30.01.2024: Goa Cess Act Is Not Subsumed By GST Laws

The Bombay High Court at Goa has held that the Goa Cess Act is not subsumed by the GST laws.

“The Goa Cess Act is intra vires Articles 14, 301, and 303 read with Article 304 of the Constitution of India. Also, it is legal and valid, being in no manner subsumed by the GST laws,” the bench of Justice G. S. Kulkarni and Justice Bharat P. Deshpande observed.

The petitioner company is in the business of mining iron ore, extraction, processing, transportation, and export of iron ore from the State of Goa. It also carries on mining activity in the states of Karnataka and Orissa. The mineral ore, as well as coal brought by the petitioner from the State of Karnataka, is required to be transported through the State of Goa since Goa has a major port, namely the Mormugao Port, from where the mineral ore is exported. The ore is imported by the petitioner, which is also required for the petitioner's activities in Goa. The cess under the Goa Cess Act is levied both on the mineral ore and also on coal, which is being transported by the petitioner through the State of Goa. 

The petitioner contended that the petitioner is the grantee, concessionaire, or holder in respect of leases of iron ore mines in the State of Goa and Karnataka. It transports iron ore from its mines and purchases it from other sources in the State of Karnataka into the State of Goa, where it is used in its pig iron plant at Amona-Goa and/or exported overseas from the Mormugao Port. It is on the commercial activity of the petitioner that the cess is being levied under the Goa Cess Act. The petitioner was aggrieved and filed the petition.

The petitioner challenged the Goa Cess Act and the Rules on the ground that the provisions are ultra vires Article 14 and Articles 301, 303, and 304 of the Constitution.

The petitioners challenged the Goa Cess Act and placed restrictions on free trade and movement of goods from one state to another. The petitioner contended that the Act does not fall within the exception carved out under Articles 304(a) and 304(b) of the Constitution. The Goa Cess Act is also violative of Article 14 inasmuch as the iron ore produced in Goa does not attract any cess while it is levied on the iron ore produced outside Goa.

The petitioner contended that tax or cess under the Goa Cess Act does not fulfill the concept of compensatory tax. In so far as the other challenge, as inserted by an amendment to the petition, is concerned, it is on the ground that the Goa Cess Act has now been subsumed in the GST Laws.

The department contended that “the Goa Rural Improvement and Welfare Cess Bill” was introduced before the legislature with the object of levying cess on the trans-shipment, inter alia, of items like mineral ores, from one mode of surface transport to another. The other materials also included coal brought into the state for the purpose of shipping and transportation.The bill provided that the state government proposed to utilize the funds generated for the purpose of improving water supply and roads, as well as for afforestation and control of dust pollution, in the areas directly affected by mining activities. It was estimated that the annual revenue to be received would be in the tune of Rs. 6 crore. The rules under the Goa Cess Act, namely the Goa Rural Improvement and Welfare Cess Rules 2001, were framed. The Goa Cess Act was accordingly brought into force by a notification dated January 23, 2006, with effect from February 1, 2006.

The department urged that the provisions of the Goa Cess Act, imposing a cess on carriers transporting the material into or within the state, which is in the nature of a regulatory measure, and such measures imposing compensatory tax do not offend the provisions of Article 301 of the Constitution.

The court noted that it cannot be expected that a small state like Goa is constitutionally prevented from augmenting revenue for the purpose of improving infrastructure and health with a view to promoting the welfare of the people, particularly those belonging to rural areas, who become victims of such commercial activities. The polluter pays is the principle that is well recognized. The Act therefore precisely deals with the societal needs of having an effective infrastructure, which would not only be in the interest of the commercial activities undertaken by the petitioners but also in regard to the health and welfare of the people of Goa residing in rural areas. One can imagine the situation of persons residing in rural areas in the absence of such transportation activities and whether such persons would have suffered at all. If the answer is the negative, then certainly, considering the principles of constitutional morality, there is nothing wrong, even otherwise, for the state to exercise its legislative powers as conferred by the Constitution and enact the law in question. In fact, a failure to enact such legislation would be unusual.

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