The legal permissibility of levying a cess over and above GST has been a source of constant debate, which has amplified in importance and relevance in the past few weeks.
The legal permissibility of levying a cess over and above GST has been a source of constant debate, which has amplified in importance and relevance in the past few weeks. To begin with, the Supreme Court (SC) recently passed a judgment upholding the constitutional validity of GST Compensation Cess and observed that the Centre has the power to levy such a cess. Though, at present, no other cess is imposed over GST, a Group of Ministers (GoM) has been constituted to examine the feasibility and legality of levying a cess to compensate Kerala for the loss caused due to floods.
While the Court’s decision has upheld the constitutionality of the compensation cess, the reasoning adopted and its interpretation of various Constitutional provisions raise many other issues regarding the interface of the Constitutional framework and GST. In this article, we examine the implications of the SC’s judgment, on the legality of any cess that may sought to be imposed in the future over and above GST.
In the case of Union of India v. Mohit Minerals Pvt. Ltd., while declaring the levy of compensation cess to be legally permissible, the SC relied on multiple provisions. First, reference was made to Article 270 of the Constitution that deals with distribution of taxes between Centre and state to conclude that the Parliament is authorised to levy cess. Secondly, the SC held that the Centre’s power to tax goods and services under Article 246A of the Constitution is a specific power that has a wide import. From a combined reading of these two provisions, the Court concluded that the Centre is empowered to levy a cess on supply of goods and services. Section 18 of the Constitution (Hundred and First Amendment) Act, 2016, which requires the Centre to compensate states on account of loss caused due to the introduction of the GST regime was also considered by the SC. Lastly, as a response to the respondent’s submissions claiming that a cess would violate the intent of the Hundred and First Amendment, the court clarified that that amendment was enacted to subsume various cesses, however, there was no bar imposed on the fresh levy of cesses over and above the GST. Thus, from a holistic reading of all these provisions, the SC upheld the constitutionality of compensation cess.
Though the observations of the Court were with respect to the compensation cess, the reasoning behind the court’s decision could lead to the conclusion that any cess can now be levied on supply of goods and services by exercising powers under Article 246A read with Article 270. However, such an interpretation of the judgment is likely to open the Pandora ‘s Box to numerous similar levies in the future that may undermine the coherence and uniformity aimed through GST.
For starters, the Court has not stated that the power to levy cess is restricted to only specific circumstances. There is also no similar restriction in the bare text of Article 246A. Thus, if the reasoning applied in the Mohit Minerals case is adopted, it seems like the Centre and states have a carte blanche to levy cess over and above GST and may not even need prior approval of the GST Council.
The resultant situation is likely to contradict the spirit of the GST framework and revert the economy back to the previous regime where multiple levies and consequent cascading were prevalent. The GST was aimed at eliminating these problems to formulate a single nationwide market. In fact, various amendments were made to the Constitution that further underlined the intent of maintaining a ‘one nation one tax’ policy. Articles 271 and 248 were amended to restrict the government’s power to levy a surcharge and invoke residuary provisions to impose a further tax on goods and services covered under the GST.
Before resorting to Article 246A and Article 270 to validate future levies of cess, it is important to acknowledge that the SC’s judgment in the Mohit Minerals case is specific to the levy of compensation cess. There is a specific provision that mandates the Centre to compensate states for loss caused due to implementation of the GST i.e., Section 18 of the Constitution (Hundred and First Amendment) Act, 2016. While it is true that the aforementioned provision did not significantly contribute to the SC’s decision, there is no definitive answer as to whether the outcome will change in case of other levies that may not be supported by a constitutional mandate. Therefore, in our view, the debate surrounding the legality of cess over GST is far from over.
Vidushi Gupta & Vinti Agarwal
(Authors are research fellows at Vidhi Centre for Legal Policy Views are personal)