Journal of Taxation and Regulatory Framework

Volume 1, Issue 2
www.stmjournals.com

Union of India v. Mohit Minerals Pvt. Ltd.—GST

Validity Analysis
Dr. Monika Jain*
Senior Advocate, High Court of Delhi, New Delhi, India

Abstract
The constitution 101 amendments Act, 2016 introduced the Goods and Services Tax regime in
India which came into force from 8th September 2016. Various laws were also passed
subsequently for implementing the GST, which became effective from 1st July 2017. The
amendment act and corresponding legislation empower both Parliament and the States to levy
GST on supplies of goods and services.

Keywords: Constitution, Amendments Act, Goods and Service Tax, GST, Laws.

*Author for Correspondence E-mail: advmonikajain@gmail.com

HISTORICAL BACKGROUND law for compensating the States on account of

Various States raised concerns on the subject of
extensive loss of income as a consequence of
introducing the GST, which had accrued to
them earlier on account of levying numerous
indirect taxes. The GST Compensation to States
Act, 2017 was enacted in order to compensate
the States for this loss of revenue. Section 8 of
this act provides for levy of a Cess on intra-
State and inter-State supply of goods or
services, or both, as a means of compensation
for a period of five years, or for such period set
as per the proposal of the GST Council. The
constitutional validity of the Goods And
Services Tax Compensation To States Act,
2017, and the Goods and Services Tax
Compensation Cess Rules, 2017, came up
before consideration before the Hon’ble
Supreme Court Union of India v. Mohit
Minerals Pvt. Ltd. AIR 2018, SC 5318 [1]
Among the contentions raised, one was that the
act was beyond the legislative competence of
the Parliament. The court, however, upheld the
legislative competence of Parliament to enact
the law, pointing out that Article 270, after the
Constitution 101 (Amendment) Act, 2016,
specifically empowers Parliament to levy any
cess by law. Section 18 of the Amendment Act
expressly empowers the Parliament to
compensate the States for loss of revenue
arising on account of implementation of the
GST, ‘by law’; this factor did not form the basis
of court’s decision. It is apposite at this stage to
refer the language employed by Section 18.
This clause authorizes the Parliament to frame
loss in the revenue arising due to the
implementation of GST. It is pertinent to note
that although Section 18 forms a part of GST
amendment act, it has not been reflected in the
amended text of Constitution.
This article aims to argue firstly, that Section
18 of the amendment act is not an ordinary
piece of legislation and in fact has a
constitutional basis and secondly, although
Section 18 does not specifically amend the text
of Constitution, it can still be considered as a
source of power to frame a law providing for
compensation to the States. In addition to this,
the possibility of conflict of such a power with
the residuary provisions under Schedule VII,
and the manner of resolving such a conflict,
has also been discussed.
SECTION 18 OF THE 101ST
AMENDMENT ACT
Section 18, which forms a part of the
Amendment Act, has not been reflected in the
Constitution. In reality, the present case falls
under a peculiar scenario, where a section that
forms part of the Constitutional amendment
act has not made any change to the bare
language of Constitution. Hence, can one say
that above clause will have the same legal
status as other sections of the amendment act
reflected in the Constitution? Further, can the
law-making power granted be exercised to
frame a law for compensating the States? Two
of these can be traced back to the First and

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GST Validity Analysis
Forty-Second Amendment Acts to the Indian
Constitution. Section 3 of the Constitution
(First Amendment Act), 1951 made certain
changes to Article 19. It had two sub-sections,
of which the first modified clause 2 of Article
19 and substituted new words in the text for
old, with retrospective effect. The second sub-
section, however, did not alter any existing
words but mentioned that no law in force at
the commencement of the Constitution would
be deemed to be void on the ground that its
operation was not saved by Clause 2 of Article
19, as originally enacted [2].
Bombay HC was about the enforceability of
Section 58 of the Constitution (Forty-Second
Amendment) Act, 1976. The Section
contained some special provisions regarding
pending petitions under unamended Article
226 and 227. It also did not form a part of the
text of Constitution. The court in these cases
held the clause to be enforceable. It is
established that as soon as the procedure
enjoined for amendment under Article 368 is
fulfilled, the Constitution stands amended [3].
If an amendment or a certain provision of the
amendment gets repealed by the legislature or
is struck down by the court, the Constitution
gets restored as if no change had ever taken
place. Therefore, to say that only those parts of
the amendment act which explicitly bring
about changes to the text of Constitution can
be said to have added something to the
existing provisions would be to render other
provisions superfluous [4]. This would also
amount to saying that those other provisions
were not included in the Bill for the purpose of
amending the Constitution. This makes it
difficult to comprehend the intention behind
the insertion of such a provision. Hence, in
order to avoid superfluity, the terms addition
or change to the Constitution would not only
include clauses that are reflected in the text,
but also others that form a part of the
amendment. Thus, the Constitution has to be
read along with the amendments, which, to the
extent of their validity, are a part of the
Constitution in entirety.
VARIANCE WITH RESIDUARY
PROVISIONS
 Article 245 read with Entry 97 in List I of
VII Schedule [5]
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Monika Jain
 Article 248 deals with residuary powers of
Parliament to legislate with respect to any
matter not enumerated in the Concurrent
List or State List. This includes the power
to enact any law imposing a tax not
mentioned in either of List II or III [6].
 Article 246A empowers the Parliament
and States to impose goods and services
tax subject, to conditions stipulated therein
[7].
 Article 246, which demarcates the subject
matter over which Parliament and States
can legislate, [8]
 Article 254, which is the repugnancy
provision; have been made inapplicable to
Article 246A [9].
 Article 248 has also been explicitly
excluded. In addition, several heads of
legislation which were earlier provided
under Seventh Schedule were also omitted
through the Amendment [10]. Thus, by
exclusive of the applicability of
aforementioned provisions, the powers
residuary and others which were earlier
available under VII Schedule have been
sourced outside exclusively to Article
246A in so far as imposition of goods and
services tax is concerned [1]. The purpose
for this is clearly to avoid any conflict in
terms of the source of power and subjects
of legislation.
 Section 18 has no such exclusion clause
present. Section 18 includes the power to
levy cess, it can be argued that law making
power provided in this section is also
available under Article 245 r/w Entry 97
and Article 248 which brings it in conflict
with the residuary provisions. (Since there
is no other entry which deals with power
to make a law for compensating States,
Entry 97 is the only possibility) [12].
 Section 18, like Article 246A, also forms
a part of the GST regime and is an
important source of power as it allows law
making for purpose of compensating the
States [13]. If the Section is interpreted in
manner stated earlier, this will result in
overlap with respect to legislative
competence of Parliament and States to
enact laws which the legislature clearly
did not intended.
 Section 18 has also to be read as if it has
also been sourced outside the Seventh
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Journal of Taxation and Regulatory Framework
Volume 1, Issue 2
Schedule and Article 248 in similar
manner as Article 246A. This is the only
possible manner of resolving the conflict
[14].
The SC upheld the constitutional validity of
Goods and Services Tax Compensation to
States Act saying it was not beyond the
legislative competence of the Parliament. The
top court said the Compensation to States Act,
enacted by the Parliament in 2017, is not a
colorable legislation. Justices said the Act does
not violate the Constitution (One hundred and
first amendments) Act, 2016 nor is against the
objective of Constitution (One Hundred and
First Amendment) Act, 2016. It held that the
levy of 'Compensation to States' Cess is an
increment to goods and services tax which is
permissible under the law. The bench while
dealing with constitutional validity of the
(Compensation to States) Act said that the
expression 'cess' means a tax levied for some
special purpose, which may be levied as an
increment to an existing tax. The bench said
that Article 248 read with Articles 246 and
246A clearly indicate that residuary power of
legislation is with the Parliament. It said that
in the present case, no contention has been
raised that the subject matter of legislation was
within the competence of State Legislature,
and that the Parliament had no competence to
legislate. 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. The court said it does not agree with
the submission that Compensation to States
Act, 2017 is a colorable legislation. whether
levy of Compensation to States Cess and GST
on the same taxing event is permissible in law,
the bench said that GST imposed under the
2017 Acts and levy of cess on intra-State
supply of goods and services or both as
provided the Central Goods Service Tax Act
and supply of goods and services or both as
part of Intra Goods Service Tax Act are two
separate imposts in law and are not prohibited
by any law so as to declare it invalid. The
Supreme Court has put its stamp on the
constitutional validity of the GST (goods and
services) law permitting collection of a cess to
compensate the states. The compensation cess
was introduced last year in the wake of GST
JTRF (2018) 33-36 © Law Journals 2018. All Rights Reserved
rollout. It is aimed at compensating the states
that may suffer loss of revenue due to
switching to new indirect tax regime.
Delivering its judgment, a division bench of
Justices AK Sikri and Ashok Bhushan directed
a firm, the Mohit Minerals to pay cess. The
Delhi High Court had earlier ruled in the favor
of the Mohit Minerals, which had argued that
it had already paid a Clean Energy Cess as per
Finance Act, 2010 and hence, it was not liable
to pay any further tax. The Centre had moved
against the Delhi High Court ruling in the
Supreme Court with a Special leave Petition
(SLP) challenging the high court order of 25
August 2017. The high court held that the
Compensation to States Act, 2017 was beyond
the legal competence of Parliament. The
Centre and states had agreed to levy a
compensation cess to make up for the revenue
shortfall incurred by states following the GST
rollout on July 1 last year. The cess was to be
collected for a period of five years - till states'
revenue is equal or more than the tax collected
under VAT and all other levies which were
subsumed in GST. The Supreme Court has
now ruled that "the Compensation to States
Act, 2017 is not beyond the legislative
competence of Parliament."
LEGAL QUESTIONS IN SUPREME
COURT
The challenge in the Supreme Court was on
five grounds:
1. Whether the Compensation to States Act,
2017 is beyond the legislative competence
of Parliament?
2. Whether the Act violates the Constitution
(One Hundred and First Amendment) Act,
2016 and is against the objective of the
Constitution (One Hundred and First
Amendment) Act, 2016?
3. Whether the Compensation to States Act,
2017 is a colorable legislation?
4. Whether levy of the 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 June 30,
2017, the petitioner is entitled for a set-off
in cess payment?
REFERENCES
1. Union of India v. Mohit Minerals Pvt. Ltd.
AIR 2018, SC 5318
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GST Validity Analysis Monika Jain

2. Purshottam Lal Sayal v. Prem Shanker,
AIR 1966 ALL 377
3. Shantilal Ambalal Mehta v. M.A.
Rangaswamy, 1977 BOMLR 633
4. Shripatrao Dajisaheb Ghatge v. The state
of Mahaarashtra, 1977 BOMLR 259
5. Constitution of India Article 245
6. Constitution of India Article 248
7. Constitution of India Article 246A
8. Constitution of India Article 246
9. Constitution of India Article 254
10. Constitution of India Article 248
11. Constitution of India Article 246A
12. Constitution of India Article 245 &248
13. Constitution of India Article 246A
14. Constitution of India Article 248A
Cite this Article
Dr. Monika Jain. Union of India v. Mohit
Minerals Pvt. Ltd.—GST Validity
Analysis. Journal of Taxation and
Regulatory Framework. 2018; 1(2): 33–
36p.

JTRF (2018) 33-36 © Law Journals 2018. All Rights Reserved Page 36