State Amendments Made To VAT Acts After GST Came Into Effect Are Invalid : Supreme Court

A Division Bench of the Supreme Court, while deciding the appeals arising from judgments of Telangana, Gujarat and Bombay High Court with respect to the validity of VAT Amendment Act in their respective states, made several significant findings regarding Section 19 of the Constitution (101st Amendment) Act (Amendment), 2016, which allowed the introduction of the Goods and Services Tax.Inter-alia, the issue was about the legislative competence of the State enactments after 01.07.2017 i.e. beyond the time period prescribed in Section 19. This provision provided the time limit of one year to amend the laws, related to tax on goods and services, in conformity with the express terms of the Amendment. It may be noted that the GST regime came into effect from 01.07.2017. Based on facts and circumstance, the Bench of Justices S Ravindra Bhat and Aravind Kumar., held:“The amendments in question, made to the Telangana VAT Act, and the Gujarat VAT Act, after 01.07.2017 were correctly held void, for want of legislative competence, by the two High Courts (Telangana and Gujarat High Court). The judgment of the Bombay High Court is, for the above reasons, held to be in error; it is set aside; the amendment to the Maharashtra Act, to the extent it required pre-deposit is held void.”While in the case of Telangana and Gujarat, the concerned states had appealed aggrieved by the judgments as the amendments introduced were struck down however, in Maharashtra’s case, since the impugned amendment was upheld by the Bombay High Court, the appellants were assesses. The Court also noted:“Section 19 of the Constitution (101st Amendment) Act, 2016 and Article 246A enacted in exercise of constituent power, formed part of the transitional arrangement for the limited duration of its operation, and had the effect of continuing the operation of inconsistent laws for the period(s) specified by it and, by virtue of its operation, allowed state legislatures and Parliament to amend or repeal such existing laws.,” Brief Background of Relevant Provisions It may be recalled that the Amendment introduced a fundamental re-ordering of the constitutional premise of taxation by the Union and State Governments in India and to enable the introduction of the Goods and Services Tax (GST).Since this present case broadly deals with the interpretation of Section 19 of the Amendment Act, it is imperative to understand the same. The same reads as follows:“19. Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier.”Thus, Section 19 provided that laws relating to tax on goods or services or both “in force in any state immediately before the commencement of the amendment Act shall continue to be in force until amended or repealed by a competent legislature or other competent authority.” The other eventuality was that with or without such amendments such laws were to be in force only for a period of one year from the commencement of the amendment. Factual Background Telangana The facts in relation to this State are such that the local VAT Act was amended after the Amendment was introduced. The VAT amendment was through an Ordinance, and was brought into force on 17.06.2017, i.e. 13 days before the time granted by the 101st Amendment Act, i.e. one year. This ordinance, continued till the State Legislature enacted it. The Governor then assented to the law, and it came into force on 02.12.2017. The amendment sought to extend the period of limitation, and permitted to re-open assessments. Feeling aggrieved, many traders and VAT payers approached the Telangana High Court, challenging the amendments to the local VAT Act.By the impugned judgment, the High Court accepted the challenge and struck it down, on various counts, including that the State had limited scope to amend its VAT Act, which in terms of Section 19 of the Amendment could have done it only to bring it in conformity with the amended Constitution. Other reasons included that the ordinance, could not have been confirmed, as the state was denuded of legislative competence after 01.07.2017. State’s Stance It was sought to be argued that once the State Legislature approved the ordinance and enacted the amendment, in conformity with it, the provisions of the Ordinance became part of the act. The question of legislative competence would not arise, because the mere confirmation of an ordinance is within the competence of the State legislature.Gujrat In the Gujarat batch of cases, Section 84A was introduced in the Gujarat Value Added Tax Act, 2003 by the Gujarat Value Added Tax (Amendment) Act, 2018, gazetted on...

State Amendments Made To VAT Acts After GST Came Into Effect Are Invalid : Supreme Court

Gyanvi Khanna

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