At a time when the government is contemplating a hike in the cess on luxury cars and SUVs to correct the unintended fall in tax revenue from the automobile industry after the roll-out of the goods and services tax (GST), the Delhi High Court has put a question mark on the validity of the GST (Compensation to States) Act, 2017 (GSTCA), under which the above cess and other similar imposts are enforced. A division bench led by justice S Muralidhar found “prima facie merit” in the contention of one Mohit Minerals, a coal importer/trader, which said it was made to pay additional levy as Clean Energy Cess without the authority of law since Parliament’s power to enact the GSTCA could not be traced to where it derived it, that is, the Constitution (101st Amendment) Act, 2016.
“There is therefore a prima facie case made out as regards the legislative competence of the Parliament to enact (GSTCA),” the court said, while giving a partial ad interim relief to the petitioner. If this view is upheld by the court in its final order, it could have serious implications for the Centre and states as it could even necessitate a fresh constitutional amendment to legally buttress the cesses under GST. Apart from the Clean Energy Cess on coal at `400 per tonne, luxury cars, aerated drinks, pan masala, chewing tobacco and cigarettes are subject to specified cesses under GSTCA. According to the court’s interim order, the petitioner won’t be required to pay the cess again on sales of stocks on which the levy was already paid by it for the period till June 30, 2017, under the Finance Act, 2010. Also, the court directed that no coercive action could be taken against the firm for non-payment of cess under the GST regime; it will be entitled to refund of any cess paid by it under
Also, the court directed that no coercive action could be taken against the firm for non-payment of cess under the GST regime; it will be entitled to refund of any cess paid by it under GSTCA, if it succeeds in the litigation. Counsel JK Mittal, appearing for the petitioner, argued that Parliament did not propose or intend to use the GST regime to impose new cesses and even if the purpose was to compensate the states for loss of revenue in the GST regime, that had to be done by some other means. This is how the petitioner built up its case: The clean energy cess levied under the Finance Act, 2010, stood abolished with effect from July 1, 2017, thanks to Section 18 of the Taxation Laws (Amendment) Act, 2017.
Clause 4 (a) of Article 279 A of the Constitution of India, which was inserted by the Constitution (101st Amendment) Act, 2016, states that the GST Council “shall make recommendations to the Union and States on the taxes, cesses and surcharges levied by the Union, the States and local bodies which may be subsumed in the goods and services tax”. Further, Clause 4 (f) states that the council may recommend special rates for a specified period “to raise additional resources during any natural calamity or disaster”. The idea, the petitioner argued, was to have all the cesses and levies abolished and subsumed under GST and additional revenue could be raised only for natural calamities and disasters.
The court also observed that Clause 18 of the perversion of the GST Constitutional Bill — 122nd Amendment Bill, 2014 — contemplated levying an additional tax not exceeding 1% on supply of goods in the course of interstate trade or commerce, but when this clause was dropped when Parliament debated the Bill. “What was Clause 19 of the said Bill has today been enacted as Section 18 of the 101st Amendment Act. It states that the Parliament shall, by law, on the recommendation of the GST Council, provide for compensation to the states for loss of revenue arising on account of implementation of GST, for a period which may extend to five years,” then court quoted the petitioner’s counsel as saying, commenting that he had made a “very forceful case”.