TaxTMI 
TaxTMI 
2025 (11) TMI 425
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....ion no. 100239 of 2024, which are similar in other writ petitions on the question involved in the lis would be narrated. 2. Facts, in brief, germane are as follows: - 2.1. The petitioner is a proprietorship concern engaged in the business of manufacturing chewing tobacco with lime tube sold under the brand name 'Royale'. The chewing tobacco pouches manufactured by the petitioner contained various ingredients such as tobacco, lime, menthol, glycerin, perfume inter alia. The petitioner manufactures its products and sells them to various stockists who act as the first intermediary in the supply chain. The stockists in turn sell the products to the wholesalers who further sell the products to retailers eventually reaching the consumer. There are two to three intermediaries before the products reach the end consumer. 2.2. The Government of India in terms of its 101^st amendment to the Constitution of India on 08-09-2016, paved way for an integrated regime of indirect taxes on various goods and services. Pursuant to the said amendment Articles 246-A, 269-A, 279-A, 366(12-A), 366 (26-A) and 366 (26-B) came to be inserted and Articles 248, 249, 250, 268, 270, 271, 286 and 368 were....
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....utham Bharadwaj, learned counsel appearing for the petitioner in Writ Petition nos. 100239 of 2024 and 108091 of 2023; and Sri K.Arvind Kamath, learned Additional Solicitor General of India appearing for the respondents. 4. The learned senior counsel Sri G Shivadass appearing for the petitioners in one of the writ petitions and Sri Gautham Bharadwaj, learned counsel appearing for the petitioner in two of the petitions would vehemently contend that compensation cess which is levied under the GST is a tax. The compensation cess is imposed in exercise of power under Articles 246-A and 270 of the Constitution of India. The Compensation Act was enacted to provide States revenue loss resulting from implementation of the aforementioned four Acts. Therefore, the Compensation Act is an essential part of the scheme. They would further contend that compensation cess that is now imposed on MRP is contrary to the GST enactments itself. Sub-section (3) of Section 15 of the CGST Act excludes any discount explicitly given on the MRP from the value of supply. Therefore, no compensation can be calculated on the MRP when the parent Act itself excludes a discount in computation of the value of supp....
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....unsel and have perused the material on record. 7. The afore-narrated facts are not in dispute. They are a matter of record. Four enactments are notified on 01-07-2017. The entire fulcrum of the subject lis revolves around the fourth enactment i.e., the Compensation Act. Therefore, it becomes necessary to notice certain provisions of the Compensation Act. The relevant sections that are necessary to be noticed are as follows: "2. Definitions.-(1) In this Act, unless the context otherwise requires,- ... ... ... (c) "cess" means the goods and services tax compensation cess levied under Section 8; (d) "compensation" means an amount, in the form of goods and services tax compensation, as determined under Section 7; (e) "Council" means the Goods and Services Tax Council constituted under the provisions of Article 279-A of the Constitution; ... ... &nb....
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....1. In this Schedule, reference to a "tariff item", "heading", "sub-heading" and "Chapter", wherever they occur, shall mean respectively a tariff item, heading, sub-heading and Chapter in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975). 2. The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), the section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this Schedule. S. no. Description of supply of goods or services Tariff item, heading, subheading, Chapter, or supply of goods or services, as the case may be The maximum rate at which goods and services tax compensation cess may be collected (1) (2) (3) (4) 1. Pan Masala 2106 90 20 Fifty-one per cent. of retail sale price per unit. 2. Tobacco and manufactured tobacco substitutes, including tobacco products. 24 Four thousand one hundred and seventy rupees per thousand sticks or two hundred and ninety per cent ad valorem or a combination thereof, but not exceeding four thousand one hundred and seventy rupees per thousand sticks plus two h....
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....the rate of cess for the said goods intended to be sold in the area to which the retail sale price relates." (Emphasis supplied) Section 15 of the CGST Act reads as follows: - "15. Value of taxable supply.- (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. (2) The value of supply shall include- (a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier; (b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both; (c) incidental expenses, including commission and packing, cha....
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.... are members of the same family; (b) the term "person" also includes legal persons; (c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related." (Emphasis supplied) Section 2(c) of the Compensation Act defines 'cess', to mean the goods and services tax compensation cess levied under Section 8. Section 8 deals with levy and collection of cess. Sub-section (2) thereof directs that cess shall be levied on supplies of goods and services as specified in Column no. 2 of the Schedule, on the basis of value, quantity or on such basis not exceeding the rate set forth in the corresponding entry of Column no. 4 of the Schedule. Section 15 of the CGST Act deals with value of taxable supply. Sub-section (3) thereof mandates that the value of supply shall not include any discount which is given before or at the time of supply if such discount has been recorded in the invoice. Sub-section (4) mandates that where the value of supply of goods or services or both cannot be determined under sub-section (1), the same shall be determine....
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....ication or its amendment would clearly indicate that the notification runs counter to Section 8(2) of the Compensation Act and Section 15 of the CGST Act. Section 15 of the CGST Act clearly holds that value of supply of goods is the transaction value, which is the price actually paid or payable for supply of goods. As observed, Section 8(2) of the Compensation Act includes compensation cess within the value of supply. The proviso to Section 8(2) of the Compensation Act in unambiguous terms states that the value of compensation cess chargeable on any supply shall be determined as per Section 15 of the CGST Act. Therefore, the notification which brings in value of cess linked to the MRP and not to transaction value runs counter to the Act. 9. It becomes germane to notice a judgment of the Apex Court and that of this Court interpreting old regime of two sets viz., the Rajasthan Sales Tax Act and the Karnataka Sales Tax Act. 9.1. The Apex Court in the case of STATE OF RAJASTHAN v. RAJASTHAN CHEMISTS ASSOCIATION ((2006) 6 SCC 773), has held as follows: ".... .... &nb....
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....he Supreme Court in Rajasthan Chemists Association [2006] 147 STC 542 (SC) ; (2006) 6 SCC 773, while considering the validity of a provision similar to the one impugned herein, has upheld the view of the Rajasthan High Court that it is not permissible for the Legislature of a State to levy tax on the sale of goods by adopting a notional price as a measure of tax ; such a legislative measure is held to be outside the ambit of entry 54 of List II of the Seventh Schedule to the Constitution of India. In my opinion, the same reasoning applies to the provision impugned herein as both are similar. 12. In view of the above, sub-section (5) of section 4 of the KVAT Act, 2003 which provides for levy of tax on the maximum retail price indicated on the label of the container or pack thereof, is declared as unconstitutional on the ground that such a taxing provision is beyond the legislative competence of the State under entry 54 of List II of the Seventh Schedule to the Constitution of India." (Emphasis supplied) Both the Apex court and this Court have held that it is impermissible for the legislature to impose tax on a notional price. Notional price would be the MRP. Therefore....
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....goes beyond the scope of the authority conferred on it by the parent statute. It is the fundamental principle of law that a public authority cannot act outside the powers that is conferred upon it. .... .... .... 14. As observed hereinabove, it is trite law that the Rule making power conferred upon by the parent Act cannot travel beyond the mandate of the parent Act. The view of mine in this regard is fortified by the judgment of the Apex Court in the case of UNION OF INDIA v. A. SRINIVASAN wherein the Apex Court considers the entire spectrum of the law rendered from time to time and holds that a provision therein was contrary to the provision contained in the enabling Act. The Apex Court has held as follows: "21. At this stage, it is apposite to state about the rule-making powers of a delegating authority. If a rule goes beyond the rulemaking power conferred by the statute, the same has to be declared ultra vires. If a rule ....
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....) "13. It is very common for the legislature to provide for a general rule-making power to carry out the purpose of the Act. When such a power is given, it may be permissible to find out the object of the enactment and then see if the rules framed satisfy the test of having been so framed as to fall within the scope of such general power confirmed. If the rule-making power is not expressed in such a usual general form then it shall have to be seen if the rules made are protected by the limits prescribed by the parent Act." 27. In St. Johns Teachers Training Institute v. National Council for Teacher Education [(2003) 3 SCC 321 : AIR 2003 SC 1533] it has been observed that : (SCC p. 331, para 10) "10. A regulation is a rule or order prescribed by a superior for the management of some business and implies a rule for general course of action. Rules and regulations are all comprised in delegated legislations. The power to make subordinate legislation is derived from the enabling Act and it is fundamental that the delegate on whom such a power is conferred has to act within the limits of authority conferred by the Act. Rules cannot be made to supplant the provi....
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....slation, will have to consider the nature, object and scheme of the enabling Act, and also the area over which power has been delegated under the Act and then decide whether the subordinate legislation conforms to the parent statute. Where a rule is directly inconsistent with a mandatory provision of the statute, then, of course, the task of the court is simple and easy. But where the contention is that the inconsistency or non-conformity of the rule is not with reference to any specific provision of the enabling Act, but with the object and scheme of the parent Act, the court should proceed with caution before declaring invalidity." 31. In Pratap Chandra Mehta v. State Bar Council of M.P. [(2011) 9 SCC 573], while discussing about the conferment of extensive meaning, it has been opined that : (SCC p. 604, para 58) "58. ... The Court would be justified in giving the provision a purposive construction to perpetuate the object of the Act, while ensuring that such rules framed are within the field circumscribed by the parent Act. It is also clear that it may not always be absolutely necessary to spell out guidelines for delegated legislation, when discretion is veste....
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.... authorities within the confines of the law by supplying the doctrine of ultra vires. 68. In this context, we may refer with profit to the decision in General Officer Commanding-in-Chief v. Dr. Subhash Chandra Yadav, (1988) 2 SCC 351, wherein it has been held as follows:- "14. ....before a rule can have the effect of a statutory provision, two conditions must be fulfilled, namely, (1) it must conform to the provisions of the statute under which it is framed; and (2) it must also come within the scope and purview of the rule making power of the authority framing the rule. If either of these two conditions is not fulfilled, the rule so framed would be void....." 69. In Additional District Magistrate (Rev.) Delhi Admn. v. Siri Ram, (2000) 5 SCC 451, it has been ruled that it is a well recognised principle that the conferment of rule-making power by an Act does not enable the rule-making authority to make a rule which travels beyond the scope of the enabling Act or which is inconsistent therewith or repugnant thereto. 70. In Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi, (1975) 1 SCC 421, the Constitution Bench has held that: "18.....T....
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....atory Commission (Procedure, Terms and Conditions for Grant of Trading Licence and other Related Matters) Regulations, 2004. In that context, this Court expressed as under:- "25. It is now a well-settled principle of law that the rule-making power "for carrying out the purpose of the Act" is a general delegation. Such a general delegation may not be held to be laying down any guidelines. Thus, by reason of such a provision alone, the regulation-making power cannot be exercised so as to bring into existence substantive rights or obligations or disabilities which are not contemplated in terms of the provisions of the said Act. 75. In the aforementioned case, while discussing further about the discretionary power, delegated legislation and the requirement of law, the Bench observed thus: "73. The image of law which flows from this framework is its neutrality and objectivity : the ability of law to put sphere of general decision-making outside the discretionary power of those wielding governmental power. Law has to provide a basic level of "legal security" by assuring that law is knowable, dependable and shielded from excessive manipulation. In the contest of....
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....ail. All it can in practice do is to lay down the outline. This means that the intention of the legislature, as indicated in the outline (that is the enabling Act), must be the prime guide to the meaning of delegated legislation and the extent of the power to make it. The true extent of the power governs the legal meaning of the delegated legislation. The delegate is not intended to travel wider than the object of the legislature. The delegate's function is to serve and promote that object, while at all times remaining true to it. That is the rule of primary intention. Power delegated by an enactment does not enable the authority by regulations to extend the scope or general operation of the enactment but is strictly ancillary. It will authorise the provision of subsidiary means of carrying into effect what is enacted in the statute itself and will cover what is incidental to the execution of its specific provision. But such a power will not support attempts to widen the purposes of the Act, to add new and different means of carrying them out or to depart from or vary its ends. (See Section 59 in chapter "Delegated Legislation" in Francis Bennion's Statutory Interp....
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.... 82. Rules or regulation cannot be made to supplant the provisions of the enabling Act but to supplement it. What is permitted is the delegation of ancillary or subordinating legislative functions, or, what is fictionally called, a power to fill up details. 83. A Constitution Bench of this Court in the case of Sukhdev Singh (supra), while explaining the fine distinction between a rule and regulation and also the power of the delegate authority to frame such rules or regulations has made few very important observations which we must take notice of and quote as under: "11. The contentions on behalf of the employees are these. Regulations are made under the statute. The origin and source of the power to make regulations is statutory. Regulations are self-binding in character. Regulations have the force of law inasmuch as the statutory authorities have no right to make any departure from the regulations. 12. Rules, regulations, schemes, bye-laws, orders made under statutory powers are all comprised in delegated legislation. The need for delegated legislation is that statutory rules are framed with care and minuteness when the statutory authority making ....