UNION OF INDIA & ANR. versus MOHIT MINERAL PVT. LTD. on 3 October 2018

[2018] 13 S.C.R. 139

UNION OF INDIA & ANR.

v.

MOHIT MINERAL PVT. LTD.

(Civil Appeal No. 10177 of 2018)

OCTOBER 03, 2018

[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]

Goods and Services Tax (Compensation to States) Act, 2017:

Validity of – Held: Is constitutionally valid – Article 270empowers Parliament to levy any cess by law and s. 18 of theConstitution (One Hundred and First Amendment) Act, 2016expressly empowers Parliament shall, by law on the recommendationof the Goods and Services Tax Council, provide for compensationto the states for loss of revenue arising on account of implementationof the goods and services tax and expression law used therein is ofwide import which includes levy of any cess for the above purpose– Thus, the 2017 Act is not beyond the legislative competence of theParliament – Furthermore, the objectives in statements of objectsand reasons of Constitution (One Hundred and First Amendment)Bill, 2014 was conferring concurrent taxing powers upon Parliamentand the State Legislature to make laws for levying goods and servicestax – Article 246A(1) empowers the Parliament to make laws withrespect to goods and services tax – Power to make law is not generalpower related to a general entry rather it specifically relates togoods and services tax – When express power is there to make lawregarding goods and services tax, it cannot be comprehended thathow such power shall not include power to levy cess on goods andservices tax – Thus, the 2017 Act does not violate Constitution (OneHundred and First Amendment) Act, 2016 nor is against the objectiveof Constitution (One Hundred and First Amendment) Act, 2016 –2017 Act is not a colourable legislation – Goods and Services TaxCompensation Cess Rules, 2017 – Constitution of India.

Levy of Compensation to States Cess and GST on the sametaxing event – Permissibility of – Held: Two taxes/imposts whichare separate and distinct imposts and on two different aspects of atransaction are permissible as in law there is no overlapping – Goods

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Aand Services Tax imposed under the 2017 Act and levy of cess onsuch intra-State supply of goods and services or both as providedunder the Act and such supply of goods and services or both aspart of the Act are two separate imposts in law and are not prohibitedby any law so as to declare it invalid – Thus, it cannot be said thatlevy of Compensation to States Cess on same taxable event is notBpermissible – Levy of compensation to States Cess is an incrementto goods and services tax which is permissible in law.

Clean Energy Cess paid by the petitioner on the stocks ofcoal till 30.06.2017 – Entitlement to set off the same in payment ofCompensation to States Cess – Held: Clean Energy Cess and theCStates Compensation Cess are collected for wholly different purposes– Clean Energy Cess was levied and collected for the purposes offinancing and promoting clean energy initiatives, funding researchin the area of clean energy whereas States Compensation Cess iscollected to provide for compensation to the States for the loss ofDrevenue arising on account of implementation of the goods andservices tax – Giving credit or set off in the payment is legislativepolicy which had to be reflected in the legislative scheme –Compensation to States Act, 2017 or Rules framed thereunder doesnot indicate giving of any credit or set off of the Clean Energy Cessalready paid till 30.06.2017 – Thus, the petitioner not entitled forEset off in payment of Compensation to States Cess to the extent hehad already paid Clean Energy Cess.

Allowing the appeals and dismissing the transferred cases,the Court HELD:F

Whether the Compensation to States Act, 2017 is beyond thelegislative competence of Parliament?

Conclusion

1.1 Article 246A provides that “notwithstanding anythingcontained in Articles 246 and 254, Parliament, and, subject toGclause(2), the Legislature of every State, have power to makelaws with respect to goods and services tax imposed by the Unionor by such State”. In the instant case, the concern is with a cessimposed by Compensation to States Act, 2017. The Act by Section8 levies and authorizes collection of cess. [Para 35][161-A-B]

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Shinde Brothers Etc. v. Deputy Commissioner, Raichur& Others Etc. AIR 1967 SC 1512 : [1967] SCR 548;India Cement Ltd. & Others v. State of Tamil Nadu &Others (1990) 1 SCC 12 : [1989] 1 Suppl. SCR 692;Vijayalashmi Rice Mill & Others v. Commercial TaxOfficers, Palakol & Others (2006) 6 SCC 763 : [2006]4 Suppl. SCR 279 – referred to.

Black’s Law Dictionary, Tenth Edn; Advanced LawLexicon by P. Ramanatha Aiyar 3[rd] Edn – referred to.

1.2 The expression “cess” means a tax levied for somespecial purpose, which may be levied as an increment to anexisting tax. The Scheme of Compensation to States Act, 2017indicate that the cess is with respect to goods and services tax.There are more than one reason to uphold the legislativecompetence of Parliament to enact the Compensation to StatesAct, 2017. [Para 40][163-C]

1.3 In context of impugned legislation, Compensation toStates Act, 2017, no entry is found in List II or List III of SeventhSchedule, which may refer to levying of cess in question. Article248 read with Articles 246 and 246A clearly indicate that residuarypower of legislation is with the Parliament. In the instant case,no contention has been raised that the subject matter of legislationwas within the competence of State Legislature, and that theParliament had no competence to legislate. Applying the H.S.Dhillon’s test no lack of legislative competence is found in theParliament. [Para 41][164-B-C]

Union of India v. Harbhajan Singh Dhillon (1971) 2SCC 779 – followed.

Hoechst Pharmaceuticals Ltd. & Others v. State of Bihar& Others (1983) 4 SCC 45; M.P.V. Sundararamier &Co. v. State of A.P. & Others AIR 1958 SC 468 : [1983]3 SCR 130 – held inapplicable.

1.4 The present is a case where cess in question is leviedin respect of goods and services tax, the definition of cess asgiven in Compensation to States Act, 2017 in Section 2(c) states“cess means the goods and services tax compensation cess leviedunder section 8”. [Para 44][166-H; 167-A]

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A1.5 Article 270 of the Constitution, both as it existed priorto Constitution (One Hundred and First Amendment) Act, 2016and subsequent to Constitution (One Hundred and FirstAmendment) Act, 2016 uses the expression “any cess levied forspecific purposes under any law made by Parliament”. AfterConstitution (One Hundred and First Amendment) Act, 2016, asBper Article 270, Parliament can levy cess for a specific purposeunder a law made by it. Article 270, thus, specifically empowersParliament to levy any cess by law. Lastly, Section 18 of theConstitution (One Hundred and First Amendment) Act, 2016expressly empowers Parliament shall, “by law” on theCrecommendation of the Goods and Services Tax Council, providefor compensation to the states for loss of revenue arising onaccount of implementation of the goods and services tax….” WhenConstitution provision empowers the Parliament to provide forCompensation to the States for loss of revenue by law, theexpression “law” used therein is of wide import which includesDlevy of any cess for the above purpose. There is no merit in thesubmission that Parliament has no legislative competence to enactthe Compensation to States Act, 2017. Thus, the Compensationto States Act, 2017 is not beyond the legislative competence ofthe Parliament. [Para 46, 47][167-C-D]

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Whether Compensation to States Act, 2017 violates Constitution(One Hundred and First Amendment) Act, 2016 and is againstthe objective of Constitution (One Hundred and FirstAmendment) Act, 2016 and Whether the Compensation to StatesAct, 2017 is a colourable legislation?F

2.1 One of the objectives in Statements of Objects andReasons was “conferring concurrent taxing powers uponParliament and the State Legislature to make laws for levyinggoods and services tax”. Article 246A sub– article(1) empowersthe Parliament to “make laws with respect to goods andGservices tax”. The word “with respect to” is word of expansion.[Para 50][168-F-G]

M/s. Doypack Systems Pvt. Ltd. v. Union of India &Others (1988) 2 SCC 299 : [1988] 2 SCR 962; DewanChand Builders and Contractors v. Union of India andHOthers (2012) 1 SCC 101 : [2011] 13 SCR 214; Commissioner, Hindu Religious Endowments, Madrasv. Sri Lakshmindra Thirtha Swamiar of Sri Shirur MuttAIR 1954 SC 282 : [1954] SCR 1005 – heldinapplicable.

2.2 The expression used in Article 246A is “power to makelaws with respect to goods and services tax”. The power to makelaw, thus, is not general power related to a general entry rather itspecifically relates to goods and services tax. When expresspower is there to make law regarding goods and services tax, itcannot be comprehended that how such power shall not includepower to levy cess on goods and services tax. The Constitution(One Hundred and First Amendment) Act, 2016 was passed tosubsume various taxes, surcharges and cesses into one tax butthe constitutional provision does not indicate that henceforth nosurcharge or cess shall be levied. [Para 55][171-A-B]

2.3 Additional tax, which was contemplated by Clause 18 ofthe Constitution (One Hundred and Twenty Second Amendment)Bill, 2014 did not find place in Constitution Amendment Act.Further, Clause 19 of the Bill find place as Section 18 of theConstitution (One Hundred and First Amendment) Act, 2016.Thus, power of Parliament to make law providing forcompensation to the States for loss of revenue was expresslyincluded by constitutional provision. Further, the Preamble ofCompensation to States Act, 2017 expressly mentions the Act toprovide for compensation to the States for the loss of revenuearising on account of implementation of the goods and servicesTax in pursuance of the provisions of the Constitution (OneHundred and First Amendment) Act, 2016. Thus, theCompensation to States Act, 2017 has been enacted under theexpress Constitution (One Hundred and First Amendment) Act,2016. Thus, there is no force in the submission thatCompensation to States Act, 2017 transgresses the Constitution(One Hundred and First Amendment) Act, 2016. [Para 56, 57][171-D-F, H; 172-A]

2.4 Having held that Parliament has full legislativecompetence to enact the Act and the Act having been enacted toimplement the Constitution (One Hundred and First Amendment)Act and the object being clearly to fulfill the Constitution (One A

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AHundred and First Amendment) Act’s objective, the submissionof the petitioner that Compensation to States Act, 2017 is acolourable legislation is rejected. The Compensation to StatesAct, 2017 does not violate Constitution (One Hundred andFirst Amendment) Act, 2016 nor is against the objective ofConstitution (One Hundred and First Amendment) Act, 2016.B[Para 58][172-B-D]

Whether levy of Compensation to States Cess and GST on thesame taxing event is permissible in law?

3.1 Two taxes/imposts which are separate and distinctCimposts and on two different aspects of a transaction arepermissible as “in law there is no overlapping”. [Para 60][172-H]

Federation of Hotel & Restaurant Associate of India,Etc. v. Union of India and others (1989) 3 SCC 634 :D[1989] 2 SCR 918 ; Avinder Singh and others v. Stateof Pubjab and others (1979) 1 SCC 137 : [1979] 1SCR 845 – referred to.

3.2 Goods and Services Tax imposed under the 2017 Actsand levy of cess on such intra-State supply of goods and servicesEor both as provided under Section 9 of the CGST Act and suchsupply of goods and services or both as part of Section 5 of CGSTAct is, thus, two separate imposts in law and are not prohibitedby any law so as to declare it invalid. Thus, it cannot be said thatlevy of Compensation to States Cess on same taxable event isnot permissible. Levy of compensation to States Cess is anFincrement to goods and services tax which is permissible in law.[Para 63-64][174-D-F]

Whether on the basis of Clean Energy Cess paid by the petitionertill 30.06. 2017, the petitioner is entitled for set off in payment ofCompensation to States Cess?

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4.1 The Clean Energy Cess and the States CompensationCess are collected for wholly different purposes. As per sub-section (3) of Section 83 of the Finance Act, 2010, the CleanEnergy Cess was levied and collected for the purposes of financingand promoting clean energy initiatives, funding research in theHarea of clean energy or for any other purpose relating thereto AB

whereas States Compensation Cess is collected to “provide forcompensation to the States for the loss of revenue arising onaccount of implementation of the goods and services tax”. Thedistribution between the Union and States of the Clean EnergyCess and GST Compensation Cess so collected are also different.Under Section 83(6) the Clean Energy Cess was to be used forthe purposes of the Union and not to be distributed to the Stateswhereas States Compensation Cess has to be wholly distributedamongst the States to compensate the States. [Para 65-66][174-G-H; 175-A-B]

4.2 The petitioner’s submission that the petitioner shouldbe given the credit to the extent of payment of Clean EnergyCess upto 30.06.2017 cannot be accepted. The Clean EnergyCess and States Compensation Cess are entirely different fromeach other, payment of Clean Energy Cess was for differentpurpose and has no bearing or connection with StatesCompensation Cess. Giving credit or set off in the payment islegislative policy which had to be reflected in the legislativescheme. Compensation to States Act, 2017 or Rules framedthereunder does not indicate giving of any credit or set off of theClean Energy Cess already paid till 30.06.2017. Thus, thepetitioner is not entitled for set off in payment of Compensationto States Cess to the extent he had already paid Clean EnergyCess. [Para 67][175-C-E]

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Case Law Reference

ACIVIL APPELLATE JURISDICTION: Civil Appeal No. 10177of 2018

From the Judgment and Order dated 25.08.2017 of the High Courtof Delhi at New Delhi in Writ Petition No. 7459 of 2017

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T.C. (C) No. 9/2018, Civil Appeal No. 10179/2018.

K. K. Venugopal, AG, Ms. Nisha Bagchi, B. Krishna Prasad,J. K. Mittal, Rajveer Singh, Praveen Swarup, M/S. Khaitan & Co., Advs.for the appearing parties.

CThe Judgment of the Court was delivered by ASHOK BHUSHAN, J. 1. Leave granted.

2. The validity of the Goods and Services Tax (Compensation toStates) Act, 2017 enacted by Parliament as well as the Goods andServices Tax Compensation Cess Rules, 2017, the Rules framed by theDCentral Government in exercise of power under Section 11 of the Goodsand Service Tax (Compensation to States) Act, 2017 are under challengein these cases.

3. Civil Appeal arising out of SLP(C)No.25415 of 2017 has beenfiled by the Union of India challenging ad interim order dated 25.08.2017Epassed 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 andanother). In the writ petition validity of the Goods and Services Tax(Compensation to States) Act, 2017 as well as Rules framed thereunderwere under challenge. The Division Bench passed a partial ad interimForder providing that additional levy on the stocks of coal on which writpetitioner 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 FinanceAct, 2010 was paid any payment in terms of the impugned Act would besubject to the result of the writ petition.G

4. This Court issued notice in the SLP on 22.09.2017 and stayedimpugned order passed by the High Court.

5. Civil Appeal arising out of SLP(C)No.7708 of 2018 has beenfiled by Union of India challenging interim order dated 08.09.2017 passed H

by the Division Bench of the Delhi High Court in Writ Petition (C) No.7965of 2017 (Hind Energy and Coal Benefication (India) Ltd. vs. Union ofIndia and another). The Division Bench of the High Court passed interimorder dated 08.09.2017 almost in the similar manner as was passed on25.08.2017. This Court passed an order on 16.01.2018, while hearingSLP(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 learnedcounsel appearing for the respondents-writ petitioners, transferred WritPetition (C) No.7459 of 2017 to this Court to be heard along withSLP(C)No.25415 of 2017. Transferred Case(C) No.9 of 2018 (MohitMineral Pvt. Ltd. vs. Union of India and another) has been registered ontransfer of Writ Petition (C)No.7459 of 2017 to this Court.

6. The decision in Transferred Case (C)No.9 of 2018 by whichWrit Petition (C)No.7459 of 2018 is to be heard by this Court shall disposeof the transferred writ petition as well as both the civil appeals. With theconsent of the learned counsel for the parties, we have proceeded tohear the writ petition finally.

Facts in the Writ Petition (C) No.7459 of 2017

7. Mohit Mineral Pvt. Ltd. (hereinafter referred to as the ‘writpetitioner’) is a Company incorporated under the Companies Act whichis a trader of imported and Indian coal. The writ petitioner imports coalfrom Indonesia, South Africa and also purchases coal from Indian mines.The Finance Act, 2010 with effect from 01.07.2010 levied Clean EnergyCess which was in the nature of a duty of excise on the production ofcoal and was being collected at the time of removal of raw coal, rawlignite and raw peat from the mine to the factory. The Constitution (OneHundred and Twenty-Second Amendment) Bill, 2014 was introduced inthe Lok Sabha to seek amendment in the Constitution, inter alia, providingfor subsuming of various indirect taxes and Central and States surchargesand cesses so far as they relate to supply of goods and services both oninter-State and intra-State. The Constitution (One Hundred and FirstAmendment) Act, 2016 was passed to levy goods and services tax.Section 18 of the Amendment Act enabled the Parliament to levy a cessfor five years to compensate the States for the loss of revenue on accountof GST. On 12.04.2017, Parliament enacted three Acts, namely, (1) TheCentral Goods and Services Tax Act, 2017; (2) The Integrated Goodsand Services Tax Act, 2017; and (3) The Goods and Services Tax AB

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A(Compensation to States) Act, 2017 (hereinafter referred to as“Compensation to States Act, 2017”). On 04.05.2017, the axation Laws(Amendment) Act, 2017 was enacted, whereunder, several cessesincluding Clean Energy Cess was repealed. The writ petitioner submitteda representation to the GST Council seeking set off of Clean EnergyCess against GST Compensation Cess. Writ Petition (C) No.7459 ofB2017 was filed by Mohit Minerals Pvt. Ltd. in Delhi High Court prayingfor following reliefs:

“It is therefore, most respectfully prayed that this Hon’ble HighCourt be pleased to:

A) issue a Writ of certiorari/mandamus or any other appropriateWrit/order/direction against the Respondents by quashingimpugned Goods and Services Tax (Compensation to States) Act,2017 by declaring that same lack legislative competency andunconstitutional; C

B) issue a Writ of certiorari/mandamus or any other appropriateWrit/order/direction against the Respondents by quashingimpugned the Goods and Services Tax Compensation Rules, 2017under the impugned legislation are illegal and unconstitutional; D

C) issue a Writ of certiorari/mandamus or any other appropriateWrit/order/direction against the Respondents by quashingimpugned Notification No.1/2017 & 2/2017-Compensation Cess(Rate), dated 28.06.2017 issued by the Respondent No.1 underthe impugned legislation, are illegal and unconstitutional; E

D) issue a Writ of certiorari/mandamus or any other appropriateWrit/order/direction against the Respondent No.2 by declaring thatFthe Respondent No.2 has no power under Article 279A ofConstitution of India to make any recommendation, whatsoever,for levy and collection of cess as envisaged and levied under theimpugned Goods and Services Tax (Compensation to States)Act,2017 or framing of Rules and issuance of Notification under theGsaid impugned legislation;

E) issue such other writ/order/direction to the Respondent No.2to place before this Hon’ble Court the records of therecommendation given and all decision taken in respect of levyand collection of cess as envisaged and levied under the impugned H

Goods and Services Tax (Compensation to States) Act, 2017,framing of Rules and issuance of Notification under the saidimpugned legislation;

F) issue such other writ/order/direction and further orders as theHon’ble Court may deem just and proper in the facts andcircumstances of the case.”

8. The Division Bench of the Delhi High Court passed ad interimorder on 25.08.2017. In the interim order dated 25.08.2017, the DivisionBench observed that there is a prima facie case made out by the writpetitioner regarding lack of legislative competence of Parliament to enactCompensation to States Act, 2017. In paragraphs 8, 9, 13 and 14 of theinterim order following was observed:

“8. The Court sees prima facie merit in the contention of thePetitioner, based on the history of the abolition of the Clean EnergyCess and the introduction of the GST regime, that the power ofParliament to enact the impugned Act cannot be traced to Section18 of the COI 101st Amendment Act. There is therefore a primafacie case made out as regards the legislative competence of theParliament to enact the impugned Act.

9. Another aspect of the matter is that Section 8 of the impugnedAct contemplates levy of “a cess on such intra-State supplies ofgoods or services or both”, the same that is provided in Section 9of the Central Goods and Services Tax Act, 2017 (‘CGST Act’)and such “inter-State supply of goods and services or both” asprovided for in Section 5 of the Integrated Goods and ServicesTax Act, 2017 (‘IGST Act’). Therefore, it is clear that cess isbeing levied on the same taxable event that is the subject matterof the levy under the CGST and IGST Acts, viz., supply of goodsand services.

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13. The Court, at this stage, is of the view that, the Petitioner hasmade out a prima facie case for partial ad interim relief subject toconditions. As far as the additional levy on the stocks of coal onwhich it has already paid the Clean Energy Cess in terms of FAAct, 2010, the Petitioner should not be required to make any furtherpayment. However, on stocks of coal on which no Clean Energy A

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ACess under the FA, 2010 was paid, any payment made in terms ofthe impugned Act would be subject to the result of this petition. Itis ordered accordingly.

14. It is made clear that, in the event of the Petitioner succeedingin the present petition, the Petitioner would be entitled to a refundBof amounts of Clean Energy Cess paid under the Act and on suchterms 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 appearingCfor the writ petitioner and Shri K.K. Venugopal learned Attorney Generalappearing for the Union of India.

11. Shri J.K. Mittal learned counsel for the writ petitioner submitsthat the Constitution (One Hundred and First Amendment) Act, 2016was enacted by the Parliament with the intent to consolidate number ofDindirect taxes which were levied by the Union and States with the intentionto reduce the Goods and Services Tax (GST)by giving concurring taxingpower to Union and States for levying GST on every transaction ofsupply of goods or services both. There was a clear objective of theaforesaid constitutional amendment that with the introduction of GoodsEand Services Tax, not only the indirect taxes but the cesses and surchargeslevied on goods and services shall also be subsumed in it.

12. By Taxation Laws (Amendment) Act, 2017 variousenactments levying various types of cesses were repealed including CleanEnergy Cess/Clean Environment Cess which was levied and collectedon coal.F

13. The Compensation to States Act, 2017 is repugnant to andtransgress the mandate of the Constitution (One Hundred and FirstAmendment) Act, 2016. It was the Parliament’s conscious decision toabolish with effect from 01.07.2017 all cesses including cess levied oncoal as per mandate of the Constitution (One Hundred and FirstGAmendment) Act, 2016. The impugned legislation is colourable legislationwhich lacks legislative competence. No power could be traced in Section18 to the Constitution (One Hundred and First Amendment) Act, 2016 toamend Compensation to States Act, 2017. Section 18 of the Constitution(One Hundred and First Amendment) Act, 2016 does not empower the H

Parliament to levy cess and tax as it provides Parliament to make anylaw to provide compensation to the States for loss of revenue arising onaccount of implementation of GST for a period of 5 years. The impugnedlegislation is a colourable legislation which lacks legislative competenceso far as collection of levy on cess is concerned.

14. The impugned legislation defeat the very objective of theConstitution (One Hundred and First Amendment) Act, 2016. On thevery same transaction there cannot be two levies, one under CentralGST Act and another under impugned legislation as it would amount todouble taxation as levied on the same taxable event and same subject.Thus, there is an overlapping in law which is not permissible.

15. The writ petitioner suffered cess of Rs.400 per ton on thecoal and under the impugned legislation the Union is again levying andcollecting cess at the rate of Rs.400 per ton on the stock lying with thepetitioner as on 30.06.2017 just on eve of the day when all legislationrelated to GST including impugned legislation was introduced, whereason the same stock of coal, cess was already levied and collected underthe provisions of Chapter VII of Finance Act, 2010. Thus, it amounts todouble collection of tax at the same rate on the same stock. Even if theimpugned legislation is found to be within legislative competency, thepetitioner may be permitted to set off the cess of Rs.7.68 crores whichwas already paid on the stock lying with the petitioner on 30.06.2017.Levy under impugned legislation is tax and not a cess, hence, notpermissible in law.

16. Shri K.K. Venugopal, learned Attorney General submits thatcess is nothing but a special kind of tax. If the legislature is competent tolevy the main tax, i.e. GST under Article 246A of the Constitution, thenlegislative competence of levying the cess flows from the very samepower to levy the tax itself. The phrase used in Article 246A “with respectto” has wide implication and will allow levy of cess also. Power to levya 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 Constitutiongrants a residuary power to levy a tax to the Union. The Clean EnergyCess which was imposed by the Finance Act, 2010 and GSTCompensation Cess are levied on entirely different transactions and bothare for entirely different purpose. The Clean Energy Cess was in thenature of a duty of excise on the production of coal and was being A

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Acollected at the time of removal of raw coal, raw lignite and raw peatfrom the mine to the factory whereas GST Compensation Cess is imposedon inter-State and intra-State supply of specified goods and services.The Clean Energy Cess was levied and collected for the purposes offinancing and promoting clean energy initiatives, funding research in thearea of clean energy, for any other purpose relating thereto whereasBGST Compensation Cess is collected to provide for compensation to theStates for the loss of revenue arising on account of implementation ofthe goods and services tax.

17. The High Court committed an error in prima facie holding thatcredit of Clean Energy Cess should be allowed to be utilised for payingCGST Compensation Cess. The provision of credit and flow of credit is apurely policy decision of the Executive. The Parliament does not lacklegislative competence to enact Compensation to States Act, 2017 northe legislation can be said to be colourable legislation. The Compensationto States Act, 2017 in no manner transgressed Constitution (One HundredDand First Amendment) Act, 2016.

18. Learned counsel for both the parties have placed reliance onvarious judgments of this Court in support of their respective submissionswhich shall be referred to while considering the submissions in detail.

19. From the submissions of the learned counsel for the partiesEand pleadings following issues arise for consideration:

(1) Whether the Compensation to States Act, 2017 is beyond thelegislative competence of Parliament?

(2) Whether Compensation to States Act, 2017 violates Constitution(One Hundred and First Amendment) Act, 2016 and is againstFthe objective of Constitution (One Hundred and First Amendment)Act, 2016?

(3) Whether the Compensation to States Act, 2017 is a colourablelegislation?

G(4) Whether levy of Compensation to States Cess and GST onthe same taxing event is permissible in law?

(5) Whether on the basis of Clean Energy Cess paid by thepetitioner till 30[th] June, 2017, the petitioner is entitled for set off inpayment of Compensation to States Cess?

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20. We have considered the submissions of learned counsel forthe parties and have perused the records.

21. First, we need to notice relevant constitutional provisions andthe Parliamentary enactments relevant for the issues raised in thesecases.

22. Part XII of the Constitution deals with Finance. Article 265provides that no tax shall be levied or collected except by authority oflaw. 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 ofgoods”. A Bill was introduced in the Lok Sabha namely, the Constitution(One Hundred and Twenty-Second Amendment) Bill, 2014 on 19.12.2014proposing constitutional amendments to introduce the goods and servicestax for conferring concurrent taxing powers on the Union as well as theStates including Union territory with Legislature to make laws for levyinggoods and services tax on every transaction of supply of goods or servicesor 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 goodsand services tax for conferring concurrent taxing powers on theUnion as well as the States including Union territory withLegislature to make laws for levying goods and services tax onevery transaction of supply of goods or services or both. Thegoods and services tax shall replace a number of indirect taxesbeing levied by the Union and the State Governments and isintended to remove cascading effect of taxes and provide for acommon national market for goods and services. The proposedCentral and State goods and services tax will be levied on alltransactions involving supply of goods and services, except thosewhich are kept out of the purview of the goods and services tax.

2. The proposed Bill, which seeks further to amend the Constitution,inter alia, provides for—

(a) subsuming of various Central indirect taxes and levies suchas Central Excise Duty, Additional Excise Duties, ExciseDuty levied under the Medicinal and Toilet Preparations(Excise Duties) Act, 1955, Service Tax, Additional Customs A

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Duty commonly known as Countervailing Duty, SpecialAdditional Duty of Customs, and Central Surcharges andCesses so far as they relate to the supply of goods andservices; (b) subsuming of State Value Added Tax / Sales Tax,BEntertainment Tax (other than the tax levied by the localbodies), Central Sales Tax (levied by the Centre andcollected by the States), Octroi and Entry tax, PurchaseTax, Luxury tax, Taxes on lottery, betting and gambling;and State cesses and surcharges in so far as they relate tosupply of goods and services; C

(c) dispensing with the concept of ‘declared goods of specialimportance’ under the Constitution; (d) levy of Integrated Goods and Services Tax on inter-Statetransactions of goods and services; D

(e) levy of an additional tax on supply of goods, not exceedingone per cent. in the course of inter-State trade or commerceto be collected by the Government of India for a period oftwo years, and assigned to the States from where the supplyoriginates;

E(f) conferring concurrent power upon Parliament and the StateLegislatures to make laws governing goods and servicestax; (g) coverage of all goods and services, except alcoholic liquorfor human consumption, for the levy of goods and servicesFtax. In case of petroleum and petroleum products, it hasbeen provided that these goods shall not be subject to thelevy of Goods and Services Tax till a date notified on therecommendation of the Goods and Services Tax Council.

(h) compensation to the States for loss of revenue arising onGaccount of implementation of the Goods and Services Taxfor 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.H

By Constitution (One Hundred and First Amendment) Act, 2016, newArticles 246A, 269A and 279A were inserted. Amendments were alsomade in Articles 248, 249, 250, 268, 269, 270, 271, 286, 366 and 368.Article 268A was omitted. Amendments were also made in SeventhSchedule of the Constitution in List I and List II. Article 246A and 269Aas inserted by Constitution (One Hundred and First Amendment) Act,2016 is as follows:- “246A. Special provision with respect to goods and servicestax.— (1) Notwithstanding anything contained in articles 246 and254, Parliament, and, subject to clause (2), the Legislature of everyState, have power to make laws with respect to goods and servicestax imposed by the Union or by such State.

(2) Parliament has exclusive power to make laws with respectto 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 respectof goods and services tax referred to in clause (5) of article 279A,take effect from the date recommended by the Goods and ServicesTax Council.”.

269A. Levy and Collection of goods and services tax incourse of inter-State trade or commerce.— (1) Goods andservices tax on supplies in the course of inter-State trade orcommerce shall be levied and collected by the Government ofIndia and such tax shall be apportioned between the Union andthe States in the manner as may be provided by Parliament bylaw on the recommendations of the Goods and Services TaxCouncil.

Explanation.—For the purposes of this clause, supply of goods,or of services, or both in the course of import into the territory ofIndia shall be deemed to be supply of goods, or of services, orboth in the course of inter-State trade or commerce.

(2) The amount apportioned to a State under clause (1) shall notform part of the Consolidated Fund of India.

(3) Where an amount collected as tax levied under clause (1) hasbeen used for payment of the tax levied by a State under article A

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A246A, such amount shall not form part of the Consolidated Fundof India.

(4) Where an amount collected as tax levied by a State underarticle 246A has been used for payment of the tax levied underclause (1), such amount shall not form part of the ConsolidatedBFund of the State.

(5) Parliament may, by law, formulate the principles for determiningthe place of supply, and when a supply of goods, or of services, orboth takes place in the course of inter-State trade or commerce.”.

24. Article 270 of the constitution as amended by the aboveCAmendment Act is as follows:-

“270.Taxes levied and distributed between the Union andthe States.- (1) All taxes and duties referred to in the Union List,except the duties and taxes referred to in Articles 268, 269 and269A, respectively, surcharge on taxes and duties referred to inDArticle 271 and any cess levied for specific purposes under anylaw made by Parliament shall be levied and collected by theGovernment of India and shall be distributed between the Unionand the States in the manner provided in clause (2).

... ... ... ...”

E25. Section 18 and Section 19 of the Constitution (One Hundredand First Amendment) Act, 2016 is also relevant, which are to the followingeffect:- “18. Compensation to States for loss of revenue on accountof introduction of goods and services tax.— Parliament shall,Fby law, on the recommendation of the Goods and Services TaxCouncil, provide for compensation to the States for loss of revenuearising on account of implementation of the goods and servicestax for a period of five years.

19. Transitional provisions.— Notwithstanding anything in thisAct, any provision of any law relating to tax on goods or servicesor on both in force in any State immediately before thecommencement of this Act, which is inconsistent with theprovisions of the Constitution as amended by this Act shall continueto be in force until amended or repealed by a competent Legislature G

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or other competent authority or until expiration of one year fromsuch commencement, whichever is earlier.

26. At this stage, it is also relevant to notice that in the Constitution(One Hundred and Twenty-Second Amendment) Bill, 2014, Clause 18contain a provision for arrangement for assignment of additional tax onsupply of goods to States for two years or such other period recommendedby Council, which was to the following effect:- “18. Arrangement for assignment of additional tax on supplyof goods to States for two years or such other periodrecommended by Council (1) An additional tax on supply ofgoods, not exceeding one per cent. in the course of inter-Statetrade or commerce shall, notwithstanding anything contained inclause (1) of article 269A, be levied and collected by theGovernment of India for a period of two years or such other periodas the Goods and Services Tax Council may recommend, andsuch tax shall be assigned to the States in the manner provided inclause (2).

(2) The net proceeds of additional tax on supply of goods in anyfinancial year, except the proceeds attributable to the Unionterritories, shall not form part of the Consolidated Fund of Indiaand be deemed to have been assigned to the States from wherethe supply originates.

(3) The Government of India may, where it considers necessaryin the public interest, exempt such goods from the levy of taxunder clause (1).

(4) Parliament may, by law, formulate the principles for determiningthe place of origin from where supply of goods take place in thecourse of inter-State trade or commerce.”

27. Clause 19 contain compensation to States for loss of revenueon account of introduction of goods and services tax. Clause 19 of theBill is as follows:- “19. Compensation to States for loss of revenue on accountof introduction of goods and services tax.— Parliament may,by law, on the recommendation of the Goods and Services TaxCouncil, provide for compensation to the States for loss of revenue A

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Aarising on account of implementation of the goods and servicestax for such period which may extend to five years.”

28. It is, however, to be noticed that Constitution (One Hundredand Twenty-Second Amendment) Bill, 2014 was passed but Clause 18of the Bill was not incorporated and Clause 19 found place as Section 18Bof the Constitution (One Hundred and First Amendment) Act, 2016.After the aforesaid Constitution Amendment, Parliament enacted CentralGoods 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 ofgoods or services or both by the Central Government and for mattersconnected therewith or incidental thereto. On the same day, anotherCenactment namely ‘The Integrated Goods and Services Tax Act, 2017’(Act No. 13 of 2017 dated 12.04.2017) was enacted to make a provisionfor levy and collection of tax on inter-State supply of goods or servicesor both by the Central Government and for matters connected therewithor incidental thereto. Another enactment namely ‘The Union TerritoryDGoods and Services Tax Act, 2017’ (Act No. 14 of 2017) was passed onthe same day to make a provision for levy and collection of tax on intra-State supply of goods or services or both by the Union territories and formatters connected therewith or incidental thereto. The FourthParliamentary enactment, which is subject matter of challenge in thepresent case was also enacted on the same day, i.e. 12.04.2017, namelyE‘The Goods and Services Tax (Compensation to States) Act, 2017’ (ActNO. 15 of 2017) to provide for compensation to the States for the loss ofrevenue arising on account of implementation of the goods and servicestax in pursuance of the provisions of the Constitution (One Hundred andFirst Amendment) Act, 2016. As the Preamble indicate (CompensationFto States) Act, 2017 was enacted in pursuance of the provisions of theConstitution (One Hundred and First Amendment) Act, 2016.Section 8of the Compensation to States Act, 2017 provides for levy and collectionof Cess, which is as follows:-

8. Levy and collection of cess.—(1) There shall be levied aGcess on such intra-State supplies of goods or services or both, asprovided for in section 9 of the Central Goods and Services TaxAct, and such inter-State supplies of goods or services or both asprovided for in section 5 of the Integrated Goods and ServicesTax Act, and collected in such manner as may be prescribed, onthe recommendations of the Council, for the purposes of providingH

compensation to the States for loss of revenue arising on accountof implementation of the goods and services tax with effect fromthe date from which the provisions of the Central Goods andServices Tax Act is brought into force, for a period of five yearsor for such period as may be prescribed on the recommendationsof the Council:

Provided that no such cess shall be leviable on supplies madeby a taxable person who has decided to opt for composition levyunder section 10 of the Central Goods and Services Tax Act.

(2) The cess shall be levied on such supplies of goods and servicesas are specified in column (2) of the Schedule, on the basis ofvalue, quantity or on such basis at such rate not exceeding therate set forth in the corresponding entry in column (4) of [,]theSchedule, as the Central Government may, on therecommendations of the Council, by notification in the OfficialGazette, specify:

Provided that where the cess is chargeable on any supply ofgoods or services or both with reference to their value, for eachsuch supply the value shall be determined under section 15 of theCentral Goods and Services Tax Act for all intra-State and inter-State supplies of goods or services or both:

Provided further that the cess on goods imported into Indiashall be levied and collected in accordance with the provisions ofsection 3 of the Customs Tariff Act, 1975 (51 of 1975), at thepoint when duties of customs are levied on the said goods undersection 12 of the Customs Act, 1962 (52 of 1962), on a valuedetermined under the Customs Tariff Act, 1975.

29. Section 12(1) empowers the Central Government to makerules for carrying out the provisions of the Act on the recommendationof the Council. The Council is defined in Section 2(e) of the Act as“Council means the Goods and Services Tax Council constituted underthe provision of Article 279A of the Constitution”. The Schedule of theAct read with Section 8 contains description of supply of goods or servicesin column 2; Tariff item, heading, sub-heading, Chapter or supply ofgoods or services, as the case may be, in column 3 and the maximumrate at which goods and services tax compensation cess may be collectedin column 4. The Central Government, in exercise of power under Section A

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A12, has framed the rules namely “The Central Goods and Services TaxRules, 2017”.

30. Parliament enacted the Taxation Laws (Amendment) Act,2017 dated 04.05.2017 to amend the Customs Act, 1962, the CustomsTariff Act, 1975, the Central Excise Act, 1944, the Central Sales TaxBAct, 1956, the Finance Act, 2001 and the Finance Act, 2005 and torepeal certain enactments.

31. By Taxation Laws (Amendment) Act, 2017, the Finance Act,2010, Chapter VII has been repealed. The Finance Act, 2010, ChapterVII provided for levy of Clean Energy Cess, which stood repealed.

C32. We now proceed to consider the issues as noted above.Whether the Compensation to States Act, 2017 is beyond thelegislative competence of Parliament? (Issue No.1)

33. The petitioners have challenged the legislative competence ofDParliament to enact Compensation to states Act, 2017. The petitionerssubmits that impugned legislation has transgressed the limits of its powergranted under the Constitution. It is contended that although the impugnedlegislation is described as for purpose of giving compensation to Statesby Centres to States for loss of revenue but in fact it impose tax (termedas cess), hence in pith and substance the legislation does not belong toEthe subject falling within the limits of its power but is outside it.

34. Part XI of the Constitution deals with the relation between theUnion and the States, Chapter I of which deals with “LegislativeRelations”. Article 245 deals with “Distribution of Legislative Powers”.The Parliament has exclusive power to make laws with respect to anyFof the matters enumerated in List I in Seventh Schedule of the Constitution.The Parliament, and subject to Clause(1) of Article 246, the Legislatureof a State also have power to make laws with respect to any of thematters enumerated in List III of the Seventh Schedule. Article 248deals with residuary power of Legislation in following manner:- GArticle 248 – Residuary powers of legislation—(1) Subject toarticle 246A, Parliament has exclusive power to make anylaw with respect to a matter not enumerated in the ConcurrentList or State List.

(2) Such power shall include the power of making any law imposinga tax not mentioned in either of those Lists.

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35. Article 246A as noticed above provides that “notwithstandinganything contained in articles 246 and 254, Parliament, and, subject toclause(2), the Legislature of every State, have power to make laws withrespect to goods and services tax imposed by the Union or by suchState”. In the present case, we are concerned with a cess imposed byCompensation to States Act, 2017. The Act by Section 8 levies andauthorizes collection of cess. We need to first examine nature of cess.Cess has been defined in Black’s Law Dictionary, Tenth Edition as “Anassessment or tax.”

36. P. Ramanatha Aiyar, Advanced Law Lexicon, 3[rd] Editiondefines cess as follows:- “Cess” is “An assessment tax; levy; specifically: (a) A rate orlocal tax…….(b) In Scotland, the land tax. (c) in India, a tax for aspecial object; as, a road cess”. (Webster)

The word “cess” is used in Ireland and is still in use in Indiaalthough the word rate has replaced it in England. It means a taxand is generally used when the levy is for some specialadministrative expense which the name (health cess, educationcess, road cess, etc.) indicates. When levied as an increment toan existing tax, the name matters not for the validity of the cessmust be judged of in the same way as the validity of the tax towhich 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 levyis for some special administrative expense which the name (healthcess, education cess, road cess, etc.) indicates. Shinde Brothersv. Hy. Commissioner, Raichur, AIR 1967 SC 1512, 1525.”

37. This Court had considered the expression “cess” in ShindeBrothers Etc. Vs. Deputy Commissioner, Raichur & Others Etc.,AIR 1967 SC 1512, Justice M. Hidyatullah, as he then was in hisdissenting opinion has defined the cess (“no contrary opinion wasexpressed by majority in that regard”) in paragraph 39, which is to thefollowing effect:- “39. Now the health cess is first assailed on the ground that thereis no entry “health cess” as such in the legislative entries. The A

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Aword “cess” is used in Ireland and is still in use in India althoughthe word rate has replaced it in England. It means a tax and isgenerally used when the levy is for some special administrativeexpense which the name (health cess, education cess, road cessetc.) indicates. When levied as an increment to an existing tax,the name matters not for the validity of the cess must be judgedBof in the same way as the validity of the tax to which it is anincrement. By Schedule A(1) read with Section 3 of the Act, it iscollected as an additional levy with a tax, which, as described inSchedule A, is undoubtedly one within the powers of the StateLegislature and has been so even prior to theCConstitution……………………”

38. In the Constitution Bench judgment of this Court in IndiaCement Ltd. & Others Vs. State of Tamil Nadu & Others, (1990)1 SCC 12, the above definition given by Hidayatuallah, J. was quotedwith approval in Para 19, which is quoted as below:-=

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“19. Here, we are concerned with cess on royalty. One can havean idea as to what cess is, from the observations of Hidayatullah,J., as the learned Chief Justice then was, in Guruswamy & Co. v.State of Mysore9 where at page 571, the learned Judge observed :

“The word ‘cess’ is used in Ireland and is still in use inEIndia although the word rate has replaced it in England. It meansa tax and is generally used when the levy is for some specialadministrative expense which the name (health cess, educationcess, road cess etc.) indicates. When levied as an incrementto an existing tax, the name matters not for the validity of theFcess must be judged of in the same way as the validity of thetax to which it is an increment.”

39. The meaning of “cess” as noticed above was again reiteratedby a Two Judge Bench judgment of this Court in Vijayalashmi RiceMill & Others Vs. Commercial Tax Officers, Palakol & Others,G(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 kindof tax. Generally tax raises revenue which can be used generallyfor any purpose by the State. For instance, the income tax orexcise tax or sales tax are taxes which generate revenue which can be utilised by the Union or the State Governments for anypurpose e.g. for payment of salary to the members of the armedforces or civil servants, police, etc. or for development programmes,etc. However, cess is a tax which generates revenue which isutilised for a specific purpose. For instance, health cess raisesrevenue which is utilised for health purposes e.g. building hospitals,giving medicines to the poor, etc. Similarly, education cess raisesrevenue which is used for building schools or other educationalpurposes.”

40. The expression “cess” as held above means a tax levied forsome special purpose, which may be levied as an increment to an existingtax. The Scheme of Compensation to States Act, 2017 as noticed aboveindicate that the cess is with respect to goods and services tax. Thereare more than one reason to uphold the legislative competence ofParliament to enact the Compensation to States Act, 2017. ConstitutionBench of this Court in Union of India Vs. Harbhajan Singh Dhillon,(1971) 2 SCC 779 held that only question to be asked while examiningthe legislative competence of Parliament with regard to a particularenactment is: Is the matter sought to be legislated or included in List IIor in List III or is the tax sought to be levied mentioned in List II or inList III”. In Para 21, the Constitution Bench laid down following:- “21. It seems to us that the function of Article 246(1), read withEntries 1-96, List I, is to give positive power to Parliament tolegislate in respect of these entries. Object is not to debarParliament from legislating on a matter, even if other provisionsof the Constitution enable it to do so. Accordingly we do notinterpret the words “any other matter” occurring in Entry 97, ListI, to mean a topic mentioned by way of exclusion. These wordsreally refer to the matters contained in each of the Entries 1 to 96.The words “any other matter” had to be used because Entry 97,List I follows Entries 1-96, List I. It is true that the field oflegislation is demarcated by Entries 1-96, List I, but demarcationdoes not mean that if Entry 97, List I confers additional powers,we should refuse to give effect to it. At any rate, whatever doubtthere may be on the interpretation of Entry 97, List I is removedby the wide terms of Article 248. It is framed in the widest possibleterms. On its terms the only question to be asked is: Is the matter A

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164SUPREME COURT REPORTS

Asought to be legislated or included in List II or in List III or is thetax sought to be levied mentioned in List II or in List III: Noquestion has to be asked about List I. If the answer is in thenegative then it follows that Parliament has power to make lawswith respect to that matter or tax.”

B41. When we pose the above question in context of impugnedlegislation, i.e. Compensation to States Act, 2017, we do not find anyentry in List II or List III of Seventh Schedule, which may refer tolevying of cess in question. Article 248 read with Articles 246 and 246Aclearly indicate that residuary power of legislation is with the Parliament.In the present case, we may notice that no contention has been raisedCbefore us that the subject matter of legislation was within the competenceof State Legislature, and that the Parliament had no competence tolegislate. Applying the H.S. Dhillon’s test (supra), we do not find anylack of legislative competence in the Parliament.

42. Learned counsel for the petitioner relied on two decisions ofDthis Court namely Hoechst Pharmaceuticals Ltd. & Others Vs. Stateof Bihar & Others, (1983) 4 SCC 45 and M.P.V. Sundararamier &Co. Vs. State of A.P. & Others, AIR 1958 SC 468 to contend thattaxation is a distinct matter for purposes of legislative competence andthe power to tax cannot be deduced from a general legislative entry asEan ancillary power. He submits that State Compensation Cess being notcovered by any taxing entry, the legislation is beyond the competence ofParliament. We may first notice the proposition, which has been laiddown by this court in Hoechst Pharmaceuticals Ltd. (supra). ThisCourt in the above case had occasion to examine Bihar Finance Act,1981, by which surcharge was levied on certain dealers selling essentialFcommodities such as drugs. Challenge to the legislative competence ofthe State was raised. In the above context, this Court had observed thattaxation is considered to be a distinct matter for purposes of legislativecompetence. In paragraphs 74, 75 and 76, following was laid down:- “74. It is equally well settled that the various entries in the threeGLists are not ‘powers’ of legislation, but ‘fields’ of legislation. Thepower to legislate is given by Article 246 and other Articles of theConstitution. Taxation is considered to be a distinct matter forpurposes of legislative competence. Hence, the power to taxcannot be deduced from a general legislative entry as an ancillaryHpower. Further, the element of tax does not directly flow from the power to regulate trade or commerce in, and the production, supplyand distribution of essential commodities under Entry 33 of ListIII, although the liability to pay tax may be a matter incidental tothe Centre’s power of price control.

75. “Legislative relations between the Union and the States interse with reference to the three Lists in Schedule VII cannot beunderstood fully without examining the general features disclosedby the entries contained in those Lists”: Seervai in his ConstitutionalLaw of India, 3rd Edn., Vol. 1 at pp. 81-82. A scrutiny of Lists Iand II of the Seventh Schedule would show that there is nooverlapping anywhere in the taxing power and the Constitutiongives independent sources of taxation to the Union and the States.Following the scheme of the Government of India Act, 1935, theConstitution has made the taxing power of the Union and of theStates mutually exclusive and thus avoided the difficulties whichhave arisen in some other Federal Constitutions from overlappingpowers of taxation.

76. It would therefore appear that there is a distinction madebetween general subjects of legislation and taxation. The generalsubjects of legislation arc dealt with in one group of entries andpower of taxation in a separate group. In M.P.V. Sundararamier& Co. v. State of A.P.43 this court dealt with the scheme of theseparation of taxation powers between the Union and the Statesby mutually exclusive lists. In List I, Entries 1 to 81 deal withgeneral subjects of legislation; Entries 82 to 92-A deal with taxes.In List II, Entries 1 to 44 deal with general subjects of legislation;Entries 45 to 63 deal with taxes. This mutual exclusiveness is alsobrought out by the fact that in List III, the Concurrent LegislativeList, there is no entry relating to a tax, but it only contains an entryrelating to levy of fees in respect of matters given in that list otherthan court-fees. Thus, in our Constitution, a conflict of the taxingpower of the Union and of the States cannot arise. That being so,it is difficult to comprehend the submission that there can beintrusion by a law made by Parliament under Entry 33 of List IIIinto a forbidden field viz. the State’s exclusive power to make alaw with respect to the levy and imposition of a tax on sale orpurchase of goods relatable to Entry 54 of List II of the SeventhSchedule. It follows that the two laws viz. sub-section (3) of Section A

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5 of the Act and para 21 of the Control Order issued by the CentralGovernment under sub-section (1) of Section 3 of the EssentialCommodities Act, operate on two separate and distinct fields andboth are capable of being obeyed. There is no question of anyclash between the two laws and the question of repugnancy doesnot come into play.”

43. Levy of surcharge was upheld referring to Entry 52 of List IIof Seventh Schedule. Following was laid down in paragraph 90:- “90. The decision in Fernandez case, AIR 1957 SC 657 is thereforeclearly an authority for the proposition that the State Legislaturenotwithstanding Article 286 of the Constitution while making alaw under Entry 54 of List II of the Seventh Schedule can, forpurposes of the registration of a dealer and submission of returnsof sales tax, include the transactions covered by Article 286 ofthe Constitution. That being so, the constitutional validity of sub-section (1) of Section 5 of the Act which provides for theclassification of dealers whose gross turnover during a yearexceeds Rs 5 lakhs for the purpose of levy of surcharge, in additionto the tax payable by him, is not assailable. So long as sales in thecourse of inter-State trade and commerce or sales outside theState and sales in the course of import into, or export out of theterritory of India are not taxed, there is nothing to prevent theState Legislature while making a law for the levy of a surchargeunder Entry 54 of List II of the Seventh Schedule to take intoaccount the total turnover of the dealer within the State andprovide, as has been done by sub-section (1) of Section 5 of theAct, that if the gross turnover of such dealer exceeds Rs 5 lakhsin a year, he shall, in addition to the tax, also pay a surcharge atsuch rate not exceeding 10 per centum of the tax as may beprovided. The liability to pay a surcharge is not on the grossturnover including the transactions covered by Article 286 but isonly on inside sales and the surcharge is sought to be levied ondealers who have a position of economicsuperiority………………”

44. In M.P.V. Sundararamier (supra) this Court also laid downthat the tax cannot be levied under general entry. The present is a casewhere cess in question is levied in respect of goods and services tax, the definition of cess as given in Compensation to States Act, 2017 in Section2(c) states “cess means the goods and services tax compensation cesslevied under section 8”. The judgment of this Court relied by petitionerin Hoechst Pharmaceuticals Ltd. (supra) and M.P.V. Sundararamier (supra) is not applicable to the present case.

45. Entry 97 of List I also lead to the same conclusion, forreference, which is quoted as below:- “97. Any other matter not enumerated in List II or List III includingany tax not mentioned in either of those Lists.”

46. Article 270 of the Constitution, both as it existed prior toConstitution (One Hundred and First Amendment) Act, 2016 andsubsequent to Constitution (One Hundred and First Amendment) Act,2016 uses the expression “any cess levied for specific purposes underany law made by Parliament”. Article 270(1) as existed prior toConstitution (One Hundred and First Amendment) Act, 2016, is asfollows:- “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 269respectively, surcharge on taxes and duties referred to in Art. 271and any cess levied for specific purposes under any law made byParliament shall be levied and collected by the Government ofIndia and shall be distributed between the Union and the States inthe 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 purposeunder a law made by it. Article 270, thus, specifically empowersParliament to levy any cess by law. Lastly, Section 18 of the Constitution(One Hundred and First Amendment) Act, 2016 expressly empowersParliament shall, “by law” on the recommendation of the Goods andServices Tax Council, provide for compensation to the states for loss ofrevenue arising on account of implementation of the goods and servicestax….” When Constitution provision empowers the Parliament to providefor 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 forthe above purpose. We, thus, do not find any merit in the submission ofthe learned counsel for the petitioner that Parliament has no legislativecompetence to enact the Compensation to States Act, 2017.

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AAnswer to Issue No.1 is,thus, as follows:The Compensation to States Act, 2017 is not beyond the legislativecompetence of the Parliament.

Issue No.2 and Issue No.3

B48. We now come to Issue No.2 and Issue No.3, which, beinginterconnected, are taken up together.

49. The next attack on Compensation to States Act, 2017 is onthe ground that the Act transgresses the mandate of Constitution (OneHundred and First Amendment) Act, 2016. It is submitted that ConstitutionC(One Hundred and First Amendment) Act, 2016 does not permit levy ofcess on supply of goods or services on which Goods and Services Taxhas been levied. Elaborating the submission, it is contended that the clearobjective of Constitution (One Hundred and First Amendment) Act, 2016was to subsume various Central and States Taxes, Central and Statessurcharges and cesses, so far as, they relate to supply of goods andDservices. When all taxes, surcharges and cesses were subsumed in byGoods and Services Tax, imposition of compensation to States cess clearlyfalls foul to the Constitution (One Hundred and First Amendment) Act,2016. The Statements of Objects and Reasons of Constitution (OneHundred and Twenty-Second Amendment) Bill, 2014, as noticed above,Ewas to subsume various Central Indirect Taxes and levy of Service Tax,Additional Customs Duty, Special Additional Duty of Customs, CentralSurcharges and Cesses so far as they relate to the supply of goods andservices.

50. One of the objectives as noticed in Statements of Objects andReasons was “conferring concurrent taxing powers upon ParliamentFand the State Legislature to make laws for levying goods and servicestax”. Article 246A sub-article(1) empowers the Parliament to “makelaws with respect to goods and services tax”. The word “with respectto” is word of expansion. Similar expressions namely, “pertaining to”,“in relation to” came to be considered before this Court in M/s. DoypackGSystems Pvt. Ltd. Vs. Union of India & Others, (1988) 2 SCC299, where this Court held that the above expressions are used in theexpansive sense. Following has been laid down in paragraphs 48 and49:- “48………………….The expressions “pertaining to”, “in relationHto” and “arising out of”, used in the deeming provision, are used in the expansive sense, as per decisions of courts, meanings foundin standard dictionaries, and the principles of broad and liberalinterpretation in consonance with Article 39(b) and (c) of theConstitution.

49. The words “arising out of” have been used in the sense that itcomprises purchase of shares and lands from income arising outof the Kanpur undertaking. We are of the opinion that the words“pertaining to” and “in relation to” have the same wide meaningand have been used interchangeably for among other reasons,which may include avoidance of repetition of the same phrase inthe same clause or sentence, a method followed in good drafting.The word “pertain” is synonymous with the word “relate”, seeCorpus Juris Secundum, Volume 17, page 693.”

51. Learned counsel for the petitioner has placed reliance onjudgment of this Court in Dewan Chand Builders and ContractorsVs. Union of India and Others, (2012) 1 SCC 101. The Parliamenthad enacted Building and Other Construction Workers’ (Regulation ofEmployment and Conditions of Service) Act, 1996 and Building and OtherConstruction Workers Welfare Cess Act, 1996. The constitutional validityand competence of Parliament was challenged before the Delhi HighCourt. Delhi High Court upheld the validity of Building and OtherConstruction Workers’ (Regulation of Employment and Conditions ofService) Central Rules, 1998 holding the levy under the impugnedenactment as a fee referable to Entry 97 of List I of Seventh Scheduleof the Constitution. Before this Court, it was contended that cess inquestion was a tax and not a cess since no element of quid pro quoexists and if it is a tax, then it is a tax on “lands and buildings” fallingwithin the ambit of Schedule VII List II Entry 49. Argument was noticedin paragraph 23 to the following effect:- “23. It is evident from the contentions raised on behalf of theappellant that there is a two-pronged attack on the legislativecompetence of Parliament to enact the Cess Act: (i) it is a “tax”and not a “cess” because no element of quid pro quo exists betweenthe payer of the cess and the beneficiary, and (ii) if it is a “tax”then it is a tax on “lands and buildings” falling within the ambit ofSchedule VII List II Entry 49 (the State List), ousting the legislativecompetence of Parliament.”

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A52. This Court noticed the distinction between fee and tax andreferred to earlier judgments including judgment of this Court inCommissioner, Hindu Religious Endowments, Madras Vs. SriLakshmindra Thirtha Swamiar of Sri Shirur Mutt, AIR 1954 SC282. This Court upheld the cess as fee and not tax. In paragraph 31,reasons for upholding levy as fee has been given by this Court, which isBto the following effect:-

“31. There is no doubt in our mind that the Statement ofObjects and Reasons of the Cess Act, clearly spells out theessential purpose the enactment seeks to achieve i.e. to augmentthe Welfare Fund under the BOCW Act. The levy of cess on theCcost of construction incurred by the employers on the building andother construction works is for ensuring sufficient funds for theWelfare Boards to undertake social security schemes and welfaremeasures for building and other construction workers. The fund,so collected, is directed to specific ends spelt out in the BOCWDAct. Therefore, applying the principle laid down in the aforesaiddecisions of this Court, it is clear that the said levy is a “fee” andnot “tax”. The said fund is set apart and appropriated specificallyfor the performance of specified purpose; it is not merged in thepublic revenues for the benefit of the general public and as suchthe nexus between the cess and the purpose for which it is leviedEgets established, satisfying the element of quid pro quo in thescheme. With these features of the Cess Act in view, the subjectlevy has to be construed as “fee” and not a “tax”. Thus, we upholdand affirm the finding of the High Court on the issue.”

53. The above judgment has no application in the facts of theFcase. The case of the Union is not that cess is a fee. Rather contentionis that it is increment to the goods and services tax. We having alreadyheld that State compensation cess is “with respect to” goods and servicestax, it is a tax.

54. Learned counsel for the petitioner has further relied on certainGdecisions on distinction between tax and fee. But the levy of cess, in thepresent case, not even claimed as fee, it is not necessary to refer toabove cases which reiterate the well established principles emanatingfrom Commissioner, Hindu Religious Endowments, Madras Vs.Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt (supra).

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55. The expression used in Article 246A is “power to make lawswith respect to goods and services tax”. The power to make law, thus, isnot general power related to a general entry rather it specifically relatesto goods and services tax. When express power is there to make lawregarding goods and services tax, we fail to comprehend that how suchpower shall not include power to levy cess on goods and services tax.True, that Constitution (One Hundred and First Amendment) Act, 2016was passed to subsume various taxes, surcharges and cesses into onetax but the constitutional provision does not indicate that henceforth nosurcharge or cess shall be levied.

56. Learned counsel for the petitioner has referred to Section 18of the Constitution (One Hundred and Twenty-Second Amendment) Bill,2014, where an additional tax on supply of goods not exceeding one percent was contemplated, which did not find place in Constitution (OneHundred and First Amendment) Act, 2016. He submits that the additionaltax, which was proposed by the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 was not allowed to find place inConstitution (One Hundred and First Amendment) Act, 2016, it is to beaccepted that Constitution Amendment did not contemplate levy ofadditional tax on services and goods tax. The above submission in so faras not continuing an additional tax on supply of goods in the Constitution(One Hundred and First Amendment) Act is concerned, the submissionof the learned counsel for the petitioner is correct that additional tax,which was contemplated by Clause 18 of the Bill did not find place inConstitution Amendment Act. Further, Clause 19 of the Bill find place asSection 18 of the Constitution (One Hundred and First Amendment)Act, 2016. Thus, power of Parliament to make law providing forcompensation to the States for loss of revenue was expressly includedby constitutional provision.

57. Further, the Preamble of Compensation to States Act, 2017expressly mentions the Act to provide for compensation to the States forthe loss of revenue arising on account of implementation of the goodsand services Tax in pursuance of the provisions of the Constitution (OneHundred and First Amendment) Act, 2016. Thus, the Compensation toStates Act, 2017 has been enacted under the express Constitution (OneHundred and First Amendment) Act, 2016. We, thus, also do not findany force in the submission of the learned counsel for the petitioner that AB

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ACompensation to States Act, 2017 transgresses the Constitution (OneHundred and First Amendment) Act, 2016.

58. Due to above reasons, we do not find any substance in thesubmission of the petitioner that Compensation to States Act, 2017 is acolourable legislation. We having held that Parliament has full legislativeBcompetence to enact the Act and the Act having been enacted toimplement the Constitution (One Hundred and First Amendment) Actand the object being clearly to fulfill the Constitution (One Hundred andFirst Amendment) Act’s objective, we reject the submission of thepetitioner that Compensation to States Act, 2017 is a colourable legislation.We, thus, answer Issue No.2 and Issue No. 3 in following manner:-C

Ans. 2 - The Compensation to States Act, 2017 does not violateConstitution (One Hundred and First Amendment) Act,2016 nor is against the objective of Constitution (OneHundred and First Amendment) Act, 2016.

DAns.3 - The Compensation to States Act is not a colourablelegislation.Whether levy of Compensation to States Cess and GST on thesame taxing event is permissible in law?(Issue No.4)

59. The petitioner elaborating his contention submits that as perESection 8 of impugned legislation there shall be levied a cess on intra-State supply of goods and services as provided in Section 9 of the CGSTAct whereas CGST Act has been enacted to levy tax as provided underArticle 246A of the Constitution. This is also true in respect of the cessesimposed on inter-State supplies of goods and services covered by Section5 of IGST Act, 2017. Therefore, on the same very transaction thereFcannot be two levies, one under CGST Act and another under impugnedlegislation as it would amount to double taxation as levy is on the sametaxable event and same subject. Thus, there is an overlapping on lawwhich is not permissible. The petitioner contends that goods and servicestax being already imposed by three enactments of 2017 as noticed aboveGimposition of States Compensation Cess is levied on the same taxingevent and has overlapping effect.

60. The principle is well settled that two taxes/imposts which areseparate and distinct imposts and on two different aspects of a transactionare permissible as “in law there is no overlapping”.

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61. A Constitution Bench of this Court in Federation of Hotel &Restaurant Associate of India, Etc. Vs. Union of India and others,(1989) 3 SCC 634, held that a law with respect to a subject mightincidentally affect another subject in some way, but that is not the samething. There might be overlapping but the overlapping must be in law.The fact that there is an overlapping does not detract from thedistinctiveness of the aspects. Therefore, if the taxes are separate anddistinct imposts and levied on the different aspects, then there is nooverlapping in law. Following was laid down in paragraph 31:

“31. Indeed, the law ‘with respect to’ a subject might incidentally‘affect’ another subject in some way; but that is not the samething as the law being on the latter subject. There might beoverlapping; but the overlapping must be in law. The sametransaction may involve two or more taxable events in its differentaspects. But the fact that there is an overlapping does not detractfrom the distinctiveness of the aspects, Lord Simonds in GovernorGeneral in Council v. Province of Madras [1945] FCR 179 P.C.at 193, in the context of concepts of Duties of Excise and Tax onSale of Goods said:

“...The two taxes, the one levied on a manufacturer in respectof 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 isno overlapping. The taxes are separate and distinct imposts. Ifin fact they overlap, that may be because the taxing authority,imposing a duty of excise, finds it convenient to impose thatduty at the moment when the excisable article leaves thefactory or workshop for the first time on the occasion of itssale....””

62. Justice Krishna Iyer in Avinder Singh and others Vs. Stateof Pubjab and others, (1979) 1 SCC 137, laid down that if on thesame subject-matter the legislature chooses to levy tax twice over thereis no inherent invalidity in the fiscal adventure unless there are someother prohibitions. In the above case Government of Punjab had issueda notification under Section 90(4) of the Punjab Municipal CorporationAct, 1976 imposing tax at the rate of Rupee 1 per bottle on Indian madeForeign Liquor within the Municipal Corporation of Ludhiana. One ofthe contentions raised was that tax imposed is on sale, hence, beyondGovernment power. In paragraph 4 following was laid down:

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A“4.......A feeble plea that the tax is bad because of the vice ofdouble taxation and is unreasonable because there are heavy priorlevies was also voiced. Some of these contentions hardly meritconsideration, but have been mentioned out of courtesy to counsel.The last one, for instance, deserve the least attention. There isnothing in Article 265 of the Constitution from which one can spinBout the constitutional vice called double taxation. (Bad economicsmay be good law and vice versa). Dealing with a somewhat similarargument, the Bombay High Court gave short shrift to it in WesterIndia Theatres (AIR 1954 Bom 261). Some undeservingcontentions die hard, rather survive after death. The only epitaphCwe may inscribe is : Rest in peace and don’t be re-born ! If on thesame subject-matter the legislature chooses to levy tax twice overthere is no inherent invalidity in the fiscal adventure save whereother prohibitions exist.”

63. Goods and Services Tax imposed under the 2017 Acts asDnoticed above and levy of cess on such intra-State supply of goods andservices or both as provided under Section 9 of the CGST Act and suchsupply of goods and services or both as part of Section 5 of CGST Actis, thus, two separate imposts in law and are not prohibited by any law soas to declare it invalid.

E64. We, thus, do not find any substance in the submission that levyof Compensation to States Cess on same taxable event is not permissible.

We, thus, answer Issue No.4 in the following manner:

Levy of Compensation to States Cess is an increment to goodsand services tax which is permissible in law.F

Issue No. 5

65. The last submission of the petitioner is that he having paidClean Energy Cess till 30.06.2017 on the stocks of coal, he is at leastentitled to set off in payment of Compensation to States Cess. As noticedabove Clean Energy Cess was imposed under the Finance Act, 2010.GThe Clean Energy Cess and the States Compensation Cess are collectedfor wholly different purposes. As per sub-section (3) of Section 83 ofthe Finance Act, 2010, the Clean Energy Cess was levied and collectedfor the purposes of financing and promoting clean energy initiatives,funding research in the area of clean energy or for any other purpose H

relating thereto whereas States Compensation Cess is collected to“provide for compensation to the States for the loss of revenue arisingon account of implementation of the goods and services tax”.

66. The distribution between the Union and States of the CleanEnergy Cess and GST Compensation Cess so collected are also different.Under Section 83(6) of the Finance Act, 2010 the Clean Energy Cesswas to be used for the purposes of the Union and not to be distributed tothe States whereas States Compensation Cess has to be wholly distributedamongst the States to compensate the States.

67. The petitioner’s submission that the petitioner should be giventhe credit to the extent of payment of Clean Energy Cess upto 30.06.2017also cannot be accepted. The Clean Energy Cess and StatesCompensation Cess are entirely different from each other, payment ofClean Energy Cess was for different purpose and has no bearing orconnection with States Compensation Cess. Giving credit or set off inthe payment is legislative policy which had to be reflected in the legislativescheme. Compensation to States Act, 2017 or Rules framed thereunderdoes not indicate giving of any credit or set off of the Clean EnergyCess already paid till 30.06.2017. Thus, claim of the petitioner that he isentitled for set off in payment of Compensation to States Cess to theextent he had already paid Clean Energy Cess cannot be accepted.

We, thus, answer Issue No.5 in the following manner:

The petitioner is not entitled for any set off of payments madetowards Clean Energy Cess in payment of Compensations to StatesCess.

68. In view of the foregoing discussions, we do not find any meritin the writ petition. The writ petition is dismissed. The transferred caseis accordingly dismissed. Both the civil appeals are allowed. Parties shallbear their own costs.

Nidhi Jain

Matters disposed of.

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