UNION OF INDIA & Anr. v. M/s MOHIT MINERALS PVT. LTD. THROUGH DIRECTOR

4.6 The decision in GVK Industries 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. The impugned levy 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. 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. [Paras 108 and 109][107, 108 and 109] GVK Industries v. Income Tax Officers [2011] 4 SCC 36 : [ 2011] 3 SCR 366 – followed. G

4.7 Are importers service recipients under CIF contracts? 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” H UNION OF INDIA v. M/s MOHIT MINERALS PVT. LTD. THROUGH DIRECTOR 317 which was otherwise used in Section 98(2) of the Finance Act 1994 which taxed services. The term “recipient” of a supply of service has been exhaustively defined by Section 2(93) of the CGST Act. 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. 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 ensure 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 taxable 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. Interpreting the term “by the recipient” vis-à-vis the categories of goods and services identified in Section 5(3) of the IGST Act should 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 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 recipients liable for reverse charge under Sections 5(3) A B C D E F G H 318 SUPREME COURT REPORTS [2022] 9 S.C.R. A B C D E F G H 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. 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 legislation. If 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. [Paras 112, 115-117][429-H; 430-A-B, G- H; 431-A-H; 432-A-H; 433-A-B]

4.8 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”. 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. 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 UNION OF INDIA v. M/s MOHIT MINERALS PVT. LTD. THROUGH DIRECTOR 319 IGST Act, the place of supply is the destination of goods. The time of supply is then 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. 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 can thus be construed as being “made” to the Indian importer who becomes the recipient under Section 2(93)(c) of the CGST Act. 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. [Paras 118 and 119][433-B-D, G-H; 434-A, G-H; 435-A-D]

4.9 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 CGST 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 A B C D E F G H 320 SUPREME COURT REPORTS [2022] 9 S.C.R. A B C D E F G H the concept of imports. Section 8(2) deals with a scenario 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 Government. In no scenario would the foreign exporter be claiming ITC in India. 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 constitutional and parliamentary sanction. 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. [Paras 120-122][435-D-H; 436-A-D, G-H; 437- A] UNION OF INDIA v. M/s MOHIT MINERALS PVT. LTD. THROUGH DIRECTOR 321

4.10 GST laws mark a departure from the previous policy of taxing sale/consignments and focuses on the taxing of supplies. The concept of a supplycentric 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 Article 366(12-A) to create a tax on 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 compartments 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. 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 forward 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. [Para 123][437-B-E]

5. Applicability of Section 5(4) of IGST Act Amended Section 5(4) came into effect on 1 February 2019. Amending Act 32 of 2018 enables the Central Government to create 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 the 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 A B C D E F G H 322 SUPREME COURT REPORTS [2022] 9 S.C.R. has been recognised. The respondents have argued that the amended and unamended Section 5(4) do not save the impugned notifications since they still make the reference to the term “recipient”. However, the respondents 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”. Recipient includes the importer in Part D of this judgment. 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”. 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. 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. The impugned notifications were issued with the intention of creating a level playing field between the Indian and foreign shipping lines. [Paras 124, 126, 127, 128 and 129][438-C-E, G; 439-A-C] Union of India v. Tulsi Ram Patel (1985) 3 SCC 398 : [1985] 2 Suppl. SCR 131 – followed. Titagarh Paper Mills v. Orissa State Electricity Board (1975) 2 SCC 436 – relied on.

6.1 Composite Supply and Issues of Double Taxation 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 their 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. Section 2(30) of the CGST Act clearly provides A B C D E F G H UNION OF INDIA v. M/s MOHIT MINERALS PVT. LTD. THROUGH DIRECTOR 323 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. 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. 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. [Paras 133, 136 - 138][442-G-H; 443-A-B, F-H; 444-C-E]

6.2 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. 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, the validity A B C D E F G H 324 SUPREME COURT REPORTS [2022] 9 S.C.R. A B C D E F G H of the impugned notifications has been upheld under Sections 5(3) and 5(4) of the IGST Act in Section D.2-D.5 of this judgment. 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 transactions 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 transportation 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. Thus, 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. This Court is 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. [Paras 143-147][446-E-H; 447-A, G-H; 448-A-B; 449- F-G]