Mohit Minerals v. Union of India: how the Supreme Court struck down IGST on ocean freight — and held GST Council recommendations non-binding

The Supreme Court's judgment of 19 May 2022 in Union of India v. Mohit Minerals Pvt. Ltd. — reported as (2022) 10 SCC 700 — is the most consequential judgment on the architecture of the Goods and Services Tax regime since its introduction. A three-judge bench of Justices D.Y. Chandrachud, Surya Kant and Vikram Nath affirmed the Gujarat High Court's decision striking down the levy of IGST on ocean freight in CIF imports under the Reverse Charge Mechanism — and, in the course of doing so, articulated a doctrinal position on the binding force of GST Council recommendations that has substantial federalism consequences.

The judgment is doctrinally consequential on two connected propositions. The first is that the levy of IGST on ocean freight, as a separate charge on the Indian importer who has already paid IGST on the composite supply, produces a constitutionally impermissible double taxation that the IGST architecture does not contemplate. The second — articulated alongside the principal holding — is that the recommendations of the GST Council operate as persuasive guidance and are not binding on the legislative bodies of the Union or the States.

The architecture before the Bench

The substantive question before the Bench arose from two notifications issued by the Central Government — Notification No. 8/2017 — Integrated Tax (Rate) and Notification No. 10/2017 — Integrated Tax (Rate), both dated 28 June 2017. The notifications had operated together to levy IGST on ocean freight in CIF imports under the Reverse Charge Mechanism, with the Indian importer as the recipient liable to pay.

The substantive architecture under which CIF imports operate is structured along the following lines. The Indian importer purchases goods from a foreign seller on a CIF basis — under which the price the importer pays includes the cost of the goods, the insurance on the goods, and the freight by which the goods are transported. The foreign seller contracts with the foreign shipping line for the transportation; the importer is not in privity with the shipping line.

At the customs stage, the Indian importer pays IGST on the assessable value of the imported goods, which — under the customs valuation architecture — includes the freight and insurance components of the CIF price. The IGST on the CIF value is paid as a component of customs duty under the Customs Tariff Act, read with the IGST Act.

The two impugned notifications had operated to levy a further IGST — under the Reverse Charge Mechanism — on the ocean-freight component of the CIF transaction. The architecture treated the foreign shipping line as the supplier and the Indian importer as the recipient, with the recipient liable to pay IGST under RCM.

The case-side critique was that this architecture produced double taxation: IGST had already been paid on the CIF value (which included freight); the RCM charge produced a second levy on the same freight component.

The Court's reasoning on the principal question

The Bench accepted the principal proposition. The reasoning rested on three connected limbs.

The composite-supply analysis. The Bench held that the CIF transaction was a composite supply of goods within the meaning of the CGST Act read with Section 2(30) of the CGST Act and Section 8. The supply of goods on a CIF basis is, the Bench reasoned, a single composite supply in which the principal supply is the goods and the freight is an incidental component. The IGST that the importer paid at the customs stage operated on the composite supply — including the freight component.

The double-taxation impermissibility. The Bench held that the further levy under the impugned notifications — treating the ocean-freight as a separate service supply for which the importer was liable to pay IGST under RCM — produced double taxation of the same freight component. The architecture was held to violate the IGST Act's scheme, which does not contemplate the same value being subjected to IGST twice in the same transaction.

The privity question. A connected element of the reasoning addressed the constitutional and statutory difficulty of treating the Indian importer as the recipient of a service supplied by the foreign shipping line. The importer was not in privity with the shipping line; the shipping contract was between the foreign seller and the foreign shipping line. The reverse-charge architecture's premise — that the recipient is liable to pay tax on a supply received — was held to be doctrinally strained in the CIF context.

The result was the striking down of the impugned notifications. The Indian importer in a CIF import transaction is liable for IGST on the composite supply at the customs stage; no further IGST under RCM is to be charged on the ocean-freight component.

The GST Council holding

The doctrinally consequential element of the judgment — beyond the principal holding on ocean freight — is the Bench's articulation of the position of the GST Council in the constitutional architecture.

Article 279A of the Constitution constitutes the GST Council and authorises it to make recommendations to the Union and the States on the matters specified in the Article — including the rates of GST, the threshold limits for exemption, the model GST laws, and the place-of-supply rules. The Council's institutional design — including representation from the Union and from each State — was meant to operate as a cooperative federalism mechanism for GST policy.

The constitutional question was whether the Council's recommendations were binding on the Union and the State Legislatures. The Bench held that they were not. The reasoning rested on a textual reading of Article 246A and Article 279A. Article 246A confers on Parliament and the State Legislatures the power to make laws with respect to goods and services tax — and the legislative power, read constitutionally, is not subject to the binding force of recommendations made by an executive-political body. Article 279A's text describes the Council as making "recommendations" — a term that is, on the natural reading, consistent with persuasive rather than binding force.

The constitutional consequence is significant for the federalism architecture of GST. The Council's recommendations operate as cooperative-federalism guidance; the Union and each State retain the legislative discretion to depart from those recommendations in their respective spheres. The position has been the subject of substantial federalism commentary in the years since.

The refund consequence

The judgment produced an immediate refund consequence. Taxpayers who had paid IGST on ocean freight under the impugned notifications became, in principle, eligible for refund — subject to the unjust-enrichment doctrine and the limitation architecture under the GST refund provisions.

The refund architecture has been engaged with in subsequent litigation. The questions on the limitation period applicable to such refunds — including whether the limitation runs from the date of payment or from the date of the Mohit Minerals judgment — have been the subject of subsequent rulings. The substantive position, on the most defensible reading, is that the refunds are available within the limitation periods that the GST refund provisions specify, with the Mohit Minerals judgment producing the change-of-law trigger.

What the judgment did not decide

Three limits should be flagged.

First, the judgment did not engage with the architecture of FOB imports — under which the freight is contracted separately by the Indian importer, in privity with the shipping line. The composite-supply analysis the Bench applied is specific to the CIF context; FOB imports may attract a different analytic frame.

Second, the judgment did not engage with the broader architecture of reverse-charge taxation under the GST regime. The reverse-charge architecture for domestic supplies, and for cross-border supplies in contexts other than ocean freight, continues to operate within the existing statutory frame.

Third, the judgment's holding on the GST Council operates as a constitutional doctrine but does not resolve all the questions that the cooperative-federalism architecture has raised. The institutional questions on the Council's procedural design, on the consequences of recommendations not being implemented by States, and on the federalism architecture more broadly remain for further engagement.

The doctrinal arc

Mohit Minerals sits in a substantial line on the architecture of the GST regime. The line begins with the introduction of the GST through the 101st Constitution Amendment Act, 2016, and the substantive legislation that followed. It includes the various rulings on the constitutional validity of GST provisions, on the input-tax-credit architecture, and on the substantive scope of supply under the GST Acts.

The judgment is the principal recent engagement with the architecture of the GST Council and with the constitutional limits of taxation under the GST regime. Subsequent litigation — including the ongoing engagement with online-gaming GST architecture and with the s.74A jurisprudence — operates within the doctrinal frame the Mohit Minerals judgment has supplied.

What practitioners take from the judgment today

For indirect-tax practitioners, Mohit Minerals is the foundational authority on the IGST architecture for CIF imports and on the persuasive (not binding) force of GST Council recommendations. The architecture for CIF transactions — IGST on the composite supply at customs, no further RCM levy on ocean freight — is the operative position.

For corporate clients with substantial import exposure, the judgment has been the source of substantial refund claims and refund litigation in the years since. The architecture for processing those claims has been developed in the post-Mohit Minerals line.

For constitutional litigators in the federalism space, the judgment is the doctrinal articulation of the GST Council's position as a cooperative-federalism body whose recommendations operate as guidance rather than as binding instructions. The position has consequences for any future constitutional engagement with the architecture of cooperative federalism under the GST regime.

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