GST Constitutional Jurisprudence & Ocean Freight•2 min read•(2022) 10 SCC 700

Union of India and Another v. Mohit Minerals Pvt. Ltd.

Bench: Three-Judge Bench (D.Y. Chandrachud, Surya Kant & Vikram Nath, JJ.)
Direct & Indirect Tax Litigation (Income Tax & GST)
Read the full judgment on Indian Kanoon
Core Legal Ratio Decidendi

"In composite CIF import transactions, ocean freight cannot be carved out for separate reverse charge IGST; furthermore, GST Council recommendations under Article 279A are recommendatory to foster cooperative federalism."

I
Step 1

Issues Before the Court

  1. (i)

    Whether the levy of Integrated Goods and Services Tax (IGST) on Indian importers under reverse charge on ocean freight paid by foreign exporters to foreign shipping lines in CIF contracts is constitutionally and statutorily valid?

  2. (ii)

    What is the constitutional status of recommendations made by the GST Council under Article 279A vis-à-vis the legislative competence of Parliament and State Legislatures under Article 246A?

R
Step 2

Law & Rules Applicable

  1. (i)

    Constitution of India, Article 246A (Special provision with respect to goods and services tax), Article 279A (GST Council).

  2. (ii)

    Integrated Goods and Services Tax Act, 2017 (IGST Act), Section 5(3), 5(4), and Notifications No. 8/2017 & 10/2017.

  3. (iii)

    Central Goods and Services Tax Act, 2017, Section 2(30) (Composite Supply).

A
Step 3

Application to Facts & Circumstances

Mohit Minerals imported non-coking coal from abroad under CIF (Cost, Insurance, and Freight) contracts. Customs duty was paid on the composite CIF value, which already included shipping freight. The Revenue issued notifications demanding 5% IGST on ocean freight separately under reverse charge.

The Supreme Court held that in a CIF contract, the transportation of goods by a foreign exporter is an indivisible part of a 'composite supply'. Taxing ocean freight separately violates Section 8 of the CGST Act and constitutes impermissible double taxation.

On the constitutional dimension, the Court examined Article 246A and 279A, rejecting the Union's assertion that GST Council decisions are binding diktats.

Justice Chandrachud declared that Indian federalism is a dialogue. The GST Council is an institution of collaborative federalism whose recommendations possess immense persuasive value, but are not mandatory handcuffs extinguishing the sovereign legislative powers of Parliament and State Legislatures.

C
Step 4

Conclusion & Ruling

  1. (i)

    The impugned notifications levying IGST on ocean freight under reverse charge for CIF import contracts were declared ultra vires the IGST Act.

  2. (ii)

    Recommendations of the GST Council are not legally binding on Parliament or State Legislatures, preserving fiscal and legislative federalism under Article 246A.

  3. (iii)

    Importers are not liable to pay separate IGST on transport services already embedded in CIF import valuations.

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