Supreme Court Judgment- Union of India v. Mohit Mineral Pvt. Ltd. (2018) SC 1727
The Goods and Services Tax Act was passed by the Parliament of India amidst a large number of protests by the opposition parties and between the loud thudding applauses of the government in power. Everyone was perplexed as to what was being introduced and there was an anxiety which was at play. All the quarters watched closely since a majority of the people were to be affected.
The GST was brought in by the Constitution (One Hundred and First Amendment) Act, 2016 (Amendment Act) and it came into force on September 2016. As a result of the same the GST legislations were brought in and they became effective from 01.07.2017.
The Goods and Services Tax (Compensation to States) Act, 2017 (hereinafter referred to as the Compensation Act) responsible for forming a part of these legislations and it had two objectives;
- That Compensation to be provided by the Union to the States in case revenue was lost on account of implementation of GST;
- Levying and collecting of a cess for the purpose of carrying out this compensation obligation of the Union.
In the instant case, the validity of the Compensation Act enacted by Parliament as well as the Goods and Services Tax Compensation Cess Rules 2017, the 2 rules framed by the Central Government in the exercise of power under Section 11 of Compensation Act were challenged before the Delhi High Court.
The Delhi High Court gave an interim order in favor of the Petitioner and the Respondents i.e., Government of India preferred an appeal before the Supreme Court. The Government also requested to transfer the case before itself and try the case on its own. The Supreme Court acceded to the request and heard the matter in front of it.
The following issues were to be discussed and determined in the case:
- Whether the Compensation Act was beyond the power of the Parliament to legislate?
- Whether the Compensation Act, violates the constitutional amendment of 2016 and is also against the objective of the 2016 amendment?
- Whether the Compensation Act was a product of colorable legislation?
- Whether application of Compensation to States Cess and GST on the same taxing event was allowed in law?
- Whether due to Clean Energy Cess which was paid by the petitioner till 30.06.2017, the petitioner was entitled for set off with regard to the payment of Compensation to States Cess?
It was argued by the petitioners that the main object of the GST was to ensure sub-summation of all taxes, cesses, and surcharges which are levied on goods and services. It was thus argued that the levy of compensation cess was contrary to the underlying objective of the GST Act.
It was submitted that the compensation cess was a piece of colorable legislation since its origin could not be traced to Section 18 of the Amendment Act which was silent on the levy of a cess for the purpose of meeting the compensation obligation of the Union.
Thus it was contended that the Parliament lacked the power to levy compensation cess in terms of the provisions of the Amendment Act. It was further argued that the levy of compensation cess amounts to double taxation since there was GST and also compensation cess was being made applicable on the same transaction.
It was further pointed out that imported coal was already subjected to clean energy cess levied which was done under the previous taxation regime when it was imported. It was thus argued that in case the compensation cess is sustained then the credit on account of clean energy cess may be set-off against the compensation cess obligation.
It was argued by the Respondents that the compensation cess was essentially a “special kind of tax” and therefore it was a special kind of GST. It was contended that once Parliament was competent to enact the GST, it was competent enough to enact the levy of compensation cess.
It was argued that Article 270 of the Constitution provided legislative enablement for levying the compensation cess and also the provisions of Entry 97 of the List I of the Seventh Schedule of the Constitution allowed the levy of compensation cess as a residuary power.
After going through the Statement of Objects and Reasons of the Amendment Act which highlights the purpose of GST it was observed that the act was passed to provide powers of taxation to both the state and union governments. This was done to empower them for making laws for applying goods and services tax on every transaction which is for the purpose of supplying goods or services or both.
It was held that there is no dilution of the residuary legislative powers of Parliament in terms of Entry 97 of the List I of the Seventh Schedule of the Constitution. It was held that the expansive legislative sphere can be gainfully pressed upon by the Parliament to impose a special GST such as the compensation cess.
It was further held that cess is a tax which is applied due to some special purpose, and it can be levied in addition to a tax which is existing. Therefore the power of the legislature to impose GST inherently carries the power to impose cess on GST. The validity of both GST and the cess were sustained on the ground that both operate in a distinct sphere.
The Supreme Court rejected the contentions of double taxation. It was observed that it GST and compensation cess being were two different things in law and were not prohibited. It was held that compensation cess must be seen as an increment to GST.