The Compensation to States Act 2017 Constitution valid, not beyond the legislative competence of Parliament. No offset for Clean Energy Cess -SC
ABCAUS Case Law Citation:
ABCAUS 2555 (2018) (10) SC
Important Case Laws Cited/relied upon by the parties:
Hoechst Pharmaceuticals Ltd. & Others Vs. State of Bihar & Others, (1983) 4 SCC 45
M.P.V. Sundararamier & Co. Vs. State of A.P. & Others, AIR 1958 SC
Dewan Chand Builders and Contractors Vs. Union of India and Others, (2012) 1 SCC 101.
The instant bunch of case deals with the validity of the Goods and Services Tax (Compensation to States) Act, 2017 and the Goods and Services Tax Compensation Cess Rules, 2017.
Earlier, a Division Bench of Delhi High Court in a writ filed by a taxpayer (Petitioner) had passed 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 the issue of stocks of coal on which no Clean Energy Cess was paid, the High Court had stated that it would be subject to the final result of the writ petition.
However, the Supreme Court had stayed impugned order passed by the High Court in the SLP filed by the Government of India against the interim order of the Delhi High Court.
The case of the Petitioner was that the impugned legislation defeated the very objective of the Constitution. On the very same transaction there cannot be two levies, one under Central GST Act and another under impugned legislation as it would amount to double taxation. Thus, there was an overlapping in law which is not permissible.
It was argued that Section 18 of the Constitution (One Hundred and First Amendment) Act, 2016 does not empower the Parliament to levy cess and tax as it provides Parliament to make any law to provide compensation to the States for loss of revenue arising on account of implementation of GST for a period of 5 years. Thus, the impugned legislation is a colourable legislation which lacks legislative competence so far as collection of levy on cess is concerned.
The Hon’ble Supreme Court framed the following questions arising for consideration:
Question 1 : Whether the Compensation to States Act, 2017 is beyond the legislative competence of Parliament?
Answer: The Compensation to States Act, 2017 is not beyond the legislative competence of the Parliament.
The Hon’ble Supreme Court clarified that 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. 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.
Question 2 : Whether Compensation to States Act, 2017 violates Constitution (101st Amendment) Act, 2016 and is against the objective of Constitution (101st Amendment) Act, 2016?
Answer: 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.
Question 3 : Whether the Compensation to States Act, 2017 is a colourable legislation?
Answer: The Compensation to States Act is not a colourable legislation.
The Hon’ble Supreme Court stated that it having held that Parliament had full legislative competence to enact the Act and the Act having been enacted to implement the Constitution (101st) Act and the object being clearly to fulfill the Constitution (101st Amendment) Act’s objective.
(4) Whether levy of Compensation to States Cess and GST on the same taxing event is permissible in law?
Answer: Levy of Compensation to States Cess is an increment to goods and services tax which is permissible in law.
The Hon’ble Supreme Court stated that 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 IGST Act is two separate imposts in law and are not prohibited by any law so as to declare it invalid.
Question 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?
Answer : The petitioner is not entitled for any set off of payments made towards Clean Energy Cess in payment of Compensations to States Cess.
The Hon’ble Supreme Court stated that 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. 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.
Also, the distribution between the Union and States of the Clean Energy Cess and GST Compensation Cess so collected are also different. 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.
The Hon’ble Supreme Court clarified that the submission that the petitioner should be given the credit to the extent of payment of Clean Energy Cess up to 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.
