A two-judge bench of the Supreme Court has today upheld 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.
Earlier in 2017, the Delhi High Court had granted an interim relief to a trader of imported and Indian coal. The petitioner had challenged the Constitutional validity of levy of the Goods and Services Tax (GST) Compensation Cess.
While granting interim order, the High Court held that there is a prima facie case made out as regards the legislative competence of the Parliament to enact the impugned Act. The Court further barred any coercive steps against the petitioner by the department.
Allowing the appeal by the tax department, Justice A K Sikri and Justice Ashok Bhushan held that 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.
It was, therefore, 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.”
With regard to the question that whether the levy of Compensation to States Cess and GST on the same taxing event is permissible in law, the bench observed that “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.”