Legal principle

In the absence of a notification founded on a GST Council recommendation, a court cannot itself exempt export supplies from Compensation Cess, but it may keep the levy in abeyance and urge the GST Council to consider recommending exemption at par with GST and IGST so as to avoid working-capital blockage on exports.

Court decision

The Court did not strike down the levy outright: it held that the petitioners have a valid case for exemption, rejected the Article 14/19(1)(g) plea, and disposed of the petitions by keeping the impugned levy of 160% Compensation Cess in abeyance and referring the matter to the GST Council to decide whether exemption should be recommended at par with the GST/IGST exemption in excess of 0.1%. Until the Council considers the issue, the respondents were restrained from issuing show-cause notices or passing adjudication orders, provided the petitioners fulfil the conditions of Notifications 40/2017 and 41/2017 and file an undertaking to deposit the Compensation Cess if the Council recommends otherwise. Rule was made absolute to that extent, with no order as to costs, and the operation and implementation of the impugned orders were kept in abeyance.

Facts

The petitioners manufacture branded scented/flavoured chewing tobacco (HSN 24039910), liable to 28% GST plus 160% Compensation Cess, and export goods directly or through merchant exporters. Supplies to merchant exporters for export are taxable at 0.1% under Notifications No. 40/2017 and 41/2017 dated 23.10.2017, issued pursuant to the GST Council's 22nd Meeting. The department passed an order-in-original levying GST in the form of Compensation Cess at 160% on such supplies made to merchant exporters for export. The petitioners filed petitions under Article 227 of the Constitution seeking to quash the order-in-original.

Key provisions

• Section 5, The Integrated Goods and Services Tax Act, 2017 — Levy and collection.
• Section 16(3)(b), The Integrated Goods and Services Tax Act, 2017 — Zero rated supply.
• Section 3, Customs Tariff Act, 1975 — Levy of additional duty equal to excise duty, sales tax, local taxes and other charges