On May 19, in Union of India vs Mohit Minerals, the Supreme Court of India delivered a ruling which is likely to have an impact far wider than what the Centre might have imagined when it brought the case up on appeal. At stake was the validity of a levy imposed on importers, of Integrated Goods and Services Tax (IGST) on ocean freight paid by foreign sellers to foreign shipping lines. The Gujarat High Court had declared the tax illegal. The Supreme Court affirmed the ruling through Justice D.Y. Chandrachud’s judgment and held that the levy constituted double taxation — that is, that the importer, which was already paying tax on the “composite” supply of goods, could not be asked to pay an additional tax on a perceived “service” that it may have received.
Just recommendations
In making this finding, the Court proceeded on a technical reading of various laws, in particular the provisions of the Central Goods and Services Tax Act. That reading, in and by itself, has limited implications. But the Court also made a slew of observations, which, if taken to their logical conclusion by State legislatures, could potentially transform the future of fiscal federalism in India. It held, for instance, that both Parliament and the State legislatures enjoy equal power to legislate on Goods and Services Tax (GST), and that the Goods and Services Tax Council’s recommendations were just that: recommendations that could never be binding on a legislative body.
