In a major decision that could have an impact on the landscape of GST laws under judicial review, the Supreme Court held that the GST Council recommendations are only “persuasive” to the Centre and the states.
The Supreme Court upheld the Gujarat High Court’s decision in the case of Mohit Minerals, saying that the Parliament and state legislatures have equal jurisdiction to legislate on GST.
According to a Supreme Court bench led by Justice DY Chandrachud, the GST Council is responsible for providing appropriate advice to the federal government and state governments.
“As the court has gone ahead to categorically hold that the GST Council recommendations have only persuasive value, there will be a pragmatic approach to the provisions which are subject to judicial review by way of challenge to the constitutionality of such provisions based on GST council recommendations, Abhishek A Rastogi, partner at Khaitan & Co, added. Rastogi argued for the companies in the Ocean Freight matter in the Mohit Minerals case. The Supreme court’s judgement clarifies that GST Council is an informal body whose inputs should be taken into account, but it does not have a legislative power and laws have to be legislated by the bodies who are empowered to do so the Parliament and the state legislative assemblies, S R Patnaik, Partner and Head-Taxation, Cyril Amarchand Mangaldas said.”
Patnaik added, “the courts would now have to be more proactive in the judicial review of GST legislation with the Apex Court clarifying that decisions of the GST Council are not law and they are mere recommendations.”
“The Supreme Court ruled that the GST on ocean freight paid when goods are imported is unlawful. Furthermore, as a result of the Supreme Court orders, those importers who had not paid tax on the import of services will no longer be obligated to do so,” stated Abhishek Rastogi.
The government was completely within its rights to dictate the manner of tax collection under the IGST Act, the Centre said in the Supreme Court.
Any registered person in India might be held liable for paying GST on services of import ocean freight acquired from a foreign shipping line. Importing products and providing transportation services for imported items were two independent activities carried out by two different groups of people.
A single transaction (such as the importation of goods) can result in two or more taxable events: customs duty on the import side and GST on the transportation side. The power to tax both parts was not taken away because they overlapped.
According to Vivek Jalan, partner at Tax Connect Advisory Services, the value of imported products includes the cost, insurance, and freight components, and Customs Duty and GST are levied on that value.