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TMI Blog2024 (1) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... letter of approval. As per Section 26 of the SEZ Act, the petitioner's unit is exempt from paying any duty, tax or cess under the Customs Act, 1962 or Customs Tariffs Act, 1975. (a) While so, the petitioner sent two letters dated 05.07.2017 and 09.08.2017 seeking clarification from Director (SEZ) for exemption of cess payable under Goods and Services Tax (Compensation to States) Act, 2017 (for short "the GST Compensation Act") on import of coal under the Customs Act, 1962 or Customs Tariff Act, 1975. (b) With regard to the above letters, 2nd respondent issued impugned letter dated 04.09.2017 stating that Section 26(1)(a) of SEZ Act, 2005 provides exemption to SEZ units from any duty of Customs under Customs Act, 1962 or Customs Tariff Act, 1975. Further, under notification No.64/2017 dated 05.07.2017, the IGST leviable U/s 3(7) of Customs Tariff Act, 1975 is exempted on all the goods imported into India by a SEZ unit. However no such exemption for compensation cess leviable U/s 3(9) of Customs Tariff Act, 1975 is provided either under Customs Act or IGST Act. Hence the cess on coal under GST Compensation Act cannot be exempted unless (i) CBEC/GST issues a notification exempting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption. Hence, the petitioner submitted bond along with bank guarantee in respect of compensation cess leviable for import of each consignment of coal and then filed the W.P. No. 1009 of 2019. (d) U/s 26(1)(a) of SEZ Act, 2005, a SEZ unit is entitled for exemption from any duty of Customs Under the Customs Act, 1962 or Customs Tariff Act, 1975 or any other law on goods imported into or services provided in a SEZ Unit. However, there is no exemption of payment of cess under GST Compensation Act. (e) The Government of India issued notification No.64/2017 dated 05.07.2017 only exempting IGST leviable u/s 3(7) of the Customs Tariff Act, 1975 on all gods imported into India by a SEZ unit for authorized operations. However, no such exemption was granted in respect of compensation cess leviable under Section 3(9) of the Customs Tariff Act. (f) Further, as per Section 7 of the SEZ Act, 2005, the taxes, duties or cess under the enactments specified in the 1st Schedule are only exempted for the SEZ developer / SEZ unit. However, the SEZ payable under GST Compensation Act, 2017 is not included in the 1st schedule. Unless the said Act is also included in the 1st schedule by amending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Act on import of coal. (j) Petitioner's case is that it addressed letters dated 14.05.2019, 31.12.2019, 03.07.2020, 23.11.2020 and 31.12.2020 to the 2nd respondent requesting to waive the compensation cess under the Customs Act. However, the 2nd respondent issued the impugned letter dated 04.01.2021 rejecting the petitioner's request stating that although Section 26(1)(a) of SEZ Act provides exemptions to SEZ unit from any duty or customs under Customs Act, 1962 or the Customs Tariff Act, 1975, the notification No.64/2017 dated 05.07.2017 only exempts IGST but no such exemption is granted in respect of compensation cess and hence such cess cannot be exempted. Such stand taken by the 2nd respondent is illegal and contrary to the relevant enactments. Hence the writ petition. 4. Counters of respondents 1 and 4 in W.P. No. 2631 of 2021: While admitting that the petitioner established SEZ unit in Vakalapudi Village, Kakinada and that the petitioner addressed letters dated 14.05.2019, 31.12.2019, 03.07.2020, 23.11.2020 and 31.12.2020 seeking exemption from compensation cess on import of coal, the respondents pleaded that the 2nd respondent issued letter dated 04.01.2021 stating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 57/2015/20 dated 20.03.2019 extending exemption of IGST and compensation cess under advance authorization, ETCG and to 100% EOU upto 31.03.2020. However, no such notification was issued by the Government exempting compensation cess to the SEZ units. The respondents prayed to dismiss the writ petitions. The respondents 2 and 3 also filed their counter with averments similar to respondents 1 and 4. 5. Heard arguments of Sri Vikram Poosarla, learned counsel for petitioners in W.P. No. 1009/2019 and WP No. 6216/2021 and Sri Challa Gunaranjan, learned counsel for petitioner in W.P. No. 2631/2021 and Sri O. Udaya Kumar, learned Central Government Counsel representing 1st respondent and Sri Suresh Kumar Routhu, learned Senior Standing Counsel for CBIC. 6. The point for consideration is whether the petitioners in W.P. No. 1009 of 2019 and W.P. Nos. 2631 & 6216 of 2021 being SEZ units are exempted from payment of GST compensation cess? 7. Point: Admittedly, the petitioners have established SEZ units and conducting authorized operations. They claim exemptions on payment of tax, duty and cess payable on goods and services imported to SEZ units under the provisions of the SEZ Act. Amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islate taxing law on intra-state sale of goods and supply of services. This provision also created exclusive legislative power on the Parliament to make laws with respect to goods and services tax leviable on sale of goods or supply of services in the course of inter- state trade or commerce. (b) Article 269A speaks of levy and collection of goods and services tax in the course of inter-state trade or commerce. It lays down that such goods and services tax shall be levied and collected by Govt. of India and same shall be apportioned between Union and States in the manner provided by the Parliament by law on the recommendation of Goods and Services Tax Council. (c) Then Article 279A speaks of constitution of Goods and Services Tax Council headed by Union Finance Minister to make recommendations to Union and States on the subjects mentioned in the said Article. (d) Clause 18 of Amendment Act, 2016 is akin to Clause 19 of Amendment Bill, 2014. It reads thus: "18. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for in Section 5 of IGST Act and collected in the manner prescribed on the recommendations made by GST council for a period of five years or for such period as may be prescribed on the recommendation of the council. The cess shall be levied on such supplies of goods or services or both as are specified in the schedule of this Act. Provided that the cess on goods imported into India shall be levied and collected in accordance with the provisions of Section 3 of Customs Tariff Act, 1975 at the point when duties or customs are levied on the said goods U/s 12 of Customs Act, 1962 on a value determined under Customs Tariff Act, 1975. 14. It should be noted in Union of India v. Hind Energy and Coal Benefication (India) Ltd., AIR 2018 SC 5318 = MANU/SC/1118/2018 the constitutional validity of GST Compensation Act, 2017 and its rules was challenged on the ground that the same were beyond the legislative competence of the Parliament. In this regard, the Apex Court framed the following issues: (1) Whether the Compensation to States Act, 2017 is beyond the legislative competence of Parliament? (2) Whether Compensation to States Act, 2017 violates Constitution (One Hundred and First Ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect. This contention was also discarded by the Apex Court observing that two separate imposts in law are not prohibited by any law so as to declare it invalid. 18. Issue No. 5 is concerned, it was contended that the petitioner having paid Clean Energy Cess till 30.06.2017 on the stock of coal, they are entitled to set off in payment of Compensation to States Cess. The said argument was discarded on the ground that the Clean Energy Cess and States Compensation Cess are collected wholly for different purposes. Thus Hon'ble Apex Court upheld the constitutional validity of GST Compensation Cess. Thus it has now to be seen whether the petitioners can seek exemption of payment of GST Compensation Cess in the light of provisions contained in SEZ Act, 2005. 19. As stated supra, the petitioners are operating units in the SEZ. A special economic zone (SEZ) is an area in a country that is designed to generate positive economic growth. A SEZ is normally subject to different and more favorable economic regulations compared to other regions in the same country, including tax incentives and the opportunity to pay lower tariffs. SEZ economic regulations tend to be conducive to and attract forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule. (vii) Then Section 26 also deals with certain exemptions drawbacks and concessions which reads thus: "26. Exemptions, drawbacks and concessions to every Developer and entrepreneur.- (1) Subject to the provisions of sub-section (2), every Developer and the entrepreneur shall be entitled to the following exemptions, drawbacks and concessions, namely:- (a) exemption from any duty of customs, under the Customs Act, 1962 (52 of 1962) or the Customs Tariff Act, 1975 (51 of 1975) or any other law for the time being in force, on goods imported into, or service provided in, a Special Economic Zone or a Unit, to carry on the authorised operations by the Developer or entrepreneur; (b) exemption from any duty of customs, under the Customs Act, 1962 (52 of 1962) or the Customs Tariff Act, 1975 (51 of 1975) or any other law for the time being in force, on goods exported from, or services provided, from a Special Economic Zone or from a Unit, to any place outside India; (c) exemption from any duty of excise, under the Central Excise Act, 1944 (1 of 1944) or the Central Excise Tariff Act, 1985 (5 of 1986) or any other law for the time being in force, on goods brought from Domestic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Telangana and the State of Andhra Pradesh, Hon'ble Sri Justice V. Ramasubramanian (as His Lordship was then) observed that the exemptions are covered by the above three sections. It was observed thus: "32. A combined reading of Sections 7, 26 and 50 of the SEZ Act, 2005, would show that SEZ Act 2005 speaks of three different types of exemptions. They are,- (1) exemption from payment of taxes under the enactments specified in the First Schedule, in respect of goods and services exported out of, or imported into or procured from a DTA by a unit in a Special Economic Zone or a Developer under Section 7 (2) exemption from payment of duties under the Customs Act, 1962, Customs Tariff Act, 1975, Central Excise Act, 1994, Central Excise Tariff Act, 1985, Finance Act, 1994, Finance (No. 2) Act, 2004 and Central Sales Tax Act, 1956, covered by Section 26(1); and (3) exemption from payment of state taxes, levies and duties covered by Section 50, provided there is a state enactment to the said effect. Pronouncing that the SEZ Act is a self contained code, His Lordship further observed thus: "37. Even if apply the parameters indicated in Girnar Traders vs. State of Maharash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed exemption on payment of cess under GST Compensation Act U/s 7 of the SEZ Act, however later they have desisted their claim for the reason that the Goods and Services Tax (Compensation to States) Act, 2017 is not specified in the First Schedule of SEZ Act which is the sine qua non for claiming exemption. The petitioners have also not staked their claim U/s 50 of the SEZ Act as they have not produced any enactments made by the State Government for the purpose of giving effect to the provisions of the SEZ Act. 25. However, the petitioners braced their claim much U/s 26 of the SEZ Act. In W.P. No. 1009/2019 the petitioner addressed a letter dated 05.07.2017 to the 2nd respondent therein seeking to exempt the GST Compensation Cess in view of provision contained in Section 26(1)(a) of the SEZ Act. In W.P. No. 2631/2021 also the petitioner therein addressed letters dated 14.05.2019, 31.12.2019, 03.07.2020 and 23.11.2020 seeking to waive the compensation cess. As a reply, the 2nd respondent addressed letter dated 04.09.2017 to the petitioner in W.P No. 1009/2019 clarifying that U/s 26(1)(a) of SEZ Act, 2005 a SEZ unit is entitled for exemption from any duty or customs under the Cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia v. Hind Energy and Coal Benefication (India) Ltd (supra 1) while upholding the constitutional validity of GST Compensation Act, 2017, Hon'ble Apex Court has drawn the subtle distinction between tax/duty and cess by referring several decisions. In the above decisions, it was observed thus: "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. MANU/SC/0226/1989 : AIR 1990 SC 85. The word ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged of in the same way as the validity of the tax to which it is an increment. 39. The meaning of "cess" as noticed above was again reiterated by a Two Judge Bench judgment of this Court in Vijayalashmi Rice Mill and Ors. v. Commercial Tax Officers, Palakol and Ors., MANU/SC/3847/2006 : (2006) 6 SCC 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned in the First Schedule of the Act and secondly, the words "tax, duty and cess" are differently mentioned. However, in Section 26(1)(a) the phrase "duty of customs" alone is mentioned. In section 2(15) of the Customs Act, 1962 the term 'duty' is defined which means a duty of customs leviable under the said Act. It is true that in SEZ Act, 2005 the term 'duty' is not defined. However, in Section 2(zd) of the said Act it was explained that the words and expressions which were used but not defined in the said Act but defined in other Acts including the Customs Act, 1962 shall have the meaning respectively assigned to them in those Acts. Therefore, a conjunctive study of Section 26(1)(a), 2(zd) of SEZ Act, 2005 and Section 2(15) of Customs Act, 1962 would pellucidly tell us that the phrase 'duty of customs' used in Section 26(1)(a) of SEZ Act only refers to duty leviable under Customs Act, 1962 but the said phrase does not include cess under GST Compensation Act. The decision in Flextronics Technologies (India)'s case (supra 3) has no application as the said case deals with anti dumping duty but not the GST Compensation Cess. 29. Thus on a conspectus of facts and law, we find no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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