Question

According to the Mohit Minerals Pvt. Ltd. v. Union of India judgment, what constitutes double taxation in the context of GST on ocean freight?

• A. Taxing both the importer and the exporter for the same service
• B. Tax not payable on ocean freight under the RCM for CIF imports
• C. Taxing the service provider and the service recipient for the same service
• D. Taxing the importer for both the goods and the services separately
• A. Both A and R are true, and R is the correct explanation of A
• B. Both A and R are true, but R is not the correct explanation of A
• C. A is true, but R is false
• D. A is false, but R is true
• A. 1 and 2 only
• B. 1 and 3 only
• C. 2 and 3 only
• D. 1, 2 and 3
• A. 1 and 2 only
• B. 1 and 3 only
• C. 2 and 3 only
• D. 1, 2 and 3
• A. The tax should be easy to administer
• B. The tax should have legislative competence and not contravene fundamental rights
• C. The tax should be progressive in nature
• D. The tax should only apply to domestic transactions

Answer 1

The Correct Option is B

In the Mohit Minerals Pvt. Ltd. v. Union of India case, the issue of double taxation under GST on ocean freight services was addressed. When the value of the ocean freight service is already included in the transaction value of imported goods, imposing Integrated Goods and Services Tax (IGST) under the reverse charge mechanism (RCM) on the importer represents double taxation. The GST framework is designed to avoid taxing the same subject matter more than once. In this context, the answer to what constitutes double taxation in the issue at hand is: Tax not payable on ocean freight under the RCM for CIF imports. The reverse charge mechanism was primarily intended to simplify the tax process, transferring tax payment liability from the service provider to the service recipient, especially when the service provider is outside Indian territory. However, in this case, the importer is not the actual recipient of the service but is treated as a deemed recipient under the RCM, leading to an undue tax liability without direct service provision. This falls outside the norms and principles of GST and lacks sufficient legislative backing as per the constitutional tax provisions in India. 

Answer 2

The assertion (A): "The importer should not be liable to pay GST on ocean freight under the reverse charge mechanism if they are not the direct recipient of the service" is supported by the reason (R): "The reverse charge mechanism is intended to shift the tax burden from service providers located outside India to the service recipients within India." To understand why both statements are true and how reason (R) explains assertion (A), consider the following points:

1. Double Taxation Concern: In an import transaction, the value of ocean freight is typically included in the transaction value of goods, and GST is applied to this total value. Applying GST again under the reverse charge mechanism would effectively result in double taxation, as the same service is taxed twice.
2. Deemed Recipient: The importer in this context is considered a deemed recipient under the reverse charge mechanism, even though they are not the actual user of the freight service. As they are not the direct recipient, making them pay GST under this mechanism stretches the provision beyond its intended purpose.
3. Purpose of Reverse Charge: The reverse charge mechanism is designed to facilitate tax collection when the service provider is outside India and not subject to Indian jurisdiction. It shifts the liability to the recipient who is within the taxable territory of India, ensuring GST collection is on track despite the service provider's overseas status.
4. Legal and Constitutional Consideration: Taxation principles, including GST, are structured to avoid imposing multiple taxes on the same subject matter. Any imposition of IGST without proper legislative backing can be seen as undermining constitutional taxation principles.

The solution: The assertion and reason are indeed true and directly connected, as the rationale behind the reverse charge is to maintain tax integrity without extending the charge mechanism unjustly to entities not directly availing the service.

Answer 3

In the case of Mohit Minerals Pvt. Ltd. v. Union of India, the Supreme Court examined whether the imposition of GST on ocean freight charges under the reverse charge mechanism constituted double taxation. Upon analysis, the Court found:

1. The imposition of GST on ocean freight charges leads to double taxation since the cost of ocean freight is already included in the transaction value of imported goods. Taxing the same subject matter twice contradicts the fundamental principles of GST, which aim to tax each transaction only once.
2. Under the reverse charge mechanism, the importer is not the direct recipient of the service, which implies that the importer should not bear the GST liability for ocean freight. The reverse charge mechanism is intended to transfer tax liability from the service provider to the service recipient when the provider is not based in India. However, deeming the importer liable when they are not the direct recipient stretches the mechanism beyond its intended purpose.
3. The judgment emphasized the necessity for tax laws to have proper legislative backing. Imposing taxes without such backing, particularly if they impinge upon fundamental rights, can contravene constitutional principles. Thus, any tax imposed should be within legislative competence and not undermine the Constitution of India.

Given these findings, all three statements regarding the Mohit Minerals Pvt. Ltd. v. Union of India judgment are correct.

The correct answer is: 1, 2 and 3

Answer 4

To determine which of the given statements are correct, we need to assess them in the context of the reverse charge mechanism and the principles of taxation under GST law, particularly as addressed in Mohit Minerals v. Union of India.

1. The reverse charge mechanism shifts the tax liability from the service provider to the service recipient. This statement is correct as the reverse charge mechanism is designed to make the recipient liable to pay tax, especially when the service provider is outside India and lacks a taxable presence within the country's territory.
2. The principle of single taxation was violated by imposing GST on ocean freight charges, which are already included in the cost of imported goods. This statement is correct. The judgment highlighted that levying IGST on ocean freight under the reverse charge while it's included in the transaction value leads to double taxation, contradicting GST principles.
3. The judgment clarified that importers could be liable for GST on services directly availed by them. This statement is incorrect because the judgment highlighted that importers cannot be considered recipients of a service they did not directly avail under the reverse charge mechanism without proper legislative support, leading to it being deemed beyond its intended scope.

Therefore, the correct answer is: 1 and 2 only.

Answer 5

In the context of legal and constitutional requirements for levying a tax, it is essential that the tax must have legislative competence and must not contravene fundamental rights guaranteed under the Constitution. This principle ensures that all taxes imposed are backed by appropriate legislative authority, meaning that the government body enacting the tax has the power to do so as defined by the law. Furthermore, the imposition of a tax should respect the fundamental rights of individuals, ensuring that such rights are not violated in the collection and administration of taxes.

This criterion was highlighted in the case summary of Mohit Minerals v. Union of India. It involved the levy of IGST (Integrated Goods and Services Tax) on ocean freight services under the reverse charge mechanism. The judgment found that this imposition amounted to double taxation because the value of the ocean freight service was already included in the transaction value of imported goods. Under GST principles, double taxation is not anticipated, and the Indian Constitution requires that taxes adhere to established legislative authority without infringing on constitutional rights. The imposition of the tax in this scenario was deemed inconsistent with these legal and constitutional guidelines, as it lacked proper legislative backing and extended beyond the intended scope of reverse charge mechanisms.

The correct choice regarding the constitutional requirement for levying a tax, as discussed in this case, is that the tax should have legislative competence and not contravene fundamental rights.

Options	Explanation
The tax should be easy to administer	Convenience in administration is practical but not a constitutional requirement.
The tax should have legislative competence and not contravene fundamental rights	Constitutional requirement ensuring legal backing and respect for fundamental rights.
The tax should be progressive in nature	Progressivity is related to equity and fairness but not a constitutional requirement.
The tax should only apply to domestic transactions	Application to domestic transactions is jurisdictional, not a constitutional mandate.