GST (Compensation to States) Act, 2017 and the Rules framed thereunder are constitutionally valid. The Act has been held as not beyond legislative competence of Parliament, as not transgressing the Constitution (101st Amendment) Act and not a colourable legislation.
The court in this regard observed that 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.
Supreme Court in UOI v. Mohit Mineral Pvt. Ltd. also observed that levy of Compensation Cess on same taxable event is permissible. Rejecting the plea of double taxation, the court observed that if the taxes are separate and distinct imposts and levied on the different aspects, then there is no overlapping in law.
Observing that State Compensation Cess is “with respect to” goods and services tax, and is a tax, the court held that power to make law regarding goods and services tax, shall include power to levy cess on goods and services tax.
Further observing that Clean Energy Cess and Compensation Cess are entirely different from each other, it disallowed the set-off of former paid till 30-6-2017.