KAUSHAL SHAH
17 December 2018
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SC upholds GST (Compensation to States) Act as constitutionally valid
The Supreme Court Wednesday upheld the constitutional validity of Goods and Services Tax (Compensation to States) Act saying it was not beyond the legislative competence of the Parliament.
The top court said the Compensation to States Act, enacted by the Parliament in 2017, is not a "colourable legislation".
A bench of Justices A K Sikri and Ashok Bhushan said the Act does not violate the Constitution (One hundred and first amendment) Act, 2016 nor is against the objective of Constitution (One Hundred and First Amendment) Act, 2016.
It held that the levy of 'Compensation to States' Cess is an increment to goods and services tax which is permissible under the law.
The bench while dealing with constitutional validity of the (Compensation to States) Act said that the expression 'cess' 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 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," it said.
The bench said that Article 248 read with Articles 246 and 246A clearly indicate that residuary power of legislation is with the Parliament.
It said that in the present case, no contention has been raised that the subject matter of legislation was within the competence of State Legislature, and that the Parliament had no competence to legislate.
The bench said that 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.
It said that 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 counsel for the petitioner that Parliament has no legislative competence to enact the Compensation to States Act, 2017," it said.
Dealing with second question, whether the Act transgresses the Constitution, the bench said that 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 GST 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. We, thus, also do not find any force in the submission of the counsel for the petitioner that Compensation to States Act, 2017 transgresses the Constitution (One Hundred and First Amendment) Act, 2016," it said.
The court said it does not agree with the submission 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 fulfil 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", it said.
With regard to the question, whether levy of Compensation to States Cess and GST on the same taxing event is permissible in law, the bench said that GST imposed under the 2017 Acts and levy of cess on intra-State supply of goods and services or both as provided the CGST Act and supply of goods and services or both as part of IGST Act are two separate imposts in law and are not prohibited by any law so as to declare it invalid.
"We, thus, do not find any substance in the submission that levy of Compensation to States Cess on same taxable event is not permissible," it said.
The bench also refused to set off payments made towards clean energy cess payment of Compensations to States Cess.
The apex court verdict came on an appeal filed by Centre against the Delhi High Court order passed in a case of Mohit Mineral Pvt Ltd which has challenged the validity of the Goods and Services Tax (Compensation to States) Act, 2017 and the Goods and Services Tax Compensation Cess Rules, 2017.
The Delhi High Court in its interim order provided that additional levy on the stocks of coal on which petitioner Mohit Minerals Ltd had already paid Clean Energy Cess in terms of Finance Act, 2010, shall not be required to make any further payment.
It had said however that on stocks of coal on which no Clean Energy Cess under the Finance Act, 2010 was paid any payment in terms of the Act would be subject to the result of the petition before it.
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