1. Challenge to the legislative competence and validity of the Goods and Services Tax (Compensation to States) Act, 2017 and associated Rules regarding levy of compensation cess. (Para 2 , 7 )
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2018 Supreme(SC) 968
SUPREME COURT OF INDIA
A.K. SIKRI, ASHOK BHUSHAN, JJ.
Union of India & Anr. – Appellants
Versus
Mohit Mineral Pvt. Ltd. – Respondent
Civil Appeal No. 10177 of 2018 (arising out of SLP(C) No. 25415 of 2017)
With
Mohit Mineral Pvt. Ltd. – Petitioner
Versus
Union of India & Ors. – Respondents
Transferred Case (C) No. 9 of 2018
With
Union of India & Anr. – Appellants
Versus
Mohit Mineral Pvt. Ltd. – Respondent
Civil Appeal No. 10179 of 2018 (arising out of SLP(C) No. 7708 of 2018)
Decided On : 03-10-2018
IMPORTANT POINTS
The Compensation to States Act, 2017 is not beyond the legislative competence of the Parliament.
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.
The Compensation to States Act is not a colourable legislation.
Payments made towards Clean Energy Cess cannot be set off in payment of Compensations to States Cess.
Headnote:(a) Goods and Services Tax (Compensation to States) Act, 2017 – Section 8 – Imposition of Cess – Validity – Legislative power to impose tax – Cess – A tax levied for some special purpose, which may be levied as an increment to an existing tax – List II or List III of Seventh Schedule not containing any provision for imposition of Cess – Parliament’s residuary power of legislation – Article 248 r/w Articles 246 and 246A – Held, section 8 is within legislative competence of Parliament. (Para 40, 41)
AIR 1967 SC 1512; (1990) 1 SCC 12; (2006) 6 SCC 763; (1971) 2 SCC 779 – Relied upon
(1983) 4 SCC 45; AIR 1958 SC 468 – Distinguished
(b) Goods and Services Tax (Compensation to States) Act, 2017 – Section 8, Article 270 and Entry 97 of List I, Seventh Schedule, Constitution of India – Entry 97 giving residuary power to Parliament – Article 270 specifically empowering Parliament to levy any cess by law – Section 18 of the Constitution (One Hundred and First Amendment) Act, 2016 also expressly empowering Parliament to provide, by law, for compensation to the states for loss of revenue arising on account of implementation of the goods and services tax, on the recommendation of the Goods and Services Tax Council – “Law” is of wide import which includes levy of any cess for the above purpose – Held, the act is not beyond the legislative competence of the Parliament. (Para 47)
(c) Goods and Services Tax (Compensation to States) Act, 2017 – Validity – Repugnancy with Constitution (One Hundred and First Amendment) Act, 2016 – Article 246A(1) empowering Parliament to “make laws with respect to goods and services tax” – Word “with respect to” – Held, expansive – Cess is a tax and not fee – Relatable to Entry 97 of List I of Seventh Schedule of the Constitution of India – Article 246A not a general power but specifically related to goods and services tax – Constitution (One Hundred and First Amendment) Act, 2016 though passed to subsume various taxes, surcharges and cesses into one tax, it does not prohibit levy of further surcharge or cess. (Para 50, 53, 55, 56)
(1988) 2 SCC 299 – Relied upon
(2012) 1 SCC 101; AIR 1954 SC 282 – Distinguished
(d) Goods and Services Tax (Compensation to States) Act, 2017 – Validity – Act, held, enacted under the express Constitution (One Hundred and First Amendment) Act, 2016 – Not colourable legislation – Validity upheld. (Para 57, 58)
(e) Finance Act, 2010 – Section 83(3) and section 9, Goods and Services Tax (Compensation to States) Act 2017 – Clean Energy cess imposed under Act 2010 and States Compensation Cess under Act 2017 – Imposed for wholly different purposes – Distribution between the Union and States of the two cess are also different – Hence payment under one cannot be set off against the other. (Para 65, 66, 67)
Facts of the case:
The validity of the Goods and Services Tax (Compensation to States) Act, 2017 as well as the Goods and Services Tax Compensation Cess Rules, 2017 are under challenge in these cases.
The Division Bench of the high Court 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.
Finding of the Court:
Goods and Services Tax (Compensation to States) Act, 2017 is valid.
Result: Writ petitions dismissed.
Legal Category Hierarchy
- constitutional law
- administrative law
Table of Contents
2. Dispute over Parliament's legislative competence, whether the Act is colourable legislation, the legality of double taxation on the same event, and entitlement to tax set-off. (Para 11 , 12 , 13 , 14 , 15 , 16 , 17 )
3. Analysis of residuary powers under Article 248, the expansive meaning of with respect to in Article 246A, and the distinction between different tax purposes. (Para 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 60 , 61 , 62 , 63 , 64 , 65 , 66 , 67 )
4. Parliament has legislative competence to levy compensation cess under residuary powers and the Constitution (One Hundred and First Amendment) Act, 2016, as a distinct legal impost. (Para 41 , 47 , 58 , 64 )
5. Writ petition and transferred case dismissed; civil appeals allowed. (Para 68 )
6. Does Parliament have the legislative competence to enact the Goods and Services Tax (Compensation to States) Act, 2017?
Yes. Parliament possesses residuary power under Article 248 and Entry 97 of List I to legislate on matters not enumerated in List II or III. Additionally, Section 18 of the Constitution (One Hundred and First Amendment) Act, 2016 expressly empowers Parliament to provide for compensation to States by law. (Para 34 , 40 , 41 , 45 , 47 )
7. What is the legal nature of a cess in the context of taxation?
A cess is a special kind of tax levied for a specific purpose. It may be levied as an increment to an existing tax, and its validity is judged based on the taxing power of the main tax to which it is an increment. (Para 35 , 36 , 37 , 38 , 39 )
8. Is the levy of both GST and Compensation Cess on the same taxable event permissible?
Yes. Two separate and distinct imposts on different aspects of a transaction are permissible. There is no inherent invalidity in double taxation unless specifically prohibited, as long as the taxes are separate and distinct imposts in law. (Para 60 , 61 , 62 , 63 , 64 )
9. Can a taxpayer claim set-off of a previously paid Clean Energy Cess against the GST Compensation Cess?
No. Set-off is a legislative policy decision. Since Clean Energy Cess and GST Compensation Cess serve entirely different purposes and have different distribution schemes, and no legislative provision exists for such credit, set-off is not permissible. (Para 65 , 66 , 67 )
JUDGMENT :
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 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 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 respondents-writ 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.
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 Twenty-Second 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 inter-State and intra-State. 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, 201
