The imposition of tax on separately identified service components in composite transactions violates the Integrated Goods and Services Tax Act's provisions, confirming recommendations of the GST Council are advisory, not mandatory.

COMMON ORDER

(Order of the Court was made by DR.ANITA SUMANTH, J.)

The issue that arises for consideration in these Writ Petitions pertains to the validity of declaration under Entry 9 of the Notification No.8/2017-Integrated Tax (Rate) dated 28.06.2017 and Entry 10 of the Notification No.10/2017-Integrated Tax (Rate) dated 28.06.2017, which are challenged as being ultra vires of the Constitution as well as the provisions of the Integrated Goods and Service Tax Act , 2017.

2.Learned counsel for petitioner relies on the Judgment of the Hon'ble Supreme Court of India in Union of India Vs. Mohit Minerals Private Limited , dated 19.05.2022 [2022 (61) G.S.T.L. 257 SC].

3.The operative portion of the Judgment is as follows:

“142.In the present case, the question is whether the imposition of IGST on supply of services can be sustained when there is a concomitant imposition of IGST on 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 respondents as a matter 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. The 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 Government seeks to levy tax on the Indian importer by going beyond the text of the contract between the foreign shipping