Case tittle | Mohit Minerals (P.) Ltd. VS Union of India |
Court | Delhi High Court |
Honourable Judge | Justice S. Muralidhar Justice Prathiba M. Singh |
Citation | 2017 (08) GSTPanacea 19 HC Delhi W.P.(C) NO. 7459 OF 2017 |
Judgment Date | 25-August-2017 |
In the legal proceedings concerning the constitutional validity of the Goods and Services Tax (Compensation to States) Act, 2017 (the ‘Act’), Mr. Ravi Prakash, who is the learned Central Government Standing Counsel, has accepted notice on behalf of the first respondent, the Union of India.
The petitioner, a trader involved in the import and sale of both imported and Indian coal, operates across various regions of the country. The primary challenge presented in this petition is the Act’s compliance with constitutional provisions. The petitioner contends that the Act, which aims to provide compensation to states for any loss of revenue due to the implementation of the Goods and Services Tax (GST), potentially oversteps constitutional boundaries or infringes upon certain rights or principles enshrined in the Constitution of India.
The backdrop of the petition highlights the operational framework of the petitioner, emphasizing their extensive trading activities in coal before and after the enactment of the GST regime. The petitioner seeks judicial scrutiny and determination on whether the Act aligns with the constitutional mandate and principles, thereby questioning its validity and seeking relief from any adverse impacts caused by the enforcement of this legislation.
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Mr. Ravi Prakash, the learned Central Government Standing Counsel, has accepted notice on behalf of Respondent No. 1, the Union of India.
The petition challenges the constitutional validity of the Goods and Services Tax (Compensation to States) Act, 2017 (hereinafter referred to as ‘the Act’). The petitioner, who is a trader dealing with both imported and Indian coal, operates across various parts of the country. The context of the challenge is based on the financial implications of the Act on the petitioner’s business.
Before the enactment of the Goods and Services Tax (GST) regime, the petitioner was subjected to a ‘Clean Energy Cess’ under Chapter VII of the Finance Act, 2010 (FA 2010). This cess was introduced from July 1, 2010, initially at a rate of Rs. 100 per metric tonne of coal sold. Over time, the cess rate was increased and eventually stood at Rs. 400 per metric tonne by the time it was abolished with the introduction of the GST regime on July 1, 2017.
The Taxation Laws (Amendment) Act, 2017 (TLA Act) under Section 18, repealed certain enactments specified in the Third Schedule to the extent detailed therein. This included the entire Chapter VII of the FA 2010, thereby abolishing the Clean Energy Cess from July 1, 2017. The GST regime, which was brought into effect by the Constitution (One Hundred and First Amendment) Act, 2016 (referred to as the COI 101st Amendment Act), introduced significant changes to the taxation system in India.
Clause 4 (a) of Article 279A of the Constitution of India, inserted by the COI 101st Amendment Act, mandates that the Goods and Services Tax Council (GST Council) shall make recommendations to the Union and States regarding the taxes, cesses, and surcharges that may be subsumed under the GST. Additionally, Clause 4 (f) allows the GST Council to recommend special rates for a specified period to raise additional resources during natural calamities or disasters. The objective was to consolidate all cesses and levies under the GST, with exceptions only for raising funds in response to natural calamities and disasters.
Mr. J. K. Mittal, the learned counsel representing the petitioner, has presented a very forceful case challenging the Act. The specifics of his arguments and the subsequent legal proceedings will further elucidate the petitioner’s stance and the legal intricacies involved in the challenge to the Act’s constitutional validity.
the Goods and Services Tax (Compensation To States) Act, 2017 indicates that it aims to provide for compensation to the states for the loss of revenue arising due to the implementation of the Goods and Services Tax.
The Petitioner argues that the intent of Parliament when enacting the GST regime was not to impose new cesses. This contention is supported by the fact that Clause 18 of the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, which initially contemplated levying an additional tax of up to 1% on the supply of goods in inter-State trade or commerce, was ultimately dropped during parliamentary debates. Clause 18 proposed that this additional tax would be levied for two years or as recommended by the GST Council and assigned to the states accordingly. However, this clause did not survive the legislative process.
What was originally Clause 19 in the Bill became Section 18 in the Constitution (One Hundred and First Amendment) Act. Section 18 mandates that Parliament, based on the GST Council’s recommendation, will provide for compensating states for revenue losses due to GST implementation for a period extending up to five years.
The core of the Petitioner’s argument is that Section 18 of the Constitution (One Hundred and First Amendment) Act does not authorize Parliament to impose any cess that had been abolished under the Third Schedule of the Taxation Laws (Amendment) Act (TLA Act). The Petitioner’s counsel, Mr. Mittal, asserts that even if the objective was to compensate states for revenue loss, such compensation should have been achieved through other means. Section 18 does not legitimize the imposition of a cess.
Furthermore, the introduction of the Goods and Services Tax (Compensation to States) Bill, 2017 in Parliament explicitly referenced only Section 18 of the Constitution (One Hundred and First Amendment) Act. The Statement of Objects and Reasons preceding the Act also mirrors the provisions of Section 18. The Long Title of the Goods and Services Tax (Compensation to States) Act, 2017 makes it clear that the Act’s purpose is to provide for state compensation for revenue losses resulting from the implementation of GST.
In summary, the Petitioner contends that the legislative framework and intent behind the GST regime did not envisage the imposition of new cesses. Instead, the mechanism for compensating states for revenue losses due to GST should rely on provisions and means other than the reintroduction of abolished cesses, as per Section 18 of the Constitution (One Hundred and First Amendment) Act.
The petitioner argues that Parliament did not intend to use the Goods and Services Tax (GST) regime to impose new cesses. Initially, Clause 18 of the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, allowed for an additional tax not exceeding 1% on inter-State trade for a limited period, as recommended by the GST Council, to be assigned to the States. However, this clause was dropped during parliamentary debates. Instead, Clause 19 was enacted as Section 18 of the Constitution (One Hundred and First Amendment) Act, which mandates that Parliament provide compensation to States for revenue losses due to GST implementation, for up to five years.
The petitioner, Mr. Mittal, contends that Section 18 does not empower Parliament to levy any cess, which was abolished under the Third Schedule of the Taxation Laws Amendment (TLA) Act. Even for compensating States for revenue loss, the means should not include levying such cess, as Section 18 does not allow it.
When the Goods and Services Tax (Compensation to States) Bill, 2017, was introduced, it referenced only Section 18 of the 101st Amendment. The Statement of Objects and Reasons of the Bill, and its Long Title, both referred solely to this amendment.
The court finds prima facie merit in the petitioner’s argument that the legislative authority to enact the contested Act cannot be derived from Section 18 of the 101st Amendment. This raises a substantial issue about Parliament’s legislative competence regarding the impugned Act.
Additionally, Section 8 of the contested Act envisages a cess on intra-State supplies (as per Section 9 of the Central GST Act, 2017) and inter-State supplies (as per Section 5 of the Integrated GST Act, 2017). Thus, the cess is levied on the same taxable events already covered by the CGST and IGST Acts, i.e., the supply of goods and services.
To compensate States for GST-related revenue losses, Section 8 provides for cess collection, leading to the creation of the Goods and Services Tax Compensation Cess Rules, 2017. Notification No. 1/2017-Compensation Cess (Rate), dated 28th June 2017, by the Ministry of Finance reintroduced the cess at Rs. 400 per tonne of coal. This raises concerns about the Act’s legislative validity, inviting potential challenges.
The petitioner argues that Parliament did not propose or intend to use the GST regime to impose new cesses. Notably, Clause 18 of the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, which considered levying an additional tax not exceeding 1% on the supply of goods in inter-State trade or commerce, was dropped during parliamentary debates. Clause 19 of the Bill became Section 18 of the Constitution (101st Amendment) Act, mandating Parliament to compensate States for revenue loss due to GST implementation, for up to five years, based on GST Council recommendations.
The petitioner asserts that Section 18 does not empower Parliament to levy any cess, which was abolished under the Third Schedule of the TLA Act. Even if the intent was to compensate States for revenue loss, this should have been done by other means. Section 18 does not authorize the levy of such cess.
When the Goods and Services Tax (Compensation to States) Bill, 2017, was introduced, it referred only to Section 18 of the Constitution (101st Amendment) Act. The Statement of Objects and Reasons and the Long Title of the Act also referenced only this section.
The Court sees merit in the petitioner’s argument that the power to enact the impugned Act cannot be traced to Section 18 of the Constitution (101st Amendment) Act, raising questions about Parliament’s legislative competence in this matter.
Section 8 of the impugned Act contemplates levying a cess on intra-State and inter-State supplies of goods or services, similar to the levies under the CGST and IGST Acts. This indicates that the cess is imposed on the same taxable events covered by the CGST and IGST Acts.
To compensate States for revenue loss from GST implementation, Section 8 allows cess collection as prescribed, leading to the Goods and Services Tax Compensation Cess Rules, 2017. Notification No.1/2017-Compensation Cess (Rate) reintroduced the cess at Rs.400 per tonne of coal. If the Act lacks legislative competence, the Rules are similarly vulnerable.
The petitioner faces the situation of paying the Clean Energy Cess on coal stocks and then paying a fresh levy of Rs.400 per tonne under the new Act, without receiving input credit for the Clean Energy Cess paid under the FA 2010. The Central Board of Excise and Customs (CBEC) FAQs confirm that Clean Energy Cess credit cannot be carried forward.
The petitioner, a bona fide coal trader, must pay the additional cess, which it argues is unauthorized. Despite representations to the GST Council and central government, there has been no response. The petitioner highlights that it has already paid the Clean Energy Cess on imported coal up to June 30, 2017, and now faces an additional cess without credit for the previously paid amount.
The Petitioner argues that Parliament did not intend to use the GST regime to impose new cesses, as evidenced by the legislative history of the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014. Clause 18 of the Bill initially allowed for an additional tax not exceeding 1% on inter-State trade for a limited period, to be assigned to the States. However, this clause was removed during parliamentary debates. The current Section 18 of the COI 101st Amendment Act, derived from the Bill’s Clause 19, mandates that Parliament provide compensation to States for revenue losses due to GST implementation, for up to five years, based on GST Council recommendations.
The Petitioner contends that Section 18 does not authorize the levy of any cess abolished under the Third Schedule of the TLA Act. Instead, compensation should be achieved through other means. This argument is supported by the introduction of the Goods and Services Tax (Compensation To States) Bill, 2017, which referenced only Section 18 of the COI 101st Amendment Act, emphasizing compensation without mentioning new cesses.
The Court acknowledges the Petitioner’s point, highlighting that the legislative competence of Parliament to enact the impugned Act cannot be derived from Section 18 of the COI 101st Amendment Act. The contested Act’s Section 8 imposes a cess on intra-State and inter-State supplies of goods and services, identical to taxable events under the CGST and IGST Acts, implying a legislative overreach.
The enactment of the Goods and Services Tax Compensation Cess Rules, 2017, and subsequent Notification No.1/2017 reintroduced the cess at Rs. 400 per tonne of coal, creating potential legal challenges regarding legislative competence. The Petitioner faces a scenario where previously paid Clean Energy Cess on coal stock is not credited under the new Act, leading to double taxation without legal support. This situation is compounded by the CBEC’s FAQ stating that credit for Clean Energy Cess cannot be carried forward, exacerbating the Petitioner’s financial burden.
The Petitioner, a long-established coal trader, claims that they are unfairly subjected to additional cess on already taxed coal stocks, resulting in significant financial implications. Representations to the GST Council and the central government have been ignored, prompting the Petitioner to seek judicial intervention.
The Court finds the Petitioner has a prima facie case for partial interim relief, ordering that no further payment is required on stocks already subjected to the Clean Energy Cess under the FA Act, 2010. Payments made on other stocks under the new Act will be subject to the petition’s outcome. If the Petitioner prevails, they will be entitled to a refund of the Clean Energy Cess amounts paid under the impugned legislation, subject to the Court’s final order.
To implement this interim order, the concerned Department’s officers must ensure compliance, considering the Petitioner’s arguments and the Court’s preliminary findings on legislative competence and financial impact.
The Petitioner argues that Parliament did not intend to use the GST regime to impose new cesses. Clause 18 of the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, which proposed an additional tax of up to 1% on inter-State trade for a limited period, was dropped during parliamentary debates. The Bill’s current Section 18 of the COI 101st Amendment Act mandates compensation to states for revenue loss due to GST implementation for up to five years.
The Petitioner claims Section 18 does not authorize Parliament to levy any cess, as cesses were abolished under the Third Schedule of the TLA Act. The Goods and Services Tax (Compensation to States) Bill, 2017, references only Section 18 of the COI 101st Amendment Act. The Petitioner asserts that the power to enact the impugned Act cannot be traced to Section 18, raising questions about Parliament’s legislative competence to enact the Act.
Section 8 of the impugned Act levies a cess on the same taxable event (supply of goods and services) covered by the CGST and IGST Acts. This cess, intended for state compensation, led to the enactment of the Goods and Services Tax Compensation Cess Rules, 2017. Notification No.1/2017 reintroduced the cess at Rs.400 per tonne of coal. The Petitioner argues that the Act and its Rules are vulnerable to challenge for lack of legislative competence.
The Petitioner faces double taxation on coal stocks already subjected to the Clean Energy Cess under the FA 2010, with no input credit provided for the Clean Energy Cess. The Central Board of Excise and Customs’ FAQs confirm that no credit for Clean Energy Cess can be carried forward. The Petitioner has substantial coal stocks on which Clean Energy Cess was paid and contends that the new cess results in double taxation.
The Court finds a prima facie case for partial interim relief. The Petitioner should not pay additional cess on coal stocks already subjected to the Clean Energy Cess under FA 2010. Payments on coal stocks not subjected to the Clean Energy Cess will be subject to the petition’s outcome. The Court orders that officers verify the Petitioner’s coal stocks to ensure compliance with the interim order. If satisfactory proof of Clean Energy Cess payment is provided, no further payment under the impugned Act is required. Coercive steps to recover the levy are halted until the verification process is completed. The case is scheduled for further proceedings, and responses are to be filed within specified timeframes.
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