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TMI Blog2018 (10) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). The Division Bench of the High Court passed inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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the axation Laws (Amendment) Act, 2017 was enacted, whereunder, several cesses including Clean Energy Cess was repealed.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 the Respondents by quashing impugned Notification No.1/2017 & 2/2017Compensation Cess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Petition (C) No. 7965 of 2017. 10. We have heard Shri J.K. Mittal, learned counsel appearing for the writ petitioner and Shri K.K. Venugop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner 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 Constitution, then legislative competence of levying the cess flows from the very same power to levy the tax itself. The phrase used in Article 246A "with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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) Bill, 2014 on 19.12.2014 proposing constitutional amendments to introduce the goods and services tax for conferring concurrent taxing powers on the Union as well as the States including Union territory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 268A was omitted. Amendments were also made in Seventh Schedule of the Constitution in List I and List II. Article 246A and 269A as inserted by Constitution (One Hundred and First Amendment) Act, 2016 is as follows:- "246A. Special provision with respect to goods and services tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred 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 this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until expiration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 collection of tax on intraState supply of goods or services or both by the Union territories and for matters connected therewith or incidental thereto. The Fourth Parliamentary enactment, which is subject matter of challenge in the present case was also enacted on the same day, i.e. 12.04.2017, namely 'The Goods and Services Tax (Compensation to States) Act, 2017' (Act NO. 15 of 2017) to provide for compensat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 compensation cess may be collected in column 4. The Central Government, in exercise of power under Section 12, has framed the rules namely "The Central Goods and Services Tax Rules, 2017". 30. Parliament enacted the Taxation Laws (Amendment) Act, 2017 dated 04.05.2017 to amend the Customs Act, 1962, the Customs Tariff Act, 1975, the Central Excise Act, 1944, the Central Sales Tax Act, 1956, the Finance Act, 2001 and the Finance Act, 2005 and to repeal cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fined 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 validity of the cess must be judged of in the same way as the validity of the tax to which is an increment. Guruswamy and Co. v. State of Mysore, AIR 1967 SC 1512, per dissenting judge and India Cement Ltd. v. State of T.N., AIR 1990 SC 85. The word 'cess' 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. Shinde Brothers v. Hy. Commissioner, Raichur, AIR 1967 SC 1512, 1525." 37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 utilised for health purposes e.g. building hospitals, giving medicines to the poor, etc. Similarly, education cess raises revenue which is used for building schools or other educational purposes." 40. The expression "cess" as held above means a tax levied for some special purpose, which may be levied as an increment to an existing tax. The Scheme of Compensation to States Act, 2017 as noticed above indicate that the cess is with respect to goods and services tax. There are more than one reason to uphold the legislative competence of Parliament ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 legislation is beyond the competence of Parliament. We may first notice the proposition, which has been laid down by this court in Hoechst Pharmaceuticals Ltd. (supra). This Court in the above case had occasion to examine Bihar Finance Act, 1981, by which surcharge was levied on certain dealers selling essential commodities such as drugs. Challenge to the legislative competence of the State was raised. In the above context, this Court had observed that taxation is considered to be a distinct matter for purposes of legislative competence. In paragraphs 74, 75 and 76, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 Government under subsection (1) of Section 3 of the Essential Commodities Act, operate on two separate and distinct fields and both are capable of being obeyed. There is no question of any clash between the two laws and the question of repugnancy does not come into play." 43. Levy of surcharge was upheld referring to Entry 52 of List II of Seventh Schedule. Following was laid down in paragraph 90:- "90. The decision in Fernandez case, AIR 1957 SC 657 is therefore clearly an authority for the proposition that the State Legislature notwithstanding Article 286 of the Constitution whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and the States in the manner provided in clause (2)." 47. 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. Lastly, 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...." Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 been used in the sense that it comprises purchase of shares and lands from income arising out of the Kanpur undertaking. We are of the opinion that the words "pertaining to" and "in relation to" have the same wide meaning and have been used interchangeably for among other reasons, which may include avoidance of repetition of the same phrase in the same clause or sentence, a method followed in good drafting. The word "pertain" is synonymous with the word "relate", see Corpus Juris Secundum, Volume 17, page 693." 51. Learned counsel for the petitioner has placed reliance on judgment of this Court in Dewan Chand Builders and Contractors Vs. Union of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Act in view, the subject levy has to be construed as "fee" and not a "tax". Thus, we uphold and affirm the finding of the High Court on the issue." 53. The above judgment has no application in the facts of the case. The case of the Union is not that cess is a fee. Rather contention is that it is increment to the goods and services tax. We having already held that State compensation cess is "with respect to" goods and services tax, it is a tax. 54. Learned counsel for the petitioner has further relied on certain decisions on distinction between tax and fee. But the levy of cess, in the present case, not even claimed as fee, it is not necessary to refer to above cases whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst 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, 2017 is a colourable legislation. We 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, we reject the submission of the petitioner that Compensation to States Act, 2017 is a colourable legislation. We, thus, answer Issue No.2 and Issue No. 3 in following manner:- Ans. 2 - 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale...."" 62. Justice Krishna Iyer in Avinder Singh and others Vs. State of Pubjab and others, (1979) 1 SCC 137, laid down that if on the same subjectmatter the legislature chooses to levy tax twice over there is no inherent invalidity in the fiscal adventure unless there are some other prohibitions. In the above case Government of Punjab had issued a notification under Section 90(4) of the Punjab Municipal Corporation Act, 1976 imposing tax at the rate of Rs. 1 per bottle on Indian made Foreign Liquor within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 67. The petitioner's submission that the petitioner should be given the credit to the extent of payment of Clean Energy Cess upto 30.06.2017 also 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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