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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 ..... 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 F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slation 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65 of 2017 (Hind Energy and Coal Benefication (India) Ltd. vs. Union of India and another). The Division Bench of the High Court passed interim order dated 08.09.2017 almost in the similar manner as was passed on 25.08.2017. This Court passed an order on 16.01.2018, while hearing SLP(C)No.25415 of 2017 filed against interim order dated 25.08.2017, on oral request of Attorney General, which was also joined by the learned counsel appearing for the respondentswrit petitioners, transferred Writ Petition (C) No.7459 of 2017 to this Court to be heard along with SLP(C)No.25415 of 2017. Transferred Case(C) No.9 of 2018 (Mohit Mineral Pvt. Ltd. vs. Union of India and another) has been registered on transfer of Writ Petition (C)No.7459 of 2017 to this Court. 6. The decision in Transferred Case (C)No.9 of 2018 by which Writ Petition (C)No.7459 of 2018 is to be heard by this Court shall dispose of the transferred writ petition as well as both the civil appeals. With the consent of the learned counsel for the parties, we have proceeded to hear the writ petition finally. Facts in the Writ Petition (C) No.7459 of 2017 7. Mohit Mineral Pvt. Ltd. (hereinafter referred to as the 'wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertiorari/mandamus or any other appropriate Writ/order/direction against the Respondents by quashing impugned Notification No.1/2017 2/2017Compensation Cess (Rate), dated 28.06.2017 issued by the Respondent No.1 under the impugned legislation, are illegal and unconstitutional; D) issue a Writ of certiorari/mandamus or any other appropriate Writ/order/direction against the Respondent No.2 by declaring that the Respondent No.2 has no power under Article 279A of Constitution of India to make any recommendation, whatsoever, for levy and collection of cess as envisaged and levied under the impugned Goods and Services Tax (Compensation to States)Act, 2017 or framing of Rules and issuance of Notification under the said impugned legislation; E) issue such other writ/order/direction to the Respondent No.2 to place before this Hon'ble Court the records of the recommendation given and all decision taken in respect of levy and collection of cess as envisaged and levied under the impugned Goods and Services Tax (Compensation to States) Act, 2017, framing of Rules and issuance of Notification under the said impugned legislation; F) issue such other writ/order/direction and further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terim 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. Venugopal learned Attorney General appearing for the Union of India. 11. Shri J.K. Mittal learned counsel for the writ petitioner submits that the Constitution (One Hundred and First Amendment) Act, 2016 was enacted by the Parliament with the intent to consolidate number of indirect taxes which were levied by the Union and States with the intention to reduce the Goods and Services Tax (GST)by giving concurring taxing power to Union and States for levying GST on every transaction of supply of goods or services both. There was a clear objective of the aforesaid constitutional amendment that with the introduction of Goods and Services Tax, not only the indirect taxes but the cesses and surcharges levied on goods and services shall also be subsumed in it. 12. By Taxation Laws (Amendment) Act, 2017 various enactments levying various types of cesses were repealed including Clean Energy Cess/Clean Environment Cess which was levied and collected on coal. 13. The Compensation to States Act, 2017 is repugnant to and tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 respect to has wide implication and will allow levy of cess also. Power to levy a cess, in any case, can be traced back to Article 270 of the Constitution. However, Entry 97 of List I of Seventh Schedule to the Constitution grants a residuary power to levy a tax to the Union. The Clean Energy Cess which was imposed by the Finance Act, 2010 and GST Compensation Cess are levied on entirely different transactions and both are for entirely different purpose. The Clean Energy Cess was in the nature of a duty of excise on the production of coal and was being collected at the time of removal of raw coal, raw lignite and raw peat from the mine to the factory whereas GST Compensation Cess is imposed on inter-State and intraState supply of specified goods and services. 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, for any other purpose relating thereto whereas GST Compensation Cess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 with Legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both. Statement of Objects and Reasons of the Bill are as follows:- STATEMENT OF OBJECTS AND REASONS The Constitution is proposed to be amended to introduce the goods and services tax for conferring concurrent taxing powers on the Union as well as the States including Union territory with Legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both. The goods and services tax shall replace a number of indirect taxes being levied by the Union and the State Governments and is intended to remove cascading effect of taxes and provide for a common national market for goods and services. The proposed Central and State goods and services tax will be levied on all transactions involving supply of goods and services, except those which are kept out of the purview of the goods and services tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eventh 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. -- (1) 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. (2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce Explanation.-The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council. . 269A. Levy and Collection of goods and services tax in course of inter-State trade or commerce. -- (1) Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iately 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 one year from such commencement, whichever is earlier. 26. At this stage, it is also relevant to notice that in the Constitution (One Hundred and TwentySecond Amendment) Bill, 2014, Clause 18 contain a provision for arrangement for assignment of additional tax on supply of goods to States for two years or such other period recommended by Council, which was to the following effect:- 18. Arrangement for assignment of additional tax on supply of goods to States for two years or such other period recommended by Council (1) An additional tax on supply of goods, not exceeding one per cent. in the course of inter-State trade or commerce shall, notwithstanding anything contained in clause (1) of article 269A, be levied and collected by the Government of India for a period of two years or such other period as the Goods and Services Tax Council may recommend, and such tax shall be assigned to the States in the manner provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 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. As the Preamble indicate (Compensation to States) Act, 2017 was enacted in pursuance of the provisions of the Constitution (One Hundred and First Amendment) Act, 2016. Section 8 of the Compensation to States Act, 2017 provides for levy and collection of Cess, which is as follows: 8. Levy and collection of cess.-- (1) There shall be levied a cess on such intra State supplies of goods or services or both, as provided for in section 9 of the Central Goods and Services Tax Act, and such inter State supplies of goods or services or both as provided for in section 5 of the Integrated Goods and Services Tax Act, and collected in such manner as may be prescribed, on the recommendations of the Council, for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 certain enactments. 31. By Taxation Laws (Amendment) Act, 2017, the Finance Act, 2010, Chapter VII has been repealed. The Finance Act, 2010, Chapter VII provided for levy of Clean Energy Cess, which stood repealed. 32. We now proceed to consider the issues as noted above. Whether the Compensation to States Act, 2017 is beyond the legislative competence of Parliament? (Issue No.1) 33. The petitioners have challenged the legislative competence of Parliament to enact Compensation to states Act, 2017. The petitioners submits that impugned legislation has transgressed the limits of its power granted under the Constitution. It is contended that although the impugned legislation is described as for purpose of giving compensation to States by Centres to States for loss of revenue but in fact it impose tax (termed as cess), hence in pith and substance the legislation does not belong to the subject falling within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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. This Court had considered the expression cess in Shinde Brothers Etc. Vs. Deputy Commissioner, Raichur Others Etc., AIR 1967 SC 1512, Justice M. Hidyatullah, as he then was in his dissenting opinion has defined the cess ( no contrary opinion was expressed by majority in that regard ) in paragraph 39, which is to the following effect:- 39. Now the health cess is first assailed on the ground that there is no entry health cess as such in the legislative entries. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evied 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 to enact the Compensation to States Act, 2017. Constitution Bench of this Court in Union of India Vs. Harbhajan Singh Dhillon, (1971) 2 SCC 779 held that only question to be asked while examining the legislative competence of Parliament with regard to a particular enactment is: Is the matter sought to be legislated or included in List II or in List III or is the tax sought to be levied mentioned in List II or in List III . In Para 21, the Constitution Bench laid down following: 21. It seems to us that the function of Article 246(1), read with Entries 196, List I, is to give positive power to Parliament to legislate in respect of these entries. Object is not to debar Parliament from legislating on a matter, even if other provisions of the Constitution enable it to do so. Accordingly we do not interpret the words any other matter occurring in Entry 97, List I, to mean a topic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, following was laid down: 74. It is equally well settled that the various entries in the three Lists are not powers of legislation, but fields of legislation. The power to legislate is given by Article 246 and other Articles of the Constitution. Taxation is considered to be a distinct matter for purposes of legislative competence. Hence, the power to tax cannot be deduced from a general legislative entry as an ancillary power. Further, the element of tax does not directly flow from the power to regulate trade or commerce in, and the production, supply and distribution of essential commodities under Entry 33 of List III, although the liability to pay tax may be a matter incidental to the Centre s power of price control. 75. Legislative relations between the Union and the States inter se with reference to the three Lists in Schedule VII cannot be understood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 while making a law under Entry 54 of List II of the Seventh Schedule can, for purposes of the registration of a dealer and submission of returns of sales tax, include the transactions covered by Article 286 of the Constitution. That being so, the constitutional validity of subsection (1) of Section 5 of the Act which provides for the classification of dealers whose gross turnover during a year exceeds ₹ 5 lakhs for the purpose of levy of surcharge, in addition to the tax payable by him, is not assail32 able. So long as sales in the course of inter-State trade and commerce or sales outside the State and sales in the course of import into, or export out of the territory of India are not taxed, there is nothing to prevent the State Legislature while making a law for the levy of a surcharge under Entry 54 of List II of the Seventh Schedule to take into accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evy 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 . 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. We, thus, do not find any merit in the submission of the learned counsel for the petitioner that Parliament has no legislative competence to enact the Compensation to States Act, 2017. Answer to Issue No.1 is,thus, as follows: The Compensation to States Act, 2017 is not beyond the legislative competence of the Parliament. Issue No.2 and Issue No.3 48. We now come to Issue No.2 and Issue No.3, which, being interconnected, are taken up together. 49. The next attack on Compensation to States Act, 2017 is on the ground that the Act transgresses the mandate of Constitution (One Hundred and First Amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idance 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 India and Others, (2012) 1 SCC 101. The Parliament had enacted Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 and Building and Other Construction Workers Welfare Cess Act, 1996. The constitutional validity and competence of Parliament was challenged before the Delhi High Court. Delhi High Court upheld the validity of Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Central Rules, 1998 holding the levy under the impugned enactment as a fee referable to Entry 97 of List I of Seventh Schedule of the Constitution. Before this Court, it was contended that cess in question was a tax and not a cess since no element of quid pro quo exists and if it is a tax, then it is a tax on lands and buildings falling within the ambit of Schedule VII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which reiterate the well established principles emanating from Commissioner, Hindu Religious Endowments, Madras Vs. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt (supra). 55. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive, 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, 2016. Ans . 3 - 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? (Issue No.4) 59. 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. Therefore, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9) 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 ₹ 1 per bottle on Indian made Foreign Liquor within the Municipal Corporation of Ludhiana. One of the contentions raised was that tax imposed is on sale, hence, beyond Government power. In paragraph 4 following was laid down: 4.......A feeble plea that the tax is bad because of the vice of double taxation and is unreasonable because there are heavy prior levies was also voiced. Some of these contentions hardly merit consideration, but have been mentioned out of courtesy to counsel. The last one, for instance, deserve the least attention. There is nothing in Article 265 of the Constitution from which one can spin out the constitutional vice called double taxation. (Bad economics may be good law and vice versa). Dealing with a somewhat similar argument, the Bombay High Court gave short shrift to it in Wester India T ..... 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