'Polluter Pays' Principle Wins: Goa Cess Act Deemed Distinct from GST Laws by Bombay High Court

'Polluter Pays' Principle Wins: Goa Cess Act Deemed Distinct from GST Laws by Bombay High Court

In a decisive ruling, the Bombay High Court at Goa declared the Goa Cess Act constitutionally sound and independent of the GST regime. The bench, comprising Justices G. S. Kulkarni and Bharat P. Deshpande, affirmed the Act's compliance with Articles 14, 301, and 303 read with Article 304 of the Constitution of India, while asserting its distinct legality and validity apart from the GST laws.

The petitioner operates a multifaceted business encompassing iron ore mining, extraction, processing, transportation, and export from Goa. Their activities extend beyond Goa, with mining operations in Karnataka and Orissa. Due to Goa's strategic location and the vital Mormugao Port, both the iron ore mined within the state and imported coal from Karnataka traverse Goa for export. Notably, the petitioner also imports iron ore, essential for their Goa operations, which is subject to the cess levied under the Goa Cess Act, alongside the transported mineral ore and coal.

The petitioner holds leases for iron ore mines in both Goa and Karnataka. They transport ore from their own mines and purchase additional ore from Karnataka, bringing it all to Goa. This ore is then used in their Amona-Goa pig iron plant or exported overseas through the Mormugao Port. However, the petitioner contends that the Goa Cess Act, levied on this activity, unfairly burdens their commercial operations. This grievance led them to file the petition.

Challenging the legality of the Goa Cess Act and its accompanying Rules, the petitioner asserted that the provisions contravene the principles of equality enshrined in Article 14, while also infringing upon the freedom of trade and commerce guaranteed by Articles 301, 303, and 304 of the Constitution.

Arguing that the Goa Cess Act unlawfully restricts the free flow of goods between states, the petitioners contended that it falls outside the permissible exceptions enshrined in Articles 304(a) and 304(b) of the Constitution. They further challenged the Act's constitutional validity on grounds of discriminatory treatment, citing the absence of a cess on iron ore mined within Goa compared to the cess levied on ore sourced from other states, thereby violating Article 14's guarantee of equality before the law.

The petitioner raised two primary objections to the Goa Cess Act. Firstly, they argued that the tax levied under the Act fails to qualify as a "compensatory tax," a critical requirement for its validity. Secondly, following an amendment to their petition, they contended that the Act has now been rendered obsolete due to its subsumption within the broader framework of the Goods and Services Tax (GST) laws.

In anticipation of mining activity's impact on rural areas, the Goa legislature introduced the "Goa Rural Improvement and Welfare Cess Bill." This aimed to levy a cess on the trans-shipment of various materials, including mineral ores and imported coal, used in shipping and transportation. The collected funds were earmarked for initiatives directly benefiting mining-affected regions, such as water supply improvements, road upgrades, afforestation, and dust pollution control. Projected annual revenue was estimated at ₹6 crore. Subsequently, the Goa Cess Act and its accompanying Rules (2001) were formalised, with the Act officially coming into effect on February 1, 2006.

The department argued that the Goa Cess Act's provisions, imposing a cess on carriers transporting materials within or into the state, constitute a regulatory measure in the form of a compensatory tax. As such, they do not violate Article 301 of the Constitution, which prohibits restrictions on trade and commerce.

The Court acknowledged that a state like Goa, despite its size, has a constitutional right to seek additional revenue for crucial purposes like infrastructure and healthcare, especially in rural areas often impacted by commercial activities. Recognizing the "polluter pays" principle, the Court found the Act addresses a societal need for robust infrastructure, benefiting both commercial ventures and the health and well-being of rural Goan citizens. It further questioned whether, without such transportation activities and the resulting infrastructure improvements, rural residents would have been worse off. In the negative, the Court reasoned, the state's exercise of its legislative power under the Constitution to enact this law was not only permissible but perhaps even necessary. Conversely, a failure to enact such legislation could be seen as anomalous.