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2022 (7) TMI 420 - HC - VAT and Sales TaxConstitutional Validity of Telangana Value Added Tax (Second Amendment) Act, 2017 - Validity of amendment after enactment of GST Law and repeal of VAT law - it is prayed that all notices and orders issued or passed on the strength of the extended period of limitation of six years in terms of the aforesaid amendment Act should be declared as illegal - legislative competence - HELD THAT - The power to make laws either by the Parliament or by the State Legislatures is traceable to Article 246 of the Constitution of India. The Lists in the VII Schedule defines and limit the respective competence of the Union and the States. The various entries in the three lists of the VII Schedule are not sources of legislative power. These are legislative heads demarcating the field of legislation; of course, being the field of legislation, the entries should be given the widest possible amplitude - On and from 16.09.2016, the competence of the State Legislature got truncated; it had competence to enact law only on the fields mentioned in Entry 54 as substituted i.e., regarding taxes on sale of petroleum crude, high speed diesel, motor spirit (petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption. However, there is a further restriction in as much as the taxes should not be on sale of such goods in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods. The Second Amendment Act, as already noticed, enhances the limitation period from four years to six years with respect to assessment, reassessment, revision etc. It covers all general goods and is not confined to the five petroleum products and alcoholic liquor for human consumption as mentioned in the substituted Entry 54 of List II. Therefore, State Legislature of Telangana did not have the competence post 16.09.2016 to legislate the Second Amendment Act which could be traceable to Article 246 read with Entry 54 of List II of the VII Schedule to the Constitution. Article 246 A of the Constitution of India came up for analysis before the Supreme Court in UNION OF INDIA ORS. VERSUS VKC FOOTSTEPS INDIA PVT LTD. 2021 (9) TMI 626 - SUPREME COURT which according to the Supreme Court, Article 246A defines the source of power as well as the field of legislation with respect to GST, obviating the need to travel to the VII schedule. This power is available both to Parliament as well as to the State Legislatures except in the course of supply of goods or services or both in the course of inter-State trade or commerce. What Article 246A embodies is the principle of simultaneous levy by both the Parliament and by the concerned State Legislature, distinct from the principle of concurrence. In BAIJU A.A. AND OTHERS VERSUS STATE TAX OFFICER, STATE OF KERALA AND OTHERS 2019 (12) TMI 469 - KERALA HIGH COURT the challenge before a single bench of the Kerala High Court was to the legality of the notices and assessment orders issued in connection with the assessments under the Kerala Value Added Tax Act, 2003 for the assessment years 2010-2011 and 2011-2012. The challenge was made on the ground that the concerned authorities did not have the jurisdiction to issue the notices and assessment orders since the amendments introduced to Section 25 (1) of the Kerala Value Added Tax Act, 2003 through the Kerala Finance Acts of 2017 and 2018 notified on 19.06.2017 and 31.03.2018 respectively did not contemplate a retrospective operation of the amended provisions. According to the Kerala High Court, after the Constitution Amendment Act, the State Legislatures stood denuded of their power to legislate in respect of taxes on sale or purchase of goods covered under Entry 54 of List II of the VII Schedule; rather they were conferred with legislative powers to be exercised simultaneously with the Parliament in respect of taxes on supply of goods or services or both. 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 etc., under the erstwhile enactment, the truncation 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. It has been held that 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 Kerala Value Added Tax Act, 2003 except to the extent permissible when it did not retain any residual right to further legislate on the subject of taxes on sale or purchase of goods. Kerala High Court in HINDALCO INDUSTRIES LIMITED AND ORS. VERSUS STATE OF KERALA AND ORS. 2019 (12) TMI 1604 - KERALA HIGH COURT following the same line of reasoning adopted by the previous bench in BAIJU A.A. (10 supra) it has been held that after the Constitution Amendment Act, State Legislatures stood denuded of their power to legislate in respect of taxes on sale or purchase of goods that was covered under Entry 54 of List II of the VII Schedule; they have instead been conferred with legislative powers to be exercised simultaneously with the Parliament in respect of taxes on supply of goods or services or both. Consequence of amendment of Entry 54 of List II is denuding the State Legislature of the power to levy tax on sale of goods other than those as provided in amended Entry 54; invalidation of State legislations existing as on 16.09.2016 levying tax on sale of goods other than those finding place in amended Entry 54. Section 19 does not save or postpones deprivation or denuding of legislative competence of State Legislature for levying tax on sale of goods other than those mentioned in amended (substituted) Entry 54 of List II. Section 19 only allows operation and levy of tax under the VAT Act which is inconsistent with the GST regime for a period of one year or until the VAT Act is repealed or amended, whichever is earlier. This would mean that the State could continue to levy tax under the VAT Act for the window period of one year or till the VAT Act was amended or repealed to align it with the GST regime, whichever was earlier. This transitional provision does not enable the State Legislature to make amendments to the VAT Act in contravention of the amended Entry 54 of List II. Thus, it can be held that Section 19 of the Constitution Amendment Act cannot be understood or cannot be construed as a source of legislative power. It is also not a saving provision in respect of suspending legislative competence to amend the VAT Act - Section 19 of the Constitution Amendment Act is not a source of power to enable the State Legislature to enact the Second Amendment Act, which is clearly inconsistent with the Constitution Amendment Act. There are no conflict or contradiction between Section 19 of the Constitution Amendment Act and Section 174 of the TGST Act. While Section 19 has deferred invalidity of inconsistent legislations till such time those are amended or repealed or for a period of one year whichever is earlier, Section 174 of the TGST Act has repealed amongst other enactments the VAT Act with effect from 01.07.2017 except in respect of goods covered by the substituted Entry 54 of List II. Thus Section 174 of the TGST Act is in consonance with Section 19 of the Constitution Amendment Act. The above position only supports the case of the petitioners that the State was denuded of its competence to legislate on GST after 16.09.2016 and certainly after 01.07.2017. Can a repealed act be saved by the General Clauses Act, 1897 or by the Telangana General Clauses Act, 1891? - HELD THAT - Section 8 A of the Telangana General Clauses Act, 1891 says that where any act repeals any enactment by which the text of any previous enactment was amended by express omission, insertion or substitution of any matter then unless a different intention appears, the repeal shall not affect continuance of any such amendment made by the enactment so repealed and in operation at the time of such repeal - Article 367 of the Constitution of India speaks about the interpretation of the Constitution of India. Clause (I) of Article 367 is relevant. It says that unless the context otherwise requires, the General Clauses Act, 1897, subject to any adaptations and modifications that may be made therein under Article 372, shall apply for the interpretation of the Constitution as it applies for the interpretation of an Act of the Legislature. The Constitution Amendment Act came into force on and from 16.09.2016. Section 19 of the Constitution Amendment Act provided for a window period to the States to remove any inconsistent enactments by way of amendment or repeal or until expiration of one year from such commencement whichever was earlier. Telangana Ordinance No.2 of 2017 was promulgated by the Governor of Telangana on 17.06.2017 to further amend the VAT Act. Though the Ordinance was promulgated after coming into force of the Constitution Amendment Act on 16.09.2016, it was so promulgated within the window period of one year as provided by Section 19 of the Constitution Amendment Act. At this stage we may mention that following the Constitution Amendment Act, State of Telangana enacted the TGST Act with effect from 01.07.2017. The Ordinance was promulgated by the Governor on 17.06.2017. As per preamble to the Ordinance, it is stated that Government of India had enacted the CGST Act and Government of Telangana had enacted the TGST Act. But both the Acts had not been brought into force. Referring to the provisions of the VAT Act, it is stated that it empowers the State Government to levy tax on alcoholic liquor for human consumption and on petroleum products. According to the Constitution Amendment Act, levy of tax on those petroleum products and alcoholic liquor for human consumption is within the competence of the State Legislature - the Ordinance, in fact, introduced certain provisions extending limitation to enable initiation of fresh proceedings, such as, revisional proceedings which are completely inconsistent with the scheme of the Constitution Amendment Act. On this ground itself, the Ordinance can be said to have no legal consequence. Intention of Parliament in ushering in the GST regime through the Constitution Amendment Act and enactment of the CGST Act and simultaneous enactment of various State GST Acts by the State Legislatures is to avoid multiplicity of taxes by subsuming those indirect taxes in a single tax called GST - the amendments brought in by the Second Amendment Act, are wholly inconsistent with the scheme of the Constitution Amendment Act read with the CGST Act and the TGST Act. Thus, it is held that the Second Amendment Act is unconstitutional being devoid of legislative competence. It is accordingly declared as such - the notices issued and orders passed under Section 32 (3) of the VAT Act which have been impugned in the present batch of writ petitions are hereby set aside. Petition allowed.
Issues Involved:
1. Constitutionality of the Telangana Value Added Tax (Second Amendment) Act, 2017. 2. Legislative competence of the State of Telangana to enact the Second Amendment Act post the Constitution (101st Amendment) Act, 2016. 3. Validity of extending the limitation period for assessments and revisions from four years to six years. Detailed Analysis: Constitutionality of the Telangana Value Added Tax (Second Amendment) Act, 2017: The petitioners challenged the constitutionality of the Telangana Value Added Tax (Second Amendment) Act, 2017, arguing it was ultra vires the Constitution of India. They sought a declaration that all notices and orders issued based on the extended limitation period of six years should be declared illegal, null, and void. Legislative Competence of the State of Telangana: The petitioners contended that after the Constitution (101st Amendment) Act, 2016, the State of Telangana lacked the legislative competence to enact the Second Amendment Act. The amendment to Entry 54 of List II restricted the State's power to levy taxes only on specific goods (petroleum products and alcoholic liquor for human consumption). The State could not legislate on goods in general. The argument was supported by various judgments, including those from the Gujarat High Court in Reliance Industries Limited and the Kerala High Court in Hindalco Industries Limited. The court agreed, stating that the legislative competence must be traceable to the Constitution. Post the Constitution Amendment Act, the State's power was confined to the goods mentioned in the amended Entry 54. The Second Amendment Act, which extended the limitation period for all goods, was beyond the State's legislative competence. Validity of Extending the Limitation Period: The Second Amendment Act extended the limitation period for assessments and revisions from four years to six years. The petitioners argued that this extension was invalid as it was enacted after the GST regime had come into effect. The court noted that the Constitution Amendment Act aimed to subsume multiple indirect taxes into a single GST, thereby eliminating the State's power to legislate on VAT for goods other than those specified in the amended Entry 54. The court held that the Second Amendment Act could not be sustained as it was inconsistent with the scheme of the Constitution Amendment Act and the GST regime. Section 19 of the Constitution Amendment Act provided a transitional period of one year for States to amend or repeal inconsistent laws. The Second Amendment Act, enacted after this period, was invalid. Ordinance and Retrospective Effect: The State argued that the Second Amendment Act was a continuation of an Ordinance promulgated within the one-year transitional period. The court rejected this argument, stating that legislative competence must be derived from the Constitution, not from an earlier legislation or ordinance. The Ordinance, although promulgated within the transitional period, could not validate the Second Amendment Act enacted after the State had lost its legislative competence. Conclusion: The court declared the Telangana Value Added Tax (Second Amendment) Act, 2017, unconstitutional and devoid of legislative competence. Consequently, all notices and orders issued under the extended limitation period were set aside and quashed. The writ petitions were allowed, and the court emphasized the need for legislative actions to align with constitutional provisions and the GST regime.
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