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GST Council recommendations not binding on Centre and states: Supreme Court ruling may impact GST provisions

The Parliament and state legislatures possess equal powers to legislate on GST, the Supreme Court said, upholding the judgement of the Gujarat High Court in Ocean Freight matter in the case of Mohit Minerals.

The reaction comes days after an empowered group of ministers (GoM) — set up to look into taxation of online gaming, casinos and races — unanimously proposed a flat 28% goods and services tax (GST) on these activities.

The Supreme Court has ruled that the GST Council recommendations are not binding on the Centre and the states, and are only ‘persuasive, in a landmark judgement that may impact the landscape of GST provisions under judicial review. The Parliament and state legislatures possess equal powers to legislate on GST, the Supreme Court said, upholding the judgement of the Gujarat High Court in Ocean Freight matter in the case of Mohit Minerals. It is for the GST Council to suitably advise the Central government and the state governments, the Supreme Court bench led by Justice DY 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, 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 ie the Parliament and the state legislative assemblies, S R Patnaik, Partner & Head – Taxation, 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,” 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 Revenue’s special leave petition challenging the Gujarat HC 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 Abhishek Rastogi.

The Supreme Court acknowledged that imposing tax on ocean freight is in violation of composite tax, ie, the government cannot 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, Partner – Indirect Tax, Nangia & Co LLP.

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