What is the issue?
- The legal permissibility of levying a cess over and above GST has been a source of constant debate, for some time now.
- In this context, it is imperative to assess the implications of the recent Supreme Court judgement in this regard.
What are the recent developments in this regard?
- At present, no other cess is imposed over GST.
- But a Group of Ministers has recently been constituted to examine the feasibility and legality of levying such a cess.
- It is intended to compensate Kerala for the loss caused due to the recent floods.
- The Supreme Court has also upheld the constitutional validity of GST Compensation Cess.
- It observed that the Centre has the power to levy such a cess.
What is SC's rationale?
- While declaring the levy of compensation cess to be legally permissible, the SC relied on multiple provisions.
- Reference was made to Article 270 of the Constitution that deals with distribution of taxes between the Centre and states.
- The SC also held that the Centre’s power to tax goods and services under Article 246A of the Constitution is a specific power that has a wide import.
- From a combined reading of these two provisions, the Court concluded that the Centre is empowered to levy a cess on supply of goods and services.
- Besides, Constitution (Hundred and First Amendment) Act, 2016 requires the Centre to compensate states on account of loss due to GST introduction.
- This provision was also considered by the Supreme Court.
- The court clarified that the amendment was enacted to subsume various cesses.
- However, there was no bar imposed on the fresh levy of cesses over and above the GST.
What are the concerns?
- The reasoning adopted by the court and interpretation of various Constitutional provisions raise many concerns.
- Purpose - The observations of the Court were with respect to the compensation cess.
- But the reasoning could lead to the conclusion that any cess can now be levied on goods and services supply by exercising powers under Art 246A read with Art 270.
- Such an interpretation of the judgment is likely to give scope for numerous similar levies in the future.
- This may undermine the coherence and uniformity aimed through GST.
- Limitations - The Court has not stated that the power to levy cess is restricted to only specific circumstances.
- There is also no similar restriction in the text of Article 246A.
- Thus, it seems like the Centre and states have complete freedom to levy cess over and above GST.
- They may not even need prior approval of the GST Council.
- Implication - This could likely contradict with the spirit of the GST framework based on a ‘one nation one tax’ policy.
- It may revert the economy back to the regime where multiple levies and consequent cascading were prevalent.
- Given these, the debate surrounding the legality of cess over GST is far from over and needs a reassessment.
Source: Financial Express
