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2020 (4) TMI 499 - HC - VAT and Sales TaxReduction of input tax credit - reduction on the ground that the limitation of availing of the tax credit as provided under Section 11(3)((b) could be applied only once irrespective of the fact as to whether particular commodity purchased falls in more than one sub-clauses of Section 11(3)(b) of the VAT Act - whether Section 84A of the VAT Act is a validating Act? HELD THAT - It is evident that the amending Act specifically provides for validation of various aspects (namely assessment, reassessment, collection etc.) notwithstanding any judgement, decree or order of any court, Tribunal or authority to the contrary - Vide the Gujarat Value Added Tax (amendment) Act, 2018 (Gujarat Act No. 10 of 2017) Section 84A has been inserted in the Gujarat Value Added Tax Act, 2003 with retrospective effect. However, the amending Act does not provide for any validation of various acts of the revenue authorities namely the assessment, re-assessment, collection etc. Accordingly, the said Act cannot be treated as a validating Act . Section 84A (as inserted by 2017 amendment Act), provides for exclusion of certain period spent by the revenue authorities in the appellate proceedings for the purpose of calculating time limit for (i) audit assessment (ii) turnover escaping assessment (iii) appeal and (iv) revision. All these provisions provide for outer time limit of the order to be made. In case where the orders are already made by the revenue authorities and matter is closed, the retrospectives amendment without validation may not validate such orders. It is permissible for the Legislature, subject to its legislative competence otherwise, to enact a law which will withdraw or fundamentally alter the very basis on which a judicial pronouncement has proceeded and create a situation which if it had existed earlier, the Court would not have made the pronouncement - it is difficult to take the view that the VAT Amendment Act, 2018 is a validating Act. Competence of the State Legislature to enact Section 84A of the Act - HELD THAT - A law enacted by a legislature without having legislative competence would be void ab initio and the same cannot be revived or revitalised even if the legislative competence is conferred on that legislature subsequently. But in a case where the legislature has legislative competence to enact a law, and some of its provisions violate any of the fundamental rights contained in Part III of the Constitution, the same would be rendered void under Article 13(2) of the Constitution and would remain unenforceable. The law so enacted is not wiped off the Statute Book nor it stands repealed. Further if the offending provisions of the Statute which violate fundamental rights are removed the law would become effective and enforceable even without re-enactment. Such a law, whether preConstitution or post-Constitution, is not wholly dead if it violates fundamental rights; it is merely eclipsed by fundamental right and remains as it were in a moribund condition as long as the shadow of fundamental rights falls upon it - A law declared void by a court is not effected from the Statute Book; it is revived and revitalised if Constitutional limitations are removed by Constitutional amendment or by re-enactment by legislature. Thus, Section 84A of the Gujarat Value Added Tax (Amendment) Act, 2018 is invalid on the ground that the same is beyond the legislative competence of the State Legislature. Whether Section 84A of the VAT Act is manifestly arbitrary and is liable to be struck down being violative of Article 14 of the Constitution of India? - HELD THAT - It is well settled that as long as the legislation has the necessary competence to frame a law and the law so framed is not violative of the fundamental rights enshrined in the constitution or any of the constitutional provision, the Court would not strike down the statute merely on the perception that the same is harsh or unjust. Particularly, in taxing statutes the Courts have recognized much greater latitude in the legislation in framing suitable laws - It is equally well settled that wherever the parliament has the power to frame a statute it also includes the power to make the law retrospective. In other words, the parliament also has wide powers to frame the laws including taxing statutes with retrospective effect. However, the Courts have recognized certain inherent limitations in framing retrospective tax legislations. If unlimited time period is available to the Revenue for assessment/re-assessment/revision in any case based on a decision rendered in the case of any other dealer the same would lead to an irreparable situation and, in such circumstances, it renders Section 84A manifestly arbitrary and unreasonable - Section 84A of the VAT Act is liable to be struck down even on the ground of being manifestly arbitrary, excessive, oppressive and unreasonable. Section 84A of the Gujarat VAT Act is ultra vires and beyond the legislative competence of the State Legislature - Section 84A of the Gujarat VAT Act is manifestly arbitrary, unreasonable and therefore, violative of the Articles 14 and 19(1)(g) of the Constitution of India - Section 84A of the Gujarat VAT Act is not a validating Act. Section 84A of the Gujarat VAT Act is declared as ultra vires and beyond the legislative competence of the State Legislature under Entry 54 of List II of the Seventh Schedule to the Constitution of India and is also declared to be violative of Article 14 of the Constitution of India on the ground of being manifestly arbitrary, unreasonable and oppressive - the impugned notices in each of the writ applications issued under Section 75 of the Gujarat VAT Act is hereby quashed and set aside.
Issues Involved:
1. Legislative competence of the State under Entry 54 of List II of the Seventh Schedule to enact Section 84A of the Gujarat VAT Act. 2. Whether Article 246A read with Article 366(12A) empowers both the Union and the State Legislatures to make laws on supply of goods or services. 3. Whether Section 84A is manifestly arbitrary and violative of Articles 14 and 19(1)(g) of the Constitution. 4. Validity of retrospective insertion of Section 84A from 01.04.2006. 5. Whether Section 84A is a validating Act. 6. Permissibility of reopening assessments already finalized before the amendment. 7. Repeal status of the Gujarat VAT Act post-GST implementation. Analysis: 1. Legislative Competence: The Court examined whether Section 84A of the GVAT Act is ultra vires and beyond the legislative competence of the State under Entry 54 of List II of the Seventh Schedule to the Constitution of India. It was argued that the State Legislature does not have the competence to enact any law under Entry 54 except for six specific products. The Court concluded that Article 246A, inserted by the 101st Constitution Amendment Act, was meant to subsume multiple indirect taxes and to confer concurrent power on the Parliament and State Legislatures to impose GST. The existence of Entry 54 for six products indicates that VAT enactments are not permissible under Article 246A. Thus, Section 84A is beyond the legislative competence of the State Legislature. 2. Article 246A and Legislative Powers: The Court analyzed whether Article 246A, read with Article 366(12A), allows both the Union and State Legislatures to make laws on supply of goods or services. It was clarified that Article 246A empowers both to legislate on GST, but the power to enact VAT laws under Article 246A is not supported, as it would render Entry 54 redundant. The Court emphasized that the State Legislature cannot assume power to impose independent tax on the sale of goods without reference to the GST Council. 3. Manifest Arbitrariness and Violation of Articles 14 and 19(1)(g): The Court considered whether Section 84A is manifestly arbitrary and violative of Articles 14 and 19(1)(g). It was argued that the retrospective amendment leads to unforeseen consequences, such as reopening assessments based on future judgments, which is unreasonable and oppressive. The Court found that Section 84A allows reopening of assessments for an indefinite period, which is excessive and disproportionate, thus violating Article 14. 4. Retrospective Insertion of Section 84A: The Court examined the validity of the retrospective insertion of Section 84A from 01.04.2006. It was argued that retrospective legislation would be prone to scrutiny for reasonableness. The Court found that the retrospective operation of Section 84A makes it more oppressive and unreasonable, thus failing the test of reasonableness. 5. Section 84A as a Validating Act: The Court analyzed whether Section 84A is a validating Act. It was argued that a validating Act must remove the cause of invalidity and validate past transactions. The Court concluded that Section 84A does not validate any levy but merely extends the period of limitation for assessment/re-assessment/revision. Hence, it cannot be considered a validating Act. 6. Reopening Finalized Assessments: The Court considered whether Section 84A permits reopening assessments already finalized before the amendment. It was found that allowing unlimited time for reopening assessments based on future judgments would lead to an irreparable situation, rendering Section 84A manifestly arbitrary and unreasonable. 7. Repeal Status of the Gujarat VAT Act: The Court examined whether the provisions of the Gujarat VAT Act stand repealed except for six items listed under Entry 54. It was concluded that the State Legislature could not amend the VAT Act post-GST implementation, as it was beyond its competence. Conclusion: The Court declared Section 84A of the Gujarat VAT Act as ultra vires and beyond the legislative competence of the State Legislature, and violative of Article 14 of the Constitution on the grounds of being manifestly arbitrary, unreasonable, and oppressive. The impugned notices issued under Section 75 of the Gujarat VAT Act were quashed.
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