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2019 (12) TMI 1604 - HC - VAT and Sales TaxLegality of the notices and assessment orders issued to the petitioners - retrospective applicability of section 25(1) of the KVAT Act - time limitation for re-opening assessments - five year period for re-opening assessments under the unamended provisions of section 25(1) of the KVAT Act had already expired - residual power of State legislation so as to amend the provisions of section 25(1) of the KVAT Act through the Kerala Finance Act, 2018 - applicability of savings clause under section 174 of the SGST Act. Whether under the provisions of section 25(1) of the KVAT Act, as amended by the Kerala Finance Act, 2017, and before the repeal of the KVAT Act on June 22, 2017, the six year period of limitation for re-opening assessments could be relied upon to issue pre-assessment notices in cases where, by March 31, 2017, the five year period for reopening assessments under the unamended provisions of section 25(1) of the KVAT Act had already expired? - whether the amendment to the third proviso to section 25(1) of the KVAT Act, through the Kerala Finance Act, 2017, would enable the revenue to re-open assessments in cases where, by March 31, 2017, the five year period for re-opening assessments under the unamended provisions of section 25(1) of the KVAT Act had already expired? - HELD THAT - It is now well-settled that on the expiry of the period of limitation prescribed under a fiscal statute for re-opening an assessment, the assessee gets a valuable right in the form of immunity from assessments under the Act. The said vested right/immunity cannot be taken away through any power of extension of the period of limitation, exercised after the expiry of the said period, by any authority in whom such power to extend is conferred by the statute. The power to extend a period of limitation must be exercised before the expiry of the normal period. Whether a legislative amendment can confer such a power on a statutory authority to take away a right/immunity that has accrued to an assessee? - HELD THAT - It is well-settled that the Legislature can, through a retrospective amendment of the statutory provisions, take away such vested rights that have accrued to assessees. But, was there such a retrospective amendment in the instant cases? As already noticed, the amendment in question was expressly made effective only from April 1, 2017. The period for reopening assessments under section 25(1) of the Act was enlarged from five years to six years only with effect from April 1, 2017. The provisions of section 25(1), save the third proviso thereto, have therefore to be construed as having only a prospective operation. In the instant cases, it can be seen that the purpose of the amendment to the third proviso to section 25(1) of the KVAT Act was only to extend the time for re-opening those assessments where the period of limitation for re-opening under the unamended provisions was to expire by March 31, 2017. The object of the amendment was to permit a re-opening of such cases till March 31, 2018. The amendment has to be viewed in the backdrop of the introduction of the new regime of GST in the State with effect from June 22, 2017, on which date the KVAT Act was repealed by the State Legislature - the circumstances under which the amendment was carried out clearly bring out the intention of the Legislature to permit a re-opening of past assessments under the KVAT Act up to March 31, 2018 and it is this intention that must be read into the third proviso to section 25(1), as amended with effect from April 1, 2017, so as to give it full effect. Thus, while the main part of section 25(1) clearly indicates that the extended period of six years for reopening assessments is to operate prospectively with effect from April 1, 2017, the third proviso seeks to carve out those assessments, where the period of re-opening would have expired by March 31, 2017, for a differential treatment, by stating that in such cases, the re-opening could be carried out before March 31, 2018. To treat the said proviso as having only prospective effect would render meaningless the words used by the Legislature in the said proviso and accord to it the same meaning as the main provision. Whether, after the CAA, 2016, and the repeal of the KVAT Act pursuant thereto, on June 22, 2017, the State Legislature retained any residual power of legislation so as to amend the provisions of section 25(1) of the KVAT Act through the Kerala Finance Act, 2018? - Whether the amendment to the provisions of section 25(1) of the KVAT Act, through the Kerala Finance Act, 2018, and the pre-assessment notices and assessment orders issued consequent thereto, could be justified by relying on the savings clause under section 174 of the SGST Act? - HELD THAT - The amendments effected to section 25(1) of the KVAT Act, through the Kerala Finance Act, 2017, were before the repeal of the KVAT Act with effect from June 22, 2017. The provision as it stood then, and in particular the third proviso thereto, authorised the reopening of past assessments till March 31, 2018. The amendment effected through the Kerala Finance Act, 2018, with effect from April 1, 2018, enlarged the period for re-opening past assessments from March 31, 2018 to March 31, 2019. Under ordinary circumstances, and based on my findings above as regards the effect of the amendments brought into the third proviso to section 25(1) by the Kerala Finance Act, 2017, the legislative measures should have sufficed to justify a reopening of past assessments up to March 31, 2019, notwithstanding that the amendment itself was effective only from April 1, 2018. However, the intervention of the CAA 2016, and the consequent repeal of the KVAT Act with effect from June 22, 2017, has a bearing on the legality of the 2018 amendment. A distinction does exist between the saving of rights, privileges, immunities and liabilities under a repealed enactment, through a savings clause inserted in the new enactment traceable to the same legislative power, and an amendment brought in to a repealed enactment after the legislative power itself is taken away. While the new legislative power could justify the inclusion of a savings clause in the new legislation enacted in respect of the new levy of tax, to save accrued rights, privileges, immunities, etc., under the erstwhile enactment, the deletion of entry 54 of List II automatically denuded the State Legislatures of the power to further legislate on the subject of taxes on sale or purchase of goods, except to the limited extent retained under the Constitution. The power to amend a statute being a facet of the legislative power itself, the State Legislature could not have exercised a power to amend the KVAT Act, save to the extent permitted, when it did not retain any residual right to further legislate on the subject of taxes on sale or purchase of goods. The amendments to section 25 of the KVAT Act, through the Kerala Finance Act, 2018 are declared illegal and unconstitutional inasmuch as they were beyond the legislative competence of the State Legislature - the assessments in respect of which the period of limitation for re-opening under section 25 of the KVAT Act was to expire by March 31, 2017 can be re-opened up to March 31, 2018 by virtue of the amendment to the third proviso to section 25(1) vide Kerala Finance Act, 2017 - the assessments in respect of which the period of limitation for re-opening under section 25 of the KVAT Act was to expire by March 31, 2018 cannot be re-opened up to March 31, 2019 or thereafter, by relying on the amendments introduced through the Kerala Finance Act, 2018 since the State Legislature did not have the power to amend the KVAT Act after the CAA 2016, and the repeal of the KVAT Act pursuant thereto, on June 22, 2017.
Issues Involved:
1. Legality of the notices and assessment orders issued under the Kerala Value Added Tax Act (KVAT Act) for the assessment years 2010-11 and 2011-12. 2. Whether the amendments to section 25(1) of the KVAT Act, introduced through the Kerala Finance Acts of 2017 and 2018, have retrospective effect. 3. Legislative competence of the State Legislature to amend the KVAT Act after the Constitution (One Hundred and First Amendment) Act, 2016 (CAA 2016) and the repeal of the KVAT Act. 4. Applicability of the savings clause under section 174 of the State GST Act to justify the amendments to section 25(1) of the KVAT Act. Detailed Analysis: Issue (a) and (b): Contentions of the Petitioners: - The five-year limitation period for re-opening assessments under section 25(1) of the KVAT Act, as it stood before April 1, 2017, had already expired by March 31, 2017. - The subsequent amendment extending the limitation period to six years cannot revive assessments that had already attained finality. - A proviso cannot expand the ambit of the main provision and must be subservient to it. Contentions of the Respondent: - The amendment effective from April 1, 2017, conferred the power to reopen assessments for up to six years prior to this date. - The third proviso to section 25(1) allowed reopening assessments up to March 31, 2018, even for those cases where the five-year period had expired by March 31, 2017. Court's Findings: - The Legislature can retrospectively amend statutory provisions to take away vested rights. - The amendment to section 25(1) effective from April 1, 2017, is prospective, but the third proviso allows reopening assessments until March 31, 2018. - The third proviso qualifies the main provision and explains the legislative intent to permit reopening past assessments. - Issue (a) is answered in the negative, and issue (b) in the affirmative. Issue (c) and (d): Contentions of the Petitioners: - After the CAA 2016 and the repeal of the KVAT Act on June 22, 2017, the State Legislature did not retain the power to amend the KVAT Act. - The amendments through the Kerala Finance Act, 2018, are beyond the legislative competence of the State Legislature. Court's Findings: - The savings clause under section 174 of the State GST Act does not justify the amendments brought in through the Kerala Finance Act, 2018. - The State Legislature was denuded of its power to legislate on the subject of taxes on the sale or purchase of goods after the CAA 2016. - The amendments to section 25 of the KVAT Act through the Kerala Finance Act, 2018, are declared illegal and unconstitutional. - Issue (c) is answered in the negative, and issue (d) is not considered separately as it is covered by the findings on issue (c). Conclusion: 1. Assessments where the limitation period was to expire by March 31, 2017, can be reopened up to March 31, 2018, by virtue of the amendment to the third proviso to section 25(1) through the Kerala Finance Act, 2017. 2. Assessments where the limitation period was to expire by March 31, 2018, cannot be reopened up to March 31, 2019, or thereafter, based on the amendments introduced through the Kerala Finance Act, 2018. 3. The legality of the impugned orders/notices is determined by these declarations.
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