New Delhi: In a major verdict on the Goods and Services Tax (GST) regime, the Supreme Court on Thursday ruled that the decisions of the GST Council are only recommendatory in nature and not binding on the Centre and the states, as Parliament and the state legislatures possess equal powers to legislate on GST.
Heading a bench also comprising Justices Surya Kant and Vikram Nath, Justice D.Y. Chandrachud said that the recommendations of the GST Council are not binding on the Central and state governments because the 2016 amendment of the constitution indicates that the parliament intended for the recommendations of the GST Council to only have persuasive value.
By the 2016 amendment of the constitution, Article 279B was deleted and Article 279(1) was incorporated into the constitution.
Holding that the recommendations of the GST Council are not binding and are persuasive in nature, Justice Chandrachud, speaking for the bench, said, "The deletion of Article 279B and the inclusion of Article 279(1) by the Constitution Amendment Act 2016 indicates that the parliament intended for the recommendations of the GST Council to only have a persuasive value, particularly when interpreted along with the objective of the GST regime to foster cooperative federalism and harmony between the constituent units."
Holding that neither does Article 279A begin with a non-obstante clause nor does Article 246A state that it is subject to the provisions of Article 279A, the court said that the parliament and the state legislatures possess "simultaneous power to legislate on GST" and Article 246A "does not envisage a repugnancy provision" to resolve the "inconsistencies" between the central and the state laws on GST.
Elaborating on the reasons why GST Council recommendations are not binding on the Centre as well as the state governments and that both parliament and the state legislatures are empowered to legislate on GST, the top court in its judgement said that the "recommendations’ of the GST Council are the product of a collaborative dialogue involving the Union and states. They are recommendatory in nature. To regard them as binding edicts would disrupt fiscal federalism where both the Union and the states are conferred equal power to legislate on GST."
Dwelling on the co-operative federalism in the fiscal matters, the court said, "It is not imperative that one of the federal units must always possess a higher share in the power for the federal units to make decisions. Indian federalism is a dialogue between cooperative and uncooperative federalism where the federal units are at liberty to use different means of persuasion ranging from collaboration to contestation."
Carving out an exception relating to the rule-making power of the Central government under the GST Act, the top court said, "The government while exercising its rule-making power under the provisions of the CGST Act and IGST Act is bound by the recommendations of the GST Council. However, that does not mean that all the recommendations of the GST Council made by virtue of the power Article 279A (4) are binding on the legislature’s power to enact primary legislations."
Dealing with the import duty, the court said that on a conjoint reading of Sections 2(11) and 13(9) of the IGST Act, read with Section 2(93) of the CGST Act, the import of goods by a CIF contract constitutes an "inter-state" supply which can be subject to IGST where the importer of such goods would be the recipient of shipping service.
The court said that the IGST Act and the CGST Act define reverse charge and prescribe the entity that is to be taxed for these purposes.
The top court's verdict came on an appeal by the Centre on the issue of the levying of the GST by the Gujarat government on imports, which was upheld by the state high court.
The Centre had approached the top court to challenge the January 23, 2020 judgement of the Gujarat High Court. The high court had allowed a petition by M/s Mohit Minerals Pvt. Ltd challenging the constitutionality of two notifications by the Central government. The bone of contention was whether an Indian importer can be subject to the levy of Integrated Goods and Services Tax on the component of ocean freight paid by the foreign seller to a foreign shipping line, on a reverse charge basis.
Observing that Section 5(4) of the IGST Act enables the Central government to specify a class of registered persons as the recipients, thereby conferring the power of creating a deeming fiction on the delegated legislation, the top court said that “the impugned levy imposed on the ‘service’ aspect of the transaction is in violation of the principle of ‘composite supply’ enshrined under Section 2(30) read with Section 8 of the CGST Act.”
It further said that since the “Indian importer is liable to pay IGST on the ‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc. in a CIF contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of Section 8 of the CGST Act.”