ECONOMY

GST Council’s recommendations not binding on Centre, States: Supreme Court

The Supreme Court on Thursday ruled that the GST Council recommendations were not binding on the Centre and the States and were only persuasive in a landmark judgement that may impact the landscape of GST provisions under judicial review.

The Parliament and State legislatures possessed equal powers to legislate on GST, the Supreme Court said, upholding the judgement of the Gujarat High Court in the ocean freight matter in the case of Mohit Minerals. It was for the GST Council to suitably advise the Central government and the State governments, the Supreme Court bench led by Justice D Y Chandrachud said. 

“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, a partner of Khaitan & Co, added. Mr Rastogi had argued for the companies in the ocean freight matter in the Mohit Minerals case. 

The Supreme Court’s judgement clarified that GST Council was an informal body whose inputs should be taken into account, but it did not have legislative power, and laws had to be legislated by the bodies who were empowered to do so, which are the Parliament and the State legislative assemblies, S R Patnaik, a partner and head (taxation) of Cyril Amarchand Mangaldas, said. “The courts would now have to be more proactive in the judicial review of GST legislation with the apex court clarifying that that decisions of the GST Council are not law and they are mere recommendations,” Mr Patnaik added. 

The Supreme Court on Thursday struck down Integrated Goods and Services Tax (IGST) levy on ocean freight. It upheld the Gujarat HC order to quash levy of IGST on ocean freight under reverse charge, dismissing the Revenue Department’s special leave petition, challenging the Gujarat HC’s decision that had gone in favour of taxpayers. “The Supreme Court has held that GST on ocean freight paid in case of import of goods is unconstitutional. As a corollary, the Indian importers who had paid such tax will be eligible to refund. Further, those importers who had not paid the tax on import of services will now not be required to pay tax because of this Supreme Court ruling,” said Mr Rastogi. 

The Supreme Court acknowledged that imposing tax on ocean freight was in violation of composite tax, that is, the government could not dissect the unified import transaction to levy IGST on ocean freight on transportation of goods from a place outside India to a place in India, said Himanshu Relan, a partner (indirect tax) of Nangia & Co.

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