2021 (4) TMI 961 - HC - VAT and Sales Tax

Constitutional validity and clauses (d) and (e) of Section 174(1) of the Karnataka Goods and Service Tax Act, 2017 - petroleum products and liquor for human consumption as per the amended Entry 54 - HELD THAT - The Hon ble Supreme Court in R.S. REKCHAND MOHOTA SPINNING WEAVING MILLS LTD. VERSUS STATE OF MAHARASHTRA 1997 (5) TMI 441 - SUPREME COURT has held that it is a settled principle of interpretation that legislative entries are required to be interpreted broadly and widely so as to give powers to legislature to enact the laws with respect to the matters enumerated in the legislative entries. Therefore, in the light of the aforesaid judgment, by no stretch of imagination it can be held that clauses (d) and (e) of Section 174(1) of the Karnataka Goods and Service Tax Act, 2017 is ultra vires. The appellant s basic contention is that the State is denuded of its power to re-assess a dealer s tax liability under the provisions of the KVAT Act after amendment to Entry 54 of the State List vide the Constitution (101st Amendment) Act, 2016, (the Amendment Act), which was notified to be brought into force w.e.f., 16.9.2016 and the subsequent repeal of the KVAT Act w.e.f., 1.7.2017, vide Section 173 of the KGST Act. The appellant s contention is totally untenable in view of the insertion of saving clause, namely Section 174 of the KGST Act in order to ensure that the repeal of the KVAT Act shall not affect liabilities accrued or tax payable under the KVAT Act. Therefore, in view of the savings clause under Section 174, the appellant s contention that the State cannot reassess the liability incurred prior to repeal of the KVAT Act is totally baseless. Constitutional validity and the assertion that the State s legislative power have been taken away - HELD THAT - It is pertinent to note that the power to enact Section 174 of the KGST Act can be traced to Article 246A, which, when read with Article 366(12-A), confers power on the States to make laws with respect to any tax on supply of goods. Accordingly, Section 174 is a validly enacted piece of legislation and cannot be said to be without legislative competence. Hence, the contention of the appellant that Section 174 is a still born provision and unconstitutional is devoid of merits and substance. Appeal dismissed.

Summary

Issues Involved:
1. Constitutionality of Section 174 of the Karnataka Goods and Services Tax Act, 2017.
2. Validity of reassessment orders under the Karnataka Value Added Tax Act, 2003, post the 101st Constitutional Amendment Act, 2016.
3. Availability of alternative remedies.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 174 of the Karnataka Goods and Services Tax Act, 2017:
The appellant challenged the constitutional validity of clauses (d) and (e) of Section 174(1) of the Karnataka Goods and Services Tax Act, 2017, arguing that these clauses are ultra vires to the Constitution. They contended that Section 174, which protects the tax, penalty, fine, etc., under the old Act without any time limit, contradicts Section 19 of the Constitution Amendment Act, which imposes a time limit of one year. The court, however, upheld the validity of Section 174, stating that legislative entries should be interpreted broadly and widely to give powers to the legislature to enact laws with respect to the matters enumerated in the legislative entries. It was emphasized that the legislative power to make laws with respect to the sale of goods continues to vest in the State Government under Article 246A, and Section 174 is a validly enacted piece of legislation.

2. Validity of reassessment orders under the Karnataka Value Added Tax Act, 2003, post the 101st Constitutional Amendment Act, 2016:
The appellant argued that the reassessment order dated 31.3.2018 was unconstitutional as it was passed beyond the period prescribed in Section 19 of the Constitution Amendment Act. They contended that the KVAT Act could only be enforced until 15.9.2017 or 1.7.2017, whichever is earlier. The court rejected this argument, stating that the taxable event under the Value Added Tax law is the individual transaction of sale or purchase by the Dealer, and the law applicable on the date of the taxable event is the relevant law for the imposition of tax. The court held that the reassessment order passed under the KVAT Act, 2003, after the KGST Act, 2017 came into effect, is valid. The court further noted that Section 174 of the KGST Act clearly saves all the rights, obligations, or liabilities acquired, accrued, or incurred under the repealed Acts.

3. Availability of alternative remedies:
The appellant contended that the learned Single Judge erred in holding that there is an alternative remedy available in the matter. They argued that the basic question was whether Section 174 of the Karnataka Goods and Services Act, 2017, is within the competence of the State legislature. The court, however, upheld the decision of the learned Single Judge, stating that the reassessment order dated 31.3.2018 for the period 2012-13 is clearly appealable before the appellate authority under Section 62 of the KVAT Act, 2003. The court dismissed the writ appeal with a liberty to the assessee-company to avail the alternative remedy, if it so chooses, and assured that the issue of limitation will not come in the way of the assessee if the appeal is preferred within four weeks.

Conclusion:
The court dismissed the writ appeal, upholding the constitutional validity of Section 174 of the Karnataka Goods and Services Tax Act, 2017, and affirmed the validity of the reassessment orders passed under the Karnataka Value Added Tax Act, 2003. The court also emphasized the availability of alternative remedies for the appellant.