Telangana High Court Holds Telangana Value Added Tax (Second Amendment) Act, 2017 To Be Unconstitutional

The division bench of Chief Justice Ujjal Bhuyan and Justice P. Madhavi Devi has observed that the intention of Parliament in ushering in the GST regime through the Constitution Amendment Act, enactment of the CGST Act and simultaneous enactment of various State GST Acts by the State Legislatures was to avoid a multiplicity of taxes by subsuming those indirect taxes into a single tax called GST. However, the amendments brought in by the Second Amendment Act were wholly inconsistent with the scheme of the Constitution Amendment Act read with the CGST Act and the TGST Act.

The petitioners have challenged the constitutionality of the Telangana Value Added Tax (Second Amendment) Act, 2017. The petitioners contended that the Telangana Value Added Tax (Second Amendment) Act, 2017 is ultra vires the Constitution of India and thus unconstitutional.

The petitioner has contended that all notices and orders issued on the strength of the extended period of limitation of six years in terms of the amendment Act should be declared as illegal, null and void and quashed accordingly.

The Telangana Legislature enacted the Telangana Value Added Tax (Second Amendment) Act, 2017. It received the assent of the Governor on November 29, 2017 and was first published in the Telangana Gazette on December 2, 2017. The Telangana Value Added Tax (Second Amendment) Act, 2017 has been enacted to further amend the VAT Act. As per Section 1(2), the Telangana Value Added Tax (Second Amendment) Act, 2017 has come into force with effect from 17.06.2017.

The basic thrust of the Second Amendment Act was to extend the limitation of four years to six years. Accordingly, in Section 20 (4) and in Section 21 (3), (4), (6), (7) and (8), the words "four years" or "four years or six years" have been substituted by the words "six years".

The petitioners contended that the State of Telangana was denuded of legislative competence to enact the Second Amendment Act after the Constitution (101st Amendment) Act, 2016 and after the enactment of the CGST Act and TGST Act.

The petitioner contended that the assessment order was dated March 31, 2015. Therefore, the revisional order ought to have been passed within four years, i.e., on or before 30.03.2019, in terms of Section 32 (2) of the VAT Act. However, the revisional order was passed on 14.09.2020, which is beyond four years but within six years.

The petitioner contended that the amendment was not valid in the eyes of the law as it was made after the GST regime had come into effect. Therefore, the extended period of limitation of six years instead of four years was not available to the Deputy Commissioner.

The petitioner contended that the amendment was carried out during the GST regime, lacking legal sanctity, which has been denied. The impugned notice and revisional order were passed within the limitation period of six years. Therefore, those are legal and valid.

The department contended that Telangana State was competent to promulgate the Ordinance on 17.06.2017 and thereafter to pass the Second Amendment Act on 02.12.2017 in respect of goods not covered by amended Entry 54 of List II. Power and competence of the state are traceable to Article 246 of the Constitution read with Section 19 of the Constitution Amendment Act; the savings provision; and Sections 8 and 8A of the Telangana General Clauses Act, 1891.

The department contended that the state is only securing and protecting the revenue due to it by enlarging the duration by which the dealers can be assessed etc., but not imposing any new tax or levy. Legislation being a sovereign function of the state, the Second Amendment Act cannot be questioned as being without competence.

"We may also look into the intention of Parliament in enacting the Constitution Amendment Act. This is because it would give us a clear idea as to why the Constitution Amendment Act was brought about and why the Second Amendment Act cannot be sustained by being completely inconsistent with the scheme of the Constitution Amendment Act and being denuded of its legislative competence," the court said.

The court set aside the notices issued and orders passed under Section 32 (3) of the VAT Act.

Case Title: M/s. Sri Sri Engineering Works and others Versus The Deputy Commissioner (CT), Begumpet Division, Hyderabad, and others.

Case No: Writ Petition No. 7893, 9550, 16527, 16853, 16896, 16903 Of 2020, 494, 7128, 7054, 9622, 10046, 11414, 11996, 12778, 15215, 15822, 15841, 15853, 15942, 17095, 17102, 17314, 17988, 18258, 20079, 20710, 20788, 21542, 22651, 22940, 23336, 23386, 24282, 25561, 27294, 27533, 28797, 29743, 32129, 32373, 32653, 32697 and 34054 OF 2021

Citation: 2022 LiveLaw (Tel) 66 

Dated: 05.07.2022

Counsel For Appellant: Advocates S.Ravi, S.Dwarakanath, S.R.R. Viswanath, V.Bhaskar Reddy, Shaik Jeelani Basha, Karan Talwar, G.Narendra Chetty, A.V.A.Siva Kartikeya, P.Karthik Ramana, B.Srinivas, Tej Prakash Toshniwal, Pasam Mohith and Venkatram Reddy Mantur

Counsel For Respondent: Advocate General B.S.Prasad, with K. Raji Reddy

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