2019 (12) TMI 469 - HC - VAT and Sales Tax

Constitutional validity of Amendment to KVAT post GST - Time limitation for reopening of assessment - Legality of the notices and assessment orders issued to the petitioners in connection with the assessment under the Kerala Value Added Tax Act - the notices and assessment are challenged on the ground that the authorities concerned did not have the jurisdiction to issue them since the amendments introduced to Section 25 (1) of the KVAT Act through the Kerala Finance Acts of 2017 and 2018 notified through gazette notifications dated 19.06.2017 and 31.03.2018 respectively did not contemplate a retrospective operation of the amended provisions. 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 22.06.2017 the six year period of limitation for re-opening assessments could be relied upon to issue pre-assessment notices in cases where by 31.03.2017 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 31.03.2017 the five year period for re-opening assessments under the un-amended provisions of Section 25 (1) of the KVAT Act had already expired? - HELD THAT - 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 31.03.2017. The object of the amendment was to permit a re-opening of such cases till 31.03.2018. The amendment has to be viewed in the backdrop of the introduction of the new regime of GST in the State with effect from 22.06.2017 on which date the KVAT Act was repealed by the State legislature - the circumstances under which the amendment was carried out clearly bring out the intention of the legislature to permit a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 31.03.2018 and it is this intention that must be read into the third proviso to Section 25 (1) as amended with effect from 01.04.2017 so as to give it full effect. In the instant cases while the main part of Section 25 (1) clearly indicates that the extended period of six years for re-opening assessments is to operate prospectively with effect from 01.04.2017 the third proviso seeks to carve out those assessments where the period of re-opening would have expired by 31.03.2017 for a differential treatment by stating that in such cases the re-opening could be carried out before 31.03.2018. 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. Thus 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 22.06.2017 the six year period of limitation for re-opening assessments could not be relied upon to issue pre-assessment notices in cases where by 31.03.2017 the five year period for reopening assessments under the unamended provisions of Section 25 (1) of the KVAT Act had already expired - 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 31.03.2017 the five year period for re-opening assessments under the un-amended provisions of Section 25 (1) of the KVAT Act had already expired. Whether after the CAA 2016 and the repeal of the KVAT Act pursuant thereto on 22.06.2017 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? - 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 22.06.2017. The provision as it stood then and in particular the third proviso thereto authorised the re-opening of past assessments till 31.03.2018. The amendment effected through the Kerala Finance Act 2018 with effect from 01.04.2018 enlarged the period for re-opening past assessments from 31.03.2018 to 31.03.2019. 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 31.03.2019 notwithstanding that the amendment itself was effective only from 01.04.2018. However the intervention of the CAA 2016 and the consequent repeal of the KVAT Act with effect from 22.06.2017 has a bearing on the legality of the 2018 amendment - 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. At the time of repeal of the KVAT Act and simultaneous enactment of the State GST Act with a savings clause therein the savings clause operated only to save rights privileges immunities action taken etc under the erstwhile enactment as it stood at the time of its repeal which included the amendments brought in through the Kerala Finance Act 2017. There could not have been any further legislative exercise by the State legislature in relation to the repealed KVAT Act - The amendments to Section 25 of the KVAT Act through the Kerala Finance Act 2018 are declared illegal and unconstitutional in as much as they were beyond the legislative competence of the State Legislature - thus the issue has to be answered in the negative and in favour of the writ petitioners. Petition disposed off.

Summary

Issues Involved:

1. Legality of notices and assessment orders issued under the Kerala Value Added Tax Act (KVAT Act) for the assessment years 2010-11 and 2011-12.
2. Retrospective operation of amendments to Section 25 (1) of the KVAT Act.
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 repeal of the KVAT Act.
4. Justification of pre-assessment notices and assessment orders based on the savings clause under Section 174 of the SGST Act.

Issue-wise Detailed Analysis:

Re: Issues (a) and (b):

The petitioners argued that the amendments to Section 25 (1) of the KVAT Act, which extended the limitation period for reopening assessments from five to six years effective from 01.04.2017, could not be applied retrospectively to assessments that had already become final by 31.03.2017. They cited several Supreme Court decisions, including Garikapati Veeraya v. N.Subbiah Choudhry and S.S. Gadgil v. Lal & Co., to support their contention that an amendment in a taxing statute cannot revive assessments that had attained finality before the amendment.

The respondents contended that the amendment conferred the power to reopen assessments for up to six years prior to 01.04.2017, relying on the Supreme Court decision in S.C. Prashar and another v. Vasantsen Dwarkadas and others. They argued that the third proviso to Section 25 (1) allowed reopening assessments for the year 2010-11 until 31.03.2018.

The court held that while the main part of Section 25 (1) had prospective effect from 01.04.2017, the third proviso allowed reopening assessments that would have expired by 31.03.2017 until 31.03.2018. The court found that the legislative intent was to permit reopening past assessments until 31.03.2018, thus answering issue (a) in the negative and issue (b) in the affirmative.

Re: Issues (c) and (d):

The court noted that the validity of Section 174 of the State GST Act had been upheld in Sheen Golden Jewels (India) Pvt. Ltd. v. State Tax Officer & Ors., which found that the repeal of the KVAT Act did not render it inapplicable to actions saved by Section 174. However, the court had to consider the legislative competence of the State Legislature to amend the KVAT Act after the CAA 2016 and its repeal on 22.06.2017.

The court observed that post-CAA 2016, the State Legislatures lost the power to legislate on taxes on the sale or purchase of goods, except for limited commodities. The power to amend a statute is a facet of legislative power, which the State Legislature did not retain after the CAA 2016. The court concluded that the State Legislature lacked the competence to amend the KVAT Act through the Kerala Finance Act, 2018, making such amendments unconstitutional.

Conclusion:

(i) Assessments that could be reopened until 31.03.2017 could be reopened until 31.03.2018 due to the amendment to the third proviso to Section 25 (1) via the Kerala Finance Act, 2017.
(ii) Assessments that could be reopened until 31.03.2018 could not be reopened until 31.03.2019 or thereafter based on the Kerala Finance Act, 2018, as the State Legislature lacked the power to amend the KVAT Act post-CAA 2016.
(iii) The legality of the impugned orders/notices is determined by the above declarations.