2022 (3) TMI 1094 - HC - Indian Laws

Jurisdiction - Power of state authority to impose cess on Manufacturing or Production of Cement - petitioners submit that when a tax is imposed by a State or the Union in accordance with law, a further levy may be added thereto by way of a cess, where the quantum realised by way of the cess is earmarked for a special public beneficial purpose - HELD THAT - It is evident that since cement was not included as one of the excepted products in Entry 84 of List I, no impost could have been levied by any State on the manufacture of cement notwithstanding such process of manufacture being within the geographical limits of the State. And, for the same reason that the State had no authority to impose any tax or the like on the manufacture of cement in the State, it did not possess any authority to levy cess on such manufacture. There appears to be little room for the State to try and justify its authority in enacting the said Act of 2010 or the levy imposed thereby. Though the State has relied on Entry 54 of the State List, it does not appear that such entry authorises the State to impose a kind of excise duty with a different name. It is not necessary to even refer to Entry 92A of the Union List to ascertain the exact authority available to a State under Entry 54 of the State List as it stood at the time that the impugned Act was brought into force. At the relevant point of time, the field covered by the entry authorised the levy of the tax on the sale or purchase of goods. In other words, the levy would be on the sale or purchase and be confined only to such sale or purchase - the State had no authority to impose any tax or cess on the manufacture or production of cement, whether by the said Act or by any other disingenuous device; and, in all fairness, no further attempt is made on behalf of the State to justify the legislative illegality except to suggest that after the GST regime has been put in place, the impugned Act of 2010 has been repealed and the same is no longer relevant. There is no doubt that there is no available mechanism to assess the quantum of the levy that may have been passed on to the customer or may have been absorbed by the manufacturers. It is possible that a part of it had been passed on and a part absorbed by reducing the profit element. It is equally possible that the entirety of the impost had been passed on to the customers - In such sense, the manufacturers and producers of cement in the State may have taken a hit as a direct consequence of the illegal impost, for which they ought to be compensated. So that the deterrent is effective, it is necessary that 30 percent of the total realisation on account of the cess collected under the impugned Act of 2010, which the government was not entitled to receive and cannot be permitted to appropriate, is earmarked for a public project. For such purpose, the Chief Secretary of the State will affirm an affidavit to be filed within eight weeks from date and indicate the quantum of the cess that was collected under the impugned Act of 2010. Thirty percent of the amount so ascertained and indicated in the Chief Secretary s affidavit will have to be earmarked by the State for purchasing advanced medical equipment at the additional cancer wing which has been set up in the Government General Hospital in Shillong. The State had no authority to impose cess in terms of the impugned Act of 2010 and by annulling the Act as ultra vires the Constitution and requiring the State to refund 20 percent of the amount realized on such count from the individual petitioners to such petitioners and investing 30 percent of the total amount of cess realised under bogus legislation for the purpose of procuring the equipment for the cancer wing of the Government General Hospital in Shillong as aforesaid. Petition disposed off.

Summary

Issues:
Challenge to the validity of a State enactment post-GST regime takeover.

Analysis:
The two writ petitions challenge the legality of the Meghalaya Cement Cess Act, 2010, which has been repealed after the implementation of the goods and service tax regime. The petitioners argue that the cess imposed by the State of Meghalaya was illegal, without authority, and prejudicial to the cement industry. They contend that a tax imposed by a State or Union should have a specific purpose, like the education cess, and not be part of general revenue. The charging section of the impugned Act levies a cess on produced cement within the State, indicating the rate and manner of collection. The petitioners argue that the State lacked the authority to impose any tax or cess on cement production as it was not covered under Entry 84 of the Union List at the time. The State's reliance on Entry 54 of the State List is deemed insufficient to justify the imposition of a tax under a different name.

The State's argument that the manufacturer would have passed on the cess to customers invoking the doctrine of unjust enrichment is acknowledged. However, the Court emphasizes that the State cannot engage in illegal revenue generation without liability for refunds. A mechanism must be in place to prevent such actions in the future. The Court notes the difficulty in assessing the amount passed on to customers or absorbed by manufacturers but recognizes that any additional levy affects sales or manufacture. The Court estimates a 20 percent loss to manufacturers due to the illegal cess and orders 30 percent of the total amount collected to be earmarked for a public project.

The judgment declares the Meghalaya Cement Cess Act, 2010 ultra vires the Constitution, orders a refund of 20 percent to individual petitioners, and directs 30 percent of the total cess amount to be used for advanced medical equipment in the cancer wing of the Government General Hospital in Shillong. The refund to petitioners must be made within four months, failing which interest at 6 percent per annum will apply. The Court's directions for refund and earmarking of funds are limited to the petitioners challenging the Act pre-GST regime and before its repeal. If the Chief Secretary fails to file the affidavit within the specified time, appropriate action will be taken.