As per case facts, Mohit Mineral Private limited challenged the Goods and Services Tax (Compensation to States) Act, 2017 and its rules, citing legislative incompetence and double taxation. The petitioner, ...
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 10177 Of 2018
(arising out of SLP(C)No.25415 of 2017)
UNION OF INDIA & ANR. ...APPELLANT(S)
VERSUS
HIND ENERGY AND COAL BENEFICATION
(INDIA) LTD. ...RESPONDENT(S)
WITH
TRANSFERRED CASE (C) NO.9 OF 2018
MOHIT MINERAL PVT. LTD. ... PETITIONER(S)
VERSUS
UNION OF INDIA AND ORS. ... RESPONDENT(S)
WITH
CIVIL APPEAL NO. 10179 Of 2018
(arising out of SLP(C)No.7708 of 2018)
UNION OF INDIA & ANR. ...APPELLANT(S)
VERSUS
MOHIT MINERAL PVT. LTD. ...RESPONDENT(S)
J U D G M E N T
ASHOK BHUSHAN,J.
Leave granted.
2.The validity of the Goods and Services Tax (Compensation
to States) Act, 2017 enacted by Parliament as well as the
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Goods and Services Tax Compensation Cess Rules, 2017, the
Rules framed by the Central Government in exercise of power
under Section 11 of the Goods and Service Tax (Compensation
to States) Act, 2017 are under challenge in these cases.
3.Civil Appeal arising out of SLP(C)No.25415 of 2017 has
been filed by the Union of India challenging ad interim
order dated 25.08.2017 passed by the Division Bench of the
Delhi High Court in Writ Petition (C) No.7459 of 2017 (Mohit
Mineral Pvt. Ltd. vs. Union of India and another). In the writ
petition validity of the Goods and Services Tax (Compensation
to States) Act, 2017 as well as Rules framed thereunder were
under challenge. The Division Bench passed a partial ad
interim order providing that additional levy on the stocks of
coal on which writ petitioner had already paid Clean Energy
Cess in terms of Finance Act, 2010, he shall not be required
to make any further payment. However, on stocks of coal on
which no Clean Energy Cess under the Finance Act, 2010 was
paid any payment in terms of the impugned Act would be
subject to the result of the writ petition.
4.This Court issued notice in the SLP on 22.09.2017 and
stayed impugned order passed by the High Court.
5.Civil Appeal arising out of SLP(C)No.7708 of 2018 has
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been filed by Union of India challenging interim order dated
08.09.2017 passed by the Division Bench of the Delhi High
Court in Writ Petition (C) No.7965 of 2017 (Hind Energy and
Coal Benefication (India) Ltd. vs. Union of India and
another). The Division Bench of the High Court passed interim
order dated 08.09.2017 almost in the similar manner as was
passed on 25.08.2017. This Court passed an order on
16.01.2018, while hearing SLP(C)No.25415 of 2017 filed against
interim order dated 25.08.2017, on oral request of Attorney
General, which was also joined by the learned counsel
appearing for the respondentswrit petitioners, transferred
Writ Petition (C) No.7459 of 2017 to this Court to be heard
along with SLP(C)No.25415 of 2017. Transferred Case(C) No.9 of
2018 (Mohit Mineral Pvt. Ltd. vs. Union of India and another)
has been registered on transfer of Writ Petition (C)No.7459 of
2017 to this Court.
6.The decision in Transferred Case (C)No.9 of 2018 by which
Writ Petition (C)No.7459 of 2018 is to be heard by this Court
shall dispose of the transferred writ petition as well as both
the civil appeals. With the consent of the learned counsel for
the parties, we have proceeded to hear the writ petition
finally.
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Facts in the Writ Petition (C) No.7459 of 2017
7.Mohit Mineral Pvt. Ltd. (hereinafter referred to as the
'writ petitioner') is a Company incorporated under the
Companies Act which is a trader of imported and Indian coal.
The writ petitioner imports coal from Indonesia, South Africa
and also purchases coal from Indian mines. The Finance Act,
2010 with effect from 01.07.2010 levied Clean Energy Cess
which was in the nature of a duty of excise on the production
of coal and was being collected at the time of removal of raw
coal, raw lignite and raw peat from the mine to the factory.
The Constitution (One Hundred and TwentySecond Amendment)
Bill, 2014 was introduced in the Lok Sabha to seek amendment
in the Constitution, inter alia, providing for subsuming of
various indirect taxes and Central and States surcharges and
cesses so far as they relate to supply of goods and services
both on interState and intraState. The Constitution (One
Hundred and First Amendment) Act, 2016 was passed to levy
goods and services tax. Section 18 of the Amendment Act
enabled the Parliament to levy a cess for five years to
compensate the States for the loss of revenue on account of
GST. On 12.04.2017, Parliament enacted three Acts, namely, (1)
The Central Goods and Services Tax Act, 2017; (2) The
Integrated Goods and Services Tax Act, 2017; and (3) The Goods
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and Services Tax (Compensation to States) Act, 2017
(hereinafter referred to as “Compensation to States Act,
2017”). On 04.05.2017, the Taxation Laws (Amendment) Act, 2017
was enacted, whereunder, several cesses including Clean Energy
Cess was repealed. The writ petitioner submitted a
representation to the GST Council seeking set off of Clean
Energy Cess against GST Compensation Cess. Writ Petition (C)
No.7459 of 2017 was filed by Mohit Minerals Pvt. Ltd. in Delhi
High Court praying for following reliefs:
"It is therefore, most respectfully prayed that
this Hon'ble High Court be pleased to:
A) issue a Writ of certiorari/mandamus or any
other appropriate Writ/order/direction against the
Respondents by quashing impugned Goods and Services
Tax (Compensation to States) Act, 2017 by declaring
that same lack legislative competency and
unconstitutional;
B) issue a Writ of certiorari/mandamus or any
other appropriate Writ/order/direction against the
Respondents by quashing impugned the Goods and
Services Tax Compensation Rules, 2017 under the
impugned legislation are illegal and
unconstitutional;
C) issue a Writ of certiorari/mandamus or any
other appropriate Writ/order/direction against the
Respondents by quashing impugned Notification
No.1/2017 & 2/2017Compensation Cess (Rate), dated
28.06.2017 issued by the Respondent No.1 under the
impugned legislation, are illegal and
unconstitutional;
D) issue a Writ of certiorari/mandamus or any
other appropriate Writ/order/direction against the
Respondent No.2 by declaring that the Respondent
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No.2 has no power under Article 279A of
Constitution of India to make any recommendation,
whatsoever, for levy and collection of cess as
envisaged and levied under the impugned Goods and
Services Tax (Compensation to States)Act, 2017 or
framing of Rules and issuance of Notification under
the said impugned legislation;
E) issue such other writ/order/direction to the
Respondent No.2 to place before this Hon'ble Court
the records of the recommendation given and all
decision taken in respect of levy and collection of
cess as envisaged and levied under the impugned
Goods and Services Tax (Compensation to States)
Act, 2017, framing of Rules and issuance of
Notification under the said impugned legislation;
F) issue such other writ/order/direction and
further orders as the Hon'ble Court may deem just
and proper in the facts and circumstances of the
case.”
8.The Division Bench of the Delhi High Court passed ad
interim order on 25.08.2017. In the interim order dated
25.08.2017, the Division Bench observed that there is a prima
facie case made out by the writ petitioner regarding lack of
legislative competence of Parliament to enact Compensation to
States Act, 2017. In paragraphs 8, 9, 13 and 14 of the interim
order following was observed:
“8. The Court sees prima facie merit in the
contention of the Petitioner, based on the history
of the abolition of the Clean Energy Cess and the
introduction of the GST regime, that the power of
Parliament to enact the impugned Act cannot be
traced to Section 18 of the COI 101st Amendment
Act. There is therefore a prima facie case made out
as regards the legislative competence of the
Parliament to enact the impugned Act.
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9. Another aspect of the matter is that Section 8
of the impugned Act contemplates levy of "a cess on
such intraState supplies of goods or services or
both", the same that is provided in Section 9 of
the Central Goods and Services Tax Act, 2017 ('CGST
Act') and such "interState supply of goods and
services or both" as provided for in Section 5 of
the Integrated Goods and Services Tax Act, 2017
('IGST Act'). Therefore, it is clear that cess is
being levied on the same taxable event that is the
subject matter of the levy under the CGST and IGST
Acts, viz., supply of goods and services.
... ... ... …
13. The Court, at this stage, is of the view that,
the Petitioner has made out a prima facie case for
partial ad interim relief subject to conditions. As
far as the additional levy on the stocks of coal on
which it has already paid the Clean Energy Cess in
terms of FA Act, 2010, the Petitioner should not be
required to make any further payment. However, on
stocks of coal on which no Clean Energy Cess under
the FA, 2010 was paid, any payment made in terms of
the impugned Act would be subject to the result of
this petition. It is ordered accordingly.
14. It is made clear that, in the event of the
Petitioner succeeding in the present petition, the
Petitioner would be entitled to a refund of amounts
of Clean Energy Cess paid under the Act and on such
terms as the Court may determine in the final
order.”
9.On 08.09.2017, another interim order was passed in Writ
Petition (C) No. 7965 of 2017.
10.We have heard Shri J.K. Mittal, learned counsel appearing
for the writ petitioner and Shri K.K. Venugopal learned
Attorney General appearing for the Union of India.
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11.Shri J.K. Mittal learned counsel for the writ petitioner
submits that the Constitution (One Hundred and First
Amendment) Act, 2016 was enacted by the Parliament with the
intent to consolidate number of indirect taxes which were
levied by the Union and States with the intention to reduce
the Goods and Services Tax (GST)by giving concurring taxing
power to Union and States for levying GST on every transaction
of supply of goods or services both. There was a clear
objective of the aforesaid constitutional amendment that with
the introduction of Goods and Services Tax, not only the
indirect taxes but the cesses and surcharges levied on goods
and services shall also be subsumed in it.
12.By Taxation Laws (Amendment) Act, 2017 various enactments
levying various types of cesses were repealed including Clean
Energy Cess/Clean Environment Cess which was levied and
collected on coal.
13.The Compensation to States Act, 2017 is repugnant to and
transgress the mandate of the Constitution (One Hundred and
First Amendment) Act, 2016. It was the Parliament's conscious
decision to abolish with effect from 01.07.2017 all cesses
including cess levied on coal as per mandate of the
Constitution (One Hundred and First Amendment) Act, 2016. The
impugned legislation is colourable legislation which lacks
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legislative competence. No power could be traced in Section 18
to the Constitution (One Hundred and First Amendment) Act,
2016 to amend Compensation to States Act, 2017. Section 18 of
the Constitution (One Hundred and First Amendment) Act, 2016
does not empower the Parliament to levy cess and tax as it
provides Parliament to make any law to provide compensation to
the States for loss of revenue arising on account of
implementation of GST for a period of 5 years. The impugned
legislation is a colourable legislation which lacks
legislative competence so far as collection of levy on cess is
concerned.
14.The impugned legislation defeat the very objective of the
Constitution (One Hundred and First Amendment) Act, 2016. On
the very same transaction there cannot be two levies, one
under Central GST Act and another under impugned legislation
as it would amount to double taxation as levied on the same
taxable event and same subject. Thus, there is an overlapping
in law which is not permissible.
15.The writ petitioner suffered cess of Rs.400 per ton on
the coal and under the impugned legislation the Union is again
levying and collecting cess at the rate of Rs.400 per ton on
the stock lying with the petitioner as on 30.06.2017 just on
eve of the day when all legislation related to GST including
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impugned legislation was introduced, whereas on the same stock
of coal, cess was already levied and collected under the
provisions of Chapter VII of Finance Act, 2010. Thus, it
amounts to double collection of tax at the same rate on the
same stock. Even if the impugned legislation is found to be
within legislative competency, the petitioner may be permitted
to set off the cess of Rs.7.68 crores which was already paid
on the stock lying with the petitioner on 30.06.2017. Levy
under impugned legislation is tax and not a cess, hence, not
permissible in law.
16.Shri K.K. Venugopal, learned Attorney General submits
that cess is nothing but a special kind of tax. If the
legislature is competent to levy the main tax, i.e. GST under
Article 246A of the Constitution, then legislative competence
of levying the cess flows from the very same power to levy the
tax itself. The phrase used in Article 246A “with respect to”
has wide implication and will allow levy of cess also. Power
to levy a cess, in any case, can be traced back to Article 270
of the Constitution. However, Entry 97 of List I of Seventh
Schedule to the Constitution grants a residuary power to levy
a tax to the Union. The Clean Energy Cess which was imposed by
the Finance Act, 2010 and GST Compensation Cess are levied on
entirely different transactions and both are for entirely
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different purpose. The Clean Energy Cess was in the nature of
a duty of excise on the production of coal and was being
collected at the time of removal of raw coal, raw lignite and
raw peat from the mine to the factory whereas GST Compensation
Cess is imposed on interState and intraState supply of
specified goods and services. The Clean Energy Cess was levied
and collected for the purposes of financing and promoting
clean energy initiatives, funding research in the area of
clean energy, for any other purpose relating thereto whereas
GST Compensation Cess is collected to provide for compensation
to the States for the loss of revenue arising on account of
implementation of the goods and services tax.
17.The High Court committed an error in prima facie holding
that credit of Clean Energy Cess should be allowed to be
utilised for paying GST Compensation Cess. The provision of
credit and flow of credit is a purely policy decision of the
Executive. The Parliament does not lack legislative competence
to enact Compensation to States Act, 2017 nor the legislation
can be said to be colourable legislation. The Compensation to
States Act, 2017 in no manner transgressed Constitution (One
Hundred and First Amendment) Act, 2016.
18.Learned counsel for both the parties have placed reliance
on various judgments of this Court in support of their
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respective submissions which shall be referred to while
considering the submissions in detail.
19.From the submissions of the learned counsel for the
parties and pleadings following issues arise for
consideration:
(1)Whether the Compensation to States Act, 2017 is
beyond the legislative competence of Parliament?
(2)Whether Compensation to States Act, 2017 violates
Constitution (One Hundred and First Amendment) Act, 2016
and is against the objective of Constitution (One
Hundred and First Amendment) Act, 2016?
(3)Whether the Compensation to States Act, 2017 is a
colourable legislation?
(4)Whether levy of Compensation to States Cess and GST
on the same taxing event is permissible in law?
(5)Whether on the basis of Clean Energy Cess paid by the
petitioner till 30
th
June, 2017, the petitioner is
entitled for set off in payment of Compensation to
States Cess?
20.We have considered the submissions of learned counsel for
the parties and have perused the records.
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21.First, we need to notice relevant constitutional
provisions and the Parliamentary enactments relevant for the
issues raised in these cases.
22.Part XII of the Constitution deals with Finance. Article
265 provides that no tax shall be levied or collected except
by authority of law. Article 366 contains definitions.
Article 366(26A) defines “services” as “services means
anything other than goods”. Whereas Article 366 (29A)
contains an inclusive definition of “tax on the sale or
purchase of goods”. A Bill was introduced in the Lok Sabha
namely, the Constitution (One Hundred and TwentySecond
Amendment) Bill, 2014 on 19.12.2014 proposing constitutional
amendments 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. Statement of Objects
and Reasons of the Bill are as follows:
“STATEMENT OF OBJECTS AND REASONS
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
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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.
2. The proposed Bill, which seeks further to amend
the Constitution, inter alia, provides for—
(a) subsuming of various Central indirect taxes and
levies such as Central Excise Duty, Additional
Excise Duties, Excise Duty levied under the
Medicinal and Toilet Preparations (Excise
Duties) Act, 1955, Service Tax, Additional
Customs Duty commonly known as Countervailing
Duty, Special Additional Duty of Customs, and
Central Surcharges and Cesses so far as they
relate to the supply of goods and services;
(b) subsuming of State Value Added Tax/Sales Tax,
Entertainment Tax (other than the tax levied
by the local bodies), Central Sales Tax
(levied by the Centre and collected by the
States), Octroi and Entry tax, Purchase Tax,
Luxury tax, Taxes on lottery, betting and
gambling; and State cesses and surcharges in
so far as they relate to supply of goods and
services;
(c) dispensing with the concept of ‘declared goods
of special importance’ under the Constitution;
(d) levy of Integrated Goods and Services Tax on
interState transactions of goods and
services;
(e) levy of an additional tax on supply of goods,
not exceeding one per cent. in the course of
interState trade or commerce to be collected
by the Government of India for a period of two
years, and assigned to the States from where
the supply originates;
(f) conferring concurrent power upon Parliament and
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the State Legislatures to make laws governing
goods and services tax;
(g) coverage of all goods and services, except
alcoholic liquor for human consumption, for
the levy of goods and services tax. In case of
petroleum and petroleum products, it has been
provided that these goods shall not be subject
to the levy of Goods and Services Tax till a
date notified on the recommendation of the
Goods and Services Tax Council.
(h) compensation to the States for loss of revenue
arising on account of implementation of the
Goods and Services Tax for a period which may
extend to five years;
xxxxxxxxxxxxxxxxxxxx”
23.The Constitution (One Hundred and First Amendment) Act,
2016 dated 08.09.2016 was passed to amend the Constitution of
India. By Constitution (One Hundred and First Amendment) Act,
2016, new Articles 246A, 269A and 279A were inserted.
Amendments were also made in Articles 248, 249, 250, 268, 269,
270, 271, 286, 366 and 368. Article 268A was omitted.
Amendments were also made in Seventh Schedule of the
Constitution in List I and List II. Article 246A and 269A as
inserted by Constitution (One Hundred and First Amendment)
Act, 2016 is as follows:
"246A. Special provision 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.
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(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 interState 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.”.
269A. Levy and Collection of goods and services tax
in course of interState trade or commerce. (1)
Goods and services tax on supplies in the course of
interState trade or commerce shall be levied and
collected by the Government 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 interState trade or
commerce.
(2) The amount apportioned to a State under clause
(1) shall not form part of the Consolidated Fund of
India.
(3) Where an amount collected as tax levied under
clause (1) has been used for payment of the tax
levied by a State under article 246A, such amount
shall not form part of the Consolidated Fund of
India.
(4) Where an amount collected as tax levied by a
State under article 246A has been used for payment
of the tax levied under clause (1), such amount
shall not form part of the Consolidated Fund of the
State.
(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
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takes place in the course of interState trade or
commerce.”.
24.Article 270 of the constitution as amended by the above
Amendment Act is as follows:
“270.Taxes levied and distributed between the
Union and the States. (1) All taxes and duties
referred to in the Union List, except the duties
and taxes referred to in Articles 268, 269 and
269A, respectively, surcharge on taxes and duties
referred to in Article 271 and any cess levied for
specific purposes under any law made by Parliament
shall be levied and collected by the Government of
India and shall be distributed between the Union
and the States in the manner provided in clause
(2).
... .........”
25.Section 18 and Section 19 of the Constitution (One
Hundred and First Amendment) Act, 2016 is also relevant, which
are to the following effect:
“18. Compensation to States for loss of revenue on
account of introduction of goods and services
tax. Parliament shall, by law, on the
recommendation of the Goods and Services Tax
Council, provide for compensation to the States for
loss of revenue arising on account of
implementation of the goods and services tax for a
period of five years.
19. Transitional provisions. Notwithstanding
anything in this Act, any provision of any law
relating to tax on goods or services or on both in
force in any State immediately before the
commencement of this Act, which is inconsistent
with the provisions of the Constitution as amended
by this Act shall continue to be in force until
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amended or repealed by a competent Legislature or
other competent authority or until expiration of
one year from such commencement, whichever is
earlier.
26.At this stage, it is also relevant to notice that in the
Constitution (One Hundred and TwentySecond Amendment) Bill,
2014, Clause 18 contain a provision for arrangement for
assignment of additional tax on supply of goods to States for
two years or such other period recommended by Council, which
was to the following effect:
“18. Arrangement for assignment of additional
tax on supply of goods to States for two years or
such other period recommended by Council (1) An
additional tax on supply of goods, not exceeding
one per cent. in the course of interState trade or
commerce shall, notwithstanding anything contained
in clause (1) of article 269A, be levied and
collected by the Government of India for a period
of two years or such other period as the Goods and
Services Tax Council may recommend, and such tax
shall be assigned to the States in the manner
provided in clause (2).
(2) The net proceeds of additional tax on supply of
goods in any financial year, except the proceeds
attributable to the Union territories, shall not
form part of the Consolidated Fund of India and be
deemed to have been assigned to the States from
where the supply originates.
(3) The Government of India may, where it considers
necessary in the public interest, exempt such goods
from the levy of tax under clause (1).
(4) Parliament may, by law, formulate the
principles for determining the place of origin from
where supply of goods take place in the course of
interState trade or commerce.”
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27.Clause 19 contain compensation to States for loss of
revenue on account of introduction of goods and services tax.
Clause 19 of the Bill is as follows:
“19. Compensation to States for loss of revenue on
account of introduction of goods and services
tax. Parliament may, by law, on the
recommendation of the Goods and Services Tax
Council, provide for compensation to the States for
loss of revenue arising on account of
implementation of the goods and services tax for
such period which may extend to five years.”
28.It is, however, to be noticed that Constitution (One
Hundred and TwentySecond Amendment) Bill, 2014 was passed but
Clause 18 of the Bill was not incorporated and Clause 19 found
place as Section 18 of the Constitution (One Hundred and First
Amendment) Act, 2016. After the aforesaid Constitution
Amendment, Parliament enacted Central Goods and Services
Tax Act, 2017 (Act No.12 of 2017 dated 12.04.2017) to make a
provision for levy and collection of tax on intra State
supply of goods or services or both by the Central Government
and for matters connected therewith or incidental
thereto. On the same day, another enactment namely 'The
Integrated Goods and Services Tax Act, 2017' (Act No. 13 of
2017 dated 12.04.2017) was enacted to make a provision for
levy and collection of tax on interState supply of goods or
services or both by the Central Government and for matters
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connected therewith or incidental thereto. Another
enactment namely 'The Union Territory Goods and Services Tax
Act, 2017' (Act No. 14 of 2017) was passed on the same day to
make a provision for levy and collection of tax on intraState
supply of goods or services or both by the Union
territories and for matters connected therewith or
incidental thereto. The Fourth Parliamentary enactment, which
is subject matter of challenge in the present case was also
enacted on the same day, i.e. 12.04.2017, namely 'The
Goods and Services Tax (Compensation to States) Act, 2017'
(Act NO. 15 of 2017) to provide for compensation to the
States for the loss of revenue arising on account of
implementation of the goods and services tax in pursuance
of the provisions of the Constitution (One Hundred and
First Amendment) Act, 2016. As the Preamble indicate
(Compensation to States) Act, 2017 was enacted in pursuance of
the provisions of the Constitution (One Hundred and First
Amendment) Act, 2016. Section 8 of the Compensation to States
Act, 2017 provides for levy and collection of Cess, which is
as follows:
8.Levy and collection of cess.(1) There
shall be levied a cess on such intraState supplies
of goods or services or both, as provided for in
section 9 of the Central Goods and Services Tax
Act, and such interState supplies of goods or
21
services or both as provi ded fo r in sec tion
5 of the Integrated Goods and Services Tax Act,
and c o l l e c t e d i n s u c h m a n n e r a s m a y b e
prescribed, on the recommendations of the Council,
for the purposes of providing compensation
to the States for loss of revenue arising on
account of implementation of the goods and
services tax with effect from the date from
which the provisions of the Central Goods and
Services Tax Act is brought into force, for a
period of five years or for such period as may be
prescribed on the recommendations of the Council:
Provided that no such cess shall be
leviable on supplies made by a taxable person who
has decided to opt for composition levy under
section 10 of the Central Goods and Services Tax
Act.
(2) The cess shall be levied on such supplies of
goods and services as are specified in column
(2) of the Schedule, on the basis of value,
quantity or on such basis at such rate not
exceeding the rate set forth in the
corresponding entry in column (4) of
,
the Schedule,
as the Central Government may, on the
recommendations of the Council, by
notification in the Official Gazette,
specify:
Provided that where the cess is
chargeable on any supply of goods or services or
both with reference to their value, for ea ch
su ch sup ply th e valu e shal l be determined
under section 15 of the Central Goods and
Services Tax Act for all intra State and inter
State supplies of goods or services or both:
Provided further that the cess on goods
imported into India shall be levied and
collected in accordance with the provisions of
section 3 of the Customs Tariff Act, 1975 (51 of
1975), at the point when duties of customs are
levied on the said goods under section 12 of the
Customs Act, 1962 (52 of 1962), on a value
determined under the Customs Tariff Act, 1975.
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29. Section 12(1) empowers the Central Government to make
rules for carrying out the provisions of the Act on the
recommendation of the Council. The Council is defined in
Section 2(e) of the Act as "Council means the Goods and
Services Tax Council constituted under the provision of
Article 279A of the Constitution". The Schedule of the
Act read with Section 8 contains description of supply of
goods or services in column 2; Tariff item, heading, sub
heading, Chapter or supply of goods or services, as the case
may be, in column 3 and the maximum rate at which goods
and services tax compensation cess may be collected in
column 4. The Central Government, in exercise of power under
Section 12, has framed the rules namely "The Central
Goods and Services Tax Rules, 2017".
30. Parliament enacted the Taxation Laws (Amendment) Act,
2017 dated 04.05.2017 to amend the Customs Act, 1962, the
Customs Tariff Act, 1975, the Central Excise Act, 1944, the
Central Sales Tax Act, 1956, the Finance Act, 2001 and the
Finance Act, 2005 and to repeal certain enactments.
31. By Taxation Laws (Amendment) Act, 2017, the Finance Act,
2010, Chapter VII has been repealed. The Finance Act, 2010,
Chapter VII provided for levy of Clean Energy Cess, which stood
repealed.
32. We now proceed to consider the issues as noted above.
23
Whether the Compensation to States Act, 2017 is beyond the
legislative competence of Parliament? (Issue No.1)
33. The petitioners have challenged the legislative
competence of Parliament to enact Compensation to states Act,
2017. The petitioners submits that impugned legislation has
transgressed the limits of its power granted under the
Constitution. It is contended that although the impugned
legislation is described as for purpose of giving compensation
to States by Centres to States for loss of revenue but in fact
it impose tax (termed as cess), hence in pith and substance
the legislation does not belong to the subject falling within
the limits of its power but is outside it.
34. Part XI of the Constitution deals with the relation
between the Union and the States, Chapter I of which deals
with “Legislative Relations”. Article 245 deals with
“Distribution of Legislative Powers”. The Parliament has
exclusive power to make laws with respect to any of the
matters enumerated in List I in Seventh Schedule of the
Constitution. The Parliament, and subject to Clause(1) of
Article 246, the Legislature of a State also have power to
make laws with respect to any of the matters enumerated in
List III of the Seventh Schedule. Article 248 deals with
24
residuary power of Legislation in following manner:
Article 248 – Residuary powers of legislation (1)
Subject to article 246A, Parliament has exclusive
power to make any law with respect to a matter not
enumerated in the Concurrent List or State List.
(2) Such power shall include the power of making
any law imposing a tax not mentioned in either of
those Lists.
35. Article 246A as noticed above provides that
“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”. In the
present case, we are concerned with a cess imposed by
Compensation to States Act, 2017. The Act by Section 8 levies
and authorizes collection of cess. We need to first examine
nature of cess. Cess has been defined in Black’s Law
Dictionary, Tenth Edition as “An assessment or tax.”
36. P. Ramanatha Aiyar, Advanced Law Lexicon, 3
rd
Edition
defines cess as follows:
“Cess” is “An assessment tax; levy; specifically:
(a) A rate or local tax…….(b) In Scotland, the land
tax. (c) in India, a tax for a special object; as,
a road cess”. (Webster)
The word “cess” is used in Ireland and is still in
use in India although the word rate has replaced it
25
in England. It means a tax and is generally used
when the levy is for some special administrative
expense which the name (health cess, education
cess, road cess, etc.) indicates. When levied as
an increment to an existing tax, the name matters
not for the validity of the cess must be judged of
in the same way as the validity of the tax to which
is an increment. Guruswamy and Co. v. State of
Mysore, AIR 1967 SC 1512, per dissenting judge and
India Cement Ltd. v. State of T.N., AIR 1990 SC 85.
The word ‘cess’ means a tax and is generally used
when the levy is for some special administrative
expense which the name (health cess, education
cess, road cess, etc.) indicates. Shinde Brothers
v. Hy. Commissioner, Raichur, AIR 1967 SC 1512,
1525.”
37. This Court had considered the expression “cess” in Shinde
Brothers Etc. Vs. Deputy Commissioner, Raichur & Others Etc.,
AIR 1967 SC 1512, Justice M. Hidyatullah, as he then was in
his dissenting opinion has defined the cess (“no contrary
opinion was expressed by majority in that regard”) in
paragraph 39, which is to the following effect:
“39. Now the health cess is first assailed on the
ground that there is no entry “health cess” as such
in the legislative entries. The word “cess” is used
in Ireland and is still in use in India although
the word rate has replaced it in England. It means
a tax and is generally used when the levy is for
some special administrative expense which the name
(health cess, education cess, road cess etc.) indi
cates. When levied as an increment to an existing
tax, the name matters not for the validity of the
cess must be judged of in the same way as the va
lidity of the tax to which it is an increment. By
Schedule A(1) read with Section 3 of the Act, it is
collected as an additional levy with a tax, which,
26
as described in Schedule A, is undoubtedly one
within the powers of the State Legislature and has
been so even prior to the Constitution……………………”
38. In the Constitution Bench judgment of this Court in India
Cement Ltd. & Others Vs. State of Tamil Nadu & Others, (1990)
1 SCC 12, the above definition given by Hidayatuallah, J. was
quoted with approval in Para 19, which is quoted as below:=
“19. Here, we are concerned with cess on royalty.
One can have an idea as to what cess is, from the
observations of Hidayatullah, J., as the learned
Chief Justice then was, in Guruswamy & Co. v. State
of Mysore9 where at page 571, the learned Judge ob
served :
“The word ‘cess’ is used in Ireland and is
still in use in India although the word rate
has replaced it in England. It means a tax
and is generally used when the levy is for
some special administrative expense which the
name (health cess, education cess, road cess
etc.) indicates. When levied as an increment
to an existing tax, the name matters not for
the validity of the cess must be judged of in
the same way as the validity of the tax to
which it is an increment.”
39. The meaning of “cess” as noticed above was again
reiterated by a Two Judge Bench judgment of this Court in
Vijayalashmi Rice Mill & Others Vs. Commercial Tax Officers,
Palakol & Others, (2006) 6 SCC 763 , in paragraph 13, following
has been laid down:
“13. Hence ordinarily a cess is also a tax, but
is a special kind of tax. Generally tax raises rev
enue which can be used generally for any purpose by
27
the State. For instance, the income tax or excise
tax or sales tax are taxes which generate revenue
which can be utilised by the Union or the State
Governments for any purpose e.g. for payment of
salary to the members of the armed forces or civil
servants, police, etc. or for development pro
grammes, etc. However, cess is a tax which gener
ates revenue which is utilised for a specific pur
pose. For instance, health cess raises revenue
which is utilised for health purposes e.g. building
hospitals, giving medicines to the poor, etc. Simi
larly, education cess raises revenue which is used
for building schools or other educational pur
poses.”
40. The expression “cess” as held above means a tax levied
for some special purpose, which may be levied as an increment
to an existing tax. The Scheme of Compensation to States Act,
2017 as noticed above indicate that the cess is with respect
to goods and services tax. There are more than one reason to
uphold the legislative competence of Parliament to enact the
Compensation to States Act, 2017. Constitution Bench of this
Court in Union of India Vs. Harbhajan Singh Dhillon, (1971) 2
SCC 779 held that only question to be asked while examining
the legislative competence of Parliament with regard to a
particular enactment is: Is the matter sought to be legislated
or included in List II or in List III or is the tax sought to
be levied mentioned in List II or in List III”. In Para 21,
the Constitution Bench laid down following:
28
“21. It seems to us that the function of Article
246(1), read with Entries 196, List I, is to give
positive power to Parliament to legislate in re
spect of these entries. Object is not to debar Par
liament from legislating on a matter, even if other
provisions of the Constitution enable it to do so.
Accordingly we do not interpret the words “any
other matter” occurring in Entry 97, List I, to
mean a topic mentioned by way of exclusion. These
words really refer to the matters contained in each
of the Entries 1 to 96. The words “any other mat
ter” had to be used because Entry 97, List I fol
lows Entries 196, List I. It is true that the
field of legislation is demarcated by Entries 196,
List I, but demarcation does not mean that if Entry
97, List I confers additional powers, we should
refuse to give effect to it. At any rate, whatever
doubt there may be on the interpretation of Entry
97, List I is removed by the wide terms of Article
248. It is framed in the widest possible terms. On
its terms the only question to be asked is: Is the
matter sought to be legislated or included in List
II or in List III or is the tax sought to be levied
mentioned in List II or in List III: No question
has to be asked about List I. If the answer is in
the negative then it follows that Parliament has
power to make laws with respect to that matter or
tax.”
41. When we pose the above question in context of impugned
legislation, i.e. Compensation to States Act, 2017, we do not
find any entry in List II or List III of Seventh Schedule,
which may refer to levying of cess in question. Article 248
read with Articles 246 and 246A clearly indicate that
residuary power of legislation is with the Parliament. In the
present case, we may notice that no contention has been raised
before us that the subject matter of legislation was within
29
the competence of State Legislature, and that the Parliament
had no competence to legislate. Applying the H.S. Dhillon’s
test (supra), we do not find any lack of legislative
competence in the Parliament.
42. Learned counsel for the petitioner relied on two
decisions of this Court namely Hoechst Pharmaceuticals Ltd. &
Others Vs. State of Bihar & Others, (1983) 4 SCC 45 and M.P.V.
Sundararamier & Co. Vs. State of A.P. & Others, AIR 1958 SC
468 to contend that taxation is a distinct matter for purposes
of legislative competence and the power to tax cannot be
deduced from a general legislative entry as an ancillary
power. He submits that State Compensation Cess being not
covered by any taxing entry, the legislation is beyond the
competence of Parliament. We may first notice the
proposition, which has been laid down by this court in Hoechst
Pharmaceuticals Ltd. (supra). This Court in the above case
had occasion to examine Bihar Finance Act, 1981, by which
surcharge was levied on certain dealers selling essential
commodities such as drugs. Challenge to the legislative
competence of the State was raised. In the above context,
this Court had observed that taxation is considered to be a
distinct matter for purposes of legislative competence. In
paragraphs 74, 75 and 76, following was laid down:
30
“74. It is equally well settled that the various
entries in the three Lists are not ‘powers’ of leg
islation, but ‘fields’ of legislation. The power to
legislate is given by Article 246 and other Arti
cles of the Constitution. Taxation is considered to
be a distinct matter for purposes of legislative
competence. Hence, the power to tax cannot be de
duced from a general legislative entry as an ancil
lary power. Further, the element of tax does not
directly flow from the power to regulate trade or
commerce in, and the production, supply and distri
bution of essential commodities under Entry 33 of
List III, although the liability to pay tax may be
a matter incidental to the Centre’s power of price
control.
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. 8182. A scrutiny of Lists I and II of the
Seventh Schedule would show that there is no over
lapping anywhere in the taxing power and the Con
stitution 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 dif
ficulties 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 legis
lation and taxation. The general subjects of legis
lation 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.43 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
92A deal with taxes. In List II, Entries 1 to 44
deal with general subjects of legislation; Entries
31
45 to 63 deal with taxes. This mutual exclusiveness
is also brought out by the fact that in List III,
the Concurrent 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 courtfees. Thus, in
our Constitution, a conflict of the taxing power of
the Union and of the States cannot arise. That be
ing so, it is difficult to comprehend the submis
sion that there can be intrusion by a law made by
Parliament under Entry 33 of List III into a for
bidden field viz. the State’s exclusive power to
make a law with respect to 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. subsection (3) of
Section 5 of the Act and para 21 of the Control Or
der issued by the Central Government under subsec
tion (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.”
43. Levy of surcharge was upheld referring to Entry 52 of
List II of Seventh Schedule. Following was laid down in
paragraph 90:
“90. The decision in Fernandez case, AIR 1957 SC
657 is therefore clearly an authority for the
proposition that the State Legislature notwith
standing Article 286 of the Constitution while mak
ing a law under Entry 54 of List II of the Seventh
Schedule can, for purposes of the registration of a
dealer and submission of returns of sales tax, in
clude the transactions covered by Article 286 of
the Constitution. That being so, the constitutional
validity of subsection (1) of Section 5 of the Act
which provides for the classification of dealers
whose gross turnover during a year exceeds Rs 5
lakhs for the purpose of levy of surcharge, in ad
dition to the tax payable by him, is not assail
32
able. So long as sales in the course of interState
trade and commerce or sales outside the State and
sales in the course of import into, or export out
of the territory of India are not taxed, there is
nothing to prevent the State Legislature while mak
ing a law for the levy of a surcharge under Entry
54 of List II of the Seventh Schedule to take into
account the total turnover of the dealer within the
State and provide, as has been done by subsection
(1) of Section 5 of the Act, that if the gross
turnover of such dealer exceeds Rs 5 lakhs in a
year, he shall, in addition to the tax, also pay a
surcharge at such rate not exceeding 10 per centum
of the tax as may be provided. The liability to pay
a surcharge is not on the gross turnover including
the transactions covered by Article 286 but is only
on inside sales and the surcharge is sought to be
levied on dealers who have a position of economic
superiority………………”
44. In M.P.V. Sundararamier (supra) this Court also laid down
that the tax cannot be levied under general entry. The
present is a case where cess in question is levied in respect
of goods and services tax, the definition of cess as given in
Compensation to States Act, 2017 in Section 2(c) states “cess
means the goods and services tax compensation cess levied
under section 8”. The judgment of this Court relied by
petitioner in Hoechst Pharmaceuticals Ltd. (supra) and M.P.V.
Sundararamier (supra) is not applicable to the present case.
45. Entry 97 of List I also lead to the same conclusion, for
reference, which is quoted as below:
“97. Any other matter not enumerated in List II or
33
List III including any tax not mentioned in either
of those Lists.”
46. Article 270 of the Constitution, both as it existed prior
to Constitution (One Hundred and First Amendment) Act, 2016
and subsequent to Constitution (One Hundred and First
Amendment) Act, 2016 uses the expression “any cess levied for
specific purposes under any law made by Parliament”. Article
270(1) as existed prior to Constitution (One Hundred and First
Amendment) Act, 2016, is as follows:
“Art.270.(1) All taxes and duties referred to
in the Union list, except the duties and taxes
referred to in Arts. 268, 268A and 269
respectively, surcharge on taxes and duties
referred to in Art. 271 and any cess levied for
specific purposes under any law made by Parliament
shall be levied and collected by the Government of
India and shall be distributed between the Union
and the States in the manner provided in clause
(2).”
47. After Constitution (One Hundred and First Amendment) Act,
2016, as per Article 270, Parliament can levy cess for a
specific purpose under a law made by it. Article 270, thus,
specifically empowers Parliament to levy any cess by law.
Lastly, Section 18 of the Constitution (One Hundred and First
Amendment) Act, 2016 expressly empowers Parliament shall, “by
law” on the recommendation of the Goods and Services Tax
Council, provide for compensation to the states for loss of
34
revenue arising on account of implementation of the goods and
services tax….” When Constitution provision empowers the
Parliament to provide for Compensation to the States for loss
of revenue by law, the expression “law” used therein is of
wide import which includes levy of any cess for the above
purpose. We, thus, do not find any merit in the submission of
the learned counsel for the petitioner that Parliament has no
legislative competence to enact the Compensation to States
Act, 2017.
Answer to Issue No.1 is,thus, as follows:
The Compensation to States Act, 2017 is not beyond the
legislative competence of the Parliament.
Issue No.2 and Issue No.3
48. We now come to Issue No.2 and Issue No.3, which,
being interconnected, are taken up together.
49.The next attack on Compensation to States Act, 2017 is on
the ground that the Act transgresses the mandate of
Constitution (One Hundred and First Amendment) Act, 2016. It
is submitted that Constitution (One Hundred and First
Amendment) Act, 2016 does not permit levy of cess on supply of
goods or services on which Goods and Services Tax has been
levied. Elaborating the submission, it is contended that the
35
clear objective of Constitution (One Hundred and First
Amendment) Act, 2016 was to subsume various Central and States
Taxes, Central and States surcharges and cesses, so far as,
they relate to supply of goods and services. When all taxes,
surcharges and cesses were subsumed in by Goods and Services
Tax, imposition of compensation to States cess clearly falls
foul to the Constitution (One Hundred and First Amendment)
Act, 2016. The Statements of Objects and Reasons of
Constitution (One Hundred and TwentySecond Amendment) Bill,
2014, as noticed above, was to subsume various Central
Indirect Taxes and levy of Service Tax, Additional Customs
Duty, Special Additional Duty of Customs, Central Surcharges
and Cesses so far as they relate to the supply of goods and
services.
50. One of the objectives as noticed in Statements of Objects
and Reasons was “conferring concurrent taxing powers upon
Parliament and the State Legislature to make laws for levying
goods and services tax”. Article 246A subarticle(1) empowers
the Parliament to “make laws with respect to goods and
services tax”. The word “with respect to” is word of
expansion. Similar expressions namely, “pertaining to”, “in
relation to” came to be considered before this Court in M/s.
Doypack Systems Pvt. Ltd. Vs. Union of India & Others, (1988)
36
2 SCC 299, where this Court held that the above expressions
are used in the expansive sense. Following has been laid down
in paragraphs 48 and 49:
“48………………….The expressions “pertaining to”, “in
relation to” and “arising out of”, used in the
deeming provision, are used in the expansive sense,
as per decisions of courts, meanings found in
standard dictionaries, and the principles of broad
and liberal interpretation in consonance with
Article 39(b) and (c) of the Constitution.
49. The words “arising out of” have been used in
the sense that it comprises purchase of shares and
lands from income arising out of the Kanpur
undertaking. We are of the opinion that the words
“pertaining to” and “in relation to” have the same
wide meaning and have been used interchangeably for
among other reasons, which may include avoidance of
repetition of the same phrase in the same clause or
sentence, a method followed in good drafting. The
word “pertain” is synonymous with the word
“relate”, see Corpus Juris Secundum, Volume 17,
page 693.”
51.Learned counsel for the petitioner has placed reliance on
judgment of this Court in Dewan Chand Builders and Contractors
Vs. Union of India and Others, (2012) 1 SCC 101. The
Parliament had enacted Building and Other Construction
Workers’ (Regulation of Employment and Conditions of Service)
Act, 1996 and Building and Other Construction Workers Welfare
Cess Act, 1996. The constitutional validity and competence of
Parliament was challenged before the Delhi High Court. Delhi
37
High Court upheld the validity of Building and Other
Construction Workers’ (Regulation of Employment and Conditions
of Service) Central Rules, 1998 holding the levy under the
impugned enactment as a fee referable to Entry 97 of List I of
Seventh Schedule of the Constitution. Before this Court, it
was contended that cess in question was a tax and not a cess
since no element of quid pro quo exists and if it is a tax,
then it is a tax on “lands and buildings” falling within the
ambit of Schedule VII List II Entry 49. Argument was noticed
in paragraph 23 to the following effect:
“23. It is evident from the contentions raised on
behalf of the appellant that there is a twopronged
attack on the legislative competence of Parliament
to enact the Cess Act: (i) it is a “tax” and not a
“cess” because no element of quid pro quo exists
between the payer of the cess and the beneficiary,
and (ii) if it is a “tax” then it is a tax on
“lands and buildings” falling within the ambit of
Schedule VII List II Entry 49 (the State List),
ousting the legislative competence of Parliament.”
52. This Court noticed the distinction between fee and tax
and referred to earlier judgments including judgment of this
Court in Commissioner, Hindu Religious Endowments, Madras Vs.
Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, AIR 1954
SC 282. This Court upheld the cess as fee and not tax. In
paragraph 31, reasons for upholding levy as fee has been given
by this Court, which is to the following effect:
38
“31. There is no doubt in our mind that the
Statement of Objects and Reasons of the Cess Act,
clearly spells out the essential purpose the enact
ment seeks to achieve i.e. to augment the Welfare
Fund under the BOCW Act. The levy of cess on the
cost of construction incurred by the employers on
the building and other construction works is for
ensuring sufficient funds for the Welfare Boards to
undertake social security schemes and welfare mea
sures for building and other construction workers.
The fund, so collected, is directed to specific
ends spelt out in the BOCW Act. Therefore, applying
the principle laid down in the aforesaid decisions
of this Court, it is clear that the said levy is a
“fee” and not “tax”. The said fund is set apart and
appropriated specifically for the performance of
specified purpose; it is not merged in the public
revenues for the benefit of the general public and
as such the nexus between the cess and the purpose
for which it is levied gets established, satisfying
the element of quid pro quo in the scheme. With
these features of the Cess Act in view, the subject
levy has to be construed as “fee” and not a “tax”.
Thus, we uphold and affirm the finding of the High
Court on the issue.”
53. The above judgment has no application in the facts of the
case. The case of the Union is not that cess is a fee. Rather
contention is that it is increment to the goods and services
tax. We having already held that State compensation cess is
“with respect to” goods and services tax, it is a tax.
54. Learned counsel for the petitioner has further relied on
certain decisions on distinction between tax and fee. But the
levy of cess, in the present case, not even claimed as fee, it
39
is not necessary to refer to above cases which reiterate the
well established principles emanating from Commissioner, Hindu
Religious Endowments, Madras Vs. Sri Lakshmindra Thirtha
Swamiar of Sri Shirur Mutt (supra).
55. The expression used in Article 246A is “power to make
laws with respect to goods and services tax”. The power to
make law, thus, is not general power related to a general
entry rather it specifically relates to goods and services
tax. When express power is there to make law regarding goods
and services tax, we fail to comprehend that how such power
shall not include power to levy cess on goods and services
tax. True, that Constitution (One Hundred and First
Amendment) Act, 2016 was passed to subsume various taxes,
surcharges and cesses into one tax but the constitutional
provision does not indicate that henceforth no surcharge or
cess shall be levied.
56.Learned counsel for the petitioner has referred to
Section 18 of the Constitution (One Hundred and TwentySecond
Amendment) Bill, 2014, where an additional tax on supply of
goods not exceeding one per cent was contemplated, which did
not find place in Constitution (One Hundred and First
Amendment) Act, 2016. He submits that the additional tax,
which was proposed by the Constitution (One Hundred and
40
TwentySecond Amendment) Bill, 2014 was not allowed to find
place in Constitution (One Hundred and First Amendment) Act,
2016, it is to be accepted that Constitution Amendment did not
contemplate levy of additional tax on services and goods tax.
The above submission in so far as not continuing an additional
tax on supply of goods in the Constitution (One Hundred and
First Amendment) Act is concerned, the submission of the
learned counsel for the petitioner is correct that additional
tax, which was contemplated by Clause 18 of the Bill did not
find place in Constitution Amendment Act. Further, Clause 19
of the Bill find place as Section 18 of the Constitution (One
Hundred and First Amendment) Act, 2016. Thus, power of
Parliament to make law providing for compensation to the
States for loss of revenue was expressly included by
constitutional provision.
57.Further, the Preamble of Compensation to States Act, 2017
expressly mentions the Act to provide for
compensation to the States for the loss of revenue arising on
account of implementation of the goods and services Tax in
pursuance of the provisions of the Constitution (One Hundred
and First Amendment) Act, 2016. Thus, the Compensation to
States Act, 2017 has been enacted under the express
Constitution (One Hundred and First Amendment) Act, 2016. We,
41
thus, also do not find any force in the submission of the
learned counsel for the petitioner that Compensation to States
Act, 2017 transgresses the Constitution (One Hundred and First
Amendment) Act, 2016.
58.Due to above reasons, we do not find any substance in the
submission of the petitioner that Compensation to States Act,
2017 is a colourable legislation. We having held that
Parliament has full legislative competence to enact the Act
and the Act having been enacted to implement the Constitution
(One Hundred and First Amendment) Act and the object being
clearly to fulfill the Constitution (One Hundred and First
Amendment) Act’s objective, we reject the submission of the
petitioner that Compensation to States Act, 2017 is a
colourable legislation. We, thus, answer Issue No.2 and Issue
No. 3 in following manner:
Ans. 2 The Compensation to States Act, 2017 does not
violate Constitution (One Hundred and First
Amendment) Act, 2016 nor is against the objective
of Constitution (One Hundred and First Amendment)
Act, 2016.
Ans.3 The Compensation to States Act is not a colourable
legislation.
42
Whether levy of Compensation to States Cess and GST on the
same taxing event is permissible in law? (Issue No.4)
59.The petitioner elaborating his contention submits that as
per Section 8 of impugned legislation there shall be levied a
cess on intraState supply of goods and services as provided
in Section 9 of the CGST Act whereas CGST Act has been enacted
to levy tax as provided under Article 246A of the
Constitution. This is also true in respect of the cesses
imposed on interState supplies of goods and services covered
by Section 5 of IGST Act, 2017. Therefore, on the same very
transaction there cannot be two levies, one under CGST Act and
another under impugned legislation as it would amount to
double taxation as levy is on the same taxable event and same
subject. Thus, there is an overlapping on law which is not
permissible. The petitioner contends that goods and services
tax being already imposed by three enactments of 2017 as
noticed above imposition of States Compensation Cess is levied
on the same taxing event and has overlapping effect.
60. The principle is well settled that two taxes/imposts
which are separate and distinct imposts and on two different
aspects of a transaction are permissible as “in law there is
43
no overlapping”.
61.A Constitution Bench of this Court in Federation of Hotel
& Restaurant Associate of India, Etc. Vs. Union of India and
others, (1989) 3 SCC 634, held that a law with respect to a
subject might incidentally affect another subject in some way,
but that is not the same thing. There might be overlapping but
the overlapping must be in law. The fact that there is an
overlapping does not detract from the distinctiveness of the
aspects. Therefore, if the taxes are separate and distinct
imposts and levied on the different aspects, then there is no
overlapping in law. Following was laid down in paragraph 31:
“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 does not detract
from the distinctiveness of the aspects, Lord
Simonds in Governor General in Council v. Province
of Madras [1945] FCR 179 P.C. at 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 separate and
distinct imposts. If in fact they overlap,
that may be because the taxing authority,
imposing a duty of excise, finds it
44
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....””
62.Justice Krishna Iyer in Avinder Singh and others Vs.
State of Pubjab and others, (1979) 1 SCC 137, laid down that
if on the same subjectmatter the legislature chooses to levy
tax twice over there is no inherent invalidity in the fiscal
adventure unless there are some other prohibitions. In the
above case Government of Punjab had issued a notification
under Section 90(4) of the Punjab Municipal Corporation Act,
1976 imposing tax at the rate of Rupee 1 per bottle on Indian
made Foreign Liquor within the Municipal Corporation of
Ludhiana. One of the contentions raised was that tax imposed
is on sale, hence, beyond Government power. In paragraph 4
following was laid down:
"4.......A feeble plea that the tax is bad because
of the vice of double taxation and is unreasonable
because there are heavy prior levies was also
voiced. Some of these contentions hardly merit
consideration, but have been mentioned out of
courtesy to counsel. The last one, for instance,
deserve the least attention. There is nothing in
Article 265 of the Constitution from which one can
spin out the constitutional vice called double
taxation. (Bad economics may be good law and vice
versa). Dealing with a somewhat similar argument,
the Bombay High Court gave short shrift to it in
Wester India Theatres (AIR 1954 Bom 261). Some
undeserving contentions die hard, rather survive
after death. The only epitaph we may inscribe is :
45
Rest in peace and don't be reborn ! If on the same
subjectmatter the legislature chooses to levy tax
twice over there is no inherent invalidity in the
fiscal adventure save where other prohibitions
exist.”
63.Goods and Services Tax imposed under the 2017 Acts as
noticed above and levy of cess on such intraState supply of
goods and services or both as provided under Section 9 of the
CGST Act and such supply of goods and services or both as part
of Section 5 of CGST Act is, thus, two separate imposts in law
and are not prohibited by any law so as to declare it invalid.
64.We, thus, do not find any substance in the submission
that levy of Compensation to States Cess on same taxable event
is not permissible.
We, thus, answer Issue No.4 in the following manner:
Levy of Compensation to States Cess is an increment to
goods and services tax which is permissible in law.
Issue No.5
65.The last submission of the petitioner is that he having
paid Clean Energy Cess till 30.06.2017 on the stocks of coal,
he is at least entitled to set off in payment of Compensation
to States Cess. As noticed above Clean Energy Cess was
imposed under the Finance Act, 2010. The Clean Energy Cess and
46
the States Compensation Cess are collected for wholly
different purposes. As per subsection (3) of Section 83 of
the Finance Act, 2010, the Clean Energy Cess was levied and
collected for the purposes of financing and promoting clean
energy initiatives, funding research in the area of clean
energy or for any other purpose relating thereto whereas
States Compensation Cess is collected to “provide for
compensation to the States for the loss of revenue arising on
account of implementation of the goods and services tax”.
66.The distribution between the Union and States of the
Clean Energy Cess and GST Compensation Cess so collected are
also different. Under Section 83(6) of the Finance Act, 2010
the Clean Energy Cess was to be used for the purposes of the
Union and not to be distributed to the States whereas States
Compensation Cess has to be wholly distributed amongst the
States to compensate the States.
67.The petitioner's submission that the petitioner should be
given the credit to the extent of payment of Clean Energy Cess
upto 30.06.2017 also cannot be accepted. The Clean Energy Cess
and States Compensation Cess are entirely different from each
other, payment of Clean Energy Cess was for different purpose
and has no bearing or connection with States Compensation
Cess. Giving credit or set off in the payment is legislative
47
policy which had to be reflected in the legislative scheme.
Compensation to States Act, 2017 or Rules framed thereunder
does not indicate giving of any credit or set off of the Clean
Energy Cess already paid till 30.06.2017. Thus, claim of the
petitioner that he is entitled for set off in payment of
Compensation to States Cess to the extent he had already paid
Clean Energy Cess cannot be accepted.
We, thus, answer Issue No.5 in the following manner:
The petitioner is not entitled for any set off of
payments made towards Clean Energy Cess in payment of
Compensations to States Cess.
68.In view of the foregoing discussions, we do not find any
merit in the writ petition. The writ petition is dismissed.
The transferred case is accordingly dismissed. Both the civil
appeals are allowed. Parties shall bear their own costs.
..........................J.
( A.K. SIKRI )
..........................J.
( ASHOK BHUSHAN )
NEW DELHI,
OCTOBER 03, 2018.
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