Union of India v. Mohit Minerals (2022)

Quick Summary

In Union of India v. Mohit Minerals, the Supreme Court held that charging IGST on the ocean freight portion in CIF imports, through reverse charge on the Indian importer, was not valid under the GST scheme. The Court said the import is a single composite supply taxed as a whole; splitting out freight caused double taxation. It also clarified that GST Council recommendations guide policy but do not bind the Union or the States.

Issues

• Can an Indian importer be made to pay IGST on ocean freight paid by a foreign seller to a foreign shipping line in a CIF contract, on a reverse charge basis?
• Are GST Council recommendations legally binding on the Union and the States?

Rules

• Composite Supply: GST applies to the principal supply; components inside it should not be taxed again separately.
• Four Canons of a Valid Levy: Clear taxable event, person liable, rate of tax, and value to which the rate applies.
• Territorial Nexus: India may tax a transaction partly outside India if the law clearly authorises it.
• Cooperative Federalism: Union and States are equal partners unless the Constitution says otherwise.
• No Double Taxation: The same component of a composite supply should not suffer tax twice without express statutory support.

Arguments

Judgment

The Court held that the importer’s CIF purchase is a composite supply taxed as a whole. Splitting out ocean freight and charging IGST again under reverse charge led to impermissible double taxation and lacked clear statutory basis. Therefore, the impugned levy on ocean freight was struck down. On federal design, the Court clarified that the GST Council’s recommendations are persuasive, not binding, on the Union or the States.

Ratio Decidendi

• IGST on ocean freight in CIF imports violated the composite supply principle under the CGST Act.
• Absent explicit statutory authority, the same value component cannot be taxed twice.
• GST Council is a forum for cooperative federalism; its advice is influential but not binding.

Why It Matters

• Stops double taxation on ocean freight in CIF imports.
• Protects the integrity of composite supply under GST.
• Sets the constitutional balance: Council as guide, legislatures as decision-makers.

Key Takeaways

1. In CIF imports, freight is part of the composite supply of goods.
2. Reverse charge cannot cure absence of clear charging provisions.
3. Council’s recommendations carry weight, not compulsion.
4. Territorial nexus permits tax, but without double counting.

Mnemonic + 3-Step Hook

Mnemonic: “CIF = Charge It Fully (once)”

1. See the CIF bundle as one package.
2. Spot the freight already inside the value.
3. Stop any second levy without clear law.

IRAC Outline

Issue: Validity of IGST on ocean freight in CIF imports on reverse charge; binding force of GST Council advice.

Rule: Composite supply principle; four elements of a valid levy; no double taxation without express law; cooperative federalism.

Application: Freight is already part of customs value in CIF. Treating it as a separate taxable service splits a composite supply and duplicates tax exposure.

Conclusion: Ocean freight levy struck down; GST Council recommendations persuasive, not binding.

Glossary

CIF Contract

Sale where cost, insurance, and freight are included in the price to the importer.

Composite Supply

Naturally bundled supplies taxed as a whole according to the principal supply.

Reverse Charge

When the recipient, not the supplier, is liable to pay GST.

FAQs

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