Lesson From The Law
The Supreme Court recently ruled that recommendations of the Goods and Services Tax (GST) Council only have persuasive value, and cannot be binding on the Centre and states. While the Centre has said that the decision does not bring any change to the already existing framework, some Opposition-ruled states have stated that it would give them greater space to take decisions in the federal structure. A Bench led by Justice D Y Chandrachud and also comprising Justices Surya Kant and VikramNath, upheld an order by the Gujarat High Court that had quashed the levy of Integrated GST (IGST) on the component of ocean freight paid by a foreign seller to a foreign shipping line, on a reverse charge basis. The SC dismissed the Revenue Department’s special leave petition challenging the Gujarat HC order that had gone in favour of taxpayers. (Union of India and Anr versus M/s Mohit Minerals through Director) Mohit Minerals had filed a writ petition before the Gujarat High Court challenging notifications levying IGST on the ground that customs duty is levied on the component of ocean freight and the levy of IGST on the freight element in the course of transportation would amount to double taxation. The Union of India argued before the High Court that although tax is being paid twice on the value of ocean freight, it is not unconstitutional as the tax is on two different aspects of the transaction, namely, the supply of service and import of goods. In its order passed on January 23, 2020, Gujarat High Court had quashed the Central notification levying IGST on importers for ocean freight. GST is paid by the supplier, but if the shipping line is located in a non-taxable territory, then GST is payable by the importer, the recipient of service. Ocean freight is a method of transport by which goods and cargo is transported by ships through shipping lines. Federalism in India is “a dialogue in which the states and the Centre constantly engage in conversations”, the court said — and although the Constitution confers “the Union with a higher share of power in certain situations to prevent chaos and provide security”, states “can still resist the mandates of the Union by using different forms of political contestation”. “It is not imperative that one of the federal units (Centre or states) must always possess a higher share of power over the other units,” the Bench said. The court pointed out that Article 246A of the Constitution stipulates that both Parliament and state legislatures have “simultaneous” power to legislate on GST — and recommendations of the Council “are the product of a collaborative dialogue involving the Union and States”. (Article 246A (“Special provision with respect to goods and services tax”) says: “(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 tax imposed by the Union or by such State.”) Also, the court said, “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”.