1

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  10177 Of 2018 (arising out of SLP(C)No.25415 of 2017)

UNION OF INDIA & ANR.     ...APPELLANT(S)

VERSUS

MOHIT MINERAL PVT. LTD.         ...RESPONDENT(S) WITH

TRANSFERRED CASE (C) NO.9 OF 2018

MOHIT MINERAL PVT. LTD.    ... PETITIONER(S)

VERSUS

UNION OF INDIA AND ORS.    ... RESPONDENT(S)

WITH

CIVIL APPEAL NO. 10179 Of 2018 (arising out of SLP(C)No.7708 of 2018)

UNION OF INDIA & ANR.     ...APPELLANT(S)

VERSUS

MOHIT MINERAL PVT. LTD.         ...RESPONDENT(S)

J U D G M E N T

ASHOK BHUSHAN,J.

Leave granted.

2. The validity of the Goods and Services Tax (Compensation

to States) Act, 2017 enacted by Parliament as well as the

Goods and Services Tax Compensation Cess Rules, 2017, the

2

Rules framed by the Central Government in exercise of power

under Section 11 of the  Goods and Service Tax (Compensation

to States) Act, 2017 are under challenge in these cases.

3. Civil Appeal arising out of SLP(C)No.25415 of 2017 has

been filed by the Union of India challenging       ad interim

order dated 25.08.2017 passed 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 and another). In the writ

petition validity of the  Goods and Services Tax (Compensation

to States) Act, 2017 as well as Rules framed thereunder were

under challenge. The Division Bench passed a partial ad

interim order providing that additional levy on the stocks of

coal on which writ petitioner 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 Finance Act, 2010 was

paid any payment in terms of the impugned Act would be

subject to the result of the writ petition.  

4. This Court issued notice in the SLP on 22.09.2017 and

stayed impugned order passed by the High Court.  

5. Civil Appeal arising out of SLP(C)No.7708 of 2018 has

been filed by Union of India challenging interim order dated

3

08.09.2017 passed by the Division Bench of the Delhi High

Court in Writ Petition (C) No.7965 of 2017 (Hind Energy and

Coal Benefication (India) Ltd. vs. Union of India and

another). The Division Bench of the High Court passed interim

order dated 08.09.2017 almost in the similar manner as was

passed on 25.08.2017. This Court passed an order on

16.01.2018, while hearing SLP(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 learned   counsel

appearing for the respondents­writ petitioners, transferred

Writ Petition (C) No.7459 of 2017 to this Court to be heard

along with SLP(C)No.25415 of 2017. Transferred Case(C) No.9 of

2018 (Mohit Mineral Pvt. Ltd. vs. Union of India and another)

has been registered on transfer of Writ Petition (C)No.7459 of

2017 to this Court.

6. The decision in Transferred Case (C)No.9 of 2018 by which

Writ Petition (C)No.7459 of 2018 is to be heard by this Court

shall dispose of the transferred writ petition as well as both

the civil appeals. With the consent of the learned counsel for

the parties, we have proceeded to hear the writ petition

finally.

4

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

7. Mohit Mineral Pvt. Ltd. (hereinafter referred to as the

'writ petitioner') is a Company incorporated under the

Companies Act which is a trader of imported and Indian coal.

The writ petitioner imports coal from Indonesia, South Africa

and also purchases coal from Indian mines. The Finance Act,

2010 with effect from 01.07.2010 levied Clean Energy Cess

which was in the nature of a duty of excise on the production

of coal and was being collected at the time of removal of raw

coal, raw lignite and raw peat from the mine to the factory.

The Constitution (One Hundred and Twenty­Second Amendment)

Bill, 2014 was introduced in the Lok Sabha to seek amendment

in the Constitution, inter alia, providing for subsuming of

various indirect taxes and Central and States surcharges and

cesses so far as they relate to supply of goods and services

both on inter­State and intra­State. The    Constitution (One

Hundred and First Amendment) Act, 2016 was passed to levy

goods and services tax. Section 18 of the Amendment Act

enabled the Parliament to levy a cess for five years to

compensate the States for the loss of revenue on account of

GST. On 12.04.2017, Parliament enacted three Acts, namely, (1)

The Central Goods and Services Tax Act, 2017; (2) The

Integrated Goods and Services Tax Act, 2017; and (3) The Goods

5

and Services Tax (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 cesses including Clean Energy

Cess was repealed. The writ petitioner submitted a

representation to the GST Council seeking set off of Clean

Energy Cess against GST Compensation Cess. Writ Petition (C)

No.7459 of 2017 was filed by Mohit Minerals Pvt. Ltd. in Delhi

High Court praying for following reliefs:

"It is therefore, most respectfully prayed that this Hon'ble High Court be pleased to:

A)   issue a Writ of certiorari/mandamus or any other appropriate Writ/order/direction against the Respondents by quashing impugned Goods and Services Tax (Compensation to States) Act, 2017 by declaring that same lack legislative competency and unconstitutional;   B)   issue a Writ of certiorari/mandamus or any other appropriate Writ/order/direction against the Respondents by quashing impugned the Goods and Services Tax Compensation Rules, 2017 under the impugned legislation are illegal and unconstitutional;

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

D)   issue a Writ of certiorari/mandamus or any other appropriate Writ/order/direction against the Respondent No.2 by declaring that the Respondent

6

No.2 has no power under Article 279A of Constitution of India to make any recommendation, whatsoever, for levy and collection of cess as envisaged and levied under the impugned Goods and Services Tax (Compensation to States)Act, 2017 or framing of Rules and issuance of Notification under the said impugned legislation;

E)   issue such other writ/order/direction to the Respondent No.2 to place before this Hon'ble Court the  records  of the recommendation given  and  all decision taken in respect of levy and collection of cess as  envisaged and levied under the impugned Goods and Services Tax (Compensation to States) Act, 2017, framing of Rules and issuance of Notification under the said impugned legislation;

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

8. The Division Bench of the Delhi High Court passed ad

interim order on 25.08.2017. In the interim order dated

25.08.2017, the Division Bench observed that there is a prima

facie case made out by the writ petitioner regarding lack of

legislative competence of Parliament to enact Compensation to

States Act, 2017. In paragraphs 8, 9, 13 and 14 of the interim

order following was observed:

“8. The Court sees prima facie merit in the contention of the Petitioner, based on the history of the abolition of the Clean Energy Cess and the introduction of the GST regime, that the power of Parliament to enact the impugned Act cannot be traced to Section 18 of the COI 101st Amendment Act. There is therefore a prima facie case made out as regards the legislative competence of the Parliament to enact the impugned Act.

7

9. Another aspect of the matter is that Section 8 of the impugned Act contemplates levy of "a cess on such intra­State supplies of goods or services or both", the same that is provided in Section 9 of the Central Goods and Services Tax Act, 2017 ('CGST Act') and such "inter­State  supply of goods  and services or both" as provided for in Section 5 of the  Integrated Goods and Services Tax Act, 2017 ('IGST Act'). Therefore, it is clear that cess is being levied on the same taxable event that is the subject matter of the levy under the CGST and IGST Acts, viz., supply of goods and services.

... ... ... …

13. The Court, at this stage, is of the view that, the Petitioner has made out a prima facie case for partial ad interim relief subject to conditions. As far as the additional levy on the stocks of coal on which it has already paid the Clean Energy Cess in terms of FA Act, 2010, the Petitioner should not be required to make any further payment. However, on stocks of coal on which no Clean Energy Cess under the FA, 2010 was paid, any payment made in terms of the impugned Act would be subject to the result of this petition. It is ordered accordingly.

14. It is made clear that, in the event of the Petitioner succeeding in the present petition, the Petitioner would be entitled to a refund of amounts of Clean Energy Cess paid under the Act and on such terms 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 appearing

for the writ petitioner and Shri K.K. Venugopal learned

Attorney General appearing for the Union of India.

8

11. Shri J.K. Mittal learned counsel for the writ petitioner

submits that   the    Constitution (One Hundred and First

Amendment) Act, 2016 was enacted by the Parliament with the

intent to consolidate number of indirect taxes which were

levied by the Union and States with the intention to reduce

the Goods and Services Tax (GST)by giving concurring taxing

power to Union and States for levying GST on every transaction

of supply of goods or services both. There was a clear

objective of the aforesaid constitutional amendment that with

the introduction of Goods and Services Tax, not only the

indirect taxes but the cesses and surcharges levied on goods

and services shall also be subsumed in it.  

12. By Taxation Laws (Amendment) Act, 2017 various enactments

levying various types of cesses were repealed including Clean

Energy Cess/Clean Environment Cess which was levied and

collected on coal.  

13. The Compensation to States Act, 2017 is repugnant to and

transgress the mandate of the Constitution (One Hundred and

First Amendment) Act, 2016. It was the Parliament's conscious

decision to abolish with effect from 01.07.2017 all cesses

including cess levied on coal as per mandate of the

Constitution (One Hundred and First Amendment) Act, 2016. The

impugned legislation is colourable legislation which lacks

9

legislative competence. No power could be traced in Section 18

to the Constitution (One Hundred and First Amendment) Act,

2016 to amend Compensation to States Act, 2017. Section 18 of

the Constitution (One Hundred and First Amendment) Act, 2016

does not empower the Parliament to levy cess and tax as it

provides Parliament to make any law to provide compensation to

the States for loss of revenue arising on account of

implementation of GST for a period of 5 years. The impugned

legislation is a colourable legislation which lacks

legislative competence so far as collection of levy on cess is

concerned.

14. The impugned legislation defeat the very objective of the

Constitution (One Hundred and First Amendment) Act, 2016. On

the very same transaction there cannot be two levies, one

under Central GST Act and another under impugned legislation

as it would amount to double 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

the coal and under the impugned legislation the Union is again

levying and collecting cess at the rate of Rs.400 per ton on

the stock lying with the petitioner as on 30.06.2017 just on

eve of the day when all legislation related to GST including

10

impugned legislation was introduced, whereas on the same stock

of coal, cess was already levied and collected under the

provisions of Chapter VII of Finance Act, 2010. Thus, it

amounts to double collection of tax at the same rate on the

same stock. Even if the impugned legislation is found to be

within legislative competency, the petitioner may be permitted

to set off the cess of Rs.7.68 crores which was already paid

on the stock lying with the petitioner on 30.06.2017. Levy

under impugned legislation is tax and not a cess, hence, not

permissible in law.  

16. Shri K.K. Venugopal, learned Attorney General submits

that cess is nothing but a special kind of tax. If the

legislature is competent to levy the main tax, i.e. GST under

Article 246A of the Constitution, then legislative competence

of levying the cess flows from the very same power to levy the

tax itself. The phrase used in Article 246A “with respect to”

has wide implication and will allow levy of cess also. Power

to levy a 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 Constitution grants a residuary power to levy

a tax to the Union. The Clean Energy Cess which was imposed by

the Finance Act, 2010 and GST Compensation Cess are levied on

entirely different transactions and both are for entirely

11

different purpose. The Clean Energy Cess was in the nature of

a duty of excise on the production of coal and was being

collected at the time of removal of raw coal, raw lignite and

raw peat from the mine to the factory whereas GST Compensation

Cess is imposed on inter­State and intra­State supply of

specified goods and services. The Clean Energy Cess was levied

and collected for the purposes of financing and promoting

clean energy initiatives, funding research in the area of

clean energy, for any other purpose relating thereto whereas

GST Compensation Cess is collected to provide for compensation

to the States for the loss of revenue arising on account of

implementation of the goods and services tax.

17. The High Court committed an error in prima facie holding

that credit of Clean Energy Cess should be allowed to be

utilised for paying GST Compensation Cess. The provision of

credit and flow of credit is a purely policy decision of the

Executive. The Parliament does not lack legislative competence

to enact Compensation to States Act, 2017 nor the legislation

can be said to be colourable legislation. The Compensation to

States Act, 2017 in no manner transgressed Constitution (One

Hundred and First Amendment) Act, 2016.

18. Learned counsel for both the parties have placed reliance

on various judgments of this Court in support of their

12

respective submissions which shall be referred to while

considering the submissions in detail.

19. From the submissions of the learned counsel for the

parties and pleadings following issues arise for

consideration:

(1) Whether the Compensation to States Act, 2017 is

beyond the legislative competence of Parliament?

(2) Whether   Compensation to States Act, 2017 violates

Constitution (One Hundred and First Amendment) Act, 2016

and is against the objective of   Constitution (One

Hundred and First Amendment) Act, 2016?

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

colourable legislation?

(4) Whether levy of Compensation to States Cess and GST

on the same taxing event is permissible in law?

(5) Whether on the basis of Clean Energy Cess paid by the

petitioner till 30th  June, 2017, the petitioner is

entitled for set off in payment of   Compensation to

States Cess?

20. We have considered the submissions of learned counsel for

the parties and have perused the records.  

13

21. First, we need to notice relevant constitutional

provisions and the Parliamentary enactments relevant for the

issues raised in these cases.

22. Part XII of the Constitution deals with Finance. Article

265 provides that no tax shall be levied or collected except

by authority of law.   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 of goods”.  A Bill was introduced in the Lok Sabha

namely, the Constitution (One Hundred and Twenty­Second

Amendment) Bill, 2014 on 19.12.2014 proposing constitutional

amendments to introduce the goods and services tax for

conferring concurrent taxing powers on the Union as well as

the States including Union territory with Legislature to make

laws for levying goods and services tax on every transaction

of supply of goods or services or 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 goods and services tax for conferring concurrent taxing powers on the Union as well as the States including Union territory with Legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both. The goods and services

14

tax shall replace a number of indirect taxes being levied by the Union and the State Governments and is intended to remove cascading effect of taxes and provide for a common national market for goods and services. The proposed Central and State goods and services tax will be levied  on all transactions involving supply of goods and services, except those which 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 such as Central Excise Duty, Additional Excise Duties, Excise Duty levied under  the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, Special Additional Duty of Customs, and Central Surcharges and Cesses so far as they relate to the supply of goods and services;  

(b) subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, Taxes on lottery, betting and gambling; and State cesses and surcharges in so far as they relate to supply of goods and services;  

(c) dispensing with the concept of ‘declared goods of special importance’ under the Constitution;

(d) levy of Integrated Goods and Services Tax on inter­State transactions of goods and services;

(e) levy of an additional tax on supply of goods, not exceeding one per cent. in the course of inter­State trade or commerce to be collected by the Government of India for a period of two years, and assigned to the States from where the supply originates;  

(f) conferring concurrent power upon Parliament and

15

the State Legislatures to make laws governing goods and services tax;  

(g) coverage of all goods and services, except alcoholic liquor for human consumption, for the levy of goods and services tax. In case of petroleum and petroleum products, it has been provided that these goods shall not be subject to the levy of Goods and Services Tax till a date notified on the recommendation of the Goods and Services Tax Council.  

(h) compensation to the States for loss of revenue arising  on account of implementation of  the Goods and Services Tax for 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.  By Constitution (One Hundred and First Amendment) Act,

2016, new Articles 246A, 269A and 279A were inserted.

Amendments were also made in Articles 248, 249, 250, 268, 269,

270, 271, 286, 366 and 368.   Article 268A was omitted.

Amendments were also made in Seventh Schedule of the

Constitution in List I and List II.  Article 246A and 269A as

inserted  by Constitution  (One  Hundred  and  First Amendment)

Act, 2016 is as follows:­

"246A.  Special provision with respect to goods and services tax.­­  (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject  to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.

16

 (2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter­State trade or commerce

 Explanation.—The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council.”.

269A. Levy and Collection of goods and services tax in course of inter­State trade or commerce.­­  (1) Goods and services tax on supplies in the course of inter­State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of  the Goods and Services Tax Council.  

 Explanation.—For the purposes of this clause, supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter­State trade or commerce.

(2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India.

(3) Where an amount collected as tax levied under clause (1) has been used for payment of the tax levied by a State under article 246A, such amount shall not form part of the Consolidated Fund of India.

(4) Where an amount collected as tax levied by a State under article 246A has been used for payment of the tax levied under clause (1), such amount shall not form part of the Consolidated Fund of the State.

(5) Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both

17

takes place in the course of inter­State trade or commerce.”.

24. Article 270 of the constitution as amended by the above

Amendment Act is as follows:­

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

... ... ... ...”

25. Section 18 and Section 19 of the Constitution (One

Hundred and First Amendment) Act, 2016 is also relevant, which

are to the following effect:­

“18.  Compensation to States for loss of revenue on account of introduction of goods and services tax.­­  Parliament shall, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for a period of five years.  

19. Transitional provisions.­­  Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until

18

amended or repealed by a competent Legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier.

26. At this stage, it is also relevant to notice that in the

Constitution (One Hundred and Twenty­Second Amendment) Bill,

2014, Clause 18 contain a provision for arrangement for

assignment of additional tax on supply of goods to States for

two years or such other period recommended by Council, which

was to the following effect:­

“18. Arrangement for assignment of additional tax on supply of goods to States for two years or such other period recommended by Council  (1) An additional tax on supply of goods, not exceeding one per cent. in the course of inter­State trade or commerce shall, notwithstanding anything contained in clause (1) of article 269A, be levied and collected by the Government of India for a period of two years or such other period as the Goods and Services Tax Council may recommend, and such tax shall be assigned to the States in the manner provided in clause (2).  

(2) The net proceeds of additional tax on supply of goods in any financial year, except the proceeds attributable to the Union territories, shall not form part of the Consolidated Fund of India and be deemed to have been assigned to the States from where the supply originates.

(3) The Government of India may, where it considers necessary in the public interest, exempt such goods from the levy of tax under clause (1).

(4) Parliament may, by law, formulate the principles for determining the place of origin from where supply of goods take place in the course of inter­State trade or commerce.”

19

27. Clause 19 contain compensation to States for loss of

revenue on account of introduction of goods and services tax.

Clause 19 of the Bill is as follows:­          

“19.  Compensation to States for loss of revenue on account of introduction of goods and services tax.­­  Parliament may, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for such period which may extend to five years.”

28. It is, however, to be noticed that Constitution (One

Hundred and Twenty­Second Amendment) Bill, 2014 was passed but

Clause 18 of the Bill was not incorporated and Clause 19 found

place as Section 18 of the Constitution (One Hundred and First

Amendment) Act, 2016.   After the aforesaid Constitution

Amendment,  Parliament enacted Central Goods 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 of goods or services or both by the Central Government

and for matters connected therewith or  incidental

thereto. On the same day, another enactment  namely 'The

Integrated Goods and Services Tax Act, 2017'  (Act No. 13 of

2017 dated 12.04.2017) was enacted to make a provision for

levy and collection of tax on inter­State supply of goods or

services or both by the  Central Government and for matters

20

connected therewith  or incidental thereto. Another

enactment namely 'The Union Territory Goods and Services Tax

Act, 2017' (Act No. 14 of 2017) was passed on the same day to

make a provision for levy and collection of tax on intra­State

supply of goods or services or both by the Union

territories and for matters connected therewith or

incidental thereto. The Fourth Parliamentary enactment, which

is subject matter of challenge in the present case was also

enacted on the same day, i.e. 12.04.2017,  namely 'The

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

(Act NO. 15 of 2017) to provide  for compensation to the

States for the loss of revenue  arising on account of

implementation of the goods and  services tax in pursuance

of the provisions of the  Constitution (One Hundred and

First Amendment) Act,  2016. As the Preamble indicate

(Compensation to States) Act, 2017 was enacted in pursuance of

the provisions of      the Constitution (One Hundred and First

Amendment) Act,     2016. Section 8 of the Compensation to States

Act, 2017 provides for levy and collection of Cess, which is

as follows:­

8. Levy and collection of cess.­­(1)  There shall be levied a cess on such intra­State supplies of goods or services or both, as provided for in section 9 of the Central Goods and Services Tax Act, and such inter­State supplies of goods  or

21

services or both as provided for in section 5 of the  Integrated Goods and Services Tax Act, and  c o l l e c t e d i n s u c h m a n n e r a s m a y b e prescribed, on the recommendations of the Council, for the purposes of providing compensation to the States for loss of  revenue arising on account of implementation  of the goods and services tax with effect  from the date from which  the  provisions  of  the Central Goods and Services Tax Act is  brought into force, for a period of five years or for such period as may be prescribed on the recommendations of the Council:

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

(2) The cess shall be levied on such supplies  of goods  and  services as  are  specified  in  column (2) of the Schedule, on the basis of  value, quantity or on such basis at such rate  not exceeding the rate set forth in the corresponding entry in column (4) of ,the Schedule, as the Central Government may, on  the recommendations of the Council, by notification in the Official Gazette, specify:

Provided  that   where  the cess is chargeable on any supply of goods or services  or both with reference to their value, for  each such supply the value shall be determined under section 15 of the Central  Goods and Services Tax Act for all intra­State and inter­State supplies of goods or services or both:

Provided further that the cess on goods imported into India shall be levied and collected in accordance with the provisions  of section 3 of the Customs Tariff Act, 1975 (51 of 1975), at the point when duties of  customs are levied on the said goods under section 12 of the Customs Act, 1962 (52 of  1962), on a value determined under the Customs Tariff Act, 1975.

22

29.  Section 12(1) empowers the Central Government to make

rules for carrying out the provisions of the Act on  the

recommendation of the Council. The Council is defined in

Section 2(e) of the Act as "Council means the  Goods and

Services Tax Council constituted under the  provision of

Article 279A of the Constitution". The  Schedule of the

Act read with Section 8 contains description of supply of

goods or services in column 2; Tariff item, heading,

sub­heading, Chapter or supply of goods or services, as the

case may be, in column 3 and  the  maximum rate at which

goods and services         tax                 compensation         cess         may be

collected    in column 4. The  Central Government, in exercise

of power under Section 12, has framed the rules namely "The

Central Goods and Services Tax Rules, 2017".

30.  Parliament enacted the Taxation Laws (Amendment) Act,

2017 dated 04.05.2017 to amend the Customs Act, 1962, the

Customs Tariff Act, 1975, the Central Excise Act, 1944, the

Central Sales Tax Act, 1956, the Finance Act, 2001 and the

Finance Act, 2005 and to repeal certain enactments.

31.  By Taxation Laws (Amendment) Act, 2017, the Finance Act,

2010, Chapter VII has been repealed. The Finance Act, 2010,

Chapter VII provided for levy of Clean Energy Cess, which stood

repealed.

32.  We now proceed to consider the issues as noted above.

23

Whether the Compensation to States Act, 2017 is beyond the legislative competence of Parliament? (Issue No.1)

33.   The petitioners have challenged the legislative

competence of Parliament to enact Compensation to states Act,

2017.  The petitioners submits that impugned legislation has

transgressed the limits of its power granted under the

Constitution.   It is contended that although the impugned

legislation is described as for purpose of giving compensation

to States by Centres to States for loss of revenue but in fact

it impose tax (termed as cess), hence in pith and substance

the legislation does not belong to the subject falling within

the limits of its power but is outside it.   

34.   Part XI of the Constitution deals with the relation

between the Union and the States, Chapter I of which deals

with “Legislative Relations”.   Article 245 deals with

“Distribution of Legislative Powers”.   The Parliament has

exclusive power to make laws with respect to any of the

matters enumerated in List I in Seventh Schedule of the

Constitution.   The Parliament, and subject to Clause(1) of

Article 246, the Legislature of a State also have power to

make laws with respect to any of the matters enumerated in

List III of the Seventh Schedule.   Article 248 deals with

24

residuary power of Legislation in following manner:­

Article 248 – Residuary powers of legislation­­(1) Subject to article 246A, Parliament has exclusive power to make any law with respect to a matter not enumerated in the Concurrent List or State List.

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

35.   Article 246A as noticed above provides that

“notwithstanding anything contained in articles 246 and 254,

Parliament, and, subject to clause(2), the Legislature of

every State, have power to make laws with respect to goods and

services tax imposed by the Union or by such State”. In the

present case, we are concerned with a cess imposed by

Compensation to States Act, 2017.  The Act by Section 8 levies

and authorizes collection of cess.  We need to first examine

nature of cess.   Cess has been defined in Black’s Law

Dictionary, Tenth Edition as “An assessment or tax.”   

36.   P. Ramanatha Aiyar, Advanced Law Lexicon, 3rd  Edition

defines cess as follows:­

“Cess” is “An assessment tax; levy; specifically: (a) A rate or local tax…….(b) In Scotland, the land tax. (c) in India, a tax for a special object; as, a road cess”. (Webster)  

The word “cess” is used in Ireland and is still in use in India although the word rate has replaced it

25

in England.  It means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess, etc.) indicates.  When levied as an increment to an existing tax, the name matters not for the validity of the cess must be judged of in the same way as the validity of the tax to which 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 levy is for some special administrative expense which the name (health cess, education cess, road cess, etc.) indicates.  Shinde Brothers v. Hy. Commissioner, Raichur, AIR 1967 SC 1512, 1525.”    

37.  This Court had considered the expression “cess” in Shinde

Brothers Etc. Vs. Deputy Commissioner, Raichur & Others Etc.,

AIR 1967 SC 1512, Justice M. Hidyatullah, as he then was in

his dissenting opinion has defined the cess (“no contrary

opinion was expressed by majority in that regard”) in

paragraph 39, which is to the following effect:­

“39. Now the health cess is first assailed on the ground that there is no entry “health cess” as such in the legislative entries. The word “cess” is used in Ireland and is still in use in India although the word rate has replaced it in England. It means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess etc.) indi­ cates. When levied as an increment to an existing tax, the name matters not for the validity of the cess must be judged of in the same way as the va­ lidity of the tax to which it is an increment. By Schedule A(1) read with Section 3 of the Act, it is collected as an additional levy with a tax, which,

26

as described in Schedule A, is undoubtedly one within the powers of the State Legislature and has been so even prior to the Constitution……………………”  

38.  In the Constitution Bench judgment of this Court in India

Cement Ltd. & Others Vs. State of Tamil Nadu & Others, (1990)

1 SCC 12, the above definition given by Hidayatuallah, J. was

quoted with approval in Para 19, which is quoted as below:­=

“19.  Here, we are concerned with cess on royalty. One can have an 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 ob­ served :

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

39.   The meaning of “cess” as noticed above was again

reiterated by a Two Judge Bench judgment of this Court in

Vijayalashmi Rice Mill & Others Vs. Commercial Tax Officers,

Palakol & Others, (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 kind of tax. Generally tax raises rev­ enue which can be used generally for any purpose by

27

the State. For instance, the income tax or excise tax or sales tax are taxes which generate revenue which can be utilised by the Union or the State Governments for any purpose e.g. for payment of salary to the members of the armed forces or civil servants, police, etc. or for development pro­ grammes, etc. However, cess is a tax which gener­ ates revenue which is utilised for a specific pur­ pose. For instance, health cess raises revenue which is utilised for health purposes e.g. building hospitals, giving medicines to the poor, etc. Simi­ larly, education cess raises revenue which is used for building schools or other educational pur­ poses.”

40.  The expression “cess” as held above means a tax levied

for some special purpose, which may be levied as an increment

to an existing tax.  The Scheme of Compensation to States Act,

2017 as noticed above indicate that the cess is with respect

to goods and services tax.  There are more than one reason to

uphold the legislative competence of Parliament to enact the

Compensation to States Act, 2017.  Constitution Bench of this

Court in Union of India Vs. Harbhajan Singh Dhillon, (1971) 2

SCC 779  held that only question to be asked while examining

the legislative competence of Parliament with regard to a

particular enactment is: Is the matter sought to be legislated

or included in List II or in List III or is the tax sought to

be levied mentioned in List II or in List III”.  In Para 21,

the Constitution Bench laid down following:­

28

“21. It seems to us that the function of Article 246(1), read with Entries 1­96, List I, is to give positive power to Parliament to legislate in re­ spect of these entries. Object is not to debar Par­ liament from legislating on a matter, even if other provisions of the Constitution enable it to do so. Accordingly we do not interpret the words “any other matter” occurring in Entry 97, List I, to mean a topic mentioned by way of exclusion. These words really refer to the matters contained in each of the Entries 1 to 96. The words “any other mat­ ter” had to be used because Entry 97, List I fol­ lows  Entries 1­96, List  I. It  is  true  that the field of legislation is demarcated by Entries 1­96, List I, but demarcation does not mean that if Entry 97, List I confers additional powers, we should refuse to give effect to it. At any rate, whatever doubt there may be on the interpretation of Entry 97, List I is removed by the wide terms of Article 248. It is framed in the widest possible terms. On its terms the only question to be asked is: Is the matter sought to be legislated or included in List II or in List III or is the tax sought to be levied mentioned in List II or in List III: No question has to be asked about List I. If the answer is in the negative then it follows that Parliament has power to make laws with respect to that matter or tax.”

41.  When we pose the above question in context of impugned

legislation, i.e. Compensation to States Act, 2017, we do not

find any entry in List II or List III of Seventh Schedule,

which may refer to levying of cess in question.  Article 248

read with Articles 246 and 246A clearly indicate that

residuary power of legislation is with the Parliament.  In the

present case, we may notice that no contention has been raised

before us that the subject matter of legislation was within

29

the competence of State Legislature, and that the Parliament

had no competence to legislate.  Applying the H.S. Dhillon’s

test (supra), we do not find any lack of legislative

competence in the Parliament.  

42.   Learned counsel for the petitioner relied on two

decisions of this Court namely Hoechst Pharmaceuticals Ltd. &

Others Vs. State of Bihar & Others, (1983) 4 SCC 45 and M.P.V.

Sundararamier & Co. Vs. State of A.P. & Others, AIR 1958 SC

468 to contend that taxation is a distinct matter for purposes

of legislative competence and the power to tax cannot be

deduced from a general legislative entry as an ancillary

power.   He submits that State Compensation Cess being not

covered by any taxing entry, the legislation is beyond the

competence of Parliament.   We may first notice the

proposition, which has been laid down by this court in Hoechst

Pharmaceuticals Ltd. (supra).   This Court in the above case

had occasion to examine Bihar Finance Act, 1981, by which

surcharge was levied on certain dealers selling essential

commodities such as drugs.   Challenge to the legislative

competence of the State was raised.   In the above context,

this Court had observed that taxation is considered to be a

distinct matter for purposes of legislative competence.   In

paragraphs 74, 75 and 76, following was laid down:­

30

“74. It is equally well settled that the various entries in the three Lists are not ‘powers’ of leg­ islation, but ‘fields’ of legislation. The power to legislate is given by Article 246 and other Arti­ cles of the Constitution. Taxation is considered to be a distinct matter for purposes of legislative competence. Hence, the power to tax cannot be de­ duced from a general legislative entry as an ancil­ lary power. Further, the element of tax does not directly flow from the power to regulate trade or commerce in, and the production, supply and distri­ bution of essential commodities under Entry 33 of List III, although the liability to pay tax may be a matter incidental to the Centre’s power of price control.

75. “Legislative relations between the Union and the States inter se with reference to the three Lists in Schedule VII cannot be understood fully without examining the general features disclosed by the entries contained in those Lists”: Seervai in his Constitutional Law of India, 3rd Edn., Vol. 1 at pp. 81­82. A scrutiny of Lists I and II of the Seventh Schedule would show that there is no over­ lapping anywhere in the taxing power and the Con­ stitution gives independent sources of taxation to the Union and the States. Following the scheme of the Government of India Act, 1935, the Constitution has made the taxing power of the Union and of the States mutually exclusive and thus avoided the dif­ ficulties which have arisen in some other Federal Constitutions from overlapping powers of taxation.

76.  It would therefore appear that there is a distinction made between general subjects of legis­ lation and taxation. The general subjects of legis­ lation arc dealt with in one group of entries and power 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 the separation of taxation powers between the Union and the States by mutually exclusive lists. In List I, Entries 1 to 81 deal with general subjects of legislation; Entries 82 to 92­A deal with taxes. In List II, Entries 1 to 44 deal with general subjects of legislation; Entries

31

45 to 63 deal with taxes. This mutual exclusiveness is also brought out by the fact that in List III, the Concurrent Legislative List, there is no entry relating to a tax, but it only contains an entry relating to levy of fees in respect of matters given in that list other than court­fees. Thus, in our Constitution, a conflict of the taxing power of the Union and of the States cannot arise. That be­ ing so, it is difficult to comprehend the submis­ sion that there can be intrusion by a law made by Parliament under Entry 33 of List III into a for­ bidden field viz. the State’s exclusive power to make a law with respect to the levy and imposition of a tax on sale or purchase of goods relatable to Entry 54 of List II of the Seventh Schedule. It follows that the two laws viz. sub­section (3) of Section 5 of the Act and para 21 of the Control Or­ der issued by the Central Government under sub­sec­ tion (1) of Section 3 of the Essential Commodities Act, operate on two separate and distinct fields and both are capable of being obeyed. There is no question of any clash between the two laws and the question of repugnancy does not come into play.”      

43.   Levy of surcharge was upheld referring to Entry 52 of

List II of Seventh Schedule.   Following was laid down in

paragraph 90:­

“90.  The decision in Fernandez case, AIR 1957 SC 657 is therefore clearly an authority for the proposition that the State Legislature notwith­ standing Article 286 of the Constitution while mak­ ing a law under Entry 54 of List II of the Seventh Schedule can, for purposes of the registration of a dealer and submission of returns of sales tax, in­ clude the transactions covered by Article 286 of the Constitution. That being so, the constitutional validity of sub­section (1) of Section 5 of the Act which provides for the classification of dealers whose gross turnover during a year exceeds Rs 5 lakhs for the purpose of levy of surcharge, in ad­ dition to the tax payable by him, is not assail­

32

able. So long as sales in the course of inter­State trade and commerce or sales outside the State and sales in the course of import into, or export out of the territory of India are not taxed, there is nothing to prevent the State Legislature while mak­ ing a law for the levy of a surcharge under Entry 54 of List II of the Seventh Schedule to take into account the total turnover of the dealer within the State and provide, as has been done by sub­section (1) of Section 5 of the Act, that if the gross turnover of such dealer exceeds Rs 5 lakhs in a year, he shall, in addition to the tax, also pay a surcharge at such rate not exceeding 10 per centum of the tax as may be provided. The liability to pay a surcharge is not on the gross turnover including the transactions covered by Article 286 but is only on inside sales and the surcharge is sought to be levied on dealers who have a position of economic superiority………………”  

44.  In M.P.V. Sundararamier (supra) this Court also laid down

that the tax cannot be levied under general entry.   The

present is a case where 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 Section 2(c) states “cess

means the goods and services tax compensation cess levied

under section 8”.   The judgment of this Court relied by

petitioner in 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, for

reference, which is quoted as below:­

“97. Any other matter not enumerated in List II or

33

List III including any tax not mentioned in either of those Lists.”

46.  Article 270 of the Constitution, both as it existed prior

to Constitution (One Hundred and First Amendment) Act, 2016

and subsequent to Constitution (One Hundred and First

Amendment) Act, 2016 uses the expression “any cess levied for

specific purposes under any law made by Parliament”.  Article

270(1) as existed prior to Constitution (One Hundred and First

Amendment) Act, 2016, is as follows:­

“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 269 respectively, surcharge on taxes and duties referred to in Art. 271 and any cess levied for specific purposes under any law made by Parliament shall be levied and collected by the Government of India and shall be distributed between the Union and the States in the 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 purpose under a law made by it.  Article 270, thus,

specifically empowers Parliament to levy any cess by law.

Lastly, Section 18 of the Constitution (One Hundred and First

Amendment) Act, 2016 expressly empowers Parliament shall, “by

law” on the recommendation of the Goods and Services Tax

Council, provide for compensation to the states for loss of

34

revenue arising on account of implementation of the goods and

services tax….”   When Constitution provision empowers the

Parliament to provide for Compensation to the States for loss

of revenue  by law, the expression “law” used therein is of

wide import which includes levy of any cess for the above

purpose.  We, thus, do not find any merit in the submission of

the learned counsel for the petitioner that Parliament has no

legislative competence  to  enact the Compensation  to States

Act, 2017.   

Answer to Issue No.1 is,thus, as follows:

The Compensation to States Act, 2017 is not beyond the

legislative competence of the Parliament.  

Issue No.2 and Issue No.3               

48.   We now come to Issue No.2 and Issue No.3, which,

being interconnected, are taken up together.  

49. The next attack on Compensation to States Act, 2017 is on

the ground that the Act transgresses the mandate of

Constitution (One Hundred and First Amendment) Act, 2016.  It

is submitted that Constitution (One Hundred and First

Amendment) Act, 2016 does not permit levy of cess on supply of

goods or services on which Goods and Services Tax has been

levied.  Elaborating the submission, it is contended that the

35

clear objective of Constitution (One Hundred and First

Amendment) Act, 2016 was to subsume various Central and States

Taxes, Central and States surcharges and cesses, so far as,

they relate to supply of goods and services. When all taxes,

surcharges and cesses were subsumed in by Goods and Services

Tax,  imposition of compensation to States cess clearly falls

foul to the Constitution (One Hundred and First Amendment)

Act, 2016.   The Statements of Objects and Reasons of

Constitution (One Hundred and Twenty­Second Amendment) Bill,

2014, as noticed above, was to subsume various Central

Indirect Taxes and levy of Service Tax, Additional Customs

Duty, Special Additional Duty of Customs, Central Surcharges

and Cesses so far as they relate to the supply of goods and

services.   

50.  One of the objectives as noticed in Statements of Objects

and Reasons was “conferring concurrent taxing powers upon

Parliament and the State Legislature to make laws for levying

goods and services tax”.  Article 246A sub­article(1) empowers

the Parliament to “make laws with respect to goods and

services tax”.   The word “with respect to” is word of

expansion.   Similar expressions namely, “pertaining to”, “in

relation to” came to be considered before this Court in M/s.

Doypack Systems Pvt. Ltd. Vs. Union of India & Others, (1988)

36

2 SCC 299,  where this Court held that the above expressions

are used in the expansive sense.  Following has been laid down

in paragraphs 48 and 49:­

“48………………….The expressions “pertaining to”, “in relation to” and “arising out of”, used in the deeming provision, are used in the expansive sense, as per decisions of courts, meanings found in standard dictionaries, and the principles of broad and liberal interpretation in consonance with Article 39(b) and (c) of the Constitution.

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

51. Learned counsel for the petitioner has placed reliance on

judgment of this Court in Dewan Chand Builders and Contractors

Vs. Union of India and Others, (2012) 1 SCC 101.  The

Parliament had enacted Building and Other Construction

Workers’ (Regulation of Employment and Conditions of Service)

Act, 1996 and Building and Other Construction Workers Welfare

Cess Act, 1996.  The constitutional validity and competence of

Parliament was challenged before the Delhi High Court.  Delhi

37

High Court upheld the validity of Building and Other

Construction Workers’ (Regulation of Employment and Conditions

of Service) Central Rules, 1998 holding the levy under the

impugned enactment as a fee referable to Entry 97 of List I of

Seventh Schedule of the Constitution.  Before this Court, it

was contended that cess in question was a tax and not a cess

since no element of quid pro quo exists and if it is a tax,

then it is a tax on “lands and buildings” falling within the

ambit of Schedule VII List II Entry 49.  Argument was noticed

in paragraph 23 to the following effect:­      

“23. It is evident from the contentions raised on behalf of the appellant that there is a two­pronged attack on the legislative competence of Parliament to enact the Cess Act: (i) it is a “tax” and not a “cess” because no element of quid pro quo exists between the 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 of Schedule VII List II Entry 49 (the State List), ousting the legislative competence of Parliament.”

52.   This Court noticed the distinction between fee and tax

and referred to earlier judgments including judgment of this

Court in Commissioner, Hindu Religious Endowments, Madras Vs.

Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, AIR 1954

SC 282.  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 is to the following effect:­

38

“31.  There is no doubt in our mind that the Statement of Objects and Reasons of the Cess Act, clearly spells out the essential purpose the enact­ ment seeks to achieve i.e. to augment the Welfare Fund under the BOCW Act. The levy of cess on the cost of construction incurred by the employers on the building and other construction works is for ensuring sufficient funds for the Welfare Boards to undertake social security schemes and welfare mea­ sures for building and other construction workers. The fund, so collected, is directed to specific ends spelt out in the BOCW Act. Therefore, applying the principle laid down in the aforesaid decisions of this Court, it is clear that the said levy is a “fee” and not “tax”. The said fund is set apart and appropriated specifically for the performance of specified purpose; it is not merged in the public revenues for the benefit of the general public and as such the nexus between the cess and the purpose for which it is levied gets established, satisfying the element of quid pro quo in the scheme. With these features of the Cess Act in view, the subject levy has to be construed as “fee” and not a “tax”. Thus, we uphold and affirm the finding of the High Court on the issue.”

53.  The above judgment has no application in the facts of the

case.  The case of the Union is not that cess is a fee. Rather

contention is that it is increment to the goods and services

tax.  We having already held that State compensation cess is

“with respect to” goods and services tax, it is a tax.

54.  Learned counsel for the petitioner has further relied on

certain decisions on distinction between tax and fee. But the

levy of cess, in the present case, not even claimed as fee, it

39

is not necessary to refer to above cases which reiterate the

well established principles emanating from Commissioner, Hindu

Religious Endowments, Madras Vs. Sri Lakshmindra Thirtha

Swamiar of Sri Shirur Mutt (supra).    

55.   The expression used in Article 246A is “power to make

laws with respect to goods and services tax”.  The power to

make law, thus, is not general power related to a general

entry rather it specifically relates to goods and services

tax.  When express power is there to make law regarding goods

and services tax, we fail to comprehend that how such power

shall not include power to levy cess on goods and services

tax.   True, that Constitution (One Hundred and First

Amendment) Act, 2016 was passed to subsume various taxes,

surcharges and cesses into one tax but the constitutional

provision does not indicate that henceforth no surcharge or

cess shall be levied.   

56. Learned counsel for the petitioner has referred to

Section 18 of the Constitution (One Hundred and Twenty­Second

Amendment) Bill, 2014, where an additional tax on supply of

goods not exceeding one per cent was contemplated, which did

not find place in Constitution (One Hundred and First

Amendment) Act, 2016.   He submits that the additional tax,

which was proposed by the Constitution (One Hundred and

40

Twenty­Second Amendment) Bill, 2014 was not allowed to find

place in Constitution (One Hundred and First Amendment) Act,

2016, it is to be accepted that Constitution Amendment did not

contemplate levy of additional tax on services and goods tax.

The above submission in so far as not continuing an additional

tax on supply of goods in the Constitution (One Hundred and

First Amendment) Act is concerned, the submission of the

learned counsel for the petitioner is correct that additional

tax, which was contemplated by Clause 18 of the Bill did not

find place in Constitution Amendment Act. Further, Clause 19

of the Bill find place as Section 18 of the Constitution (One

Hundred and First Amendment) Act, 2016.   Thus, power of

Parliament to make law providing for compensation to the

States for loss of revenue was expressly included by

constitutional provision.   

57. Further, the Preamble of Compensation to States Act, 2017

expressly mentions the Act to provide for

compensation to the States for the loss of revenue arising on

account of implementation of the goods and services Tax in

pursuance of the provisions of the Constitution (One Hundred

and First Amendment) Act, 2016. Thus, the Compensation to

States Act, 2017 has been enacted under the express

Constitution (One Hundred and First Amendment) Act, 2016.  We,

41

thus, also do not find any force in the submission of the

learned counsel for the petitioner that Compensation to States

Act, 2017 transgresses the Constitution (One Hundred and First

Amendment) Act, 2016.   

58. Due to above reasons, we do not find any substance in the

submission of the petitioner that Compensation to States Act,

2017 is a colourable legislation.   We having held that

Parliament has full legislative competence to enact the Act

and the Act having been enacted to implement the Constitution

(One Hundred and First Amendment) Act and the object being

clearly to fulfill the Constitution (One Hundred and First

Amendment) Act’s objective, we reject the submission of the

petitioner that Compensation to States Act, 2017 is a

colourable legislation.  We, thus, answer Issue No.2 and Issue

No. 3 in following manner:­

Ans. 2 ­ The Compensation to States Act, 2017 does not

violate Constitution (One Hundred and First

Amendment) Act, 2016 nor is against the objective

of Constitution (One Hundred and First Amendment)

Act, 2016.

Ans.3 ­ The Compensation to States Act is not a colourable

legislation.     

42

Whether levy of Compensation to States Cess and GST  on  the same taxing event is permissible in law? (Issue No.4)

59. The petitioner elaborating his contention submits that as

per Section 8 of impugned legislation there shall be levied a

cess on intra­State supply of goods and services as provided

in Section 9 of the CGST Act whereas CGST Act has been enacted

to levy tax as provided under Article 246A of the

Constitution. This is also true in respect of the cesses

imposed on inter­State supplies of goods and services covered

by Section 5 of IGST Act, 2017. Therefore, on the same very

transaction there cannot be two levies, one under CGST Act and

another under impugned legislation as it would amount to

double taxation as levy is on the same taxable event and same

subject. Thus, there is an overlapping on law which is not

permissible. The petitioner contends that goods and services

tax being already imposed by three enactments of 2017 as

noticed above imposition of States Compensation Cess is levied

on the same taxing event and has overlapping effect.  

60.  The principle is well settled that two taxes/imposts

which are separate and distinct imposts and on two different

aspects of a transaction are permissible as “in law there is

43

no overlapping”.  

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 might incidentally affect another subject in some way,

but that is not the same thing. There might be overlapping but

the overlapping must be in law. The fact that there is an

overlapping does not detract from the distinctiveness of the

aspects. Therefore, if the taxes are separate and distinct

imposts and levied on the different aspects, then there is no

overlapping 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 same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects, Lord Simonds in Governor General in Council v. Province of Madras [1945] FCR 179 P.C. at 193, in the context of concepts of Duties of Excise and Tax on Sale of Goods said:

“...The two taxes, the one levied on a manufacturer in respect of 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 is no overlapping. The taxes are separate and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it

44

convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale....””

62. Justice Krishna Iyer in  Avinder Singh and others Vs.

State of Pubjab and others, (1979) 1 SCC 137,  laid down that

if on the same subject­matter the legislature chooses to levy

tax twice over there is no inherent invalidity in the fiscal

adventure unless there are some other prohibitions. In the

above case Government of Punjab had issued a notification

under Section 90(4) of the Punjab Municipal Corporation Act,

1976 imposing tax at the rate of Rupee 1 per bottle on Indian

made Foreign Liquor within the Municipal Corporation of

Ludhiana. One of the contentions raised was that tax imposed

is on sale, hence, beyond Government power. In paragraph 4

following was laid down:

"4.......A feeble plea that the tax is bad because of the vice of double taxation and is unreasonable because there are heavy prior levies was also voiced. Some of these contentions hardly merit consideration, but have been mentioned out of courtesy to counsel. The last one, for instance, deserve the least attention. There is nothing in Article 265 of the Constitution from which one can spin out the constitutional vice called double taxation. (Bad economics may be good law and vice versa). Dealing with a somewhat similar argument, the Bombay High Court gave short shrift to it in Wester India Theatres (AIR 1954 Bom 261).  Some undeserving   contentions die hard, rather survive after death. The only epitaph we may inscribe is :

45

Rest in peace and don't be re­born ! If on the same subject­matter the legislature chooses to levy tax twice over there is no inherent invalidity in the fiscal adventure save where other prohibitions exist.”

63. Goods and Services Tax imposed under the 2017 Acts as

noticed above and levy of cess on such intra­State   supply of

goods and services or both as provided under Section 9 of the

CGST Act and such supply of goods and services or both as part

of Section 5 of IGST Act is, thus, two separate imposts in law

and are not prohibited by any law so as to declare it invalid.

64. We, thus, do not find any substance in the submission

that levy of 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

goods and services tax which is permissible in law.

Issue No.5

65. The last submission of the petitioner is that he having

paid Clean Energy Cess till 30.06.2017 on the stocks of coal,

he is at least entitled to set off in payment of Compensation

to States Cess. As noticed above   Clean Energy Cess was

imposed under the Finance Act, 2010. The Clean Energy Cess and

46

the States Compensation Cess are collected for wholly

different purposes. As per sub­section (3) of Section 83 of

the Finance Act, 2010, the Clean Energy Cess was levied and

collected for the purposes of financing and promoting clean

energy initiatives, funding research in the area of clean

energy or for any other purpose relating thereto whereas

States Compensation Cess is collected to “provide for

compensation to the States for the loss of revenue arising on

account of implementation of the goods and services tax”.  

66. The distribution between the Union and States of the

Clean Energy Cess and GST Compensation Cess so collected are

also different. Under Section 83(6) of the Finance Act, 2010

the Clean Energy Cess was to be used for the purposes of the

Union and not to be distributed to the States whereas States

Compensation Cess has to be wholly distributed amongst the

States to compensate the States.  

67. The petitioner's submission that the petitioner should be

given the credit to the extent of payment of Clean Energy Cess

upto 30.06.2017 also cannot be accepted. The Clean Energy Cess

and States Compensation Cess are entirely different from each

other, payment of Clean Energy Cess was for different purpose

and has no bearing or connection with States Compensation

Cess. Giving credit or set off in the payment is legislative

47

policy which had to be reflected in the legislative scheme.

Compensation to States Act, 2017 or Rules framed thereunder

does not indicate giving of any credit or set off of the Clean

Energy Cess already paid till 30.06.2017. Thus, claim of the

petitioner that he is entitled for set off in payment of

Compensation to States Cess to the extent 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 made towards Clean Energy Cess in payment of

Compensations to States Cess.

68. In view of the foregoing discussions, we do not find any

merit in the writ petition. The writ petition is dismissed.

The transferred case is accordingly dismissed. Both the civil

appeals are allowed. Parties shall bear their own costs.

..........................J. ( A.K. SIKRI )

..........................J.      ( ASHOK BHUSHAN )

NEW DELHI, OCTOBER 03, 2018.