THE NATIONAL ANTI-PROFITEERING AUTHORITY VERSUS HARDCASTLE RESTAURANTS PRIVATE LIMITED & ORS.

Anti-profiteering measure – Constitutional validity of Section 171 of the Central Goods and Services Tax Act 2017 read with Rule 126 of the Central Goods and Services Tax Rules 2017 – time limitation – HELD THAT:- It is considered appropriate and proper that, in the interests of a uniform and consistent view on the law, all the writ petitions should be transferred to the High Court of Delhi, where earlier writ petitions are already pending.

No.- Transfer Petition (Civil) Nos 290-292 of 2020

Dated.- February 19, 2020

Citations:

  1. Glenmark Pharmaceutical Limited and Anr., Hardcastle Restaurants Pvt. Ltd. and Anr., Macrotech Developers Ltd. (Formerly known as M/s. Lodha Developers Ltd.) Versus Union of India and Ors. – 2020 (2) TMI 340 – BOMBAY HIGH COURT

DR. DHANANJAYA Y. CHANDRACHUD AND AJAY RASTOGI JJ.

For Petitioner(s) Mr. K.K. Venugopal, AG Mr. Zoheb Hossain, AOR Mr. Ankur Talwar, Adv. Mr. Piyush Goyal, Adv.

For Respondent(s) Mr. Vinayak Bhandari, Adv. Ms. Suhasini Sen, Adv. Mr. Rahul Kripalani, Adv. Mr. Rahul Gupta, AOR Mr. Rohan Shah, Adv. Mr. Mayank Jain, Adv. Mr. Ajay Bhargava, Adv. Ms. Shweta Kabra, Adv. For M/S. Khaitan & Co.

O R D E R

1. A batch of writ petitions is pending before the High Courts of Delhi, Bombay and Punjab and Haryana in which the constitutional validity of Section 171 of the Central Goods and Services Tax Act 2017 read with Rule 126 of the Central Goods and Services Tax Rules 2017 and other cognate provisions, is under challenge. Twenty writ petitions are pending before the High Court of Delhi. Two writ petitions, which are the subject matter of the present Transfer Petitions, are pending before the High Court of Judicature at Bombay. The petitioners before the High Court of Judicature at Bombay in those two writ petitions are represented by Mr Rohan Shah and Mr Vinayak Bhandari, learned counsel.

2. Having heard learned counsel, we consider it appropriate and proper that, in the interests of a uniform and consistent view on the law, all the writ petitions should be transferred to the High Court of Delhi, where earlier writ petitions are already pending.

3. We accordingly allow the Transfer Petitions and direct that the following writ petitions shall stand transferred to the High Court of Delhi:

(i) Writ Petition No 3536 of 2019 titled “Hardcastle Restaurants Pvt Ltd and Anr v Union of India & Ors, pending before the High Court of Judicature at Bombay;

(ii) Writ Petition No 12872 of 2019 titled “Macrotech Developers Ltd and Anr v Union of India and Ors” pending before the High Court of Judicature at Bombay; and

(iii) Civil Writ Petition No 37033 of 2019 titled “M/s Nani Resorts & Floriculture Pvt Ltd v Union of India and Ors” pending before the High Court of Punjab and Haryana.

4. At this stage, we have not issued notice to the petitioner before the High Court of Punjab and Haryana, but leave it open to the petitioner to move this Court, should it have any reason to do so for appropriate directions.

5. A copy of this order shall also be forwarded by the learned counsel appearing on behalf of the National Anti-Profiteering Authority to the learned counsel appearing for the petitioners before the High Court of Punjab and Haryana.

6. The Registries of the respective High Courts are requested to immediately transfer the papers of the proceedings of the writ petitions to the High Court of Delhi. We leave it open to the parties to apply for necessary orders either with regard to the interim relief or for modification of such orders, as the case may be.

SHYAM KHEMANI VERSUS STATE OF M.P. AND ORS

Applications seeking exemption from filing notarized affidavit and welfare stamp in both the matters are allowed.

Issue notice – No coercive steps shall be taken against the petitioners by way of arrest in the meanwhile.

No.-  Writ Petition(Criminal) No.221/2020

Dated.- August 31, 2020

Citations:

  1. Kapil Mittal Versus Union Of India And Anr. – 2020 (1) TMI 1340 – Supreme Court

Mr. N.V. Ramana, Mr. S. Abdul Nazeer And Mr. Surya Kant, JJ.

For Petitioner(s): Mr.   Mukul Rohatgi, Mr.   Kumar Shashank, Ms.   Devanshi Singh, Ms.   Natasha Vinayak, AOR 

ORDER

The Court is convened through Video Conferencing.

Heard the learned counsel appearing for the petitioners in Writ Petition (Crl.) No.221 of 2020 and Writ Petition (Crl.) No.223 of 2020.

Applications seeking exemption from filing notarized affidavit and welfare stamp in both the matters are allowed.

Issue notice.

No coercive steps shall be taken against the petitioners by way of arrest in the meanwhile.

However, this does not mean that investigation by the GST Authorities will in any manner be thwarted.

Tag with Writ Petition (Crl.) No.35 of 2020.

PARESH NATHALAL CHAUHAN VERSUS THE STATE OF GUJARAT & ANR.

Permission for withdrawal of SLP – the petitioner seeks permission to withdraw the petition – HELD THAT:- The Special Leave Petition is dismissed as withdrawn.

No.- Special Leave to Appeal (Crl.) No(s). 4050/2020

Dated.- September 3, 2020

Citations:

  1. PARESH NATHALAL CHAUHAN Versus STATE OF GUJARAT – 2020 (5) TMI 170 – GUJARAT HIGH COURT

MR. SANJAY KISHAN KAUL, MR. AJAY RASTOGI AND MR. ANIRUDDHA BOSE, JJ.

For Petitioner(s) Mr. Chetan Pandya, Adv. Ms. Anjali Jha, AOR Mr. Priyadarshi Manish, Adv. Mr. Ritaj Kacker, Adv.

ORDER

After some time, learned counsel for the petitioner seeks permission to withdraw the petition.

Permission granted.

The Special Leave Petition is dismissed as withdrawn.

SKILL LOTTO SOULUTIONS PVT. LTD. VERSUS UNION OF INDIA AND ORS.

Levy of tax on lotteries – legality of definition of goods under Section 2(52) of Central Goods and Services Tax Act, 2017 and consequential notifications to the extent it levies tax on lotteries – petitioner seeks declaration that the levy of tax on lottery is discriminatory and violative of Articles 14, 19(1)(g), 301 and 304 of the Constitution of India.

Whether the writ petition is not maintainable under Article 32 of the Constitution of India since the writ petition relates to lottery, which is res extra commercium and the petitioner cannot claim protection under Article 19(1)(g)? – HELD THAT:- The writ petition alleging the violation of Article 14 specially with respect to a parliamentary Act can very well be entertained under Article 32. Also, with regard to the matter of lottery itself, this Court had entertained a writ petition earlier under Article 32. Reference is made to judgment of this Court in H. Anraj and Ors. Vs. State of Maharashtra, [1984 (1) TMI 336 – SUPREME COURT] where the writ petitioner, who were agents for the sale of tickets for the lottery filed a writ petition questioning the ban imposed on the sale of lottery tickets within the State of Maharashtra. Even judgment of this Court in H. Anraj Vs. Government of Tamil Nadu, [1985 (10) TMI 258 – SUPREME COURT] was also a writ petition, which was heard alongwith a civil appeal questioning the leviability of the sales tax by the State Legislature on the sale of lottery tickets – thus, the grounds, which have been raised in the writ petition, the writ petition cannot be said to be not maintainable under Article 32 and the preliminary objection made by the learned ASG that the writ petition cannot be entertained under Article 32 and is overruled.

Whether the inclusion of actionable claim in the definition of goods as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is contrary to the legal meaning of goods and unconstitutional? – Whether the Constitution Bench judgment of this Court in Sunrise Associates (supra) in paragraphs 33, 40, 43 and 48 of the judgment has laid down as the proposition of law that lottery is an actionable claim or the observations made in the judgment were only an obiter dicta and not declaration of law? HELD THAT:- The definition of goods under Section 2(52) of the Act,2017 does not violate any constitutional provision nor it is in conflict with the definition of goods given under Article 366(12). Article 366 clause(12) as observed contains an inclusive definition and the definition given in Section 2(52) of Act, 2017 is not in conflict with definition given in Article 366(12). As noted above the Parliament by the Constitution(One Hundred and First Amendment) Act, 2016 inserted Article 246A. a special provision with respect to goods and services tax. The Parliament was fully empowered to make laws with respect to goods and services tax. Article 246A begins with non obstante clause.

Thus, the inclusion of actionable claim in definition “goods” as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is not contrary to the legal meaning of goods and is neither illegal nor unconstitutional – also, lottery is an actionable claim as proposition of law.

Whether exclusion of lottery, betting and gambling from Item No.6 Schedule III of Central Goods and Services Tax Act, 2017 is hostile discrimination and violative of Article 14 of the Constitution of India? – HELD THAT:- The Constitution Bench in State of Bombay Vs. R.M.D. Chamarbaugwala and Anr. [1957 (4) TMI 55 – SUPREME COURT] has clearly stated that Constitution makers who set up an ideal welfare State have never intended to elevate betting and gambling on the level of country’s trade or business or commerce. In this country, the aforesaid were never accorded recognition of trade, business or commerce and were always regulated and taxing the lottery, gambling and betting was with the objective as noted by the Constitution Bench in the case of State of Bombay Vs. R.M.D. Chamarbaugwala and Anr. [1957 (4) TMI 55 – SUPREME COURT], we, thus, do not accept the submission of the petitioner that there is any hostile discrimination in taxing the lottery, betting and gambling and not taxing other actionable claims. The rationale to tax the aforesaid is easily comprehensible as noted above. Hence, we do not find any violation of Article 14 in Item No. 6 of Schedule III of the Act, 2017.

Whether while determining the face value of the lottery tickets for levy of GST, prize money is to be excluded for purposes of levy of GST? – HELD THAT:- The value of taxable supply is a matter of statutory regulation and when the value is to be transaction value which is to be determined as per Section 15 it is not permissible to compute the value of taxable supply by excluding prize which has been contemplated in the statutory scheme. When prize paid by the distributor/agent is not contemplated to be excluded from the value of taxable supply, we are not persuaded to accept the submission of the petitioner that prize money should be excluded for computing the taxable value of supply the prize money should be excluded. We, thus, conclude that while determining the taxable value of supply the prize money is not to be excluded for the purpose of levy of GST – the petitioner is not entitled to reliefs as claimed in the writ petition.

The petitioner has prayed for grant of liberty of challenging the notifications dated 21.02.2020/02.03.2020 by which rate of GST for lottery run by the State and lottery organized by the State have been made the same, which notification has not been challenged in the writ petition since the notifications were issued during the pendency of writ petition. Petitioner has prayed that the said issue be left open, the notification having not been challenged in the writ petition liberty be given to the petitioner to challenge the same in appropriate proceedings – petition dismissed.

No.- WRIT PETITION (CIVIL) NO.961 OF 2018

Dated.- December 3, 2020

Citations:

  1. Union of India & Ors. Versus M/s Martin Lottery Agencies Ltd. – 2009 (5) TMI 1 – Supreme Court
  2. State Of UP. and others Versus Deepak Fertilizers & Petrochemical Corporation Ltd. – 2007 (5) TMI 323 – Supreme Court
  3. Sunrise Associates Versus Govt. of NCT of Delhi & Ors. – 2006 (4) TMI 118 – Supreme Court
  4. BR. Enterprises Versus State of UP. and Others – 1999 (5) TMI 498 – Supreme Court
  5. Vikas Sales Corporation and Another Versus Commissioner of Commercial Taxes and Another (and other appeals and writ petitions) – 1996 (5) TMI 363 – Supreme Court
  6. Gannon Dunkerley & Co. Versus State of Rajasthan & Larsen & Toubro Ltd. & Union of India – 1992 (11) TMI 254 – Supreme Court
  7. Sri Krishna Das Versus Town Area Committee, Chirgaon – 1990 (3) TMI 67 – Supreme Court
  8. Builders Association of India and Others Versus Union of India and Others (and connected writ petitions and appeals) – 1989 (3) TMI 356 – Supreme Court
  9. AYURVEDA PHARMACY AND ANOTHER Versus STATE OF TAMIL NADU – 1989 (3) TMI 187 – Supreme Court
  10. Municipal Corporation of Delhi Versus Gurnam Kaur – 1988 (9) TMI 314 – Supreme Court
  11. RESERVE BANK OF INDIA Versus PEERLESS GENERAL FINANCE & INVESTMENT CO. LTD. ORS. AND VICE – 1987 (1) TMI 452 – Supreme Court
  12. H. Anraj Versus Government of Tamil Nadu & Shri Dipak Dhar and Others Versus The State of West Bengal and Another – 1985 (10) TMI 258 – Supreme Court
  13. H. ANRAJ Versus STATE OF MAHARASHTRA – 1984 (1) TMI 336 – Supreme Court
  14. UNION OF INDIA Versus SRI SARADA MILLS LTD. – 1972 (9) TMI 145 – Supreme Court
  15. Navnit Lal C. Javeri Versus KK. Sen, Appellate Assistant Commissioner Of Income-Tax, Bombay – 1964 (10) TMI 16 – Supreme Court
  16. Bhopal Sugar Industries Ltd., MP and Another Versus DP Dube, Sales Tax Officer, Bhopal Region, Bhopal and Another   – 1962 (12) TMI 29 – Supreme Court
  17. The State of Madras Versus Gannon Dunkerley & Co. (Madras) Ltd.   – 1958 (4) TMI 42 – Supreme Court
  18. STATE OF BOMBAY Versus RMD. CHAMARBAUGWALA & ANR. ADVOCATE-GENERAL OF MYSORE – 1957 (4) TMI 55 – Supreme Court
  19. Navinchandra Mafatlal, Bombay Versus Commissioner Of Income-Tax, Bombay City – 1954 (11) TMI 6 – Supreme Court
  20. State of Bihar Versus Maharajadhiraja Sir Kameshwar Singh and Visweshwar Rao Versus State of MP. and another – 1952 (5) TMI 14 – Supreme Court
  21. Official Trustee Versus L. Chippendale – 1943 (2) TMI 11 – Calcutta High Court
  22. Bhupati Mohan Das Versus Phanindra Chandra Chakravarty – 1935 (8) TMI 19 – CALCUTTA HIGH COURT

HON’BLE MR. JUSTICE ASHOK BHUSHAN, HON’BLE MR. JUSTICE R. SUBHASH REDDY AND HON’BLE MR. JUSTICE M.R. SHAH.

For Petitioner(s) Mr. Arjun Garg, AOR Mr. Abhinav Shrivastava, Adv. Mr. Aakash Nandolia, Adv. Mr. Rati Tandon, Adv. Ms. Shrutika Garg, Adv.

For Respondent(s) UOI Mr. Tushar Mehta, SG Ms. Nisha Bagchi, Adv. Ms. Shirin Khajuria, Adv. Mr. Bhuvan Mishra, Adv. Mr. B. Krishna Prasad, AOR State of Punjab Mr. Karan Bharihoke, AOR State of Maharashtra Mr. Rahul Chitnis, Adv. Mr. Sachin Patil, AOR Mr. Geo Joseph, Adv. R-5 Ms. Madhumita Bhattacharjee, AOR for intervenor Mr. C.A. Sundaram, Sr. Adv. Ms. Rohini Musa, AOR Mr. Abhishek Gupta, Adv. Mr. Zaffar Inayat, Adv.

JUDGMENT

ASHOK BHUSHAN, J.

The petitioner, an authorized agent, for sale and distribution of lotteries organized by State of Punjab has filed this writ petition impugning the definition of goods under Section 2(52) of Central Goods and Services Tax Act, 2017 and consequential notifications to the extent it levies tax on lotteries. The petitioner seeks declaration that the levy of tax on lottery is discriminatory and violative of Articles 14, 19(1)(g), 301 and 304 of the Constitution of India.

2. We need to notice certain background facts which has given rise to this writ petition.

2.1 The Parliament enacted the Lotteries (Regulation) Act, 1998 to regulate the lotteries and to provide for matters connected therewith and incidental thereto. Section 2(b) of the Act defines lottery which provides that “lottery” means a scheme, in whatever form and by whatever name called, for distribution of prizes by lot or chance to those persons participating in the chances of a prize by purchasing tickets. Section 4 provides that a State Government may organise, conduct or promote the lottery subject to conditions enumerate therein. Different States have been organizing and conducting lotteries in accordance with the aforesaid Act. It is to be noted that prior to parliamentary enactment for regulating the lotteries, different States have enacted legislation regulating the lotteries which were the legislations even prior to the enforcement of the Constitution, levying tax on the sale of lottery tickets. Reference is made to Bengal Finance Sales Tax Act, 1941 and Madras General Sales Tax Act, 1939. Another Statute to be noticed is Bombay Lotteries (Control and Tax) and Prize Competitions (Tax) Act, 1958.

2.2 There has been a series of litigation regarding taxability of lottery tickets and this Court had occasion to deliver several judgments on the subject which we shall notice hereinafter. Service tax was levied on lottery tickets by Finance Act, 1994. A Circular dated 14/21.2.2017 was also issued providing for mode of determination of the amount of service tax. Rules were also framed namely Lotteries (Regulation) Rules, 2010 by the Central Government containing a set of rules for regulation of the lotteries organized by the States.

2.3 By Constitution (One Hundred and First Amendment) Act, 2016, Article 246A was inserted in the Constitution containing special provisions with respect to Goods and Services Tax. Article 269A and Article 279A were also inserted by same constitutional amendment. Article 279A provided for constitution of Goods and Services Tax Council. The Parliament enacted the Central Goods and Services Tax Act, 2017 (Act No.12 of 2017) to make provisions for levy and collection of tax on intra-State supply of goods or services or both by the Central Government and for matters connected therewith or incidental thereto. The Act came into force w.e.f. 12.04.2017. The Parliament also enacted the Integrated Goods and Services Tax Act, 2017 (Act No.13 of 2017), the Union Territory Goods and Services Tax Act, 2017 (Act No.14 of 2017) and the Goods and Services Tax (compensation to States) Act, 2017 (Act No.15 of 2017).

2.4 Under Section 2(52) of Central Goods and Services Tax Act, 2017, the term “goods” has been defined which provides that “goods” means every kind of movable property other than money and securities but includes actionable claim……………. Chapter III of the Act provides for levy and collection of tax. Section 15 deals with value of taxable supply. After the enactment of Act No.12 of 2017, Notification was issued by Government of India dated 28.06.2017 in exercise of power conferred by sub-section (1) of Section 9 notifying the rate of the integrated tax. By the notification dated 28.06.2017 with regard to lottery run by the State Government, value of supply of lottery was deemed to be 100/112 of the face value of the ticket or the prize as notified in the official gazette of the organising State, whichever is higher. With regard to lotteries authorised by the State Government value of supply of lottery was deemed to be 100/128.

2.5 The writ petitioner, an authorised agent for the state of Punjab for sale and distribution of lotteries organised by State of Punjab aggrieved by the provisions of Act No.12 of 2017 as well as notifications issued therein filed the present writ petition praying for following reliefs:-

“a) By appropriate writ, order or direction, quash and set aside the definition of ‘Goods’ under Section 2(52) of the Central Goods and Services Tax Act, 2017 [Annexure P-18 (Pg.141 to 143)], Impugned Notifications 01/2017 Central Tax (Rate), 01/2017 [Annexure P-19 (Pg.144 to 148)], Integrated Tax (Rate), 01/201 [Annexure P-20 (Pg. 149 to 154)], and the State rate Notifications of the Respondent State of Punjab [Annexure P-21(Pg.155 to 157)] to the extent it levies tax on Lottery by declaring the same to be discriminatory and violative of Article 49, (19)(1)(g), 301, 304 of the Constitution of India and of the CGST, SGST and IGST Act.

b) In the Alternative, byappropriate writ, order or direction quash and set aside the impugned Notifications 01/2017 Central Tax (Rate), 01/2017 Integrated Tax (Rate) 01/2017 and the State rate Notification of the Respondent State of Punjab to the extent it levies tax on the face value of the lottery ticket without abating the prize money Component of the lottery ticket when the said amount never forms part of the income of the Petitioner or the lottery trade.

c) In the Alternative, byappropriate writ, order or direction quash and set aside the Impugned Notifications 01/2017 Central Tax (Rate), 01/2017 Integrated Tax (Rate) 01/2017 and the State rate Notification of the Respondent State of Punjab to the extent it levies two different rates on tax on the face value of the lottery ticket and declare that the Respondents can levy an uniform rate of 12% Tax on Lottery irrespective of place where it is being sold, and after adjusting the prize money component from the face value of lottery tickets.”

3. We have heard Shri Ravindra Shrivastava, learned senior counsel for the petitioner and Shri Vikramjit Banerjee, learned Additional Solicitor General for the Union of India. We have also heard Shri C.A. Sundaram, learned senior counsel for the intervenor.

4. Shri Shrivastava submits that lottery is not a goods and under the Central Goods and Services Tax Act, 2017, GST is levied only on goods, hence levy of GST on lottery is ultra vires to the Constitution. It is further submitted that the Constitution Article 366 sub-article (12) define goods to include all materials, commodities and articles. The definition in the Constitution exclude actionable claims since it only refers to materials, commodities and articles. The definition of goods given in Section 2(52) of Central Goods and Services Tax Act, 2017 (hereinafter referred to as “Act, 2017”) is unconstitutional. It is further submitted that Constitution Bench of this Court in Sunrise Associates Vs. Govt. of NCT of Delhi and Ors., (2006) 5 SCC 603 has categorically held that lottery is not a good. When Constitution Bench has held that lottery is not a good, the provisions of Act, 2017 treating the lottery as goods is contrary to the judgement of Constitution Bench in Sunrise Associates (supra). The lottery is not an actionable claim as is now sought to be included in the definition of goods given in Section 2(52). The provisions of Act, 2017 are self-contradictory in as much as the definition of actionable claim is as per definition of Transfer of Property Act, which is only the claim and not the goods. Further, under the definition of goods, actionable claims have been included as goods under Section 2(52). It is further submitted that GST is being levied on the face value of the lottery tickets which is impermissible since the face value of the tickets also includes prize money to be reimbursed to the winners of the lottery tickets. Learned senior Counsel submits that meaning of goods as occurring in the Constitution of India has to be taken in its legal sense. The definition of goods as occurring in Sale of Goods Act, 1930 clearly excludes actionable claims from the definition of goods, which definition has been held to be definition of goods under the Constitution by this Court in State of Madras Vs. Gannon Dunkerley & Co., (Madras) Ltd., (1959) SCR 329. The attempt of including the actionable claim within the meaning of goods seems to be deliberate attempt to make the lottery fall within the scope of GST which would render the definition of goods contrary to the meaning ascribed to it by the Constitution of India as held by Gannon Dunkerley (supra). The words defined in the Constitution of India will have to be ascribed their legal meaning and not the popular meaning.

5. Shri Shrivastava further submits that the Parliament does not enjoy an absolute power to make an inclusive definition of something to be taxed which is not taxable otherwise. There is no absolute power with the legislature to define something. If such definition has no rationale, such artificial definition cannot be treated only for the purpose of assuming taxation power. Shri Shrivastava further submits that taxing actionable claim only is discriminatory since all actionable claims are not being taxed. Shri Shrivastava submits that according to Schedule III to the Act, 2017 under Item No.6 actionable claims other than lottery, betting and gambling have been treated neither as supply of goods nor supply of services. There is a clear hostile discrimination in taxing only lottery, betting and gambling whereas all other actionable claims have been left out of the taxing net. Shri Shrivastava has further submitted that the observations made in the judgment of Constitution Bench in Sunrise Associates (supra) that lotteries are actionable claims are only obiter dicta and cannot be treated to be ratio of the judgment.

6. Shri Vikramjit Banerjee, learned Additional Solicitor General refuting the submissions of learned senior counsel for the petitioner at the very outset submits that the writ petition filed by the writ petitioner under Article 32 is not maintainable. It is submitted that lottery is “res extra commercium” and no right under Article 19(1)(g) and Article 301 can be claimed by the petitioner with regard to lottery. The transaction of lottery tickets cannot be raised to the status of trade, commerce or intercourse. There is no right with the petitioner which can be enforced by writ petition filed under article 32 of the Constitution, hence, the writ petition being not maintainable deserves to be dismissed. Mr. Banerjee further submits that the laws relating to economic activity need to be viewed with greater latitude than laws touching civil rights. He further submits that courts are loath to interfere with taxing policies of the States. The fact of not levying tax on other actionable claims apart from lottery, betting and gambling cannot be said to be discriminatory. It is submitted that Constitution Bench of this court in Sunrise Associates (supra) has held that an actionable claim is a movable property and goods in the wider sense. The definition of goods given in Section 2(52) of Act 2017 is in accord with the Constitution Bench judgment of this court in Sunrise Associates (supra) and the argument that definition of goods given in Section 2(52) is contrary to above Constitution Bench judgment in Sunrise Associates (supra) is misplaced. The definition of goods given under Article 366(12) of the Constitution is an inclusive definition. Article 366(12A) defines goods and services tax to mean tax on supply of goods or services or both except taxes on the supply of alcoholic liquor for human consumption. Lottery having been judicially held to be an actionable claim is covered within the meaning of term goods under section 2(52). The Union Parliament has the competence to levy GST on lotteries under article 246A of the Constitution. Under Article 279A the GST Council has approved the levy of GST on lottery tickets, hence, the inclusion of actionable claims in the definition of goods under section 2(52) is in keeping with the legislative and taxing policy. It is well settled that courts would not review the wisdom or advisability or expediency of a tax. The levy on face value is authorised by section 15(1) read with section 15(5) of the Act, 2017 and Rule 31(A) of the Central Goods and Services Tax Rules, 2017. The levy of 28% tax on face value is neither discriminatory nor beyond the taxing policy/powers of the State.

7. Shri Banerjee further submits that during pendency of the writ petition, Rule 31A has been amended vide notification dated 02.03.2020 merging earlier two separate rates, i.e., regarding value of supply of lottery run by the State Government, which was earlier 100/112 and value of supply of lottery authorised by the State Government, which was 100/128 has been made uniform and by virtue of Rule 31A subrule(2), value of supply of lottery is one and the same, i.e., 100/128 of the face value of the ticket or prize as notified by the organising State, whichever is higher. He submits that in view of the above amendment dated 02.03.2020, which is not challenged in the present writ petition, the argument on the ground of discrimination in the rate of tax is no longer available to the petitioner. Shri Banerjee further submits that judgment of this Court in State of Madras Vs. Gannon Dunkerley (supra) relied by learned senior counsel for the petitioner is not attracted in the facts of the present case. It is submitted that the above decision dealt with the definition of term “sale” and was not concerned with the interpretation of “goods”.

8. Shri Sundaram appearing for the intervenor submits that the Constitution permits tax on goods and actionable claims being not taxed under the Constitution, the Parliament cannot have the power of taxing lottery. The taxing power of legislature is traceable to the Constitution alone. It is not open to the legislature to enlarge its taxing power. The word “goods” is not a new word and is a concept well known in the Constitution. Legislature cannot tax something which is constitutionally not goods. The Act, 2017 cannot include something that was not part of the definition as provided for in the Constitution. The definition of goods under the GST Act would necessarily have to be guided by the definition of goods given under the Constitution. Shri Sundaram further submits that in any event, the prize money in a lottery deducted from a lottery claim ought not to be taxed at all and the tax, if at all ought to be levied only on the invoice value, i.e., the transaction value of the lottery ticket or the lottery scheme after deducting the prize money. The lottery ticket has a zero value and is only a chance, which cannot be taxed. Shri Sundaram submits that lottery ticket is not even an actionable claim but only a chance, which is treated as an actionable claim by ratio of Constitution Bench judgment in Sunrise Associates (supra), which will not be a good within the meaning of Article 366(12) of the Constitution. He submits that since it is not a good under the Constitution, Union and the States had no right to tax. A Statute cannot bring in a definition something as good, which Constitution itself excludes. Exclusion of all actionable claims from levy of GST except three, i.e., lottery, betting and gambling is nothing but hostile discrimination. Shri Sundaram submits that when the lottery is being permitted by the States, it is a commercial activity. When the State itself organise a lottery, it is not pernicious. No reason is forthcoming as to why only three actionable claims are taxed leaving all others out of tax net.

9. Shri Ravindra Shrivastava in his rejoinder submits that he is not claiming any violation of right under Article 19(1)(g) or Article 301. He submits that writ petition is fully maintainable under Article 32 of the Constitution. A Parliamentary enactment on ground of violation of Article 14 is sought to be challenged in the writ petition, which writ petition is fully maintainable. Shri Shrivastava questions the legislative competence of Parliament to tax lottery as goods. Shri Shrivastava submits that he has placed reliance on the principle, which has been laid down by this Court in Gannon Dunkerley (supra). This court in Gannon Dunkerley (supra) laid down that definition of goods has to be taken as it is meant under the Sale of Goods Act, 1930, which definition is also to be taken for the purposes of Article 366(12) of the Constitution. Goods has to be interpreted in its legal sense. Goods cannot be defined in an artificial manner as has been done by the Parliament in Section 2(52). Shri Shrivastava submits that inclusive definition cannot be expansive and unrealistic. He submits that there is no similarity in goods and actionable claims. There cannot be artificial expansion of definition of goods. He submits that lottery acquires property only when prize is declared. A ticket is only a chance and GST is levied on every sale of lottery ticket, which is not permissible since it is not an actionable claim.

10. He reiterated his challenge on the ground of hostile discrimination with regard to only three categories of actionable claims, i.e., lottery, betting and gambling whereas all other actionable claims are not being taxed under Act, 2017. He submits that taxing only three items has no nexus with the object sought to be achieved. No rationale has been provided by the respondent. If actionable claim is a homogeneous clause, why only three have been picked out. Lottery is not something pernicious. Relying on earlier circular dated 14.02.2017, Shri Shrivastava submits that prize money has to be excluded from face value. Shri Shrivastava further submits that lottery is held all across the world and in other countries, GST is levied by excluding the prize money. Shri Shrivastava has lastly submitted that notification, which has been issued during pendency of the writ petition now providing a uniform rate of lotteries organised by the States or authorised by the State having not been challenged in this writ petition, hence, petitioner reserve its right to challenge the notification dated 21.02.2020/02.03.2020 separately in appropriate proceedings.

11. We have considered the submissions of the learned counsel for the parties and have perused the records.

12. From the submissions of the learned counsel for the parties and materials on the record, following are the questions which arise for consideration in this writ petition:-

(I) Whether the writ petition is not maintainable under Article 32 of the Constitution of India since the writ petition relates to lottery, which is res extra commercium and the petitioner cannot claim protection under Article 19(1)(g)?

(II) Whether the inclusion of actionable claim in the definition of goods as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is contrary to the legal meaning of goods and unconstitutional?

(III) Whether the Constitution Bench judgment of this Court in Sunrise Associates (supra) in paragraphs 33, 40, 43 and 48 of the judgment has laid down as the proposition of law that lottery is an actionable claim or the observations made in the judgment were only an obiter dicta and not declaration of law?

(IV) Whether exclusion of lottery, betting and gambling from Item No.6 Schedule III of Central Goods and Services Tax Act, 2017 is hostile discrimination and violative of Article 14 of the Constitution of India?

(V) Whether while determining the face value of the lottery tickets for levy of GST, prize money is to be excluded for purposes of levy of GST?

Question No. I

13. Learned Additional Solicitor General submits that petitioner, who is an authorised agent on behalf of the State of Punjab for the lotteries organised by the State of Punjab cannot complain violation of Article 19(1)(g) of the Constitution and lottery being a res extra commercium, the writ petition cannot be entertained. He submits that right to practice any profession or to carry on any occupation, trade or business does not extend to practicing a profession or carrying on an occupation, trade or business which is inherently vicious and pernicious. Shri Ravindra Shrivastava, learned senior counsel appearing for the petitioner submits that he is not claiming any violation of right under Article 19(1)(g) in the writ petition. In view of this submission of the learned senior counsel for the petitioner, we need not consider the writ petition with reference to violation of Article 19(1)(g).

14. Article 32 confers a right to move to Supreme Court for enforcement of the right conferred by the Part III, which is guaranteed by sub-article (1) of Article 32 of the Constitution. Article 32 is an important and integral part of the basic structure of the Constitution. Article 32 is meant to ensure observance of rule of law. Article 32 provides for the enforcement of the fundamental rights, which is most potent weapon. In the Constituent Assembly Debates, Dr. B.R. Ambedkar speaking about this Article made following statement:-

“If I was asked to name any particular Article in the Constitution as most important…………………… an Article without which the Constitution would be nullity – I could not refer, to any other Article except this one. It is the very soul of the constitution and the very heart of it.”

15. By this petition, the petitioner has challenged the provisions of Central Goods and Services Tax Act, 2017 insofar as it imposes tax on the lottery. The grounds of challenge include violation of Article 14 of the Constitution of India. The levy of GST has been attacked as discriminatory. It is also submitted that there is a hostile discrimination in taxing only lottery, betting and gambling whereas leaving all other actionable claims from the taxing net as is evident by entry 6 of Schedule III of Act, 2017.

16. The writ petition alleging the violation of Article 14 specially with respect to a parliamentary Act can very well be entertained under Article 32. We may also notice that with regard to the matter of lottery itself, this Court had entertained a writ petition earlier under Article 32. Reference is made to judgment of this Court in H. Anraj and Ors. Vs. State of Maharashtra, (1984) 2 SCC 292 where the writ petitioner, who were agents for the sale of tickets for the lottery filed a writ petition questioning the ban imposed on the sale of lottery tickets within the State of Maharashtra. Even judgment of this Court in H. Anraj Vs. Government of Tamil Nadu, (1986) 1 SCC 414 was also a writ petition, which was heard alongwith a civil appeal questioning the leviability of the sales tax by the State Legislature on the sale of lottery tickets.

17. We are, thus, of the considered opinion that on the grounds, which have been raised in the writ petition, the writ petition cannot be said to be not maintainable under Article 32 and the preliminary objection made by the learned ASG that the writ petition cannot be entertained under Article 32 and is overruled.

Question Nos. II and III

18. Both the above questions being inter­related are taken together. The question to be considered is as to what is the legal meaning of goods and whether actionable claim can also be a part of goods. We need to first notice as to what is the concept of goods.

19. The Sale of Goods Act, 1930 defines goods in Section 2(7) in following words:

Section 2. Definitions. In this Act, unless there is anything repugnant in the subject or context,- …..

(7)”goods” means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;”

20. Section 311(2) of the Government of India Act, 1935 which has been referred by this Court as Constitution Act defines the goods as including all materials, commodities and articles. Entry 48 in List II of Seventh Schedule of the Government of India Act, 1935 was “Taxes on the Sale of Goods”. Prior to the enforcement of the Constitution of India goods were defined in different provincial legislations. Article 366 of the Constitution of India contains heading ‘definition’. Article 366 sub­clause (12) defines goods. Article 366 sub­clause (12) is as follows:

“In this Constitution, unless the context otherwise requires, the following expression has, the meaning hereby respectively assigned to them, that is to say (12) goods includes all materials, commodities, and articles;”

21. Another expression which we may need to notice is “actionable claim”. Section 3 of the Transfer of Property Act, 1882 which is interpretation clause defines the actionable claim in following words:

“actionable claim” means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent;”

22. Now, we may notice the definition of goods in the Central Goods of Services Tax Act, 2017 which definition is under challenge in the present writ petition. Section 2 sub­section (52) defines goods in the following words:

“Section 2(52)- “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;”

23. Section 2(1) defines actionable claim in following words:

“Section 2(1) “actionable claim” shall have the same meaning as assigned to it in section 3 of the Transfer of Property Act, 1882;”

24. The definition of goods as contained in the Sale of Goods Act, 1930 in Section 2(7) : “goods” means every kind of movable property other than actionable claims and money; whereas definition of goods in Section 2(52) in the Act, 2017 while defining goods as every kind of movable property other than money and securities “but includes actionable claim”. We have noted above the various grounds of attack on the inclusion of actionable claim in the definition of goods under Section 2(52) as raised by the learned counsel for the petitioner. The first ground of attack of the learned counsel for the petitioner is that expression goods is well known concept and is also defined in the Constitution of India. The definition of goods as meant and understood in the Constitution of India has to be adopted and not departed by the Legislature.

25. Shri Srivastava in his usual persuasive style submits that goods as defined in the Sale of Goods Act, 1930 is the concept which has been held to be applicable with respect to goods as understood in the Constitution of India also. The Act, 2017 could not have taken any contrary definition and the contrary definition taken in Section 2(52) of Act, 2017 is unconstitutional and liable to be struck down. Sheet anchor of the arguments of Shri Srivastava is the Constitution Bench Judgment in The State of Madras vs. Gannon Dunkerley & Co.(Madras) Ltd., 1959 SCR 379. In the above case this Court had occasion to consider Entry 48 in List II in Schedule VII of the Government of India Act, 1935 that is “Taxes on the sale of goods”. The Madras General Sales Tax Act, 1939 was amended by the Madras General Sales Tax (Amendment) Act, 1947 introducing several new provisions. Section 2(c) of the Act had defined “goods” as meaning “all kinds of movable property other than actionable claims, stocks and shares and securities and as including all materials, commodities and articles”. The provision was amended and so as to include materials “used in the construction, fitting out, improvement or repair of immovable property or in the fitting out, improvement or repair of movable property”. The definition of “sale” in Section 2(h) was also enlarged so as to include “a transfer of property in goods involved in the execution of a works contract”. The assessing authorities included in the turnover of respondent the value of the materials used in construction works which was contested by the respondent on the ground that power of the Madras Legislature to impose a tax on sales under Entry 48 in List II in Schedule VII of the Government of India Act, does not extend to imposing a tax on the value of materials used in works, as there is no transaction of sale in respect of those goods, and the provisions introduced by the Madras General Sales Tax(Amendment) Act, 1947, authorising the imposition of such tax are ultra vires. The High Court deciding the question in favour of the respondent held that expression sale of goods had the same meaning in Entry 48 which had in Sale of Goods Act, 1930. The State of Madras filed an appeal in this Court. The question which fell for consideration in the above case has been noticed in the judgment in the following words:

“The sole question of determination in this appeal is whether the provisions of the Madras General Sales Tax Act are ultra vires, in so far as they seek to impose a tax on the supply of materials in execution of works contract treating it as a sale of goods by the contractor, and the answer to it must depend on the meaning to be given to the words “sale of goods” in Entry 48 in List II of Schedule VII to the Government of India Act, 1935….”

26. This Court laid down that the expression “sale of goods” in Entry 48 has to be interpreted in its legal sense. Following observation was made at page 396:

“…We must accordingly hold that the expression “sale of goods” in Entry 48 cannot be construed in its popular sense, and that it must be interpreted in its legal sense. What its connotation in that sense is, must now be ascertained….”

27. This Court at page 404 held:

“…We think that the true legislative intent is that the expression “sale of goods” in Entry 48 should bear the precise and definite meaning it has in law, and that that meaning should not be left to fluctuate with the definition of “sale” in laws relating to sale of goods which might be in force for the time being. …”

28. Interpreting the expression of “sale of goods” at page 413 this Court held:

“…If the words “sale of goods” have to be interpreted in their legal sense, that sense can only be what it has in the interpretation that words of legal import occurring in a statute should be construed in their legal sense is that those words have, in law, acquired a definite and precise sense, and that, accordingly, the legislature must be taken to have intended that they should be understood in that sense. In interpreting an expression used in a legal sense, therefore, we have only to ascertain the precise connotation which it possesses in law. …”

29. Summing up its conclusion this Court at page 425 held:

“To sum up, the expression “sale of goods” in Entry 48 is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In a building contract which is, as in the present case, one, entire and indivisible and that is its norm, there is no sale of goods, and it is not within the competence of the Provincial Legislature under Entry 48 to impose tax on the supply of the materials used in such a contract treating it as a sale.”

30. We may also notice the following pertinent observation made by this Court in the above case at page 426:

“….It is also a fact that acting on the view that Entry 48 authorises it, the States have enacted laws imposing a tax on the supply of materials in works contracts, and have been realising it, and their validity has been affirmed by several High Courts. All these laws were in the statute book when the Constitution came into force, and it is to be regretted that there is nothing in it which offers a solution to the present question. We have, no doubt, Art. 248 and Entry 97 in List I conferring residual power of legislation on Parliament, but clearly it could not have been intended that the center should have the power to tax with respect to works constructed in the States. In view of the fact that the State Legislatures had given to the expression “sale of goods” in Entry 48 a wider meaning than what it has in the Indian Sale of Goods Act, that States with sovereign powers have in recent times been enacting laws imposing tax on the use of materials in the construction of buildings, and that such a power should more properly be lodged with the States rather than the center, the Constitution might have given an inclusive definition of “sale” in Entry 54 so as to cover the extended sense. But our duty is to interpret the law as we find it, and having anxiously considered the question, we are of opinion that there is no sale as such of materials used in a building contract, and that the Provincial Legislatures had no competence to impose a tax thereon under Entry 48.”

31. The ratio of the above judgment which is heavily relied by Shri Srivastava is that this Court laid down that legal meaning of expression “sale of goods” has to be taken. It is further submitted that this Court relied on the definition of “sale of goods” as occurring in Sale of Goods Act, 1930 for interpreting Entry 48 in List II Schedule VII of the Government of India Act, 1935. We may notice that in the above judgment this Court had occasion to deal with the definition of term “sale” and explaining the legal meaning as existed at the time of enactment of Government of India Act, 1935, the above law was laid down.

32. We may further notice that by the Constitution (Forty­sixth Amendment) Act, 1982 sub-Article (29A) has been inserted in the Article 366 of the Constitution. Defining tax on sale or purchase of goods which is inclusive definition. the above Constitution Amendment was made with the intent to tax on the sale or purchase of goods on the transfer, otherwise than in pursuance of a contract, of property. Definition of sale as interpreted by this Court in Gannon Dunkerley & Co.(Madras) Ltd. case (supra) is no longer applicable any more and work contracts were also taxed. We may also notice subsequent Constitution Bench judgment in the case of M/s Gannon Dunkerley and Co. and Others Vs. State of Rajasthan and others, 1993 (1) SCC 364, where this Court had occasion to examine Article 366(29A) subclause (b) of the Constitution. This Court referring to its earlier judgment in Builders’ Association of India vs. Union of India, (1989) 2 SCC 645, made following observations in paragraphs 25 and 30:

“25. We find it difficult to accept this contention. The question whether as a result of the Forty Sixth Amendment an independent taxing power has been conferred on the States had arisen for consideration before this Court in Builders’ Association case (supra) since it was specifically raised in the contentions urged on behalf of the States. While summarising the said contentions this Court has thus mentioned this contention Sub-clause (b) of Clause 29-A of Article 366 of the Constitution has conferred on the Legislatures of States the power to levy tax on works contract which is independent of the power conferred on the Legislatures of the States under Entry 54 of the State List, (p.346). The said contention was rejected with these observations.

The object of the new definition introduced in Clause (29-A) of Article 366 of the Constitution is, therefore, to enlarge the scope of tax on sale or purchase of goods wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in Sub-Clauses (a) to (f) thereof wherever such transfer, delivery of supply becomes subject to levy. of sales tax. So construed the expression tax on the sale or purchase of goods in Entry 54 of the State List, therefore, includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also. The tax leviable by virtue of Sub-clause (b) of Clause (29-A) of Article 366 of the Constitution thus becomes subject to the same discipline to which any levy under Entry 54 of the State List is made subject to under the Constitution.”

30. Having regard to the observations referred to above and the stand of the parties during the course of arguments before us, we do not consider it appropriate to reopen the issues which ; are covered by the decision in Builders’ Association case (supra) and we will, therefore, deal with the matter in accordance with the law as laid down in that case that the expression tax on the sale or purchase of goods in Entry 54 of the State List includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also and the tax leviable by virtue of Sub-clause (b) of clause (29-A) of Article . 366 of the Constitution is subject to the discipline to which any levy under Entry 54 of the State List is made subject to under the Constitution.”

33. Definition of goods as occurring in Section 311(12) of Government of India Act, 1935 although was noticed by this Court in Gannon Dunkerley and Co.(supra) but definition of goods was not further elaborated. Definition of goods as occurring in Article 366(12) is inclusive definition and does not specifically excludes actionable claim from its definition. Whenever inclusive definition is given of an expression it always intended to enlarge the meaning of words or phrases, used in the definition. In this context, it is relevant to refer to the judgment of this Court in Reserve Bank of India vs. Peerless General Finance and Investment co.Ltd. And others,1987(1) SCC 424 with regard to the inclusive definition. Following was observed in paragraphs 32-33:

“32….All that is necessary for us to say is this: Legislatures resort to inclusive definitions (1) to enlarge the meaning of words or phrases so as to take in the ordinary, popular and natural sense of the words and also the sense which the statute wishes to attribute to it, (2) to include meanings about which there might be some dispute, or, (3) to bring under one nomenclature all transactions possessing certain similar features but going under different names. ….

33. Interpretation must depend on the textand the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. …”

34. The Constitution framers were well aware of the definition of goods as occurring in the Sale of Goods Act, 1930 when the Constitution was enforced. By providing an inclusive definition of goods in Article 366(12), the Constitution framers never intended to give any restrictive meaning of goods.

35. In The State of Madras v. Gannon Dunkerley & Co., (supra) this Court was concerned with the Provincial Legislatures under Entry 48 in List II in Schedule VII of the Government of India Act, 1935. We have extracted the observations made by this Court at page 426. This Court at page 426 of the judgment held that none of the Provincial Legislatures could have exercised the power conferred to make law with respect to sale of goods in the Lists, to impose a tax on construction contracts. This Court further observed that before such a law could be enacted it would have been necessary to have had recourse to the residual powers of the Governor-General under under Section 104 of the Act. This Court has further observed that it has no doubt, Article 248 and Entry 97 of List I conferring residual powers of legislation on Parliament, but clearly it could not have been intended that Centre should have power to tax with respect to works constructed in the States.

36. The Act, 2017 is an Act of Parliament in exercise of power of Parliament as conferred under Article 246A of the Constitution. Article 246A is extracted for ready reference:

“Article 246A. Special provision with respect to goods and services tax. (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.

(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter­State trade or commerce.

Explanation.-The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council.”

37. When the Parliament has been conferred power to make law with respect to goods and services, the legislative power of the Parliament is plenary. The observations of this Court in The State of Madras v. Gannon Dunkerley & Co.,(supra) at page 426 are clear pointer that although the State Legislature had no legislative competence to enact impugned legislation but Parliament on the strength of residual power could have legislated. We are the view that the judgment of this Court in The State of Madras v. Gannon Dunkerley & Co.,(supra) does not lend support to the submission of the learned counsel for the petitioner that Parliament could not have defined the goods in Act, 2017, expanding the definition of goods as existing in Sale of Goods Act, 1930.

38. Now, we come to the Constitution Bench judgment of this Court in Sunrise Associates vs. Govt. of NCT of Delhi and others, (2006) 5 SCC 603, on which judgment learned counsel for both the parties have placed reliance. The above Constitution Bench was constituted to reconsider the earlier judgment of this Court in H. Anraj and Ors. Vs. Government of Tamil Nadu and Ors., (1986) 1 SCC 424. Paragraphs 4 and 5 of the referring order (Sunrise Associates vs. Govt. of NCT of Delhi and others, 2010 (10) SCC 420) reads:

“4. We are inclined to agree that the judgment in H. Anraj requires reconsideration for the reason that, prima facie, the only right of the purchaser of a lottery ticket is to take the chance of winning the prize. There seems to us to be no good reason to split the transaction of the sale of a lottery ticket into the acquisition of (I) the right to participate in the lottery draw, and (ii) the right to win the prize, dependent on chance.

5. In the case of Vikas Sales Corpn. v. Commr. Of Commercial Taxes (1996 (4) SCC 433), a Bench of three learned Judges agreed with the decision in H. Anraj. It is, therefore, necessary that these appeals should be heard by a Constitution Bench.”

39. Before we further look into the judgment of this Court in Sunrise Associates, we need to notice very briefly judgment of this Court in H. Anraj. In the above case the question arose out of the levy of tax on sales of lottery tickets under Tamil Nadu General Sales Act 1959. A writ petition was filed questioning the levy of tax imposed on sale of lottery tickets before this Court. The contention which was urged before this Court for challenging levy has been noticed in paragraph 5 of the judgment in the following words:

“5. ….Counsel pointed out that under the charging provision contained in both the Acts (s. 3 of the Tamil Nadu Act 1959 and Section 4 of the Bengal Act 1941) the taxable event is the sale of goods (here lottery tickets) and the levy is imposed upon the taxable turnover of every dealer in regard to the sales of lottery tickets and therefore, quite clearly, each of the State Legislatures has purported to Act in the exercise of its own taxing power under Entry 54 of List II. But according to counsel Entry 54 of List II enables legislation imposing a tax, inter alia, on “sale of goods” that it is well-settled that the expression “sale of goods” has to be construed in the sense which it has in the Indian Sale of Goods Act, 1930(vide Ganon Dunkerley’s case) MANU/SC/0152/1958 : [1959] 1 SCR 379 “goods under Section 2(7) thereof comprises within its scope every kind of movable property but specifically excludes actionable claim, that the essence of lottery is a chance for a prize, that a sale of such a chance is not a sale of goods and therefore the levy of sales tax on sale of lottery tickets would be beyond the ambit of Entry 54 of List II. Alternatively, counsel contended that a lottery ticket is an actionable claim as defined in Section 3 of Transfer of Property Act or a chose-in-action known to English law, the ticket itself being merely a slip of paper or memorandum evidencing the right of the holder thereof to claim or receive a prize if successful in the draw and therefore the impugned levy is outside Entry 54 of List II. …”

40. This Court in the above judgment noted the definitions of goods as occurring in Sale of Goods Act, 1930, sale of goods in Tamil Nadu General Sales Act, 1959, and definition of goods in Article 366 (12). After considering, this Court in H Anraj came to the conclusion that lottery to the extent that they comprise the entitlement to participate in the draw are “goods” properly so called, and they are not actionable claims. In paragraph 33 of the judgment following was laid down:

“33. In the light of the aforesaid discussion my conclusions are that lottery tickets to the extent that they comprise the entitlement to participate in the draw are “goods” properly so called, squarely falling within the definition of that expression as given in the Tamil Nadu Act, 1959 and the Bengal Act, 1941, that to that extent they are not actionable claims and that in every sale thereof a transfer of property in the goods is involved. In view of these conclusions the impugned Amendments made in the two concerned Acts for levying tax on sale of lottery tickets will have to be upheld as falling within the legislative competence of the concerned State legislature under Entry 54 of List II in the Seventh Schedule and therefore, we think it unnecessary to go into the validity of the alternative submission made by the learned Attorney General that legislative competence for enacting the impugned Amendments would also be there under Entry 62 of List II in the Seventh Schedule of the Constitution.”

41. As noted above the judgment of H Anraj came to be questioned. A Bench of three Judges in Vikas Sales Corporation and another vs. Commissioner of Commercial Taxes and another, (1996) 4 SCC 433, agreed with the decision of H Anaraj necessitating reference before the Constitution Bench in Sunrise Associates, the Constitution Bench noticed the question which arose before the Constitution Bench. In paragraph 29 it noticed that “only question we are called upon to answer is whatever the decision in H Anaraj that lottery tickets are “goods” for the purposes of Article 366(29A)(a) of the Constitution and the State sales tax laws, was correct”. The Constitution Bench in paragraph 33 observed that to the extent that the lottery ticket evidenced the right to claim the prize, it was not goods but an actionable claim and therefore not “goods” under the sales tax laws. In paragraph 33 following has been observed:

“33. In other words, the second conclusion which we have indicated against ‘B’, was the ratio. The lottery ticket was held to be merely evidence of the right to participate in the draw and therefore goods the transfer of which was a sale. To the extent that the lottery ticket evidenced the right to claim the prize, it was not goods but an actionable claim and therefore not ‘goods’ under the Sales Tax Laws. A transfer of it was consequently not a sale. The lottery ticket per se had no innate value. The interpretation by the Delhi High Court of the ratio in H. Anraj was in our opinion erroneous.”

42. The pertinent observation has been made by the Constitution Bench in paragraph 36 wherein it noticed that in States sales tax laws actionable claims have been uniformly excluded from the definition of goods. This Court held “were actionable claims, etc. not otherwise includible in the definition of “goods” there was no need for excluding them”. Following has been laid down in paragraph 36:

“36. We have noted earlier that all the statutory definitions of the word ‘goods’ in the State Sales Tax Laws have uniformly excluded, inter alia, actionable claims from the definition for the purposes of the Act. Were actionable claims etc., not otherwise includible in the definition of ‘goods’ there was no need for excluding them. In other words, actionable claims are ‘goods’ but not for the purposes of the Sales Tax Acts and but for this statutory exclusion, an actionable claim would be ‘goods’ or the subject matter of ownership. Consequently an actionable claim is movable property and ‘goods’ in the wider sense of the term but a sale of an actionable claim would not be subject to the sales tax laws.”

43. In paragraph 40 the Constitution Bench reiterated that a sale of lottery ticket also amounts to the transfer of an actionable claim. Following was laid down in paragraph 40:

“40. An actionable claim would include a right to recover insurance money or a partner’s right to sue for an account of a dissolved partnership or the right to claim the benefit of a contract not coupled with any liability (see Union of India v. Sarada Mills Ltd. SCC at p.880, (1972) 2 SCC 877). A claim for arrears of rent has also been held to be an actionable claim (State of Bihar v. Maharajadhiraja Sir Kameshwar Singh, SCR at p.910 (1952) SCR 889). A right to the credit in a provident fund account has also’ been held to an actionable claim (Official Trustee, Bengal v. L. Chippendale, AIR 1944 Cal 335; Bhupati Mohan Das v. Phanindra Chandra Chakravarty and Anr., AIR 1935 Cal 756. In our opinion a sale of a lottery ticket also amounts to the transfer of an actionable claim.”

44. Further in paragraphs 46 and 48 this Court held lottery to be an actionable claim. Paragraphs 46 and 48 are to the following effect:

“46. There is no value in the mere right to participate in the draw and the purchaser does not pay for the right to participate. The consideration is paid for the chance to win. There is therefore no distinction between the two rights. The right to participate being an inseparable part of the chance to win is therefore part of an actionable claim.

48. Even if the right to participate is assumed to be a separate right, there is no sale of goods within the meaning of sales tax statutes when that right is transferred. When H. Anraj said that the right to participate was a beneficial interest in movable property, it did not define what that movable property was. The draw could not and was not suggested to be the movable property. The only object of the right to participate would be to win the prize. The transfer of the right would thus be of a beneficial interest in movable property not in possession. By this reasoning also a right to participate in a lottery is an actionable claim.”

45. This Court concluded in paragraph 51 that in H Anraj it was incorrectly held that a sale of a lottery ticket involved a sale of goods. Paragraph 51 is as follows:

“51 We are therefore of the view that the decision in H. Anraj incorrectly held that a sale of a lottery ticket involved a sale of goods. There was no sale of goods within the meaning of Sales Tax Acts of the different States but at the highest a transfer of an actionable claim. The decision to the extent that it held otherwise is accordingly overruled though prospectively with effect from the date of this judgment.”

46. One of the submissions which has been pressed by Shri Srivastava is that the observations made by the Constitution Bench in the above paragraphs that lottery is an actionable claim is based on an obiter dicta since the question was not up for consideration. He submits that Court was to consider as to whether lottery tickets are goods or not within the meaning of Section 2(j) of Tamil Nadu General Sales Act, 1959 as amended. The definition of goods in Section 2(j) as noticed by the Constitution Bench in paragraph 9 states that ‘goods’ means all kinds of movable property (other than newspaper, actionable claims, stocks, shares and securities). The exclusion of the actionable claims from the goods as enumerated in the definition is also a part of the definition. If a particular item is covered by exclusion it is obvious that it does not fall in the definition of the goods. When the Constitution Bench came to the conclusion that the lottery is an actionable claim it was considering the definition of 2(j) itself and what has been held by the Constitution Bench cannot be held to be obiter dicta.

47. Explaining obiter dicta this Court in Municipal Corporation of Delhi vs. Gurnam Kau, 1989(1) SCC 101, made following observation in paragraphs 10 and 11:

“10….The only thing in a judge’s decision binding as an authority upon a subsequent judge is the principle upon which the case was decided. Statements which are not part of the ratio decidendi are distinguished as obiter dicta and and are not authoritative. ….

11. Pronouncements of law, which are not part of the ratio decidendi are classed as obiter dicta and are not authoritative. ….”

48. It cannot be said that the question as to whether lottery is a goods or actionable claim had not arisen in the decision in Sunrise Associates. When an item was covered by excluded category, the said conclusion could have been arisen only after consideration of the definition and the exclusionary clause. We, thus, are not in agreement with the submission of the learned counsel for the petitioner that the observations of the Constitution Bench holding lottery as actionable claim is only obiter dicta and not binding. The Constitution Bench in Sunrise Associates has categorically held that lottery is actionable claim after due consideration which is ratio of the judgment. When Section 2(52) of Act, 2017 expanded the definition of goods by including actionable claim also, the said definition in Section 2(52) is in the line with the Constitution Bench pronouncement in Sunrise Associates and no exception can be taken to the definition of the goods as occurring in Section 2(52).

49. We are of the view that definition of goods under Section 2(52) of the Act,2017 does not violate any constitutional provision nor it is in conflict with the definition of goods given under Article 366(12). Article 366 clause(12) as observed contains an inclusive definition and the definition given in Section 2(52) of Act, 2017 is not in conflict with definition given in Article 366(12). As noted above the Parliament by the Constitution(One Hundred and First Amendment) Act, 2016 inserted Article 246A. a special provision with respect to goods and services tax. The Parliament was fully empowered to make laws with respect to goods and services tax. Article 246A begins with non obstante clause that is “Notwithstanding anything contained in Articles 246 and 254”, Which confers very wide power to make laws. The power to make laws as conferred by Article 246A fully empowers the Parliament to make laws with respect to goods and services tax and expansive definition of goods given in Section 2(52) cannot be said to be not in accord with the constitutional provisions.

50. Shri Shrivastava with his usual ability and skill submits that Parliament does not enjoy an absolute power to make an inclusive definition of something to be taxed, which is not taxable otherwise. The power of legislature to lay definition has limitations and cannot include something which cannot in rational sense be included. While goods and actionable claims are both different concepts, lottery has no resemblance with either. The legislature can only provide an extended meaning by inclusive definition only for preventing tax evasion. To support his submission, he has relied on judgment of this Court in Bhopal Sugar Industries Ltd., M.P. And Anr. Vs. D.P. Dube, Sales Tax Officer and Anr., (1964) 1 SCR 481. The facts of the case have been noticed by the Constitution Bench of this Court in following words:

“By this petition under Article 32 of the Constitution it is claimed that the definition of “retail sale” in Section 2(1) of the Act which seeks to render consumption by the owner of motor-spirit liable to tax under the Act by virtue of Section 3 is beyond the competence of the State Legislature and hence void and the order of the first respondent seeking to impose liability upon the Company for payment of tax infringes the fundamental rights of the Company under Article 19(1) (f) and (g) of the Constitution.”

51. This Court held that consumption by an owner of goods in which he deals is not a sale within the meaning of sale of goods. It was held that extended definition, which includes consumption by a retail dealer of motor spirit or lubricants is beyond the competence of the State legislature. Following was laid down by this Court:-

“Consumption by an owner of goods in which he deals is therefore not a sale within the meaning of the Sale of Goods Act and therefore it is not “sale of goods” within the meaning of Entry 54 List II Schedule VII of the Constitution. The legislative power for levying tax on sale of goods being restricted to enacting legislation for levying tax on transactions which conform to the definition of sale of goods within the meaning of the Sale of Goods Act, 1930, the extended definition which includes consumption by a retail dealer himself of motor spirit or lubricants sold to him for retail sale” is beyond the competence of the State legislature. But the clause in the definition in, Section (1) “and includes the consumption by a retail dealer himself or on his behalf of motor spirit or lubricant to him for retail sale which is ultra vires the State Legislature because of lack of competence under Entry 54 in List II Schedule VII of the Constitution is saverable, from the rest of the definition, and that clause alone must be declared invalid.”

52. In the above case, the Constitution Bench was considering the concept of “sale” and the extended definition of sale by which consumption by owner himself was treated to be sale was held ultra vires to the legislative competence of the State. The present is a case where we are not dealing with concept of sale and further in the case before us, it is the Parliament, which has enacted the Act, 2017 which has competence to make a law imposing tax on goods and services.

53. We may notice another Constitution Bench Judgment of this Court in Navinchandra Mafatlal Bombay Vs. Commissioner of Income Tax, Bombay City, AIR 1955 SC 58. In the above case, challenge was made to Section 12-B of the Indian Income Tax Act, 1922. It was contended that Section 12-B, which authorise the levy of tax on capital gains was ultra vires to the central legislature. The Constitution Bench laid down following in paragraph 5:-

“5. ………………………….If we hold, as we are asked to do, that the meaning of the word “income” has become rigidly crystallized by reason of the judicial interpretation of that word appearing in the Income Tax Act then logically no enlargement of the scope of the Income Tax Act, by amendment or otherwise, will be permissible in future. A conclusion so extravagant and astounding can scarcely be contemplated or countenanced.

XXXXXXXXXX”

54. This Court further laid down that a word appearing in a Constitution Act, must not be construed in any narrow and pedantic sense. Following was laid down in paragraph 6:-

“6. It should be remembered that the question before us relates to the correct interpretation of a word appearing in a Constitution Act which, as has been said, must not be construed in any narrow and pedantic sense………………………”

55. Another judgment of Constitution Bench of this Court to be noticed is Navnitlal C. Javeri Vs. K.K. Sen, Appellate, Assistant Commissioner of Income Tax, (1965) 1 SCR 909. In the above case, question arose regarding constitutionality of Section 12(1B) read with Section 2(6A)(e) of Income Tax Act, 1922. It was contended before this court that a loan advanced to a shareholder by the company cannot, in any legitimate sense, be treated as his income; and so, the artificial manner in which such dividend is ordered to be treated as income by the impugned provision is not justified. It is true that this Court has laid down that Parliament cannot choose to tax as income an item which in no rational sense can be regarded as a citizen’s income. Following was observed:-

“This doctrine does not, however, mean that Parliament can choose to tax as income an item which in no rational sense can be regarded as a citizen’s income. The item taxed should rationally be capable of being considered as the income of a citizen. But in considering the question as to whether a particular item in the hands of a citizen can be regarded as his income or not, it would be inappropriate to apply the tests traditionally prescribed by the Income Tax Act as such.”

56. This Court held that legislature has not travelled beyond the legislative field while enacting the impugned provision. Following was observed:-

“………………………There must no doubt be some rational connection between the item taxed and the concept of income liberally construed. If the legislature realises that the private controlled companies generally adopt the device of making advances or giving loans to their shareholders with the object of evading the payment of tax, it can step in to meet this mischief, and in that connection, it has created a fiction by which the amount ostensibly and nominally advanced to a shareholder as a loan is treated in reality for tax purposes as the payment of dividend to him. We have already explained how a small number of shareholders controlling a private company adopt this device. Having regard to the fact that the legislature was aware of such devices, would it not be competent to the legislature to devise a fiction for treating the ostensible loan as the receipt of dividend? In our opinion, it would be difficult to hold that in making the fiction, the legislature has travelled beyond the legislative field assigned to it by Entry 82 in List I.”

57. In view of what has been laid down by the Constitution Bench, as above, there has to be a rational connection between the item taxed but it is well settled that with regard to taxing policy of the legislature, the Courts have very limited role to play. It is useful to refer the observations of this Court in Sri Krishna Das Vs. Town Area Committee, Chirgaon, (1990) 3 SCC 645 wherein paragraph 31, following was observed:-

“31. The contention that the tax is discriminatory in view of the exemptions granted to some of the products and to those that enter the TAC by rail or motor transport is equally untenable. It is for the legislature or the taxing authority to determine the question of need, the policy and to select the goods or services for taxation. The courts cannot review these decisions……………….”

58. We have already noted that under Article 246A notwithstanding anything contained in Articles 246 and 254, Parliament has power to make laws with respect to goods and services tax. Article 246A is a special provision with regard to goods and services tax w.e.f. 16.09.2016, which special power has to be liberally construed empowering the Parliament to make laws with respect to goods and services tax. The submission of learned counsel for the petitioner is that actionable claim has been artificially and with a view to assume the power to tax has been included in Section 2(52). The Constitution Bench of this Court in Sunrise Associates (supra) has held that actionable claims are includible in the definition of goods and had actionable claims were not includible there was no need for excluding them. The Constitution Bench held “were actionable claims, etc., not otherwise includible in the definition of “goods”, there was no need for excluding them. In other words, actionable claims are “goods” but not for the purpose of Sales Tax Acts and but for this statutory exclusion, an actionable claim would be “goods” or the subject-matter of ownership”.

59. Thus, in view of what has been said above by the Constitution Bench, the submission of the petitioner that actionable claims have been artificially included in the definition of goods cannot be accepted. The Constitution Bench has clearly laid down that actionable claims are goods. We, thus, do not agree with the submission of Shri Shrivastava that Parliament has exceeded its jurisdiction in including actionable claims in the definition of “goods” under Section 2(52).

60. We, thus, answer Question Nos.II and III in the following manner:

Answer No.II

61. The inclusion of actionable claim in definition “goods” as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is not contrary to the legal meaning of goods and is neither illegal nor unconstitutional.

Answer No.III

62. The Constitution Bench judgment of this Court in Sunrise Associates has laid down that lottery is an actionable claim as proposition of law. The observation cannot be said to be obiter dicta.

Question No. IV

63. As noted above, another limb of attack mounted by Shri Shrivastava is on the ground of hostile discrimination while taxing lottery, betting and gambling and excluding other actionable claims. Reference is made to Item No.6 of Schedule III of Act, 2017. Schedule III begins with heading “activities or transactions which shall be treated neither as supply of goods nor supply of services.

Item No.6 of Schedule III is as follows:-

“Item No.6 – Actionable claims other than lottery, betting and gambling.”

64. Submission is that assuming the lotteries to be actionable claims, the Act, 2017 suffers from a hostile discrimination in first including actionable claims within the category of goods and then excluding all actionable claims from supply of goods and creating a further exception of lottery, betting and gambling in Schedule III. Further submission is that there is no intelligible differentia for excluding lotteries, betting and gambling from the other actionable claims, nor does such exclusion have any nexus with the purpose of the Act. In support of the above preposition, Shri Shrivastava has relied on judgment of this Court in Ayurveda Pharmacy and Anr. Vs. State of Tamil Nadu, (1989) 2 SCC 285. This Court in the above case laid down that when the commodities belong to same class or category, there must be rational basis for discrimination between one commodity and other for purpose of imposing the tax. In paragraph 6 of the judgment, following has been laid down:-

6. ……………It is open to the legislature, or the State Government if it is authorised in that behalf by the legislature, to select different rates of tax for different commodities. But where the commodities belong to the same class or category, there must be a rational basis for discriminating between one commodity and another for the purpose of imposing tax. It is commonly known that considerations of economic policy constitute a basis for levying different rates of sales tax. For instance, the object may be to encourage a certain trade or industry in the context of the State policy for economic growth, and a lower rate would be considered justified in the case of such a commodity. There may be several such considerations bearing directly on the choice of the rate of sales tax, and so long as there is good reason for making the distinction from other commodities no complaint can be made. What the actual rate should be is not a matter for the courts to determine generally, but where a distinction is made between commodities falling in the same category a question arises at once before a court whether there is justification for the discrimination………………………”

65. Another judgment laying down the same preposition as relied by learned counsel for the petitioner is State of Uttar Pradesh and Ors. Vs. Deepak Fertilizers & Petrochemical Corporation Ltd., (2007) 10 SCC 342.

66. There can be no dispute to the above preposition laid down by this Court. The question to be answered is as to whether there is any rational reason for taking out only three actionable claims, i.e., lottery, betting and gambling while leaving other actionable claims from tax net.

67. Whether there is any rational basis for taking out only these three actionable claims is a question to be answered, whether the legislature has created a hostile discrimination by taxing only these three whereas leaving other actionable claims out of the tax net.

68. Even before enforcement of the Constitution of India, there were several legislations by different States regulating lottery, betting and gambling. Before a Constitution bench of this court in State of Bombay Vs. R.M.D. Chamarbaugwala and Anr., AIR 1957 SC 699, this Court had occasion to consider the nature of activities akin to lottery, betting and gambling. Bombay Lotteries and prize Competition Control and Tax Act, 1948 was enacted to regulate the tax, lotteries and prize competition. The petitioner, who was conducting and running the prize competition from State of Mysore where entries were received from various parts of India including the State of Bombay had challenged the Act, 1948 and the Rules namely Bombay Lotteries and Prize Competitions Control and Tax Rules, 1952. The writ petition was allowed by the High Court, against which State of Bombay had filed an appeal. The Constitution Bench held the activity of respondent as activity of gambling nature. This Court laid down following in paragraphs 41 and 46:-

“41. It will be abundantly clear from the foregoing observations that the activities which have been condemned in this country from ancient times appear to have been equally discouraged and looked upon with disfavour in England, Scotland, the United States of America and in Australia in the cases referred to above. We find it difficult to accept the contention that those activities which encourage a spirit of reckless propensity for making easy gain by lot or chance, which lead to the loss of the hard earned money of the undiscerning and improvident common man and thereby lower his standard of living and drive him into a chronic state of indebtedness and eventually disrupt the peace and happiness of his humble home could possibly have been intended by our Constitution makers to be raised to the status of trade, commerce or intercourse and to be made the subject-matter of a fundamental right guaranteed by Article 19(1)(g). We find it difficult to persuade ourselves that gambling was ever intended to form any part of this ancient country’s trade, commerce or intercourse to be declared as free under Article 301. It is not our purpose nor is it necessary for us in deciding this case to attempt an exhaustive definition of the word “trade”, “business”, or “intercourse”. We are, however, clearly of opinion that whatever else may or may not be regarded as falling within the meaning of these words, gambling cannot certainly be taken as one of them. We are convinced and satisfied that the real purpose of Articles 19(1)(g) and 301 could not possibly have been to guarantee or declare the freedom of gambling. Gambling activities from their very nature and in essence are extracommercium although the external forms, formalities and instruments of trade may be employed and they are not protected either by Article 19(1)(g) or Article 301 of our Constitution.

46. For the reasons stated above, we have come to the conclusion that the impugned law is a law with respect to betting and gambling under Entry 34 and the impugned taxing section is a law with respect to tax on betting and gambling under Entry 62 and that it was within the legislative competence of the State Legislature to have enacted it. There is sufficient territorial nexus to entitle the State Legislature to collect the tax from the petitioners who carry on the prize competitions through the medium of a newspaper printed and published outside the State of Bombay. The prize competitions being of a gambling nature, they cannot be regarded as trade or commerce and as such the petitioners cannot claim any fundamental right under Article 19(1)(g) in respect of such competitions, nor are they entitled to the protection of Article 301. The result, therefore, is that this appeal must be allowed and the orders of the lower courts set aside and the petitions dismissed and we do so with costs throughout. The state will get only one set of costs of hearing of this and Appeals Nos. 135, 136, & 187 of 1956 throughout.”

69. In a later decision, Union of India and Ors. Vs. Martin Lottery Agencies Limited, (2009) 12 SCC 209, this Court had occasion to consider levy of service tax on the lottery tickets. This Court had held that law as it stands today recognises lottery to be gambling, which is res extra commercium. In paragraph 17, following has been laid down:-

“17. We fail to persuade ourselves to agree with the aforementioned submission. The law, as it stands today (although it is possible that this Court in future may take a different view), recognises lottery to be gambling. Gambling is res extra commercium as has been held by this Court in State of Bombay v. R.M.D. Chamarbaugwala [AIR 1957 SC 699] and B.R. Enterprises v. State of U.P. [(1999) 9 SCC 700]”

70. Lottery, betting and gambling are well known concepts and have been in practice in this country since before independence and were regulated and taxed by different legislations. When Act, 2017 defines the goods to include actionable claims and included only three categories of actionable claims, i.e., lottery, betting and gambling for purposes of levy of GST, it cannot be said that there was no rationale for including these three actionable claims for tax purposes. Regulation including taxation in one or other form on the activities namely lottery, betting and gambling has been in existence since last several decades. When the parliament has included above three for purpose of imposing GST and not taxed other actionable claims, it cannot be said that there is no rationale or reason for taxing above three and leaving others.

71. It is a duty of the State to strive to promote the welfare of the people by securing and protecting, as effectively as it may, a social order in which justice, social, economic and political, shall inform all the institutions of the national life. The Constitution Bench in State of Bombay Vs. R.M.D. Chamarbaugwala and Anr. (supra) has clearly stated that Constitution makers who set up an ideal welfare State have never intended to elevate betting and gambling on the level of country’s trade or business or commerce. In this country, the aforesaid were never accorded recognition of trade, business or commerce and were always regulated and taxing the lottery, gambling and betting was with the objective as noted by the Constitution Bench in the case of State of Bombay Vs. R.M.D. Chamarbaugwala and Anr. (supra), we, thus, do not accept the submission of the petitioner that there is any hostile discrimination in taxing the lottery, betting and gambling and not taxing other actionable claims. The rationale to tax the aforesaid is easily comprehensible as noted above. Hence, we do not find any violation of Article 14 in Item No. 6 of Schedule III of the Act, 2017.

Question No.5

72. The petitioner’s contention is that price money should be abated from the face value of the lottery ticket for levy of GST. The prices are paid to the winner of the lottery ticket by the distributer/agent. It has been submitted that in the earlier regime of service tax also for the purposes of computing service tax the value of service tax was taken into account as the total face value of the ticket sold minus the total cost of the ticket and the prize money paid by the distributor. Further, service tax was levied at a miniscule rate of 0.82% and 1.2% as compared to the exorbitant rate of 28% which is being charged now. The question to be answered is that while determining the face value of the ticket for levy of tax the price money of the ticket is to be excluded. The reliance has also been placed on the circular dated 14.02.2007 which provided that the value of taxable service shall be taken into account at the total face value of the ticket sold minus (a) the total cost of the ticket paid by the distributor to the State Government and (b) price money paid by the distributer. Further, reliance has been placed on the Constitution Bench judgment of this Court in M/s. Gannon Dunkerley and co. and others vs. State of Rajasthan and others, 1993(1) SCC 364, where the Constitution Bench laid down that the value of the goods involved in execution of a works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services. The reliance is placed on paragraph 47 of the judgment which is to the following effect:

“45. Keeping in view the legal fiction introduced by the Forty Sixth Amendment whereby the works contract which are entire and indivisible into one for sale of goods and other for supply of labour and services, the value of the goods involved in the execution of a works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services. This would mean that labour charges for execution of works item no (i) amounts paid to a subcontractor for labour and services [item No. (ii), charges for planning, designing and architect’s fees [item No. (iii), charges for obtaining on hire or otherwise machinery and tools used in the execution of a works contact [item No. (iv), and the cost of consumables such as water, electricity, fuel etc. which are consumed in the process of execution of a works contract item No. (v) and other similar expenses for labour and services will have to be excluded as charges for supply of labour and services. …”

73. We may first notice the statutory scheme under the Act, 2017 and Rules framed thereunder regarding determination of value of supply. Section 15 of the Act deals with value of taxable supply. Section 15 (1) to (4) which is relevant for the present case is as follows:

Section 15. (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

(2) The value of supply shall include–––

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;

(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;

(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and

(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.

Explanation.––For the purposes of this sub­section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.

(3) The value of the supply shall not include any discount which is given––

(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and

(b) after the supply has been effected, if –

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and

(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

(4) Where the value of the supply of goods or services or both cannot be determined under sub­section (1), the same shall be determined in such manner as may be prescribed.”

74. The Rules have been framed, namely, the Central Goods and Services Tax Rules, 2017 in which Rules by notification dated 23.01.2018 Rule 31A has been inserted dealing with value of supply in case of lottery, betting, gambling and horse racing. Article 31A as was inserted provides as follows:

“Section 31A. Value of supply in case of lottery, betting, gambling and horse racing. ­

(1) Notwithstanding anything contained in the provisions of this Chapter, the value in respect of supplies specified below shall be determined in the manner provided hereinafter.

(2) (a) The value of supply of lottery run by State Governments shall be deemed to be 100/112 of the face value of ticket or of the price as notified in the Official Gazette by the organising State, whichever is higher.

(b) The value of supply of lottery authorised by State Governments shall be deemed to be 100/128 of the face value of ticket or of the price as notified in the Official Gazette by the organising State, whichever is higher.

Explanation:– For the purposes of this subrule, the expressions­

(a) lottery run by State Governments―means a lottery not allowed to be sold in any State other than the organizing State;

(b) lottery authorised by State “Governments means a lottery which is” authorised to be sold in State(s) other than the organising State also; and

(c) Organising State has the same meaning― as assigned to it in clause (f) of sub­rule (1) of rule 2 of the Lotteries (Regulation) Rules, 2010.

(3) The value of supply of actionable claim in the form of chance to win in betting, gambling or horse racing in a race club shall be 100% of the face value of the bet or the amount paid into the totalisator.”

75. Rule 31A has now been amended vide notification dated 02.03.2020 by which following sub-rule (2) has been substituted:

“Sub-Rule (2). The value of supply of lottery shall be deemed to be 100/128 of the face value of ticket or of the price as notified in the Official Gazette by the Organising State, whichever is higher.”

76. We may first deal with submission of the petitioner based on circular dated 14.02.2007. Circular dated 14.02.2007 was issued when the service tax was levied on distributor of paper lottery. The circular provided for determination of value of taxable service by deducting total cost of ticket paid by the distributor and price money paid by the distributor, that was regime when it was treated as business auxilliary service rendered by distributor. The said circular has no relevance or application after the 2017 enactment.

77. We may also refer to Constitution Bench judgment of Gannon Dankerley and Co.(second) where this Court laid down that value of the goods involved in the execution of the works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services. As noted above in paragraph 47 this Court noted items which were to be excluded while determining the value of goods involved in the works contract. What was held by this Court in the above case relates to works contract which judgment has no application on the issue which has arisen before us that is abatement of price money while determining the value of the lottery.

78. For determining the value of the lottery, now, there is statutory provision contained in Section 15 read with Rule 31A as noted above. Section 15 of the Act, 2017 by sub-section (2) it is provided what shall be included in the value of supply. What can be included in the value is enumerated in sub-clause (a) to (e) of sub-section (2) of Section 15. Further, subsection (3) of Section 15 provides that what shall not be included in the value of the supply. When there are specific statutory provisions enumerating what should be included in the value of the supply and what shall not be included in the value of the supply we cannot accept the submission of the petitioner that prize money is to be abated for determining the value of taxable supply. What is the value of taxable supply is subject to the statutory provision which clearly regulates, which provision has to be given its full effect and something which is not required to be excluded in the value of taxable supply cannot be added by judicial interpretation.

79. Further, Rule 31A as noted above, sub-rule (2) as amended clearly provides that value of supply shall be deemed to be 100/128 of the face value of ticket or of the prize as notified in the Official Gazette by the Organising State, whichever is higher. Learned Additional Solicitor General has explained the working of Rule 31A of Rules by giving an example:

“For example, if ₹ 100 is the face value of lottery ticket, 28% GST is levied only on ₹ 78.125[(100*28)/128]. GST amount will be 21.875. Therefore, ₹ 100 includes GST of 21.875 on the taxable value of ₹ 78.125. This is a mechanism to split the face value of ₹ 100 in two parts (A and B). A is the transaction value. B is GST on A. The formula as above is to come to A by reverse calculation.”

80. The value of taxable supply is a matter of statutory regulation and when the value is to be transaction value which is to be determined as per Section 15 it is not permissible to compute the value of taxable supply by excluding prize which has been contemplated in the statutory scheme. When prize paid by the distributor/agent is not contemplated to be excluded from the value of taxable supply, we are not persuaded to accept the submission of the petitioner that prize money should be excluded for computing the taxable value of supply the prize money should be excluded. We, thus, conclude that while determining the taxable value of supply the prize money is not to be excluded for the purpose of levy of GST.

81. Learned counsel for the petitioner has also relied on various taxing statutes of other countries, wherein the petitioner submits that prize money of the lottery ticket are not being computing for levy of tax. He has referred to provisions of United Kingdom Value Added Tax, 1994; Excise Tax Act of Canada; Goods and Services Tax Act of Singapore; Goods and Services Act, 1985 of New Zealand and Sri Lanka-Value Added Tax Act, 2002. When the levy of GST, determination of taxable value are governed by the Parliamentary Act in this country, we are of the view that legislative scheme of other countries may not be relevant for determining the issue which has been raised before us. The taxing policy and the taxing statute of various countries are different which are in accordance with taxing regime suitable and applicable in different countries. The issue which has been raised before us has to be answered by looking into the statutory provisions of the Act, 2017 and the Rules framed therein which govern the field.

82. In the foregoing discussion we are of the view that the petitioner is not entitled to reliefs as claimed in the writ petition.

83. We may, however, notice that petitioner has prayed for grant of liberty of challenging the notifications dated 21.02.2020/02.03.2020 by which rate of GST for lottery run by the State and lottery organized by the State have been made the same, which notification has not been challenged in the writ petition since the notifications were issued during the pendency of writ petition. Petitioner has prayed that the said issue be left open, the notification having not been challenged in the writ petition liberty be given to the petitioner to challenge the same in appropriate proceedings. We accept the above prayer of the petitioner. The petitioner shall be at liberty to challenge the notifications dated 21.02.2020/02.03.2020 (challenging the rate of levy tax uniformally at 28%) separately in appropriate proceedings. Subject to liberty as above, the writ petition is dismissed.

P.V. RAMANA REDDY VERSUS UNION OF INDIA & ORS

Possibility of arrest – Possibility of detention to custody – Grant of anticipatory bail – Input Tax Credit – fake invoices – input tax credit claimed on the basis of certain invoices, without there being any actual physical receipt of goods – issuance of fake GST invoices – fabricated and fake E-way bills – Petition against the decision [2019 (4) TMI 1320 – TELANGANA AND ANDHRA PRADESH HIGH COURT]

HELD THAT:- Having heard learned counsel for the petitioner and upon perusing the relevant material, we are not inclined to interfere – SLP dismissed.

No.- SLP(Crl.) No. 4430/2019

Dated.- May 27, 2019

Citations:

  1. P.V. Ramana Reddy, G. Srinivasa Raju, Venkata Satya Dharmavathar Bollina, Balarama Krishna Mandava, M/s. VS Ferrous Enterprises Private Limited, Smt. Jagannagari Ragavi Reddy, Challa Durga Adi Deva Vara Prasad, Telapolu Ram Prasad Versus Union of India, Ministry of Finance, Dept of Revenue, New Delhi and others – 2019 (4) TMI 1320 – TELANGANA AND ANDHRA PRADESH HIGH COURT

MR.  ANIRUDDHA BOSE, J.

For Petitioner : Mr. Ranjit Kumar, Sr. Adv. Mr. Sarthak Saurav, Adv. Mr. Wattan Sharma, Adv. Mr. Harshit Sethi, Adv. Mr. Amit K. Nain, AOR Mr. B. Krishna Prasad, AOR Mr. Parmatma Singh, AOR Mr. Mayank Jain, Adv. Mr. Madhur Jain, Adv. Mr. Vikram Chaudhry, Sr. Adv. Mr. Ashish Batra, Adv. Mr. Sarthak Saurav, Adv. Mr. Wattan Sharma, Adv. Mr. Harshit Sethi, Adv. Mr. Amit K. Nain, AOR Mr. B. Krishna Prasad, AOR

For Respondents : Mr. Tushar Mehta, SG Mr. K.M. Nataraj, ASG Mr. Rupesh Kumar, Adv. Mr. Kanu Agarwal, Adv. Mr. Rajat Nair, Adv. Ms. Shraddha Deshmukh, Adv. Mr. B.V. Balram Das, Adv. Mr. B. Krishna Prasad, AOR Mr. Mukul Rohatgi, Sr. Adv. Mr. Abhishek Rastogi, Adv. Mr. Sanjeev Kumar, Adv. M/s. Khaitan & Co., AOR

ORDER

SLP(Crl.) No. 4430/2019

Having heard learned counsel for the petitioner and upon perusing the relevant material, we are not inclined to interfere. The special leave petition is accordingly dismissed.

Pending interlocutory applications, if any, shall stand disposed of.

Diary No. 15477/2019, SLP(Crl.) Nos. 4322- 4324/2019, SLP(Crl.) No. 4571/2019 and SLP(Crl.) No. 4546/2019

List the matters on 29.5.2019.

C. PRADEEP VERSUS THE COMMISSIONER OF GST AND CENTRAL EXCISE SELAM & ANR

Maintainability of appeal – Compliance with the pre-deposit – non-prosecution of the case – HELD THAT:- Issue notice on condition that the petitioner shall deposit ₹ 2,00,00,000/- to the credit of C.No. IV/16/27/201HPU on the file of the Commissioner of GST & Central Excise, Salem, Tamil Nadu and produce receipt in that behalf in the Registry of this Court within ten days from today, failing which the special leave petition shall stand dismissed for non-prosecution without further reference to the Court.

For a period of one week, no coercive action be taken against the petitioner in connection with the alleged offence and the interim protection will continue upon production of receipt in the Registry about the deposit made with the Department within one week from today, until the disposal of this Special Leave Petition.

List the matter on 12.09.2019.

No.- Special Leave to Appeal (Crl.) No(s). 6834/2019

Dated.- August 6, 2019

HON’BLE MR. JUSTICE A.M. KHANWILKAR AND HON’BLE MR. JUSTICE DINESH MAHESHWARI

For Petitioner(s) Mr. B.H. Marlapalle, Sr. Adv., Mr. M.K. Subramanian, Adv. And Mr. Kaustubh Shukla, AOR

ORDER

Learned counsel for the petitioner submits that indisputably assessment for the relevant period has not been completed by the Department so far. In which case, invoking Section 132 of the Central Goods and Services Tax Act, 2017 does not arise. He further submits that, even if, the alleged liability of ₹ 19 crores as is assumed by the Department is accepted, it is open to the petitioner to file appeal after the assessment order is passed; and as per the statutory stipulation, such appeal could be filed upon deposit of only 10% of the disputed liability. In that event, the deposit amount may not exceed ₹ 2,00,00,000/- (Rupees Two Crores), which the petitioner is willing to deposit within one week from today without prejudice to his rights and contentions in the assessment proceedings and the appeal to be filed thereafter, if required.

Issue notice on condition that the petitioner shall deposit ₹ 2,00,00,000/- (Rupees Two Crores) to the credit of C.No. IV/16/27/201HPU on the file of the Commissioner of GST & Central Excise, Salem, Tamil Nadu and produce receipt in that behalf in the Registry of this Court within ten days from today, failing which the special leave petition shall stand dismissed for non-prosecution without further reference to the Court.

Subject to the above, notice returnable within three weeks.

Dasti, in addition, is permitted.

For a period of one week, no coercive action be taken against the petitioner in connection with the alleged offence and the interim protection will continue upon production of receipt in the Registry about the deposit made with the Department within one week from today, until the disposal of this Special Leave Petition.

List the matter on 12.09.2019.

Liberty to serve the Standing Counsel for the State of Madras is granted.

THE STATE OF UTTAR PRADESH & ORS. VERSUS M/S KAY PAN FRAGRANCE PVT. LTD.

Release of seized goods – compliance with Section 67 (8) of the Central Goods and Services Act, 2017 and Rule 141 of the relevant Rules – HELD THAT:- There are no hesitation in observing that the High Court in all such cases ought to have relegated the assessees before the appropriate Authority for complying with the procedure prescribed in Section 67 of the Act read with Rules as applicable for release (including provisional release) of seized goods.

There is no reason why any other indulgence need be shown to the assessees, who happen to be the owners of the seized goods. They must take recourse to the mechanism already provided for in the Act and the Rules for release, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum (even upto the total value of goods involved), respectively, as may be prescribed or on payment of applicable taxes, interest and penalty payable, as the case may be, as predicated in Section 67 (6) of the Act.

The orders passed by the High Court which are contrary to the stated provisions shall not be given effect to by the authorities. Instead, the authorities shall process the claims of the concerned assessee afresh as per the express stipulations in Section 67 of the Act read with the relevant rules in that regard. In terms of this order, the competent authority shall call upon every assessee to complete the formality strictly as per the requirements of the stated provisions disregarding the order passed by the High Court in his case, if the same deviates from the statutory compliances. That be done within four weeks without any exception.

We reiterate that any order passed by the High Court which is contrary to the stated provisions need not be given effect to in respect of all the cases referred in the affidavit by the State Government before this Court and fresh cases which may have been filed or likely to be filed before the High Court in connection with the subject matter of these appeals, by all concerned and are deemed to have been set aside/modified in terms of this order – In view of this order, all the Writ Petitions pending before the High Court, list whereof has been furnished in the affidavit are deemed to have been disposed of accordingly.

Appeal disposed off.

No.- Civil Appeal No. 8941/2019 ( @ Petition for Special Leave to Appeal ( C ) No. 25291/2019 )

Dated.- November 22, 2019

A. M. Khanwilkar And Dinesh Maheshwari, JJ.

For the Petitioner : Mr. S.K. Bagaria, Sr. Adv. Mr. Rupesh Kumar, AOR Mrs. Pankhuri Shrivastava, Adv. Mr. Aditya Kumar, Adv. Ms. Neelam Sharma, Adv. Mr. Pravesh Bahuguna, Adv. Ms. Vizokenuo Shua, Adv. Ms. Vasvi Nagar, Adv. Ms. Aishwarya Bhati, Sr. Adv. Mr. Bhakti Vardhan Singh, AOR Ms. Megha Agrawal, Adv. Mr. Surjit Singh, Adv. Mr. Nitin, Adv. Ms. Chitrangda R., Adv. Mr. Nithin P., Adv

For the Respondent : Ms. Anubha Agrawal, AOR 

ORDER

Leave granted.

Heard the learned counsels appearing for the parties.

These appeals throw up common issues for consideration. The first set of appeals is filed by the State of U.P., questioning the interim order passed by the High Court directing the State to release the seized goods, subject to deposit of security other than cash or bank guarantee or in the alternative, indemnity bond equal to the value of tax and penalty to the satisfaction of the Assessing Authority. It has come on record that similar orders came to be passed in several other writ petitions by the High Court, details whereof have been mentioned in the affidavit filed by the State in this Court. It was brought to our notice that the High Court, after passing the said interim order would then dispose of the main Writ Petition as having become infructuous, consequent to release of goods by the appropriate authority in terms of the interim order of the High Court. In the context of that grievance, this Court had to pass an order on 16.9.2019 which reads thus:

“ Applications for exemption from filing certified copy of the impugned order and official translation are allowed.

Issue notice on the special leave petition as also on the prayer for interim relief.

Dasti allowed.

Tag with Special Leave Petition (C) Diary No.24795 of 2019.

Considering the fact that in the present case goods have already been released pursuant to the impugned order, no interim relief can be granted.

However, our attention was invited to an order dated 31.01.2019 passed by the High Court in a similar matter i.e. Writ Tax No.141 of 2019 and couple of other case(s), wherein the High Court allowed the writ petitioner(s) to withdraw writ petition(s) after release of goods pursuant to the interim order, despite the fact that the interim order passed by it directing release of goods was subject matter of challenge pending before this Court. That cannot be countenanced. For, the claim of the State cannot be made faitaccompli in this manner.

In future, if such occasion arises including in the case of writ petitioners in this case, it will be open to the petitioner(s) (Department) to invite the attention of High Court regarding the pending special leave petition before this Court. We are certain that the High Court will consider the request for withdrawal of writ petition appropriately.”

(emphasis in italics supplied)

It is now brought to our notice that after the aforementioned order of this Court, the High Court is disposing of Writ Petitions by referring to Section 67 (8) of the Central Goods and Services Act, 2017 (for short, ‘the Act’) and Rule 141 of the relevant Rules. We deem it proper to advert to one such order passed by the High Court, which is assailed by the assessee in the second set of appeal filed before this Court. The said order reads thus:

“ Heard learned counsel for the petitioner and learned Additional Advocate General for the State.

It has been brought to notice of the Court that the goods are perishable and hazardous in nature.

Sri Manish Goyal, learned Addl. Advocate General has submitted that the Central Goods and Services Tax Act, 2017 provides a complete procedure for release of such goods, as contained in Section 67(8) of the Act read with Rule 141 of the relevant Rules, which are quoted herein below:

“Section 67(8). The Government may, having regard to the perishable or hazardous nature of any goods, depreciation in the value of the goods with the passage of time, constraints of storage space for the goods or any other relevant considerations, by notification, specify the goods or class of goods which shall, as soon as may be, after its seizure under subsection (2), be disposed of by the proper officer in such a manner, as may be prescribed. Rule 141. Procedure in respect of seized goods.

(1) Where the goods or things seized are of perishable or hazardous nature, and if the taxable person pays an amount equivalent to the market price of such goods or things or the amount of tax, interest and penalty that is or may become payable by the taxable person, whichever is lower, such goods or, as the case may be, things shall be released forthwith, by an order in FORM GST INS05, on proof of payment.”

Subject to compliance of the above provisions of law, the goods so seized may be considered for release within next one week.

The writ petition is, accordingly, disposed of.”

In the first place, we find force in the submission canvassed by the State that a complete mechanism is predicated in the Act and the Rules for release and disposal of the seized goods and for which reason, the High Court ought to have been loathe to entertain the Writ Petitions questioning the seizure of goods and to issue directions for its release.

In the second set of appeal filed by the assessee, the relief claimed by way of Writ Petitions before the High Court is as under:

(a) issue a suitable writ, order or direction in the nature of certiorari quashing the seizure order dated 25.7.2019 passed by the respondent No.2 and 3 under Section 67(2) of the Act and the panchnamas dated 19.7.2019 (Annexure – 2 & 3) to the writ petition respectively.

(b) issue a writ, order or direction in the nature of mandamus/prohibition declaring the search and seizure proceedings dated 25.7.2019, to be void and restraining the respondent authorities from taking any coercive action against the petitioner.

(c) issue a writ, order or direction in the nature of mandamus commanding and directing the respondents to release the goods of the petitioner forthwith without demanding any security.

(d) issue any such order and further orders which this Court may deem fit and proper in the facts and circumstances of the case.

(e) Award the cost of the Writ Petition to the petitioner.

It is broadly agreed that similar relief has been claimed in all the writ petitions filed before the High Court, including the one disposed of by the High Court as infructuous or by passing order which is impugned by the assessee in the second set of appeal referred to above.

For the sake of consistency, we have no hesitation in observing that the High Court in all such cases ought to have relegated the assessees before the appropriate Authority for complying with the procedure prescribed in Section 67 of the Act read with Rules as applicable for release (including provisional release) of seized goods.

Section 67 of the Act reads thus:

“Section 67 Power of inspection, search and seizure

67. (1) Where the proper officer, not below the rank of Joint Commissioner, has reasons to believe that––

(a) a taxable person has suppressed any transaction relating to supply of goods or services or both or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax under this Act; or

(b) any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act, he may authorize in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.

(2) Where the proper officer, not below the rank of Joint Commissioner, either pursuant to an inspection carried out under subsection

(1) or otherwise, has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorize in writing any other officer of central tax to search and seize or may himself search and seize such goods, documents or books or things:

Provided that where it is not practicable to seize any such goods, the proper officer, or any officer authorized by him, may serve on the owner or the custodian of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer:

Provided further that the documents or books or things so seized shall be retained by such officer only for so long as may be necessary for their examination and for any inquiry or proceedings under this Act.

(3) The documents, books or things referred to in sub-section (2) or any other documents, books or things produced by a taxable person or any other person, which have not been relied upon for the issue of notice under this Act or the rules made thereunder, shall be returned to such person within a period not exceeding thirty days of the issue of the said notice.

(4) The officer authorized under subsection (2) shall have the power to seal or break open the door of any premises or to break open any almirah, electronic devices, box, receptacle in which any goods, accounts, registers or documents of the person are suspected to be concealed, where access to such premises, almirah, electronic devices, box or receptacle is denied.

(5) The person from whose custody any documents are seized under subsection (2) shall be entitled to make copies thereof or take extracts therefrom in the presence of an authorized officer at such place and time as such officer may indicate in this behalf except where making such copies or taking such extracts may, in the opinion of the proper officer, prejudicially affect the investigation.

(6) The goods so seized under subsection (2) shall be released, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be.

(7) Where any goods are seized under subsection (2) and no notice in respect thereof is given within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized: Provided that the period of six months may, on sufficient cause being shown, be extended by the proper officer for a further period not exceeding six months.

(8) The Government may, having regard to the perishable or hazardous nature of any goods, depreciation in the value of the goods with the passage of time, constraints of storage space for the goods or any other relevant considerations, by notification, specify the goods or class of goods which shall, as soon as may be after its seizure under subsection (2), be disposed of by the proper officer in such manner as may be prescribed.

(9) Where any goods, being goods specified under subsection (8), have been seized by a proper officer, or any officer authorized by him under subsection (2), he shall prepare an inventory of such goods in such manner as may be prescribed.

(10) The provisions of the Code of Criminal Procedure, 1973, relating to search and seizure, shall, so far as may be, apply to search and seizure under this section subject to the modification that subsection (5) of section 165 of the said Code shall have effect as if for the word “Magistrate”, wherever it occurs, the word “Commissioner” were substituted.

(11) Where the proper officer has reasons to believe that any person has evaded or is attempting to evade the payment of any tax, he may, for reasons to be recorded in writing, seize the accounts, registers or documents of such person produced before him and shall grant a receipt for the same, and shall retain the same for so long as may be necessary in connection with any proceedings under this Act or the rules made thereunder for prosecution.

(12) The Commissioner or an officer authorized by him may cause purchase of any goods or services or both by any person authorized by him from the business premises of any taxable person, to check the issue of tax invoices or bills of supply by such taxable person, and on return of goods so purchased by such officer, such taxable person or any person in charge of the business premises shall refund the amount so paid towards the goods after cancelling any tax invoice or bill of supply issued earlier.”

(emphasis in italics supplied)

The relevant rules for release of seized goods are Rules 140 and 141 and the same read thus:

“Rule 140 – Bond and security for release of seized goods

(1) The seized goods may be released on a provisional basis upon execution of a bond for the value of the goods in FORM GST INR-04 and furnishing of a security in the form of a bank guarantee equivalent to the amount of applicable tax, interest and penalty payable.

Explanation. For the purposes of the rules under the provisions of this Chapter, the “applicable tax” shall include Central Tax and State Tax or Central Tax and the Union Territory Tax, as the case may be and the cess, if any, payable under the Goods and Services Tax (Compensation to States) Act, 2017 (15 of 2017)

(2) in case the person to whom the goods were released provisionally fails to produce the goods at the appointed date and place indicated by the proper officer, the security shall be encashed and adjusted against the tax, interest and penalty and fine, if any, payable in respect of such goods.

Rule 141 – Procedure in respect of seized goods

(1) Where the goods or things seized are of perishable or hazardous nature, and if the taxable person pays an amount equivalent to the market price of such goods or things or the amount of tax, interest and penalty that is or may become payable by the taxable person, whichever is lower, such goods or, as the case may be, things shall be released forthwith, by an order in FORM GST INS-05, on proof of payment.

(2) Where the taxable person fails to pay the amount referred to in sub-rule (1) in respect of the said goods or things, the Commissioner may dispose of such goods or things and the amount realized thereby shall be adjusted against the tax, interest, penalty, or any other amount payable in respect of such goods or things.”

There is no reason why any other indulgence need be shown to the assessees, who happen to be the owners of the seized goods. They must take recourse to the mechanism already provided for in the Act and the Rules for release, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum (even upto the total value of goods involved), respectively, as may be prescribed or on payment of applicable taxes, interest and penalty payable, as the case may be, as predicated in Section 67 (6) of the Act. In the interim orders passed by the High Court which are subject-matter of assail before this Court, the High Court has erroneously extricated the assessees concerned from paying the applicable tax amount in cash, which is contrary to the said provision.

In our opinion, therefore, the orders passed by the High Court which are contrary to the stated provisions shall not be given effect to by the authorities. Instead, the authorities shall process the claims of the concerned assessee afresh as per the express stipulations in Section 67 of the Act read with the relevant rules in that regard. In terms of this order, the competent authority shall call upon every assessee to complete the formality strictly as per the requirements of the stated provisions disregarding the order passed by the High Court in his case, if the same deviates from the statutory compliances. That be done within four weeks without any exception.

We reiterate that any order passed by the High Court which is contrary to the stated provisions need not be given effect to in respect of all the cases referred in the affidavit by the State Government before this Court and fresh cases which may have been filed or likely to be filed before the High Court in connection with the subject matter of these appeals, by all concerned and are deemed to have been set aside/modified in terms of this order. In view of this order, all the Writ Petitions pending before the High Court, list whereof has been furnished in the affidavit are deemed to have been disposed of accordingly. We have passed this common order to cover all cases of seizure during the relevant period, to obviate inconsistency in application of Law and also to do away with multiple appeals required to be filed by the State/ assessee to assail the unstatable orders/directions passed by the High Court in subject writ petition(s) referred to in the affidavit filed by the State before this Court.

Accordingly, the appeals are disposed of in the aforestated terms. All pending applications are also disposed of.

UNION OF INDIA & ANR. VERSUS MOHIT MINERAL PVT. LTD. AND VICE-VERSA

Validity of the Goods and Services Tax (Compensation to States) Act, 2017 enacted by Parliament as well as the Goods and Services Tax Compensation Cess Rules, 2017 – validity of Rules framed by the Central Government in exercise of power under Section 11 of the Goods and Service Tax (Compensation to States) Act, 2017 – Jurisdiction.

Whether the Compensation to States Act, 2017 is beyond the legislative competence of Parliament? – Held that:- Part XI of the Constitution deals with the relation between the Union and the States, Chapter I of which deals with “Legislative Relations”. Article 245 deals with “Distribution of Legislative Powers”. The Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in Seventh Schedule of the Constitution – Article 246A provides that “notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause(2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State”.

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 – it cannot be accepted that Parliament has no legislative competence to enact the Compensation to States Act, 2017 – The Compensation to States Act, 2017 is not beyond the legislative competence of the Parliament.

Whether 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? – Whether the Compensation to States Act, 2017 is a colourable legislation? – Held that:- The expression used in Article 246A is “power to make laws with respect to goods and services tax”. The power to make law, thus, is not general power related to a general entry rather it specifically relates to goods and services tax. When express power is there to make law regarding goods and services tax, we fail to comprehend that how such power shall not include power to levy cess on goods and services tax. True, that Constitution (One Hundred and First Amendment) Act, 2016 was passed to subsume various taxes, surcharges and cesses into one tax but the constitutional provision does not indicate that henceforth no surcharge or cess shall be levied – power of Parliament to make law providing for compensation to the States for loss of revenue was expressly included by constitutional provision – Further, the Preamble of Compensation to States Act, 2017 expressly mentions the Act 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 Constitution (One Hundred and First Amendment) Act, 2016. Thus, the Compensation to States Act, 2017 has been enacted under the express Constitution (One Hundred and First Amendment) Act, 2016.

It cannot be accepted that Compensation to States Act, 2017 transgresses the Constitution (One Hundred and First Amendment) Act, 2016 – there is no substance in the submission of the petitioner that Compensation to States Act, 2017 is a colourable legislation – Having held that Parliament has full legislative competence to enact the Act and the Act having been enacted to implement the Constitution (One Hundred and First Amendment) Act and the object being clearly to fulfill the Constitution (One Hundred and First Amendment) Act’s objective, the submission of the petitioner that Compensation to States Act, 2017 is a colourable legislation is rejected.

The Compensation to States Act, 2017 does not violate Constitution (One Hundred and First Amendment) Act, 2016 nor is against the objective of Constitution (One Hundred and First Amendment) Act, 2016 – The Compensation to States Act is not a colourable legislation.

Whether levy of Compensation to States Cess and GST on the same taxing event is permissible in law? – Held that:- The petitioner elaborating his contention submits that as per Section 8 of impugned legislation there shall be levied a cess on intraState supply of goods and services as provided in Section 9 of the CGST Act whereas CGST Act has been enacted to levy tax as provided under Article 246A of the Constitution. This is also true in respect of the cesses imposed on inter-State supplies of goods and services covered by Section 5 of IGST Act, 2017 – On the same very transaction there cannot be two levies, one under CGST Act and another under impugned legislation as it would amount to double taxation as levy is on the same taxable event and same subject. Thus, there is an overlapping on law which is not permissible.

The principle is well settled that two taxes/imposts which are separate and distinct imposts and on two different aspects of a transaction are permissible as “in law there is no overlapping” – Goods and Services Tax imposed under the 2017 Acts and levy of cess on such intraState supply of goods and services or both as provided under Section 9 of the CGST Act and such supply of goods and services or both as part of Section 5 of IGST Act is, thus, two separate imposts in law and are not prohibited by any law so as to declare it invalid.

Levy of Compensation to States Cess is an increment to goods and services tax which is permissible in law.

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? – Held that:- Compensation to States Act, 2017 or Rules framed thereunder does not indicate giving of any credit or set off of the Clean Energy Cess already paid till 30.06.2017. Thus, claim of the petitioner that he is entitled for set off in payment of Compensation to States Cess to the extent he had already paid Clean Energy Cess cannot be accepted – The petitioner is not entitled for any set off of payments made towards Clean Energy Cess in payment of Compensations to States Cess.

Petition dismissed.

No.- Civil Appeal No. 10177 of 2018 (arising out of SLP(C)No.25415 of 2017), Transferred Case (C) No.9 of 2018, Civil Appeal No. 10179 of 2018 (arising out of SLP(C)No.7708 of 2018)

Dated.- October 3, 2018

Citations:

  1. DEWAN CHAND BUILDERS & CONTRACTORS Versus UNION OF INDIA – 2011 (11) TMI 405 – Supreme Court
  2. Vijayalakshmi Rice Mill and others Versus Commercial Tax Officer, Palakol and others (and other appeals) – 2006 (8) TMI 307 – Supreme Court
  3. India Cement Limited Versus State Of Tamil Nadu – 1989 (10) TMI 53 – Supreme Court
  4. Federation Of Hotel And Restaurant Association Of India And Others Versus Union Of India Represented By The Administrator Of Goa, Daman And Diu, And Another – 1989 (5) TMI 50 – Supreme Court
  5. DOYPACK SYSTEMS (PVT) LTD Versus UNION OF INDIA – 1988 (2) TMI 61 – Supreme Court
  6. Hoechst Pharmaceuticals Ltd. Versus State of Bihar – 1983 (5) TMI 214 – Supreme Court
  7. AVINDER SINGH Versus STATE OF PUNJAB – 1978 (9) TMI 171 – Supreme Court
  8. UNION OF INDIA And Others Versus Harbhajan Singh Dhillon – 1971 (10) TMI 31 – Supreme Court
  9. M/s. Guruswamy & Co. Etc Versus State Of Mysore & Ors – 1966 (9) TMI 143 – Supreme Court
  10. SHINDE BROS. Versus DEPUTY COMMISSIONER RAICHUR – 1966 (9) TMI 139 – Supreme Court
  11. MPV Sundararamier & Co. and Others Versus The State of Andhra Pradesh and Another – 1958 (3) TMI 40 – Supreme Court
  12. AV Fernandez Versus The State of Kerala   – 1957 (4) TMI 46 – Supreme Court
  13. THE COMMISSIONER, HINDU RELIGIOUS ENDOWMENTS, MADRAS Versus SRI LAKSHMINDRA THIRTHA SWAMIAR OF SRI SHIRUR MUTT. – 1954 (4) TMI 29 – Supreme Court
  14. Hind Energy And Coal Benefication (India) Ltd. Versus Union of India & ANR. – 2017 (10) TMI 251 – DELHI HIGH COURT
  15. Mohit minerals Pvt. Ltd. Versus Union of India & ANR – 2017 (10) TMI 250 – DELHI HIGH COURT
  16. Governor-General In Council Versus The Province of Madras – 1943 (3) TMI 13 – MADRAS FEDERAL COURT

Mr. A.K. Sikri And Mr. Ashok Bhushan JJ.

For the Petitioner(s) : Mr. K.K. Venugopal, AG, Ms. Nisha Bagchi, Adv. And Mr. B. Krishna Prasad, AOR

For the Respondent(s) : Mr. J.K. Mittal, Adv., Mr. Rajveer Singh, Adv., Mr. Praveen Swarup, AOR And M/S.  Khaitan & Co., AOR

JUDGMENT

ASHOK BHUSHAN,J.

Leave granted.

2. The validity of the Goods and Services Tax (Compensation to States) Act, 2017 enacted by Parliament as well as the Goods and Services Tax Compensation Cess Rules, 2017, the Rules framed by the Central Government in exercise of power under Section 11 of the Goods and Service Tax (Compensation to States) Act, 2017 are under challenge in these cases.

3. Civil Appeal arising out of SLP(C)No.25415 of 2017 has been filed by the Union of India challenging ad interim order dated 25.08.2017 passed by the Division Bench of the Delhi High Court in Writ Petition (C) No.7459 of 2017 (Mohit Mineral Pvt. Ltd. vs. Union of India and another). In the writ petition validity of the Goods and Services Tax (Compensation to States) Act, 2017 as well as Rules framed thereunder were under challenge. The Division Bench passed a partial ad interim order providing that additional levy on the stocks of coal on which writ petitioner had already paid Clean Energy Cess in terms of Finance Act, 2010, he shall not be required to make any further payment. However, on stocks of coal on which no Clean Energy Cess under the Finance Act, 2010 was paid any payment in terms of the impugned Act would be subject to the result of the writ petition.

4. This Court issued notice in the SLP on 22.09.2017 and stayed impugned order passed by the High Court.

5. Civil Appeal arising out of SLP(C)No.7708 of 2018 has been filed by Union of India challenging interim order dated 08.09.2017 passed by the Division Bench of the Delhi High Court in Writ Petition (C) No.7965 of 2017 (Hind Energy and Coal Benefication (India) Ltd. vs. Union of India and another). The Division Bench of the High Court passed interim order dated 08.09.2017 almost in the similar manner as was passed on 25.08.2017. This Court passed an order on 16.01.2018, while hearing SLP(C)No.25415 of 2017 filed against interim order dated 25.08.2017, on oral request of Attorney General, which was also joined by the learned counsel appearing for the respondentswrit petitioners, transferred Writ Petition (C) No.7459 of 2017 to this Court to be heard along with SLP(C)No.25415 of 2017. Transferred Case(C) No.9 of 2018 (Mohit Mineral Pvt. Ltd. vs. Union of India and another) has been registered on transfer of Writ Petition (C)No.7459 of 2017 to this Court.

6. The decision in Transferred Case (C)No.9 of 2018 by which Writ Petition (C)No.7459 of 2018 is to be heard by this Court shall dispose of the transferred writ petition as well as both the civil appeals. With the consent of the learned counsel for the parties, we have proceeded to hear the writ petition finally.

Facts in the Writ Petition (C) No.7459 of 2017

7. Mohit Mineral Pvt. Ltd. (hereinafter referred to as the ‘writ petitioner’) is a Company incorporated under the Companies Act which is a trader of imported and Indian coal.

The writ petitioner imports coal from Indonesia, South Africa and also purchases coal from Indian mines. The Finance Act, 2010 with effect from 01.07.2010 levied Clean Energy Cess 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.

The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 was introduced in the Lok Sabha to seek amendment in the Constitution, 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 inter-State and intra-State. The Constitution (One Hundred and First Amendment) Act, 2016 was passed to levy goods and services tax. Section 18 of the Amendment Act enabled the Parliament to levy a cess for five years to compensate the States for the loss of revenue on account of GST. On 12.04.2017, Parliament enacted three Acts, namely, (1) The Central Goods and Services Tax Act, 2017; (2) The Integrated Goods and Services Tax Act, 2017; and (3) The Goods and Services Tax (Compensation to States) Act, 2017 (hereinafter referred to as “Compensation to States Act, 2017”). On 04.05.2017, the axation Laws (Amendment) Act, 2017 was enacted, whereunder, several cesses including Clean Energy Cess was repealed. The writ petitioner submitted a representation to the GST Council seeking set off of Clean Energy Cess against GST Compensation Cess. Writ Petition (C) No.7459 of 2017 was filed by Mohit Minerals Pvt. Ltd. in Delhi High Court praying for following reliefs:

“It is therefore, most respectfully prayed that this Hon’ble High Court be pleased to:

A) issue a Writ of certiorari/mandamus or any other appropriate Writ/order/direction against the Respondents by quashing impugned Goods and Services Tax (Compensation to States) Act, 2017 by declaring that same lack legislative competency and unconstitutional;

B) issue a Writ of certiorari/mandamus or any other appropriate Writ/order/direction against the Respondents by quashing impugned the Goods and Services Tax Compensation Rules, 2017 under the impugned legislation are illegal and unconstitutional;

C) issue a Writ of certiorari/mandamus or any other appropriate Writ/order/direction against the Respondents by quashing impugned Notification No.1/2017 & 2/2017Compensation Cess (Rate), dated 28.06.2017 issued by the Respondent No.1 under the impugned legislation, are illegal and unconstitutional;

D) issue a Writ of certiorari/mandamus or any other appropriate Writ/order/direction against the Respondent No.2 by declaring that the Respondent No.2 has no power under Article 279A of Constitution of India to make any recommendation, whatsoever, for levy and collection of cess as envisaged and levied under the impugned Goods and Services Tax (Compensation to States)Act, 2017 or framing of Rules and issuance of Notification under the said impugned legislation;

E) issue such other writ/order/direction to the Respondent No.2 to place before this Hon’ble Court the records of the recommendation given and all decision taken in respect of levy and collection of cess as envisaged and levied under the impugned Goods and Services Tax (Compensation to States) Act, 2017, framing of Rules and issuance of Notification under the said impugned legislation;

F) issue such other writ/order/direction and further orders as the Hon’ble Court may deem just and proper in the facts and circumstances of the case.”

8. The Division Bench of the Delhi High Court passed ad interim order on 25.08.2017. In the interim order dated 25.08.2017, the Division Bench observed that there is a prima facie case made out by the writ petitioner regarding lack of legislative competence of Parliament to enact Compensation to States Act, 2017. In paragraphs 8, 9, 13 and 14 of the interim order following was observed:

“8. The Court sees prima facie merit in the contention of the Petitioner, based on the history of the abolition of the Clean Energy Cess and the introduction of the GST regime, that the power of Parliament to enact the impugned Act cannot be traced to Section 18 of the COI 101st Amendment Act. There is therefore a prima facie case made out as regards the legislative competence of the Parliament to enact the impugned Act.

9. Another aspect of the matter is that Section 8 of the impugned Act contemplates levy of “a cess on such intraState supplies of goods or services or both”, the same that is provided in Section 9 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) and such “inter-State supply of goods and services or both” as provided for in Section 5 of the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’). Therefore, it is clear that cess is being levied on the same taxable event that is the subject matter of the levy under the CGST and IGST Acts, viz., supply of goods and services.

… … … …

13. The Court, at this stage, is of the view that, the Petitioner has made out a prima facie case for partial ad interim relief subject to conditions. As far as the additional levy on the stocks of coal on which it has already paid the Clean Energy Cess in terms of FA Act, 2010, the Petitioner should not be required to make any further payment. However, on stocks of coal on which no Clean Energy Cess under the FA, 2010 was paid, any payment made in terms of the impugned Act would be subject to the result of this petition. It is ordered accordingly.

14. It is made clear that, in the event of the Petitioner succeeding in the present petition, the Petitioner would be entitled to a refund of amounts of Clean Energy Cess paid under the Act and on such terms as the Court may determine in the final order.”

9. On 08.09.2017, another interim order was passed in Writ Petition (C) No. 7965 of 2017.

10. We have heard Shri J.K. Mittal, learned counsel appearing for the writ petitioner and Shri K.K. Venugopal learned Attorney General appearing for the Union of India.

11. Shri J.K. Mittal learned counsel for the writ petitioner submits that the Constitution (One Hundred and First Amendment) Act, 2016 was enacted by the Parliament with the intent to consolidate number of indirect taxes which were levied by the Union and States with the intention to reduce the Goods and Services Tax (GST)by giving concurring taxing power to Union and States for levying GST on every transaction of supply of goods or services both. There was a clear objective of the aforesaid constitutional amendment that with the introduction of Goods and Services Tax, not only the indirect taxes but the cesses and surcharges levied on goods and services shall also be subsumed in it.

12. By Taxation Laws (Amendment) Act, 2017 various enactments levying various types of cesses were repealed including Clean Energy Cess/Clean Environment Cess which was levied and collected on coal.

13. The Compensation to States Act, 2017 is repugnant to and transgress the mandate of the Constitution (One Hundred and First Amendment) Act, 2016. It was the Parliament’s conscious decision to abolish with effect from 01.07.2017 all cesses including cess levied on coal as per mandate of the Constitution (One Hundred and First Amendment) Act, 2016. The impugned legislation is colourable legislation which lacks legislative competence. No power could be traced in Section 18 to the Constitution (One Hundred and First Amendment) Act, 2016 to amend Compensation to States Act, 2017. Section 18 of the Constitution (One Hundred and First Amendment) Act, 2016 does not empower the Parliament to levy cess and tax as it provides Parliament to make any law to provide compensation to the States for loss of revenue arising on account of implementation of GST for a period of 5 years. The impugned legislation is a colourable legislation which lacks legislative competence so far as collection of levy on cess is concerned.

14. The impugned legislation defeat the very objective of the Constitution (One Hundred and First Amendment) Act, 2016. On the very same transaction there cannot be two levies, one under Central GST Act and another under impugned legislation as it would amount to double taxation as levied on the same taxable event and same subject. Thus, there is an overlapping in law which is not permissible.

15. The writ petitioner suffered cess of ₹ 400 per ton on the coal and under the impugned legislation the Union is again levying and collecting cess at the rate of ₹ 400 per ton on the stock lying with the petitioner as on 30.06.2017 just on eve of the day when all legislation related to GST including impugned legislation was introduced, whereas on the same stock of coal, cess was already levied and collected under the provisions of Chapter VII of Finance Act, 2010. Thus, it amounts to double collection of tax at the same rate on the same stock. Even if the impugned legislation is found to be within legislative competency, the petitioner may be permitted to set off the cess of ₹ 7.68 crores which was already paid on the stock lying with the petitioner on 30.06.2017. Levy under impugned legislation is tax and not a cess, hence, not permissible in law.

16. Shri K.K. Venugopal, learned Attorney General submits that cess is nothing but a special kind of tax. If the legislature is competent to levy the main tax, i.e. GST under Article 246A of the Constitution, then legislative competence of levying the cess flows from the very same power to levy the tax itself. The phrase used in Article 246A “with respect to” has wide implication and will allow levy of cess also. Power to levy a cess, in any case, can be traced back to Article 270 of the Constitution. However, Entry 97 of List I of Seventh Schedule to the Constitution grants a residuary power to levy a tax to the Union. The Clean Energy Cess which was imposed by the Finance Act, 2010 and GST Compensation Cess are levied on entirely different transactions and both are for entirely different purpose. The Clean Energy Cess 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 whereas GST Compensation Cess is imposed on inter-State and intraState supply of specified goods and services. The Clean Energy Cess was levied and collected for the purposes of financing and promoting clean energy initiatives, funding research in the area of clean energy, for any other purpose relating thereto whereas GST Compensation Cess is collected to provide for compensation to the States for the loss of revenue arising on account of implementation of the goods and services tax.

17. The High Court committed an error in prima facie holding that credit of Clean Energy Cess should be allowed to be utilised for paying GST Compensation Cess. The provision of credit and flow of credit is a purely policy decision of the Executive. The Parliament does not lack legislative competence to enact Compensation to States Act, 2017 nor the legislation can be said to be colourable legislation. The Compensation to States Act, 2017 in no manner transgressed Constitution (One Hundred and First Amendment) Act, 2016.

18. Learned counsel for both the parties have placed reliance on various judgments of this Court in support of their respective submissions which shall be referred to while considering the submissions in detail.

19. From the submissions of the learned counsel for the parties and pleadings following issues arise for consideration:

(1) Whether the Compensation to States Act, 2017 is beyond the legislative competence of Parliament?

(2) Whether 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 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?

20. We have considered the submissions of learned counsel for the parties and have perused the records.

21. First, we need to notice relevant constitutional provisions and the Parliamentary enactments relevant for the issues raised in these cases.

22. Part XII of the Constitution deals with Finance. Article 265 provides that no tax shall be levied or collected except by authority of law. Article 366 contains definitions.

Article 366(26A) defines “services” as “services means anything other than goods”. Whereas Article 366 (29A) contains an inclusive definition of “tax on the sale or purchase of goods”. A Bill was introduced in the Lok Sabha namely, the Constitution (One Hundred and TwentySecond Amendment) Bill, 2014 on 19.12.2014 proposing constitutional amendments to introduce the goods and services tax for conferring concurrent taxing powers on the Union as well as the States including Union territory with Legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both. Statement of Objects and Reasons of the Bill are as follows:-

“STATEMENT OF OBJECTS AND REASONS

The Constitution is proposed to be amended to introduce the goods and services tax for conferring concurrent taxing powers on the Union as well as the States including Union territory with Legislature to make laws for levying goods and services tax on every transaction of supply of goods or services or both. The goods and services tax shall replace a number of indirect taxes being levied by the Union and the State Governments and is intended to remove cascading effect of taxes and provide for a common national market for goods and services. The proposed Central and State goods and services tax will be levied on all transactions involving supply of goods and services, except those which are kept out of the purview of the goods and services tax.

2. The proposed Bill, which seeks further to amend the Constitution, inter alia, provides for-

(a) subsuming of various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, Special Additional Duty of Customs, and Central Surcharges and Cesses so far as they relate to the supply of goods and services;

(b) subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, Taxes on lottery, betting and gambling; and State cesses and surcharges in so far as they relate to supply of goods and services;

(c) dispensing with the concept of ‘declared goods of special importance’ under the Constitution;

(d) levy of Integrated Goods and Services Tax on inter-State transactions of goods and services;

(e) levy of an additional tax on supply of goods, not exceeding one per cent. in the course of inter-State trade or commerce to be collected by the Government of India for a period of two years, and assigned to the States from where the supply originates;

(f) conferring concurrent power upon Parliament and the State Legislatures to make laws governing goods and services tax;

(g) coverage of all goods and services, except alcoholic liquor for human consumption, for the levy of goods and services tax. In case of petroleum and petroleum products, it has been provided that these goods shall not be subject to the levy of Goods and Services Tax till a date notified on the recommendation of the Goods and Services Tax Council.

(h) compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period which may extend to five years;

xxxxxxxxxxxxxxxxxxxx”

23. The Constitution (One Hundred and First Amendment) Act, 2016 dated 08.09.2016 was passed to amend the Constitution of India. By Constitution (One Hundred and First Amendment) Act, 2016, new Articles 246A, 269A and 279A were inserted.

Amendments were also made in Articles 248, 249, 250, 268, 269, 270, 271, 286, 366 and 368. Article 268A was omitted.

Amendments were also made in Seventh Schedule of the Constitution in List I and List II. Article 246A and 269A as inserted by Constitution (One Hundred and First Amendment) Act, 2016 is as follows:-

“246A. Special provision with respect to goods and services tax.— (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.

(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce

Explanation.-The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council.”.

269A. Levy and Collection of goods and services tax in course of inter-State trade or commerce.— (1) Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.

Explanation.-For the purposes of this clause, supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce.

(2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India.

(3) Where an amount collected as tax levied under clause (1) has been used for payment of the tax levied by a State under article 246A, such amount shall not form part of the Consolidated Fund of India.

(4) Where an amount collected as tax levied by a State under article 246A has been used for payment of the tax levied under clause (1), such amount shall not form part of the Consolidated Fund of the State.

(5) Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.”.

24. Article 270 of the constitution as amended by the above Amendment Act is as follows:-

“270.Taxes levied and distributed between the Union and the States.— (1) All taxes and duties referred to in the Union List, except the duties and taxes referred to in Articles 268, 269 and 269A, respectively, surcharge on taxes and duties referred to in Article 271 and any cess levied for specific purposes under any law made by Parliament shall be levied and collected by the Government of India and shall be distributed between the Union and the States in the manner provided in clause (2).

… … … …”

25. Section 18 and Section 19 of the Constitution (One Hundred and First Amendment) Act, 2016 is also relevant, which are to the following effect:-

“18. Compensation to States for loss of revenue on account of introduction of goods and services tax.– 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.

19. Transitional provisions.– Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier.

26. At this stage, it is also relevant to notice that in the Constitution (One Hundred and TwentySecond Amendment) Bill, 2014, Clause 18 contain a provision for arrangement for assignment of additional tax on supply of goods to States for two years or such other period recommended by Council, which was to the following effect:-

“18. Arrangement for assignment of additional tax on supply of goods to States for two years or such other period recommended by Council (1) An additional tax on supply of goods, not exceeding one per cent. in the course of inter-State trade or commerce shall, notwithstanding anything contained in clause (1) of article 269A, be levied and collected by the Government of India for a period of two years or such other period as the Goods and Services Tax Council may recommend, and such tax shall be assigned to the States in the manner provided in clause (2).

(2) The net proceeds of additional tax on supply of goods in any financial year, except the proceeds attributable to the Union territories, shall not form part of the Consolidated Fund of India and be deemed to have been assigned to the States from where the supply originates.

(3) The Government of India may, where it considers necessary in the public interest, exempt such goods from the levy of tax under clause (1).

(4) Parliament may, by law, formulate the principles for determining the place of origin from where supply of goods take place in the course of inter-State trade or commerce.”

27. Clause 19 contain compensation to States for loss of revenue on account of introduction of goods and services tax.

Clause 19 of the Bill is as follows:-

“19. Compensation to States for loss of revenue on account of introduction of goods and services tax.– Parliament may, 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 such period which may extend to five years.”

28. It is, however, to be noticed that Constitution (One Hundred and TwentySecond Amendment) Bill, 2014 was passed but Clause 18 of the Bill was not incorporated and Clause 19 found place as Section 18 of the Constitution (One Hundred and First Amendment) Act, 2016. After the aforesaid Constitution Amendment, Parliament enacted Central Goods and Services Tax Act, 2017 (Act No.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 matters connected therewith or incidental thereto. On the same day, another enactment namely ‘The Integrated Goods and Services Tax Act, 2017’ (Act No. 13 of 2017 dated 12.04.2017) was enacted 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. Another enactment namely ‘The Union Territory Goods and Services Tax Act, 2017’ (Act No. 14 of 2017) was passed on the same day to make a provision for levy and collection of tax on intraState supply of goods or services or both by the Union territories and for matters connected therewith or incidental thereto. The Fourth Parliamentary enactment, which is subject matter of challenge in the present case was also enacted on the same day, i.e. 12.04.2017, namely ‘The Goods and Services Tax (Compensation to States) Act, 2017’ (Act NO. 15 of 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 Constitution (One Hundred and First Amendment) Act, 2016. As the Preamble indicate (Compensation to States) Act, 2017 was enacted in pursuance of the provisions of the Constitution (One Hundred and First Amendment) Act, 2016. Section 8 of the Compensation to States Act, 2017 provides for levy and collection of Cess, which is as follows:

8. Levy and collection of cess.– ­­(1) There shall be levied a cess on such intra­State supplies of goods or services or both, as provided for in section 9 of the Central Goods and Services Tax Act, and such inter­State supplies of goods or services or both as provided for in section 5 of the Integrated Goods and Services Tax Act, and collected in such manner as may be prescribed, on the recommendations of the Council, for the purposes of providing compensation to the States for loss of revenue arising on account of implementation of the goods and services tax with effect from the date from which the provisions of the Central Goods and Services Tax Act is brought into force, for a period of five years or for such period as may be prescribed on the recommendations of the Council:

Provided that no such cess shall be leviable on supplies made by a taxable person who has decided to opt for composition levy under section 10 of the Central Goods and Services Tax Act.

(2) The cess shall be levied on such supplies of goods and services as are specified in column (2) of the Schedule, on the basis of value, quantity or on such basis at such rate not exceeding the rate set forth in the corresponding entry in column (4) of ,the Schedule, as the Central Government may, on the recommendations of the Council, by notification in the Official Gazette, specify:

Provided that where the cess is chargeable on any supply of goods or services or both with reference to their value, for each such supply the value shall be determined under section 15 of the Central Goods and Services Tax Act for all intra­State and inter­State supplies of goods or services or both:

Provided further that the cess on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (51 of 1975), at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962 (52 of 1962), on a value determined under the Customs Tariff Act, 1975.

29. Section 12(1) empowers the Central Government to make rules for carrying out the provisions of the Act on the recommendation of the Council. The Council is defined in Section 2(e) of the Act as “Council means the Goods and Services Tax Council constituted under the provision of Article 279A of the Constitution”. The Schedule of the Act read with Section 8 contains description of supply of goods or services in column 2; Tariff item, heading, subheading, Chapter or supply of goods or services, as the case may be, in column 3 and the maximum rate at which goods and services ta x compensation cess may be collected in column 4. The Central Government, in exercise of power under Section 12, has framed the rules namely “The Central Goods and Services Tax Rules, 2017”.

30. Parliament enacted the Taxation Laws (Amendment) Act, 2017 dated 04.05.2017 to amend the Customs Act, 1962, the Customs Tariff Act, 1975, the Central Excise Act, 1944, the Central Sales Tax Act, 1956, the Finance Act, 2001 and the Finance Act, 2005 and to repeal certain enactments.

31. By Taxation Laws (Amendment) Act, 2017, the Finance Act, 2010, Chapter VII has been repealed. The Finance Act, 2010, Chapter VII provided for levy of Clean Energy Cess, which stood repealed.

32. We now proceed to consider the issues as noted above.

Whether the Compensation to States Act, 2017 is beyond the legislative competence of Parliament? (Issue No.1)

33. The petitioners have challenged the legislative competence of Parliament to enact Compensation to states Act, 2017. The petitioners submits that impugned legislation has transgressed the limits of its power granted under the Constitution. It is contended that although the impugned legislation is described as for purpose of giving compensation to States by Centres to States for loss of revenue but in fact it impose tax (termed as cess), hence in pith and substance the legislation does not belong to the subject falling within the limits of its power but is outside it.

34. Part XI of the Constitution deals with the relation between the Union and the States, Chapter I of which deals with “Legislative Relations”. Article 245 deals with “Distribution of Legislative Powers”. The Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in Seventh Schedule of the Constitution. The Parliament, and subject to Clause(1) of Article 246, the Legislature of a State also have power to make laws with respect to any of the matters enumerated in List III of the Seventh Schedule. Article 248 deals with residuary power of Legislation in following manner:

Article 248 – Residuary powers of legislation— (1) Subject to article 246A, Parliament has exclusive power to make any law with respect to a matter not enumerated in the Concurrent List or State List.

(2) Such power shall include the power of making any law imposing a tax not mentioned in either of those Lists.

35. Article 246A as noticed above provides that “notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause(2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State”. In the present case, we are concerned with a cess imposed by Compensation to States Act, 2017. The Act by Section 8 levies and authorizes collection of cess. We need to first examine nature of cess. Cess has been defined in Black’s Law Dictionary, Tenth Edition as “An assessment or tax.”

36. P. Ramanatha Aiyar, Advanced Law Lexicon, 3rd Edition defines cess as follows:-

“Cess” is “An assessment tax; levy; specifically: (a) A rate or local tax…….(b) In Scotland, the land tax. (c) in India, a tax for a special object; as, a road cess”. (Webster)

The word “cess” is used in Ireland and is still in use in India although the word rate has replaced it in England. It 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. 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., 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, AIR 1967 SC 1512, 1525.”

37. This Court had considered the expression “cess” in Shinde Brothers Etc. Vs. Deputy Commissioner, Raichur & Others Etc., 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 that there is no entry “health cess” as such in the legislative entries. The word “cess” is used in Ireland and is still in use in India although the word rate has replaced it in England. It 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. 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 it is an increment. By Schedule A(1) read with Section 3 of the Act, it is collected as an additional levy with a tax, which, as described in Schedule A, is undoubtedly one within the powers of the State Legislature and has been so even prior to the Constitution……………………”

38. In the Constitution Bench judgment of this Court in India Cement Ltd. & Others Vs. State of Tamil Nadu & Others, (1990) 1 SCC 12, the above definition given by Hidayatuallah, J. was quoted with approval in Para 19, which is quoted as below:-=

“19. Here, we are concerned with cess on royalty.

One can have an idea as to what cess is, from the observations of Hidayatullah, J., as the learned Chief Justice then was, in Guruswamy & Co. v. State of Mysore9 where at page 571, the learned Judge observed :

“The word ‘cess’ is used in Ireland and is still in use in India although the word rate has replaced it in England. It 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. 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 it is an increment.”

39. The meaning of “cess” as noticed above was again reiterated by a Two Judge Bench judgment of this Court in Vijayalashmi Rice Mill & Others Vs. Commercial Tax Officers, Palakol & Others, (2006) 6 SCC 763, in paragraph 13, following has been laid down:-

“13. Hence ordinarily a cess is also a tax, but is a special kind of tax. Generally tax raises revenue which can be used generally for any purpose by the State. For instance, the income tax or excise tax or sales tax are taxes which generate revenue which can be utilised by the Union or the State Governments for 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. There are more than one reason to uphold the legislative competence of Parliament to enact the Compensation to States Act, 2017. Constitution Bench of this Court in Union of India Vs. Harbhajan Singh Dhillon, (1971) 2 SCC 779 held that only question to be asked while examining the legislative competence of Parliament with regard to a particular enactment is: Is the matter sought to be legislated or included in List II or in List III or is the tax sought to be levied mentioned in List II or in List III”. In Para 21, the Constitution Bench laid down following:

“21. It seems to us that the function of Article 246(1), read with Entries 196, List I, is to give positive power to Parliament to legislate in respect of these entries. Object is not to debar Parliament from legislating on a matter, even if other provisions of the Constitution enable it to do so.

Accordingly we do not interpret the words “any other matter” occurring in Entry 97, List I, to mean a topic mentioned by way of exclusion. These words really refer to the matters contained in each of the Entries 1 to 96. The words “any other matter” had to be used because Entry 97, List I follows Entries 196, List I. It is true that the field of legislation is demarcated by Entries 196, List I, but demarcation does not mean that if Entry 97, List I confers additional powers, we should refuse to give effect to it. At any rate, whatever doubt there may be on the interpretation of Entry 97, List I is removed by the wide terms of Article 248. It is framed in the widest possible terms. On its terms the only question to be asked is: Is the matter sought to be legislated or included in List II or in List III or is the tax sought to be levied mentioned in List II or in List III: No question has to be asked about List I. If the answer is in the negative then it follows that Parliament has power to make laws with respect to that matter or tax.”

41. When we pose the above question in context of impugned legislation, i.e. Compensation to States Act, 2017, we do not find any entry in List II or List III of Seventh Schedule, which may refer to levying of cess in question. Article 248 read with Articles 246 and 246A clearly indicate that residuary power of legislation is with the Parliament. In the present case, we may notice that no contention has been raised before us that the subject matter of legislation was within the competence of State Legislature, and that the Parliament had no competence to legislate. Applying the H.S. Dhillon’s test (supra), we do not find any lack of legislative competence in the Parliament.

42. Learned counsel for the petitioner relied on two decisions of this Court namely Hoechst Pharmaceuticals Ltd. & Others Vs. State of Bihar & Others, (1983) 4 SCC 45 and M.P.V. Sundararamier & Co. Vs. State of A.P. & Others, AIR 1958 SC 468 to contend that taxation is a distinct matter for purposes of legislative competence and the power to tax cannot be deduced from a general legislative entry as an ancillary power. He submits that State Compensation Cess being not covered by any taxing entry, the legislation is beyond the competence of Parliament. We may first notice the proposition, which has been laid down by this court in Hoechst Pharmaceuticals Ltd. (supra). This Court in the above case had occasion to examine Bihar Finance Act, 1981, by which surcharge was levied on certain dealers selling essential commodities such as drugs. Challenge to the legislative competence of the State was raised. In the above context, this Court had observed that taxation is considered to be a distinct matter for purposes of legislative competence. In paragraphs 74, 75 and 76, following was laid down:

“74. It is equally well settled that the various entries in the three Lists are not ‘powers’ of legislation, but ‘fields’ of legislation. The power to legislate is given by Article 246 and other Articles of the Constitution. Taxation is considered to be a distinct matter for purposes of legislative competence. Hence, the power to tax cannot be deduced from a general legislative entry as an ancillary power. Further, the element of tax does not directly flow from the power to regulate trade or commerce in, and the production, supply and distribution of essential commodities under Entry 33 of List III, although the liability to pay tax may be a matter incidental to the Centre’s power of price control.

75. “Legislative relations between the Union and the States inter se with reference to the three Lists in Schedule VII cannot be understood fully without examining the general features disclosed by the entries contained in those Lists”: Seervai in his Constitutional Law of India, 3rd Edn., Vol. 1 at pp. 81-82. A scrutiny of Lists I and II of the Seventh Schedule would show that there is no overlapping anywhere in the taxing power and the Constitution gives independent sources of taxation to the Union and the States. Following the scheme of the Government of India Act, 1935, the Constitution has made the taxing power of the Union and of the States mutually exclusive and thus avoided the difficulties which have arisen in some other Federal Constitutions from overlapping powers of taxation.

76. It would therefore appear that there is a distinction made between general subjects of legislation and taxation. The general subjects of legislation arc dealt with in one group of entries and power of taxation in a separate group. In M.P.V. Sundararamier & Co. v. State of A.P.43 this court dealt with the scheme of the separation of taxation powers between the Union and the States by mutually exclusive lists. In List I, Entries 1 to 81 deal with general subjects of legislation; Entries 82 to 92A deal with taxes. In List II, Entries 1 to 44 deal with general subjects of legislation; Entries 45 to 63 deal with taxes. This mutual exclusiveness is also brought out by the fact that in List III, the Concurrent Legislative List, there is no entry relating to a tax, but it only contains an entry relating to levy of fees in respect of matters given in that list other than court-fees. Thus, in our Constitution, a conflict of the taxing power of the Union and of the States cannot arise. That being so, it is difficult to comprehend the submission that there can be intrusion by a law made by Parliament under Entry 33 of List III into a forbidden field viz. the State’s exclusive power to make a law with respect to the levy and imposition of a tax on sale or purchase of goods relatable to Entry 54 of List II of the Seventh Schedule. It follows that the two laws viz. subsection (3) of Section 5 of the Act and para 21 of the Control Order issued by the Central Government under subsection (1) of Section 3 of the Essential Commodities Act, operate on two separate and distinct fields and both are capable of being obeyed. There is no question of any clash between the two laws and the question of repugnancy does not come into play.”

43. Levy of surcharge was upheld referring to Entry 52 of List II of Seventh Schedule. Following was laid down in paragraph 90:-

“90. The decision in Fernandez case, AIR 1957 SC 657 is therefore clearly an authority for the proposition that the State Legislature notwithstanding Article 286 of the Constitution while making a law under Entry 54 of List II of the Seventh Schedule can, for purposes of the registration of a dealer and submission of returns of sales tax, include the transactions covered by Article 286 of the Constitution. That being so, the constitutional validity of subsection (1) of Section 5 of the Act which provides for the classification of dealers whose gross turnover during a year exceeds ₹ 5 lakhs for the purpose of levy of surcharge, in addition to the tax payable by him, is not assail32 able. So long as sales in the course of inter-State trade and commerce or sales outside the State and sales in the course of import into, or export out of the territory of India are not taxed, there is nothing to prevent the State Legislature while making a law for the levy of a surcharge under Entry 54 of List II of the Seventh Schedule to take into account the total turnover of the dealer within the State and provide, as has been done by subsection (1) of Section 5 of the Act, that if the gross turnover of such dealer exceeds ₹ 5 lakhs in a year, he shall, in addition to the tax, also pay a surcharge at such rate not exceeding 10 per centum of the tax as may be provided. The liability to pay a surcharge is not on the gross turnover including the transactions covered by Article 286 but is only on inside sales and the surcharge is sought to be levied on dealers who have a position of economic superiority………………”

44. In M.P.V. Sundararamier (supra) this Court also laid down that the tax cannot be levied under general entry. The present is a case where cess in question is levied in respect of goods and services tax, the definition of cess as given in Compensation to States Act, 2017 in Section 2(c) states “cess means the goods and services tax compensation cess levied under section 8”. The judgment of this Court relied by petitioner in Hoechst Pharmaceuticals Ltd. (supra) and M.P.V. Sundararamier (supra) is not applicable to the present case.

45. Entry 97 of List I also lead to the same conclusion, for reference, which is quoted as below:-

“97. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.”

46. Article 270 of the Constitution, both as it existed prior to Constitution (One Hundred and First Amendment) Act, 2016 and subsequent to Constitution (One Hundred and First Amendment) Act, 2016 uses the expression “any cess levied for specific purposes under any law made by Parliament”. Article 270(1) as existed prior to Constitution (One Hundred and First Amendment) Act, 2016, is as follows:-

Art.270.(1) All taxes and duties referred to in the Union list, except the duties and taxes referred to in Arts. 268, 268A and 269 respectively, surcharge on taxes and duties referred to in Art. 271 and any cess levied for specific purposes under any law made by Parliament shall be levied and collected by the Government of India and shall be distributed between the Union and the States in the manner provided in clause (2).”

47. After Constitution (One Hundred and First Amendment) Act, 2016, as per Article 270, Parliament can levy cess for a specific purpose under a law made by it. Article 270, thus, specifically empowers Parliament to levy any cess by law.

Lastly, Section 18 of the Constitution (One Hundred and First Amendment) Act, 2016 expressly empowers 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….” 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. We, thus, do not find any merit in the submission of the learned counsel for the petitioner that Parliament has no legislative competence to enact the Compensation to States Act, 2017.

Answer to Issue No.1 is,thus, as follows:

The Compensation to States Act, 2017 is not beyond the legislative competence of the Parliament.

Issue No.2 and Issue No.3

48. We now come to Issue No.2 and Issue No.3, which, being interconnected, are taken up together.

49. The next attack on Compensation to States Act, 2017 is on the ground that the Act transgresses the mandate of Constitution (One Hundred and First Amendment) Act, 2016. It is submitted that Constitution (One Hundred and First Amendment) Act, 2016 does not permit levy of cess on supply of goods or services on which Goods and Services Tax has been levied. Elaborating the submission, it is contended that the clear objective of Constitution (One Hundred and First Amendment) Act, 2016 was to subsume various Central and States Taxes, Central and States surcharges and cesses, so far as, they relate to supply of goods and services. When all taxes, surcharges and cesses were subsumed in by Goods and Services Tax, imposition of compensation to States cess clearly falls foul to the Constitution (One Hundred and First Amendment) Act, 2016. The Statements of Objects and Reasons of Constitution (One Hundred and TwentySecond Amendment) Bill, 2014, as noticed above, was to subsume various Central Indirect Taxes and levy of Service Tax, Additional Customs Duty, Special Additional Duty of Customs, Central Surcharges and Cesses so far as they relate to the supply of goods and services.

50. One of the objectives as noticed in Statements of Objects and Reasons was “conferring concurrent taxing powers upon Parliament and the State Legislature to make laws for levying goods and services tax”. Article 246A subarticle( 1) empowers the Parliament to “make laws with respect to goods and services tax”. The word “with respect to” is word of expansion. Similar expressions namely, “pertaining to”, “in relation to” came to be considered before this Court in M/s. Doypack Systems Pvt. Ltd. Vs. Union of India & Others, (1988) 2 SCC 299, where this Court held that the above expressions are used in the expansive sense. Following has been laid down in paragraphs 48 and 49:-

“48………………….The expressions “pertaining to”, “in relation to” and “arising out of”, used in the deeming provision, are used in the expansive sense, as per decisions of courts, meanings found in standard dictionaries, and the principles of broad and liberal interpretation in consonance with Article 39(b) and (c) of the Constitution.

49. The words “arising out of” have been used in the sense that it comprises purchase of shares and lands from income arising out of the Kanpur undertaking. We are of the opinion that the words “pertaining to” and “in relation to” have the same wide meaning and have been used interchangeably for among other reasons, which may include avoidance of repetition of the same phrase in the same clause or sentence, a method followed in good drafting. The word “pertain” is synonymous with the word “relate”, see Corpus Juris Secundum, Volume 17, page 693.”

51. Learned counsel for the petitioner has placed reliance on judgment of this Court in Dewan Chand Builders and Contractors Vs. Union of India and Others, (2012) 1 SCC 101. The Parliament had enacted Building and Other Construction Workers’ (Regulation of Employment and Conditions of Service) Act, 1996 and Building and Other Construction Workers Welfare Cess Act, 1996. The constitutional validity and competence of Parliament was challenged before the Delhi High Court. Delhi High Court upheld the validity of Building and Other Construction Workers’ (Regulation of Employment and Conditions of Service) Central Rules, 1998 holding the levy under the impugned enactment as a fee referable to Entry 97 of List I of Seventh Schedule of the Constitution. Before this Court, it was contended that cess in question was a tax and not a cess since no element of quid pro quo exists and if it is a tax, then it is a tax on “lands and buildings” falling within the ambit of Schedule VII List II Entry 49. Argument was noticed in paragraph 23 to the following effect:-

“23. It is evident from the contentions raised on behalf of the appellant that there is a twopronged attack on the legislative competence of Parliament to enact the Cess Act: (i) it is a “tax” and not a “cess” because no element of quid pro quo exists between the payer of the cess and the beneficiary, and (ii) if it is a “tax” then it is a tax on “lands and buildings” falling within the ambit of Schedule VII List II Entry 49 (the State List), ousting the legislative competence of Parliament.”

52. This Court noticed the distinction between fee and tax and referred to earlier judgments including judgment of this Court in Commissioner, Hindu Religious Endowments, Madras Vs. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, AIR 1954 SC 282. This Court upheld the cess as fee and not tax. In paragraph 31, reasons for upholding levy as fee has been given by this Court, which is to the following effect:-

“31. There is no doubt in our mind that the Statement of Objects and Reasons of the Cess Act, clearly spells out the essential purpose the enactment seeks to achieve i.e. to augment the Welfare Fund under the BOCW Act. The levy of cess on the cost of construction incurred by the employers on the building and other construction works is for ensuring sufficient funds for the Welfare Boards to undertake social security schemes and welfare measures for building and other construction workers.

The fund, so collected, is directed to specific ends spelt out in the BOCW Act. Therefore, applying the principle laid down in the aforesaid decisions of this Court, it is clear that the said levy is a “fee” and not “tax”. The said fund is set apart and appropriated specifically for the performance of specified purpose; it is not merged in the public revenues for the benefit of the general public and as such the nexus between the cess and the purpose for which it is levied gets established, satisfying the element of quid pro quo in the scheme. With these features of the Cess Act in view, the subject levy has to be construed as “fee” and not a “tax”.

Thus, we uphold and affirm the finding of the High Court on the issue.”

53. The above judgment has no application in the facts of the case. The case of the Union is not that cess is a fee. Rather contention is that it is increment to the goods and services tax. We having already held that State compensation cess is “with respect to” goods and services tax, it is a tax.

54. Learned counsel for the petitioner has further relied on certain decisions on distinction between tax and fee. But the levy of cess, in the present case, not even claimed as fee, it is not necessary to refer to above cases which reiterate the well established principles emanating from Commissioner, Hindu Religious Endowments, Madras Vs. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt (supra).

55. The expression used in Article 246A is “power to make laws with respect to goods and services tax”. The power to make law, thus, is not general power related to a general entry rather it specifically relates to goods and services tax. When express power is there to make law regarding goods and services tax, we fail to comprehend that how such power shall not include power to levy cess on goods and services tax. True, that Constitution (One Hundred and First Amendment) Act, 2016 was passed to subsume various taxes, surcharges and cesses into one tax but the constitutional provision does not indicate that henceforth no surcharge or cess shall be levied.

56. Learned counsel for the petitioner has referred to Section 18 of the Constitution (One Hundred and TwentySecond Amendment) Bill, 2014, where an additional tax on supply of goods not exceeding one per cent was contemplated, which did not find place in Constitution (One Hundred and First Amendment) Act, 2016. He submits that the additional tax, which was proposed by the Constitution (One Hundred and TwentySecond Amendment) Bill, 2014 was not allowed to find place in Constitution (One Hundred and First Amendment) Act, 2016, it is to be accepted that Constitution Amendment did not contemplate levy of additional tax on services and goods tax.

The above submission in so far as not continuing an additional tax on supply of goods in the Constitution (One Hundred and First Amendment) Act is concerned, the submission of the learned counsel for the petitioner is correct that additional tax, which was contemplated by Clause 18 of the Bill did not find place in Constitution Amendment Act. Further, Clause 19 of the Bill find place as Section 18 of the Constitution (One Hundred and First Amendment) Act, 2016. Thus, power of Parliament to make law providing for compensation to the States for loss of revenue was expressly included by constitutional provision.

57. Further, the Preamble of Compensation to States Act, 2017 expressly mentions the Act 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 Constitution (One Hundred and First Amendment) Act, 2016. Thus, the Compensation to States Act, 2017 has been enacted under the express Constitution (One Hundred and First Amendment) Act, 2016. We, thus, also do not find any force in the submission of the learned counsel for the petitioner that Compensation to States Act, 2017 transgresses the Constitution (One Hundred and First Amendment) Act, 2016.

58. Due to above reasons, we do not find any substance in the submission of the petitioner that Compensation to States Act, 2017 is a colourable legislation. We having held that Parliament has full legislative competence to enact the Act and the Act having been enacted to implement the Constitution (One Hundred and First Amendment) Act and the object being clearly to fulfill the Constitution (One Hundred and First Amendment) Act’s objective, we reject the submission of the petitioner that Compensation to States Act, 2017 is a colourable legislation. We, thus, answer Issue No.2 and Issue No. 3 in following manner:-

Ans. 2 – The Compensation to States Act, 2017 does not violate Constitution (One Hundred and First Amendment) Act, 2016 nor is against the objective of Constitution (One Hundred and First Amendment) Act, 2016.

Ans.3 – The Compensation to States Act is not a colourable legislation.

Whether levy of Compensation to States Cess and GST on the same taxing event is permissible in law? (Issue No.4)

59. The petitioner elaborating his contention submits that as per Section 8 of impugned legislation there shall be levied a cess on intraState supply of goods and services as provided in Section 9 of the CGST Act whereas CGST Act has been enacted to levy tax as provided under Article 246A of the Constitution. This is also true in respect of the cesses imposed on inter-State supplies of goods and services covered by Section 5 of IGST Act, 2017. Therefore, on the same very transaction there cannot be two levies, one under CGST Act and another under impugned legislation as it would amount to double taxation as levy is on the same taxable event and same subject. Thus, there is an overlapping on law which is not permissible. The petitioner contends that goods and services tax being already imposed by three enactments of 2017 a

SAMAJ PARIVARTANA SAMUDAYA & ORS. VERSUS STATE OF KARNATAKA & ORS.

Input tax credit under the Central Goods and Services Tax Act, 2017 – e-auction – whether lessee can claim input tax credit? – Held that: – the G.S.T. payable on the sale value of the mineral purchased in the e-auction shall be paid by the buyer directly to the lessee and the lessee would be responsible for all compliances as may be required under Act – the Monitoring Committee directed to prepare appropriate proforma and also take steps for carrying proper Tax Identification Number of the respective lessees on the invoices as may be required.

No.- Interlocutory Application Nos. 247, 250, 265, 268, 270, 271, 273, 56562, 56590, 76163, 76167, 90519, 90523,83141, 72931 and 98421, Writ Petition(s)(Civil) No(s). 562/2009

Dated.- October 5, 2017

Mr. Ranjan Gogoi, Mr. Abhay Manohar Sapre And Mr. Navin Sinha

Amicus Curiae : Mr. Shyam Divan, Sr. Adv.(A.C.), Mr. A.D.N Rao, Adv. (A.C.) And Mr. Siddhartha Chowdhury, Adv. (A.C.)

For parties : Mr. Prashant Bhushan, Adv. Mr. Govind Jee, Adv. Mr./Ms. Sahana B.V.,Adv. NMDC Mr. Ranjit Kumar, SG Mr. K. Raghavacharyulu, Adv. Mr. Kailash Pandey, Adv. Mr. Ranjeet Singh, Adv. For Gaichangpou Gangmei, AOR.

State of Karnataka : Mr. Raju Ramchandran, Sr. Adv.,  Ms. Anitha Shenoy, Adv. Mr. Ishwar Mohanty, Adv. Ms. Srishti Agnihotri, Adv.

IA 76163, 76167 : Mr. Huzefa Ahmadi, Sr. Adv. Mr. P.H. Phanindra,Adv. Mr. Ninad Laud, Adv. Mr. Karan Mathur, Adv. Mr. Anjuman Tripathy, Adv. Mr. Ivo D’Costa, Adv. Mr. Jayant Mohan, Adv.

FIMI (SOUTH) : Mr. Huzefa Ahmadi, Sr. Adv. Mr. Aditya Narayan, Adv. Mr. Rohit Sharma, Adv. Mr. Kumar Dushyant Singh, Adv.

IA 270 : Mr. Fali S. Nariman,Sr.Adv. Mr. Sunil Dogra, Adv. Mr. Vivek Vishnoi, Adv. Mr. Abhishek Sharma, Adv. Mr. Subhash Sharma, Adv. Mr. Rishikesh Madhav, Adv.

IA 271 : Mr. Krishnan Venogopal, Sr. Adv. Mr. Uday Tiwari, Adv. Mr. A. Raghunath, Adv. Mr. Yogamaya M.G., Adv.

IA 273 : Mr. Kapil Sibal, Sr. Adv. Mr. Chandra Uday Singh, Sr. Adv. Mr. Rajat Jariwal, Adv. Mr. Aakash Bajaj, Adv. Mr. Sanjeev K.Kapoor, Adv. For M/s. Khaitan, Adv. Mr. Maninder Singh, ASG Mr. Sarad Kumar Singhania, Adv. Mr. Asha G. Nair, Adv. Mr. R. Balasubramanian, Adv. Mr. G.S. Makker, Adv. Ms. Pinky Anand, ASG Mr. G.S. Makker, AOR. Mr. Rajesh Ranjan, Adv. Mr. Kabir Hathi, Adv. Ms. Asha Gopalan Nair, Adv. Ms. Saudamini Sharma, Adv. Mr. Sumit Teterwal, Adv.

CBI : Mr. Maninder Singh, ASG Mr. Rajiv Nanda, Adv. Mr. R. Balasubramaniam, Adv. Mr. P.K. Dey, Adv. Mr. N.K. Karhail, Adv. Mr. Raj Bahadur, Adv. Mr. M.K. Maroria, Adv. Mr. Maninder Singh, ASG Mr. Nalin Kohli,Adv. Mr. Col.R.Bala, Adv. Ms. Vimla Sinha,Adv. Mr. Prabhas Bajaj, Adv. Mr. Akshay A., Adv. Mr. Inderjeet Singh, Adv. Ms. Vishakha Ahuja,Adv. Mrs. Anil Katiyar, Adv.

IA.72931 : Mr. Maninder Singh, ASG Ms. Purnima Jauhari, Adv. Ms. Seema Patnaik, Adv. Mr. Prakash Kumar Singh, AOR

IA.83141 : Mr. Maninder Singh, ASG Ms. Purnima Jauhari, Adv. Ms. Seema Patnaik, Adv. Mr. Prakash Kumar Singh, AOR

IA 33454,33459 : Ms. Indu Malhotra, Sr. Adv. Mr. Vikas Mehta, AOR Mr. Tanvir nayar, Adv. Ms. Amrita Sanghi, Adv. Mr. Kunal Chatterji, Adv. Mr. Chanchal K. Ganguli, Adv. Mr. Dinesh Kumar Garg, AOR Ms. Rachna Gandhi, Adv. Mr. Balaji Srinivasan, Adv. Ms. Vaishnavi Subrahmanyam,Adv. Mr. Bhavanishankar V.Gadnis,Adv. Mr. Mohan Jayant,Adv. Ms. Ranjeeta Rohatgi, Adv. Mr. Ajay Singh, Adv. Dr. Sushil Balwada, Adv. Mr. S.S. Shamshery, AAG Mr. Amit Sharma, Adv. Mr. Sandeep Singh,Adv. Mr. Ankit Raj, Adv. Ms. Indira Bhaskar,Adv. Ms. Ruchi Kohli, AOR

ORDER

I.A. No.56590 of 2017

After hearing the learned counsel for the applicant Shri Huzefa Ahmadi and Shri Shyam Divan, learned amicus curiae, we direct the Monitoring Committee to take necessary action to enable the lessee to claim and obtain input tax credit under the Central Goods and Services Tax Act, 2017. We specifically direct that the G.S.T. payable on the sale value of the mineral purchased in the e-auction shall be paid by the buyer directly to the lessee and the lessee would be responsible for all compliances as may be required under Act.

We further direct that the Monitoring Committee to prepare appropriate proforma and also take steps for carrying proper Tax Identification Number of the respective lessees on the invoices as may be required.

With the aforesaid directions I.A. No.56590 of 2017 is disposed of.

I.A. No.72931 and 83141 of 2017

We have heard Shri Maninder Singh, learned Additional Solicitor General for the Union of India. We have perused the contents of I.A. No.72931 and 83141 of 2017 filed on behalf of the Ministry of Steel and also the additional affidavit filed on behalf of the Ministry of Mines dated 11.09.2017.

In view of the contradictory stand taken in the aforesaid two sets of applications by the Union of India, we would like to know the precise stand of the Union of India and the precise prayer(s) with regard to the ceiling/cap.

Requisite application in terms of the above may be filed on or before 10th October, 2017 when the matter will be taken up next.

List these applications on 10th October, 2017.

I.A. Nos. 247, 250, 265, 268, 270, 271, 273, 56562, 76163, 76167 , 90523, and 98421

List these applications on Tuesday i.e. 10th October, 2017.

I.A. Nos. 90519, 33454 and 33459

On being mentioned, I.A. Nos. 33454 and 33459 are taken on board.

List these applications on Wednesday i.e. 11th October, 2017.

UNION OF INDIA & ORS. VERSUS AAP AND COMPANY

Validity of Circular issued by the CBIC – Jurisdiction – Form GSTR­-3B is return or not – imposition on rectification of Form GSTR­-3B in respect of the period in which the error had occurred – HELD THAT:- The judgement of the High Court has been expressly overruled by a three-Judge Bench decision of this Court in Civil Appeal [2021 (11) TMI 109 – SUPREME COURT] – Learned counsel for the respondent was at pains to persuade us that the three-Judge Bench judgment can be distinguished, without realising that the three-Judge Bench judgment expressly overrules the impugned judgment. – Decided in favor of Revenue.

No.- Civil Appeal No(s). 5978/2021

Dated.- December 10, 2021

Citations:

  1. Union Of India Versus Bharti Airtel Ltd. & Ors. – 2021 (11) TMI 109 – Supreme Court
  2. AAP AND CO., CHARTERED ACCOUNTS THROU AUTHORISED PARTNER Versus UNION OF INDIA & 3 other (s) – 2019 (7) TMI 401 – GUJARAT HIGH COURT

HON’BLE MR. JUSTICE A.M. KHANWILKAR AND HON’BLE MR. JUSTICE C.T. RAVIKUMAR

For Appellant(s) Mr. Aman Lekhi, ASG Mr. M.K.Maroria, AOR Ms. Praveena Gautam, Adv Ms. Nisha Bagchi, Adv Mr. Neela Kedar Gokhale, Adv Ms. Preeti Rani, Adv

For Respondent(s) Mr. Devendra Singh, AOR Mr. Dr. Avinash Poddar,Adv Mr. Ashok Sikka,Adv, Adv. Mr. Arvind Kumar, Adv. Mr. Prahlad Narayan Singh, Adv. Ms. Vivek Mishra, Adv. Ms. Mansha Shukla, Adv. Mr. Sameer Singh, Adv. Ms. Neelam Singh, AOR

O R D E R

This appeal takes exception to the judgment and order dated 24.6.2019 passed by the High Court of Gujarat at Ahmedabad in Special Civil Application No.18962 of 2018.

This judgment has been expressly overruled by a three-Judge Bench decision of this Court in Civil Appeal No.6520 of 2021 titled Union of India vs. Bharti Airtel Ltd. & Ors., reported in (2021) 13 SCALE 301.

Learned counsel for the respondent was at pains to persuade us that the three-Judge Bench judgment can be distinguished, without realising that the three-Judge Bench judgment expressly overrules the impugned judgment.

In such a case, the argument of distinguishing the three-Judge Bench judgment is not available.

The note submitted by the respondent is taken on record only to be rejected.

The appeal succeeds on the same terms as in Civil Appeal No.6520 of 2021 titled Union of India vs. Bharti Airtel Ltd. & Ors., reported in (2021) 13 SCALE 301.

The civil appeal is disposed of in the above terms.

Pending applications, if any, stand disposed of.