Goods and Services Tax (Compensation to States) Act, 2017: Validity of – Held: Is constitutionally valid – Article 270 empowers Parliament to levy any cess by law and s. 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 revenue arising on account of implementation of the goods and services tax and expression law used therein is of wide import which includes levy of any cess for the above purpose – Thus, the 2017 Act is not beyond the legislative competence of the Parliament – Furthermore, the objectives in statements of objects and reasons of Constitution (One Hundred and First Amendment) Bill, 2014 was conferring concurrent taxing powers upon Parliament and the State Legislature to make laws for levying goods and services tax – Article 246A(1) empowers the Parliament to make laws with respect to goods and services tax – Power to make law 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, it cannot be comprehended that how such power shall not include power to levy cess on goods and services tax – Thus, the 2017 Act 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 – 2017 Act is not a colourable legislation – Goods and Services Tax Compensation Cess Rules, 2017 – Constitution of India.
Levy of Compensation to States Cess and GST on the same taxing event – Permissibility of – Held: Two taxes/imposts which are separate and distinct imposts and on two different aspects of a transaction are permissible as in law there is no overlapping – Goods and Services Tax imposed under the 2017 Act and levy of cess on such intra-State supply of goods and services or both as provided under the Act and such supply of goods and services or both as part of the Act are two separate imposts in law and are not prohibited by any law so as to declare it invalid – Thus, it cannot be said that levy of Compensation to States Cess on same taxable event is not permissible – Levy of compensation to States Cess is an increment to goods and services tax which is permissible in law. Cl ean Energy Cess pai d by the petitioner on the stocks of coal till 30.06.2017 – Entitlement to set off the same in payment of Compensation to States Cess – Held: Clean Energy Cess and the States Compensation Cess are collected for wholly different purposes – 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 whereas States Compensation Cess is collected to provide for compensation to the States for the loss of revenue ar ising on account of implementation of the goods and services tax – Giving credit or set off in the payment is legislative pol i cy whi ch had to be r efl ected i n the l egi sl ati ve 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, the petitioner not entitled for set off in payment of Compensation to States Cess to the extent he had already paid Clean Energy Cess.
Allowing the appeals and dismissing the transferred cases, the Court
HELD:
Whether the Compensation to States Act, 2017 is beyond the legislative competence of Parliament?
1.1 Article 246A 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 instant case, the concern is with a cess imposed by Compensation to States Act, 2017. The Act by Section
8 levies and authorizes collection of cess. [Para 35][161-A-B] Shinde Brothers Etc. v. Deputy Commissioner, Raichur & Others Etc. AIR 1967 SC 1512 : [1967] SCR 548; India Cement Ltd. & Others v. State of Tamil Nadu & Others (1990) 1 SCC 12 : [1989] 1 Suppl. SCR 692; Vijayalashmi Rice Mill & Others v. Commercial Tax Officers, Palakol & Others (2006) 6 SCC 763 : [2006]
4 Suppl. SCR 279 – referred to.
Black’s Law Dictionary, Tenth Edn; Advanced Law Lexicon by P. Ramanatha Aiyar 3rd Edn – referred to.
1.2 The expression “cess” 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 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. [Para 40][163-C]
1.3 In context of impugned legislation, Compensation to States Act, 2017, no entry is found 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 instant case, no contention has been raised that the subject matter of legislation was within the competence of State Legislature, and that the Parliament had no competence to legislate. Applying the H.S. Dhillon’s test no lack of legislative competence is found in the Parliament. [Para 41][164-B-C]
Union of India v. Harbhajan Singh Dhillon (1971) 2 SCC 779 – followed.
Hoechst Pharmaceuticals Ltd. & Others v. State of Bihar & Others (1983) 4 SCC 45; M.P.V. Sundararamier & Co. v. State of A.P. & Others AIR 1958 SC 468 : [1983]
3 SCR 130 – held inapplicable.
1.4 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”. [Para 44][166-H; 167-A]
1.5 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”. 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 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. There is no merit in the submission that Parliament has no legislative competence to enact the Compensation to States Act, 2017. Thus, the Compensation to States Act, 2017 is not beyond the legislative competence of the Parliament. [Para 46, 47][167-C-D]
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 and Whether the Compensation to States Act, 2017 is a colourable legislation?
2.1 One of the objectives 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 sub– article(1) empowers the Parliament to “make laws with respect to goods and services tax”. The word “with respect to” is word of expansion. [Para 50][168-F-G]
M/s. Doypack Systems Pvt. Ltd. v. Union of India & Others (1988) 2 SCC 299 : [1988] 2 SCR 962; Dewan Chand Builders and Contractors v. Union of India and Others (2012) 1 SCC 101 : [2011] 13 SCR 214; Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt AIR 1954 SC 282 : [1954] SCR 1005 – held
inapplicable.
2.2 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, it cannot be comprehended that how such power shall not include power to levy cess on goods and services tax. The 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. [Para 55][171-A-B]
2.3 Additional tax, which was contemplated by Clause 18 of the Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 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. 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. Thus, there is no force in the submission that Compensation to States Act, 2017 transgresses the Constitution (One Hundred and First Amendment) Act, 2016. [Para 56, 57] [171-D-F, H; 172-A]
2.4 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, the submission of the petitioner that Compensation to States Act, 2017 is a colourable legislation is rejected. 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. [Para 58][172-B-D]
Whether levy of Compensation to States Cess and GST on the same taxing event is permissible in law?
3.1 Two taxes/imposts which are separate and distinct imposts and on two different aspects of a transaction are permissible as “in law there is no overlapping”. [Para 60][172H]
Federation of Hotel & Restaurant Associate of India, Etc. v. Union of India and others (1989) 3 SCC 634 : [1989] 2 SCR 918 ; Avinder Singh and others v. State of Pubjab and others (1979) 1 SCC 137 : [1979] 1 SCR 845 – referred to.
3.2 Goods and Services Tax imposed under the 2017 Acts and levy of cess on such intra-State 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. Thus, it cannot be said that levy of Compensation to States Cess on same taxable event is not permissible. Levy of compensation to States Cess is an increment to goods and services tax which is permissible in law. [Para 63-64][174-D-F]
Whether on the basis of Clean Energy Cess paid by the petitioner till 30.06. 2017, the petitioner is entitled for set off in payment of Compensation to States Cess?
4.1 The Clean Energy Cess and 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”. 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) 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. [Para 65-66] [174-G-H; 175-A-B]
4.2 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 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 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, the petitioner is not entitled for set off in payment of Compensation to States Cess to the extent he had already paid Clean Energy Cess. [Para 67][175-C-E]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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