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TMI Blog2017 (9) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... e net of tax in case sale has taken place within definition of Section 2 [23](d) of the GVAT Act. While considering the doctrine of pith and substance with reference to the State Legislation viz., Section 52 of the Act, one is to ascertain the true nature and character thereof by examining its object, scope and effect of its provisions and the legislation as a whole. If, on doing so, it appears that the State Legislation substantially falls within any Entry under List II of the Seventh Schedule to the Constitution, then in that case, such a State Legislation cannot be invalidated merely because it has incidentally dealt with some aspect already covered by a Central Legislation, relateable to any Entry under List I. As observed hereinabove, Entry 54 of List-II of Seventh Schedule authorizes and/or permits the State to legislate the law in respect of tax on sale or purchase of goods. Under the circumstances, in respect of anything with respect to tax on sale or purchase of goods, the State would have a legislative competence under Entry 54 of List II to Seventh Schedule. Such an “incidental encroachment” by the State Legislation into the exclusive field of the Central Legislation is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d show cause notices dated 4th February 2016 at Annexure A , B and C and any demand arising as a consequence of the said show cause notices. That, by way of amendment, the petitioners have also prayed for appropriate writ , order or direction, declaring Section 52 of the Gujarat Value Added Tax Act, 2003 [hereinafter referred to as, the VAT Act ] ultra vires the Constitution of India. 2. Facts leading to the present Special Civil Application in nutshell are as under : 2.1 It is the case of the petitioner-Transferee Company and so pleaded in the petition that the Passive Infrastructure Assets of Bharti Infratel Limited were transferred to Bharti Infratel Ventures Limited by virtue to Scheme of Arrangement, as approved by the High Court of Delhi vide its Order dated 29th March 2011. That, the demerger scheme was made effective from 1st January 2009. That, the Passive Infrastructure Assets of Vodafone Essar Gujarat Limited [now known as Vodafone West Limited] were transferred to Vodafone Essar Infrastructure Limited [now known as Vodafone Infrastructure Limited] by virtue of Scheme of Arrangement, as approved by the High Court of Gujarat vide Order passed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars of the said show cause notices are as under :- Sr. No. Name of the Company Show Cause particulars Annexure 1. Vodafone Infrastructure Limited Show Cause Notice/2015-16/Outward 2178/4-2-2016 A 2. Idea Cellular Towers Infrastructure Limited SKShri-3/Anve-Div-1/Show Cause Notice/2015- 16/Outward 2180/4-2- 2016 B 3. Bharti Infratel Ventures Limited SKShri-3/Anve-Div-1/Show Cause Notice/2015-16/ Outward 2181/4-2-2016 C 2.4 From the impugned show cause notices, the respondent no. 2 has sought to levy Value Added Tax under the VAT Act on the consideration received by the Merging Entities/Transferor Companies with respect to the transactions undertaken under the Indefeasible Right to Use Agreements [ IRU Agreement for short] with the Transferee Company. It appears that the Emerging Entities/Transferor Company had, by way of an indefeasible right to use agreement provided to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferee Company has submitted that a company, which is incorporated under the Companies Act, is a juristic person. It has a separate legal existence. It takes its birth and gets life with the incorporation and dies with the dissolution, as per the provisions of the Companies Act. It is a trite law that on amalgamation, the amalgamating company ceases to exist in the eyes of law for all purposes. Thus, in the present case as assessment upon a dissolved company is impermissible in terms of Section 52 of the Gujarat Value Added Tax Act, 2003 which creates a deeming fiction to such an extent wherein a Company is deemed to be in existence for the purpose of taxation under the VAT Act. It is submitted that Section 52 of the VAT Act being a State legislation, nullifies the effect of the Union Legislation ie. , the Companies Act and therefore, the same is ultra vires Article 246 of the Constitution of India. 5.1 It is submitted that the Union Legislation shall prevail over the State Legislation on a law which is enacted under List-I of Schedule VII of the Constitution of India. It is submitted that the Union Government is empowered to legislate and enact the laws on incorporation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sons Company Limited v. ITO , reported in [1997] 2 SCC 302. 5.5 Relying upon the aforesaid decision, it is submitted that a tax legislation viz. , Gujarat Value Added Tax Act, 2003 cannot resurrect the existence of a Company, as it lacks competence to do so. It is submitted that it would be an encroachment upon the powers of the Union Legislature, as envisaged under Article 246 of the Constitution of India. 5.6 It is submitted that the State Government cannot legislate on a subject which has been specifically covered under List-I of the Constitution. It is submitted that as per sub-clause [1] of Article 246 of the Constitution of India, which pertains to subject matter of laws made by the Parliament and by the Legislatures of the States, notwithstanding anything in Clauses [2] [3], the Parliament has exclusive power to make laws in respect of any of the matters enumerated in List I in the Seventh Schedule . It is submitted that as per subclause [2] of Article 246 of the Constitution, notwithstanding anything contained in Clause [3], the Parliament and subject to Clause [1], the Legislature of any State also, have power to make laws with respect to any of the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on behalf of the petitioner has submitted that in the case of Kalyan Janta Sahkari Bank Limited v. State of Gujara t [Manu/GJ/ 0113/2016], this Court has held that where the provisions of a Legislation made by the State Legislature is irreconcilable with the Central legislation occupying the field, then the laws made by the Union Legislature shall prevail, as the State enacted law cannot be obeyed without disobeying the Central legislation. 5.12 Making the above submissions and relying upon the above decisions, it is submitted by Shri Venkatraman, learned counsel for the petitioner- Transferee Company that Section 52 of the Gujarat Value Added Tax Act, 2003 is liable to be held ultra vires of the Constitution of India to the extent it is in contravention of provisions of the Companies Act, 1956. It is submitted that therefore, the deeming fiction created by Section 52 of the VAT Act cannot be stretched to such an extent where it can transgress to the field of Entry in List-I. It is submitted that, thus, Section 52 of the VAT Act cannot be given effect beyond the competence of State as it stands in that case, it would be beyond the powers conferred under Entry 54 of List II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e registration certificates of the merged entities were cancelled with effect from the appointed date of amalgamation, and hence, the assessment made under the VAT Act cannot sustain in absence of existence of the merged entities/transferor companies. It is submitted that,however, Section 52 of the VAT Act seeks to impose tax irrespective of the fact that the registration of the amalgamated companies stands canceled in conformity to the High Court order, which is not at all permissible. 6.5 In support of his above submissions, Shri N. Venkatraman, learned Senior Advocate has placed reliance upon a decision in the case of Saraswati Industrial Syndicate Limited v. CIT ., reported in 186 ITR 278; Marshall Sons Company India Limited vs. ITO , reported in [1997] 2 SCC 302 and Spice Entertainment Limited v. Commissioner of Service Tax , reported in 280 ELT 43. 6.6 Making above submissions and relying upon the above decisions, it is submitted that the issuance of impugned show cause notices to the merged entities/transferor companies which are not in existence is illegal, bad in law and liable to be quashed and set-aside. 7. Shri N. Venkatraman, learned counsel for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the interim period of the appointed date and the sanctioned date of amalgamation. It is submitted that a similar view has been taken by this Court in the case of Cadila Healthcare Limited v. Deputy Commissioner of Sales Tax , reported in [2013] 61 VST 274 as well as by the Andhra Pradesh High Court in the case of Jindal Stainless Steel [Jindal Strips Limited] vs. CTO Ors . [W.P No. 20861 of 2002] reported in [2007] 10 VST 777. Shri Venkatraman, learned counsel for the petitioners also placed reliance upon a decision in the case of Castrol India Limited v. State of Tamil Nadu [T.C No. 345 of 1997]. 7.3 Making the above submissions and relying upon the above decisions, it is submitted that in the present case, the transaction between the Transferor and Transferee companies from the appointed date to the date of the High Court order can be said to be inter branch transaction not exigible to value added tax under the Gujarat Value Added Tax Act, 2003. 8. It is further submitted by Shri N Venkatraman, learned counsel for the petitioners that even otherwise, the impugned show cause notices to the Merged Entities/Transferor Companies are without jurisdiction , as they a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by Entry 43 of List-I of the Seventh Schedule to the Constitution of India and that such an encroachment of a State Legislation into the exclusive field of the Central Legislation relateable to an Entry in List-I is not permissible. 9.1 Shri Trivedi, learned AG has submitted that in order to appreciate the aforesaid challenge of the petitioners, the relevant provisions of the GVAT Act and relevant entries of the Constitution are required to be analyzed/considered. He has referred to Entry 54 of List-II of Seventh Schedule to the Constitution as well as Entries 43, 44 92-A of List-I of Seventh Schedule to the Constitution. He has also referred to Section 2 [23] (d) and Section 52 of the Gujarat Value Added Tax Act. It is submitted that as per Clause [29A] of Article 366 of the Constitution of India, tax on the sale or purchase of goods includes tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration and includes tax on the transfer of property in goods involved in the execution of a works contract. 9.2 It is submitted by Shri Kamal Trivedi, learned Advocate General that though t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se both the Gujarat Value Added Tax Act, 2003 and the Companies Act, 1956 operate in different fields one is about levying tax on the sale and purchase of goods referable to Entry 54 of List II, and whereas, the Companies Act deals with incorporation, regulation and winding up of the companies, referable to Entry 43 of List I, and hence, no question of repugnance arisen between the two. 10.1 In support of his above submissions, Shri Trivedi, learned AG has relied upon decision of the Hon'ble Supreme Court in the case of Bharat Hydropower Corporation Limited v. State of Assam , reported in [2004] 2 SCC 553 [particularly paragraphs 18 to 23, 28 to 30 39]. Learned AG Shri Kamal Trivedi appearing on behalf of the respondent-State has also relied upon a decision of Hon'ble Supreme Court in the case of Hindustan Lever vs. State of Maharashtra , reported in [2004] 9 SCC 438. It is further submitted by Shri Kamal Trivedi, learned Advocate General that power to legislate includes incidental power to legislate for stopping evasion of tax, pilferage of tax, etc . It is submitted that the Constitutional Entries are required to be interpreted in the widest possible fas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e upon the following decisions of the Hon'ble Supreme Court. These are : [a] State of West Bengal vs. EITA India Limited , [2003] 5 SCC 239; [b] Commissioner of Income-tax, Delhi vs S Teja Singh AIR 1959 SC 352; [c] Industrial Supplies Pvt. Limited Anr . vs. Union of India Ors ., [1980] 4 SCC 341; [d] Assistant Commissioner of Agricultural Income Tax Ors . vs. Netley B Estate Ors ., [2015] 11 SCC 462. 12. It is further submitted by Shri Kamal Trivedi, learned Advocate General that the incidence of payment of rent in the present case by the petitioner- Transferee Company to the Transferor Companies during the period from 2009 to 2013 was nothing but a taxable event within the meaning of Section 7 of the GVAT Act, read with Section 30 of the said Act, followed by requirement of filing of monthly returns as per Section 29 of the GVAT Act read with Rule 19 of the Gujarat Value Added Tax Rules, 2006, which event has already been occurred and completed in the present case prior to passing of the sanction order dated 18th April 2013 of amalgamation, and therefore, subsequent adjudication of taxability having already been incurred on the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng effect is not real but an artificial one only for the purpose of GVAT Act and that therefore, the same cannot amount to any encroachment in the field of Central legislation ie ., the Companies Act, 1956. It is submitted that thus, the objective behind introduction of Section 52 is obvious ie., to stop pilferage of tax in respect of an admitted taxable event and taxability having already been occurred and completed prior to amalgamation order. 14.2 Shri Kamal Trivedi, learned AG added that even similar provision is there in the Maharashtra Value Added Tax Act, 2002 ie ., Section 47. 15. Therefore, it is submitted that the decisions relied upon by learned advocate for the petitioners viz. , [a] Marshall Sons Company India Limited v. ITO , [1997] 2 SCC 302; [b] Saraswati Industrial Syndicate Limited v. CIT ., 1990 [Suppli.] SCC 675; [c] Spice Entertainment Limited v. Commissioner of Service Tax , 2012 [280] ELT 43; [d] Cadila Healthcare Limited v. Deputy Commissioner of Sales Tax , [2013] 61 VST 274 [Guj]; [e] Re : Takshshila Realities Private Limited ; [f] Indus Towers Limited v. Deputy Commissioner of Income Tax , [Decided on 11.11.2014 : Delhi High Court]; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent petition by upholding the validity of Section 52 of the GVAT Act and thereby, the legality of the show cause notices by holding that Section 52 of the GVAT Act is neither unconstitutional nor ultra vires the Constitution; as contended by the petitioners. 17. Heard learned advocates appearing on behalf of the respective parties at length. 18. Now so far as challenge to the constitutional validity of Section 52 of the Gujarat Value Added Tax Act, 2003 is concerned, it is the case on behalf of the petitioners that Section 52 of the GVAT Act is ultra vires Articles 246 252 of the Constitution of India in asmuch as, the State Government while enacting the said Section, encroached upon the field exclusively covered by the Parliament in regard to Entry 43 of List-I of Seventh Schedule to the Constitution of India, whereby the State Legislature has provided the statutory fiction to deem the Merging Companies ie ., the Operator Companies/Transferor Companies as alive as distinct companies, even though the same have become extinct after their amalgamation in the petitioner-Company with effect from 1st April 2009 [ie., Appointed Date] vide amalgamation order sanctioned by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd only with a view to see that there may not be any zero tax liability either of the Operating Companies or Transferor Companies and Transferee Company, Section 52 of the Act has been enacted by which for the purpose of GVAT Act, two or more Companies [Transferor Company Transferee Company] shall be treated as distinct companies for all the purpose upto the date of amalgamation/merger. Therefore, the aforesaid provision can be said to be only for the purpose of tax liability under the GVAT Act and it cannot be said to be in any way affecting the provisions of Sections 391/392 of the Companies Act and/or the same cannot be said to be encroaching upon the powers of the Parliament to enact the Law under Entry 43 or 44 of List I of the Seventh Schedule. By enacting Section 52 of the GVAT Act, it cannot be said that the State Legislature has encroached upon any of the powers of the Parliament under List I of Seventh Schedule of the Constitution of India. 18.4 There cannot be any dispute that the Union Legislation shall prevail over the State Legislation on a later enacted under List I of Seventh Schedule of the Constitution. However, while considering powers of the State to enact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... validity of Section 4[1](b) of the Rajasthan Relief Undertakings [Special Provisions] Act, in para 10 of its decision rendered in the case of M/s. Jaysynth Dyechem Ors. vs. Mewar Textile Mills Limited [Supra], the Rajasthan High Court has observed and held as under :- 10. Coming to the main contention raised by the learned counsel for the petitioners, I may mention that if any law made by the State Government touches the domain of the Central Legislature or any law made by the Central Legislature touches the domain of the State legislature, then in that situation, the Court is called upon to look to the substance of the law and determine the question as to whether the enacted law as such falls in which entry and the doctrine of pith and substance would come into play and having regard to this doctrine, the controversy has to be resolved. It is true that by S.4(1)(b) pending winding up proceeding are affected. If this provision applies then the pending proceeding shall stand stayed and, new proceedings shall not be instituted or commenced and to that extent, it can be said that the provision touches the winding up of companies falling within entry 43. The question is, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and in the first schedule in item 23(i), there is mention of the industry, Textiles (including those dyed, printed or otherwise processed) made wholly or in part of cotton including cotton yarn, hosiery and rope. Thus, it would appear that the law falling under entry 33 would be within the competence of the Central Legislature as well as the State legislature. Similarly entry 23 of List III of Schedule seventh deals with social security and social insurance employment and unemployment. The object of the Act is to prevent unemployment. The true character of the legislation made by the State legislature is to make law in relation to the subjects falling under entries 23 and 33 although incidentally, it also just impinges upon the proceeding of winding up, which are regulated by the Companies Act, enacted by the Parliament under entry 43 of List I. This is only the incidental effect and it is not the true nature of the law. 18.8 It is also required to be noted that even otherwise, Section 52 of the GVAT Act and the provisions of the Companies Act, 1956 both operate in different fields. Section 52 of the GVAT Act is about levy of tax on sale and purchase of goods referable to E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion where one cannot be obeyed without disobeying the others. Both the Acts can operate simultaneously as they do not occupy the same field. As the enactments operate in two different fields without encroaching upon each other's field, there is no repugnancy. 18.12 Similar view has been taken by the Hon'ble Supreme Court in the case of Hindustan Level v. State of Maharashtra [Supra], wherein, while upholding the constitutional validity of the provisions of the Bombay Stamp Act, 1958, referable to Entry 63 of List II, and while considering whether the same is repugnant against the Companies Act, 1956, referable to Entry 43 of List I, in para 42 of the judgment, the Apex Court has observed as under :- 42. It was next contended that provisions of Section 2 [g](iv) read with Section 34 of the Bombay Stamp Act which provide that an instrument not duly stamped would be inadmissible in evidence are repugnant to Section 394 of the Companies Act and that the State legislation cannot prevail over the provisions of the Companies Act. It was also contended that in the guise of stamp duty, the State Legislature is in reality imposing a tax on the amalgamation of compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the GVAT Act and not for the purpose of any other legislation, much less for the Companies Act, 1956. Therefore, on amalgamation, the Transferor Companies from the date of passing of the order of the High Court cannot be said to have been resurrected and/or revived, as it becomes extinct under the Companies Act, after amalgamation. However, for the purpose of recovery of already accrued taxability, the statutory fiction has been introduced so as to give full effect to the provisions of the GVAT Act and there cannot be any zero tax liability. The deeming fiction contained in sub-section [1] and [2] of Section 52 of the GVAT Act is for the purpose of avoidance of tax and is for the purpose of stopping pilferage of tax with reference to taxable event already occurred and completed prior to amalgamation. It is required to be noted that the deeming fiction flowing from Section 52 of the Act is only with respect to GVAT Act only and not for any other purpose and/or Act affecting in any way the order of amalgamation passed by the High Court under the provisions of the Companies Act, 1956. The deeming effect shall be only for the purpose of recovery already occurred tax liability. 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as proved, unless and until it is disproved, or may call for proof of it; but the expression shall presume implies, whenever the Evidence Act says that the court shall presume a fact, it shall regard such fact as proved, unless and until it is disproved. The statutory presumption incorporated in Explanation to sub-section (1) of Section 11 is in the nature of the second category of presumption. The deeming provision embodied in the Explanation does not extend the meaning of sale to every disposal of goods. It is attracted when a transporter or an owner or a lessee of a warehouse is unable to account for the disposal of goods; the fact of disposal of the goods in question having been established, the statutory presumption which is rebuttable presumption, would apply and the disposal of goods shall be deemed to be by way of sale;-it will be open to such a person to rebut the presumption. Raising of such rebuttable presumption is a normal legislative practice and no invalidity can be attributed to the same. It will be wholly misconceived, in our view, to treat the statutory presumption incorporated in the Explanation as extending the definition of sale in clause 29-A of Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be with respect to the provisions of the GVAT Act only and for the purpose of recovery of tax and/or liability of the tax under the GVAT Act and as observed hereinabove, the same is absolutely within the State legislative competence under Entry 54, List II of Seventh Schedule to the Constitution of India. 21. The decision of the Hon'ble Supreme Court in the case of Marshall Sons Company Limited v. ITO [Supra] is concerned, there cannot be any dispute with respect to the proposition of law laid down by the Apex Court, however, the same shall not be applicable to the facts of the case on hand; more particularly, considering Section 52 of the GVAT Act. As observed hereinabove, neither Section 52 of the GVAT Act cannot be said to be an encroachment upon the powers of the Union Legislation, as envisaged under Section 246 of the Constitution nor the same can be said to be in conflict with the provisions of the Companies Act, 1956. Therefore, the decision of the Hon'ble Supreme Court in the case State of West Bengal Ors. vs. Committee for Protection of Democratic Rights, West Bengal Ors . [Supra] as well as UCO Bank Ors. vs. Dipak Debbarma Ors. [Supra] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Companies shall be cancelled, where necessary with effect from the said order dated 18th April 2013. Thus, the deeming effect flowing from sub-sections [1] [2] of Section 52 of the GVAT Act is only for the purpose of GVAT Act and not for the purpose of any other legislation, much less for the Companies Act, 1956. For the purpose of recovery of already accrued taxability, accrued for the period between the appointed date and the date of the order of the High Court of amalgamation, the statutory fiction has been introduced so as to give full effect and with a view to see that because of such an eventuality, there may not be any zero tax liability, though the tax event has already taken place and otherwise the merged entities were liable to pay the tax. Thus, the deeming effect is for the purpose of stopping any pilferage of tax by seeking to recover tax with reference to taxable event which had already occurred and completed prior to such amalgamation. Therefore, for the aforesaid and for such a deeming effect, there is no need for any amendment in the Constitution, like what was done for deeming certain non-sales transactions as sale transaction by amending Article 366 [29-A] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall not be applicable to the facts of the case on hand, as the Division Bench was dealing with the provisions of Income-tax Act, where such a provision like Section 52 of the GVAT Act was not there. 25.2 Reliance placed upon a decision of Andhra Pradesh High Court in the case of Jindal Stainless Steel [Jindal Strips Limited] v. CTO Ors ., [2007] 10 VST 777 by the learned counsel for the petitioners shall not be applicable to the facts of the case on hand, more particularly, considering Section 52 of the GVAT Act, which is held to be valid. 26. Considering the aforesaid facts and circumstances of the case, it cannot be said that the notices issued upon the Merging companies with respect to tax event/taxing liability accrued or arisen between 1st April 2009 to 18th April 2013 can be said to be illegal and/or contrary to the provision of the GVAT Act. At this stage, it is required to be noted that for the period between 1st April 2009 to 18th April 2013, the inter se transactions between the transferor companies and the transferee company were otherwise taxable, in view of Section 2 [23](d) of the GVAT Act. But for the amalgamation of the transferor companies with the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue would be to make one assessment on the Transferee Company taking into account the income one assessment on the Transferee Company and also to make separate protective assessments on both the Transferor and Transferee Companies separately. There may be a certain practical difficulty in adopting this course inasmuch as separate balance sheets may not be available for the transferor and transferee companies. But that may not be an insuperable problem in as much as assessment can always be made, on the available material, even without a balance sheet. In certain cases, best judgment assessment may also be resorted to. Be that as it may, we need not pursue this line of enquiry because it does not arise for consideration in these cases directly. 27.1 Under the circumstances, the decision of this Court in the case of Takshila Realities Private Limited [Supra] and the decision of Delhi High Court in the case of Indus Towers Limited [Supra] relied upon by the petitioners cannot be said to be applicable to the facts of the case on hands. 28. In view of the above and for the reasons aforestated, it is held that Section 52 of the Gujarat Value Added Tax Act cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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