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2018 (10) TMI 200 - SC - GSTValidity of the Goods and Services Tax (Compensation to States) Act, 2017 enacted by Parliament as well as the Goods and Services Tax Compensation Cess Rules, 2017 - validity of Rules framed by the Central Government in exercise of power under Section 11 of the Goods and Service Tax (Compensation to States) Act, 2017 - Jurisdiction. Whether the Compensation to States Act, 2017 is beyond the legislative competence of Parliament? - Held that - Part XI of the Constitution deals with the relation between the Union and the States, Chapter I of which deals with Legislative Relations . Article 245 deals with Distribution of Legislative Powers . The Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in Seventh Schedule of the Constitution - Article 246A 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 . 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 - it cannot be accepted that Parliament has no legislative competence to enact the Compensation to States Act, 2017 - The Compensation to States Act, 2017 is not beyond the legislative competence of the Parliament. Whether Compensation to States Act, 2017 violates Constitution (One Hundred and First Amendment) Act, 2016 and is against the objective of Constitution (One Hundred and First Amendment) Act, 2016? - Whether the Compensation to States Act, 2017 is a colourable legislation? - Held that - The expression used in Article 246A is power to make laws with respect to goods and services tax . The power to make law, thus, is not general power related to a general entry rather it specifically relates to goods and services tax. When express power is there to make law regarding goods and services tax, we fail to comprehend that how such power shall not include power to levy cess on goods and services tax. True, that Constitution (One Hundred and First Amendment) Act, 2016 was passed to subsume various taxes, surcharges and cesses into one tax but the constitutional provision does not indicate that henceforth no surcharge or cess shall be levied - power of Parliament to make law providing for compensation to the States for loss of revenue was expressly included by constitutional provision - 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. It cannot be accepted that Compensation to States Act, 2017 transgresses the Constitution (One Hundred and First Amendment) Act, 2016 - there is no substance in the submission of the petitioner that Compensation to States Act, 2017 is a colourable legislation - Having held that Parliament has full legislative competence to enact the Act and the Act having been enacted to implement the Constitution (One Hundred and First Amendment) Act and the object being clearly to fulfill the Constitution (One Hundred and First Amendment) Act s objective, the submission of the petitioner that Compensation to States Act, 2017 is a colourable legislation is rejected. 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 - The Compensation to States Act is not a colourable legislation. Whether levy of Compensation to States Cess and GST on the same taxing event is permissible in law? - Held that - The petitioner elaborating his contention submits that as per Section 8 of impugned legislation there shall be levied a cess on intraState supply of goods and services as provided in Section 9 of the CGST Act whereas CGST Act has been enacted to levy tax as provided under Article 246A of the Constitution. This is also true in respect of the cesses imposed on inter-State supplies of goods and services covered by Section 5 of IGST Act, 2017 - On the same very transaction there cannot be two levies, one under CGST Act and another under impugned legislation as it would amount to double taxation as levy is on the same taxable event and same subject. Thus, there is an overlapping on law which is not permissible. The principle is well settled that two taxes/imposts which are separate and distinct imposts and on two different aspects of a transaction are permissible as in law there is no overlapping - Goods and Services Tax imposed under the 2017 Acts and levy of cess on such intraState 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, thus, two separate imposts in law and are not prohibited by any law so as to declare it invalid. Levy of Compensation to States Cess is an increment to goods and services tax which is permissible in law. 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? - Held that - 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. Thus, claim of the petitioner that he is entitled for set off in payment of Compensation to States Cess to the extent he had already paid Clean Energy Cess cannot be accepted - The petitioner is not entitled for any set off of payments made towards Clean Energy Cess in payment of Compensations to States Cess. Petition dismissed.
Issues Involved:
1. Legislative competence of Parliament to enact the Compensation to States Act, 2017. 2. Whether the Compensation to States Act, 2017 violates the Constitution (One Hundred and First Amendment) Act, 2016. 3. Whether the Compensation to States Act, 2017 is a colorable legislation. 4. Permissibility of levying Compensation to States Cess and GST on the same taxing event. 5. Entitlement of the petitioner for set-off in payment of Compensation to States Cess based on Clean Energy Cess paid till 30th June 2017. Issue-wise Detailed Analysis: Issue 1: Legislative Competence of Parliament The petitioners challenged the legislative competence of Parliament to enact the Compensation to States Act, 2017, arguing it transgresses the limits of its power. The Court noted that the term "cess" refers to a tax levied for a special purpose and that the Act levies a cess in respect to goods and services tax. The Court referenced the Constitution Bench judgment in Union of India Vs. Harbhajan Singh Dhillon, which established that the only question to be asked is whether the matter falls within List II or III. Since no entry in List II or III refers to the cess in question, the Parliament has the residuary power under Article 248. The Court concluded that the Parliament has the legislative competence to enact the Compensation to States Act, 2017. Issue 2: Violation of the Constitution (One Hundred and First Amendment) Act, 2016 The petitioners argued that the Act transgresses the mandate of the Constitution (One Hundred and First Amendment) Act, 2016, which aimed to subsume various taxes and cesses into one GST. The Court held that the power to make laws with respect to GST includes the power to levy cess on GST. The Constitution (One Hundred and First Amendment) Act, 2016, does not indicate that no additional cess can be levied. The Court found that the Compensation to States Act, 2017, enacted under the express provision of the Constitution (One Hundred and First Amendment) Act, 2016, does not violate it. Issue 3: Colorable Legislation The petitioners claimed that the Compensation to States Act, 2017, is a colorable legislation. The Court rejected this argument, stating that the Act was enacted to implement the Constitution (One Hundred and First Amendment) Act, 2016, and fulfill its objective. The Court found no substance in the claim that the Act is colorable legislation. Issue 4: Levying Compensation to States Cess and GST on the Same Taxing Event The petitioners contended that levying both GST and Compensation to States Cess on the same transaction amounts to double taxation. The Court noted that two separate taxes on different aspects of the same transaction are permissible in law. The Court referenced the Constitution Bench judgment in Federation of Hotel & Restaurant Association of India, which held that overlapping in law does not detract from the distinctiveness of the aspects. The Court concluded that the levy of Compensation to States Cess is an increment to GST, which is permissible in law. Issue 5: Set-off Based on Clean Energy Cess Paid The petitioners argued for a set-off in payment of Compensation to States Cess based on Clean Energy Cess paid till 30th June 2017. The Court noted that the Clean Energy Cess and the Compensation to States Cess are collected for entirely different purposes and have different distributions. The Court found no legislative indication for giving credit or set-off for Clean Energy Cess already paid. The Court concluded that the petitioner is not entitled to any set-off in payment of Compensation to States Cess. Conclusion: The Court dismissed the writ petition and the transferred case, upholding the legislative competence of Parliament to enact the Compensation to States Act, 2017, and finding no violation of the Constitution (One Hundred and First Amendment) Act, 2016. The Court also ruled that the Act is not a colorable legislation and that levying both GST and Compensation to States Cess on the same transaction is permissible. The petitioner is not entitled to any set-off based on Clean Energy Cess paid.
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