2017 (8) TMI 1194 - HC - GST

Delhi High Court questions GST Compensation Act validity, grants partial relief on double taxation concerns

The Delhi High Court found prima facie merit in the challenge to the constitutional validity of the Goods and Services Tax (Compensation to States) Act, ... Power to levy compensation cess for GST under Article 279A(4) - subsummation and abolition of pre existing cesses upon introduction of GST - cess levied on the same taxable event as CGST/IGST - double taxation and non availability of input credit on pre GST cess - interim relief restraining recovery pending verification of prior cess paymentPower to levy compensation cess for GST under Article 279A(4) - subsummation and abolition of pre existing cesses upon introduction of GST - Prima facie challenge to the legislative competence of Parliament to enact the Goods and Services Tax (Compensation to States) Act, 2017 by reference to Section 18 of the COI 101st Amendment Act. - HELD THAT: - Having regard to the legislative history narrated and the abolition of the Clean Energy Cess with effect from 1st July 2017, the Court finds a prima facie case that Parliament's power to enact the impugned Act cannot be traced to Section 18 of the COI 101st Amendment Act. The Court notes that the COI 101st Amendment and the Bill's statement of objects reproduced Section 18 and that an earlier proposal to levy a temporary additional tax was dropped in Parliament; on this basis the petition raises a serious question on whether Section 18 authorises re introduction of a cess of the kind abolished and subsumed by GST. [Paras 5, 6, 7, 8]A prima facie case is made out challenging the legislative competence of Parliament to enact the impugned Act under Section 18 of the COI 101st Amendment Act.Cess levied on the same taxable event as CGST/IGST - The impugned Act levies a cess on the identical taxable event (supply of goods or services) as the CGST and IGST Acts. - HELD THAT: - The Court observes that Section 8 of the impugned Act contemplates levy of a cess on intra State and inter State supplies in the same manner as the CGST and IGST Acts respectively, thereby applying a cess to the same taxable event covered by the GST enactments. This factual and legal position forms part of the basis for the challenge to the statute's competence. [Paras 9]The Court records that the compensation cess is levied on the same taxable event as CGST/IGST, a circumstance relevant to the competence challenge.Double taxation and non availability of input credit on pre GST cess - interim relief restraining recovery pending verification of prior cess payment - Interim protection in respect of stocks of coal on which Clean Energy Cess under the Finance Act, 2010 has already been paid, and procedure for verification of such payment. - HELD THAT: - The petitioner alleges that its stocks of coal as on 30.06.2017 have already borne the Clean Energy Cess under FA 2010 and that no input credit for that cess is available on transition, resulting in double payment if the impugned levy is collected. The Court, on the materials and the petitioner's prima facie case, grants partial ad interim relief: the petitioner shall not be required to make further payment under the impugned Act for those stocks for which it can satisfactorily prove prior payment of cess. Officers of the concerned Department are directed to verify the petitioner's proof at its premises; until such verification is complete, no coercive steps shall be taken to recover the levy. Stocks for which satisfactory proof is not produced will remain liable to payment subject to the directions given. [Paras 11, 13, 15, 16]Pending final adjudication, the petitioner is not required to pay the compensation cess on stocks for which it produces satisfactory proof of having paid the Clean Energy Cess under FA 2010; other stocks remain subject to the impugned levy and the verification process.Final Conclusion: Notice issued; a prima facie case is held against the legislative competence of the Goods and Services Tax (Compensation to States) Act, 2017 under Section 18 of the COI 101st Amendment Act; limited interim relief granted restraining payment of the compensation cess on stocks proved to have borne the Clean Energy Cess under the Finance Act, 2010, subject to departmental verification and without prejudice to final adjudication. Issues:Constitutional validity of the Goods and Services Tax (Compensation to States) Act, 2017; Legislative competence of Parliament to levy cess under the Act; Double taxation issue due to imposition of new cess without input credit for previously paid Clean Energy Cess.Analysis:Constitutional Validity of the Act:The petition challenges the constitutional validity of the Goods and Services Tax (Compensation to States) Act, 2017, specifically focusing on the abolition of Clean Energy Cess under the Finance Act, 2010, and its replacement with the new GST regime. The petitioner, a coal trader, argues that the Act does not align with the constitutional provisions related to compensation to States for revenue loss due to GST implementation. The court acknowledges the petitioner's contention and finds prima facie merit in the argument, questioning the legislative competence of Parliament to enact the impugned Act.Legislative Competence Issue:The core argument revolves around Section 18 of the Constitution (One Hundred and First Amendment) Act, which mandates compensation to States for revenue loss post-GST implementation. The petitioner asserts that this provision does not authorize the imposition of a new cess, especially after the abolition of Clean Energy Cess. The court agrees that the Act's reliance on Section 18 may lack a clear legal basis, raising concerns about the Parliament's authority to introduce the Compensation to States Act.Double Taxation and Input Credit:Another significant issue highlighted is the double taxation dilemma faced by the petitioner. The Act imposes a fresh levy of cess on coal stocks, even for which Clean Energy Cess was previously paid under the Finance Act, 2010. The absence of input credit for the earlier paid cess further exacerbates the financial burden on the petitioner. The court acknowledges the petitioner's genuine concerns regarding the additional financial strain caused by the new cess without corresponding credit provisions.Interim Relief and Refund Entitlement:In response to the petitioner's plea, the court grants partial ad interim relief, exempting the petitioner from further payment on coal stocks where Clean Energy Cess was previously paid. However, for stocks without prior cess payment, the liability under the impugned Act remains subject to the ongoing legal proceedings. The court ensures that in case of a favorable outcome for the petitioner, a refund of the Clean Energy Cess amounts paid under the Act will be granted, subject to court determination.Operational Procedures and Future Proceedings:To facilitate the interim order implementation, the court directs the concerned department officers to verify the Clean Energy Cess payment status for the petitioner's coal stocks. Coercive recovery actions are temporarily halted pending verification. The court sets deadlines for filing replies and lists the case for further hearings, emphasizing the need for procedural compliance and timely responses from all parties involved.This detailed analysis encapsulates the multifaceted legal issues, procedural steps, and interim relief measures outlined in the judgment, offering a comprehensive understanding of the complex legal intricacies addressed by the Delhi High Court in this case.