2021 (12) TMI 523 - HC - VAT and Sales Tax

Interpretation of proviso to Section 8(a) of the Kerala Value Added Tax Act, 2003 - Constitutional validity of proviso to Section 8(a) - recovery of compounded tax - proviso challenged on the ground that the proviso, as it stands upon amendment to sub-clause (ii) to Section 8(a) of the KVAT Act through Finance Act 2009, is discriminatory and unconstitutional, for the reason that, by giving effect to the amendment, the works executed by the appellant awarded by the State Government, Kerala Water Authority (KWA) or local authorities pay tax higher than the tax payable by the other works contractors under sub-clause (ii). HELD THAT - This Court is of the view that the judgments relied on by both the counsel need not be referred to in extenso and burden the judgment with all the citations. Reference to the judgment of the Supreme Court in UNION OF INDIA ORS. VERSUS VKC FOOTSTEPS INDIA PVT LTD. 2021 (9) TMI 626 - SUPREME COURT would be sufficient to appreciate the law on constitution of a proviso in different circumstances. Proviso was dealing with the contractors executing works contracts of government, KWA and the local bodies. The contractors covered by the proviso, in the considered view of this Court, would continue to be relevant inasmuch as subclause (ii) does not include the contractors who are before the Court in the batch of appeals. The proviso, in the case on hand, could be interpreted both as a situation providing for the excepting of the application of subclause (ii) and/or, as noted by the Supreme Court, can also be treated as an independent provision. Either way, if it is construed as excepting something out of the enactment or qualify something enacted in subclause (ii) then the proviso is independently having scope and applicability in respect of contractors executing government works. The argument of the appellants, though not intended to import something into the enacting part, is definitely attempting to delete what is expressly provided by the proviso. The Court cannot read anything into a statutory provision that is plain and unambiguous. Similarly, a statute is an edict of the Legislature, the language employed in a statute is the determinative factor of legislative intent. The learned Senior Counsel appearing for appellants has submitted that the writ petitions were filed challenging the show cause notice issued by the authority. The challenge of the appellants since is not accepted, it is made clear that the appellants are subjected only to the tax payable under the proviso but not at any other rate. Special Government Pleader Mr Mohammed Rafiq submits that it is always open to the dealer to file a reply/explanation to the show cause notice and the issue would be considered in accordance with law. The challenge is, to some extent, on account of the contribution by the draftsman and to some extent in understanding the scope and area of operation of proviso by the appellants. Appeal dismissed.

Issues Involved:
1. Interpretation of proviso to Section 8(a) of the Kerala Value Added Tax Act, 2003 (KVAT Act, 2003).
2. Legality and constitutionality of the proviso to Section 8(a) of KVAT Act, 2003.
3. Discrimination in tax rates between government contractors and private contractors.
4. Competence of the State Legislature to legislate on value-added tax.
5. Applicability and scope of the proviso in relation to the main enactment.

Issue-wise Detailed Analysis:

1. Interpretation of Proviso to Section 8(a) of the KVAT Act, 2003:
The core issue revolves around the interpretation of the proviso to Section 8(a) of the KVAT Act, 2003. The appellants argue that the proviso, following the amendment introduced by the Kerala Finance Act, 2009, should not have an independent standing and should not expand the scope of the main section. The court, however, emphasizes the legislative intent and the proper function of a proviso, which is generally to except something out of the enactment or to qualify something within the enactment. The court refers to various judgments to underline that a proviso may serve multiple purposes, including acting as an exception or qualification to the main provision.

2. Legality and Constitutionality of the Proviso to Section 8(a) of KVAT Act, 2003:
The appellants challenge the proviso on the grounds of being illegal, ultra vires, and unconstitutional, particularly under Articles 14 and 19(1)(g) of the Constitution of India. They argue that the proviso results in discriminatory treatment by imposing a higher tax rate on contractors executing works for the Government of Kerala and local authorities compared to private contractors. The court, however, finds that the proviso is within the legislative competence and does not violate constitutional provisions. The court reiterates that the legislature has the authority to make necessary amendments and that the proviso does not lead to any arbitrary or discriminatory outcomes.

3. Discrimination in Tax Rates Between Government Contractors and Private Contractors:
The appellants contend that the proviso creates an unfair differential tax rate, with government contractors paying a higher tax rate of 4% compared to private contractors who pay 3%. The court acknowledges this differential but justifies it based on the legislative intent and the specific circumstances under which the proviso applies. The court notes that the proviso was introduced to address the unique situation of government contractors and their tax liabilities, and this differentiation does not amount to unconstitutional discrimination.

4. Competence of the State Legislature to Legislate on Value-Added Tax:
The court addresses the appellants' implicit challenge to the legislative competence of the State Legislature to enact and amend provisions related to value-added tax. The court affirms that the State Legislature is fully competent to legislate on matters of value-added tax, including making amendments and introducing provisos as necessary. The court emphasizes that the legislative intent and the specific wording of the amendments indicate a clear and deliberate legislative action.

5. Applicability and Scope of the Proviso in Relation to the Main Enactment:
The court discusses the scope and applicability of the proviso in relation to the main enactment, Section 8(a) of the KVAT Act, 2003. The court clarifies that the proviso applies specifically to contractors executing works for the Government of Kerala, Kerala Water Authority, and local authorities, and this application is consistent with the legislative intent. The court also highlights that the proviso can be interpreted both as an exception to the main provision and as an independent provision, depending on the legislative context and intent.

Conclusion:
The court concludes that the appellants' challenges lack merit and dismisses the appeals. The court upholds the validity and constitutionality of the proviso to Section 8(a) of the KVAT Act, 2003, and affirms the legislative competence of the State Legislature. The court emphasizes the importance of interpreting statutory provisions in light of legislative intent and established principles of statutory interpretation. The appeals are dismissed with no order as to costs.

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