2022 (12) TMI 1137 - HC - VAT and Sales Tax

Jurisdiction - Constitutional validity of Section 174(2) of the KSGST Act - Demand / Recovery of VAT after implementation of GST - Scope of saving clause under the GST Act - validity of notices and orders of assessment/penalty - competence of the State Legislature - Revenue, in purported exercise of saving power granted by Section 174(2) of the KSGST Act read with Section 25(1), Section 42(3), or Section 67 of the KVAT Act 2003, issued notices proposing to reopen the assessments of the Dealers, as the case may be for best judgment, penalty etc. - HELD THAT - The State Legislature is competent to enact Section 174(2) of the KSGST Act. The consequence of such a conclusion is that clauses in Section 174(2) are within the competence of the State Legislature. To escape the saving clause's effect, the arguments noted above are canvassed. The argument proceeds on the assumption that with the repeal of the KVAT Act, an absolute right in favour of Dealers erasing and effacing every legal obligation under the KVAT Act has been attracted. The purpose of savings is intended to have certainty on initiation, enquiry, etc., even after the repeal is given effect. Statutory obligation means an obligation arising under a Statute. Legal obligation means an obligation that derives from the operation of law. These obligations are discharged by duly complying with the requirement thereof, or the obligation stands discharged with the efflux of limitation. The third way now canvassed is that since notices are issued after 01.07.2017, the State cannot proceed to recover the amount - The absence of initiation of any proceeding before 16.09.2017 is not a criterion at all in the scheme of the KVAT Act. With the applicable saving clause, what is required in law is that when steps for reassessment etc., are taken up, those steps conform to the limitation covered by the applicable Section under the KVAT Act. The notices now impugned are well within the period under Section 25 or within the reasonable period under Sections 56, 58 and 67; such proceedings are covered by the saving clause of Section 174(2) of the KSGST Act. The converse of the above deliberation is that the State Legislature, however, has the power to repeal and provide for a saving clause; still, on the interpretation now suggested to various clauses, again, the provisions of the KVAT Act could be rendered ineffective. The effect of the saving clause cannot be defeated on any of the grounds now raised by the Dealers. The Dealers must complete the legal obligations, or the timelines expire to assume rights either accrued or vested. It is not the case of Dealers that beyond the period of limitation, the impugned notices are issued or orders made. The migration to GST is not an amnesty given to defaulting dealers from paying the tax due under the KVAT Act - the Revenue/State has not disentitled itself from enforcing its right to recover the defaulted tax or tax dues under the KVAT Act arising before 01/07/2017. The impugned notices are saved by clauses (i) to (iv) of Section 174(2) of the KSGST Act and are within the competence of the Department - Constitutionality of Section 174(2) of the KSGST Act and legality of notices/ orders as the case may be impugned in the respective Writ Appeals are answered against the dealers, hence necessarily, the Writ Appeals must fail and accordingly are dismissed.

Summary

Issues Involved:
1. Legislative competence.
2. Constitutionality of Section 174(2) of the KSGST Act.
3. Validity of notices/orders issued under the KVAT Act post-GST regime.

Detailed Analysis:

Legislative Competence:
- Argument by Dealers:
- The State Legislature lacks competence to enact Section 174(2) of the KSGST Act post the constitutional amendments brought by the Constitution (101st Amendment) Act, 2016 (CAA 2016).
- Article 246A confers legislative competence to levy tax on the supply of goods and services, not on the sale and purchase of goods.
- Section 19 of CAA 2016 provides a transitional provision, which allows inconsistent laws to remain in force for one year or until repealed/amended by a competent legislature. Hence, the State Legislature's power to legislate saving clauses expired on 16.09.2017.

- Court's Analysis:
- The State Legislature is competent to enact Section 174(2) of the KSGST Act under the transitional provisions of Section 19 of CAA 2016.
- The power to repeal includes the power to enact saving clauses.
- The Gujarat High Court in Reliance Industries Ltd v. State of Gujarat and Karnataka High Court in M/s. Prosper Jewel Arcade LLP v. The Deputy Commissioner upheld the competence of the State Legislature to enact saving provisions post-GST regime.
- The saving clause does not revive the KVAT Act but allows the completion of obligations and functions arising under the KVAT Act before 01.07.2017.

Constitutionality of Section 174(2) of the KSGST Act:
- Argument by Dealers:
- Section 174(2) is unconstitutional as it attempts to revive a dead enactment (KVAT Act) and continues the levy of taxes beyond the period allowed by Section 19 of CAA 2016.
- The saving clause cannot be used to initiate fresh proceedings under the repealed KVAT Act.

- Court's Analysis:
- The repeal and saving provisions are within the legislative competence of the State Legislature.
- The saving clause in Section 174(2) is valid and allows for the continuation of proceedings under the KVAT Act for obligations incurred before 01.07.2017.
- The saving clause does not affect the legislative competence or the constitutional amendments brought by CAA 2016.

Validity of Notices/Orders Issued Under the KVAT Act Post-GST Regime:
- Argument by Dealers:
- Notices and orders issued after the commencement of the GST regime are illegal and without jurisdiction.
- The KVAT Act is a dead enactment post 16.09.2017, and no proceedings can be initiated under it.

- Court's Analysis:
- The notices and orders issued under the KVAT Act are valid if they are within the period of limitation prescribed by the KVAT Act.
- The saving clause in Section 174(2) of the KSGST Act allows for the continuation of proceedings for obligations incurred before the GST regime.
- The migration to GST does not absolve dealers of their obligations under the KVAT Act.

Conclusion:
- The State Legislature is competent to enact Section 174(2) of the KSGST Act.
- Section 174(2) of the KSGST Act is constitutional and allows for the continuation of proceedings under the KVAT Act for obligations incurred before 01.07.2017.
- Notices and orders issued under the KVAT Act post-GST regime are valid if they comply with the limitation periods prescribed by the KVAT Act.
- The Writ Appeals are dismissed, and dealers are granted liberty to avail statutory remedies within eight weeks from the date of the judgment.