Indian Law Research

SUPREME COURT OF INDIA

Union of India v. Mohit Minerals Pvt. Ltd.

Decision date:

19 May 2022 · 2022 INSC 596

Explain the ocean-freight levy dispute and the status of GST Council recommendations.

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Source and extraction notes

Official source

Draft summary

AI-assisted historical explanation. Independently checked against the source by an AI reviewer. Not reviewed by a lawyer. This historical summary does not certify the current legal position.

In one sentence

The challenged separate ocean-freight levy conflicted with the composite-supply framework.

Question decided

Could the CIF importer face a separate IGST levy on shipping services in this arrangement?

Key holdings

Outcome

The Union’s appeals were dismissed.

Source PDF pages: 150, 151, 152, 153.

Plain-English explanation

The case involved imports under cost, insurance and freight contracts and the attempt to levy tax separately on the shipping component. The Court analysed the transaction through the GST statutes, including who receives the supply and how composite supplies are taxed. Its decisive conclusion was that the challenged levy could not be reconciled with that framework. The judgment also discussed the constitutional relationship between the Union, States and GST Council. That discussion does not mean that every recommendation or notification can simply be ignored: statutory requirements governing delegated legislation remain relevant. The ruling is specific to the levy and arrangement examined. It should not be advertised as a general exemption for all freight, all imports or every transport service.

Relevant law

Opinions

Three-judge bench; Justice D.Y. Chandrachud authored the judgment.

Research notes and limits

Check the relevant tax period, later notifications and transaction structure before offering current tax conclusions.

Judgment - source material

All pages of the downloaded court document follow, including separate opinions, annexures and any final joint order. This is machine-extracted original text, not an AI rewrite. Use the PDF to check exact wording.

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1 
 
Reportable  
 
IN THE SUPREME COURT OF INDIA 
CIVIL APPELLATE JURISDICTION 
 
 
Civil Appeal No. 1390 of 2022  
 
 
Union of India & Anr.                                                                    ....Appellants 
 
Versus 
 
M/s Mohit Minerals Pvt. Ltd. Through Director                       .... Respondent 
 
WITH 
C.A. No. 1390/2022 
With 
C.A. No. 1394/2022 
With 
C.A. No. 1417/2022 
With 
C.A. No. 1419/2022 
With 
C.A. No. 1445/2022 
With 
C.A. No. 1414/2022 
With 
C.A. No. 1402/2022 
With 
C.A. No. 1412/2022 
With 
C.A. No. 1411/2022 
With

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2 
 
C.A. No. 1413/2022 
With 
C.A. No. 1415/2022 
With 
C.A. No. 1418/2022 
With 
C.A. No. 1420/2022 
With 
C.A. No. 1446/2022 
With 
C.A. No. 1447/2022 
With 
C.A. No. 1409/2022 
With 
C.A. No. 1416/2022 
With 
C.A. No. 1395/2022 
With 
C.A. No. 1407/2022 
With 
C.A. No. 1406/2022 
With 
C.A. No. 1398/2022 
With 
C.A. No. 1401/2022 
With 
C.A. No. 1391/2022 
With 
C.A. No. 1403/2022 
With 
C.A. No. 1393/2022 
With 
C.A. No. 1410/2022 
With 
C.A. No. 1405/2022 
With 
C.A. No. 1397/2022 
With 
C.A. No. 1404/2022 
With 
C.A. No. 1400/2022 
With 
C.A. No. 1396/2022

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3 
 
With 
C.A. No. 1408/2022 
With 
C.A. No. 1399/2022 
And With  
C.A. No. 1392/2022

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4 
 
J U D G M E N T 
 
 
Dr Dhananjaya Y Chandrachud, J 
 
A Introduction ........................................................................................................... 5 
B Submissions ....................................................................................................... 12 
B.1 Union of India ............................................................................................... 12 
B.2 Respondent-assessees ................................................................................ 28 
C Constitutional Architecture of GST ..................................................................... 52 
C. 1 Legislative History of the Constitution Amendment Act 2016....................... 56 
C.2 The nature of the recommendations of the GST Council ............................. 75 
D Analysis .............................................................................................................. 92 
D.1  Statutory Provisions and Scheme of the IGST Act....................................... 92 
D.2  Do the impugned notifications suffer from excessive delegation? ............. 104 
D.3 Charging Section: taxable person, taxable rate and manner of determining 
value  ................................................................................................................... 108 
D.4 Taxable event: Is an ocean freight transaction for import of goods a valid 
category of supply of services under Section 5(3) of IGST Act? ......................... 114 
D.4.(a)  Do imported goods procured on a CIF bas is constitute an inter -state 
supply or is it an extra-territorial tax? ................................................................ 115 
D.4.(b) Are importers service recipients under CIF contracts? ..................... 125 
D.5 Applicability of Section 5(4) of IGST Act .................................................... 135 
D.6 Composite Supply and Issues of Double Taxation..................................... 141 
E Conclusion ........................................................................................................ 150

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PART A  
5 
 
A Introduction 
1 The Union of India1 is in appeal against a judgment of a Division Bench of the 
Gujarat High Court dated 23 January 2020. The High Court allowed a petition 
instituted by the respondents under Article 226 for challenging the constitutionality of 
two notifications of the Central Government . The bone of contention is  whether an 
Indian importer can be subject to the levy of Integrated Goods and Services Tax 2 on 
the component of ocean freight paid by the foreign seller to a foreign shipping line, 
on a reverse charge basis. 
2 The respondents import non-coking coal from Indonesia, South Africa and the 
U.S. by ocean transport on a ‘Cost -Insurance-Freight’3 basis which is supplied to 
domestic industries. The goods are transported from a place outside India, up- to the 
customs station in India. The respondent pay s customs duties on the import of coal, 
which includes the value of ocean freight. In the case of a CIF contract, the freight 
invoice is issued by the foreign shipping line to the foreign exporter, without the 
involvement of the importer. Ocean freight is paid by the importer only when goods 
are imported under a ‘Free- on-Board’4 contract. In the case of a high seas sale 
transaction, the coal is purchased from the original buyer before it arrives at Indian 
ports. 
                                                 
1 “Union Government” or “Central Government” 
2 “IGST” 
3 “CIF” 
4 “FOB”

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PART A  
6 
 
3 Prior to the enforcement of the Goods and Services Tax 5 regime, service tax 
on ocean freight was exempted by Notification No. 25/2012-ST (Serial No. 34) dated 
20 June 2012. This exemption was withdrawn by Notification No. 01/2017- ST dated 
12 January 2017 which levied service tax on the importer, by a reverse charge 
mechanism. With the advent of the GST regime, Notification No.8/2017-  Integrated 
Tax (Rate) dated 28 June 2017 6 was issued by the Central Government on the 
advice of the Goods and Services Tax Council7, in exercise of powers under Section 
5(1), Section 6(1) and Section 20(iii) -(iv) of the I ntegrated Goods and S ervices Tax 
Act 20178, read with Section 15(5) and Section 16(1) of the Central Goods and 
Services Act9. Entry 9 of Notification 8/2017, effective from 1 July 2017, levied an 
integrated tax at the rate of 5 per cent on the supply of speci fied services, including 
transportation of goods, in a vessel from a place outside India up to the customs 
station of clearance in India.  
4 On 28 June 2017, the Central Government issued Notification 10/2017 10. 
Serial 10 of Notification 10/2017 categorized t he recipient of services of supply of 
goods by a person in a non-taxable territory by a vessel to include an importer under 
Section 2(26) of the Customs Act 1962.  
5 Section 5(1) of the IGST Act authorises the levy of an integrated tax on all 
inter-state supplies of goods and services or both. The integrated tax can also be 
                                                 
5 “GST” 
6 “Notification 8/2017” 
7 “GST Council” 
8 “IGST Act” 
9 “CGST Act” 
10 “Notification 10/2017”

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PART A  
7 
 
levied on goods imported into India on the value determined under Section 3 of the 
Customs Tariff Act 197511 at the point when customs duties are levied on the goods 
under Section 12 of the Customs Act 1962 12. Section 11 of the IGST Act stipulates 
that the place of supply of goods in the case of goods imported into India shall be 
the place of the importer. Section 13(9)  of the IGST Act contemplates that the place 
of supply of services, in the case of transportation of goods shall be the destination 
of the goods. The respondent alleges that the impugned notifications create an 
element of double taxation, as ocean freight is included in the value of goods for the 
purpose of customs duty which the importer is liable to pay. The respondent does 
not dispute the liability of integrated tax on supply of service of transportation when it 
imports goods on an FOB basis. 
6 The respondent filed a writ petition b efore the Gujarat High Court challenging 
Notification 8/2017 and Notification 10/2017 13 on the grounds that: (i) the 
notifications are ultra vires the IGST Act and CGST Act; (ii) customs duty is levied 
on the component of ocean freight and the levy of IGST on the freight element in the 
course of transportation would amount to double taxation; (iii) though in the case of 
high sea sales, the importer is a different entity yet this regime would tax the 
respondent as the importer and the recipient of service; (iv) in the case of a CIF 
contract, the su pply of service of transport of goods in a vessel is by a foreign 
shipping line located in a non -taxable territory to an exporter located in a non-
                                                 
11 “Customs Tariff Act” 
12 “Customs Act” 
13 Collectively referred as “impugned notifications”

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PART A  
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taxable territory by a vessel outside the territory of India which cannot be subject to 
tax under the IGST Ac t; (v) Notification 10/2017 transgresses the provisions of 
Section 5(3) of the IGST Act as instead of the “recipient” mentioned therein, the 
“importer” as defined in section 2(26) of the Customs Act, is made liable to pay tax; 
and (vi) Entry 9(ii) and para 2 of Notification 8/2017, read with Notification 10/2017, 
creates a deeming fiction and a separate taxable event which is not permissible in 
law. 
7 The Union of India urged before the High Court that although tax is being paid 
twice on the value of ocean fr eight, it is not unconstitutional as the tax is on two 
different aspects of the transaction, namely, the supply of service and import of 
goods. The rationale for the impugned notifications , a ccording to the Union 
Government, is to remove the disparity betw een Indian and foreign shipping lines, 
as the former are unable to claim input tax credit 14 that form s a part of their 
transportation costs, since supply of goods was hitherto exempt from service tax. 
The levy of the integrated tax does not , according to the Union of India,  impose an 
additional cost on importers as the cost paid on inward transportation of goods and 
import freight services is available to them as ITC. 
8 Under the existing GST regime (presently under challenge), taxability of 
ocean freight under different situations is tabulated below : 
Service Availed Shipping Legal Provision Implication 
                                                 
14 Interchangeably referred as “ITC”

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PART A  
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Company 
Import Indian Section 12(8) of 
the IGST Act -  the 
place of supply of 
services shall be 
the location of the 
recipient 
Transaction is 
liable for tax. 
Importer can claim 
the amount paid as 
tax as input tax 
credit 
Export  Indian Section 12(8) of 
the IGST Act -  the 
place of supply of 
services shall be 
the location of the 
recipient. 
Transaction is 
liable for tax. The 
exporter can get 
refund of input tax 
credit used for 
export. 
Import Foreign Section 13(9) of 
the IGST Act  - the 
place of supply of 
services of 
transportation of 
goods shall be 
place of destination 
of such goods.  
Transaction is 
liable for tax as the 
place of supply is 
India. Tax will be 
paid u nder reverse 
charge and can be 
claimed as input 
tax credit.

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PART A  
10 
 
Export Foreign Section 13(9) of 
the IGST Act  - the 
place of supply of 
services of 
transportation of 
goods shall be 
place of destination 
of such goods. 
Since the place of 
supply will be 
outside In dia, the 
transaction is not 
liable for tax. 
9 The Division Bench of the Gujarat High Court held that the impugned 
notifications are unconstitutional for exceeding the powers conferred by the IGST 
Act and the CGST Act. The High Court held:  
(i) The importer of goods on a CIF basis is not the recipient of the transport 
services as Section 2(93) of the CGST Act defines a recipient of services to 
mean someone who pays consideration for the service, which is the foreign 
exporter in this case;  
(ii) Section 5(3) of the IG ST Act enables the Government to stipulate categories 
of supply, not specify a third-party as a recipient of such supply;  
(iii) There is no territorial nexus for taxation since the supply of service of 
transportation of goods is by a person in a non- taxable ter ritory to another 
person in a non- taxable territory from a place outside India up to the Indian 
customs clearance station and this is neither an inter -state nor an intra-state 
supply;

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PART A  
11 
 
(iv) Section 2(11) of the IGST Act defines “import of service” to mean the s upply 
of service where the supplier of service is located outside India,  the recipient 
of service is located in India and the place of supply of service is in India;  
(v) In this case, since the goods are transported on a CIF basis, the recipient of 
service is the foreign exporter who is outside India;  
(vi) Section 7(5)(c) of the IGST Act dealing with intra- state supply cannot be read 
so extensively that it conflates the “supply of goods or services or both in the 
taxable territory” to “place of supply”;  
(vii) Sections 12 and 13 of the IGST Act deal with determining the place of supply. 
Neither of them will apply if both the supplier and recipient of service are 
based outside India. The mere fact that the service terminates at India does 
not make the service of supply of transportation to be taking place in India;  
(viii) The provisions regarding time of supply, as contemplated in Section 20 of the 
IGST Act and applicable to Section 13 of the IGST Act dealing with supply of 
services, are applicable only vis -à-vis the actual recipient of the supply of 
service, which is the foreign exporter in this case;  
(ix) Section 15(1) of the CGST Act enables the determination of the value of the 
supply, only between the actual supplier and actual recipient of the service;  
(x) Since the importer is not the “recipient” of the service under Section 2(93) of 
the CGST Act, it will not be in a position to avail ITC under Section 16(1) of 
the CGST Act; and

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PART B  
12 
 
(xi) Since the importer pays customs duties on the goods which include the value 
of ocean freight, the impugned notifications impose double taxation through a 
delegated legislation, which is impermissible. 
 
B Submissions  
B.1 Union of India 
10 Mr N Venkataraman, learned Additional Solicitor General 15 appearing on 
behalf of the appellant – the Union of India – urged the following submissions: 
A. Constitutional Architecture of IGST  
(i) Under Article 286(2), Parliament is empowered to formulate inter alia the 
principles for determining when a supply of goods or services takes place in 
any of the ways mentioned in Article 286(1), which includes imports;  
(ii) Article 269A enables the Union Government to levy GST on inter -state 
supplies. The explanation to Article 269A(1) creates a deeming fiction that a 
supply of goods or services in the course of import s is to be considered as a 
supply of goods or services or both in the course of interstate trade; 
(iii) Article 269A(5) enables Parliament to formulate the principles fo r determining 
the place of supply and when a supply of goods and services or both takes 
place in the course of inter -State trade or commerce.  This constitutional 
mandate finds legislative effect in the IGST Act; 
                                                 
15 “ASG”

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PART B  
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(iv) As contemplated in Article 286(2) read with Article 269A(1), the IGST Act 
enacts provisions relating to the levy and collection of integrated tax (Section 
5(1)), export of goods [Section 2(5)], export of services [Section 2(6)], import 
of goods [Section 2(10)], import of services [Section 2(11)], location of 
recipient of services [Section 2(14)] and location of supplier of services 
[Section 2(15)]; 
(v) In terms of Article 269A(5), the IGST Act contemplates provisions for 
determining the nature of inter -State supply (Section 7), supplies in territorial 
waters (Section 9), place of supply of goods imported into or exported out of  
India (Section 11), place of supply of services where the location of supplier 
and recipient is in India (Section 12) and place of supply of services where the 
location of supplier and recipient is outside India (Section 13). 
B. Charging Section 
(vi) The charge created by Section 5(1) of the IGST Act can extend to an ocean 
freight transaction to be taxed in the hands of the importer. This creation of a 
charge is in compliance with the essential components of taxation identified 
by a Constitution Bench in Mathuram Agrawal v. State of Madhya 
Pradesh
16 and further elaborated on by this Court in Gobind Saran Ganga 
Saran v. Commissioner of Sales Tax17.  
                                                 
16 1999 (8) SCC 667 (“Mathuram Agrawal”) 
17 AIR 1985 SC 1041 (“Gobind Saran Ganga Saran”)

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(vii) The four fundamental principles of a taxing enactment are: the taxable event, 
the person on whom the levy is imposed, the rate at which the levy is imposed 
and the measure or the value to which the rate will be applied; 
(viii) Section 5(1) fulfils the above components of taxation: 
• Taxable event   “There shall be levied a tax called integrated goods 
and services tax on all inter -State supplies of goods or services or both 
except on the supply of alcoholic liquor for human consumption.” 
• Taxable value  “On the value determined under Section 15 of the 
CGST Act” 
• Taxable rate   “At such rates not exceeding 40% as may be notified 
by the Government on the recommendations of the Council and 
collected in such manner as may be prescribed” 
• Taxable person  “Shall be paid by the taxable person” 
C. Concept of Reverse Charge 
(ix) Section 2(98) of the CGST Act defines “reverse charge” to mean the liability 
to pay tax by the recipient of supply of goods or services or both instead of 
the supplier of such goods or services or both under sub -Section (3) or sub-
Section (4) of Section 9 of the CGST Act or under sub- Section (3) or sub -
Section (4) of Section 5 of the IGST Act. The impugned notifications are 
issued in exercise of the powers of the Union Government vested by the 
aforesaid sections of the IGST Act or the CGST Act;

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15 
 
(x) A person covered by reverse charge becomes a taxable person in terms of 
Section 2(107) of the CGST Act read with Section 24(iii) of the CGST Act. 
Pertinently, Section 24(iii) of the CGST Act employs the language of “persons 
who are required to pay tax under reverse c harge” and not “persons who are 
recipient of services under Section 2(93) of the CGST Act 2017”; 
(xi) Section 5(3) of the IGST Act and Section 9(3) of the CGST Act permit the 
Government, on the recommendation of the GST Council, to specify the 
categories of goods or services or both, the tax for  which shall be paid on 
reverse charge basis by the recipient of such goods or services or both;  
(xii) Presently, neither the provisions nor the rules have identified the taxable 
persons for reverse charge. Hence, the impugned notifications are a 
legitimate exercise of delegated legislation. Notification 10/2017 identifies an 
importer as a recipient for the purposes of reverse charge. The power to issue 
such a notification can be traced back to Sections 5(3) and 5(4) of the IGS T 
Act; 
D. Inter-state supply and Place of Supply 
(xiii) The import of service in this case is an inter -state supply in terms of Section 
7(4) read with Section 13(1) and 13(9) of the IGST Act. Although the 
contracting parties are foreign, the critical limb of the transaction happens in 
the taxable territory, namely, India. Hence, the transaction can also fall under 
Section 7(5)(c) read with Section 13(1) and Section 13(9) of the IGST Act;  
(xiv) Section 13(9) of the IGST Act stipulates that the place of supply of services of 
transportation of goods other than by way of mail or courier shall be the place

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PART B  
16 
 
of destination of such goods. Even though the contracting parties  – the 
foreign shipping line and the foreign exporter  – are outside the territory of 
India, the provision of service is for the Indian importer and consequently the 
consumption and exhaustion of service which is a critical limb, both 
commercially and legally, happens only in the hands of the Indian importer; 
 
E. Time of Supply 
(xv) Section 13(5) of the CGST Act contains a residual provision for determining 
time of supply to be the date on which the tax is paid. Since the other sub-
sections in Section 13 are not applicable for construing the time of supply, 
Section 13(5) of the CGST Act would be applicable;  
F. Composite Supply 
(xvi) The CIF transaction and IGST on ocean freight are two independent 
transactions, entitled to suffer independent levies and do not qualify as a 
composite supply under Section 2(30) of the CGST; 
(xvii) GST and customs duties are not exclusive means of taxatio n. GST is a 
destination-based tax. The integrated tax is being sought to be imposed on 
the supply of service and not on the goods. Separate aspects are being 
taxed, hence it cannot be termed as overlapping. Moreover, the tax is on the 
value of goods, and not the freight. Tax paid at an anterior stage is not double 
taxation if it is included in the overall value; 
(xviii) The discharge of reverse charge taxation does not make two independent 
contracts as a composite contract. The contract between the foreign shipping

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PART B  
17 
 
line and the foreign exporter is distinct and independent of the contract 
between the foreign exporter and the Indian importer. Their concomitance 
does not make them composite;  
(xix) What is sought to be taxed on the supply of goods on CIF value basis is 
traceable to the proviso to Section 5(1) read with Sections 3(7) and 3(8) of the 
Customs Tariff Act. On the other hand, what is sought to be taxed under IGST 
on reverse charge basis derives power under Section 5(1) (taxable person) 
read with Section 24(iii) of the CGST Act and Section 5(3) of the IGST Act 
and the impugned notifications; 
(xx) A Constitution Bench of this Court in McDowell and Company Ltd. v. 
Commercial Tax Officer
18 has held that a single element can constitute the 
basis of a levy and can also form par t of the value for another transaction. 
This cannot be termed as double taxation. 
G. Extra-territoriality 
(xxi) There is  sufficient territorial nexus for the purpose of taxation since the 
importer is the final beneficiary of a service provided by a foreign shipping line 
by way of transportation up to the customs station of clearance in India. The 
transaction between the foreign exporter and the foreign shipping line has a 
nexus to the taxable territory of India. The importer is the beneficial owner of 
the goods at t he time of clearance. The appellant relies on the decisions of 
this Court in M/s Electronic Corporation of India v. Commissioner of 
                                                 
18 1985 (3) SCC 230 [“McDowell”]

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PART B  
18 
 
Income Tax 19 and GVK Industries v. Income Tax Officers 20 where this 
Court has upheld taxing statutes having a territorial nexus to India; 
H. Service recipient 
(xxii) There are six reasons to term an Indian importer as the recipient of service: 
(a) Section 2(93)(c) of the CGST Act envisages a recipient of an intangible 
service as one who does not pay consideration. In CIF transactions, the 
Indian importer does not pay for ocean freight and yet receives the benefit 
of transportation; 
(b) Section 2 of the CGST Act is prefaced with “ In this Act, unless the context 
otherwise requires ” which warrants a broad interpretation of statutory 
definitions therein;  
(c) Section 24(iii) read with Section 2(98) of the CGST Act, read with Section 
5(3) of the IGST Act and the impugned notifications  issued thereunder , 
allow any person to become a taxable person and such a taxable person 
becomes the recipient of supply of goods or services or both. Once ‘ any 
person’ is identified as a taxable person for reverse charge under a 
notification issued under 5(3) of IGST Act, by sheer default of the definition 
of reverse charge under Section 2(98) of the CGST Act, such a taxable 
person on reverse charge becomes a service recipient; 
(d) Section 5(3) of the I GST Act clearly enables the identification of service 
recipients, and not just categories of goods or services or both. Any 
                                                 
19 1989 Supp 2 SCC 642 
20 2011 (4) SCC 36 [“GVK Industries”]

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PART B  
19 
 
contrary interpretation would be against the legislative intention. On a 
conjoint reading of Section 5(3) of the IGST Act read with Section 2(93) of 
the CGST Act, a service recipient can be identified through a notification; 
(e) The definition of “supply” without consideration under Section 7(c) of the 
CGST Act is n ot an exhaustive definition. Further, Section 2(31) of the 
CGST Act defines consideration and does not restrict its payment to only 
the owner of such goods and services; and 
(f) Section 2(93)(c) of the CGST Act reads “..and any reference to a person to 
whom a supply is made, shall be construed as a reference to the recipient 
of the supply…”. A supply can be made to ‘a person’, ‘a registered person’ 
and ‘a taxable person’ and such a supply shall be construed to be a supply 
to a recipient. Since the Indian import er would qualify under all the 
aforementioned categories, it can be termed as recipient of the service.  
I. Applicability of Section 5(4) of the IGST Act  
(xxiii) In the alternative, the impugned notifications would be saved by Section 5(4) 
of the IGST Act which perm its the Union Government, on the 
recommendations of the GST Council, to specify a class of registered persons 
who shall in respect of specified categories of goods or services or both 
received from an unregistered supplier , pay the tax on reverse charge basis 
as the recipient and all the provisions of the Act would apply to such a 
recipient; 
(xxiv) It is admitted that the impugned notifications do not refer to Section 5(4) of the 
IGST Act. However, it is settled law that once a power is available to grant or

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PART B  
20 
 
identify the taxable person, taxable event, rate and measure, non-reference of 
the source of power will not vitiate its exercise and application in given facts 
and circumstances of the case; 
J. Parliamentary legislation v. Excessive delegation 
(xxv) This Court in Municipal Corporation of Delhi v. Birla Cotton Spinning and 
Weaving Mills21 and Avinder Singh v. State of Punjab 22 has held that only 
essential legislative functions, such as policy guidelines and framework, need 
to be performed by Parliament and the state legislatures. Once these are 
made available through the exercise of plenary power, the rest of the details 
can always emerge through the exercise of delegated powers;  
(xxvi) The constitutional mandate of Articles 269A and 286 finds effect under the 
IGST Act. The IGST Act, and specifically Section 5(1) therein, has defined the 
subject matter of taxation (inter -state supply of goods and services), the 
taxable person under Section 2(107) read with Section 24(iii) of the CGST 
Act, a maximum cap of 40 per cent and determination of taxable value in 
terms of Section 15 of the CGS T Act. Only the identification of the taxable 
person is delegated to the Union Government which makes its decisions on 
the basis of the recommendations of the GST Council; 
K. GST Council recommendations - Cooperative federalism and collaborative 
federalism 
                                                 
21 1968 (3) SCR 251 
22 1979 (1) SCC 441

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(xxvii) GST is a consumption tax and the tax jurisdiction extends to the place the 
supply is consumed. Since the foreign shipping line or foreign exporter are 
located in a non- taxable territory, the Indian importer has to be taxed on a 
reverse charge basis since the service is consumed in India. The purpose is 
to make the Indian shipping lines as competitive as foreign shipping lines. ITC 
is available to the importer and the tax paid on such a reverse charge can be 
offset in the importer’s output tax liability. Theref ore, there is no additional 
burden on the importer- it is a mere alteration of the mechanism; 
(xxviii) The integrated tax was essential to level the playing field between foreign 
shipping lines and Indian shipping lines since the former were not required to 
charge any tax on the recipient of supply of service; 
(xxix) The spirit of the cooperative federalism must guide the functioning of the GST 
Council as envisaged in Article 279A(6). This was espoused by this Court in 
Union of India v. VKC Footsteps India Private Limited
23 where it was held 
that there is a need for a harmonised structure of goods and service tax. The 
GST Council is empowered to decide on every aspect of the GST law. The 
recommendations of the GST Council are binding on the executive and the 
legislature-while it frames laws relating to GST by the power under Article 
246A; 
(xxx) The GST Council recommends the law, rules and notifications through a 
voting architecture that is prescribed in Article 279A(6) and quorum 
                                                 
23 (2022) 2 SCC 603 (“VKC Footsteps”)

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requirements in Article 279A(7). Every decision flows from one common 
source; 
(xxxi) The GST Council is the only constitutional body which acts as a converging 
point or a platform for both the f ederal units to work in a harmonious manner 
in structuring the goods and service tax, in the process of developing a 
harmonised national market for goods and services;  
(xxxii) Article 246A states that the power to legislate GST laws is only with the Union 
of India and the States. Neither can Article 279A override Article 246A nor can 
Article 246A be made subject to Article 279A . Judicial interpretation must 
strike a harmony such that  Parliament, the state legislatures and the GST 
Council work in unison and harmony; and 
(xxxiii) The constitutional scheme therefore envisages a two-step process. At the first 
level of the GST Council, Article 279A(6) envisages  cooperative federalism 
and in the absence of either a non obstante clause in Article 279A or a 
‘subject to’ clause in Article 246A, the need or requirement is  that both the 
Union and the States should be supportive of this cooperative federalism 
through the process of collaborative federalism; and 
(xxxiv) Section 5(1) of the IGST Act, by design, chooses to delegate certain 
functions to the GST Council in order to achieve  the legislative object. Even 
though Article 246A does not subject Article 246A to Article 279A, the Union 
and States after exercising their legislative power and discretion under Article 
246A(1) have agreed to go by the recommendations of the GST Council in 
every aspect of the GST law wherever required. This is the spirit of

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collaborative federalism which must be respected by upholding the 
constitutional validity of the impugned notifications. 
11 The learned ASG has urged the following supplementary submissions by way 
of rejoinder: 
(i) The purpose of the integrated tax is to introduce a level playing field between 
foreign shipping lines and Indian shipping lines. It is a settled principle that to 
tax one subject, the revenue does not have to tax everything; 
(ii) The respondents have contended that the tax on an Indian importer is on a 
reverse charge basis, and therefore the importer does not fall under the 
definition of a ‘taxable person’. However, Section 2(107) of the CGST Act 
defines a taxable person as any person registered or liable to be registered 
under Section 22 or Section 24 of the CGST Act. Section 24 classifies 
persons liable for compulsory registration, and Section 24(iii) includes persons 
governed by the reverse charge mechanism; 
(iii) In Laghu Udyog Bharati v. Union of India 24, this Court  struck down the 
imposition of service tax on a reverse charge basis since the legislature had 
failed to identify the persons on whom service tax could be imposed, enforced 
and collected. However, Section 2(107) read with Section 24(iii) of the CGST 
Act specifically identifies the importer as a taxable person who is liable to pay 
tax on a reverse charge basis. Section 24(iii) of the CGST Act also defines 
persons liable to pay tax on reverse charge as taxable persons; 
                                                 
24 1999 (6) SCC 418 (“Laghu Udyog”)

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(iv) The respondent s have argued that under Section 5(1) of the IGST Act, the 
taxable value can be determined only through Section 15 of the CGST Act 
and its corresponding rules. It was contended that Notification 8/2017 
prescribes the valuation of 10% of CIF value for the f irst time, which violates 
Section 5(1) of the IGST Act. The appellant submits that in terms of Section 
15(4) and Section 15(5) of the CGST Act, Rules 27 to 31 of the Central Goods 
and Service Tax Rules 2017
25 have been formulated. The Revenue can also 
assess the transaction by taking aid of a residual method prescribed under 
Rule 31 of the CGST Rules. Any discretion vested in quasi -judicial authorities 
must be regulated. The corrigendum dated 30 June 2016 amending 
Notification 8/2017 and prescribing the methodology for determining valuation 
can be read as a guideline for dealing with infirmities in assessment practices. 
It is only a reference or a guideline for making assessments. Even if it were to 
be held inapplicable, the revenue can assess the transaction under Rule 31 of 
the CGST Rules. Thus, Notification 8/2017 does not impinge on Rule 31 of 
the CGST Rules but only aids uniformity;  
(v) The respondents rely on Section 2(87) of the CGST Act and Section 5 of the 
IGST Act to argue that prescription can only be through rules, and not 
notifications. However, Section 15(1), (2) and (3) of the IGST Act prescribes 
values. Section 15(4) and 15(5) of the IGST Act deals with cases where the 
valuation cannot be determined under Section 15(1). Rule 31 of the CGST 
                                                 
25 “CGST Rules”

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Rules al so enables the valuation to be conducted through “reasonable 
means”. Thus, delegation is envisaged in the statutory mechanism; 
(vi) If the expression “by the recipient” is to be given a static meaning as those 
falling under Section 2(93) of the CGST Act, then one would be denuding the 
power to notify persons for reverse charge under Sections 5(1) and 5(3) of the 
IGST Act read with Section 24(iii) of the CGST Act.  
(vii) Alternatively, the concept of reverse charge and notifying persons liable for 
reverse charge is env isaged in the statutory mechanism. Section 2(98) of the 
CGST Act defines reverse charge as imposed “only on the recipient”. Section 
2(93) of the CGST Act defines a recipient. An Indian importer can be a 
recipient in six ways that have been elaborated in the submissions. The Indian 
importer does not pay any consideration of service in CIF imports since 
consideration is paid by the foreign exporter. Section 2 is illustrative and not 
rigid. A “ person”, as defined under Section 2(84) , is deemed to be the 
recipient of a service if such person satisfies the conditions under 2(93) of the 
CGST Act. Section 5(3) of the IGST Act contemplates the applicability of all 
provisions of the Act to the recipient. The fact that consideration is paid by the 
foreign export er to the foreign shipping line does not vitiate the IGST Act’s 
scheme which enables payment of tax on a reverse charge basis; 
(viii) Section 13(9) of the IGST Act states that the destination of the goods shall be 
the place of supply, which is on Indian territory . This Court in Union of India

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v. Jalyan Udyog26 has held that deeming fictions can be created even by the 
executive, i.e. through delegated legislation.  
(ix) In case of a foreign exporter and a foreign shipping line, there is a nexus with 
India since the impor ter would be Indian. Forward charge taxation is 
envisaged in direct tax. Section 9(1)(6) of the Income Tax Act 1961 taxes a 
non-resident outside India since the income is generated in India; 
(x) The decision of this Court in BSNL v. Union of India
27 on double taxation has 
no applicability to this case since that was on the question of the overlap of 
VAT and service tax in the pre-GST regime and was decided on the ground of 
the impingement on the exclusive domain of the Union to impose service tax 
under Entry 97, List I;  
(xi) In the alternative, the integrated tax derives authority from Section 5(4) of the 
IGST Act which permits the government to specify a class of registered 
persons who receive goods or supplies from an unregistered supplier, who 
shall pay the tax on a reverse charge basis as the recipient. If this section is 
deemed applicable, then the importers would be liable for tax w ith effect from 
1 February 2019, though exempted for the period from 13 October 2017 till 31 
January 2019; 
(xii) The creation of the GST C ouncil under Article 279A embodies the spirit of 
collaborative federalism.  The GST Council is constitutionally mandated , 
                                                 
26 1994 (1) SCC 318 
27 2006 (3) SCC 1 (“BSNL”)

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particularly under Article 279A(6) , to promote harmony and alignment 
amongst the federal partners; 
(xiii) Under Article 279A(4), decisions of the GST Council transform into 
recommendations to the Unions and the States. The GST Council is the only 
constitutional body that acts as a converging space or platform for the federal 
units to work in a harmonious matter. The principal function of the GST  
Council is to take decisions, which are conveyed as recommendations. These 
recommendations have a unique constitutional status and they are overridden 
in exceptional circumstances;  
(xiv) It was contended by the respondents that instead of course correcting the  
input tax mechanism, the revenue has chosen to tax the Indian importer on 
reverse charge. This is more a policy than a perceptional issue. As long as 
the tax is legal and valid, the manner and mode of taxation need not be 
questioned. A better manner and m ode would not result in  the exercise of 
legislative discretion being declared to be invalid or illegal; and 
(xv) The integrated tax was introduced to ensure a level playing field between 
foreign and Indian shipping lines. This objective must be appreciated whil e 
determining constitutionality.

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B.2 Respondent-assessees 
12 Mr V Sridharan, learned senior counsel appearing on behalf of the 
respondents28 has urged the following submissions:  
(i) Under Section 5(4) of the IGST Act, the Government cannot specify the 
person liable to pay service tax on a reverse charge basis:  
(a) Section 5(3) of the IGST Act provides that the Government may specify 
the categories of supply of goods or services or both on which the tax 
shall be paid on reverse charge basis by the recipient of the goods or 
services. Thus, the power under Section 5(3) is only to specify the 
categories of supply, while the liability to pay tax is fixed on the 
recipient. The Government cannot  specify the person liable to pay tax 
on reverse charge basis under Section 5(3);  
(b) Notification 10/2017 has been issued under Section 5(3) of the IGST 
Act. Since the power flows from Section 5(3), the Government can by a 
notification only specify the ‘categories of supply’, as the liability for tax 
has been determined by Parliament; 
(c) In contrast with Section 5(3), prior to the introduction of GST, Section 
68(2) of the Finance Act 1994 provided that the service tax shall be 
paid by “such person…as may be pres cribed”. In that case, the liability 
of tax was not determined by the legislation; 
                                                 
28 In SLP(C) No. 3081 of 2021, SLP(C) No. 1625 of 2021 and SLP(C) No. 3760 of 2021

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(d) Under the CGST Act and the IGST Act, the only place where a person 
other than a supplier or recipient is made liable to pay tax is under 
Section 5(5) of the IGST Act, where an electronic commerce operator 
through whom supply is made is taxed; and 
(e) In case the Parliament desired the tax to be collected from a person 
other than a supplier or recipient, it would have expressly provided so 
in the legislation. Since Parliament has specified the person liable for 
tax, it is not a matter to be governed by delegated legislation; 
(ii) Section 2(98) of the CGST Act defines ‘reverse charge’ as the liability to pay 
tax by the recipient of supply of goods or services or both instead of the 
supplier of such goods or services or both. In other words, only the recipient 
can be made liable to pay tax under reverse charge basis and the reverse 
charge cannot be disintegrated from the recipient of supply;  
(iii) Section 5(3) clearly stipulates that (i) the tax shall be paid on a reverse charge 
basis and (ii) the tax is payable by the recipient; 
(iv) GST laws contemplate only one recipient for one supply: 
(a) The interpretation of the ASG that the foreign exporter is the recipient 
under clause (a) of Section 2(93) of the CGST Act and the Indian 
importer is the recipient under clause (c) of Section 2(93) of the CGST 
Act leads to absurdity;  
(b) Under Section 2(93) of the CGST Act, a ‘recipient’ is defined with 
reference to three situations- (a) where consideration is payable for the 
supply of goods or services or both, (b) where no consideration is

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payable for the supply of goods and (c) where no consideration is 
payable for the supply of a service. Clauses (a), (b) and (c) of Section 
2(93) are mutually exclusive and cannot apply simultaneously. In case 
the supply of goods or services is for consideration, clause (a) applies 
and the recipient is the person who is liable to pay the consideration; 
(c) The question of who is the beneficiary of the supply or who has 
received the supply  are irrelevant in determining the ‘recipient’ under 
Section 2(93) of the CGST Act; 
(d) Whether a supply of service is an ‘inter-state supply’ under Section 7(3) 
or ‘intra-state supply’ under Section 8(2) of the IGST Act depends on 
the location of the supplier  and the place of supply. In case there are 
two recipients of a single supply, as argued by the ASG, then the 
transaction may become inter -state as well as intra- state supply. Such 
a situation has not been envisaged by Parliament; 
(e) Only the recipient of the supply is entitled to avail input tax credit. In 
case there are two recipients of a single supply, two persons will be 
allowed to avail credit of tax by the supplier; 
(f) The rate of tax is often dependent on the recipient of the supply. For 
instance, services supplied to Government, local authorities or 
charitable institutions, are exempted or liable to a lower rate of tax. If 
there are two recipients, this would result in an anomaly; and 
(g) Even in case of a three- party transaction involving supply of goods, 
Section 10(1)(b) of the IGST Act provides that the place of supply of

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goods is the principal place of business of the recipient, and not the 
person to whom the goods are delivered;  
(v) The last leg of Section 2(93) of the CGST Act does not create a separate 
category of recipient:  
(a) Section 2(93) provides three categories of recipients, namely, where 
consideration is payable for supply of goods or services; where no 
consideration is payable for supply of goods; and where no 
consideration is payable for supply of services;  
(b) Section 2(93) also provides that any reference to a person to whom 
supply is made shall be construed as a reference to the recipient of 
supply and shall include an agent acting on behalf of the recipient; and 
(c) The above provision implies that if the Act does not use the term 
‘recipient’ but makes a reference to the person to whom supply is 
made, then they shall be construed as a ‘recipient’. It does not 
however, create a new category of recipient. 
(vi) The taxable event for  levy of GST is ‘supply’ of goods or service. In the 
absence of supply, no tax can be levied under IGST, CGST or S tate Goods 
and Services Tax Act
29: 
(a) Article 366(12A) of the Constitution defines the ‘goods and services tax’ 
as the tax on ‘supply’ of goods or services or both;  
                                                 
29 “SGST”

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(b) Section 5 of the IGST Act, which is the charging section for levy of tax, 
also states that the IGST will be levied on all inter -State ‘supplies’ of 
goods or services or both; and 
(c) Each transaction has to be evaluated independently to det ermine its 
taxability. The transaction of supply takes place between the 
contracting parties, that is, at whose instance the supply is made;  
(vii) The CGST Act does not envisage a taxable supply without consideration, 
other than those specified in Schedule I: 
(a) Clause (a) of Section 7(1) of the CGST Act defines the term ‘supply’ as 
all forms of supply of goods or services made for a consideration in the 
course of or in furtherance of business. Clause (b) of Section 7(1) of 
the CGST Act provides that import of serv ice for a consideration will be 
included in the term ‘supply’ even if it is not made in the course or 
furtherance of business. Clause (c) provides that activities specified in 
Schedule I will be included in the term ‘supply’ even if they are made 
without consideration; 
(b) Clause (a) requires two conditions to be satisfied: (i) that the activity 
has been made in the furtherance of business and (ii) made  for a 
consideration. In clause (b), the condition of the supply being made in 
the course of business is absent. In clause (c), the condition of supply 
being made for a consideration has not been incorporated but this only 
for activities provided in Schedule I; and

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(c) The argument that supplies can be made without consideration for 
activities other than those specified in Schedule I would make clause 
(c) of Section 7(1) redundant.  
(viii) Notification 10/2017 cannot be sustained under Section 5(4) of the IGST Act:  
(a) The unamended Section 5(4) of the IGST Act provides that integrated 
tax in respect of supplies made by an unregistered supplier to a 
registered person shall be paid by such person on reverse charge 
basis as a recipient of supply;  
(b) The section was a standal one section, operating on its own, and did 
not require anything to be specified by way of a notification. Thus, 
Notification 10/2017 cannot be sustained under Section 5(4); 
(c) Pursuant to the Goods and Services Tax (Amendment) Act 2018, 
Section 5(4) was amended w.e.f. 1 February 2019 to provide that the 
Government may, based on the recommendations of the GST Council, 
by notification, specify a class of registered persons who shall, in 
respect of supply of specified categories of goods or services or both 
received from an unregistered supplier, pay the tax on reverse charge 
basis as the recipient; 
(d) The reliance placed by the Government on the amended Section 5(4)  
of the IGST Act to justify Notification 10/2017 is erroneous as:  
• There was no power to issue a notif ication specifying the class of 
registered person liable to pay tax under reverse charge basis 
under Section 5(4) at the time when the impugned notification was

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issued on 28 June 2017. The power has been granted by 
amendment w.e.f. 1 February 2019; 
• Section 2(93) of the CGST Act provides that any reference to a 
person to whom supply is made shall be construed as reference to 
the recipient of supply. Thus, the person under Section 5(4) who 
has received the supply is the recipient of the supply. Even after 
the amendment of Section 5(4), only the recipient can be specified 
as a person liable to pay tax; and 
• Section 2(98)  of the CGST Act defines ‘reverse charge’ as the 
liability to pay tax by the recipient of the supply instead of the 
supplier. Thus, only the rec ipient can be made liable to pay tax on 
a reverse charge basis; 
(ix)  Section 13(9) of the IGST Act is only  relevant to determine the place of 
supply and not the recipient of supply. Whether the supply of service is an 
export of services under  Section 2(6)(a) of the IGST Act or an import  of 
services under Section 2(11) , read with Section 7(4) of the IGST Act ; or an 
inter-State supply of service, is not determined by Section 13(9); 
(x) Notification 10/2017 has been issued on the recommendation of the GST 
Council under Section 5(3) of the IGST Act and not under Article 279A of the 
Constitution. If the GST Council intended to make a recommendation 
deeming the importer as recipient of supply, then the proper course of

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implementation would be to make an amendment in the IGST Act and seek 
Parliamentary approval; 
(xi) The objective of the tax or levy cannot validate an ultra vires levy:  
(a) The Government has contended that the levy of tax on services of 
transportation of goods into India provided by a person in a non-taxable 
territory to a person in a non- taxable territory, has been introduced to 
create parity for Indian shipping lines with foreign shippers; 
(b) The notification for the levy and reverse charge has been lifted from the 
erstwhile service tax regime into the GST regime without considering 
the changes in language in Section 5(3) of the IGST Act as opposed to 
Section 68(2) of the Finance Act 1994. Thus, the notification is ultra 
vires the Act; 
(xii) The scheme of IGST Act does not envisage a person other than the supplier 
or the recipient as a person liable to pay tax:  
(a) The time of supply of services is determined according to Section 20 of 
the IGST Act along with Section 12 and 13 of the CGST Act. Section 
12 deals with the time of supply of goods and Section 13 deals with the 
time of supply of services; 
(b) Section 13(1) states that the liability to pay tax on services arises at the 
time of supply. Sub -section (2) determines the time of supply on 
forward charge basis. Sub- section (3) deals with time of supply when 
tax is payable on reverse charge basis. Under this sub- section, time of 
supply of services is the earliest date of payment entered in the books

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of accounts of the recipient or the date of debit in the bank account or 
sixty days from the date of last issue of i nvoice by the supplier. Thus, a 
person other than a recipient cannot determine the time of supply; 
(c) Section 13(5) of the CGST Act is only relevant for determining the time 
of supply in case of clandestine supply or evasion of tax and cannot be 
used to determine time of supply for ocean freight services; 
(d) The provisions relating to filing of returns apply whether a person is a 
supplier or a recipient of supply, or apply only to an outward supply and 
an inward supply. The supply of ocean freight service is neit her an 
inward supply nor an outward supply; 
(xiii) In case of  CIF contract s, the customer contracts for a supply of delivered 
goods at the port of destination. The contract for transportation of goods is 
entered into by the foreign exporter with the foreign shipper. Thus, the person 
liable to pay consideration to the foreign shipper is the foreign exporter. The 
importer of goods in India is not the person liable to pay the consideration, 
and is thus, not the ‘recipient’ of the service; 
(xiv) The contract of the Indian importer with the foreign exporter is for supply of 
delivered goods. The service of transportation is a component of the supply of 
goods similar to raw material, manufacturing cost or employee cost of the 
supplier. To contend that the purchaser has received the supply of raw 
material or the services of an employee is illogi cal. Similarly, the argument 
that the Indian importer has received transportation services is irrational; and

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(xv) Serial No. 9(ii) of Notification 8/2017 read with Para 4 and Serial No. 10 of 
Notification No. 9 of 2017- Integrated Tax (Rate) dated 28 June 2019 describe 
the services as provided by a person located in a non- taxable territory to a 
person located in a non- taxable territory. These notifications recognise the 
exporter as the recipient of the service of ocean freight; 
(xvi) The argument of the ASG that the IGST paid on goods at the time of import is 
a customs duty and not a tax, and thus, there is no dual levy of tax recovered 
on ocean freight from the exporter is erroneous:  
(a) The present case involves outright purchase of goods and thus, it is a 
supply of goods under GST and an import of goods according to 
customs law. The issue is whether the transaction is an import of goods 
under customs law, but a supply of service under GST law; 
(b) Section 5(1) of the IGST Act is the charging section. The proviso to 
Section 5(1) states that integrated tax on goods imported into India 
shall be levied and collected in accordance with Section 3 of the 
Customs Tariff Act on the value as determined under the Customs 
Tariff Act and at the point when duties of customs are levied under 
Section 12 of the Customs Act; 
(c) Section 3(7) of the Customs Tariff Act provides that any article 
imported into India shall, in addition, be liable to integrated tax; 
(d) Both the proviso to Section 5(1) of the IGST Act and S ection 3(7) of the 
Customs Tariff Act provide that goods imported into India shall be liable 
to integrated tax;

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(e) The contention that the proviso to Section 5(1) of the IGST Act does 
not contain the word ‘supply’ and thus, the tax is imposed on import of 
goods irrespective of whether the transaction is supply or not, is 
erroneous; 
(f) The absence of the word ‘supply’ in the proviso will not lead to an 
extreme result that the transaction of import of goods becomes leviable 
to IGST even if it is not supply; 
(g) The CGST Act has at various instances, such as Section 11(1), Section 
12(1), Section 13(1) and Section 49(9), omitted the word ‘supply’ and 
merely mentioned the liability to pay tax on goods or services;  
(h) The proviso under Section 5(1) of the IGST Act read with S ection 3(7) 
of the Customs Tariff Act implies that the tax is leviable only on supply 
of goods imported into India;  
(i) The amount collected as IGST on import of goods is apportioned 
between the Union and States as per Article 269A of the Constitution 
which provides for apportionment of GST on inter-state supply of goods 
or service. If import IGST was a customs duty, then the revenue 
proceeds would be distributed in accordance with Article 270 of the 
Constitution; 
(j) At the introduction of GST, the understanding of the Government was 
in consonance with the above legal position and accordingly, the 
Government issued a notification exempting goods and services 
imported from an SEZ unit or developer under the IGST Act.

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Subsequently, the Government rescinded the above exemption 
notifications and issued separate notifications under the Customs Act 
and IGST Act; and 
(k) The Government has also issued various notifications exempting 
payment of IGST in case of import of goods on lease or temporary 
import basis. The intention of Government is not to impose IGST in 
case of import of goods that do not amount to supply.  
13 Mr Harish Salve, learned senior counsel, appearing on behalf of the 
respondent
30 has submitted:  
(i) A CIF contract is an inclusive price covering cost of goods, insurance and 
freight payable for carriage of goods to the destination specified in the 
contract. The essence of the contract is that a seller having shipped the 
goods in accordance with the cont ract, can fulfil his part of the bargain by 
tendering to the buyer the proper shipping documents. If he does this, he is 
not in breach even if the goods are lost before such tender. In the event of a 
loss, the buyer must pay the price on tender of document s and his remedies 
lie against the carrier but not the seller;  
(ii) A CIF contract has two components: (i) price is paid for the freight, and (ii) the 
buyer is never obligated to pay it. The owner of the vessel who enters into a 
contract of affreightment has a privity of contract with the supplier of goods 
                                                 
30 CA No. 13958 of 2020

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and is rendering a service to the supplier. If the service is not received, then 
the question of reverse charge does not arise; 
(iii) Sections 5(3) and 5(4) of the IGST Act are merely machinery provisions for 
collection of tax, and not the charging provision: 
(a) Section 5(1) is the charging section which levies IGST. Since there is 
no separate levy under Section 5(1) on ocean freight, as it  is an import 
of goods which already suffers IGST on CIF value, the question of 
reverse charge does not arise; 
(b) The proviso to Section 5(1) clarifies that the ‘value as determined’ is 
only the measure of tax and not the subject of tax; and 
(c) Section 5(3) cannot be treated as the charging section as it would 
make it possible for the Government to impose separate taxes under 
Sections 5(1) and 5(3) and charge for the services at both ends; 
(iv) There must be a taxable event in the CIF contract of the kind contemplated 
under the IGST Act. In case there is no such event, it cannot be created 
through delegated legislation by the GST Council. There is an absence of a 
statutory fiction by which a CIF contract can be split into a contract for supply 
of goods and services, and creating a second layer of fiction by which the 
shipper is rendering a service to the supplier of goods. Thus, the question of 
levy of tax by the GST Council does not arise; 
(v) In the transaction of import of coal on CIF basis in the present case, the 
recipient will fall under clause (a) of Section 2(93) of the CGST Act as 
consideration is payable for the service of shipping. The mere fact that an

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Indian is the recipient will not lead to the Indian recipient making the payment 
separately under the contract of affreightment. The Indian recipient is only a 
recipient of goods, not of service; 
(vi) The law recognises and maintains the integrity of a CIF contract under 
Section 2(30) read with Section 2(93), and Section 8. These sections maintain 
the integrity of a composite contract by providing that where the goods come 
with insurance and freight, the tax is imposed only on supply of goods; 
(vii) The High Court has held that that the notifications under challenge were ultra 
vires. The Government has not urged that any of these findings are incorrect 
and has only contended that Section 5(1) of the IGST Act satisfies all 
ingredients of a valid tax law; 
(viii) Notification 8/2017 is ultra vires the IGST Act. Section 5(1) of the IGST Act 
only empowers the issuance of notifications for r ates and requires other 
provisions to be prescribed. Section 5(1) does not empower the Government 
to define ‘description of service’ which is an essential legislative function; 
(ix) Entry 9(ii) of Notification 8/2017 imposes a tax on ocean freight in import of 
goods. Such a power however, has not been provided in the statute; 
(x) Para 4 of Notification 8/2017 determines the ‘value of service’ as 10% of the 
CIF value, which is contrary to Section 15(1) of the CGST Act which says 
‘transaction value’; 
(xi) Article 366(12A) defines goods and services tax as involving only supply of 
goods or services or both. Section 7 of the IGST Act has made a clear 
distinction between standalone supply of goods, standalone supply of

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services and standalone supply of ‘goods or services or both’. Section 7(4) 
treats standalone services imported into India as inter -State supply and does 
not artificially bifurcate by assuming ocean freight in the transaction of import 
of goods; 
(xii) Section 13 of the IGST Act has no application in the case which relates to 
import of goods and not services standalone. Section 13 applies to place of 
supply of services, referring to standalone services, and does not use the 
term ‘both’ to apply to supply of goods or services; and 
(xiii) IGST Act has no extra-territorial application as the Act extends to the whole of 
India. Under Section 2(109)  of the CGST Act, taxable territory means the 
territory to which the Act applies. Further, GVK Industries (supra) states that 
Parliament may exercise its powers with respect to an extra -territorial aspect 
when it has a nexus with India. It does not however empower delegated 
legislation to exercise such power. Thus, the activity brought within the tax net 
by the impugned notifications is contrary to the IGST Act. 
14 Mr Arvind Datar, lea rned senior counsel, appearing on behalf of the 
respondent
31 has submitted:  
(i) The levy of IGST on ocean freight by way of Notification No. 10/2017-
Integrated Tax (Rate) is extra- territorial and ultra vires  Section 1 read with 
Section 2(22) of the IGST Act: 
                                                 
31 SLP (C) No. 3462 of 2021

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(a) The levy imposed is on the service of transportation of goods rendered 
by the shipping line to the foreign vendor/exporter, occurring outside 
the territory of India, that is outside the taxable territory; 
(b) The only nexus of the service with India is that the service results in the 
import of goods into India. However, this activity is already subject to 
IGST under the IGST Act and customs duty under the Customs Act; 
(c) For a levy to be imposed under the IGST Act, the service must be a 
‘supply’ under the provisions of IGST Act read with Section 7 of the 
CGST Act. However, Section 1 of the CGST Act and IGST Act are 
limited to the territory of India. Thus, any service received outside the 
territory of India cannot be considered to be ‘supply’ under the IGST 
Act or the CGST Act; 
(d) To impose a levy on a service that is extra -territorial, there has to be a 
deeming fiction in the form of a statutory provision which deems the 
supply of transportation by a vessel to a non- resident exporter. In this 
case, such a deeming ficti on does not exist. Thus, the transportation 
service cannot be deemed as a ‘supply’ under the IGST Act; 
(e) Only once the service provided outside the territory of India is deemed 
as a ‘supply’ by way of statute, can there be a determination of the 
supplier and the recipient; 
(f) By way of the impugned notification, the freight charges incurred 
abroad are sought to be taxed in India on the ground that the service 
recipient is in India. If this argument is accepted, then any service (such

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as insurance or incidental s ervices) rendered abroad can be taxed in 
India on the ground that the recipient is in India. This practice is in 
contrast with international taxation laws and will lead to hardship for 
Indian importers; 
(g) Article 245(2) of the Constitution states that a law made by the 
Parliament will not be invalid on the ground that it has extra- territorial 
operation. However, the expression ‘law made by the Parliament’ does 
not include executive notifications, even if made on the 
recommendations of the GST Council; and 
(h) Tax can be levied outside the territory of India by way of primary 
legislation. For instance, under Sections 6 and 7 of the Territorial 
Waters, Continental Shelf, Exclusive Economic Zone and Other 
Maritime Zones Act 1976, a legal fiction is created by which I ndia has 
the power to levy tax in the Exclusive Economic Zone and Continental 
Shelf. Pursuant to this fiction, notifications levying customs duty on 
supplies made to oil drilling rigs in the Continental Shelf have been 
issued. In the absence of a primary l egislation or statutory provision to 
this effect, notifications cannot impose duties on activities occurring 
outside India; 
(ii) The value of a CIF contract is indivisible, making the computation of tax on 
such a contract impossible: 
(a) The only way to artificiall y dissect the value of a CIF contract is by way 
of statute, which is absent in this case;

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(b) If such a division is allowed, then the Government will be able to tax not 
just ocean freight, but also insurance services; and 
(c) Levy on contracts on a CIF basis will lead to hardships for the Indian 
recipients. The advantage of entering into CIF contracts is to ensure 
that the foreign supplier is responsible for arranging transportation and 
insurance. However, if a CIF contract is made subject to GST, then the 
Indian importers will have to make their own arrangements to transport 
the goods, book an insurance policy and arrange for shipping; 
(iii) The ASG’s reliance on the nexus theory to justify the levy of GST on ocean 
freight, by equating it to the imposition of income tax on income accruing in 
India or customs duty imposed on goods imported into India- is erroneous: 
(a) In case of imposition of income tax, the nexus is provided by way of a 
deeming fiction under Section 5(2) of the Income Tax Act 1961, where 
a non-resident is liable to tax only if the income is deemed to accrue or 
arises in India;  
(b) In case of customs duty, the taxing event is the goods entering the 
territory of India; and 
(c) In the absence of such a provision, the freight services rendered 
outside India cannot be deemed to be received in India merely because 
the recipient is in India. 
(iv) The importer is not the ‘recipient’ of services under Section 2(93) of the CGST 
Act:

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(a) Under clause (c) of Section 2(93), when there is no consideration 
payable for the supply of services , then the person to whom the 
services are rendered is the service recipient. However, in this case, 
the importer is not the service recipient as the importer does not pay 
the consideration or receive the services; 
(b) The argument of the ASG that the importer  is a ‘recipient’ as they are 
the ultimate beneficiary enlarges the scope of Section 2(93) by adding 
words that are absent in the statute; 
(c) Even if the ultimate beneficiary is considered to be the recipient, the 
importer is not the beneficiary of the servic e of transportation of goods. 
Under the terms of a CIF contract, the foreign vendor is obligated to 
arrange for transportation of goods for which he engages the services 
of a shipping line. Thus, the foreign vendor is the ultimate beneficiary; 
(d) The importer is only the beneficiary of the imported goods, whose value 
is taxable as customs duty under the Customs Tariff Act  as well as 
under the IGST Act; and 
(e) Additionally, reliance cannot be placed on clause(c) of Section 2(93) as 
it only refers to those supplies  for which consideration is not paid as 
mentioned in Schedule I of the CGST Act. This schedule enumerates 
the activities deemed as supplies without consideration.  
(v) Imposition of IGST on ocean freight will lead to double taxation:  
(a) Section 3(7) of the Customs Tariff Act states that goods imported into 
India will be subject to IGST under Section 5 of the IGST Act, on the

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value as determined by Section 3(8) and Section 3(8)(a). Under 
Section 3(8), the value includes value of freight; and 
(b) Rule 10 of the Customs  Valuation (Determination of Value of Imported 
Goods) Rules 2007 includes cost of transportation and insurance in the 
value of goods, which forms the basis of the levy of IGST under the 
proviso to Section 5 of the IGST Act. The impugned levy of IGST on 
ocean freight would thus amount to double taxation on the same 
transaction; 
(vi) The ASG’s reliance on ‘aspect theory’ to justify the impugned levy is 
erroneous:  
(a) The ASG relied on the ‘aspect theory’ and submitted that the impugned 
notification taxes the ‘service’ element of ocean freight, while the 
‘goods’ element is taxed under the proviso to Section 5 of the IGST 
Act. However, such an approach is impermissible according to the 
decision of this Court in BSNL (supra); 
(b) The aspect theory is inapplicable as the frei ght element is included by 
levying IGST; and 
(c) The aspect theory in India permits taxation of two different aspects or 
features of a transaction. For instance, in a catering contract, supply of 
food was subject to value added tax and the service aspect was 
subject to service tax. However, the aspect theory does not permit 
double taxation of the same amount or value

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(vii) The GST Council which has been created by Article 279A of the Constitution 
is a recommendatory body, whose recommendations can be implemented by 
either amending the CGST Act or the IGST Act or by issuing a notification. 
However, notifications issued cannot be ultra vires the parent legislation; 
(viii) The principles of cooperative federalism are not relevant in this case as they 
were not adjudicated befor e the High Court. The appeal must test the 
correctness of the impugned judgment without expanding its scope; and 
(ix) Interpretation of Article 279A of the Constitution was not an issue before the 
High Court and the present appeal should be restricted to the validity of the 
impugned notification. 
15 In addition to the above, Mr Vikram Nankani, learned senior counsel, 
appearing on behalf of the respondent
32 urged the following submissions:  
(i) Section 7(4) of the IGST Act provides that supply of services imported into t he 
territory of India shall be treated as a supply of services in the course of inter -
state trade or commerce. Section 2(11)  of the IGST Act defines “import of 
services” when the supplier of service is located outside India, the recipient of 
service is located in India and the place of supply of service is in India. When 
these provisions are read together, it implies that in case of import of services 
into the territory of India, the location of the supplier of services is outside 
India and the location of the recipient is in India. Thus the IGST Act covers 
                                                 
32 SLP(C) No. 843/2021

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either import of goods or import of services and not services subsumed into 
the value of goods imported into India; 
(ii) The IGST Act was never intended to apply to the importer of goods on a CIF 
basis as the services are provided and consumed before the goods reach 
India and have no nexus with the Indian importer; 
(iii) The transaction between two persons located outside India is not chargeable 
under Section 5(1) read with the proviso and Section 7(4) read with Sect ion 
2(11) of the IGST Act. Thus, Notification 8/2017 is ultra vires and Notification 
10/2017, providing for reverse charge is also ultra vires the IGST Act; 
(iv) Section 13(9) of the IGST Act, which states that the place of supply of 
services of transportation of goods is the destination of the goods, cannot be 
read in isolation. Read with Section 7(4) of the IGST Act, it implies that in 
case of import of services, the supplier must be outside India while recipient 
must be in India; and 
(v) The test of ‘ultimate beneficiary’ relied upon by the ASG does not have 
statutory backing since the charging section, that is Section 5, makes the 
recipient of the services liable to pay tax. The Indian importer is not a party to 
the CIF contract between the foreign exporter and the shipping line. 
16 Mr Uchit Sheth, counsel appearing on behalf of the respondents
33 submitted:  
(i) The importers in a CIF contract do not have any privity of contract with the 
supplier of the transportation service since they neither make payment of 
                                                 
33 In SLP(C) No. 3540/2021, SLP(C) No. 1281/2021, SLP(C) No. 1277/2021, SLP(C) No. 2242/2021, SLP(C) No. 
2198/2021, SLP(C) No. 2736/2021

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consideration to the service provider, nor avail any service. The importers 
only purchase and import goods; 
(ii) The impugned levy is contrary to the object and purpose of the IGST Act. 
Section 5 of the IGST Act clarifies that so far as imported goods are 
concerned, IGST is levied at the point of clearance of goods for home 
consumption and on the total value (includi ng value additions till that point). 
This was also clarified by Circular no. 3/1/2018- IGST dated 25 May 2018 
issued by the Central Board of Indirect Taxes and Customs. The impugned 
levy of IGST on the freight element of CIF contracts and high seas purchase 
contracts is ultra vires as IGST is paid on the total value of goods; 
(iii) In Ispat Industries Ltd. v.  Commissioner of Customs
34, in the context of 
imposition of customs duty, it was held that in a CIF contract, the freight is 
part of the price paid to the sell er and further addition of transportation 
charges is contrary to the statutory provisions; and 
(iv) The judgment of this Court in Union of India v. Jalyan Udyog35 which states 
that a  legal fiction can be created even by delegated legislation, is 
inapplicable as in that case, the fiction created was within the parameters of 
the parent provision. In this case, the fiction violates Section 5(3) of the IGST 
Act. 
                                                 
34 (2006) 12 SCC 583 
35 (1994) 1 SCC 318

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17 Mr Rajesh Kumar Gautam, learned counsel appearing on behalf of the 
intervenor36 in SLP(C) No. 13958/2020, has submitted that the argument of the ASG 
that the levy has been introduced to create a level playing field is fallacious as:  
(i) Prior to 2016, all import transportation, whether undertaken by Indian or 
foreign shipping lines was outside the scope of levy. S ervice tax was imposed 
on import transactions undertaken by Indian shipping lines only to allow them 
to avail CENVAT credit. This credit was protected even though no service tax 
was payable on export transportation. Further, Indian importers availing 
services of foreign shipping lines were liable to pay service tax under reverse 
charge. This position continued under the GST regime and the only 
transaction outside the ambit was when the foreign exporter availed the 
services of a foreign shipping line to transport goods to India; and 
(ii) The introduction of levy of service tax or GST on import transactions was by 
way of an incentive to Indian shipping lines. Thus, it cannot now be contended 
that the level playing field has been affected because of this levy. 
18  Similar submissions have been addressed by Dr C Manickam
37, Mr 
Shashank Shekhar38 and Mr Abhishek A Rastogi 39, which we have not recorded 
separately for the sake of brevity. 
19 The rival submissions will now be analysed. 
                                                 
36 IA No. 118754/2021 in SLP(C) No. 
37 Appearing for the respondent in SLP(C) No. 3680/2021 
38 Appearing for the respondent in SLP(C) No. 1798/2021 
39 Appearing on behalf of the intervenor in IA No. 74108/2021 in SLP(C) No. 13958/2020

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C Constitutional Architecture of GST  
20 Before we proceed to analyse the vires of the impugned notifications, it is 
pertinent to contextualize the constitutional architecture of the GST. The Constitution 
(One Hundred and First Amendment Act) 2016 40 was enacted on 8 September 2016 
introducing Article 246A and 279A. Article 246A stipulates that both the Parliament 
and the State legislatures have the power to legislate on GST: 
“246A. Special provisions with respect to goods and services tax 
(1) Notwithstanding anything contained in articles 246 and 254, 
Parliament, and, subject to clause (2), the Legislature of every 
State, have power to make laws with respect to goods and 
services tax imposed by the Union or by such State.  
(2) Parliament has exclusive power to make laws with respect to 
goods and services tax where the supply of goods, or of services, 
or both takes place in the course of inter -State trade or 
commerce. 
Explanation: The provisions of this article, shall, in respect of 
goods and services tax referred to in clause (5) of Article 279A, 
take effect from the date recommended by the Goods and 
Services Tax Council.”   
Article 279A constitutes the GST Council which shall m ake recommendations to the 
Union and the States on a wide range of subjects relating to GST: 
‘‘279A. (1) The President shall, within sixty days from the date 
of commencement of the Constitution (One Hundred and First 
Amendment) Act, 2016, by order, constit ute a Council to be 
called the Goods and Services Tax Council.  
(2) The Goods and Services Tax Council shall consist of the 
following members, namely:—  
(a) the Union Finance Minister...................... Chairperson;  
(b) the Union Minister of State in c harge of Revenue or 
Finance................................................................ Member;  
(c) the Minister in charge of Finance or Taxation or any other 
Minister nominated by each State 
Government........................................................Members.  
(3) The Members of the Goods and Services Tax Council 
referred to in sub- clause (c) of clause (2) shall, as soon as 
may be, choose one amongst themselves to be the Vice-
                                                 
40 “Constitution Amendment Act 2016”

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Chairperson of the Council for such period as they may 
decide.  
(4) Th e Goods and Services Tax Council shall make 
recommendations to the Union and the States on — (a) the 
taxes, cesses and surcharges levied by the Union, the States 
and the local bodies which may be subsumed in the goods 
and services tax;  
(b) the goods and services that may be subjected to, or 
exempted from the goods and services tax;  
(c) model Goods and Services Tax Laws, principles of levy, 
apportionment of Goods and Services Tax levied on supplies 
in the course of inter -State trade or commerce under articl e 
269A and the principles that govern the place of supply; 
 (d) the threshold limit of turnover below which goods and 
services may be exempted from goods and services tax; 
 (e) the rates including floor rates with bands of goods and 
services tax;  
(f) any special rate or rates for a specified period, to raise 
additional resources during any natural calamity or disaster;  
(g) special provision with respect to the States of Arunachal 
Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, 
Mizoram, Nagaland, Si kkim, Tripura, Himachal Pradesh and 
Uttarakhand; and (h) any other matter relating to the goods 
and services tax, as the Council may decide.  
(5) The Goods and Services Tax Council shall recommend 
the date on which the goods and services tax be levied on 
petroleum crude, high speed diesel, motor spirit (commonly 
known as petrol), natural gas and aviation turbine fuel. 
(6) While discharging the functions conferred by this article, 
the Goods and Services Tax Council shall be guided by the 
need for a harmonise d structure of goods and services tax 
and for the development of a harmonised national market for 
goods and services.  
(7) One -half of the total number of Members of the Goods 
and Services Tax Council shall constitute the quorum at its 
meetings.  
(8) The Goods and Services Tax Council shall determine the 
procedure in the performance of its functions.  
(9) 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:— 
 (a) the vote of the Central Government shall have a 
weightage of one third of the total votes cast, and (b) the 
votes of all the State Governments taken together shall hav e 
a weightage of two- thirds of the total votes cast, in that 
meeting. 
 (10) No act or proceedings of the Goods and Services Tax 
Council shall be invalid merely by reason of—  
(a) any vacancy in, or any defect in, the constitution of the 
Council; or

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 (b) any defect in the appointment of a person as a Member of 
the Council; or  
(c) any procedural irregularity of the Council not affecting the 
merits of the case.  
(11)The Goods and Services Tax Council shall establish a 
mechanism to adjudicate any dispute —  
 (a) between the Government of India and one or more 
States; or 
 (b) between the Government of India and any State or States 
on one side and one or more other States on the other side; 
or 
 (c) between two or more States, arising out of the 
recommendations of the Council or implementation thereof.’’ 
 
21 The Union Government has contended that the recommendations of the GST 
Council are binding on the legislature and the executive. It was submitted that since 
the recommendations are binding, the rule making power of the Government under 
the provisions of the IGST Act and CGST Act, exercisable on the ‘recommendations’ 
of the GST Council, are also very wide. The arguments of the Union Government 
are as follows:  
(i) A combined reading of Articles 246A and 279A elucidates  that the GST 
Council is the ultimate decision- making body in framing the GST law since it 
is a constitutional body that acts as a converging platform for both the Union 
and the States; 
(ii) The functions and role of the GST Council are unique and incomparable to 
other constitutional bodies. Therefore, interpretations of other provisions of 
the Constitution do not have precedential value while interpreting the role of 
the GST Council;

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(iii) The power of the Parliament and the State Legislature under Article 246A and 
the power of the GST Council under Article 279A must be balanced and 
harmonised, such that neither overrides the other: 
(a) Though Article 279A does not begin with a non- obstante clause 
overriding Article 246A,  the latter would not override the former . The 
core theme of GST law –  as it emanates from Article 279(6) –  is 
cooperation and harmony. A system premised on cooperation cannot 
provide inter se supremacy. Therefore, Article 279A has rightly not 
been given an overriding effect over Article 246A; and 
(b) Article 246A vests the Parliament and the State legislatures with the 
power to enact laws on GST. This function, if delegated would amount 
to abdication of the P arliament’s constitutional function. Therefore, 
Article 246A cannot be made subject to Article 279A. 
(iv) The ordinary legislative process for enacting a statute is that bills are 
introduced and voted on by the legislature. However, Article 264A departs 
from this as th e framing of the policy, discussion on the policy, and decision 
making are vested wit h the GST Council. The Parliament or the State 
Legislature cannot legislate a law on GST under Article 246A independent of 
the recommendations of the GST Council. A reading of Sections 5, 6 and 22 
of the IGST Act indicates that the legislature and the exec utive are bound by 
the recommendations of the GST Council on three preliminary provisions, 
namely charge, exemption and rule- making power. Therefore, P arliament

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bound itself to the recommendations of the GST Council by enacting the IGST 
Act and CGST Act; and  
(v) The recommendations by the GST C ouncil are transformed into legislation on 
a combined reading of Article 279A and Sections 5,6, and 22 of the IGST Act 
2017 and Sections 9,11, and 164 of the CGST Act. 
C. 1 Legislative History of the Constitution Amendment Act 2016 
Statement of Objects and Reasons 
22 As early as in 2004, the Task Force on implementation of the Fiscal 
Responsibility and Budget Management Act 2003 had recommended a shift to 
consumption taxes to increase efficiency in production and enhance int ernational 
competitiveness of Indian g oods and services. The need for such an enormous 
change in the tax regime arose out of the distortions in the then existing indirect tax 
regime which suffered from the drawback of multiplicity  of taxes, taxable events, 
compliances, and authorities. For instance, the rate of the sales tax and value added 
tax on the same goods would differ across India. Several  states would impose entry 
taxes on goods before the goods entered their  boundaries. The F irst Discussion 
Paper on Goods and Services Tax in India released by the Empowered Committee 
in November 2009 explained the rationale for introducing the GST regime in the 
following terms:
41  
“The introduction of GST at the Central level will not only 
include comprehensively more indirect Central Taxes and 
integrate goods and service taxes for the purpose of set -off 
relief, but may also lead to revenue gain for the Centre 
                                                 
41 Empowered Committee, First Discussion Paper on Goods and Services Tax, (2009) Pars 1.13-1.14

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through widening of the dealer base by capturing value added 
addition in the distributive trade and increased compliance. 
In the existing State-level VAT structure there are also certain 
short comings as follows. There are, for instance, even now, 
several taxes which are in the nature of indirect tax on goods 
and services, such as luxury tax, entertainment tax, etc., and 
yet not subsumed n the VAT. Moreover, in the present State-
level VAT scheme, CENVAT load on the goods remains 
included in the value to be taxed under State VAT,  and 
contributing to that extent a cascading effect on account of 
CENVAT element. This CENVAT load needs to be removed. 
 
[…]  
 
However, for this GST to be introduced at the State-level, it is 
essential that the States should be given the power of levy of 
taxation of all services. This power of levy of service taxes 
has so long been only with Centre. A Constitutional 
Amendment will be made for giving this power also to the 
States. Moreover, with the introduction of GST, burden of 
Central Sales Tax (CST) will  also be removed. The GST at 
the State-level is, therefore, justified for (a) additional power 
of levy of taxation of services for the States, (b) system of 
comprehensive set -off relief, including set -off for cascading 
burden of CENVAT and services taxes, (c) subsuming of 
several taxes in the GST and (d) removal of burden for CST. 
Because of the removal of taxes in the GST, the burden of tax 
under GST on goods will, in general, fall.” 
23  Parliament introduced the Constitution (One Hundred and Fifteenth 
Amendment) Bill 201142 which sought to amend the provisions of the Constitution to 
introduce the GST regime. The Speaker of the Lok Sabha referred the 2011 
Amendment Bill to the Parliamentary Standing Committee on Finance. The 
Constitution (One Hundred and Twenty -Second Amendment) Bill 2014 43 was 
introduced after incorporating the recommendations of the Standing Committee. The 
2014 Amendment Bill was introduced to replace almost all the indirect taxes that 
were levied by the State Governments and the Union Government , with a singular 
tax system to eliminate the cascading effect of multiple taxes and to provide for a 
                                                 
42 “2011 Amendment Bill” 
43 “2014 Amendment Bill”

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common national market. The Statement of Objects and Reasons of the 2014 
Amendment Bill reads as follows: 
“The Constitution is proposed to be amended to introduce the 
goods and services tax for conferring concurrent taxing 
powers on the Union as well as the States including Union 
territory with Legislature to make laws for levying goods and 
services tax on every transaction of supply of goods or 
services or both. The goods and services tax shall replace 
a number of indirect taxes being levied by the Union and 
the State Governments and is intended to remove 
cascading effect of taxes and provide for a common 
national market for goods and services. The proposed 
Central and State goods and services tax will be levied on all 
transactions involving supply of goods and services, except 
those which are kept out of the purview of the goods and 
services tax.” 
     (emphasis supplied) 
24 The Finance Minister while introducing the 2014 Amendment Bill in  
Parliament noted that the object of the constitutional amendment is to bring about a 
“certain amount of convergence between these taxes so that the taxation 
mechanism becomes ex tremely simple ”.44 He also highlighted the fact that there 
was no uniformity in the tax rates and structure across the States. The Statement of 
Objects and R easons and the debates and speeches in the legislature indicate the 
intent behind the introduction of the Bill. 45 The legislative history, the statement of 
objects and reasons of the Bill and the speech made when the b ill was introduced 
indicate the mischief that Articles 246A and 279A to the Constitution sought  to 
remedy, which  is to simplify the indirec t tax regime to prevent the complexities 
inherent in and the cascading effect of a multiplicity of taxes.  
Simultaneous Legislative distribution 
                                                 
44 Speech by Arun Jaitley in Lok Sabha on 24.4.2015; Tarun Jain, Goods and Services Tax: Constitutional Law and 
Policy (EBC 2018) 16 
45 Abhiram Singh v. CD Commachen, (2017) 2 SCC 629

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25 Article 246 read with the S eventh Schedule vests  Parliament and the State 
Legislatures with the power to make laws on subject matters listed in the S eventh 
Schedule of the Constitution. Before the introduction of  Articles 246A and 279A by 
the Constitution Amendment  Act 2016, the legislative powers of the Union  and the 
States on taxation were exclusive. The general subjects of legislation constitute one 
group in the Union List (entries 1 to 81) and the State List (entries 1 to 44). The 
subject heads related to taxation are clubbed together in both the Union and the 
State lists (ent ries 82 to 92B in the Union list and entries 45 to 63 in the State list). 
The concurrent list does not include any entry related to taxation. 46 For example, 
while the Union primarily has the power to impose income taxes, except from 
agriculture47, the State has the power to impose tax on agricultural income 48. 
Therefore, both the Union and the States had a separate and an exclusive domain 
over specific heads of taxation. The Union and the State could not impose tax under 
the same head since the concurrent list  did not include an entry for taxes. This 
Court, in its decision in  Hoecst Pharmaceuticals Ltd. v. State of Bihar 49, 
recognised the exclusive powers held by the Union and the State on taxation. The 
three-Judge Bench observed that: 
“75. Legislative relations between the Union and the States 
inter se with reference to the three Lists in Schedule VII 
cannot be understood fully without examining the general 
features disclosed by the entries contained in those Lists” : 
Seervai in his  Constitutional Law of India, 3rd Edn., Vol. 1 at 
pp. 81-82. A scrutiny of Lists I and II of the Seventh Schedule 
                                                 
46 Entry 47 of the concurrent list mentions that “fees in respect of any of the matters in this List, but not including fees 
taken in any court.” 
47 Entry 82 of List I 
48 Entry 46 of List II 
49 (1983) 4 SCC 45

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would show that there is no overlapping anywhere in the 
taxing power and the Constitution gives independent sources 
of taxation to the Union and the States. Following the scheme 
of the Government of India Act, 1935, the Constitution has 
made the taxing power of the Union and of the States 
mutually exclusive and thus avoided the difficulties which 
have arisen in some other Federal Constitutions from 
overlapping powers of taxation. 
 
76. It would therefore appear that there is a distinction made 
between general subjects of legislation and taxation. The 
general subjects of legislation arc dealt with in one group of 
entries and power of taxation in a separate group. In M.P.V. 
Sundararamier & Co.  v. State of A.P. [AIR 1958 SC 468 : 
1958 SCR 1422 : (1958) 9 STC 298] this court dealt with the 
scheme of the separation of taxation powers between the 
Union and the States by mutually exclusive lists. In List I, 
Entries 1 to 81 deal with general subjects of legislation; 
Entries 82 to 92- A deal with taxes. In List II, Entries 1 to 44 
deal with general subjects of legislation; Entries 45 to 63 deal 
with taxes. This mutual exclusiveness is also brought out by 
the fact that in List III, the Con current Legislative List, there is 
no entry relating to a tax, but it only contains an entry relating 
to levy of fees in respect of matters given in that list other 
than court -fees. Thus, in our Constitution, a conflict of the 
taxing power of the Union and of the States cannot arise. 
That being so, it is difficult to comprehend the submission that 
there can be intrusion by a law made by Parliament under 
Entry 33 of List III into a forbidden field viz. the State's 
exclusive power to make a law with respect t o the levy and 
imposition of a tax on sale or purchase of goods relatable to 
Entry 54 of List II of the Seventh Schedule. It follows that the 
two laws viz. sub-section (3) of Section 5 of the Act and para 
21 of the Control Order issued by the Central Gover nment 
under sub- section (1) of Section 3 of the Essential 
Commodities Act, operate on two separate and distinct fields 
and both are capable of being obeyed. There is no question 
of any clash between the two laws and the question of 
repugnancy does not come into play.” 
 
26 In the pre-GST regime, the Union  had the exclusive power to impose indirect 
taxes, that is , on inter -state sale of goods , customs duty, service tax, and excise 
duty. The States had the exclusive power to impose tax on intra-State sale of goods, 
luxury tax, entertainment tax, purchase tax, and taxes on gambling and betting. The 
GST regime has subsumed all the indirect taxes. Article 246A which was introduced

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by the Constitution Amendment  Act 2016 vests the Parliament and the State 
legislatures with the concurrent power to make laws with respect to GST.  
27  The distribution of legislative power between federating units- the Union and 
the States, is among the paramount features of a federal Constitution. 50 Articles 246 
and 254 have been central to the debate on the federal nature of the Indian 
Constitution. Article 246A , is a ‘special provision with respect to goods and service 
tax,’ and begins with a non- obstante clause overriding Articles 246 and 254. Article 
246 sets down th e constitutional framework defining the legislative competenc e of 
Parliament and the State legislatures . Article 254 provides the framework for 
addressing inconsistency between central and state laws on matters in the 
Concurrent list. Article 246A  entrusts Parliament and State legislatures the power to 
legislate on the goods and services tax. The power of the States is however subject 
to the conferment of an exclusive domain to Parliament to levy the goods and 
services tax where the supply of goods or services takes place in the course of inter-
state trade and commerce. 
28 In Union of India v. Mohit Mineral P vt. Ltd.51, this Court while deciding the 
constitutional validity of the GST (Compensation to States) Act 2017 noted that the 
Constitution Amendment Act 2016  introduced changes in the legislative powers of 
the Parliament and State legislature relating to indirect taxation. It  observed that the 
amendment “confers concurrent taxing powers on the Union as well as the States 
                                                 
50 H.M Seervai, Constitutional Law of India, (NM Tripati Private Limited, 4 th Edition, vol 1) 289; SR Bommai  v. Union 
of India, (1994) 3 SCC 1 
51 (2019) 2 SCC 599

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for levying GST on transactions of supply of goods or services or both” . In Baiku v. 
State Tax Officer, GST 52, a writ petition was filed challenging the legality of the 
notices and assessment orders issued under the Kerala Value Added Tax Act 
200353 for the assessment years 2010- 11 and 2011- 12. The notices and orders 
were challenged on the ground that the authorities did not have the jurisdiction to 
issue them since the amendments introduced to Section 25(1) of the KVAT Act 
through the Kerala Finance Acts 2017 and 2018 did not operate retrospectively. The 
Kerala High Court had to decide whether the Kerala State legislature had the 
legislative competence to amend the KVAT Act after the introduction of Article 246A 
to the Constitution, and the repeal of KVAT pursuant to the amendment. The Court 
noted that the special power introduced by Article 246A allows  Parliament and the 
State legislatures to ‘simultaneously’ make laws.
54 Subsequently, while explaining 
the ‘simultaneous’ nature of power held by Parliament and S tate legislature, it was 
observed that the power under Article 246A can be exercised simultaneously by the 
State legislature and P arliament and none hold any ‘unilateral or exclusive’  
legislative power55.  
29 In its decision in VKC Footsteps (supra) , this C ourt noticed the changes in 
the constitutional scheme introduced by Article 246A . One of us (Dr DY 
Chandrachud) writing for the two-judge Bench observed: 
                                                 
52 2019 SCC OnLine Ker 5362 
53 “KVAT Act” 
54 Paragraph 19 of the judgement.  
55 Paragraph 22 of the judgment.

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“52. Article 246-A has brought about several changes in the 
constitutional scheme: 
52.1.Firstly, Article 246-A defines the source of power as well 
as the field of legislation (with respect to goods and services 
tax) obviating the need to travel to the Seventh Schedule. 
52.2.Secondly, the provisions of Article 246 -A are available 
both to Parliament and the State Legislatures, save and 
except for the exclusive power of Parliament to enact GST 
legislation where the supply of goods or services takes place 
in the course of inter-State trade or commerce. 
52.3.Thirdly, Article 246 -A embodies the constitutional 
principle of simultaneous levy as distinct from the 
principle of concurrence. Concurrence, which operated 
within the fold of the Concurrent List, was regulated by 
Article 254.” 
        (emphasis supplied) 
 
30 Article 246A provides Parliament and the State legislature with the concurrent 
power to legislate on GST . Article 246A has a non- obstante provision which 
overrides Article 254. Article 246 A  does not provide a repugnancy clause. Unlike 
Article 254 which stipulates that the law made by Parliament on a subject in the 
Concurrent list shall prevail over conflicting law s made by the State legislature, the 
constitutional design of Article 246A does not stipulate the manner in which such 
inconsistency between the laws made by Parliament and the State legislature on 
GST can be resolved. The concurrent power exercised by the legislatures under 
Article 246A is termed as a ‘simultaneous power’ to differentiate it from the 
constitutional design on exercise of concurrent power under Article 246,  the latter 
being subject to the repugnancy clause under Article 254.  The constitutional role 
and functions of the GST Council must  be understood in the context of the 
simultaneous legislative power conferred on P arliament and the State legislatures. It 
is from that perspective that the role of the GST Council becomes relevant.

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Role of the GST Council 
 
31 The Thirteenth Finance Commission set up the Task Force on GST. The Task 
Force recommended that the Empowered Committee of State Finance Ministers 
may, upon the introduction of GST, be transformed into a permanent constitutional 
body known as the ‘Council of Finance Ministers’. The Task Force had 
recommended that: 
(i) The Council would be responsible for modification in the design of dual GST 
regulating the indirect tax system; 
(ii) The Council  would make decisions on the principle of majority and not 
unanimity. The initial decision would be approved by the Union and three-
fourths of the States. The subsequent changes to the decision could be made 
upon an agreement of the Union and two-third of the States;  
(iii) The body would maintain the ‘existing balance of federal fiscal powers’ since 
both the Union and the States would surrender their fiscal autonomy to 
change to the GST regime;
56 
(iv) The basis for levy should be common for both the Union and the States upon 
agreement. This could be on the lines of the GST law in Australia, where both 
the Union and the States will have to agree before any change in the rate or 
base of GST could be implemented;57 and 
                                                 
56 Tarun Jain, Goods and Services Tax: Constitutional Law and Policy (EBC 2018) 117 
57 Thirteenth Finance Commission, Report of the Task Force on GST (2009) Para 10.5

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(v) If the States deviate from the collectively agreed position on GST rates, a 
mechanism ought to be established by which the defaulting State pays 
penalty58.  
32 The 2011 Amendment Bill sought to include Article 279A in the Constitution 
which constituted the GST  Council. The provision stipulated the constitution of the 
Council, the role of the Council and the quorum necessary for making decisions: 
“279-A. Goods and Services Tax Council.— (1) The President 
shall, within sixty days from the date of commencement of the 
Constitution (One Hundred and First Amendment) Act, 2016, 
by order, constitute a Council to be called the Goods and 
Services Tax Council. 
    (2)  The Goods and Services Tax Council shall consist of 
the following members, namely:— 
     (a) the Union Finance Minister – Chairperson; 
     (b)  the Union Minister of State in charge of Revenue or 
Finance – Member; 
     (c) the Minister in charge of Finance or Taxation or any 
other Minister nominated by each State Government - 
Members.  
(3) The Members of the Goods and Services Tax Council 
referred to in sub- clause (c) of clause (2) shall, as soon as 
may be, choose one amongst themselves to be the Vice-
Chairperson of the Council for such period as they may 
decide. 
     (4) The Goods and Services Tax Council shall make 
recommendations to the 
Union and the States on— 
     (a) the taxes, cesses and surcharges levied by the Centre, 
the States and the local bodies whic h may be subsumed in 
the goods and services tax; 
     (b) the goods and services that may be subjected to or 
exempted from the goods and services tax; 
     (c) the threshold limit of turnover below which goods and 
services tax may be exempted; 
     (d) the rates of goods and services tax; and 
     (e) any other matter relating to the goods and services tax, 
as the Council may decide. 
      (5) While discharging the functions conferred by this 
article, the Goods and Services Tax Council shall be guided 
by the need for a harmonised structure of goods and services 
                                                 
58 Ibid, paragraph 9.8

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tax and for the development of a harmonised national market 
for goods and services. 
      (6) One -third of the total number of members of the 
Goods and Services Tax Council shall constitute the quorum  
at its meetings. 
       (7) The Goods and Services Tax Council shall determine 
the procedure in the performance of its functions. 
      (8) Every decision of the Goods and Services Tax Council 
taken at a meeting shall be with the consensus of all the 
members present at the meeting. 
      (9) No act or proceedings of the Goods and Services Tax 
Council shall be invalid merely by reason of—  
      (a) any vacancy in, or any defect in, the constitution of the 
Council; or 
      (b) any defect in the appointment of a person as a 
Member of the Council; or 
      (c) any irregularity in the procedure of the Council not 
affecting the merits of the case. 
Explanation.—For the purposes of this article, “State’’ 
includes a Union territory with Legislature.” 
33 According to the draft of Article 279A , as it found place in the 2011 
Amendment Bill, every decision of the GST Council had to be taken with the 
consensus of all the members present at the meeting. The Bill also provided for the 
establishment of a GST Dispute Settlement Authority to adjudicate on any complaint 
referred to it by a State Government or the Union Government, arising out of 
deviation from any recommendations of the Council that result ed in the loss of 
revenue or which affect ed the harmonised structure of the GST. The draft provision 
also provided that  Parliament may by law provide that no Court other than the 
Supreme Court shall exercise jurisdiction in respect of the dispute.  The draft of  
Article 279B, as in the 2011 Amendment Bill, reads as follows: 
“279B. (1) Parliament may, by law, provide for the 
establishment of a Goods and Services Tax Dispute 
Settlement Authority to adjudicate any dispute or complaint 
referred to it by a State Government or the Government of 
India arising out of a deviation from any of  the 
recommendations of the Goods and Services Tax Council 
constituted under article 279A that results in a loss of revenue 
to a State Government or the Government of India or affects 
the harmonised structure of the goods and services tax.

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(2) The Goods and Services Tax Dispute Settlement Authority 
shall consist of a Chairperson and two other members. 
(3) The Chairperson of the Goods and Services Tax Dispute 
Settlement Authority shall be a person who has been a Judge 
of the Supreme Court or Chief Justice of  a High Court to be 
appointed by the President on the recommendation of the 
Chief Justice of India. 
(4) The two other members of the Goods and Services Tax 
Dispute Settlement Authority shall be persons of proven 
capacity and expertise in the field of law, economics or public 
affairs to be appointed by the President on the 
recommendation of the Goods and Services Tax Council. 
(5) The Goods and Services Tax Dispute Settlement Authority 
shall pass suitable orders including interim orders. 
(6) A law made under clause (1) may specify the powers 
which may be exercised by the Goods and Services Tax 
Dispute Settlement Authority and provide for the procedure to 
be followed by it. 
(7) Notwithstanding anything in this Constitution, Parliament 
may by law provide that no Court other than the Supreme 
Court shall exercise jurisdiction in respect of any such 
adjudication or dispute or complaint as is referred to in clause 
(1). 
Explanation.— For the purpose of this article, “State’’ includes 
a Union territory with Legislature.” 
 
34 The Standing Committee on Finance,  Ministry of Finance in its 73 rd report on 
the 2011 Amendment Bill explained the salient features of the Amendment Bill 
introducing the GST regime.59 It was noted that the GST Council will be a joint forum 
for the Union and the States to discuss issues on GST and  the recommendations of 
the GST Council will be a benchmark and guiding force for the Union and State 
Governments.
60 In the same vein, it was observed that the legislature will be free to 
exercise its power on all issues recommended by the Council:61 
“(c) A Goods and Services Tax Council (Article 279A) will be 
created, which will be a joint forum for the Centre and the 
States to discuss important issues relating to GST so that the 
objective of having a harmonized st ructure for GST and a 
                                                 
59 Standing Committee on Finance, The Constitution (One Hundred and Fifteenth Amendment) 2011 (73 rd report, 
2013) 
60 Ibid, paragraph 12 
61 Ibid

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harmonized national market can be achieved. This Council 
would function under the Chairmanship of the Union Finance 
Minister and will have Minister in charge of Finance/Taxation 
or Minister nominated by each of the States and UTs with  
legislatures, as members. The Council will make 
recommendations to the Union and the States on important 
parameters like rates, exemption list, threshold limits, etc. The 
recommendations made by this Council will act as benchmark 
or guidance to Union as w ell as State Governments. The 
Parliament and well as State Legislatures will be free to 
exercise their power on all issues recommended by the 
Council. One-third of the total number of Members of the 
Council will constitute the quorum of GST council. It is further 
provided that the decisions of the GST Council shall be with 
the consensus of all members present at the meeting. This is 
to protect the interests of each State and the Centre when the 
Council takes a decision.  
(d)In exercise of their powers, thes e legislative bodies may 
deviate from the recommendations of the Council  and 
may act in a manner which is prejudicial to the harmonious 
working of GST or which adversely impacts the revenue of 
some other State/Central Government. Such deviations or 
actions are required to be kept to the minimum, if the 
objective of having a common national market and 
smooth working of GST is to be achieved . It is accordingly 
proposed to set up Goods & Services Tax Dispute Settlement 
Authority (Article 279B), which may be approached by the 
affected Government (whether the Centre or the States) 
seeking redressal for any loss caused by any action due to a 
deviation from the recommendations made by the Goods & 
Services Tax Council or for adversely affecting the 
harmonious structure and implementation of the GST.” 
    (emphasis supplied) 
35 The Committee also sought the opinion of the Attorney General through the 
Department of Legal Affairs on whether the recommendations of the GST Council 
would undermine the power of the legislature. In response, the Attorney General 
stated that though the GST Council has the power to make recommendations, both 
Parliament and State legislatures , have the power to either accept or reject those 
recommendations.62 The Attorney General stated: 
“This is an important point which has been raised and the 
short answer to it is that it is certainly open to Parliament to 
                                                 
62 Ibid, paragraph 63

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approve any recommendation. However, this does not mean 
that the GSTC recommendations will have no value. Having 
regarding to the nat ure of the Constitution of GSTC, the 
Council would have performed useful role in making 
recommendations but the ultimate authority whether to accept 
such recommendations can and must rest only in the 
Legislatures, namely, Parliament and the State Legislatures. 
In this view of the matter, the setting up of the GSTC does not 
strike at the root of the legislative powers over Finance. The 
powers of the legislature over Finance are sacrosanct and are 
not affected by the setting up of the GSTC.” 
36 The States raised concerns over the establishment of the GST Dispute 
Settlement Authority on the ground that such authority would have the power to 
override the supremacy of Parliament and the State Legislatures since a legislation, 
though constitutional, could be struck down if it deviated from the recommendations 
of the GST Council. The Committee, while addressing the concerns raised by the 
States recommended that the provision establishing the GST Dispute Settlement 
Authority be omitted since it would affect the fiscal autonomy of the States. It was 
further recommended that a provision be made in Article 279A itself empowering the 
GST Council to resolve disputes arising out of its recommendations: 
“60. On the GST Dispute Settlement Authority, the Chairman, 
Empowered Committee of State Finance Ministers stated that 
most of the States have expressed the view that the provision 
pertaining to the GST Dispute Settlement Authority should be 
omitted as this authority shall have powers of overriding the 
supremacy of the Parliament  and the State Legislatures. It 
shall affect the fiscal autonomy of the States. 
 
 61. The Constitution confers autonomy on the 
Parliament and the State Legislatures to legislate within 
the respective fields assigned to them and the fact that a 
statute enacted by a competent Legislative body can be 
called into question on grounds of deviations from the 
recommendations of an essentially executive body, albeit 
Constitutional, is being construed as undermining the 
supremacy of the Legislature. Keeping in view t he 
concerns expressed by the States, and the fact that the 
proposed provision of GST Dispute Settlement Authority 
will affect the fiscal autonomy of the Parliament and the 
State Legislatures, the proposed Article 279B providing

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for GST Dispute Settlement A uthority may be omitted. 
However, any dispensation involving multiple partners does 
require a mechanism to resolve disputes. A provision can be 
made in Article 279A itself empowering the GST Council to 
decide about the mechanism to resolve the disputes ari sing 
out of its recommendations.” 
    (emphasis supplied) 
37 The Committee reiterated in its conclusion  that the GST Council would only 
play a ‘constructive and enabling role’ vis -à-vis the legislature and would not 
override the role of the legislature63: 
“The Committee would thus expect the proposed GST 
Council to follow the principles of cooperative federalism and 
democratic governance. As this will be a political and a 
recommendatory body, it would be in a position to play a 
constructive and enabling role vis-à-vis the Legislature, which 
needless to emphasise, would remain supreme in matters of 
legislation including taxation. In the Committee’s view the 
mandate entrusted to the GST Council under the proposed 
Article 279A of the Constitution (Amendment) Bi ll does not in 
any way alter the existing constitutional scheme in so far as 
the Legislature, both Union and State, is concerned.” 
38 Taking into account the recommendations of the Standing Committee,  
Parliament introduced the 2014 Amendment Bill in which Art icle 279B was deleted 
and the GST Council was given the power  under Article 279A(11)  to devise a 
mechanism of dispute resolution. The GST Council consists of the Union Finance 
Minister as the Chairperson, the Union Minister of State in charge of Revenue or 
Finance and the Minister in charge of Finance or Taxation or any other Minister 
nominated by the State Government. The role of th e GST Council is to make 
recommendations to the Union and the States on seven specific categories 
revolving around GST including principles of levy and apportionment of GST. Clause 
(h) of Article 279A(1) also provides the Council with plenary power by whic h it can 
                                                 
63 Ibid, paragraph 15

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make recommendations with respect to ‘any other matter relating to GST’, as the 
Council may decide. Clause (6) stipulates that the recommendations of the GST 
Council shall be guided by the ‘need for a harmonised structure of goods and 
services tax’. One half of the total number of members of the Council shall constitute 
the quorum for meetings. Clause (9) provides that the Council shall take a decision 
with three-fourths majority of the members present and voting. The vote of the Union 
Government is given the weightage of one-third of the total votes cast, and the votes 
of the State Governments are given a weightage of two-thirds of the total votes. 
Parliamentary Debates 
39 The inclusion of Article 279A in the 2014 Amendment Bill raised two important 
concerns in Parliament: first, the GST Council could effectively override the 
legislative sovereignty of Parliament and the State legislatures;  and second, the 
fiscal autonomy of the States would be diminished since the Centre has the power to 
stall a consensus reached by all the States.  On 5 May 2015, a M ember of  
Parliament from the State of Tamil Nadu raised the concern that the GST Council 
would diminish the role of the States in fiscal policy:64 
“The GST Council as proposed in the Amendment will make 
recommendations on a whole range of issues relating to 
subsuming of taxes, cesses and surcharges under GS T, 
exemption for goods and services, model GST laws, etc. This 
will override the supremacy of the legislature both at the 
Centre and the States in taxation matters. In the GST 
Council, the Union Government has one- third weightage in 
vote and only two- third of the weightage in vote is given to 
States and Union Territories. Voting rights of States and 
Union Territories are equal irrespective of their size.  We, are 
therefore, opposed to the idea of GST Council as a 
                                                 
64 Speech of T.G Venkatesh Babu in Lok Sabha on 05.05.2015

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constitutional body as it compromises the autonomy of the 
States including in fiscal matters.” 
In response, the Finance Minister had said65: 
“Once you get into the GST pipeline, the States and the 
Centre will have to interact together; and once they interact 
together, the State of Tamil Nadu will be involved in 
determining and taking decisions relating to the States. So, 
none of us is going to be surrendering his or her authority or 
autonomy. We are both going to be pooling our sovereignty 
together so that we are able to create a new taxation 
mechanism.” 
40 A Select Committee of the Rajya Sabha examined proposed Article 279A. It 
was suggested before the Select Committee that a ‘dispute settlement body’ to 
adjudicate on disputes arising from the non- compliance of recommendations of the 
GST Council should be constituted. 66 There was, in other words,  a suggestion to 
reintroduce Article 279B as it found place in the 2011 Amendment Bill. The 
Government submitt ed that Article 279A(11) provides the GST Council with the 
power to decide the ‘modalities’ of dispute resolution, which may range from 
mediation, arbitration or even judicial adjudication depending on the nature of 
dispute: 
“2.71 It may further be mentioned that Article 279A (11) only 
provides that GST Council may decide the ‘modalities’ to 
resolve disputes arising out of its recommendations. The 
‘modalities’ could include any dispute resolution mechanism 
which could be inter -alia negotiation, mediation, arbitration or 
even a judicial authority as deemed appropriate by the GST 
Council depending on the nature of dispute before it. Thus, as 
per the proposed Bill, the GST Council shall, by itself, not be 
resolving the disputes but decide on the modalities for 
resolving the disputes.” 
                                                 
65 Speech of Mr. Arun Jaitley in Lok Sabha on 08.08.2016 
66 Select Committee, Report on the Constitution (One Hundred and Twenty Second Amendment) Bill , 2014,  
(Submitted to the Rajya Sabha, 2015)

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41 The Government also submitted that the voting pattern between the Union 
and the States does not provide unequal power to any one of the constituent units: 
“2.68 The structure of GST Council represents the federal 
nature of governance in this country. This has been done as 
per the recommendations of the Empowered Committee after 
their meeting in Bhubaneswar in January 2013, and also the 
recommendations of the Parliamentary Standing Committee. 
This provision has been consciously adopt ed to ensure the 
federal balance in the functioning of the GST Council, and 
also to enhance co-operative federalism. The existing pattern 
of vote- share in the GST Council ensures that no decision 
can be taken by the Council either by the Centre or the States 
acting on their own. Hence, neither the States nor the Centre 
alone can take a decision in the Council. Providing 3/4th 
weightage to the States would upset the federal balance 
between the Centre and the States. Presently, in the 
concurrent list, in case of any difference between Central and 
State legislation, the Central legislation prevails. The present 
weightage of votes in the GST Council would ensure that 
neither the Centre nor the States are able to take a decision 
without the support of the other. In other words both would 
enjoy a veto.  
 
2.69 Further, with Centre holding only 1/3rd of the votes, the 
Centre would require support of 20 States/Union Territories to 
get a resolution passed. This shows that Centre would need 
co-operation of States to get  any decision taken at the GST 
Council.” 
42 Though the traditional view of interpretation of statutes is that  legislative 
history is not readily used in interpreting a law , the modern trend of thinking on the 
subject has enabled courts to look into the histor y of a legislation to understand the 
full purport of the words used and the mischief sought to be remedied by the law.  In 
K.P Varghese v. ITO67, this Court held that the “speech made by the mover of the 
Bill explaining the reason for the introduction of the Bill can certainly be referred to 
for the purpose of ascertaining the mischief sought to be remedied by the legislation 
and the object and purpose for which t he legislation is enacted.” In Kalpana Mehta 
                                                 
67 (1981) 4 SCC 173.

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v. Union of India68, Chief Justice Dipak Misra held that reports of the Parliamentary 
Committees and the speeches made in the Parliament can be referred to identify the 
circumstances that led to the enactment of the legislation along with the intention of 
the legislature: 
“129. We have referred to these authorities to highlight that 
the reports or speeches have been referred to or not referred 
to for the purposes indicated ther ein and when the meaning 
of a statue is not clear or ambiguous, the circumstances that 
led to the passing of the legislation can be looked into in order 
to ascertain the intention of the legislature. It is because the 
reports assume significance and become relevant because 
they precede the formative process of a legislation.” 
43 The parliamentary debates and the legislative history  of the constitutional 
amendment, and the committee reports on Articles 246A and 279A indicate that: 
(i) The draft of Article 279B , in the 2011 Amendment Bil l, which sought  to 
introduce a GST Dispute Settlement Authority to adjudicate on any dispute 
‘arising out of deviation’ from the recommendations of the GST Council was 
deleted. The current Article 279A(11) provides that the GST Council shall 
devise a mechanism to adjudicate on any dispute that ‘arises out’ of the 
recommendations of the Council. The deletion of Article 279B while 
introducing the 2014 Amendment Bill and the inclusion of Article 279(11) in 
the text of the Constitution has brought  about two substantial changes: one, 
that instead of the creation of a dispute settlement authority, the Council is 
vested with the power to decide on ‘modalities’ of dispute resolution; and 
second, while Article 279B stipulated that the authority shall adjudicate on 
‘disputes arising out of the deviation from the recommendations’ , Article 
                                                 
68 (2017) 7 SCC 295

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279(11) states that the disputes arising out  of recommendations  shall be 
resolved. The phrase ‘deviation’ has been omitted.  Before the Select 
Committee of the Rajya Sabha, the Government  had s tated that  disputes 
shall be resolved by modalities including  mediation and arbitration. The  
Standing Committee of Finance in its report  specifically recommended the 
deletion of Article 279B due to the concerns raised by the States; and  
(ii) Under the 2011 Amendment Bill, the GST Council could recommend only 
when a unanimous decision would be reached. However, the Standing 
Committee of Finance had recommended that since it would be difficult to 
arrive at a consensus due to the socio- economic diversity amongst t he 
States, the recommendations be made with a majority instead of unanimity. 
While making this recommendation, it was observed that if the GST Council 
functions like the present Empowered Committee where the differences are 
resolved amicably in an institut ional mode, it would foster the spirit of 
cooperative federalism. 
 
C.2 The nature of the recommendations of the GST Council 
Indian federalism: Dialogue of cooperative federalism 
44 The arguments in favour of reading the ‘recommendations’ of the GST 
Council as  binding are two- fold69: first, if the GST Council cannot make binding 
recommendations, the entire structure of GST will collapse as each State would then 
levy a conflicting tax and collection mechanism; and second, if the recommendations 
                                                 
69 Alok Prasanna, ‘For a mess of Potage: The GST’s promise of increased revenue to states comes at the cost of the 
federal structure of the Constitution’ National Law School of India Review. Vol. 28, No. 2(2016), pp-97-113.

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are non-binding, then there would be no dispute to be resolved under Article 279(11) 
as the States would be free to disregard the recommendations. The arguments 
against interpreting the ‘recommendations’ of the GST Council as binding on the 
Union and the S tates are two-fold70: first, it would violate the supremacy of  
Parliament and State legislatures since both have a simultaneous power to legislate 
on GST; and second, it would violate the fiscal federalism of the States since the 
Centre has a one- third vote share and the States collectively have a two- third vote 
share. Therefore, no recommendation on a three-fourths majority can be passed 
without the consent of the Centre.  
45 One of the important characteristics of a federal polity is the distribution of 
legislative power between the Union  and the States. Mr H M Seervai while arguing 
that India is a federal nation, referred to the exclusive power of taxation held by the 
States to establish that the States were not merely given the power to legislate on 
‘subordinate’ matters: 
“If by ‘subordinate’ is meant ‘not important’, then, with 
respect, the present writer does not agree with Prof. 
Wheare’s assessment of the exclusive State List. Public 
order, the police, administration of justice, local government, 
public health and sanitation, to mention but a few, are matters 
of great importance; and so are agriculture, water (subject to 
Union control of the waters of inter -State rivers), land, and 
fisheries. Again, the allocation of taxes between the Union 
and the States i s mutually exclusive, and the taxes allotted 
exclusively to the States are not negligible. Thus sales tax is 
an expanding source of revenue in India as it becomes 
increasingly industrialized under the successive five year 
plans. In the industrialized State  of Maharashtra, the yield 
from Sales Tax was about Rs. 1,580 million for the year of 
                                                 
70 Ajitesh Kir, ‘India’s Goods and Services Tax: A Unique Experiment in Cooperative Federalism and a Constitutional 
Crisis in Waiting’ Canadian Tax Journal (2021) 69:2, 391-445.

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1971-72, and the estimate for the year 1972- 3 was about Rs. 
1,780 million.  
[…] 
(k) The view that unimportant matters were assigned to the 
States cannot be sustained in f ace of the very important 
subjects assigned to the States in List II, and the same 
applies to taxing powers of the States which are made 
mutually exclusive of the taxing powers of the Union so that 
ordinarily the States have independent source of revenue o f 
their own. The legislative entries relating to taxes in List II 
show that the sources of revenue available to the States are 
substantial and would increasing ly become more substantial. 
In addition to the exclusive taxing powers of the States, the 
States become entitled either to appropriate taxes collected 
by the Union or to a share in the taxes collected by the 
Union.” 
 
Justice PB Sawant writing for himself and Justice Kuldip Singh in SR Bommai v. 
Union of India71, referred to the exclusive and equal legislative distribution of  heads 
of taxation to establish the federal nature of the Indian Constitution. 72 Therefore, the 
exclusive powers held by the States and the Centre on matters of taxation was 
regarded as an important feature of India’s federal polity.  The Constitution 
Amendment Act 2016  alters the legislative distribution between the Centre and the 
State on indirect taxation by providing Parliament and State legislatures with 
‘simultaneous powers’ and no provision for repugnancy. Therefore, according to 
Article 246A, both Parliament and the State Legislature possess equal power to 
legislate on aspects of GST. It is the contention of the Union that the 
recommendation of the GST Council should be binding on Parliament and the State 
Legislatures precisely because equal power is granted to both the federal units . The 
Union has argued that  if the recommendations are not binding, then it would lead to 
                                                 
71 (1994) 3 SCC 1 
72 Prasanna (n 69)

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an impasse where different Central and State legislations could be guiding the same 
field.  
46 Article 246A vests Parliament and the State Legislatures with a unique, 
simultaneous law-making power on GST. It is in this context that the role of the GST 
Council gains significance. The recommendations of the GST Council are not based 
on a unanimous decision but on a three- fourth majority of the members present and 
voting, where the Union’s vote counts as one- third, while the States ’ votes have a 
weightage of two- thirds of the total votes cast. There are two significant attributions 
of the voting system in the GST Council . First , the GST Council has an unequal 
voting structure, where the States collectively have a two-third voting share and the 
Union has a one -third voting share; and second, since India has a multi -party 
system, it is possible that the party in power at the Centre may or may not be in 
power in various  States. Therefore, the GST C ouncil is not only an avenue for the 
exercise of cooperative federalism but also for political cont estation across party 
lines. Thus, the discussions in the GST Council impact both federalism and 
democracy. The constitutional design of the Constitution Amendment Act 2016 is sui 
generis since it introduces unique features of federalism. Article 246A treats the 
Centre and Stat es as equal units  by conferring a simultaneous power of enacting 
law on GST.. Article 279A in constituting the GST Council envisions that neither the 
Centre nor the States can act independent of the other.  
47 The dual federalism model or the autonomy model views the constituting units 
of the Centre and States as autonomous, independent and competing units. This

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model is also termed as competitive federalism, where the constituent units 
‘compete’ with each other. Proponents of the cooperative federalism model argue 
that it is a mistake to view each unit as a separate autonomous entity. According to 
the theory of cooperative federalism, integration and not autonomy is the objective 
that federalism seeks to achieve. 73 While dual federalism is termed as ‘layer cake 
federalism’ due to the delineation of the structures of power, cooperative federalism 
is known as ‘marble cake federalism’ due to the integrated approach of the federal 
units.74 This Court in  State (NCT of D elhi) v. Union of India 75, has observed that 
India follows the model of cooperative federalism where the Union and the State 
Governments need to iron out the differences that arise in the course of the path of 
development. Chief Justice Dipak Mishra elucidated on the concept of cooperative 
federalism: 
“119. Thus, the idea behind the concept of collaborative 
federalism is negotiation and coordination so as to iron out 
the differences which may arise between the Union and the 
State Governments in their respect ive pursuits of 
development. The Union Government and the State 
Governments should endeavour to address the common 
problems with the intention to arrive at a solution by showing 
statesmanship, combined action and sincere cooperation. In 
collaborative feder alism, the Union and the State 
Governments should express their readiness to achieve the 
common objective and work together for achieving it. In a 
functional Constitution, the authorities should exhibit sincere 
concern to avoid any conflict. This concept has to be borne in 
mind when both intend to rely on the constitutional provision 
as the source of authority. We are absolutely unequivocal that 
both the Centre and the States must work within their spheres 
and not think of any encroachment. But in the context of 
exercise of authority within their spheres, there should be 
perception of mature statesmanship so that the 
                                                 
73 Robert A. Schapiro, ‘Justice Steven’s theory of Interactive Federalism’ 74 Fordham L. Rev. 2133 (2006) 
74 Jessica Bulman-Pozen and Heather K. Gerken, ‘Uncooperative Federalism’ Yale Law Journal, Vol. 118. No. 7 
(May, 2009), pp. 1256-1310 
75 (2018) 8 SCC 501

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constitutionally bestowed responsibilities are shared by them. 
Such an approach requires continuous and seamless 
interaction between the Union and the State Governments.” 
 
48 The Indian C onstitution has sometimes been described as  quasi-federal or a 
Constitution with a ‘centralising drift’. This is because when the Constitution is read 
as a whole, the Union is granted a larger share of the power. Instances of this 
centralising drift can be traced to  Articles 254, 248,  and 353. However, there are 
instances such as Article 246A, where the Centre and the States are conferred 
equal power. Merely because a few provisions of the Constitution provide the Union 
with a greater share of power, the provisions in which the federal units are 
envisaged to possess equal power cannot be construed in favour of the Union.  The 
Union and the States have a simultaneous power to legislate on GST. T he GST 
Council has the power to make recommendations  on a wide range of subjects 
relating to GST. Since the Constitution does not envisage a repugnancy provision to 
resolve inconsistencies between the Central and State laws on GST, the GST 
Council must ideally function, as provided by Article 279A(6), in a harmonised 
manner to reach a workable fiscal model through cooperation and collaboration.  
49 The federal system is a means to accommodate the needs of  a pluralistic 
society to function in a democratic manner. It attempts to reconcile the desire of 
unity and commonality along wi th the desire for diversity and autonomy. Democracy 
and federalism are interdependent on each other for their  survival such that 
federalism would only be stable in well -functioning democracies. Additionally, the 
constituent units in a federal polity check the exercise of power of one another to

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prevent one group from exercising dominant power. The Indian Constitution, though 
necessarily federal does confer the Union with a higher share of power in certain  
situations to prevent chaos and provide security. 76 However, even if the federal units 
are not entirely autonomous as in the traditional federal system, the units still wield 
power. The relationship between two constituent units that are not autonomous but 
rely on each other for their functioning is not in practice always collaborative or 
cooperative. If the States have been conferred lesser power they can still resist the 
mandates of the Union by using different forms of political contestation as permitted 
by constitutional design. Such contestation furthers  both the principle of federalism 
and democracy.  When the federal units are vested with unequal power, the 
collaboration between them is not necessarily cooperative. Harmonised decision 
thrives not just on cooperation but also on contestation. Indian feder alism is a 
dialogue in which the States and the Centre constantly engage in conversations. 
Such dialogues can be placed on two ends of the spectrum -  collaborative 
discussions that cooperative federalism fosters at  one end of the spectrum and 
interstitial contestation at the other end.  Jessica Bulman and Heather K, in their 
essay connote interstitial contestation as ‘uncooperative federalism’.77 They argue 
that the S tates which possess lesser power could use licenced dissent, dissent by 
using regulatory gaps or by civil disobedience such as passing a resolution against 
the decision of the Central Government as means of contestation. Differentiating the 
                                                 
76 Seervai (n 50)  
77 Bulman-Pozen and K. Gerken (n 74)

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forms of cooperative federalism from the dissent in uncooperative federalism, the 
authors state: 
“We think the best proxy for distinguishing dissent from 
routine negotiations is whether the state’s action can be fairly 
understood as an effort to change national policy. An attempt 
to obtain an accommodation or modification of federal policy 
within the state should usually be understood as an example 
of cooperative bargaining. An attempt to contest and alter 
national policy is rightly understood as dissent.” 
50 Such form of contestation or as the authors term it, ‘uncooperative federalism’ 
is valuable since “it is desirable to have some level of friction, some amount of state 
contestation, some deliberation- generating froth in our democratic system.” 78 
Therefore, the States can use various forms of contestation if they disagree with the 
decision of the Centre. Such forms of contestation are also within the framework of 
Indian federalism. The GST Council is not merely a constitutional body restricted to 
the indirect tax system in India but is also an important focal point to foster 
federalism and democracy.  
51 One of the important features of Indian federalism is ‘fiscal federalism’. A 
reading of the Statement of Objects a nd Reasons of the 2014 Amendment Bill, the 
Parliamentary reports and speeches indicate that Articles 246A and 279A were 
introduced with the objective of enhancing cooperative federalism and harmony 
between the States and the Centre. However, the Centre has a one- third vote share 
in the GST Council. This coupled with the absence of the repugnancy provision in 
Article 246A indicates that recommendations of the GST Council cannot be binding. 
Such an interpretation would be contrary to the objective of introducing the GST 
                                                 
78 Ibid, page 1284

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regime and would also dislodge the fine balance on which Indian federalism rests. 
Therefore, the argument that if the recommendations of the GST Council are not 
binding, then the entire structure of GST would crumble does not hold water. Such a 
reading of the provisions of the Constitution diminishes the role of the GST Council 
as a constitutional body formed to arrive at decisions by collaboration and 
contestation of ideas.  
The contextual meaning of ‘recommendations’ 
52 The phrase ‘recommendation’ is used in numerous provisions in the 
Constitution but the import of the phrase differs contextually. Based on the 
submission of t he Union Government , there are five categories into which the 
phrase ‘recommendation’ has been deployed in the Constitution: 
(i) Category 1: Recommendation by the President prior to laying before the 
Parliament for voting: Articles 3, 109, 111, 113, 117, 203, 207, 255 and 274  
discuss the recommendations of the President or the Governor. Here the 
authority recommending the initiation of the discussion and the decision-
making authority are different.  
(ii) Category 2: Recommendation followed by consultation : Article 233 uses the 
phrases ‘consultation’ and ‘recommendation’. Article 233(1) states that the 
district judge shall be appointed by the Governor in ‘consultation’ with the 
High Court. Clause 2 states that the criteria for the appointment of a person 
who is not already in the service of the Union or the State is that he should 
have been a pleader or an advocate for at  least seven years and he should

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be recommended by the High Court for the appointment to the post of a 
District Judge. There is a two- step process for appointment, first, the 
candidature must be recommended by the High Court; and second, the 
recommended candidate is appointed by the Governor in ‘consultation’ with 
the High Court.  
(iii) Category 3: Recommendation with accountability : Articles 2 43I, 243Y, 280, 
281, 338, 338B and 340. Articles 243I and 243Y stipulate that the Finance 
Commission shall make ‘recommendations’ to the Governor on apportionment 
of taxes to the Panchayats and Municipalities. Article 280 states that it “shall 
be the duty of the Commission to make recommendations to the President” 
on the principles governing distribution of taxes between the Union and the 
States. Article 281 fosters accountability by providing that every 
recommendation made by the Finance Commission shall be laid before the 
House together with an explanatory memorandum on the action taken on 
such recommendations. Article 338(5)(e) states that the National Commission 
for Scheduled Castes shall present a report to the President annually listing 
the measures that should be taken to enhance the protection and 
development of the Scheduled Caste. Article 338(6) states that the President 
shall cause the report to be laid before the Parliament along with a 
memorandum explaining the action taken on the recommendations  or the 
reason for non- acceptance, if any. Article 338A is a similar provision on the 
recommendatory nature of the National Commission for Scheduled Tribes. 
The President has the power to appoint a Commission to investigate the

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conditions of Backward Class es. The Commission is required to investigate 
the matters referred to them and present a report along with 
recommendations to the President which shall be laid before the Parliament 
along with an explanation memorandum. 
(iv) Category 4: Non- qualifying recommendation: The Presidential Order to 
establish an Inter State Council dated 28 May 1990 issued by the Ministry of 
Home Affairs, and Article 263. Article 263 provides that the President may , in 
public interest , establish an Inter-State Council which shall make 
recommendations for better coordination of policy and action. The Inter -State 
Council was constituted by the Inter -State Council Order 1990 consisting of 
the Prime Minister, Chief Ministers of all States, Chief Ministers of Union 
Territories and six Ministers of Cabinet rank.  
(v) Category 5: Recommendations which are obligatory in nature: Articles 270, 
275, 344, 349 and 371A : Article 344 establishes the Commission and 
Committee of Parliament on Official Languages. Article 344(2) states that it 
shall be the dut y of the Commission to make recommendations to the 
President on the usage of official languages. Clause 3 states that  
recommendations shall be made having due regard to the industrial, cultural 
and scientific advancement of India and the claim of non -Hindi speaking 
persons. Article 344(4) constitutes a Committee of the members of the Lok 
Sabha and Rajya Sabha. The Committee will have to examine the 
recommendations of the Commission and report its opinion to the President. 
The President after considering the report, shall issue directions in

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accordance with the whole or any part of the report. Article 349 deals with the 
special procedure for enactment of law relating to language in the first fifteen 
years from the commencement of the Constitution. Articles 270 and 275 
stipulate that the percentage of tax apportionment and fixation of the grants 
for the States from the Consolidated Fund of India shall be ordered by the 
President on the recommendation of the Finance Commission.  
53 A survey the above provisions indicates that the nature and meaning of the 
term ‘recommendation’ differs contextually. All the provisions qualify the nature of 
recommendation. For instance, in category one, the recommendation of the 
President is for the initiation of the discussion; in category two, a decision on the 
recommendation is arrived upon ‘consultation’; in category three, the decision-
making authority has to submit an explanatory note on the action or inaction taken 
on the recommendations.; in category four, the recommendations are not qualified. 
Article 263 only states that the Inter -State Council has a duty to recommend. There 
is no further explanation on whether the recommendation ought to be mandatorily 
accepted, or deliberated upon; in category five, the recommendations of  the 
authority are expressly stated to be ‘binding’ on the decision-making authority. 
54 The GST Council which is a constitutional body is entrusted with the duty to 
make recommendations on a wide range of areas concerning GST. The GST 
Council has plenary pow ers under Article 279A (4)(h) where it could make 
recommendations on ‘any other matter’ related to GST as the Council may decide. 
The GST Council has to arrive at its  recommendations through harmonised

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deliberation between the federal units as provided in clause 6 of Article 279A. Unlike 
the other provisions of the Constitution which provide that recommendations shall be 
made to the President or the Governor, Article 279A states that the 
recommendations shall be made to the ‘Union and the States’. The recommendation 
of the GST Council made under Article 279A is non- qualified. That is, there is no 
explanation on the value of such a recommendation. Yet the notion that  the 
recommendations of the GST Council transform into legislation in and of themselves 
under Article 246A  would be farfet ched. If the GST Council was intended to be a 
decision-making authority whose recommendat ions transform to legislation,  such a 
qualification would have been included in Articles 246A or 279A. Neither does Article 
279A begin with a non- obstante clause nor does Article 246A provide that the 
legislative power is ‘subject to’ Article 279A. 
55  The Constitution employs the phrase ‘consultation’ in certain contexts.  For 
example, Article 320(3) states that the Public Service Commission shall be 
‘consulted’ on matters relating to civil posts. Article 320(3) reads as follows: 
“(3) The Union Public Service Commission or the State Public 
Service Commission, as the case may be, shall be 
consulted—  
(a) on all matters relating to methods of recrui tment to civil 
services and for civil posts; 
(b) on the principles to be followed in making appointments to 
civil services and posts and in making promotions and 
transfers from one service to another and on the suitability of 
candidates for such appointments, promotions or transfers; 
[…]”  
 (emphasis supplied) 
 
56 If the GST Council were intended to be a constitutional body whose  
recommendations transform into legislation without any intervening act , there would

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have been an express provision in Article 246A . Article 279A  does not mandate 
tabling the recommendations in the legislature like the provisions in category 3, 
where the recommendations have to be mandatorily tabled in the legislature along 
with an explanatory note. Only the secondary legislation which is framed based on 
the recommendations of the Council under the provisions of the CGST Act 79 and 
IGST Act80 is mandated to be tabled before the Houses of the Parliament. The us e 
of the phrase ‘recommendations to the Union or States’ indicates that the GST 
Council is a recommendatory body aiding the Government in enacting legislation on 
GST.  
57 In Manohar v. State of Maharashtra81, a two-judge Bench of this Court while 
interpreting Section 20(2) of the Right to Information Act 2005 observed that the 
phrase ‘recommendation’ must be interpreted in contradistinction to ‘direction’ or 
‘mandate’. It was observed as follows: 
“22. We may notice that proviso to Section 20(1) specifically 
contemplates that before imposing the penalty contemplated 
under Section 20(1), the Commission shall give a reasonable 
opportunity of being heard to the officer concerned. However, 
there is no such specific provision in relation to the matters 
covered under Section 20(2). Section 20(2) empowers the 
Central or the State Information Commis sion, as the case 
may be, at the time of deciding a complaint or appeal for the 
reasons stated in that section, to recommend for disciplinary 
action to be taken against the Central Public Information 
Officer or the State Public Information Officer, as the case 
may be, under the relevant service rules. Power to 
recommend disciplinary action is a power exercise of which 
may impose penal consequences. When such a 
recommendation is received, the disciplinary authority would 
conduct the disciplinary proceedings in accordance with law 
and subject to satisfaction of the requirements of law. It is a 
                                                 
79 Section 166 of the CGST Act 
80 Section 24 of the IGST Act  
81 (2012) 13 SCC 14

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“recommendation” and not a “mandate” to conduct an 
enquiry. “Recommendation” must be seen in contradistinction 
to “direction” or “mandate”. But recommendation itself vests 
the delinquent Public Information Officer or State Public 
Information Officer with consequences which are of serious 
nature and can ultimately produce prejudicial results including 
misconduct within the relevant service rules and invite minor 
and/or major penalty.” 
 
In Naraindas Indurkhya v. State of Madhya Pradesh 82, a Constitution Bench 
observed that a ‘recommendation’ has persuasive value. In this case, this Court was 
dealing with the question of whether textbooks ‘recommended’ by the Board could 
be held to be in effect immediately. The Court observed: 
“15. … there is a basic distinction between recommendation 
and prescription of a text book. When a text book is 
prescribed by an appropriate authority having legal power to 
do so, it has to be followed by the schools. Prescription of a 
text book carries with it a binding obligation to follow the text 
book. There is no such obligation when a text book is merely 
recommended. Recommendation has merely a persuasive 
effect, it being open to the schools to acc ept the 
recommendation or to reject it as they think fit. The schools 
may use the recommended text book or they may not 
according as the Principals choose. That is why no 
conferment of statutory power is needed to enable the Board 
to recommend text books and no question of ultra vires can 
arise in such a case. Now the text books which formed the 
subject matter of the notifications dated April 5, 1972, April 
25, 1972, April 26 and May 17, 1972 were merely 
recommended and not prescribed by the Board and being  
only recommended text books as distinguished from 
prescribed text books, they obviously could not be said to be 
‘in force’ immediately before the appointed day. Section 4, 
sub-section (2) did not, therefore, apply in respect of these 
text books and they c ould not be regarded as text books 
prescribed under Section 4, sub-section (2).” 
 
In numerous cases, t his Court has reiterated that recommendations cannot create 
binding and enforceable rights, in contradistinction to a ‘direction’ or ‘mandate’.83  
                                                 
82 (1974) 4 SCC 788 
83 Union of India v. Pradip Kumar Dey, (2000) 8 SCC 580; Kesoram Industries and Cotton Mills Ltd. v. CWT, (1966) 2 
SCR 688; Som Mittal v. Government of Karnataka, (2008) 3 SCC 753; State of AP v. T. Gopalakrishnan Murthi, 
(1976) 2 SCC 883.

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Interpretation of ‘recommendation’ vis-à-vis the provisions of IGST Act  and CGST 
Act  
58 The contention of the Union is that the recommendations of the GST Council 
are binding since Parliament and the State legislatures have agreed to align 
themselves with the recommendations as is evident from the provisions of the IGST 
Act and CGST Act. Certain provisions of the IGST A ct, CGST Act and SGST  Acts 
expressly provide that the rule- making power delegated to the Government shall be 
exercised on the recommendations of the GST Council. For instance, Section 5 of 
the IGST Act provides that the taxable event, taxable rate and taxable value shall be 
notified by the government on the “ recommendations of the Council ”. Similarly, the 
power of the Central Government to exempt goods or services or both from levy of 
tax shall be exercised on the recommendations of the GST Council under Section 6 
of the IGST Act. Section 22 provides that the Government may exercise its rule 
making power on the recommendations of the GST Council. The CGST Act also 
provides for similar provisions in Sections 9, 11 and 164.  
59 The provisions of the IGST Act and CGST Act which provide that the Union 
Government is to act on the recommendations of the GST Council must be 
interpreted with reference to the purpose of the enactment, which is to create a 
uniform taxation system. The GST was introduced since different S tates could 
earlier provide different tax slabs and different exemptions. The recommendations of 
the GST Council are made binding on the Government  when it exercises its power 
to notify secondary legislation to give effect to the uniform taxation system. The

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Council under Article 279A has wide recommendatory powers on matters related to 
GST where it has the power to make recommendations on subject matters that fall 
outside the purview of the rule- making power under the provisions of the IGST and 
CGST Act. Me rely because a few of the recommendations of the GST Council are 
binding on the Government under the provisions of the CGST Act  and IGST Act, it 
cannot be argued that all of the GST Council’s recommendations are binding. As a 
matter of first principle, the provisions of the Constitution, which is the grundnorm of 
the nation, cannot be interpreted based on the prov isions of a primary legislation.  It 
is only the provisions of a primary legislation that can be interpreted with reference 
to the Constitution. The legislature amends the Constitution by exercising its 
constituent power and legislates by  exercising its legislative power. The constituent 
power of the legislature is of a higher c onstitutional or der as compared to its 
legislative power. Even if it is Parliament that has enacted laws making the 
recommendations of the GST Council binding on the Central Government for the 
purpose of notifying secondary legislations, it would not mean that all the 
recommendations of the Council made by virtue of its power under Article 279A 
have a binding force on the legislature.  
60 With this background and context, we shall now proceed to analyse the 
scheme of the GST legislation and whether the impugned levy, imposed on the 
recommendations of the GST Council, is valid and permissible under law.

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D Analysis 
D.1  Statutory Provisions and Scheme of the IGST Act84  
 
61 The IGST Act enables the Central Government to impose IGST on inter -state 
supply of goods and services. The Preamble to the IGST Act describes it as: 
“An Act to make a provision for levy and collection of tax on inter-
State supply of goods or services or both by the Central 
Government and for matters connected therewith or incidental 
thereto.” 
 
In aiding the levy and collection of IGST, the IGST Act provides for a comprehensive 
scheme for determining the nature of supply, time of supply and place of supply.  
62 Statutory interpretation will determine whether the IGST Act confers the 
powers on the Central Government, in consultation with the GST Council, to 
designate imports as a supply of services under Section 5(3)  of the IGST  and 
whether the importer can be considered as the recipient of such supply, liable to pay 
tax on a reverse charge basis. Further, it will determine if the Central Government, in 
consultation with the GST Council, has the powers to designate the importer as a 
recipient of a service under 5(4) of the IGST Act, when goods are imported on a CIF 
basis. The critical fact in this case is that the service of shipping in these CIF 
contracts is availed by the non- taxable exporter who engages and pays a foreign 
shipping line of their choice, without the involvement of the importer. In contrast, in 
FOB contracts, the Indian importer pays for the services of shipping and directly 
                                                 
84 Note: In order to facilitate convenience while reading the judgment, some of the statutory provisions are reflected in 
more than one place in the judgment.

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deals with the shipping line. The respondents herein are importers of non- coking 
coal on a CIF basis. 
63 Section 5 of the IGST A ct provides for the levy and collection of tax on inter -
State supplies of goods or services. The power to impose such tax is derived from 
Article 286(2) read with Article 269A(1). Sub-Section (1) of Section 5 provides for the 
levy of the integrated goods and services tax on all inter -State supplies of goods or 
services or both. Section 5 reads as follows:  
“5. Levy and collection. — (1) Subject to the provisions of sub -
section (2), there shall be levied a tax called the integrated goods 
and services tax on a ll inter-State supplies of goods or services 
or both, except on the supply of alcoholic liquor for human 
consumption, on the value determined under section 15 of the 
Central Goods and Services Tax Act and at such rates, not 
exceeding forty per cent., as may be notified by the Government 
on the recommendations of the Council and collected in such 
manner as may be prescribed and shall be paid by the taxable 
person: 
 
Provided that the integrated tax on goods imported into India 
shall be levied and collected in accordance with the provisions of 
section 3 of the Customs Tariff Act, 1975 on the value as 
determined under the said Act at the point when duties of 
customs are levied on the said goods under section 12 of the 
Customs Act, 1962.”  
 
The proviso to Section 5(1) of the IGST Act clarifies that the tax is levied on goods 
imported into India,  in accordance with Section 3 of the Customs T ariff Act 1975. 
The value is determined under the Customs Tariff Act at the point when the customs 
duties are levied in accordance with the Customs Act. 
64 The payment of IGST on a reverse- charge basis is c ontemplated in sub-
sections (3) and (4) of Section 5. Sub-section (3) provides that IGST may be paid on 
a reverse charge basis on specifi ed categories of supply of goods or services or

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both. The Central Government is empowered to specify these categories on the 
recommendations of the GST Council. Hence, on its plain terms, the payment of 
IGST on a reverse charge basis is envisaged on specific  categories of supply of 
goods or services, or both as notified by the Central Government. The tax on a 
reverse charge basis is payable by the recipient of such goods or services, or both. 
The power, in other words, is to specify categories of goods or ser vices (or both). 
The provision does not empower the government to specify the recipient of the 
supply of goods or services. The unamended Sub-section (4) of Section 5
85 provided 
that the tax in respect of the supply of goods or services by an unregistered s upplier, 
shall be paid on a reverse charge basis by a specified registered person, as the 
recipient of such supply of goods or services. The above provisions read as follows:  
“(3) The Government may, on the recommendations of the 
Council, by notification,  specify categories of supply of goods or 
services or both, the tax on which shall be paid on reverse 
charge basis by the recipient of such goods or services or both 
and all the provisions of this Act shall apply to such recipient as if 
he is the person li able for paying the tax in relation to the supply 
of such goods or services or both. 
 
(4) The integrated tax in respect of the supply of taxable goods or 
services or both by a supplier, who is not registered, to a 
registered person shall be paid by such person on reverse 
charge basis as the recipient and all the provisions of this Act 
shall apply to such recipient as if he is the person liable for 
paying the tax in relation to the supply of such goods or services 
or both.”  
                                                 
85 Sub-Section 4 of Section 5 was amended by The Integrated Goods and Services Tax (Amendment) Act 2018 w.e.f. 
1 February 2019 and reads as follows:  
“(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered 
persons who shall, in respect of supply of specified categories of goods or services or both received from an 
unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or 
both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in 
relation to such supply of goods or services or both.”

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65 On 28 June 2017, the Central Gov ernment issued Notification 8/2017, in 
exercise of its powers under Section 5(1), Section 6(1) and Section 20 of the IGST 
Act, read with Section 15(5) and Section 16(1) of the CGST Act. Entry 9(ii) of 
Notification 8/2017 reads as follows:  
SI  
No. 
Chapter, 
Section or 
Heading 
Description of Service Rate (per 
cent) 
Condition 
9 
Heading 
9965 
(Goods 
transport 
services) 
[…]  […]  […]  
(ii) Transport of goods in a 
vessel including services provided 
or agreed to be provided by a 
person located in non- taxable 
territory to a person located in 
non-taxable territory by way of 
transportation of goods by a 
vessel from a place outside India 
up to the customs station of 
clearance in India up to the 
customs stations of clearance in 
India. 
5 Provided that 
credit of input 
tax char ged on 
goods (other 
than on ships, 
vessels 
including bulk 
carriers, tankers) 
used in 
supplying the 
service has not 
been taken 
Explanation: 
This condition 
will not apply 
where the 
supplier of 
service is 
located in non-
taxable territory.  
[Please refer to 
Explanation no. 
(iv)]  
 
By Entry 9(ii) of Notification 8/2017, an integrated tax of 5 per cent was levied on 
supply of specified services, including transportation of goods in a vessel from a 
place outside India up to the customs station of clearance in India.

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66 On 28 June 2017, Notification 10/2017 was issued by the Central 
Government in exercise of powers conferred by Section 5(3) of the IGST Act. 
Notification 10/2017 specified the importer as the recipient of transportation of 
service when the supplier is  location in a non- taxable territory and the service of 
transportation is supplied by a person in a non- taxable territory. Entry 10 of 
Notification 10/2017 states the following:  
SI  
No. 
Category of Supply of 
Services 
Supplier of Recipient of Service 
0) 
(2) (3) (4) 
10 
Services supplied by a person 
located in non- taxable territory 
by way of transportation of 
goods by a vessel from a place 
outside India up to the customs 
station of clearance in India 
A person 
located in non-
taxable territory 
Importer, as d efined in clause (26) 
of section 2 of the Customs Act 
1962 (52 of 1962), located in the 
taxable territory 
Thus, Entry 10 of Notification 10/2017 deems an importer of goods as the ‘recipient 
of service’ of transportation of goods by a foreign shipping line. 
67 Both the impugned notifications, Notification 8/2017 and Notification 10/2017, 
have been challenged as ultra vires the IGST Act. Before adverting to the 
challenges raised by the parties, it becomes necessary to advert to some of the key 
provisions contained in the CGST Act, IGST Act and Customs Act. These provisions 
are necessary to respond to several contentions raised by the respondents, 
including: (i) whether the taxable event stipulated by the impugned notifications 
constitutes a ‘supply’ under the IGST Act; (ii) whether the importer of goods on a CIF 
basis can be deemed to be the ‘recipient’ of shipping services when they do not pay

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the consideration; and (iii) whether the import of goods constitutes a composite 
supply, among others. 
68 The provisions of the IGST Act apply to the whole of India as provided under 
Section 1. Section 5 of the IGST Act is the charging section. Sub- section (1) of 
Section 5 provides that the levy of IGST shall be paid by the taxable person. The 
term ‘taxable person’ is defined in Section 2(107) of the CGST Act:  
“(107) “taxable person” means a person who is registered or 
liable to be registered under section 22 or section 24”  
 
69 Section 2(98) of the CGST Act defines ‘reverse charge’:  
“(98) “reverse charge” means the liability to pay tax by the 
recipient of supply of goods or services or both instead of the 
supplier of such goods or services or both under sub- section (3) 
or sub-section (4) of section 9, or under sub- section (3) or sub-  
section (4) of section 5 of the Integrated Goods and Services Tax 
Act;”  
 
As defined in the above clause, under the reverse charge mechanism, the liability to 
pay is on the recipient of the supply of goods or services, as opposed to the supplier 
of goods or services.  Section 24(iii) of the CGST Act provides for compulsory 
registration of “persons who are required to pay tax under the reverse charge”. 
“24. Compulsory registration in certain cases. — Notwithstanding 
anything contained in sub-section (1) of Section 22, the following 
categories of persons s hall be required to be registered under 
this Act,—  
(i) persons making any inter-State taxable supply; 
(ii) casual taxable persons making taxable supply; 
(iii) persons who are required to pay tax under reverse 
charge; 
 
[…..]

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(xii) such  other person or class of persons as may be 
notified by the Government on the recommendations of the 
Council.” 
(emphasis supplied) 
  
70 Section 2 (105) of the CGST Act defines the ‘supplier’ in relation to goods or 
services as:  
“(105) “supplier” in relation to any goods or services or both, shall 
mean the person supplying the said goods or services or both 
and shall include an agent acting as such on behalf of such 
supplier in relation to the goods or services or both supplied;”  
 
71 Section 2(93) of the CGST Ac t defines the ‘recipient’ of supply of goods or 
services or both and provides:  
“(93) “recipient” of supply of goods or services or both, means—  
(a) where a consideration is payable for the supply of goods or 
services or both, the person who is liable to pay that 
consideration;  
 
(b) where no consideration is payable for the supply of goods, the 
person to whom the goods are delivered or made available, or t o 
whom possession or use of the goods is given or made available; 
and  
 
(c) where no consideration is payable for the supply of a service, 
the person to whom the service is rendered,  
 
and any reference to a person to whom a supply is made shall be 
construed as a reference to the recipient of the supply and shall 
include an agent acting as such on behalf of the recipient in 
relation to the goods or services or both supplied;”  
 
72 Sections 2(14) and 2(15) of the IGST Act define the location of the recipient of  
services and the supplier of services as follows:  
“(14) “location of the recipient of services” means,––  
(a) where a supply is received at a place of business for which 
the registration has been obtained, the location of such place of 
business;  
(b) where a supply is received at a place other than the place of 
business for which registration has been obtained (a fixed

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establishment elsewhere), the location of such fixed 
establishment;  
(c) where a supply is received at more than one establishment, 
whether the place of business or fixed establishment, the location 
of the establishment most directly concerned with the receipt of 
the supply; and  
(d) in absence of such places, the location of the usual place of 
residence of the recipient;  
 
 
(15) “location o f the supplier of services” means, –– 
(a) where a supply is made from a place of business for which 
the registration has been obtained, the location of such place of 
business;  
(b) where a supply is made from a place other than the place of 
business for whi ch registration has been obtained (a fixed 
establishment elsewhere), the location of such fixed 
establishment;  
(c) where a supply is made from more than one establishment, 
whether the place of business or fixed establishment, the location 
of the establishment most directly concerned with the provision of 
the supply; and  
(d) in absence of such places, the location of the usual place of 
residence of the supplier;”  
 
73 Chapter IV of the IGST Act determines the nature of the supply. Section 7 of 
the IGST Act de termines the nature of supply as inter -State supply, Section 8 
provides for intra- State supply and Section 9 provides for supplies in territorial 
waters.  
74 Section 7 of the IGST Act lay down the conditions for a supply to be 
construed as an “inter -State supply”. The relevant provisions, particularly sub-
Sections (3) and (4) of Section 7 are as follows:  
“7. Inter-State supply.—(1) Subject to the provisions of Section 
10, supply of goods, where the location of the supplier and the 
place of supply are in—  
(a) two different States; 
(b) two different Union territories; or 
(c) a State and a Union territory, 
shall be treated as a supply of goods in the course of inter -State 
trade or commerce.

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[…..]  
(3) Subject to the provisions of Section 12, supply of ser vices, 
where the location of the supplier and the place of supply are 
in—  
(a) two different States; 
(b) two different Union territories; or 
(c) a State and a Union territory, 
shall be treated as a supply of services in the course of inter -
State trade or commerce. 
 
 
(4) Supply of services imported into the territory of India 
shall be treated to be a supply of services in the course of 
inter-State trade or commerce.” 
(emphasis supplied) 
 
75 The term ‘supply’ has been defined in the IGST Act with reference to the  
CGST Act. Section 2(21) of the IGST Act provides that:  
“(21) “supply” shall have the same meaning as assigned to it in 
section 7 of the Central Goods and Services Tax Act” 
 
Section 7(1) of the CGST Act provides that:  
“7. Scope of supply.  
(1) For the purposes of this Act, the expression "supply" includes-
- 
(a) all forms of supply of goods or services or both such as sale, 
transfer, barter, exchange, licence, rental, lease or disposal 
made or agreed to be made for a consideration by a person in 
the course or furtherance of business; 
[(aa) the activities or transactions, by a person, other than an 
individual, to its members or constituents or vice- versa, for cash, 
deferred payment or other valuable consideration. 
Explanation.--For the purposes of this clause, it is hereby clarified 
that, notwithstanding anything contained in any other law for the 
time being in force or any judgment, decree or order of any 
Court, tribunal or authority, the person and its members or 
constituents shall be deemed to be two separate persons and the 
supply of activities or transactions inter se shall be deemed to 
take place from one such person to another;] 
 
 [(b) import of services for a consideration whether or not in 
the course or furtherance of business; [and] 
 
(c) the activities specified in Schedule I, made or agreed to 
be made without a consideration;”   
(emphasis supplied)

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The term ‘taxable territory’ is defined in Section 2(22) of the IGST Act to mean the 
“territory to which the provisions of this Act [IGST Act] apply”. 
76 Section 13 of the IGST Act deals with determining the place of supply of 
services where the location of supplier or location of recipient is outside India:  
“13. Place of supply of services where location of supplier or 
location of recipient is outside India.—  
 
(1) The provisions of this section shall apply to determine the 
place of supply of services where the location of the supplier of 
services or the location of the recipient of services is outside 
India. 
 
(2) The place of supply of services excep t the services 
specified in sub -sections (3) to (13) shall be the location of 
the recipient of services: 
Provided that where the location of the recipient of services is not 
available in the ordinary course of business, the place of supply 
shall be the location of the supplier of services. 
 
(3) The place of supply of the following services shall be the 
location where the services are actually performed, namely:— 
 
[…..]  
 
(6) Where any services referred to in sub- section (3) or sub-
section (4) or sub- section (5) is supplied at more than one 
location, including a location in the taxable territory, its place of 
supply shall be the location in the taxable territory. 
 
[….] 
 
(9) The place of supply of services of transportation of 
goods, other than by way of mail or courier, shall be the 
place of destination of such goods. 
 
(10) The place of supply in respect of passenger transportation 
services shall be the place where the passenger embarks on the 
conveyance for a continuous journey. 
 
(12) The place of supply of online information and database 
access or retrieval services shall be the location of the recipient 
of services. 
Explanation.—For the purposes of this sub- section, person 
receiving such services shall be deemed to be located in the 
taxable territory, if any two of the following non -contradictory 
conditions are satisfied, namely:—

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(a) the location of address presented by the recipient of services 
through internet is in the taxable territory; 
(b) the credit card or debit card or store value card or charge card 
or smart card or any other card by which the recipient of services 
settles payment has been issued in the taxable territory; 
(c) the billing address of the recipient of services is in the taxable 
territory; 
(d) the internet protocol address of the device used by the 
recipient of services is in the taxable territory; 
(e) the bank of the recipient of services in which the account 
used for payment is maintained is in the taxable territory; 
(f) the country code of the subscriber identity module card used 
by the recipient of services is of taxable territory; 
(g) the location of the fixed land line through which the service is 
received by the recipient is in the taxable territory. 
 
(13) In order to prevent double taxation or non- taxation of the 
supply of a service, or for the uniform application of rules, the 
Government shall have the power to notify any description of 
services or circumstances in which the place of supply shall be 
the place of effective use and enjoyment of a service.” 
(emphasis supplied) 
 
 
77 Chapter IX of the IGST Act contains miscellaneous provisions, under which 
Section 20 of the IGST Act provides that the provisions in the CGST Act relating to 
the scope of supply, composite or mixed supply, time and value of supply, shall 
apply mutatis mutandis  to integrated tax. In this regard, the time of supply of 
services is provided in Section 13 of the CGST Act, while the value of taxable supply 
is determined under Section 15 of the CGST Act. 
78 Section 13 of the CGST Act states that the liability to pay tax on services 
arises at the time of supply. Sub- section (3) of Section 13 provides for the time of 
supply when tax is paid on a reverse charge basis:  
“13. Time of supply of services.  
[…] 
(3) In case of supplies in respect of which tax is paid or liable to 
be paid on reverse charge basis, the time of supply shall be the 
earlier of the following dates, namely:--

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(a) the date of payment as entered in the books of account of the 
recipient or the date on which the payment is debited in his bank 
account, whichever is earlier; or 
 
(b) the date immediately following sixty days from the date of 
issue of invoice or any other document, by whatever name 
called, in lieu thereof by the supplier: 
 
Provided that where it is not possible to determine the time of 
supply under clause (a) or clause (b), the time of supply shall be 
the date of entry in the books of account of the recipient of 
supply: 
Provided further that in case of supply by associated enterprises, 
where the supplier of service is located outside India, the time of 
supply shall be the date of entry in the books of account of the 
recipient of supply or the date of payment, whichever is earlier.” 
 
Sub-section (5) of Section 13 provides for the time of supply when it cannot be 
determined under sub-Section (2), (3) or (4):  
“(5) Where it is not possible to determine the time of supply under 
the provisions of sub-section (2) or sub-section (3) or sub-section 
(4), the time of supply shall—  
 
(a) in a case where a periodical return has to be filed, be the date 
on which such return is to be filed; or 
(b) in any other case, be the date on which the tax is paid.” 
 
79 Section 15 of the CGST Act provides for the determ ination of the value of 
taxable supply. Sub- section (1) provides that the value of supply of goods or 
services shall be the transaction value; sub- section (2) provides that the value of 
supply shall include taxes, duties, fees etc. charged separately under  the goods and 
services tax regime, incidental expenses, interest, late fee penalty, etc. Sub-sections 
(4) and (5) provide for the value of the supply of goods or services if it cannot be 
determined under sub-section (1). 
“15. Value of taxable supply.—(1) The value of a supply of goods 
or services or both shall be the transaction value, which is the 
price actually paid or payable for the said supply of goods or

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services or both where the supplier and the recipient of the 
supply are not related and the price is the sole consideration for 
the supply. 
[….] 
(4) Where the value of the supply of goods or services or both 
cannot be determined under sub- section (1), the same shall be 
determined in such manner as may be prescribed. 
 
(5) Notwithstanding anything contained in sub-section (1) or sub-
section (4), the value of such supplies as may be notified by the 
Government on the recommendations of the Council shall be 
determined in such manner as may be prescribed.” 
 
D.2  Do the impugned notifications suffer from excessive delegation? 
80 Article 286(1) stipulates that the State shall not levy tax when the supply of 
goods or services takes place outside the State or in the course of import or export 
of goods or services from the territory of India. Clause (2) of Article 286 states that  
Parliament may by law formulate principles for determining when there is a supply of 
goods or services as prescribed by clause (1): 
“286(1): No law of a State shall impose, or authorize the 
imposition of, a tax, or authorize the imposition of, a tax on the 
supply of goods or services or both, where such supply takes 
place 
a) outside the State; or 
b) in the course of import of the goods or services or both into, or 
export of the goods or services or both out of, the territory of 
India. 
(2) Parliament may by law formulate principles for determining 
when a supply of goods or of services or both in any of the ways 
mentioned in clause (1).” 
 
81 Article 269A provides that GST on supplies in the course of inter -state trade 
or commerce shall be levied and collected by the Union Government. The manner of 
apportionment between the Union and the States has to be provided by Parliament 
on the recommendations of the GST Council. T he explanation to Article 269A(1) 
states that supply of goods or services in the course of import shall be deemed to be

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supply in the course of inter -State trade or commerce. Clause (5) provides that  
Parliament may by law formulate principles for determini ng the place of supply and 
when the supply of goods or services takes place in the course of inter-state trade or 
commerce: 
“269A. (1) Goods and services tax on supplies in the course 
of inter- State trade or commerce shall be levied and 
collected by the Go vernment of India and such tax shall be 
apportioned between the Union and the States in the manner 
as may be provided by  Parliament by law on the 
recommendations of the Goods and Services Tax Council.  
Explanation — For the purposes of this clause, supply of 
goods, or of services, or both in the course of import into 
the territory of India shall be deemed to be supply of goods, 
or of services, or both in the course of inter -State trade or 
commerce. 
[…]  
(5) Parliament may, by law, formulate the principles for 
determining the place of supply, and when a supply of goods, or 
of services, or both takes place in the course of inter -State trade 
or commerce.” 
(emphasis supplied) 
82 Articles 269A  stipulates that Parliament may by law formulate principles for  
determining: (a) the place of supply and; (b) when the supply of goods or services or 
both takes place in the course of inter -State trade or commerce. Article 286(1)  
empowers Parliament to formulate the principles by law for determining when a 
supply of goods or services, or both, takes place (a) outside the state; and (b) in the 
course of import into or export outside the territory of India.  Parliament enacted the 
IGST Act prescribing the principles as required under Articles 269A and 286(1). The 
provisions of the IG ST Act deal with the levy and collection of tax (Section 5(1)), 
export of goods and services (Section 2(5) and 2(6)), import of goods and services 
(Section 2(10) and 2(11)), identification of the location of the supplier and recipient 
of services (Sections  2(14) and 2(15)), determination of the nature of inter -State

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supply (Section 7), supplies in territorial waters (Section 9), place of supply with 
respect to import to India and export from India (Section 11), and place of supply of 
services where the location of the supplier and recipient is in India and outside India 
(Sections 12 and 13). 
83 The contention of the respondents is that Section 5(3) of the IGST Act only 
delegates the power to identify the categories of goods or services on which the tax 
shall be paid on reverse charge basis. It is contended that since Notification 10/2017 
identifies an importer as a service recipient  for the purposes of Section 5(3), it is 
ultra vires the parent Act on the ground of excessive delegation. 
84 The legislature is requir ed to perform its essential legislative functions. Once 
the skeletal structure of the policy is framed by the legislature, the details can 
emerge through delegated legislations. 86 It is a settled position that the legislature 
cannot delegate its ‘essential legislative functions’. 87 The essential legislative 
functions with respect to the GST law are the levy of tax, subject matter of tax, 
taxable person, rate of taxation and value for the purpose of taxation. The principles 
governing these essential aspects of  taxation find place in the IGST Act: Section 
5(1) identifies the subject matter of taxation as inter -State supplies of goods, 
services or both; Section 2(107) of the CGST Act identifies a taxable person; 
Section 5(1) provides a maximum cap of 40% as the r ate of taxation; and Section 
                                                 
86 Municipal Corporation of Delhi v. Birla Cotton Spinning and Weaving Mills, AIR 1968 SC 1232; Avinder Singh v. 
State of Punjab, 1979 1 SCC 137 
87 In re Delhi Laws Act 1912, AIR 1951 SC 332; Edward Mills Co. Ltd. v. State of Ajmer, AIR 1955 SC 25; A.N 
Parasaran v. State of Tamil Nadu, (1989) 4 SCC 683

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5(1) stipulates that the value of taxation be determined under Section 15 of the 
CGST Act.  
85 Section 2(98) of the CGST Act defines “ reverse charge” as the liability of the 
recipient of the supply of goods or services or both to pay tax instead of the supplier. 
Section 2(93) of the CGST Act defines “ recipient” with reference to three situations 
(i) when consideration is payable for the supply of goods or services or both; (ii) 
when no consideration is payable for the supply of goods; and (iii) when no 
consideration is payable for the supply of services. In the first situation, the recipient 
is the person by whom consideration is payable. In the second situation,  the 
recipient is the person to whom (a) the goods are delivered or made available; or (b) 
possession or the use of the goods is given or made available.  The CGST Act also 
stipulates a two-fold requirement for a recipient to be taxed on reverse charge basis - 
the recipient must be a ‘person’ as defined under Section 2(84) of the CGST; and 
the person is a “taxable person” only if registered or is liable to be registered under 
Section 22 or Section 24. Section 24(iii) of the CGST Act states that persons who 
are required to pay tax under reverse charge must be registered. Therefore, both the 
IGST and CGST Act clearly define reverse charge, recipient and taxable persons. 
Thus, the essential legislative functions vis -à-vis reverse charge have not been 
delegated. 
86 Section 5(3) of the IGST Act provides the Government the power to specify 
categories of supply of goods or services or both on which tax shall be paid on a 
reverse charge basis by the recipient. The Government is to exercise this power on

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the recommendation of the GST Council. The Government in exercise of its power 
under S ection 5(3) of the IGST Act issued the impugned Notification 10/2017 
specifying the ‘categories of the supply’ which shall be subject to reverse charge. 
The notification, besides  specifying the criteria, has also mentioned the 
corresponding recipient in those categories. As discussed above, the IGST Act and 
the CGST Act  define reverse charge and prescribe the entity that is to be taxed for 
these purposes. Therefore, the stipulation of the recipient in each of the categories 
is only clarificatory. The Government by notification did not specify a taxable entity 
different from that which is prescribed in Section 5(3)  of the IGST Act for the 
purposes of reverse charge.  
D.3 Charging Section: taxable person, taxable rate and manner of 
determining value  
87 In determining the vires of the impugned notifications, a few preliminary 
contentions raised by the respondents would have to be addressed. The 
respondents have argued that no charge has been created for the ocean freight  
transaction to be taxed in the hands of the importer. It has been alleged that only 
Section 5(1) is a charging provision and Sections 5(3) and 5(4) cannot 
independently create a charge. 
88 In assessing this claim, this Court is bound by a decision of the Constitution 
Bench in Mathuram A grawal (supra) which has identified three essential elements 
of taxation:

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(i) The subject of the tax; 
(ii) The person who is liable to pay the tax; and  
(iii) The rate at which the tax is to be paid. 
This test has been further elaborated by a two- judge Bench of this Court in G obind 
Saran Ganga Saran (supra) by further requiring the designation of the measure or 
the value to which the rate of the tax will be applied. Thus, the four canons of 
taxation are as follows: 
(i) The taxable event; 
(ii) The person on whom the levy is imposed; 
(iii) The rate at which the levy is imposed; and 
(iv) The measure or the value to which the rate will be applied. 
89 Section 5(1) of the IGST Act specifically identifies the four canons of taxation: 
(i) the inter-State supply of goods and services as the taxable event; (ii)  the “taxable 
person” as the person on whom the levy is imposed; (iii) the taxable rate as such a 
rate notified by the Union Government on the recommendation of the GST Council, 
capped at forty per cent; and (iv) the taxable value as the value determined under 
Section 15 of the CGST Act. 
90 Section 5(3) and Section 5(4) of the IGST Act are inextricably linked with  
Section 5(1) of the IGST Act  which is the charging provision.  They must be

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construed together in determining the vires of the taxation. In CIT v. B C Srinivas 
Setty88, a three-judge Bench of this Court has held that the machinery provisions of 
an Act and the charging sections are inextricably linked. The Court observed: 
“A transaction to which those provisions cannot be applied must 
be regarded as never intended by Section 45 to be the subject of 
the charge. This inference flows from the general arrangement of 
the provisions of the Income Tax Act, where under each head of 
income the charging provision is accompanied by a set of 
provisions for computing the income subject to that charge. The 
character of the computation provisions in each case bears 
a relationship to the nature of charge.  Thus the charging 
section and the computation provisions together constitute 
an integrated code. When there is a case to which the 
computation provisions cannot apply at all, it is evident that such 
a case was not intended to fall within the charging section.”  
(emphasis supplied) 
 
Taxable person 
91 The respondents have alleged that the importer cannot be validly termed as a 
taxable person. However, this argument has to fail on a close reading of the 
impugned notifications alongside Sections 2(107) and 24 of the CGST Act. Section 
24(iii) of the CGST Act mandates persons required to pay tax under reverse c harge 
to be compulsorily registered under the CGST Act. Section 2(107) of the CGST Act 
defines a “taxable person” to mean a person who is registered or liable to be 
registered under Section 24 of the CGST Act. Neither Section 2(107) nor Section 24 
of the C GST Act qualify the imposition of reverse charge on a “recipient of service” 
and broadly impose it on “the persons who are required to pay tax under reverse 
charge”. Since the impugned notification 10/2017 identifies the importer as the 
recipient liable to pay tax on a reverse charge basis under Section 5(3) of the IGST 
                                                 
88 AIR 1981 SC 972

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Act, the argument of the failure to identify a specific person who is liable to pay tax 
does not stand. 
92 The decision in Laghu Udyog (supra), rendered by a two- judge Bench of this 
Court, invalidated certain service tax rules formulated under the Finance Act 1997 to 
give effect to the collection of service tax. Section 66 read with Section 68(1)(a) of 
the Finance Act 1997 specifically identified the taxable person to include only those 
persons responsible for collecting the service tax. The rules had sought to effect a 
reverse charge by identifying the customers of goods transport operators and of 
clearing and forwarding agents as the assessee, even though they were not 
responsible for collecting the service tax. The basis for nullifying the rules was that 
the Finance Act 1997 did not enable the imposition of such a reverse charge on the 
person who is not supplying the service. The Court held: 
“9. Section 68(1- A) is a special provision which has been 
inserted by the Finance Act, 1997. According to Section 68(1) 
“every person who was providing the taxable service is the one 
who is required to collect the service tax at the rate specified in 
Section 66”. With respect to the taxable services referred in Items 
(g) to ( r) of clause (41) of Section 65, Section 68(1- A) provides 
that the service tax for such service shall be collected from such 
person and in such manner as may be prescribed and to such 
person all the provisions shall apply as if he is the person 
responsible for collecting the service tax in relation to such 
service. As we read Section 68 it does not in any way seek to 
alter or change the charge of service tax levied under Section 66, 
which is on the person responsible for collecting the ser vice tax. 
It also does not to our mind, in any way, amend any of the 
clauses of Section 65 which contain the definitions of different 
expressions. All that Section 68(1- A) enables to be done is that 
with regard to the assessees or the persons who are responsible 
for collecting the service tax, the individual or the officer 
concerned can be identified and it is that person who would be a 
person responsible for collecting the service tax. In other words 
this provision, namely, Section 68(1- A) cannot be so 
interpreted as to make a person an assessee even though he 
may not be responsible for collecting the service tax. The 
service tax is levied by reason of the services which are

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offered. The imposition is on the person rendering the 
service. Of course, it may b e an indirect tax; it may be 
possible that the same is passed on to the customer but as 
far as the levy and assessment are concerned it is the 
person rendering the service who alone can be regarded as 
an assessee and not the customer. This is the only way in 
which the provisions can be read harmoniously. 
 
[…] 
 
10. By amending the definition of “person responsible for 
collecting of service tax” in the impugned rules with regard to 
services provided by the clearing and forwarding agents and the 
goods transport operator a person responsible is said to be the 
client or the customer of the clearing and forwarding agents and 
the goods transporter. In relation to the services provided by 
others and referred to in sub- rules (i) to ( xi) and ( xiii) to ( xvi) of 
Rule 2( d), the definition of the person responsible is in 
consonance with the definition of that expression occurring in 
Section 65 of the Act. However, with regard to the services 
rendered by the clearing and forwarding agents and the goods 
transport operator the definitions contained in Rule 2( d)(xii) and 
(xvii), which seek to make the customers or the clients as the 
assessee, are clearly in conflict with Sections 65 and 66 of the 
Act.” 
(emphasis supplied) 
 
The decision in Laghu Udyog (supra) has no applicability to the facts of the present 
case since Parliament has statutorily incorporated the concept of a reverse charge 
under Sections 5(3) and 5(4) of the IGST Act. The impugned notification 10/2017 
clearly specifies a taxable person who is liable to pay a reverse charge that is 
envisaged in the statute. Thus, the impugned notifications cannot be invalidated for 
an alleged failure to identify a taxable person. 
Taxable value 
93 By a c orrigendum dated 8 June 2016,  Notification 8/2017 was amended t o 
include the measure of taxable value to be ten per cent of the CIF value. Section 
5(1) of the IGST Act enables the taxable value to be determined under Section 15 of

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the CGST Act. The respondents have argued that the value has to be strictly 
determined by Section 15(1) 89 of the CGST Act and not by way of delegated 
legislation. However, Sections 15(4) and 15(5) enable delegated legislation to 
prescribe methods for determination of value, on the recommendations of the GST 
Council. Section 15 is extracted below : 
“Section 15- Value of Taxable Supply: 
 
[…] 
 
(4) Where the value of the supply of goods or services or both 
cannot be determined under sub- section (1), the same shall be 
determined in such manner as may be prescribed.  
 
(5) Notwithstanding anything contained in sub- section (1) or sub-
section (4), the value of such supplies as may be notified by the 
Government on the recommendations of the Council shall be 
determined in such manner as may be prescribed.”  
 
 Rules 27 to 31 of Chapter IV of the CGST Rules 2017, prescribe the manner of  
determining value of supply. Rule 31 also  provides for residual powers t o the GST 
Council for prescribing modes of valuation. 
“31. Residual method for determination of value of supply of 
goods or services or both.— Where the value of supply of goods 
or services or both cannot be determined under Rules 27 to 30, 
the same shall be determined using reasonable means 
consistent with the principles and the general provisions of 
Section 15 and the provisions of this Chapter: 
Provided that in the case of supply of services, the supplier may 
opt for this rule, ignoring Rule 30.” 
94 The respondents have urged that the determination of the value of supply has 
to be specified only through rules, and not by notification. However, this would be an 
unduly restrictive interpretation. Parliament has provided the basic framework and 
                                                 
89 “Section 15: Value of Taxable Supply - (1) The value of a supply of goods or services or both shall be the 
transaction value, which is the price actually paid or payable for the said supply of goods or services or both where 
the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.”

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delegated legisl ation provides necessary supplements to create a workable 
mechanism. Rule 31 of the CGST Rules 2017 specifically provides for a residual 
power to determine valuation in specific cases, using reasonable means that are 
consistent with the principles of Section 15 of the CGST Act. This is where the value 
of the supply of goods cannot be determined in accordance with Rules 27 to 30 of 
the CGST Rules 2017. Thus, the impugned notification 8/2017 cannot be struck 
down for excessive delegation when it prescribes 10 per cent of the CIF value as the 
mechanism for imposing tax on a reverse charge basis. 
D.4 Taxable event: Is an ocean freight transaction for  import of goods a 
valid category of supply of services under Section 5(3) of IGST Act?  
95 The other limb for contesting the validity of the impugned notification is with 
respect to its identification of a “taxable event”. The question that falls for the 
determination is whether the impugned notifications issued in 2017, under Section 
5(3) of the IGST Act, validly prescribe a taxable event that constitutes an inter -State 
supply of goods and services with the importer being a recipient of shipping services 
in CIF transactions.  
96 The analysis of  whether import of goods under CIF contracts  constitutes a 
valid import of service has to be answered o n two prongs: (i) whether classification 
of imports as a specific category of supply of shipping service is valid under Section 
5(3) read with Section 5(1) of the IGST Act; and (ii) whether the recipient of the

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imported goods is  also a recipient of  shipping services in CIF transactions under 
Section 5(3). 
D.4.(a)  Do imported goods procured on a CIF basis constitute an inter -state 
supply or is it an extra-territorial tax? 
97 Notification 8/2017 specifically delineate s the service that is accompanied 
with the transportation of goods from a non- taxable territory as a specified category 
of service under Section 5(3) of the IGST Act. This categorization taxes the recipient 
of such transportation service on a reverse charge basis. The respondents have 
argued that the supply of service of shipping in a CIF contract is from the foreign 
shipping line to the foreign exporter. It is alleged that this transaction has no 
territorial nexus to India and does not constitute “supply” that can be taxed within the 
meaning of the CGST Act and IGST Act. 
98 We shall now advert to certain key provisions relevant to determine whether 
the taxable event in the present case that is, “services supplied by a person located 
in a non-taxable territory by way of transportation of goods by a vessel from a place 
outside India up to the customs station of clearance in India” constitutes an ‘inter -
State supply’ for the purposes of the charging Section 5(1) of the IGST Act, read 
with Sections 5(3) and the unamended Section 5(4).  
99 Section 5(1) levies  IGST on all “inter-state supplies” of goods or services or 
both. Section 5(3) of the IGST Act confers power on the Central Government, on the 
recommendation of the GST Council, to specify categories  of supply of goods or

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services or both where the tax shall be paid on a reverse charge basis by the 
recipient. While analysing the respondents ’ contention, it is important to 
contextualize the purpose of GST and the constitutional amendment to effect it. In 
modern commerce, the distinction between goods and services is increasingly 
becoming a matter of degree than substance.  GST seeks to focus on the taxation of 
“supply” of goods or services. The provisions of  the IGST and CGST Act focus on 
implementing a workable machinery to adequately capture the complexities of 
supply in a global and digital age.  
100 The term ‘supply’ has been defined in the IGST Act with reference to the 
CGST Act. Section 2(21) of the IGST Act provides that:  
“(21) “supply” shall have the same meaning as assigned to it in 
section 7 of the Central Goods and Services Tax Act” 
 
Section 7(1) of the CGST Act provides thus:  
“7. Scope of supply.  
(1) For the purposes of this Act, the expression "supply" includes-
- 
(a) all forms of supply of good s or services or both such as sale, 
transfer, barter, exchange, licence, rental, lease or disposal made 
or agreed to be made for a consideration by a person in the 
course or furtherance of business; 
[(aa) the activities or transactions, by a person, other than an 
individual, to its members or constituents or vice- versa, for cash, 
deferred payment or other valuable consideration. 
Explanation.--For the purposes of this clause, it is hereby clarified 
that, notwithstanding anything contained in any other law for the 
time being in force or any judgment, decree or order of any Court, 
tribunal or authority, the person and its members or constituents 
shall be deemed to be two separate persons and the supply of

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activities or transactions inter se shall be deemed to t ake place 
from one such person to another;] 
 [(b) import of services for a consideration whether or not in 
the course or furtherance of business; [and] 
(c) the activities specified in Schedule I, made or agreed to 
be made without a consideration; 
[… .]  
(3) Subject to the provisions of sub-sections (1), (1-A) and (2), 
the Government may, on the recommendations of the Council, 
specify, by notification, the transactions that are to be treated 
as—  
(a) a supply of goods and not as a supply of services; or 
(b) a supply of services and not as a supply of goods.” 
(emphasis supplied) 
Further, Section 7 of the IGST Act defines  the scope of inter -State supply. Section 
7(4) of the IGST Act states that “supply of services imported into the territory of India 
shall be treated to be a supply of services in the course of inter -State trade or 
commerce”: 
“7. Inter-State supply.—  
 
(1) Subject to the provisions of Section 10, supply of goods, 
where the location of the supplier and the place of supply are 
in—  
(a) two different States; 
(b) two different Union territories; or 
(c) a State and a Union territory, 
shall be treated as a supply of goods in the course of inter -State 
trade or commerce. 
 
(2) Supply of goods imported into the territory of India, till they 
cross t he customs frontiers of India, shall be treated to be a 
supply of goods in the course of inter-State trade or commerce. 
 
(3) Subject to the provisions of Section 12, supply of services, 
where the location of the supplier and the place of supply are 
in—  
(a) two different States;

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(b) two different Union territories; or 
(c) a State and a Union territory, 
shall be treated as a supply of services in the course of inter -
State trade or commerce. 
 
(4) Supply of services imported into the territory of India 
shall be treated to be a supply of services in the course of 
inter-State trade or commerce. 
[…]”  
(emphasis supplied) 
 
101 Section 7 of the CGST Act defines the term “supply” with a broad brush and 
provides for an inclusive definition. Section 7(1)(b) of the CGST Act considers import 
of services for a consideration to constitute “supply”. Section 7(1) (c) of the CGST 
Act captures any and all activities in Schedule 1 of the CGST Act, irrespective of 
whether they are made for a consideration. Additionally, Section 7(3) confers the 
power on the Central Government to specify which transactions are to be treated as 
a supply of goods and not a supply of services, and vice- versa. Section 7(4) of the 
IGST Act states that supply of services imported into India would be considered as a 
supply of services in the course of “inter -State trade or commerce”. Thus, an Indian 
importer could also be considered as an importer of the service of shipping which is 
liable to IGST on inter -state supply, if the activity falls within the definition of “import 
of service” for the IGST Act and CGST Act. 
102 The term ‘importer’ is not defined in the IGST Act or the CGST Act. Section 
2(26) of the Customs Act defines an ‘importer’ as:  
“(26) "importer", in relation to any goods at any time between 
their imp ortation and the time when they are cleared for home 
consumption, includes  [any owner, beneficial owner] or any 
person holding himself out to be the importer” 
 
The term ‘import of goods’ is defined in Section 2(10) of the CGST Act as:

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“(10) “import of goo ds” with its grammatical variations and 
cognate expressions, means bringing goods into India from a 
place outside India” 
 
“Import of services” is defined in Section 2(11) of the CGST Act as:  
“(11) ‘‘import of services” means the supply of any service, 
where––  
(i) the supplier of service is located outside India;  
(ii) the recipient of service is located in India; and  
(iii) the place of supply of service is in India;” 
 
The conditions for an “import of service” would entail three aspects: (i) the supplier 
of service must be located outside India; (ii) the recipient of the service must be 
located in India; and (iii) the place of supply of service ought to be in India. The 
respondents have argued that conditions (ii) and (iii) are not satisfied in the case of 
CIF contracts since the recipient of shipping services would be the foreign exporter 
and the place of supply would be the place of business of such foreign exporter. 
However, in interpreting the expressions “recipient” and “place of supply”, this Court 
would have to analyse these terms vis-à-vis the IGST Act and the CGST Act and not 
exclusively from the provisions of the contract between the foreign exporter and the 
foreign shipping line.  
103 Chapter V of the IGST Act provides for methodologies to determine the place 
of supply of goods or services or both. Section 13 of the IGST Act provides the place 
of supply of services where the location of the supplier or location of recipient is 
outside India: 
“13. Place of supply of services where location of supplier or 
location of recipient is outside India—

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(1) The provisions of this section shall apply to determine the 
place of supply of services where the location of the supplier of 
services or the location of the recipient of services is outside 
India.  
 
(2) The place of supply of services except the services specified 
in sub-sections (3) to (13) shall be the location of the recipient of 
services:  
Provided that where the location of the recipient of services is not 
available in the ordinary course of business, the place of supply 
shall be the location of the supplier of services.  
[…] 
 
(9) The place of supply of services of transportation of 
goods, other than by way of mail or courier, shall be the 
place of destination of such goods.” 
(emphasis supplied) 
 
Section 13(9) of the IGST Act appears to create a deeming fiction,  where in case of 
supply of services of transportation of goods by a supplier located outside India, the 
place of supply would be the place of destination of such goods. The supplier, the 
foreign shipping line, in this case would be a non- taxable person. However, its 
services in a CIF contract for transport of goods would enter Indian taxable territory 
as the destination of such goods.  The place of supply of shipping service by a 
foreign shipping line, would thus be India. 
104 The respondents argued that since Section 7(1)(b) of the CGST Act does not 
define “supply” of import of service without consideration, other than the ones 
specified in Schedule 1, this would be inapplicable to importers with CIF contracts as 
the consideration is paid by the exporter. Thus, the importer of goods cannot be said 
to be an importer of shipping service since the latter is not an import of service for a 
consideration under Section 7(1)(b) of the CGST Act . However, this argument

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misses out on some crucial definitions. The term ‘supply’ has been defined in the 
IGST Act with reference to the CGST Act. Thus,  the three conditions for “import of 
services” under Sec tion 2(11)(iii) must be understood with reference to  the 
provisions of the CGST and IGST Ac ts, including the provisions for determination of 
place of supply  under Section 13(9) of the IGST Act . As mentioned previously, 
Section 13(9) of the IGST Act creates  a deeming fiction of place of supply of 
transportation services to be in India when the destination of goods is in India. In this 
case, it is clear the supplier of service-  the foreign shipping line - is located outside 
India; and the place of supply is India. Accordingly, Section 13 of the CGST Act 
would be applicable to determine the time of such supply. 
 
105 The respondents have argued that the ocean freight transaction cannot be 
considered as “supply” since Section 7(1)(b) of the IGST act requires the import of 
service to be for a “consideration”. The definition of “consideration” in Section 2(31) 
of the CGST Act is instructive: 
“(31) “consideration” in relation to the supply of goods or services 
or both includes—  
 
(a) any payment made or to be made, whether in money or 
otherwise, in respect of, in response to, or for the 
inducement of, the supply of goods or services or both, 
whether by the recipient or by any other person  but shall not 
include any subsidy given by the Central Government or a State 
Government; 
(b) the monetary value of any act or forbearance, in respect of, in 
response to, or for the inducement of, the supply of goods or 
services or both, whether by the recipient or by any other person 
but shall not include any subsidy given by the Central 
Government or a State Government: 
 
Provided that a deposit given in respect of the supply of goods or 
services or both shall not be considered as payment made for

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such supply unless the supplier applies  such deposit as 
consideration for the said supply;” 
(emphasis supplied) 
  
Thus, Section 2(31) of the CGST Act defines ‘consideration’ to include payment 
made or to be made, in money or any other form, for the inducement of supply of 
goods or services to b e made by the recipient or by any other person. Thus, in the 
case of  goods imported on a CIF basis , the fact that consideration is paid by the 
foreign exporter to the foreign shipping line would not stand in the way of it being 
considered as a “supply of s ervice” under Section 7(4) of the IGST Act which is 
made for a consideration, thereby constituti ng “supply of service ” in the course of 
inter-state trade or commerce that can be subject to IGST  under Section 5(1) of the 
IGST Act. 
106 At this stage, we note that the respondents have also challenged the 
impugned levy on the ground that the transaction takes place beyond the territory of 
India and is thus, extra territorial in nature. Mr Arvind Datar and Mr Harish Salve, 
learned senior counsel have urged that the service of transportation occurs outside 
India, that is outside the taxable territory and bears a nexus with India only as the 
destination of goods is India. However, the submission is that since the import of 
goods is taxed under  Section 5(1) as ‘supply of goods’, there remains no territorial 
nexus of the transportation service with the Indian territory. An extension of this 
argument is that in case Parliament seeks to levy a tax outside its territory, it makes 
a deeming fiction in the statute and not by way of delegated legislation.

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107 A Constitution Bench in GVK Industries (supra), considered the question  
whether Parliament is competent to enact  legislation with regard to extra- territorial 
aspects of certain events. Answering the question in affirmative, Justice B  
Sudarshan Reddy, speaking for the Constitution Bench, held:  
“124. […]  
The answer to the above would be yes. However, Parliament 
may exercise its legislative powers with respect to extra-
territorial aspects or causes —events, things, phenomena 
(howsoever commonplace they may be), resources, actions 
or transactions, and the like —that occur, arise or exist or 
may be expected to do so, naturally or on account of 
some human agency, in the social, political, economic, 
cultural, biological, environmental or physical spheres 
outside the territory of India, and seek to control, 
modulate, mitigate or transform the effects of such extra-
territorial aspects or causes, or in appropriate cases, 
eliminate or engender such extra- territorial aspects or 
causes, only when  such extra -territorial aspects or 
causes have, or are expected to have, some impact on, or 
effect in, or consequences for: (a) the territory of India, or 
any part of India; or ( b) the interests of, welfare of, well -
being of, or security of inhabitants of India, and Indians. 
 
125. It is important for us to state and hold here that the 
powers of legislation of Parliament with regard to all aspects 
or causes that are within the purview of its competence, 
including with respect to extra-territorial aspects or causes as 
delineated above, and as specified by the Constitution, or 
implied by its essential role in the constitutional scheme, 
ought not to be subjected to some a priori quantitative tests, 
such as “sufficiency” or “significance” or in any other manner 
requiring a predetermined degree of strength. All that would 
be required would be that the connection to India be real 
or expected to be real, and not illusory or fanciful. 
 
126. Whether a particular law enacted by Parliament does 
show such a real connection, or expected real 
connection, between the extra- territorial aspect or cause 
and something in India or related to India and Indians, in 
terms of impact, effect or consequence, would be a 
mixed matter of facts and of law.  Obviously, where

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Parliament itself posits a degree of such r elationship, beyond 
the constitutional requirement that it be real and not fanciful, 
then the courts would have to enforce such a requirement in 
the operation of the law as a matter of that law itself, and not 
of the Constitution:” 
(emphasis supplied) 
 
 
The decision in GVK Industries (supra) clearly recognises the power of  Parliament 
to legislate over events occurring extra- territorially. The only requirement imposed 
by the Court is that such an event must have a real connection to India.  
108  The impugned l evy on the supply of transportation service by the shipping 
line to the foreign exporter to import goods into India has a two- fold connection: first, 
the destination of the goods is India and thus, a clear territorial nexus is established 
with the event occurring outside the territory; and second, the services are rendered 
for the benefit of the Indian importer. Thus, the transaction does have a nexus with 
the territory of India.  
109 As an alternative, the respondents submitted that though the levy may have a 
nexus with the Indian territory, the levy of tax extra- territorially must be provided by  
Parliament through statute and not by the Union Government through delegated 
legislation. We do not find any applicability of this submission to the facts at hand. 
As stated above, the IGST Act under Section 13(9) recognises the place of supply of 
services as the destination of goods  when the supplier is located outside India. 
Since the destination of goods is India, the statute itself is broad enough to cover a 
taxable event that has extra-territorial aspects, which bears a nexus to India.

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110 In determining the vires of the impugned notifications, t he only question that 
falls for determination is whether the importer of goods can be considered as the 
recipient of the service of shipping in CIF contracts. 
D.4.(b) Are importers service recipients under CIF contracts?  
111 The i mpugned notification 8/2017, inter alia, identifies several categories of 
supply of services such as hotels, restaurants, transportation by rail/road/ air and 
legal and accounting services. The respondents, as importers of goods under CIF 
transactions, are aggrieved by the following categorization: 
“Transport of goods in a vessel including services provided or 
agreed to be provided by a person located in non-taxable territory 
to person located in non-taxable territory by way of transportation 
of goods by a vessel from a, place outside India up to the 
customs station of clearance in India up to the customs station of 
clearance in India.” 
The respondents are aggrieved by the fact that this categorization, coupled with 
impugned notification 10/2017, deems the importer  of goods as the recipient of the 
service of shipping, irrespective of whether the import of goods was on the basis of a 
CIF or FOB contract.  
112 Section 5(3) of the IGST Act enables taxation of the recipients of certain 
specified categories of supply of services on a reverse charge basis. It is pertinent to 
note that the tax is payable “by the recipient” of such services, in contradistinction to 
broad language such as “any person as may be prescribed” which was otherwise 
used in Section 98(2) of the Finance Act 1994 which taxed services. Section 5(3) 
states:

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“(3) The Government may, on the recommendations of the 
Council, by notification, specify categories of supply of goods or 
services or both, the tax on which shall be paid on reverse 
charge basis by the recipient of such goods or services or 
both and all the provisions of this Act shall apply to such recipient 
as if he is the person liable for paying the tax in relation to the 
supply of such goods or services or both…” 
(emphasis supplied) 
 
The term “recipient” of a supply of service has been exhaustively defined by Section 
2(93) of the CGST Act: 
“(93) “recipient” of supply of goods or services or both, means—  
(a) where a consideration is payable for the supply of goods or 
services or both, the person who is liable to pay that 
consideration; 
 
(b) where no consideration is payable for the supply of goods, the 
person to whom the goods are delivered or made available, or to 
whom possession or use of the goods is given or made available; 
and 
 
(c) where no consideration is payable for the supply of a 
service, the person to whom the service is rendered, 
 
and any reference to a person to whom a supply is made 
shall be construed as a reference to the recipient of the 
supply and shall include an agent acting as such on behalf of the 
recipient in relation to the goods or services or both supplied;” 
(emphasis supplied) 
 
 
Thus, the language employed in Section 2(93)(a) of the CGST Act clearly stipulates 
that when a consideration is payable for the supply of services, the recipient would 
mean the person who is liable to pay that consideration. However, when no 
consideration is payable for the supply of a service, Section 2(93)(c) states that the 
recipient shall be the person to whom the service is rendered. Further, Section 2(93) 
provides that “any reference to a person to whom supply is made shall be construed 
as a reference to the recipient”. Hence, where the statute refers to a person to whom 
a supply is made, it has to be construed as a reference to the recipient of service.

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113 In a CIF transaction, the foreign export er contracts with a foreign shipping 
line. The service of shipping is rendered by  the foreign shipping line to the foreign 
exporter and the consideration is accordingly payable by the latter to the former. The 
cost of such shipping may form a component of the price that is eventually charged 
to the importer, based on the negotiated terms. If an  FOB contract were to be 
negotiated, the importer would independently avail of the service of shipping and 
pay for the consideration. The Union Government has argued that import  of goods 
on a CIF basis would be construed as import of services where sub-clause (c) of 
Section 2(93) applies to determine the recipient . The respondents have argued that 
the importer in a CIF contract can be considered as a recipient of the service  only in 
a colloquial sense. The mere destination of the service of shipping would not convert 
it into a service vis -à-vis the importer without any elements  of a contract. Hence, 
they urge that i n the absence of specific deeming provisions in the statute, over -
arching principles of privity of contract are relevant for interpreting the term 
“recipient” deployed in Section 5(3) of the IGST. 
114 The Union Government has argued that Section 2 of the CGST Act is 
prefaced with the term “unless the context otherwise requires”, and hence would 
enable taxation of the importer on a reverse charge basis as the “recipient” of 
service under Section 2(93). However, this argument overlooks the context of 
Section 5(3) of the IGST Act which reiterates the taxable person to be the recipient 
of the service and only enables the Union  Government to notify categories  of inter-
state supply of goods and services.

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115 The Union Government has attempted to make a far-fetched argument that 
Section 24(iii) of the CGST Act mandating compulsory registration of persons liable 
to pay tax on a reverse charge basis extends to designating any person to pay the 
tax on a reverse charge basis, irrespective of their status as either a recipient or a 
supplier of service. This argument inverts the identification of a category of goods 
and services under Section 5(3) and the recipient therein, who is then liable to 
compulsorily register themselves under Section 24(iii) of the CGST Act. The power 
of the Central Government to designate persons and categories of supply  for 
reverse charge derives from Sections 5(3) and 5(4) of the IGST Act and not Section 
24(iii) of the CGST Act which mandates the compulsorily registration as a logical 
corollary to ensur e tax collection. Section 2(98)  of the CGST Act, which defines 
“reverse charge” reiterates that it means the “ liability to pay tax by the recipient of 
supply of goods or services or both instead of the supplier…”. It cannot be construed 
to imply that any t axable person identified for payment of reverse charge would 
automatically become the recipient of such goods or service. The deeming fiction of 
treating the importer as a recipient must be found in the IGST Act. As it currently 
stands, Section 5(3) of the IGST Act enables the delegated legislation to create a 
deeming fiction on categories of supply of goods/services alone.  
116 Interpreting the term “by the recipient” vis -à-vis the categories of goods and 
services identified in Section 5(3) of the IGST Act sho uld necessarily be governed 
by the principles governing the definition of “recipient” under Section 2(93) of the 
CGST Act. Contrary to the arguments of the Union Government , such an

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interpretation would not annihilate the mandate of compulsory registration under 
Section 24(iii) of the CGST Act. It would be applicable to suitably worded provisions 
in the CGST or IGST Act which permit the Central Government to identify a taxable 
person for a reverse charge. In any event, it would be applicable to all the reci pients 
liable for reverse charge under Sections 5(3) and 5(4) of the IGST Act. The 
ineffectiveness of a tax collection mechanism under Section 24(iii) of the CGST Act 
cannot be argued to obfuscate the concept of a “recipient” of a good or service that 
is uniformly understood across the IGST Act, CGST Act and tax jurisprudence. 
117 The Union Government has argued that the expression “by the recipient” in 
Section 5(3) of the IGST Act does not impede the authority  of the GST Council in 
making recommendations for issuance of notifications for identifying such persons 
who shall be governed by reverse charge and once the identification is complete, 
such taxable person would automatically be interpreted as “the recipient”. This 
argument requires the Court to completely discard the principles of determining the 
recipient of a service and replace it with whichever taxable person is identified. The 
appellant may argue for such an interpretation to achieve a favourable outcome in 
this case. However, in matters of inter -state supply when the supplier and recipient 
are within the territory of India, this Court would have to follow this artificially 
bifurcated interpretation which identifies recipients vis-à-vis the nature of service and 
supply in some cases, and by a simple equation of the identified taxable person in 
others without considering the literal and contextual definition of recipient. This is 
against settled rules of interpretation and would be an act of judicial legi slation. If

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Parliament’s intention were to designate certain persons for reverse charge, 
irrespective of them being the recipient of such goods and services, it must make a 
suitable amendment to confer such power for exercise of delegated legislation. 
118 The only argument that supports the case of the appellant  is that of Section 
13(9) of the IGST Act read together with Section 2(93)(c) of the CGST Act which 
defines a “recipient”. As noted in Section D.4.(a) above, Section 13(9) of the IGST 
Act creates the deeming fiction of place of supply of service to be the destination of 
goods when they are transported by means other than mail or courier. No specific 
exemptions for importers have been carved out. This Court is inclined to accept this 
reasoning and read it into the definition of recipient in Section 2(93) of the CGST Act 
which is as follows:  
“(93) “recipient” of supply of goods or services or both, means—  
 
(a) where a consideration is payable for the supply of goods or 
services or both, the person who is li able to pay that 
consideration; 
 
(b) where no consideration is payable for the supply of goods, the 
person to whom the goods are delivered or made available, or to 
whom possession or use of the goods is given or made available; 
and 
 
(c) where no consideration is payable for the supply of a service, 
the person to whom the service is rendered, 
 
and any reference to a person to whom a supply is made 
shall be construed as a reference to the recipient of the 
supply and shall include an agent acting as such on behalf of the 
recipient in relation to the goods or services or both supplied;” 
(emphasis supplied) 
Since a reference to a person to whom a supply is made, is a reference to the 
recipient, the place of supply is critical. By virtue of Section 13(9) of the IG ST Act, 
the place of supply is the destination of goods.  The time of supply is then

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determined through the provisions of Section 13 of the CGST Act.  Sections 2(14) 
and 2(15) of the IGST Act also define the location of the recipient and supplier of 
services with respect to the physical location where the supply of services is made 
or received.  
“(14) ―location of the recipient of services means, –– 
 
(a) where a supply is received  at a place of business for which 
the registration has been obtained, the location of such place of 
business; 
(b) where a supply is received at a place other than the place of 
business for which registration has been obtained (a fixed 
establishment elsewhere), the location of such fixed 
establishment;  
(c) where a supply is received at more than one establishment, 
whether the place of business or fixed establishment, the location 
of the establishment most directly concerned with the receipt of 
the supply; and  
(d) in absence of such places, the location of the usual place of 
residence of the recipient;  
 
(15) location of the supplier of services means, –– 
(a) where a supply is made  from a place of business for which 
the registration has been obtained, the loc ation of such place of 
business; 
(b) where a supply is made from a place other than the place of 
business for which registration has been obtained (a fixed 
establishment elsewhere), the location of such fixed 
establishment;  
(c) where a supply is made from more than one establishment, 
whether the place of business or fixed establishment, the location 
of the establishment most directly concerned with the provision of 
the supply; and  
(d) in absence of such places, the location of the usual place of 
residence of the supplier;”  
(emphasis supplied) 
 
In such a scenario, when the place of supply of services is deemed to be the 
destination of goods under Section 13(9) of the IGST Act,  the supply of services 
would necessarily be “made” to the Indian importer, who would then be considered 
as a “recipient” under the definition of Section 2(93)(c) of the CGST Act. The supply

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can thus be construed as being “ made” to the Indian importer who becomes the 
recipient under Section 2(93)(c) of the CGST Act. 
119 This conclusion comports with the philosophy of the GST to be a consumption 
and destinated based tax. The services of shipping are imported into India for the 
purpose of consumption that is routed through the import  of goods . Although the 
consideration for shipping is payable by the foreign supplier to the foreign shipping 
line in CIF contracts , the price is consequently factored into the price of the 
shipment. The ultimate benefactor of the shipping service is also the importer in 
India who will finally receive the goods at  a destination which is within the taxable 
territory of India. Thus, the meaning of the term “recipient” in the IGST Act will have 
to be understood within the context laid down in the taxing statute (IGST and CGST 
Act) and not by a strict application of commercial principles.  
120 Some of the respondents have argued that the possibility of two different 
recipients of services would create absurdities since whether a supply of service is 
an inter-state supply under Section 7(3) or intra- state supply under Section 8(2) of 
IGST Act depends on the location of the supplier and the place of supply, which in 
most cases is the location of the recipient of service. Since there can effectively be 
two recipients on a reading of Section 2(93)(a) and (c) of the CGS T Act, the 
respondents argue that the transaction may simultaneously become an inter -state or 
intra-state supply. This could also mean that two recipients can claim ITC. However, 
this argument is inapplicable to the case at hand since Sections 7(3) and 8(2) of the 
IGST Act do not conflate the concept of imports. Section 8(2) deals with a scenario

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where the location of the supplier and place of supply are within the same 
State/Union Territory in India. This is inapplicable to determining imports where the 
supplier is located outside India. Similarly, Section 7(3) deals with inter -state supply 
within the territory of India. Further, both these sections are subject to the provisions 
of Section 12 of the IGST Act where both-  the supplier and recipient are located in 
India. Section 12 of the IGST Act does not create the deeming fiction under Section 
13(9) of the IGST Act which is applicable only when the supplier is located outside 
India. The applicable section in this case would be Section 7(4) of the IGST Act 
which clearly stipulates that “ Supply of services imported into the territory of India 
shall be treated to be a supply of services in the course of inter -State trade or 
commerce”. Thus, no absurdity is created by the deeming fiction argued by the 
Union Gover nment. In no scenario would the foreign exporter be claiming ITC in 
India.  
121 The respondents’ arguments of identification of two recipients do not have 
any bearing on the determination of the present dispute as the foreign exporter is 
not sought to be taxed in this case. In the digital age, the concepts of supplier and 
recipient of service have also been altered and are not necessarily understood as 
two parties with a direct chain of supply. The IGST Act tends to create several such 
deeming fictions to adequately capture such complexities. For instance, Section 5(5) 
of the IGST Act taxes the electronic commerce operator as the supplier of service in 
spite of it only being a conduit, in the commercial sense. These deeming fictions 
need to be respected for the purpose of the statute, as long as they have

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constitutional and parliamentary sanction. Similarly, Section 2(14)(c) of the IGST Act 
recognizes the possibility of the supply being received in more than one 
establishment: 
“(14) “location of the recipient of services” means,—  
(a) where a supply is received at a place of business for which 
the registration has been obtained, the location of such place of 
business; 
(b) where a supply is received at a place other than the place of 
business for which registration has been obtained (a fixed 
establishment elsewhere), the location of such fixed 
establishment; 
(c) where a supply is received at more than one establishment, 
whether the place of business or fixed establishment, the location 
of the establishment most direc tly concerned with the receipt of 
the supply; and 
(d) in absence of such places, the location of the usual place of 
residence of the recipient;” 
122 Section 13 of the IGST Act is critical to effectively meet the aim of the GST 
statute to tax the destination of  supplies, as opposed to their origins. The deeming 
fiction therein is critical to interpret the charging provision under the IGST Act 
(Section 5). The respondents’ argument for the irrelevance of determining the 
beneficiary of the supply or who has received the supply in view of the definition of 
‘recipient’ of Section 2(93) of the CGST Act mis-reads Section 2(93) which identifies 
the recipient, inter alia, on the basis of the person to whom “supply is made” i.e. the 
place of supply. 
123 GST laws mark a departure from the previous policy of taxing 
sale/consignments and focuses  on the taxing of supplies. The concept of a supply -
centric and destination- based tax runs through the scheme of the statutory 
provisions and the proposals issued by the GST Council. Thus, an amendment to 
the Constitution was introduced in the form of Articl e 366(12-A) to create a tax on

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the supply of goods, or services, or both. In the commercial reality of the times , the 
conceptual lines between goods and services wear thin. Hence, the focus is on the 
taxation of supply, as opposed to the creation of neat c ompartments between goods 
and services. Section 7(1) (c) of the CGST  Act specifically characterizes import of 
services for a consideration to constitute “supply”. The only question that falls for 
determination is whether the imports of goods on a CIF basis would also constitute 
import of shipping services, by way of deeming fiction. We have held that Section 
5(3) of the IGST does not confer the powers on the Central Government to create a 
deeming fiction vis -à-vis who constitutes the recipient. Section 5(3) merely enables 
the Central Government to identify certain categories of goods and services, where 
the recipient of such services is subject to a reverse charge, as opposed to the usual 
mode of taxation where the supplier of the service is charged on a forw ard charge 
basis. However, Section 13(9) of the IGST Act read with Section 2(93)(c) of the 
CGST Act inherently create a deeming fiction of the importer of goods to be the 
recipient of shipping service. 
D.5 Applicability of Section 5(4) of IGST Act  
124 By way of an arguendo, the Union Government  has argued that if the 
importers do not qualify as service recipients, the impugned notifications would 
derive their validity from Section 5(4) of the IGST Act. The unamended Section 5(4) 
of the IGST Act stated as follows: 
“(4) The integrated tax in respect of the supply of taxable 
goods or services or both by a supplier, who is not 
registered, to a registered person shall be paid by such 
person on reverse charge basis as the recipient  and all the 
provisions of this Act shall apply to such recipient as if he is the

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person liable for paying the tax in relation to the supply of such 
goods or services or both.” 
(emphasis supplied) 
 
On 29 August 2018, Section 5(4) was amended by Amending Act 32 of 2018, to 
state the following: 
“(4) The Government may, on the recommendations of the 
Council, by notification, specify a class of registered 
persons who shall, in respect of supply of specified 
categories of goods or services or both received from an 
unregistered supplier, pay the tax on reverse charge basis 
as the recipient of such supply of goods or services or both, 
and all the provisions of this Act shall apply to such recipient as if 
he is the person liable for paying the tax in relation to such supply 
of goods or services or both.” 
(emphasis supplied) 
 
The amended Section 5(4) came into effect on 1 February 2019 90. Amending Act 32 
of 2018 enables the Central Government to c reate a deeming fiction of declaring a  
class of  registered persons “as the recipient” of the supply of taxable goods or 
service. In deploying the language “as the” , and not “by the”  recipient, the 
applicability of the definition of recipient vis -à-vis Section 2(93) of the CGST Act is 
no longer necessary for determining t he validity of such a notification. The effect of 
the Amending Act 32 of 2018 has been as follows: - (i) the powers of the Central 
Government to specify through a notification has been clarified; and (ii) the power to 
specify a class of registered persons as the recipient has been recognised.  
125 The Union Government  has argued that Notifications 8/2017 and 10/2017 
dated 28 June 2017 issued under Section 5(3) may also be read as  issued under 
Section 5(4) of the IGST, in which case, the importers would be liable to tax with 
                                                 
90 Notification No. G.S.R. 67(E) dated 29 January 2019

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effect from 1 February 2019 though exempted for the period 13 October 2017 –  31 
January 2019. 
126 The respondents have argued that the amended and unamended S ection 
5(4) do not save the impugned notifications since they still make the reference to the 
term “recipient”. However, the respondent s crucially miss out that Section 5(4) 
employs the language “ as the recipient ”, in contradistinction to Section 5(3) of the 
IGST Act which uses “ by the recipient ”. We have held that recipient includes the 
importer in Part D above. Further, Section 5(4) clarifies that it may designate a class 
of registered persons as the recipient, thereby broadening the scope of Section 
2(93) of the CGST Act, which is anyway an inclusive definition since Section 2 is 
prefaced with “unless the context otherwise requires”.  
127 It is settled law that non- reference of the source of power may not vitiate its 
exercise and application in given facts and circumstances of a case. In Union of 
India v. Tulsi Ram Patel91, a Constitution Bench held that when a source of power 
legally exists, a non- reference or an incorrect reference during its exercise does not 
vitiate the action. Speaking in the context of the Railway Service Rules which did not 
account for the power of the Disciplinary Authority  under Article 311(2), this Court 
held: 
“126. As pointed out earlier, the source of authority of a particular 
officer to act as a disciplinary authority and to dispense with the 
inquiry is derived from the service rules while the source of his 
power to dispense with the disciplinary inquiry is derived from the 
second proviso to Article 311(2). There cannot be an exercise of 
a power unless such power exists in law. If such power does not 
                                                 
91 1985 3 SCC 398

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exist in law, the purported exercise of it would be an exercise of a 
non-existent power and would be void. The exercise of a power 
is, therefore, always referable to the source of such power and 
must be considered in conjunction with it. The Court's attention 
in Challappancase [(1976) 3 SCC 190 : 1976 SCC (L& S) 398 : 
(1976) 1 SCR 783] was not drawn to this settled position in law 
and hence the error committed by it in considering Rule 14 of the 
Railway Servants Rules by itself and without taking into account 
the second proviso to Article 311(2). It is also well settled that 
where a source of power exists, the exercise of such power 
is referable only to that source and not to some other source 
under which were that power exercised, the exercise of such 
power would be invalid and without jurisdiction. Similarly, if 
a source of power exists by reading together two provisions, 
whether statutory or constitutional, and the order refers to 
only one of them, the validity of the order should be upheld 
by construing it as an order passed under both those 
provisions. Further, even the mention of a wrong provision 
or the omission to mention the provision which contains the 
source of power will not invalidate an order where the 
source of such power exists. (See  Dr Ram Manohar 
Lohia v. State of Bihar  [AIR 1966 SC 740 : (1966) 1 SCR 709, 
721 : 1966 Cri LJ 608] and Municipal Corporation of the City of 
Ahmedabad v. Ben Hiraben Manilal [(1983) 2 SCC 422 : (1983) 2 
SCR 676, 681] .) The omission to mention in the impugned 
orders the relevant clause of the second proviso or the relevant 
service rule will not, therefore, have the effect of invalidating the 
orders and the orders must be read as having been made under 
the applicable clause of the second proviso to Article 311(2) read 
with the relevant service rule. It may be mentioned that in none of 
the matters before us has it been contended that the disciplinary 
authority which passed the impugned order was not competent to 
do so.” 
(emphasis supplied)
 
 
128 Similarly, in Titagarh Paper Mills v. Orissa State E lectricity Board92, a 
three-judge Bench of this Court, in the context of the Electricity Supply Act 1948, 
held that a mislabelling of the source of power would not vitiate its exercise: 
“9. …..But, if there is one principle more well settled than any 
other, it is that, when an authority ta kes action which is within its 
competence, it cannot be held to be invalid, merely because it 
purports to be made under a wrong provision, if it can be shown 
to be within its power under any other provision. A mere wrong 
description of the source of power — a mere wrong label — 
                                                 
92 1975 2 SCC 436

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cannot invalidate the action of an authority, if it is otherwise within 
its power..” 
 
Thus, as long as a source of power to legislate or issue a notification is available, 
the lack of a mention, an incorrect reference or mistake does not vitiate the exercise 
of such power.  
129 The impugned notifications  were issued with the intention of creating a level 
playing field between the Indian and foreign shi pping lines. In the Eighteenth GST 
Council meeting held on 31 June 2017, the agenda of taxing importers on a reverse 
charge basis was discussed: 
““Para 6.7.1: Agenda Item 3(v)- Value for the purpose of levy of 
GST on transportation of goods by a vessel fro m a place outside 
India up to the customs station in India  
6.7.1. In the existing Service Tax Law, with a view to provide 
level playing field to the Indian shipping companies, it has been 
provided that in cases where the goods are imported by an 
importer in India on CIF (Cost, Insurance and Freight) basis and 
the service of transportation of goods by a vessel from a place 
outside India up to the customs station in India is provided by a 
person located in non-taxable territory (a foreign shipping line) to 
a person located in non- taxable territory (overseas supplier/ 
exporter of goods), the importer in India shall be liable to pay 
Service Tax on freight. In view of the representations that where 
the importer purchases goods on CIF basis, he may not have the 
invoice issued by the shipping line for freight and may not know 
the amount of freight charged by the foreign shipping line from 
the foreign supplier; it was stipulated in the Service Tax Rules 
that in such cases the importer shall have the option to pay an  
amount calculated at the rate of 1.4% of the CIF value of 
imported goods. This provision was stipulated on the basis that 
freight roughly constitutes 10% of the CJF value of goods on an 
average. Under GST too, it was decided that the liability to pay 
GST on such transportation service provided by a foreign 
shipping line to a foreign supplier shall be of the importer in India 
and the notifications are being issued accordingly. It is proposed 
that the similar provision deeming value of such service at 10% 
of the CIF value may be incorporated in the IGST notification. 
Considering the nature of the service, this provision is not 
required in the CGST, SGST or UTGST notifications. The Council 
approved the proposal.

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[….] 
 
8(v)…..in respect of agenda item 3 the Council approved to 
incorporate a provision in the IGST notification that in cases 
where the goods are imported by an importer in India on CIF 
basis and the service of transportation of goods by a vessel from 
a place outside India up to the customs station i n India is 
provided by a person located in non- taxable territory (a foreign 
shipping line) to a person located in non- taxable territory 
(overseas supplier/exporter of goods) and in case the importer 
did not know the amount of freight charged by the foreign  
shipping line from the foreign supplier the deemed value of such 
service shall be 10% of the CIF value.” 
 
 
130 The impugned notifications were issued after the GST Council took note of 
the fact that since transport of imported goods by Indian shipping lines to India is not 
treated as export of service, the Indian shipping lines pay IGST on the same on a 
forward charge basis. On the other hand, on the same transportation service, the 
foreign shipping lines are not required to pay tax as they are not taxable persons in 
India. Therefore, to provide a level playing field to Indian shipping lines, the importer 
in India has been made liable to pay IGST on transportation of goods by foreign 
shipping lines  on a reverse charge basis. If Indian shipping lines continue to be 
taxed and not their competitors, namely, the foreign shipping lines, the margins 
arising out of taxation from GST would not create a level playing field and drive the 
Indian shipping lines out of business.  
131 It was contended by the respondents that instead of course correcting the 
input tax mechanism, the Union Government  has chosen to tax the Indian importer 
on reverse charge. However, this Court is not in a position to adjudicate the 
desirability of a taxation scheme, as long as it is legally issued. Commenting on the

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efficacy of the tax intervention with the desired goals would be delving into the arena 
of policy. 
D.6 Composite Supply and Issues of Double Taxation 
132 Having examined whether the impugned levy is permissible under Section 5 
of the IGST Act, we shall now advert to the arguments raised by the respondents 
regarding the impugned notifications amounting to double taxation. The respondents 
have submitted before this Court that the transaction between the foreign exporter 
and the respondents is already subject to IGST under Sections 5 of the IGST Act 
read with Sections 3(7) and 3(8) of the Customs Tariff Act as “supply of goods”. An 
additional levy of IGST on imported goods , that is on the suppl y of transportation 
service, by designating the importer as the recipient would amount to double 
taxation.  
133 The transaction at hand involves three parties- the foreign exporter, the Indian 
importer and the shipping line. The first leg of the transaction involves a CIF 
contract, wherein the foreign exporter sells the goods to the Indian importer and the 
cost of insurance and freight are the responsibility of the foreign exporter. In other 
words, the foreign exporter is liable to ensure that the goods reach t heir place of 
destination and the Indian importer pays the transaction value to the exporter. The 
second leg of the transaction involves an agreement between the foreign exporter 
and the shipping line (whether foreign or Indian) for providing services for transport 
of goods to the destination, i.e., in the territory of India.

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134 On the first leg of the transaction, between the foreign exporter and the Indian 
importer, the latter is liable to pay IGST on the transaction value of goods under 
Section 5(1) of the IGST Act read with Section 3(7) and 3(8) of the Customs Tariff 
Act. Although this transaction involves the provision of services such as insurance  
and freight it falls under the ambit of ‘composite supply’. We note from the written 
submissions of the Union that the ASG has fairly submitted that this transaction 
would include value elements of freight and insurance, and yet the IGST is levied as 
a tax on supply of goods only. Such transactions are termed as “composite supply” 
under the CGST Act. 
135 Section 2(30) of the CGST Act defines “composite supply” as 
“(30) “composite supply” means a supply made by a taxable 
person to a recipient consisting of two or more taxable supplies of 
goods or services or both, or any combination thereof, which are 
naturally bundled and supplied in conjunction with each other in 
the ordinary course of business, one of which is a principal 
supply;  
 
Illustration.—  Where goods are packed and transported with 
insurance, the supply of goods, packing materials, transport and 
insurance is a composite supply and supply of goods is a 
principal supply;” 
 
136 Section 2(30) of the CGST Act clearly provides that a transaction may have 
two or more taxable supplies, where one of them is a principal supply. The 
illustration to Section 2(30) further clarifies that a transaction such as the CIF 
contract for supply of goods reflects a composite supply under the CGST Act, where 
the principal supply is the supply of goods.

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137 The tax liability on composite supply is provided under Section 8 of the CGST 
Act.  
“8. Tax liability on composite and mixed supplies. — The tax 
liability on a composite or a mixed supply shall be determined in 
the following manner, namely:—  
(a) a composite supply comprising two or more supplies, 
one of which is a principal supply, shall be treated as a 
supply of such principal supply; and  
(b) a mixed supply comprising two or more supplies shall be 
treated as a supply of that particular supply which attracts the 
highest rate of tax.”  
(emphasis supplied) 
Section 8 of the CGST Act provides that the tax liability on a composite supply which 
comprises of two or more supplies, will only be levied on the ‘principal supply’. In a 
CIF transaction, the principal supply, according to Section 2(30), is supply of goods. 
Thus, the tax would be levied as if the transaction was one of supply of goods.  
138 Section 20 of the IGST Act provides that the provisions relating to ‘composite 
supply’ under the CGST Act would apply mutatis mutandis under the IGST Act. By 
extension, the IGST in a transaction of composite supply would be levied on the 
principal supply of goods.  
139 The respondents have urged before this Court that the impugned levy which 
seeks to impose IGST on the ‘service’ aspect of the transaction would be in violation 
of the principle of ‘composite supply’ incorporated under Section 2(30) read with 
Section 8 of the CGST Act, which applies equally to the imposition of IGST under 
Section 20 of the IGST Act. In contrast, the Union Government has submitted that 
the impugned levy is on the second leg of the transaction, which is a standalone 
contract between the foreign exporter and the foreign shipping line. Thus, the Union

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has urged that the contract between the foreign exporter and the foreign shipping 
line- of which the Indian importer is not a party - cannot be deemed to be a part of 
‘composite supply’. While the first leg of the transaction, between the foreign 
exporter and Indian importer, is (according to the submission) a composite supply, 
the second leg is an independent transaction. In this regard, the Union has relied on 
the decision of this Court in McDowell  (supra) to contend that a single element can 
constitute a levy and a part of the value for another transaction. Further the Union 
Government has urged that the levy is on different aspects of the transaction. 
140 We are unable to agree with the Union Government on this count. The aspect 
theory that the Union Government has relied on finds its place in various decisions 
of this Court, such as in Federation of Hotels &  Restaurant Association of India  
v. Union of India
93 and BSNL (supra). 
141 In Federation of Hotels & Restaurants Association of India (supra), a 
challenge was raised regarding the imposition of an expenditure tax by the Union 
Government. In discussing the various aspects of a transaction, this Court, speaking 
through Justice MN Venkatachaliah (as the learned Chief Justice then was), 
observed that  
“31. Indeed, the law “with respect to” a subject might 
incidentally “affect” another subject in some way; but 
that is not the same thing as the law being on the latter 
subject. There might be overlapping; but the overlapping 
must be in law. The same transaction may involve two or 
more taxable events in its different aspects. But the fact 
that there is an overlapping doe s not detract from the 
                                                 
93 (1989) 3 SCC 634

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distinctiveness of the aspects.  Lord Simonds in  Governor 
General-in-Council v. Province of Madras  [AIR 1945 PC 98 : 
1945 FCR 179, 193] in the context of concepts of Duties of 
Excise and Tax on Sale of Goods said: 
“... The two taxes, the one levied on a manufacturer in 
respect of his goods, the other on a vendor in respect of, his 
sales, may, as is there pointed out, in one sense overlap. But 
in law there is no overlapping. The taxes are separated and 
distinct imposts. If in fact they overlap, that may be because 
the taxing authority, imposing a duty of excise, finds it 
convenient to impose that duty at the moment when the 
excisable article leaves the factory or workshop for the first 
time on the occasion of its sale....””    
 (emphasis supplied) 
 
There is no doubt that different aspects of a transaction can be taxed through 
separate provisions. However, this Court in BSNL  (supra) observed that the aspect 
theory does not allow the value of goods to be included in services and vice versa. 
In BSNL (supra), this Court dealt with the question of whether provision of telephone 
services involved a transfer of goods which would be amenable to sales tax. In this 
context, the Court observed:  
“88. No one denies the legislative competence of the States 
to levy sales tax on sales provided that the necessary 
concomitants of a sale are present in the transaction and the 
sale is distinctl y discernible in the transaction. This does not 
however allow the State to entrench upon the Union List and 
tax services by including the cost of such service in the value 
of the goods. Even in those composite contracts which are by 
legal fiction deemed to be divisible under Article 366(29- A), 
the value of the goods involved in the execution of the whole 
transaction cannot be assessed to sales tax.” 
 
142 In the present case, the question is whether the imposition of IGST on supply 
of services can be sustained w hen there is a concomitant imposition of IGST on

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supply of goods. However, we must first analyse the context in which the IGST is 
levied on the import of goods in this case.  
143 The provisions of composite supply in the CGST Act (and the IGST Act) play 
a specific role in the levy of GST. The idea of introducing ‘composite supply’ was to 
ensure that various elements of a transaction are not dissected and the levy is 
imposed on the bundle of supplies altogether. This finds specific mention in the 
illustration provided under Section 2(30) of CGST Act, where the principal supply is 
that of goods. Thus, the intent of the Parliament was that a transaction which 
includes different aspects of supply of goods or services and which are naturally 
bundled together, must be taxed as a composite supply.  
144 It is true that in this case, the first leg of the transaction between the foreign 
exporter and the Indian importer is a composite supply, while the second leg, 
between the foreign exporter and the shipping line may, from a perspective, be 
regarded as a standalone transaction. Both of them are independent transactions 
and ordinarily, the IGST could be levied on both sets of transactions - one as supply 
of goods (under the ambit of composite supply) and the other as supply of services. 
However, the impugned notifications seek to tax the importer as the deemed 
recipient of the supply of service. The ASG has advanced an interpretation of 
Sections 5(3) and 5(4) of the IGST Act, read with Section 2(93) of the CGST Act to 
contend that the importer can be classified as the ‘recipient’ of the services. On this 
interpretation, we have upheld the validity of the impugned notifications under 
Sections 5(3) and 5(4) of the IGST Act in Section D.2- D.5 of this judgment. The

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respondents as a mat ter of fact urged that (i) the Indian importer is not privy to the 
contract between the foreign exporter and the foreign shipping line; (ii) the Indian 
importer does not pay consideration to the foreign shipping line; and (iii) the Indian 
importer does not  receive any services from the foreign shipping line since the 
transportation services are provided by the foreign shipping line to the foreign 
exporter. The ASG, while advancing arguments on behalf of the Union Government, 
has opposed these submissions. T he Union Government has urged that this Court 
must look beyond the text of the contract between the foreign shipping line and the 
foreign exporter to identify the Indian importer as the recipient of the services. This 
Court has upheld the validity of the impugned notifications on this ground. The Union 
Government is contradicting the main plank of its submission now by contending 
that the two legs of the transaction are separate standalone agreements. That would 
imply, that while on the one hand the Union G overnment seeks to levy tax on the 
Indian importer by going beyond the text of the contract between the foreign 
shipping line and foreign exporter (for the purpose of identifying the Indian importer 
as the recipient of services), on the other hand, as far as the submissions on 
composite supply are concerned, the Union Government urges that the contracts 
must be viewed as separate transactions, operating in silos. We are unable to 
subscribe to this view. The Union of India cannot be heard to urge arguments of 
convenience – treating the two legs of the transaction as connected when it seeks to 
identify the Indian importer as a recipient of services while on the other hand, 
treating the two legs of the transaction as independent when it seeks to tide over the 
statutory provisions governing composite supply.

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145 This Court is bound by the confines of the IGST and CGST Act to determine if 
this is a composite supply. It would not be permissible to ignore the text of Section 8 
of the CGST Act and treat the two transact ions as standalone agreements. In a CIF 
contract, the supply of goods is accompanied by the supply of services of 
transportation and insurance, the responsibility for which lies on the seller (the 
foreign exporter in this case). The supply of service of tr ansportation by the foreign 
shipper forms a part of the bundle of supplies between the foreign exporter and the 
Indian importer, on which the IGST is payable under Section 5(1) of the IGST Act 
read with Section 20 of the IGST Act, Section 8 and Section 2(30) of the CGST Act. 
To levy the IGST on the supply of the service component of the transaction would 
contradict the principle enshrined in Section 8 and be in violation of the scheme of 
the GST legislation. Based on this reason, we are of the opinion that while the 
impugned notifications are validly issued under Sections 5(3) and 5(4) of the IGST 
Act, it would be in violation of Section 8 of the CGST Act and the overall scheme of 
the GST legislation. As noted earlier, under Section 7(3) of the CGST Act, the 
Central Government has the power to notify an import of goods as an import of 
services and vice-versa: 
“7. Scope of supply— 
 
[…] 
 
(3) Subject to the provisions of [sub-sections (1), (1A) and (2)]16, 
the Government may, on the recommendations of the Council, 
specify, by notification, the transactions that are to be treated 
as—  
(a) a supply of goods and not as a supply of services; or  
(b) a supply of services and not as a supply of goods.”

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No such power can be noticed with respect to interpreting a composite supply of 
goods and services as two segregable supply of goods and supply of services.  
146 The High Court in the impugned judgment has observed that: 
“What has led to the present day problems in the 
implementation of the GST: 
132. The GST is implemented by subsuming various indirect 
taxes. The difficulty which is being experienced today in 
proper implementation of the GST is because of the 
erroneous misconception of law, or rather, erroneous 
assumption on the part of the delegated legislation that 
service tax is an independent levy as it was prior to the 
GST and it go vivisect the transaction of supply to levy 
more taxes on certain components completely 
overlooking or forgetting the basic concept of composite 
supply introduced in the GST legislation and the very 
idea of levying the GST.  Prima facie, it appears that while 
issuing the impugned notification, the delegated legislature 
had in mind the provision of the Finance Act, 1994, rather 
than keepi ng in mind the object of bringing the GST by 
making the Constitutional (101
st) Amendment Act, 2016 to 
merge all taxes levied on the goods and services to one tax 
known as the GST. 
133. It appears that despite having levied and collected the 
integrated tax under the IGST Act, 2017, on import of goods 
on the entire value which includes the Ocean Freight through 
the impugned notifications, once again the integrated tax is 
being levied under an erroneous misconception of law that 
separate tax can be levied on t he services components 
(freight), which is otherwise impermissible under the scheme 
of the GST legislation made under the CA Act, 2016. 
134. All the learned senior counsel are right in their 
submission that if such an erroneous impression is not 
corrected and if such a trend continues, then in future 
even the other components of supply of goods, such as, 
insurance, packaging, loading/unloading, labour, etc. 
may also be artificially vivisected by the delegated 
legislation to once again levy the GST on the su pply on 
which the tax is already collected. 
[…]

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215. Thus, having paid the IGST on the amount of freight 
which is included in the value of the imported goods, the 
impugned notifications levying tax again as a supply of 
service, without any express sanction by the statute, are 
illegal and liable to be struck down.” 
(emphasis supplied) 
147 We are in agreement with the High Court to the extent that a tax on the supply 
of a service, which has already been included by the legislation as a tax on the  
composite supply of goods, cannot be allowed. 
 
E Conclusion 
148 Based on the above discussion, we have reached the following conclusion: 
(i) The recommendations of the GST Council are not binding on the Union and 
States for the following reasons: 
(a) The deletion of Ar ticle 279B and the inclusion of Article 279(1) by the 
Constitution Amendment  Act 2016 indicates that the Parliament intended 
for the recommendations of the GST Council to only have a persuasive 
value, particularly when interpreted along with the objective of the GST 
regime to foster cooperative federalism and harmony between the 
constituent units; 
(b) Neither does Article 279A begin with  a non- obstante clause nor does 
Article 246A state that it is subject to the provisions of Article 279A. The 
Parliament and the State legislatures possess simultaneous power to 
legislate on GST. Article 246A does not envisage a repugnancy provision

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to resolve the inconsistencies between the Central and the State laws on 
GST. The ‘recommendations’ of the GST Council are the product of a 
collaborative dialogue involving the Union and States. They are 
recommendatory in nature. To regard them as binding edicts would disrupt 
fiscal federalism, where both the Union and the States are conferred equal 
power to legislate on GST . It is not imperative that one of the federal units 
must always possess a higher share in the power for the federal units to 
make decisions. Indian federalism is a dialogue between cooperative and 
uncooperative federalism  where the federal units are at liberty  to use 
different means of persuasion ranging from collaboration to contestation; 
and 
(c) The Government while exercising its rule- making power  under the 
provisions of the CGST Act and IGST Act  is bound by the 
recommendations of the GST Council . However, t hat does not mean that 
all the recommendations of the GST Council made by virtue of the power  
Article 279A (4) are binding on the legislature’s power to enact primary 
legislations; 
(ii) On a conjoint reading of Sections 2(11) and 13(9) of the IGST Act, read with 
Section 2(93) of the CGST Act, t he import of goods by a CIF contract 
constitutes an “inter-state” supply which can be subject to IGST where the 
importer of such goods would be the recipient of shipping service;

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(iii) The IGST Act and the CGST Act  define reverse charge and prescribe the 
entity that is to be taxed for these purposes.  The specification of the recipient 
– in this case the importer – by Notification 10/2017 is only clarificatory. The 
Government by notification did not specify a taxable person different from the 
recipient prescribed in Section 5(3)  of the IGST Act for the purposes of 
reverse charge; 
(iv) Section 5(4) of the IGST Act enables the Central Government to specify a 
class of registered persons as the recipients, thereby conferring the power of 
creating a deeming fiction on the delegated legislation; 
(v) The impugned levy imposed on the ‘service’ aspect of the transaction is in 
violation of the principle of ‘composite supply’ enshrined under Section 2(30) 
read with Section 8 of the CGST Act. Since the Indian importer is liable to pay 
IGST on the ‘composite supply’, comprising of supply of goods and supply of 
services of transportation, insurance, etc.  in a CIF contract , a separate levy 
on the Indian importer for the ‘supply of services’ by the shipping line would 
be in violation of Section 8 of the CGST Act.

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149 For the reasons stated above, the appeals are accordingly dismissed. 
150 Pending application(s) if any, stand disposed of. 
 
 
 
 
…….…………………………...............................J.  
          [Dr Dhananjaya Y Chandrachud] 
 
 
 
 
 
…….…………………………...............................J.  
          [Surya Kant] 
 
 
 
 
…….…………………………...............................J.  
          [Vikram Nath] 
 
 
 
New Delhi; 
May 19, 2022