TaxTMI 
TaxTMI 
2018 (10) TMI 200
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....a 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). Th....
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....s) Act, 2017 (hereinafter referred to as "Compensation to States Act, 2017"). On 04.05.2017, the axation Laws (Amendment) Act, 2017 was enacted, whereunder, several cesses including Clean Energy Cess was repealed.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 t....
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....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....
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....ble 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 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 ....
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....16 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 30th 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. 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....
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....e of inter-State 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 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 268....
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....merce.". 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 ....
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....plementation 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 inter-State supply of goods or services or both by the Central Government and for matters 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 coll....
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....r both with reference to their value, for each such supply the value shall be determined under section 15 of the Central Goods and Services Tax Act for all intra­State and inter­State 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. 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, subheading, Chapter or supply of goods or services, as the case may be, in column 3 and the maximum rate at which goods and services ta x compensa....
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....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, 3rd 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 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 ....
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....enerally 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 revenue which can be used generally for any purpose by 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 programmes, etc. However, cess is a tax which generates revenue which is utilised for a specific purpose. For instance, health cess raises revenue which is utili....
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.... 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 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 legisla....
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....f 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 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 court-fees. Thus, in our Constitution, a conflict of the taxing power of the Union and of the States cannot arise. That being so, it is difficult to comprehend the submission that there can be intrusion by a law made by Parliament under Entry 33 of List III into a forbidden 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 Order issued by the Central Gove....
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....vied 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 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 a....
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....nal 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) 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 bee....
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.... 31, reasons for upholding levy as fee has been given by this Court, which is to the following effect:- "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 enactment 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 measures 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 Ac....
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....r 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, 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, 20....
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.... 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....
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.... 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 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 ....