in Parliament noted that the object of the constitutional amendment is to bring about a “certain amount of convergence between these taxes so that the taxation mechanism becomes extremely simple”.44 42 “2011 Amendment Bill” 43 “2014 Amendment Bill” 44 Speech by Arun Jaitley in Lok Sabha on 24.4.2015; Tarun Jain, Goods and Services H Tax: Constitutional Law and Policy (EBC 2018) 16

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He also highlighted the fact that there was no uniformity in the tax rates A and structure across the States. The Statement of Objects and Reasons and the debates and speeches in the legislature indicate the intent behind the introduction of the Bill.45 The legislative history, the statement of objects and reasons of the Bill and the speech made when the bill was introduced indicate the mischief that Articles 246A and 279A to the B Constitution sought to remedy, which is to simplify the indirect tax regime to prevent the complexities inherent in and the cascading effect of a multiplicity of taxes. Simultaneous Legislative distribution

25Copy pinpoint25. Article 246 read with the Seventh Schedule vests Parliament C and the State Legislatures with the power to make laws on subject matters listed in the Seventh Schedule of the Constitution. Before the introduction of Articles 246A and 279A by the Constitution Amendment Act 2016, the legislative powers of the Union and the States on taxation were exclusive. The general subjects of legislation constitute one group in the Union List (entries 1 to 81) and the State List (entries 1 to 44). The D subject heads related to taxation are clubbed together in both the Union and the State lists (entries 82 to 92B in the Union list and entries 45 to 63 in the State list). The concurrent list does not include any entry related to taxation.46 For example, while the Union primarily has the power to impose income taxes, except from agriculture47, the State has the power to impose tax on agricultural income48. Therefore, both the Union and the States had a separate and an exclusive domain over specific heads of taxation. The Union and the State could not impose tax under the same head since the concurrent list did not include an entry for taxes. This Court, in its decision in Hoecst Pharmaceuticals Ltd. v. State of Bihar49, recognised the exclusive powers held by the Union and the State on taxation. The three-Judge Bench observed that: “75. Legislative relations between the Union and the States inter se with reference to the three Lists in Schedule VII cannot be understood fully without examining the general features disclosed G 45 Abhiram Singh v. CD Commachen, (2017) 2 SCC 629 46 Entry 47 of the concurrent list mentions that “fees in respect of any of the matters in this List, but not including fees taken in any court.” 47 Entry 82 of List I 48 Entry 46 of List II 49 (1983) 4 SCC 45 H

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A by the entries contained in those Lists” : Seervai in his Constitutional Law of India, 3rd Edn., Vol. 1 at pp. 81-82. A scrutiny of Lists I and II of the Seventh Schedule would show that there is no overlapping anywhere in the taxing power and the Constitution gives independent sources of taxation to the Union and the States. Following the scheme of the Government of India B Act, 1935, the Constitution has made the taxing power of the Union and of the States mutually exclusive and thus avoided the difficulties which have arisen in some other Federal Constitutions from overlapping powers of taxation.

76. It would therefore appear that there is a distinction made between general subjects of legislation and taxation. The general subjects of legislation arc dealt with in one group of entries and power of taxation in a separate group. In M.P.V. Sundararamier & Co. v. State of A.P. [AIR 1958 SC 468 : 1958 SCR 1422 : (1958) 9 STC 298] this court dealt with the scheme of the separation of taxation powers between the Union and the States by mutually exclusive lists. In List I, Entries 1 to 81 deal with general subjects of legislation; Entries 82 to 92-A deal with taxes. In List II, Entries 1 to 44 deal with general subjects of legislation; Entries 45 to 63 deal with taxes. This mutual exclusiveness is also brought out by the fact that in List III, the Concurrent Legislative List, there is no entry relating to a tax, but it only contains an entry relating to levy of fees in respect of matters given in that list other than court-fees. Thus, in our Constitution, a conflict of the taxing power of the Union and of the States cannot arise. That being so, it is difficult to comprehend the submission that there can be intrusion by a law made by Parliament under Entry 33 of List III into a forbidden field viz. the State’s exclusive power to make a law with respect to the levy and imposition of a tax on sale or purchase of goods relatable to Entry 54 of List II of the Seventh Schedule. It follows that the two laws viz. sub-section (3) of Section G 5 of the Act and para 21 of the Control Order issued by the Central Government under sub-section (1) of Section 3 of the Essential Commodities Act, operate on two separate and distinct fields and both are capable of being obeyed. There is no question of any clash between the two laws and the question of repugnancy does not come into play.” H

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26Copy pinpoint26. In the pre-GST regime, the Union had the exclusive power to impose indirect taxes, that is, on inter-state sale of goods, customs duty, service tax, and excise duty. The States had the exclusive power to impose tax on intra-State sale of goods, luxury tax, entertainment tax, purchase tax, and taxes on gambling and betting. The GST regime has subsumed all the indirect taxes. Article 246A which was introduced by the Constitution Amendment Act 2016 vests the Parliament and the State legislatures with the concurrent power to make laws with respect to GST.

27Copy pinpoint27. The distribution of legislative power between federating units- the Union and the States, is among the paramount features of a federal Constitution.50 Articles 246 and 254 have been central to the debate on the federal nature of the Indian Constitution. Article 246A, is a ‘special provision with respect to goods and service tax,’ and begins with a non- obstante clause overriding Articles 246 and 254. Article 246 sets down the constitutional framework defining the legislative competence of Parliament and the State legislatures. Article 254 provides the framework for addressing inconsistency between central and state laws on matters in the Concurrent list. Article 246A entrusts Parliament and State legislatures the power to legislate on the goods and services tax. The power of the States is however subject to the conferment of an exclusive domain to Parliament to levy the goods and services tax where the supply of goods or services takes place in the course of inter-state trade and commerce.

28Copy pinpoint28. In Union of India v. Mohit Mineral Pvt. Ltd.51, this Court while deciding the constitutional validity of the GST (Compensation to States) Act 2017 noted that the Constitution Amendment Act 2016 introduced changes in the legislative powers of the Parliament and State F legislature relating to indirect taxation. It observed that the amendment “confers concurrent taxing powers on the Union as well as the States for levying GST on transactions of supply of goods or services or both”. In Baiku v. State Tax Officer, GST52, a writ petition was filed challenging the legality of the notices and assessment orders issued under G the Kerala Value Added Tax Act 200353 for the assessment years 2010- 50 H.M Seervai, Constitutional Law of India, (NM Tripati Private Limited, 4 th Edition, vol 1) 289; SR Bommai v. Union of India, (1994) 3 SCC 1 51 (2019) 2 SCC 599 52 2019 SCC OnLine Ker 5362 53 “KVAT Act” H

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A 11 and 2011-12. The notices and orders were challenged on the ground that the authorities did not have the jurisdiction to issue them since the amendments introduced to Section 25(1) of the KVAT Act through the Kerala Finance Acts 2017 and 2018 did not operate retrospectively. The Kerala High Court had to decide whether the Kerala State legislature had the legislative competence to amend the KVAT Act after the introduction of Article 246A to the Constitution, and the repeal of KVAT pursuant to the amendment. The Court noted that the special power introduced by Article 246A allows Parliament and the State legislatures to ‘simultaneously’ make laws.54 Subsequently, while explaining the ‘simultaneous’ nature of power held by Parliament and State legislature, it was observed that the power under Article 246A can be exercised simultaneously by the State legislature and Parliament and none hold any ‘unilateral or exclusive’ legislative power55.

29Copy pinpoint29. In its decision in VKC Footsteps (supra), this Court noticed the changes in the constitutional scheme introduced by Article 246A. D One of us (Dr DY Chandrachud) writing for the two-judge Bench observed: “52. Article 246-A has brought about several changes in the constitutional scheme: 52.1.Firstly, Article 246-A defines the source of power as well as the field of legislation (with respect to goods and services tax) obviating the need to travel to the Seventh Schedule. 52.2.Secondly, the provisions of Article 246-A are available both to Parliament and the State Legislatures, save and except for the exclusive power of Parliament to enact GST legislation where the supply of goods or services takes place in the course of inter- State trade or commerce. 52.3.Thirdly, Article 246-A embodies the constitutional principle of simultaneous levy as distinct from the principle of concurrence. Concurrence, which operated within the fold of the Concurrent List, was regulated by Article 254.” (emphasis supplied)

54 Paragraph 19 of the judgement. 55 H Paragraph 22 of the judgment.

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30Copy pinpoint30. Article 246A provides Parliament and the State legislature with the concurrent power to legislate on GST. Article 246A has a non- obstante provision which overrides Article 254. Article 246 A does not provide a repugnancy clause. Unlike Article 254 which stipulates that the law made by Parliament on a subject in the Concurrent list shall prevail over conflicting laws made by the State legislature, the constitutional design of Article 246A does not stipulate the manner in which such inconsistency between the laws made by Parliament and the State legislature on GST can be resolved. The concurrent power exercised by the legislatures under Article 246A is termed as a ‘simultaneous power’ to differentiate it from the constitutional design on exercise of concurrent power under Article 246, the latter being subject to the repugnancy clause under Article 254. The constitutional role and functions of the GST Council must be understood in the context of the simultaneous legislative power conferred on Parliament and the State legislatures. It is from that perspective that the role of the GST Council becomes relevant. D Role of the GST Council

31Copy pinpoint31. The Thirteenth Finance Commission set up the Task Force on GST. The Task Force recommended that the Empowered Committee of State Finance Ministers may, upon the introduction of GST, be transformed into a permanent constitutional body known as the ‘Council of Finance E Ministers’. The Task Force had recommended that: (i) The Council would be responsible for modification in the design of dual GST regulating the indirect tax system; (ii) The Council would make decisions on the principle of majority and not unanimity. The initial decision would be approved by the Union and three-fourths of the States. The subsequent changes to the decision could be made upon an agreement of the Union and two-third of the States; (iii) The body would maintain the ‘existing balance of federal fiscal powers’ since both the Union and the States would surrender their fiscal autonomy to change to the GST regime;56

56 Tarun Jain, Goods and Services Tax: Constitutional Law and Policy (EBC 2018) 117 H

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A (iv) The basis for levy should be common for both the Union and the States upon agreement. This could be on the lines of the GST law in Australia, where both the Union and the States will have to agree before any change in the rate or base of GST could be implemented;57 and B (v) If the States deviate from the collectively agreed position on GST rates, a mechanism ought to be established by which the defaulting State pays penalty58.

32Copy pinpoint32. The 2011 Amendment Bill sought to include Article 279A in the Constitution which constituted the GST Council. The provision stipulated the constitution of the Council, the role of the Council and the C quorum necessary for making decisions: “279-A. Goods and Services Tax Council.— (1) The President shall, within sixty days from the date of commencement of the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services D Tax Council. (2) The Goods and Services Tax Council shall consist of the following members, namely:— (a) the Union Finance Minister – Chairperson; E (b) the Union Minister of State in charge of Revenue or Finance – Member; (c) the Minister in charge of Finance or Taxation or any other Minister nominated by each State Government- Members. (3) The Members of the Goods and Services Tax Council F referred to in sub-clause (c) of clause (2) shall, as soon as may be, choose one amongst themselves to be the Vice-Chairperson of the Council for such period as they may decide. (4) The Goods and Services Tax Council shall make recommendations to the G Union and the States on— (a) the taxes, cesses and surcharges levied by the Centre, the States and the local bodies which may be subsumed in the goods and services tax; 57 Thirteenth Finance Commission, Report of the Task Force on GST (2009) Para 10.5 H 58 Ibid, paragraph 9.8

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(b) the goods and services that may be subjected to or exempted A from the goods and services tax; (c) the threshold limit of turnover below which goods and services tax may be exempted; (d) the rates of goods and services tax; and B (e) any other matter relating to the goods and services tax, as the Council may decide. (5) While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the need for a harmonised structure of goods and services tax and for the C development of a harmonised national market for goods and services. (6) One-third of the total number of members of the Goods and Services Tax Council shall constitute the quorum at its meetings. D (7) The Goods and Services Tax Council shall determine the procedure in the performance of its functions. (8) Every decision of the Goods and Services Tax Council taken at a meeting shall be with the consensus of all the members present at the meeting. E (9) No act or proceedings of the Goods and Services Tax Council shall be invalid merely by reason of— (a) any vacancy in, or any defect in, the constitution of the Council; or F (b) any defect in the appointment of a person as a Member of the Council; or (c) any irregularity in the procedure of the Council not affecting the merits of the case. Explanation.—For the purposes of this article, “State’’ includes G a Union territory with Legislature.”

33Copy pinpoint33. According to the draft of Article 279A, as it found place in the 2011 Amendment Bill, every decision of the GST Council had to be taken with the consensus of all the members present at the meeting. The Bill also provided for the establishment of a GST Dispute Settlement H

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A Authority to adjudicate on any complaint referred to it by a State Government or the Union Government, arising out of deviation from any recommendations of the Council that resulted in the loss of revenue or which affected the harmonised structure of the GST. The draft provision also provided that Parliament may by law provide that no Court other than the Supreme Court shall exercise jurisdiction in respect of the dispute. B The draft of Article 279B, as in the 2011 Amendment Bill, reads as follows: “279B. (1) Parliament may, by law, provide for the establishment of a Goods and Services Tax Dispute Settlement Authority to adjudicate any dispute or complaint referred to it by a State C Government or the Government of India arising out of a deviation from any of the recommendations of the Goods and Services Tax Council constituted under article 279A that results in a loss of revenue to a State Government or the Government of India or affects the harmonised structure of the goods and services tax. D (2) The Goods and Services Tax Dispute Settlement Authority shall consist of a Chairperson and two other members. (3) The Chairperson of the Goods and Services Tax Dispute Settlement Authority shall be a person who has been a Judge of the Supreme Court or Chief Justice of a High Court to be appointed by the President on the recommendation of the Chief Justice of India. (4) The two other members of the Goods and Services Tax Dispute Settlement Authority shall be persons of proven capacity and expertise in the field of law, economics or public affairs to be appointed by the President on the recommendation of the Goods and Services Tax Council. (5) The Goods and Services Tax Dispute Settlement Authority shall pass suitable orders including interim orders.

G (6) A law made under clause (1) may specify the powers which may be exercised by the Goods and Services Tax Dispute Settlement Authority and provide for the procedure to be followed by it. (7) Notwithstanding anything in this Constitution, Parliament may by law provide that no Court other than the Supreme Court shall

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exercise jurisdiction in respect of any such adjudication or dispute or complaint as is referred to in clause (1). Explanation.— For the purpose of this article, “State’’ includes a Union territory with Legislature.”

34Copy pinpoint34. The Standing Committee on Finance, Ministry of Finance in its 73rd report on the 2011 Amendment Bill explained the salient features of the Amendment Bill introducing the GST regime.59 It was noted that the GST Council will be a joint forum for the Union and the States to discuss issues on GST and the recommendations of the GST Council will be a benchmark and guiding force for the Union and State Governments.60 In the same vein, it was observed that the legislature will be free to exercise its power on all issues recommended by the Council:61 “(c) A Goods and Services Tax Council (Article 279A) will be created, which will be a joint forum for the Centre and the States to discuss important issues relating to GST so that the objective of having a harmonized structure for GST and a harmonized national market can be achieved. This Council would function under the Chairmanship of the Union Finance Minister and will have Minister in charge of Finance/Taxation or Minister nominated by each of the States and UTs with legislatures, as members. The Council E will make recommendations to the Union and the States on important parameters like rates, exemption list, threshold limits, etc. The recommendations made by this Council will act as benchmark or guidance to Union as well as State Governments. The Parliament and well as State Legislatures will be free to exercise their power on all issues recommended by the F Council. One-third of the total number of Members of the Council will constitute the quorum of GST council. It is further provided that the decisions of the GST Council shall be with the consensus of all members present at the meeting. This is to protect the interests of each State and the Centre when the Council takes a G decision.

59 Standing Committee on Finance, The Constitution (One Hundred and Fifteenth Amendment) 2011 (73 rd report, 2013) 60 Ibid, paragraph 12 61 Ibid H

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A (d) In exercise of their powers, these legislative bodies may deviate from the recommendations of the Council and may act in a manner which is prejudicial to the harmonious working of GST or which adversely impacts the revenue of some other State/ Central Government. Such deviations or actions are required to be kept to the minimum, if the objective of having a B common national market and smooth working of GST is to be achieved. It is accordingly proposed to set up Goods & Services Tax Dispute Settlement Authority (Article 279B), which may be approached by the affected Government (whether the Centre or the States) seeking redressal for any loss caused by C any action due to a deviation from the recommendations made by the Goods & Services Tax Council or for adversely affecting the harmonious structure and implementation of the GST.” (emphasis supplied)

35Copy pinpoint35. The Committee also sought the opinion of the Attorney General D through the Department of Legal Affairs on whether the recommendations of the GST Council would undermine the power of the legislature. In response, the Attorney General stated that though the GST Council has the power to make recommendations, both Parliament and State legislatures, have the power to either accept or reject those recommendations.62 The Attorney General stated: “This is an important point which has been raised and the short answer to it is that it is certainly open to Parliament to approve any recommendation. However, this does not mean that the GSTC recommendations will have no value. Having regarding to the nature of the Constitution of GSTC, the Council would have performed useful role in making recommendations but the ultimate authority whether to accept such recommendations can and must rest only in the Legislatures, namely, Parliament and the State Legislatures. In this view of the matter, the setting up of the GSTC does not strike at the root of the legislative powers over Finance. G The powers of the legislature over Finance are sacrosanct and are not affected by the setting up of the GSTC.”

36Copy pinpoint36. The States raised concerns over the establishment of the GST Dispute Settlement Authority on the ground that such authority would 62 H Ibid, paragraph 63

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have the power to override the supremacy of Parliament and the State A Legislatures since a legislation, though constitutional, could be struck down if it deviated from the recommendations of the GST Council. The Committee, while addressing the concerns raised by the States recommended that the provision establishing the GST Dispute Settlement Authority be omitted since it would affect the fiscal autonomy of the B States. It was further recommended that a provision be made in Article 279A itself empowering the GST Council to resolve disputes arising out of its recommendations: “60. On the GST Dispute Settlement Authority, the Chairman, Empowered Committee of State Finance Ministers stated that most of the States have expressed the view that the provision C pertaining to the GST Dispute Settlement Authority should be omitted as this authority shall have powers of overriding the supremacy of the Parliament and the State Legislatures. It shall affect the fiscal autonomy of the States.

61. The Constitution confers autonomy on the Parliament D and the State Legislatures to legislate within the respective fields assigned to them and the fact that a statute enacted by a competent Legislative body can be called into question on grounds of deviations from the recommendations of an essentially executive body, albeit Constitutional, is being construed as undermining the supremacy of the Legislature. Keeping in view the concerns expressed by the States, and the fact that the proposed provision of GST Dispute Settlement Authority will affect the fiscal autonomy of the Parliament and the State Legislatures, the proposed Article 279B providing for GST Dispute Settlement Authority may be omitted. However, any dispensation involving multiple partners does require a mechanism to resolve disputes. A provision can be made in Article 279A itself empowering the GST Council to decide about the mechanism to resolve the disputes arising out of its recommendations.” G (emphasis supplied)

37Copy pinpoint37. The Committee reiterated in its conclusion that the GST Council would only play a ‘constructive and enabling role’ vis-à-vis the legislature and would not override the role of the legislature63: 63 Ibid, paragraph 15 H

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A “The Committee would thus expect the proposed GST Council to follow the principles of cooperative federalism and democratic governance. As this will be a political and a recommendatory body, it would be in a position to play a constructive and enabling role vis-à-vis the Legislature, which needless to emphasise, would remain supreme in matters of legislation including taxation. In the B Committee’s view the mandate entrusted to the GST Council under the proposed Article 279A of the Constitution (Amendment) Bill does not in any way alter the existing constitutional scheme in so far as the Legislature, both Union and State, is concerned.”

38Copy pinpoint38. Taking into account the recommendations of the Standing C Committee, Parliament introduced the 2014 Amendment Bill in which Article 279B was deleted and the GST Council was given the power under Article 279A(11) to devise a mechanism of dispute resolution. The GST Council consists of the Union Finance Minister as the Chairperson, the Union Minister of State in charge of Revenue or Finance D and the Minister in charge of Finance or Taxation or any other Minister nominated by the State Government. The role of the GST Council is to make recommendations to the Union and the States on seven specific categories revolving around GST including principles of levy and apportionment of GST. Clause (h) of Article 279A(1) also provides the Council with plenary power by which it can make recommendations E with respect to ‘any other matter relating to GST’, as the Council may decide. Clause (6) stipulates that the recommendations of the GST Council shall be guided by the ‘need for a harmonised structure of goods and services tax’. One half of the total number of members of the Council shall constitute the quorum for meetings. Clause (9) provides that the F Council shall take a decision with three-fourths majority of the members present and voting. The vote of the Union Government is given the weightage of one-third of the total votes cast, and the votes of the State Governments are given a weightage of two-thirds of the total votes. Parliamentary Debates

39Copy pinpoint39. The inclusion of Article 279A in the 2014 Amendment Bill raised two important concerns in Parliament: first, the GST Council could effectively override the legislative sovereignty of Parliament and the State legislatures; and second, the fiscal autonomy of the States would be diminished since the Centre has the power to stall a consensus H reached by all the States. On 5 May 2015, a Member of Parliament

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from the State of Tamil Nadu raised the concern that the GST Council A would diminish the role of the States in fiscal policy:64 “The GST Council as proposed in the Amendment will make recommendations on a whole range of issues relating to subsuming of taxes, cesses and surcharges under GST, exemption for goods and services, model GST laws, etc. This will override the B supremacy of the legislature both at the Centre and the States in taxation matters. In the GST Council, the Union Government has one-third weightage in vote and only two-third of the weightage in vote is given to States and Union Territories. Voting rights of States and Union Territories are equal irrespective of their size. C We, are therefore, opposed to the idea of GST Council as a constitutional body as it compromises the autonomy of the States including in fiscal matters.” In response, the Finance Minister had said65: “Once you get into the GST pipeline, the States and the Centre D will have to interact together; and once they interact together, the State of Tamil Nadu will be involved in determining and taking decisions relating to the States. So, none of us is going to be surrendering his or her authority or autonomy. We are both going to be pooling our sovereignty together so that we are able to create E a new taxation mechanism.”

40Copy pinpoint40. A Select Committee of the Rajya Sabha examined proposed Article 279A. It was suggested before the Select Committee that a ‘dispute settlement body’ to adjudicate on disputes arising from the non- compliance of recommendations of the GST Council should be F constituted.66 There was, in other words, a suggestion to reintroduce Article 279B as it found place in the 2011 Amendment Bill. The Government submitted that Article 279A(11) provides the GST Council with the power to decide the ‘modalities’ of dispute resolution, which may range from mediation, arbitration or even judicial adjudication depending on the nature of dispute: G

64 Speech of T.G Venkatesh Babu in Lok Sabha on 05.05.2015 65 Speech of Mr. Arun Jaitley in Lok Sabha on 08.08.2016 66 Select Committee, Report on the Constitution (One Hundred and Twenty Second Amendment) Bill , 2014, (Submitted to the Rajya Sabha, 2015) H

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A “2.71 It may further be mentioned that Article 279A (11) only provides that GST Council may decide the ‘modalities’ to resolve disputes arising out of its recommendations. The ‘modalities’ could include any dispute resolution mechanism which could be inter- alia negotiation, mediation, arbitration or even a judicial authority as deemed appropriate by the GST Council depending on the nature of dispute before it. Thus, as per the proposed Bill, the GST Council shall, by itself, not be resolving the disputes but decide on the modalities for resolving the disputes.”

41Copy pinpoint41. The Government also submitted that the voting pattern between the Union and the States does not provide unequal power to any one of the constituent units: “2.68 The structure of GST Council represents the federal nature of governance in this country. This has been done as per the recommendations of the Empowered Committee after their meeting in Bhubaneswar in January 2013, and also the recommendations of the Parliamentary Standing Committee. This provision has been consciously adopted to ensure the federal balance in the functioning of the GST Council, and also to enhance co-operative federalism. The existing pattern of vote-share in the GST Council ensures that no decision can be taken by the Council E either by the Centre or the States acting on their own. Hence, neither the States nor the Centre alone can take a decision in the Council. Providing 3/4th weightage to the States would upset the federal balance between the Centre and the States. Presently, in the concurrent list, in case of any difference between Central and F State legislation, the Central legislation prevails. The present weightage of votes in the GST Council would ensure that neither the Centre nor the States are able to take a decision without the support of the other. In other words both would enjoy a veto. 2.69 Further, with Centre holding only 1/3rd of the votes, the G Centre would require support of 20 States/Union Territories to get a resolution passed. This shows that Centre would need co- operation of States to get any decision taken at the GST Council.”

42Copy pinpoint42. 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

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of a legislation to understand the full purport of the words used and the mischief sought to be remedied by the law. In K.P Varghese v. ITO67, this Court held that the “speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted.” B In Kalpana Mehta v. Union of India68, Chief Justice Dipak Misra held that reports of the Parliamentary Committees and the speeches made in the Parliament can be referred to identify the circumstances that led to the enactment of the legislation along with the intention of the legislature: “129. We have referred to these authorities to highlight that the reports or speeches have been referred to or not referred to for the purposes indicated therein and when the meaning of a statue is not clear or ambiguous, the circumstances that led to the passing of the legislation can be looked into in order to ascertain the intention of the legislature. It is because the reports assume significance and become relevant because they precede the formative process of a legislation.”

43Copy pinpoint43. The parliamentary debates and the legislative history of the constitutional amendment, and the committee reports on Articles 246A and 279A indicate that: E (i) The draft of Article 279B, in the 2011 Amendment Bill, which sought to introduce a GST Dispute Settlement Authority to adjudicate on any dispute ‘arising out of deviation’ from the recommendations of the GST Council was deleted. The current Article 279A(11) provides that the GST Council shall devise a mechanism to adjudicate on any dispute that ‘arises out’ of the recommendations of the Council. The deletion of Article 279B while introducing the 2014 Amendment Bill and the inclusion of Article 279(11) in the text of the Constitution has brought about two substantial changes: one, that instead of the creation of a dispute settlement authority, the Council is vested with the power to decide on ‘modalities’ of dispute resolution; and second, while Article 279B stipulated that the authority shall adjudicate on ‘disputes 67 (1981) 4 SCC 173. 68 (2017) 7 SCC 295 H

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A arising out of the deviation from the recommendations’, Article 279(11) states that the disputes arising out of recommendations shall be resolved. The phrase ‘deviation’ has been omitted. Before the Select Committee of the Rajya Sabha, the Government had stated that disputes shall be resolved by modalities including mediation and arbitration. B The Standing Committee of Finance in its report specifically recommended the deletion of Article 279B due to the concerns raised by the States; and (ii) Under the 2011 Amendment Bill, the GST Council could recommend only when a unanimous decision would be reached. However, the Standing Committee of Finance had recommended that since it would be difficult to arrive at a consensus due to the socio-economic diversity amongst the States, the recommendations be made with a majority instead of unanimity. While making this recommendation, it was observed that if the GST Council functions like the present Empowered Committee where the differences are resolved amicably in an institutional mode, it would foster the spirit of cooperative federalism. C.2 The nature of the recommendations of the GST Council E Indian federalism: Dialogue of cooperative federalism

44Copy pinpoint44. The arguments in favour of reading the ‘recommendations’ of the GST Council as binding are two-fold69: first, if the GST Council cannot make binding recommendations, the entire structure of GST will collapse as each State would then levy a conflicting tax and collection mechanism; and second, if the recommendations are non-binding, then there would be no dispute to be resolved under Article 279(11) as the States would be free to disregard the recommendations. The arguments against interpreting the ‘recommendations’ of the GST Council as binding on the Union and the States are two-fold70: first, it would violate the supremacy of Parliament and State legislatures since both have a 69 Alok Prasanna, ‘For a mess of Potage: The GST’s promise of 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. 70 Ajitesh Kir, ‘India’s Goods and Services Tax: A Unique Experiment in Cooperative Federalism and a Constitutional Crisis in Waiting’ Canadian Tax Journal (2021) 69:2, H 391-445.

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simultaneous power to legislate on GST; and second, it would violate the fiscal federalism of the States since the Centre has a one-third vote share and the States collectively have a two-third vote share. Therefore, no recommendation on a three-fourths majority can be passed without the consent of the Centre.

45Copy pinpoint45. One of the important characteristics of a federal polity is the distribution of legislative power between the Union and the States. Mr H M Seervai while arguing that India is a federal nation, referred to the exclusive power of taxation held by the States to establish that the States were not merely given the power to legislate on ‘subordinate’ matters: “If by ‘subordinate’ is meant ‘not important’, then, with respect, the present writer does not agree with Prof. Wheare’s assessment of the exclusive State List. Public order, the police, administration of justice, local government, public health and sanitation, to mention but a few, are matters of great importance; and so are agriculture, water (subject to Union control of the waters of inter-State rivers), D land, and fisheries. Again, the allocation of taxes between the Union and the States is mutually exclusive, and the taxes allotted exclusively to the States are not negligible. Thus sales tax is an expanding source of revenue in India as it becomes increasingly industrialized under the successive five year plans. In the industrialized State of Maharashtra, the yield from Sales Tax was E about Rs. 1,580 million for the year of 1971-72, and the estimate for the year 1972-3 was about Rs. 1,780 million. […] (k) The view that unimportant matters were assigned to the States F cannot be sustained in face of the very important subjects assigned to the States in List II, and the same applies to taxing powers of the States which are made mutually exclusive of the taxing powers of the Union so that ordinarily the States have independent source of revenue of their own. The legislative entries relating to taxes in G List II show that the sources of revenue available to the States are substantial and would increasingly become more substantial. In addition to the exclusive taxing powers of the States, the States become entitled either to appropriate taxes collected by the Union or to a share in the taxes collected by the Union.” H

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A Justice PB Sawant writing for himself and Justice Kuldip Singh in SR Bommai v. Union of India71, referred to the exclusive and equal legislative distribution of heads of taxation to establish the federal nature of the Indian Constitution.72 Therefore, the exclusive powers held by the States and the Centre on matters of taxation was regarded as an important feature of India’s federal polity. The Constitution Amendment Act 2016 B alters the legislative distribution between the Centre and the State on indirect taxation by providing Parliament and State legislatures with ‘simultaneous powers’ and no provision for repugnancy. Therefore, according to Article 246A, both Parliament and the State Legislature possess equal power to legislate on aspects of GST. It is the contention C of the Union that the recommendation of the GST Council should be binding on Parliament and the State Legislatures precisely because equal power is granted to both the federal units. The Union has argued that if the recommendations are not binding, then it would lead to an impasse where different Central and State legislations could be guiding the same field. D

46Copy pinpoint46. 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 E 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

71 (1994) 3 SCC 1 72 H Prasanna (n 69)

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Council envisions that neither the Centre nor the States can act independent of the other.

47Copy pinpoint47. The dual federalism model or the autonomy model views the constituting units of the Centre and States as autonomous, independent and competing units. This model is also termed as competitive federalism, where the constituent units ‘compete’ with each other. Proponents of the cooperative federalism model argue that it is a mistake to view each unit as a separate autonomous entity. According to the theory of cooperative federalism, integration and not autonomy is the objective that federalism seeks to achieve.73 While dual federalism is termed as ‘layer cake federalism’ due to the delineation of the structures of power, cooperative federalism is known as ‘marble cake federalism’ due to the integrated approach of the federal units.74 This Court in State (NCT of Delhi) v. Union of India75,has observed that India follows the model of cooperative federalism where the Union and the State Governments need to iron out the differences that arise in the course of the path of development. Chief Justice Dipak Mishra elucidated on the concept of cooperative federalism: “119. Thus, the idea behind the concept of collaborative federalism is negotiation and coordination so as to iron out the differences which may arise between the Union and the State Governments in their respective pursuits of development. The Union Government E and the State Governments should endeavour to address the common problems with the intention to arrive at a solution by showing statesmanship, combined action and sincere cooperation. In collaborative federalism, the Union and the State Governments should express their readiness to achieve the common objective and work together for achieving it. In a functional Constitution, F the authorities should exhibit sincere concern to avoid any conflict. This concept has to be borne in mind when both intend to rely on the constitutional provision as the source of authority. We are absolutely unequivocal that both the Centre and the States must work within their spheres and not think of any encroachment. But G

73 Robert A. Schapiro, ‘Justice Steven’s theory of Interactive Federalism’ 74 Fordham L. Rev. 2133 (2006) 74 Jessica Bulman-Pozen and Heather K. Gerken, ‘Uncooperative Federalism’ Yale Law Journal, Vol. 118. No. 7 (May, 2009), pp. 1256-1310 75 (2018) 8 SCC 501 H

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A in the context of exercise of authority within their spheres, there should be perception of mature statesmanship so that the constitutionally bestowed responsibilities are shared by them. Such an approach requires continuous and seamless interaction between the Union and the State Governments.”

48Copy pinpoint48. 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. C 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. The Union and the States have a simultaneous power to legislate on GST. The GST Council has the power to make D 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. E

49Copy pinpoint49. The federal system is a means to accommodate the needs of a pluralistic society to function in a democratic manner. It attempts to reconcile the desire of unity and commonality along with the desire for diversity and autonomy. Democracy and federalism are interdependent on each other for their survival such that federalism would only be stable F in well-functioning democracies. Additionally, the constituent units in a federal polity check the exercise of power of one another to prevent one group from exercising dominant power. The Indian Constitution, though necessarily federal does confer the Union with a higher share of power in certain situations to prevent chaos and provide security. 76 However, G even if the federal units are not entirely autonomous as in the traditional federal system, the units still wield power. The relationship between two constituent units that are not autonomous but rely on each other for their functioning is not in practice always collaborative or cooperative. If the States have been conferred lesser power they can still resist the mandates 76 H Seervai (n 50)

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of the Union by using different forms of political contestation as permitted A by constitutional design. Such contestation furthers both the principle of federalism and democracy. When the federal units are vested with unequal power, the collaboration between them is not necessarily cooperative. Harmonised decision thrives not just on cooperation but also on contestation. Indian federalism is a dialogue in which the States B and the Centre constantly engage in conversations. Such dialogues can be placed on two ends of the spectrum - collaborative discussions that cooperative federalism fosters at one end of the spectrum and interstitial contestation at the other end. Jessica Bulman and Heather K, in their essay connote interstitial contestation as ‘uncooperative federalism’.77 They argue that the States which possess lesser power could use licenced dissent, dissent by using regulatory gaps or by civil disobedience such as passing a resolution against the decision of the Central Government as means of contestation. Differentiating the forms of cooperative federalism from the dissent in uncooperative federalism, the authors state: “We think the best proxy for distinguishing dissent from routine negotiations is whether the state’s action can be fairly understood as an effort to change national policy. An attempt to obtain an accommodation or modification of federal policy within the state should usually be understood as an example of cooperative bargaining. An attempt to contest and alter national policy is rightly understood as dissent.” E

50Copy pinpoint50. Such form of contestation or as the authors term it, ‘uncooperative federalism’ is valuable since “it is desirable to have some level of friction, some amount of state contestation, some deliberation- generating froth in our democratic system.”78 Therefore, the States can use various forms of contestation if they disagree with the decision of the Centre. Such forms of contestation are also within the framework of Indian federalism. The GST Council is not merely a constitutional body restricted to the indirect tax system in India but is also an important focal point to foster federalism and democracy.

51Copy pinpoint51. 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 77 Bulman-Pozen and K. Gerken (n 74) 78 Ibid, page 1284 H

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A 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. The contextual meaning of ‘recommendations’

52Copy pinpoint52. The phrase ‘recommendation’ is used in numerous provisions in the Constitution but the import of the phrase differs contextually. Based on the submission of the Union Government, there are five categories into which the phrase ‘recommendation’ has been deployed in the Constitution: (i) Category 1: Recommendation by the President prior to laying before the Parliament for voting: Articles 3, 109, 111, 113, 117, 203, 207, 255 and 274 discuss the recommendations of the President or the Governor. Here the authority recommending the initiation of the discussion and the decision-making authority are different. (ii) Category 2: Recommendation followed by consultation: Article 233 uses the phrases ‘consultation’ and F ‘recommendation’. Article 233(1) states that the district judge shall be appointed by the Governor in ‘consultation’ with the High Court. Clause 2 states that the criteria for the appointment of a person who is not already in the service of the Union or the State is that he should have been a G pleader or an advocate for at least seven years and he should be recommended by the High Court for the appointment to the post of a District Judge. There is a two- step process for appointment, first, the candidature must be recommended by the High Court; and second, the recommended candidate is appointed by the Governor in H ‘consultation’ with the High Court.

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(iii) Category 3: Recommendation with accountability: Articles A 243I, 243Y, 280, 281, 338, 338B and 340. Articles 243I and 243Y stipulate that the Finance Commission shall make ‘recommendations’ to the Governor on apportionment of taxes to the Panchayats and Municipalities. Article 280 states that it “shall be the duty of the Commission to make B recommendations to the President” on the principles governing distribution of taxes between the Union and the States. Article 281 fosters accountability by providing that every recommendation made by the Finance Commission shall be laid before the House together with an explanatory memorandum on the action taken on such recommendations. C Article 338(5)(e) states that the National Commission for Scheduled Castes shall present a report to the President annually listing the measures that should be taken to enhance the protection and development of the Scheduled Caste. Article 338(6) states that the President shall cause the report to be laid before the Parliament along with a memorandum explaining the action taken on the recommendations or the reason for non-acceptance, if any. Article 338A is a similar provision on the recommendatory nature of the National Commission for Scheduled Tribes. The President has the power to appoint a Commission to investigate the conditions of Backward Classes. The Commission is required to investigate the matters referred to them and present a report along with recommendations to the President which shall be laid before the Parliament along with an explanation memorandum. F (iv) Category 4: Non-qualifying recommendation: The Presidential Order to establish an Inter State Council dated 28 May 1990 issued by the Ministry of Home Affairs, and Article 263. Article 263 provides that the President may, in public interest, establish an Inter-State Council which shall G make recommendations for better coordination of policy and action. The Inter-State Council was constituted by the Inter-State Council Order 1990 consisting of the Prime Minister, Chief Ministers of all States, Chief Ministers of Union Territories and six Ministers of Cabinet rank. H

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A (v) Category 5: Recommendations which are obligatory in nature: Articles 270, 275, 344, 349 and 371A: Article 344 establishes the Commission and Committee of Parliament on Official Languages. Article 344(2) states that it shall be the duty of the Commission to make recommendations to the President on the usage of official languages. Clause 3 B states that recommendations shall be made having due regard to the industrial, cultural and scientific advancement of India and the claim of non-Hindi speaking persons. Article 344(4) constitutes a Committee of the members of the Lok Sabha and Rajya Sabha. The Committee will have to examine the recommendations of the Commission and report its opinion to the President. The President after considering the report, shall issue directions in accordance with the whole or any part of the report. Article 349 deals with the special procedure for enactment of law relating to language in the first fifteen years from the commencement of the Constitution. Articles 270 and 275 stipulate that the percentage of tax apportionment and fixation of the grants for the States from the Consolidated Fund of India shall be ordered by the President on the recommendation of the Finance Commission. E

53Copy pinpoint53. A survey the above provisions indicates that the nature and meaning of the term ‘recommendation’ differs contextually. All the provisions qualify the nature of recommendation. For instance, in category one, the recommendation of the President is for the initiation of the discussion; in category two, a decision on the recommendation is arrived upon ‘consultation’; in category three, the decision-making authority has to submit an explanatory note on the action or inaction taken on the recommendations.; in category four, the recommendations are not qualified. Article 263 only states that the Inter-State Council has a duty to recommend. There is no further explanation on whether the recommendation ought to be mandatorily accepted, or deliberated upon; in category five, the recommendations of the authority are expressly stated to be ‘binding’ on the decision-making authority.

54Copy pinpoint54. 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 H

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279A (4)(h) where it could make recommendations on ‘any other matter’ A 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 to the President or the Governor, Article 279A states that B 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 C 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. D

55Copy pinpoint55. The Constitution employs the phrase ‘consultation’ in certain contexts. For example, Article 320(3) states that the Public Service Commission shall be ‘consulted’ on matters relating to civil posts. Article 320(3) reads as follows: “(3) The Union Public Service Commission or the State Public E Service Commission, as the case may be, shall be consulted— (a) on all matters relating to methods of recruitment to civil services and for civil posts; (b) on the principles to be followed in making appointments to civil services and posts and in making promotions and transfers F from one service to another and on the suitability of candidates for such appointments, promotions or transfers; […]” (emphasis supplied) G

56Copy pinpoint56. 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 H

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A 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 B enacting legislation on GST.

57Copy pinpoint57. In Manohar v. State of Maharashtra81, a two-judge Bench of this Court while interpreting Section 20(2) of the Right to Information Act 2005 observed that the phrase ‘recommendation’ must be interpreted in contradistinction to ‘direction’ or ‘mandate’. It was observed as follows: C “22. We may notice that proviso to Section 20(1) specifically contemplates that before imposing the penalty contemplated under Section 20(1), the Commission shall give a reasonable opportunity of being heard to the officer concerned. However, there is no such specific provision in relation to the matters covered under D Section 20(2). Section 20(2) empowers the Central or the State Information Commission, as the case may be, at the time of deciding a complaint or appeal for the reasons stated in that section, to recommend for disciplinary action to be taken against the Central Public Information Officer or the State Public Information Officer, E as the case may be, under the relevant service rules. Power to recommend disciplinary action is a power exercise of which may impose penal consequences. When such a recommendation is received, the disciplinary authority would conduct the disciplinary proceedings in accordance with law and subject to satisfaction of the requirements of law. It is a “recommendation” and not a F “mandate” to conduct an enquiry. “Recommendation” must be seen in contradistinction to “direction” or “mandate”. But recommendation itself vests the delinquent Public Information Officer or State Public Information Officer with consequences which are of serious nature and can ultimately produce prejudicial G results including misconduct within the relevant service rules and invite minor and/or major penalty.”

79 Section 166 of the CGST Act 80 Section 24 of the IGST Act 81 H (2012) 13 SCC 14

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In Naraindas Indurkhya v. State of Madhya Pradesh82, a A Constitution Bench observed that a ‘recommendation’ has persuasive value. In this case, this Court was dealing with the question of whether textbooks ‘recommended’ by the Board could be held to be in effect immediately. The Court observed: “15. … there is a basic distinction between recommendation and prescription of a text book. When a text book is prescribed by an appropriate authority having legal power to do so, it has to be followed by the schools. Prescription of a text book carries with it a binding obligation to follow the text book. There is no such obligation when a text book is merely recommended. Recommendation has merely a persuasive effect, it being open to the schools to accept the recommendation or to reject it as they think fit. The schools may use the recommended text book or they may not according as the Principals choose. That is why no conferment of statutory power is needed to enable the Board to recommend text books and no question of ultra vires can arise in such a case. Now the text books which formed the subject matter of the notifications dated April 5, 1972, April 25, 1972, April 26 and May 17, 1972 were merely recommended and not prescribed by the Board and being only recommended text books as distinguished from prescribed text books, they obviously could not be said to be ‘in force’ immediately before the appointed day. E Section 4, sub-section (2) did not, therefore, apply in respect of these text books and they could not be regarded as text books prescribed under Section 4, sub-section (2).” In numerous cases, this Court has reiterated that recommendations cannot create binding and enforceable rights, in contradistinction to a F ‘direction’ or ‘mandate’.83 Interpretation of ‘recommendation’ vis-à-vis the provisions of IGST Act and CGST Act

58Copy pinpoint58. The contention of the Union is that the recommendations of G the GST Council are binding since Parliament and the State legislatures

82 (1974) 4 SCC 788 83 Union of India v. Pradip Kumar Dey, (2000) 8 SCC 580; Kesoram Industries and Cotton Mills Ltd. v. CWT, (1966) 2 SCR 688; Som Mittal v. Government of Karnataka, (2008) 3 SCC 753; State of AP v. T. Gopalakrishnan Murthi, (1976) 2 SCC 883. H

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A have agreed to align themselves with the recommendations as is evident from the provisions of the IGST Act and CGST Act. Certain provisions of the IGST Act, CGST Act and SGST Acts expressly provide that the rule-making power delegated to the Government shall be exercised on the recommendations of the GST Council. For instance, Section 5 of the IGST Act provides that the taxable event, taxable rate and taxable value shall be notified by the government on the “recommendations of the Council”. Similarly, the power of the Central Government to exempt goods or services or both from levy of tax shall be exercised on the recommendations of the GST Council under Section 6 of the IGST Act. Section 22 provides that the Government may exercise its rule making power on the recommendations of the GST Council. The CGST Act also provides for similar provisions in Sections 9, 11 and 164.

59Copy pinpoint59. 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 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. E 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 F and IGST Act, it cannot be argued that all of the GST Council’s recommendations are binding. As a matter of first principle, the provisions of the Constitution, which is the grundnorm of the nation, cannot be interpreted based on the provisions of a primary legislation. It is only the provisions of a primary legislation that can be interpreted with reference G to the Constitution. The legislature amends the Constitution by exercising its constituent power and legislates by exercising its legislative power. The constituent power of the legislature is of a higher constitutional order as compared to its legislative power. Even if it is Parliament that has enacted laws making the recommendations of the GST Council binding on the Central Government for the purpose of notifying secondary H

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legislations, it would not mean that all the recommendations of the Council A made by virtue of its power under Article 279A have a binding force on the legislature.

60Copy pinpoint60. With this background and context, we shall now proceed to analyse the scheme of the GST legislation and whether the impugned levy, imposed on the recommendations of the GST Council, is valid and B permissible under law. D Analysis D.1 Statutory Provisions and Scheme of the IGST Act84

61Copy pinpoint61. The IGST Act enables the Central Government to impose C IGST on inter-state supply of goods and services. The Preamble to the IGST Act describes it as: “An Act to make a provision for levy and collection of tax on inter-State supply of goods or services or both by the Central Government and for matters connected therewith or incidental D thereto.” 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.

62Copy pinpoint62. Statutory interpretation will determine whether the IGST Act E 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.

84 Note: In order to facilitate convenience while reading the judgment, some of the statutory provisions are reflected in more than one place in the judgment. H