Goods and Service Tax

In News: SC says Centre and States have equal powers to make GST-related laws

• It confirms Gujarat HC ruling that government can’t levy IGST on ocean freight imports
• The Supreme Court in a judgment championing the importance of “cooperative federalism” for the well-being of democracy held that Union and State legislatures have “equal, simultaneous and unique powers” to make laws on Goods and Services Tax (GST) and the recommendations of the GST Council are not binding on them.

Reasons

• The recommendations of the GST Council are the product of a collaborative dialogue involving the Union and the States.
• They are recommendatory in nature
• The recommendations only have a persuasive value. To regard them as binding would disrupt fiscal federalism when both the Union and the States are conferred equal power to legislate on GST,”

Background

What is ocean freight?

• Ocean freight is a method of transport by which goods and cargo is transported by ships via shipping lines. Most of the world’s trade is carried out via sea.

Which are the sections of GST laws governing ocean freight?

• The CGST Act requires the importers to pay IGST at 5% on ocean freight under the Reverse Charge Mechanism (RCM).
• Section 5(3) of the IGST Act: This section notifies the supplies which are taxable to GST under the reverse charge mechanism. Under the reverse charge mechanism, a recipient of goods/services is liable to pay GST instead of the supplier.
• Under the notification Integrated Tax (Rate) dated 28th June 2017, the Government has included the term importer under recipient category.

Gujarat High Court judgment explained

Mohit Minerals vs Union of India (UOI)

• The importer was liable to make payment of IGST at 5% under on ocean freight service. Here, both the importer and the supplier are located in non-taxable territory.
• The importer was required to pay IGST on ocean freight which leads to double taxation, and thus, the aggrieved taxpayer filed a writ petition before the Gujarat High Court.

Judgment

• The notification is subordinate to the GST Act.
• Such notifications making the taxpayer liable to IGST under reverse charge are ultra vires to the IGST Act.
• The High Court held that it is unconstitutional as there is no statutory sanction for levy and collection of such tax.

GST Council

• It is a constitutional body under Article 279A.
• It makes recommendations to the Union and State Government on issues related to Goods and Service Tax and was introduced by the Constitution (One Hundred and First Amendment) Act, 2016.
• The GST Council is chaired by the Union Finance Minister and other members are the Union State Minister of Revenue or Finance and Ministers in charge of Finance or Taxation of all the States.
• It is considered as a federal body where both the center and the states get due representation.
• Every decision of the Goods and Services Tax Council shall be taken at a meeting by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely:
• the vote of the Central Government shall have a weightage of one-third of the total votes cast, and
• the votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting.

Previous Year Questions (PYQs)

Q.1) Consider the following statements:

1. Goods and Services Tax Network (GSTN) is a non-profit organisation formed to provide IT infrastructure and services to the Central and State Governments, taxpayers and other stakeholders for the implementation of GST.
2. The government of India holds a 51% stake in GSTN.

Select the correct code:

1. 1 and 2
2. 1 only
3. 2 only
4. None of the above

Source: The Hindu