INTRODUCTION

The landmark case of UOI v. Mohit Mineral Pvt. Ltd was the first case which deals with the amendment
to the new tax regime of Good and service tax. The constitutional validity of the Goods and Services Tax
(Compensation to States Act), 2017 and the Goods and Services Tax Compensation Cess Rules, 2017,
came up before consideration before the Hon’ble Supreme Court in this case. As we all know,
the Constitution (One Hundred and First Amendment) Act, 2016 (Amendment Act), introduced the
Goods and Services Tax (GST) regime in India which came into force from 8th September, 2016 and
became effective from 1st July 2017. By the introduction of this GST it paved out and replaced many
indirect taxes from the country and due to this act enforcement various states raised concerns over the
loss of income as a consequence of introducing the GST regime.
Various laws were also passed subsequently for implementing the GST, which became effective from 1st
July, 2017. The amendment act and corresponding legislation empower both Parliament and the States
to levy GST on supplies of goods and services. Due to the concern of the loss of revenue by the
introduction of GST the other act came into force and whose validity was challenged before the
Supreme Court. The Goods and Services Tax (Compensation to States) Act, 2017 (CSA) was enacted in
order to compensate the States for this loss of revenue. Section 8 of this act provides for levy of
a ‘cess’ on intra-State and inter-State supply of goods or services, or both, as a means of compensation
for a period of five years, or for such period prescribed as per the recommendation of the GST Council.
This cess collected has to be distributed amongst the States in the manner prescribed under the Act and
the corresponding rules framed under it.
Facts of the case
The petitioner Mohit Mineral Pvt. Ltd. is a company which is incorporated under the companies act
which is a trader of imported and Indian coal. The petitioner imports coal from Indonesia, south Africa
and also purchases coal from Indian mines. The finance act, 2010 levied clean energy
which was in the nature of a duty of excise on the production
of coal and was being collected at the time of removal of raw
coal, raw lignite and raw peat from the mine to the factory, inter alia,   providing   for   subsuming   of
various indirect taxes and Central and States surcharges and
cesses so far as they relate to supply of goods and services both   on   interstate   and   intrastate.  
The Constitution (101 AOmendment) Act, 2016 was passed to levy goods and service tax. Section 18 of
the amendment act enabled the parliament to levy a cess for five years to compensate the state for five
year for the loss of the revenue on account of GST. On 12 April 2017 parliament enacted 3 acts namely
The Central Goods and Service Tax, The Integrated Good and Service Tax and The Goods and Service
(compensation to the states) tax 2017. And the petitioner has already given clean energy cess which has
been repealed by the taxation law amendment act. The writ petition submits the representation to set
off the clean energy cess with GST compensation cess.
RELEVENT ISSUE
(1) Whether the Goods and Services Tax (Compensation to States Act), 2017 is beyond the legislative
competence of Parliament?
(2) Whether the Goods and Services Tax (Compensation to States Act), 2017 violates Constitution (One
Hundred and First Amendment) Act, 2016 and is against the objective of Constitution (One Hundred and
First Amendment) Act, 2016?
(3) Whether the Goods and Services Tax (Compensation to States Act), 2017 is a colorable legislation?
(4) Whether levy of compensation to States’ cess and GST on the same taxing event is permissible in
law?
(5) Whether on the basis of clean energy cess paid by the petitioner till 30-6-2017, the petitioner is
entitled for set-off in payment of compensation to States’ cess?”
Conflict with Residuary Provisions
Article 245 read with Entry 97 in List I of VII Schedule and Article 248 deals with residuary powers of
Parliament to legislate with respect to any matter not enumerated in the Concurrent List or State List.
[‘Residuary provisions’]. This includes the power to enact any law imposing a tax not mentioned in
either of List II or III. Article 246A empowers the Parliament and States to impose goods and services tax
subject, to conditions stipulated therein. Through the GST Amendment Act, Article 246, which
demarcates the subject matter over which Parliament and States can legislate and Article 254, which is
the repugnancy provision; have been made inapplicable to Article 246A. Furthermore, the applicability
of Article 248 has also been explicitly excluded. In addition, several heads of legislation which were
earlier provided under Seventh Schedule, were also omitted through the Amendment.Thus, by excluding
the applicability of aforementioned provisions, the powers (residuary and others) which were earlier
available under VII Schedule have been sourced outside exclusively to Article 246A in so far as
imposition of goods and services tax is concerned. The purpose for this is clearly to avoid any conflict in
terms of the source of power and subjects of legislation. Interestingly, Section 18 has no such exclusion
clause present. Hence, regardless of whether ‘law’ under Section 18 includes the power to levy cess, it
can be argued that law making power provided in this section is also available under Article 245 r/w
Entry 97 and Article 248 which brings it in conflict with the residuary provisions . (Since there is no other
entry which deals with power to make a law for compensating States, Entry 97 is the only possibility). It
has to be noted that Section 18, like Article 246A, also forms a part of the GST regime and is an
important source of power as it allows law making for purpose of compensating the States. If the
Section is interpreted in manner stated earlier, this will result in overlap with respect to legislative
competence of Parliament and States to enact laws which the legislature clearly did not intended. Thus,
the power under Section 18 has also to be read as if it has also been sourced outside the Seventh
Schedule and Article 248 (in similar manner as Article 246A). This is the only possible manner of
resolving the conflict.
Analysis of case
In this case the constitutional validity of the Goods and Services Tax (Compensation to States) Act, 2017,
and the Goods and Services Tax Compensation Cess Rules, 2017, came up before consideration before
the court. Among the contentions raised, one was that the act was beyond the legislative competence of
the Parliament. The court, however, upheld the legislative competence of Parliament to enact the law,
pointing out that Article 270, after the Constitution (One Hundred and First Amendment) Act, 2016,
specifically empowers Parliament to levy any cess by law. Although the court also emphasized the fact
that Section 18 of the Amendment Act expressly empowers the Parliament to compensate the States for
loss of revenue arising on account of implementation of the GST, ‘by law’, this factor did not form the
basis of the court’s decision.
According to section 18 of the amendment act it states that Parliament shall, by law, on the
recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss
of revenue arising on account of implementation of the goods and services tax for a period of five years.
Thus, this clause authorizes the Parliament to frame law for compensating the States on account of loss
in the revenue arising due to the implementation of GST. It is pertinent to note that although Section 18
forms a part of the GST amendment act, it has not been reflected in the amended text of the
Constitution. First of all Section 18 of the amendment act is not an ordinary piece of legislation and in
fact has a constitutional basis  and secondly, although Section 18 does not specifically amend the text of
Constitution, it can still be considered as a source of power to frame a law providing for compensation
to the States. In addition to this, the possibility of conflict of such a power with the residuary provisions
under Schedule VII, and the manner of resolving such a conflict, has also been discussed.
Dispute before the Supreme Court
Firstly the petition was filed before the Delhi High Court challenging the validity of the Compensation
Act and the Rules made thereunder. The challenge was in the context of the levy of cess on coal
supplied by the petitioner. The High Court passed a decree in favor of the petitioner doubting the
legislative capacity of Parliament in enacting the Compensation Act. In parallel to this the appeal was
filed by the Government of India before the Supreme Court challenging this order of the High Court.
Accepting the request of the GoI, the Supreme Court ordered the transfer and took upon itself the
hearing of the petition concerning the challenge to the validity of the Compensation Act.
The petitioner while dealing with the imported coal had already suffered “clean energy cess” levied
under the erstwhile indirect tax laws at the time of its import. It was argued before the Supreme Court
that in the event the levy of compensation cess is sustained then the credit on account of clean energy
cess may be permitted for set-off against the compensation cess obligation. These contentions were
resisted by the GoI which took a position that compensation cess is essentially a “special kind of tax” and
therefore a special kind of GST. On such premise it was contended by the GoI before the Supreme Court
that once Parliament was competent to enact GST, the competence to enact the levy of compensation
cess was a logical concomitant. The GoI also pressed upon Article 270 to attribute another legislative
enablement for levy of the compensation cess besides placing reliance upon Entry 97 of the List I of the
Seventh Schedule of the Constitution to contend that the levy of compensation cess could also be
enacted in exercise of its residuary powers.
Judgment
The Supreme Court after analyzing the constitutional provisions relating to levy of GST in order to
highlight the underlying constitutional and legislative scheme which is significant on various counts. The
Supreme Court has declared that cess “means a tax levied for some special purpose, which may be
levied as an increment to an existing tax”. Thus the legislature has the power to impose GST which
carries the power to impose cess on GST. Also there is nothing in the draft of the Amendment Act “that
henceforth no surcharge or cess shall be levied”. The decision specifically highlights that it is already well
settled that “two taxes/imposts which are separate and distinct imposts and on two different aspects of
a transaction are permissible”. Thus insofar as GST and compensation cess operate in their distinct
spheres, the validity of both has been sustained.

Findings of the Court:

• Under Section 5(3) of the IGST Act, the person liable to pay tax can only be “the recipient” of supply.
The term “recipient” has to be read in the sense in which it has been defined in the CGST Act. Importer
cannot be said to be the recipient of the ocean freight service in the instant case since the importer has
neither availed the service of transportation of goods nor he is liable to pay consideration for such
service. The foreign shipping line is engaged by foreign exporter.
• The importer cannot be made liable to pay tax on a mere premise that the importer is directly or
indirectly recipient of service.
• It is neither an inter-state supply under Section 7 nor an intrastate supply under Section 8 of the IGST
Act as follows: - For Section 8, both the location of the supplier and place of supply should be in India.
The same is not applicable since location of foreign shipping line is outside India. - Sub-sections (1) and
(2) of Section 7 are dealing with goods and not relevant. - For Section 7(3), both the location of the
supplier and place of supply should be in India. The same is not applicable since location of foreign
shipping line is outside India. - Section 7(4) i.e. import of service, is not applicable since the location of
recipient of service, i.e., the foreign exporter being outside India. - Section 7(5)(a) is not applicable since
location of foreign shipping line is outside India. - Section 7(5)(b) pertaining to SEZ is also not applicable.
• A supply where both provider and recipient are outside India can be made leviable to tax is only under
Section 7(5)(c) i.e. residuary clause, provided that “supply is in taxable territory”. The same cannot be
equated with “place of supply”. Supply in the taxable territory shall mean a supply, all the aspects or
majority of aspects, of which takes place in taxable territory. Thus, e.g., the provision may cover cases
such as a foreign tour operator conducting a tour in India for a foreign tourist. Mere fact that
transportation of goods terminates in India, will not make such supply of transportation of goods as
taking place in India.
• Thus, no tax can be levied and collected from importer/petitioner.
• In the facts at hand, the freight has already suffered IGST as a part of value of goods imported. Dual
levy of IGST cannot be imposed treating it as supply of service. Double taxation, through delegated
legislation, where statute does not provide, is not permissible.
• The Court held that no IGST is leviable on the ocean freight for the services provided by a person
located in a non-taxable territory by way of transportation of goods by a vessel from a place outside
India up to the customs station of clearance in India.
• Entry 9(ii) of Notification No. 8/2017 (I.T.R.) and Entry 10 of Notification No. 10/2017 (I.T.R.) declared
as ultra vires the IGST Act due to lack of legislative competency and accordingly held to be
unconstitutional.

Supreme Court (SC) discussed the following provisions:

Statement of object and reasons for the amendment.
General provisions regarding Art. 265 (tax law must be on the authority of the law passed by the
legislature)
366- various definitions are provided.
Referrer to amended articles (amended by GST)- 248, 249, 250, 268, 269 ,270, 271, 286, 366
Insertion of new articles- 246A, 269A, 279A
Looked into S.18 and 19 of the 101 st Constitution Amendment.
18 and 19 provides for the basis for this Compensation Act.
Difference between 18 and 19 of 122 nd Constitutional Amendment Bill, and 101st Constitutional
Amendment— talks about additional duties and compensation.
How 18 and 19 of the Bill transformed into the Act- the changes made have significance.
Three legislations were looked into by the court
CGST Act
IGST Act
GST (Compensation to States) Act
Looked into Taxation Law Amendment Act
Cess, IDT stand repealed

CONCLUSION
In summary, the decision of the Supreme Court in Mohit Mineral is a timely endorsement of the large-
scaled amendments brought about to the Constitution in order to usher a new era of indirect taxes.
Setting aside all contentions and challenges to the levy of GST compensation cess, the Supreme Court
has paved the way for its unbridled implementation of GST design as a legislative policy. While the
challenge in this case was limited to a finer aspect of this grand design, the decision clearly inhibits the
scope for future challenges and therefore sets tone for judicial appreciation of changes effected on
account of GST. Hopefully this will only be taken as a measure of confidence by the policymakers to iron
out the creases in the GST design and usher the reform in its fullest sense.
The rationale underlying the Compensation Act also posits it as a key variable for embodying the trust
between the Union and the States and agreement to implement GST together in a cooperative sense. By
upholding the validity of the Compensation Act the Supreme Court has thus also sustained this key pillar
for conducive fiscal Centre-State relations and thus furthered the cause of the reform represented by
GST.