TMI Blog2024 (1) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... prominently U/s 26(1)(a), on which much reliance is placed by the petitioners, what is exempted is only duty of customs but not any cess much-less the GST Compensation Cess. In Section 7 the words tax, duty and cess are specifically and distinctly used and stated that any goods or services exported or imported or procured from the DTA by a SEZ unit or developer shall subject to such terms and conditions and limitations be exempt from payment of taxes, duties or cess under all enactments specified in the First Schedule. The sine qua non for application of Section 7 is that in order to get exemption, the enactment which imposes tax, duty or cess shall be mentioned in the First Schedule. Therefore, from the said section two things are clear. Firstly, the Goods and Services Tax (Compensation to States) Act, 2017 is not mentioned in the First Schedule of the Act and secondly, the words tax, duty and cess are differently mentioned. However, in Section 26(1)(a) the phrase duty of customs alone is mentioned. A conjunctive study of Section 26(1)(a), 2(zd) of SEZ Act, 2005 and Section 2(15) of Customs Act, 1962 would pellucidly tell that the phrase duty of customs used in Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The said view of the 2nd respondent is misconceived and erroneous for the reason that U/s 26 of SEZ Act itself, the levy of duty, tax or cess under Customs Act, 1962 or Customs Tariff Act, 1975 is exempted. Since the 2nd respondent on erroneous view started demanding the petitioner to submit a bond along with a bank guarantee equal to the amount of compensation cess and on fulfilling the same only allowing the goods to be brought into the SEZ area, W.P. No. 1009/2019 is filed. (c) Along with writ petition I.A No. 1 of 2019 was filed seeking interim order and this court vide order dated 12.06.2019 granted interim stay restraining the respondents from levying/collecting or demanding bank guarantee for compensation cess initially, till 10.07.2019 and later by virtue of order dated 10.07.2019 extended the interim stay until further orders. (d) While so, pending the WP No. 1009/2019 the 2nd respondent sent a letter in VIII/48/47/APSEZ/Maithan/2017, dated 04.11.2020 demanding the petitioner to renew the bank guarantees offered by the petitioner earlier, as their time was going to be expired. Challenging the said letter dated 04.11.2020, the petitioners filed the W.P. No. 6216/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess. (g) So far as applicability of the concept of zero rated supply u/s 16 of the IGST Act, 2017 is concerned, Section 16 discusses only with regard to the exemption granted in respect of a supplier / unit registered in India and not for the import of goods from a supplier outside India (Foreign territory) and exporting to a SEZ unit in India. Such supplies made from outside the country amount to imports as per SEZ Act and same will attract duties under the provisions of the Customs Act. Hence, the petitioner cannot claim exemption in that regard. The writ petition is liable to be dismissed. (h) So far as W.P. No. 6216/2021 is concerned, the 1st respondent filed counter with the averments similar to the counter in W.P. No. 1009/2019. The writ petitioner in W.P. No. 1009/2019 filed rejoinder refuting the averments in the counter. It is pleaded that the appeal to the Commissioner (Appeals), Guntur is available against an order of assessment but not against the levy of compensation cess. Even otherwise, as per the decisions of the Hon ble Apex Court, a writ petition is maintainable even though alternative remedy is available when the impugned orders are issued without juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l order is appealable U/s 128 of Customs Act, 1962 / Section 107 of CGST Act, 2017 and hence the writ petition is not maintainable. The Government of India, Ministry of Finance, Department of Revenue vide notification No. 64/2017 Customs dated 05.07.2017 exempted IGST leviable u/s 3(7) of Customs Tariff Act, 1975 on all the goods imported to India by a SEZ unit. However, no such exemption was given in respect of compensation cess leviable U/s 3(9) of Customs Tariff Act, 1975. The exemptions u/s 7 of the SEZ Act are concerned, the same will apply in respect of enactments specified in the 1st Schedule of the said Act. However, the GST Compensation Act has not been mentioned in the 1st schedule. Unless the same is mentioned in the 1st schedule by way of amendment, cess cannot be exempted. The circular No. 1/1/2017 of compensation cess dated 26.07.2017 is concerned, it is applicable only for exports including supply from DTA (Domestic Tariff Area) units to SEZ units. However, it is not applicable to the imports of coal as in the present case. Hence, the petitioner cannot claim exemption under the said circular. So far as the refund under section 16 of the IGST Act, 2017 is conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble under the GST compensation Act for import of coal from foreign countreis. Hence, it is pertinent to refer to the concept of cess payable under the GST compensation Act. 8. The Goods and Services Tax (compensation to State) Act, 2017 has taken its birth along with the Central Goods and Services Tax Act, 2017. Hence, the relevant constitutional provisions enabling the Parliament to enact the aforesaid two Acts need to be perused. 9. A bill was introduced in the Lok Sabha known as The Constitution (122nd amendment) Bill, 2014 on 19.12.2014 proposing constitutional amendment to introduce Goods and Services Tax and confer concurrent taxing powers on the Union as well as the States / Union Territories to make laws for levying goods and services tax on every transaction of supply of goods or services or both. It was proposed that the said Goods and Services Tax Act shall replace a number of indirect taxes being levied by the Union and State Governments and it was also intended to remove the cascading effect of taxes and provide for a common national market for goods and services. The proposed bill inter alia provided for subsuming various Central and State indirect taxes. So fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance with the above constitutional amendment, the Parliament enacted: i. The Central Goods and Services Tax Act, 2017 (Act 12 of 2017, dated 12.04.2017) to make a provision for levy and collection of tax on intra-state supply of goods or services or both by the Central Government and for the matters connected therewith or incidental thereto. ii. The Integrated Goods and Services Tax Act, 2017 (Act 13 of 2017, dated 12.04.2017) to make a provision for levy and collection of tax on inter-state supply of goods or services or both by the Central Government and for matters connected therewith or incidental thereto. iii. The Union Territory Goods and Services Tax Act, 2017 (Act 14 of 2017, dated 12.04.2017) to make a provision for levy and collection of tax on intra-state supply of goods or services or both by the Union Territories and for matters connected therewith or incidental thereto. iv. The Goods and Services Tax (Compensation to States) Act, 2017 (Act 15 of 2017, dated 12.04.2017) 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dred and First Amendment) Act, 2016 and is against the objective of Constitution (One Hundred and First Amendment) Act, 2016? (3) Whether the Compensation to States Act, 2017 is a colourable 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 30th June, 2017, the Petitioner is entitled for set off in payment of Compensation to States Cess? 15. Regarding the issue No. 1, having observed that the entries in the List-II or List-III of 7th schedule have not referred to the subject of levy of compensatory cess in question and further Article 248 confers the residuary power of legislation to the Parliament, it was held that Parliament had legislative competence to legislate the GST Compensation Act. It was also observed that Article 270(1) of Constitution used the expression any cess levied for specific purposes under any law made by Parliament and thereby Parliament is empowered to frame the law. 16. Issues 2 and 3 are concerned, it was contended that when all the taxes, surcharges and cesses were subsumed in by Goods and Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be conducive to and attract foreign direct investment (FDI). The petitioners being the units in the SEZ, are claiming exemption on payment of GST Compensation Cess relying on the provisions of SEZ Act, 2005. Hence it is pertinent to refer to relevant provisions of this Act. 20. The Parliament with an intent to provide for the establishment, development and management of special economic zones for the promotion of exports and for matters connected therewith or incidental thereto, enacted the SEZ Act, 2005. (i) Section 2(i) defines Domestic Tariff Area (DTA) means the whole of India (including the territorial waters and continental shelf) but does not include the area of the Special Economic Zones. (ii) Section 2(za) defines Special Economic Zone which means a SEZ notified under the proviso to sub section (4) of Section 3 and sub section (1) of Section 4 (including Free Trade and Warehousing Zone) and includes an existing Special Economic Zone. (iii) According to Section 2(zc) a Unit means a Unit set up by an entrepreneur in a SEZ and includes an existing unit, an off-shore banking unit and a unit in an international financial service centre whether established ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1985 (5 of 1986) or any other law for the time being in force, on goods brought from Domestic Tariff Area to a Special Economic Zone or Unit, to carry on the authorised operations by the Developer or entrepreneur; (d) drawback or such other benefits as may be admissible from time to time on goods brought or services provided from the Domestic Tariff Area into a Special Economic Zone or Unit or services provided in a Special Economic Zone or Unit by the service providers located outside India to carry on the authorised operations by the Developer or entrepreneur; (e) exemption from service tax under Chapter V of the Finance Act, 1994 (32 of 1994) on taxable services provided to a Developer or Unit to carry on the authorised operations in a Special Economic Zone; (f) exemption from the securities transaction tax leviable under section 98 of the Finance (No. 2) Act, 2004 (23 of 2004) in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre; (g) exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956 (74 of 1956) if such goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a self contained code, His Lordship further observed thus: 37. Even if apply the parameters indicated in Girnar Traders vs. State of Maharashtra and Ors. (MANU/SC/0029/2011), the case on hand would pass the test. Section 26(1) of the SEZ Act indicates (1) persons who are entitled to exemptions; (2) the duties in respect which exemption is available; (3) the circumstances under which exemption is available and (4) the provisions of law subject to which the exemptions are available. To put it in simple terms, Section 26(1) identifying the persons, who are eligible for exemption. They are the Developer and entrepreneur. Section 26(1) identifies the duties from which exemption is available. They are the duties under the Customs Act, Customs Tariff Act etc. Section 26(1) also indicates the circumstances under which the exemptions are available. These circumstances vary from clause to clause under Section 26(1). This can be best understood by providing a tabulation as follows: Duty exempted Circumstances under which exempted 1) Duty under Customs Act, 1962 1) on goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsation Cess in view of provision contained in Section 26(1)(a) of the SEZ Act. In W.P. No. 2631/2021 also the petitioner therein addressed letters dated 14.05.2019, 31.12.2019, 03.07.2020 and 23.11.2020 seeking to waive the compensation cess. As a reply, the 2nd respondent addressed letter dated 04.09.2017 to the petitioner in W.P No. 1009/2019 clarifying that U/s 26(1)(a) of SEZ Act, 2005 a SEZ unit is entitled for exemption from any duty or customs under the Customs Act, 1962 or the Customs Tariff Act, 1975. Similarly, as per Notification No.64/2017 CUS, dated 05.07.2017 the SEZ units are exempted from IGST leviable U/s 3(7) of Customs Tariff Act, 1975 on all goods imported into India by a SEZ unit for authorized operation. However, no such exemption for compensation cess leviable U/s 3(9) of Customs Tariff Act, 1975 is provided either under Customs Act or GST Act. He further clarified that U/s 7 of SEZ Act, 2005 only certain cesses specified in the first Schedule are exempted. If a cess levied under new enactment (like the compensation cess under GST Compensation Act, 2017) the same shall be included in the 1st schedule by amending the schedule U/s 54 of SEZ Act for availing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess, etc.) indicates. When levied as an increment to an existing tax, the name matters not for the validity of the cess must be judged of in the same way as the validity of the tax to which is an increment. Guruswamy and Co. v. State of Mysore AIR 1967 SC 1512, per dissenting judge and India Cement Ltd. v. State of T.N. MANU/SC/0226/1989 : AIR 1990 SC 85. The word 'cess' means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess, etc.) indicates. Shinde Brothers v. Hy. Commissioner, Raichur MANU/SC/0298/1966 : AIR 1967 SC 1512, 1525. 37. This Court had considered the expression cess in Shinde Brothers Etc. v. Deputy Commissioner, Raichur and Ors. Etc. MANU/SC/0298/1966 : AIR 1967 SC 1512, Justice M. Hidyatullah, as he then was in his dissenting opinion has defined the cess ( no contrary opinion was expressed by majority in that regard ) in paragraph 39, which is to the following effect: 39. Now the health cess is first assailed on the ground th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any purpose e.g. for payment of salary to the members of the armed forces or civil servants, police, etc. or for development programmes, etc. However, cess is a tax which generates revenue which is utilised for a specific purpose. For instance, health cess raises revenue which is utilised for health purposes e.g. building hospitals, giving medicines to the poor, etc. Similarly, education cess raises revenue which is used for building schools or other educational purposes. 40. The expression cess as held above means a tax levied for some special purpose, which may be levied as an increment to an existing tax. The Scheme of Compensation to States Act, 2017 as noticed above indicate that the cess is with respect to goods and services tax. 27. Thus from the above decisions, it is clear that a tax is generally levied to raise the revenue for the State and the same can be used for any public purpose. The tax so raised i.e., income tax, sales tax, excise tax etc., can be utilized for any public purpose i.e., for payment of salaries, infrastructure creation, developmental programmes etc. However a cess is though broadly a tax, it is a special kind of tax levied for some speci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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