The Supreme Court took a landmark decision on Thursday, where it ruled that the decisions taken by the GST Council are obligatory and not binding on the Central or state governments. A bench of Justices D Y Chandrachud, Vikram Nath, and Surya Kant said that the parliament had intended that the recommendations of the GST Council would be persuasive in nature. However, the parliament and the state legislatures have simultaneous powers to legislate on GST.
“If the GST Council was intended to be a decision-making authority whose recommendations transform to legislation, such a qualification would have been included in Articles 246A or 279A.”, said Justice Chandrachud. He further said that Article 279A does not begin with a non-obstante clause, and neither does Article 246A state that the legislative power is subject to Article 279A. Hence, the GST Council is a recommendatory body that aids the government in enacting legislation on GST.
The bench also said that the recommendations of the GST Council are a product of a collaborative dialogue between the Centre and the states. To view them as binding orders would disrupt fiscal federalism, where both the Centre and the states are conferred equal power for GST legislation.
The ruling by the Supreme Court came after an appeal was filed by the Centre that questioned a January 2020 judgement by the Gujarat High Court. The High Court had allowed a petition instituted by certain importers that challenged the constitutionality of two notifications of the central government. The issue revolved around whether an Indian importer could be subjected to the levy of IGST on that portion of ocean freight paid by a foreign seller to a foreign shipping line on a reverse charge basis.
On Thursday, the Supreme Court upheld the Gujarat HC order and quashed the levy of IGST on ocean freight under reverse charge. This was done by dismissing the Revenue’s special leave petition that challenged the Gujarat HC decision passed in favour of the taxpayer. The SC held that ocean freight paid in the case of import of goods was unconstitutional. The same would be in violation of composite tax rules as the government cannot dissect the import transaction and levy IGST on the transportation of goods from a place outside India to a place in India.
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