GOODS AND SERVICES TAX
CASE COMMENT
MOHIT MINERALS
VS
UNION OF INDIA (UOI)
SUBMITTED TO:
PROF. NEHA PATHAKJI
SUBMITTED BY:
KABIR PYAGE
IV Year, Semester 7, B.A. LL. B (Hons)
(2021-06)
NALSAR LAW UNIVERSITY, HYDERABAD
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INDEX
Introduction ……………………………………………………………………………………………….2
Facts of the Case…………………………………………………………………………………………...2
The Court's Ruling………………………………………………………………………………………...3
1. On the advisory nature of GST
Council………………………………………………………………...3
2. Composite Supply and Double Taxation………………………………………………………………..3
Analysis…………………………………………………………………………………………………….4
1. Constitutional and Legislative
Impact…………………………………………………………………..4
2. Federalism and Taxation Policies………………………………………………………………………4
3. Conflict
Potential………………………………………………………………………………………...4
Conclusion…………………………………………………………………………………………………5
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Introduction to the GST Regime and Federalism
Through the 101st Constitutional Amendment in 20171, the introduction of the Goods and Services Tax
(GST)2 marked a significant shift in the Indian taxation landscape. Before GST, the country’s existing
indirect tax structure was fragmented, with many taxes imposed at different levels and stages by central
and state governments both. GST sought to fix this multiplicity of taxes with a single, unified system
under the slogan “One Nation, One Tax.”3
The new system introduced a new structure where both central and state governments have concurrent
powers to legislate on GST matters under Article 246A of the Indian Constitution. The GST Council was
established under Article 279A. It was given the responsibility as the central forum where the central and
state governments would work together and recommend on key aspects of administration, such as rates,
exemptions, and regulations of tax.
The Council’s ensuring uniformity in tax policy was essential for the success of GST. The one major
question that remained unresolved was: Are these recommendations binding or are they merely advisory?
Arguing on the legality of this issue in the landmark case of Mohit Minerals Ltd. vs Union of India 4, the
Supreme Court was to decide the constitutional nature of the GST Council’s recommendations.
Facts of the Case
The Respondent imported non-coking coal from a variety of countries, including Indonesia and South
Africa. These were made on a Cost-Insurance-Freight (CIF) basis, wherein the exporter was responsible
for paying the costs of shipping and insurance, and the goods were delivered to India. Upon completion of
importation, the company paid Integrated Goods and Services Tax (IGST) on the value of the goods
under the provisions of the IGST Act.
In addition to paying IGST on the value of the goods, Mohit Minerals Ltd. was also required to pay IGST
on the value of ocean freight services. This additional levy imposed by the central government was under
two notifications: Notification 8/20175 and Notification 10/20176, which deemed ocean freight liable to
tax under the Reverse Charge Mechanism (RCM)7. Under these provisions, the importer (i.e. Mohit
Minerals Ltd.) was deemed the recipient of the transportation services provided by the foreign shipping
company and was thus liable to pay IGST on the freight.
1 The Constitution (One Hundred and First Amendment) Act, 2016, INDIA CONST.
2 The Central Goods and Services Tax Act, No. 12 of 2017, India Code (2017).
3 Press Information Bureau, Government of India, One Nation, One Tax: GST to Herald a New Era of Taxation
(July 1, 2017).
4 Mohit Minerals Ltd. vs Union of India [2022] 138 [Link] 331 (SC)
5 Notification No. 8/2017-Central Tax (Rate), Ministry of Finance, Dep’t of Revenue, Government of India (June
28, 2017).
6 Notification No. 10/2017-Central Tax (Rate), Ministry of Finance, Dep’t of Revenue, Government of India (June
28, 2017).
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2
Mohit Minerals Ltd. contested this and argued double taxation. It emphasised that the cost of ocean
freight included in the value of the goods was already subject to IGST. It also contended that the
Council’s recommendations were advisory in nature and could not impose binding obligations on either
governments.
Ruling of the Court:
1. On the advisory nature of GST Council:
This ruling’s most important aspect was its interpretation of the nature of the GST Council’s
recommendations. The Centre argued that the recommendations were binding on both the Union and the
states, citing uniformity in taxation policy as an objective of the GST regime. The Supreme Court
disagreed, holding in favour of the company, that the recommendations of the GST Council are advisory,
not binding.
The Court based its ruling on interpretations of Article 246A8 and Article 279A9 of the Indian
Constitution. Article 246A gives the Parliament and the state legislatures their concurrent powers to
legislate on GST matters. The Apex Court held, this shared power underlines the significance of
cooperative federalism, where governments function as equals. Article 279A established the Council, and
was seen to facilitate cooperation between the two governments, instead of one that imposes binding
mandates.
The ruling also held that treating the recommendations as binding would destroy the federal balance by
centralising all power in the hands of the Centre. As long as they stay advisory, the Court ensured that
states retain their fiscal autonomy while participating in the new GST regime.
2. Composite Supply and Double Taxation
Another critical issue in the Mohit Minerals case was the concept of composite supply and the question of
double taxation. Section 2(30) of the Central Goods and Services Tax (CGST) Act10, states that a
composite supply is defined as “a supply consisting of two or more taxable supplies that are naturally
bundled together.” Section 8 says in the case of a composite supply, tax is levied only on the principal
supply.
Apex Court held, in a CIF transaction, the supply of transportation and insurance, are part of a single,
composite supply. The principal supply in such cases is the goods, and therefore, the entire transaction
should be taxed as a supply of goods. The Court found that imposing a separate IGST on the
transportation services as part of the CIF contract would violate the principle of composite supply.
8 INDIA CONST. art. 246A.
9INDIA CONST. art. 279A.
10Central Goods and Services Tax Act, No. 12 of 2017, § 2(30), India Code (2017).
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It also touched upon the issue of double taxation. As the value of ocean freight was being included in the
price of the goods and subject to IGST, the Court states that levying an additional tax on the freight led to
double taxation. This was inconsistent with the intent of the GST regime, which was designed to simplify
the tax structure by eliminating the cascading effect of multiple taxes.
The central government had argued that the transportation services could be taxed separately from the
goods, but the Court rejected this argument. The Court emphasised that the GST legislation intended to
treat the supply of goods and services together in such cases, and taxing them separately would go against
the purpose of GST.
Analysis
1. Constitutional and Legislative Impact
The Supreme Court’s decision has many implications for the legislative and constitutional framework of
the new GST regime. The Court reaffirmed the principle of cooperative federalism enshrined in the
Constitution. Article 246A of the Constitution grants both governments legislative power to legislate on
GST matters. The Court called it a mechanism that ensures both entities retain equal powers in the
taxation realm.
The ruling highlighted Article 279A, whose role was to establish the GST Council 11. The Court clarified
that the Council cannot impose binding obligations on either the centre or the states. This ensures the
intact federal structure of India.
This prohibits the Centre from dominating the regime. It could have happened if the recommendations
were deemed binding. Fortunately, the ruling promotes an approach of collaboration, where decisions are
made via deliberation, rather than unilateral imposition.
2. Federalism and Taxation Policies
This judgement has significant implications for India’s taxation and federalism policies. By declaring the
GST Council’s recommendations as advisory, the Court ensured that states retain their autonomy in
matters of taxation. This is quintessential for the balance of power between the two governments,
especially in a federal system where both have an important governance role to play.
The Court reinforces that rather than centralization of power, cooperative federalism is the guiding
principle of the GST regime. They are not merely passive participants in the system; States have a crucial
and meaningful role in shaping policies on taxation that suit their unique needs. The judgement ensures
that states can independently legislate on GST matters, an essential idea for addressing specific fiscal
concerns.
11 Goods and Services Tax Council, Recommendation on Rate Changes (Oct. 5, 2023).
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Additionally, the ruling underscores the need for co-operation between both the Centre and the States to
make sure that the functioning of the GST regime remains smooth. It could lead to inconsistencies in tax
policies across the country, which could pose challenges for businesses operating in multiple states, if
states choose to diverge significantly from the recommendations of the GST Council.
3. Conflict Potential
The judgement not only preserves the autonomy of states but also opens the door to potential conflicts
between the centre and the states. States are given the choice to deviate from the recommendations of the
Council, which could be disastrous and result in varying tax policies across the country. This could be
challenging for businesses, as they may have to navigate different tax regimes in different states.
Another risk is that states could use their newfound autonomy to make laws in a way that does not align
with the interest of the nation. If states legislate diverging significantly from the Council’s
recommendations, it could undermine the uniformity of the GST regime, which is one of its main
objectives.
The case also places the responsibility on both the centre and the states to work together to make sure that
the GST regime succeeds. The ruling highlights the importance of mutual trust and cooperation in
maintaining a unified tax system. The future of the new GST regime, as the Court hinted at, will depend
on the good faith and prudence of both the states and the centre in collaborative work together to resolve
disputes and create a coherent policy for taxation.
Conclusion
The Mohit Minerals Ltd.12 judgement is a landmark ruling that has essential and far-reaching implications
for India’s Goods and Services Tax regime and its federal structure. The GST Council’s
recommendations, being stated as advisory rather than binding by the Supreme Court, have reinforced the
principle of cooperative federalism, ensuring that both the centre and the states retain their legislative
powers in matters of taxation.
The judgement also touches upon important and critical issues such as that of double taxation and
composite supply which emphasises that the GST regime must follow and adhere to its objective of
simplifying taxation and preventing the cascading effect of numerous taxes. The Court interpreted
composite supply and decided to strike down the imposition of IGST on ocean freight as double taxation
reinforced the demand for a consistent, clear and fair policy for taxation in India.
In conclusion, the success of the new GST regime depends on the ability of both the Central Government
as well as the State Governments to work and cooperate together in good faith. The Supreme Court’s
judgement provides a solid framework for such cooperation, additionally also preserving the autonomy of
states to legislate in ways that best suit their fiscal [Link] Supreme Court has ensured that the GST
regime remains a model of cooperative federalism, where decisions are made through negotiation,
dialogue and mutual respect.
12 ibid