Summary
The Supreme Court rejected the constitutional challenge to the Goods and Services Tax (Compensation to States) Act, 2017. Parliament had competence to impose the compensation cess, which neither defeated the 101st Amendment nor constituted colourable legislation. GST and the additional compensation cess could lawfully apply to the same taxable event. Earlier payment of Clean Energy Cess on coal did not confer a credit or set-off against the compensation cess: the levies had different purposes, and the legislative scheme provided no such adjustment. The transferred writ petition was dismissed and the Union’s appeals allowed.
Issues
- Whether Parliament had legislative competence to enact the GST compensation cess.
- Whether the cess contradicted the 101st Constitutional Amendment or amounted to colourable legislation.
- Whether GST and compensation cess could apply to the same taxable event.
- Whether Clean Energy Cess already paid on coal entitled the trader to a compensation-cess set-off.
Provisions considered
- Article 246A, Constitution of IndiaThe express power to legislate with respect to GST extended to the additional compensation cess; the amendment did not prohibit every future cess or surcharge. (¶¶ 23, 35, 50, 53, 55)
- Article 248 and Seventh Schedule, List I, Entry 97, Constitution of IndiaThe Court also relied on Parliament’s residuary legislative competence, finding no competing State or concurrent-list entry covering the challenged cess. (¶¶ 34, 40, 41, 45)
- Article 270(1), Constitution of IndiaIts reference to a cess levied for specific purposes under Parliamentary law supplied further support for Parliament’s competence. (¶¶ 24, 46, 47)
- Section 18, Constitution (One Hundred and First Amendment) Act, 2016The express requirement to provide by law for compensation to States supported the challenged enactment; the wide term law encompassed a cess for that purpose. (¶¶ 25, 47, 56, 57, 58)
- Section 8, Goods and Services Tax (Compensation to States) Act, 2017The provision imposed the compensation cess on the specified intra-State and inter-State supplies; its additional levy alongside GST was upheld and did not carry the claimed Clean Energy Cess credit. (¶¶ 28, 35, 59, 63, 64, 67)
Held
- A cess is ordinarily a tax for a specified purpose and may be an increment to an existing tax. Parliament possessed competence to impose the challenged compensation cess, supported by the constitutional GST power, residuary competence and the express compensation mandate. (¶¶ 35, 36, 37, 38, 39, 40, 41, 44, 45, 46, 47)
- The constitutional objective of subsuming existing indirect taxes and cesses did not prohibit a subsequent compensation cess. Article 246A conferred express GST-related taxing power, and the challenged Act implemented rather than transgressed the 101st Amendment’s compensation objective. The colourable-legislation challenge failed. (¶¶ 49, 50, 53, 54, 55, 56, 57, 58)
- GST and compensation cess were separate imposts in law. There was no inherent constitutional invalidity merely because the legislature imposed both on the same taxable event, absent another applicable prohibition; the compensation cess was a permissible increment to GST. (¶¶ 59, 60, 61, 62, 63, 64)
- Clean Energy Cess and compensation cess served different purposes and had different distribution arrangements. Credit or set-off required support in the legislative scheme; neither the compensation Act nor its rules provided the claimed adjustment for Clean Energy Cess paid up to 30 June 2017. (¶¶ 65, 66, 67)
- The constitutional and set-off challenges failed. The writ petition and transferred case were dismissed, both Union appeals were allowed and parties were left to bear their own costs. (¶ 68)
Result
Transferred writ petition dismissed; both Union of India civil appeals allowed. No Clean Energy Cess set-off against compensation cess granted. Parties to bear their own costs.