The Supreme Court has upheld the Constitutional validity of the law allowing cess to be collected for compensating States for revenue shortfall under the Goods and Services Tax (GST).

“The Compensation to States Act, 2017 is not beyond the legislative competence of Parliament,” a Division Bench of Justice A K Sikri and Justice Ashok Bhushan said in its order pronounced on Wednesday. The ruling was given on a Special Leave Petition (SLP) filed by the Central Government challenging an interim order dated August 25, 2017 passed by the Division Bench of the Delhi High Court.

The Division Bench had ruled that additional levy on the stocks of coal on which the company, Mohit Minerals (petitioner in the High Court and Respondent in the Supreme Court), had already paid Clean Energy Cess in terms of Finance Act, 2010, it shall not be required to make any further payment. However, on stocks of coal on which no Clean Energy Cess under the Act was paid any payment in terms of the impugned Act would be subject to the result of the writ petition.

Five issues

The apex court considered five issues — whether the Compensation to States Act, 2017 is beyond the legislative competence of Parliament, whether the Act violates Constitution (One Hundred and First Amendment) Act, 2016 and is against the objective of Constitution (One Hundred and First Amendment) Act, 2016, whether the Compensation to States Act, 2017 is a colourable legislation, whether levy of Compensation to States Cess and GST on the same taxing event is permissible in law and whether on the basis of Clean Energy Cess paid by the petitioner till June 30, 2017, the petitioner is entitled for a set-off in cess payment.

The apex court said the Compensation Law does not violate provisions of the 101st Constitutional Amendment. The Bench categorically ruled that the said law is not a ‘Colourable Legislation’ (under the ‘colour’ or ‘guise’ of power conferred for one particular purpose, the legislature cannot seek to achieve some other purpose which it is otherwise not competent to legislate on).

For the fourth issue, the court replied that levy of Compensation to States Cess is an increment to GST which is permissible in law. And finally, the Bench denied entitlement for the company for any set off of payments made towards Clean Energy Cess in payment of Compensation to States Cess.

According to Anita Rastogi, Partner (Indirect Taxes) at PwC, the ruling settles the issue that Clean Energy Cess and State compensation Cess are two different cesses for different purpose. So “one cannot be set off against the other.., further clean energy cess is not to be distributed to States.”

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