Dismissing a batch of writ petitions, the High Court of Kerala has repelled the challenge to the constitutional validity of Section 174 of the Kerala Goods and Services Tax 2017 (KGST Act), which reserved the power to state to proceed against pre-existing liabilities under Kerala Value Added Tax Act 2003(KVAT).
The petitioners were assessees, who were issued notices for assessment, penalty, recovery etc. under KVAT 2003 in respect of financial years prior to the GST regime. They contended that the notices could not have been issued after the commencement of Constitution(101st) Amendment, which introduced the Goods and Services Tax.
According to them, after the Constitution(101st) Amendment with effect from September 16, 2016, state legislature was denuded of its power to legislate in respect of sales tax. The amendment substituted Entry 54 of List II of Seventh Schedule of the Constitution, which was the source of states' power to legislate in respect of sales tax. Section 19 of the Constitution Amendment Act said that all existing state laws imposing tax on goods and services will continue in force only for a period of one year from September 16, 2016, or until amended or repealed by a competent legislature, whichever is earlier.
The Kerala legislature enacted the KGST Act with effect from September 16, 2017, amending and repealing provisions of the KVAT Act. However, Section 174 of the KGST Act reserved the power of state to proceed against liabilities already incurred under KVAT Act. This section said, inter-alia, that any liability incurred under the KVAT Act and any investigation, inquiry, proceeding etc.in respect of any tax, fine, penalty, interest etc. under the KVAT Act will not be affected by its repeal.
The petitioners argued that state lacked the legislative competence to enact Section 174 after amendments were made to Article 246 and Entry 54, List II as per Constitution(101st) Amendment Act.
They contended that Section 174 revived the KVAT Act, by authorising authorities to issue notices under it, beyond September 16, 2017.
They further argued that Constitution Amendment Act was a repealing act as far as VAT laws were concerned. The general principles of savings under Section 6 General Clauses Act and Article 367 of the Constitution will not apply, as the amendment act itself provides for a transitional provision in the form of Section 19, they contended.
Rejecting the arguments, the Court held that state had the power to enact the saving provision, Section 174 KGST Act, despite the amendment to Entry 54, List II. The abrogation of a legislative entry, will not ipso facto lead to legislative denudation, observed Justice Dama Seshadri Naidu, the single judge who dealt with the batch of cases.
He held that the state independently derived power to enact the saving to enact Section 174 from the newly inserted Article 246A. The petitioners were found to be wrong in stating that the amendment took away the power of states completely; rather, Article 246A has given power to both states and centre, and both enjoy simultaneous powers.
"First, the State's legislative powers have not been taken away; they have been, on the contrary, constitutionally permitted to be shared with the Union Government. What is gone is the State's exclusivity. To the legislative fields of exclusivity and concurrency, what has been added is the simultaneity—novel as it may sound", observed Justice Naidu(para 181).
The judgment elaborated(para 183), as follows:.
"I am afraid it is a fallacy on the petitioners' part to contend that the State lacks the legislative power to enact Section 174 of the KSGST Act. Article 246A is the special provision (if it can be called a provision) on the Goods and Services Tax. It empowers, ... both the Union and the State, for the first time, to have simultaneous—not concurrent—powers to legislate on certain items",
In an earlier part of the judgment, Article 246 A was described a "unique federal feat", giving concurrent powers on both Parliament and the State Legislatures to enact on the same subject matter at the same time.
Referring to the precedents Synthetics and Chemicals Ltd vs State of UP.,and Bimolangshu Roy vs State of Assam, the judgment held that the power to legislate does not flow from a single Article of the Constitution. There are various other Articles in the Constitution which confer authority on the Parliament or on a State legislature to legislate, under various circumstances. A schematic examination of the entire constitution was necessary to understand sources of legislative powers.
Since state was found to have the power to enact Section 174 KGST, the discussion on arguments of the petitioners regarding inapplicability of principles of savings under General Clauses Act and Article 367 of the Constitution was held to be an "academic exercise".
While dismissing the petitions, the Court clarified that it has not dealt with the issue raised by some petitioners that the proceedings were time barred under KVAT .That issue will be dealt independently by the authorities, clarified the judgment.