Issues: Is the Parliament competent to levy GST compensation cess? Is it permissible to levy both CGST/SGST/IGST & GST compensation cess on the same taxable event? Can CEC paid by the assessee be allowed to be set off against GST compensation cess?

Background: Assessee paid Clean Energy Cess (CEC) on coal imported prior to July 01, 2017. From that date, while CEC was abolished, GST compensation cess was levied on supply of coal. Assessee wanted credit of CEC paid, which was objected by the Department. Assessee also contended the vires of GST (Compensation to States) Act, 2017 on the grounds that Parliament does not possess power to levy GST compensation cess.

Ruling:  When Constitution empowers the Parliament to provide for compensation to the States for loss of revenue by law, the expression “by law” used therein is of wide import which includes levy of any cess for the above purpose. Hence, the GST (Compensation to States) Act, 2017 is not beyond the legislative competence of Parliament.

Two separate imposts (viz., CGST/SGST/IGST and GST compensation cess) are not prohibited by any law to declare it invalid. Hence, levy of GST compensation cess is an increment to CGST/SGST/IGST, which is permissible in law.

CEC and GST compensation cess are collected for wholly different purposes - while the former was levied for purposes relating to clean energy, the latter is collected to provide for compensation to states for the loss of revenue arising from the implementation of GST. Distribution between the Union and States for these two types of cess is also different - while CEC was wholly retained by the Union, the GST compensation cess is wholly distributed to the States. Payment of CEC was for a different purpose and has no bearing with GST compensation cess. Giving credit / set-off is legislative policy which had to be reflected in the legislative scheme - however, the GST (Compensation to States) Act or the Rules thereunder does not indicate giving of any credit / set-off of the CEC paid. Hence, the assessee is not entitled to set-off CEC paid against payment of GST compensation cess.

Comment(s): This Apex Court ruling is a shot in the arm to the Government's recent retrospective amendment to Section 140 of the CGST Act, barring assessees from availing credit of cess. Coal importers, who had availed credit of CEC on transitional stock (i.e., inventory of coal as on June 30, 2017), would now be forced to reverse / repay with interest.