Constitutional Validity of Amended Section 29 of Punjab Value Added Tax Act, 2005

The State of Punjab on 15-11-2013 vide Punjab Value Added Tax (Second Amendment) Act, 2013 Amended Section 29 of the Punjab VAT Act, 2005 where by time period for framing Assessment was raised from Three years to Six years. The amendment can be understood from the table below:

The above said amendment to Section 29(4) was challenged before the Hon’ble High Court in case of Amrit Banaspati Company Ltd Vs State of Punjab in CWP No. 21811 of 2014 with other connected petitions which were decided by the Hon’ble High Court on 07-08-2015.

The Hon’ble High Court upheld the Constitutional Validity of the amended Section 29(4) in entirety and dismissed the writ petitions. The basic grievances of the petitioners were that the Amendment of Section 29(4) was prospective and not retrospective. To this the Hon’ble High Court held that the opening part of the Section cannot be read alone and when entire section is read along with the proviso and the explanations it removes all doubt that the Section is retrospective. The Hon’ble Court held that the words ‘shall also apply to those cases in which the aforesaid period of six years has not yet expired’ in explanations clears the intention of legislature of giving retrospective effect to the section.

The petitioners also relied upon the Section 1 of the Punjab Value Added Tax (Second Amendment) Act, 2013 which stated that Act shall come into force on and with effect from the date of its publication in the official gazette i.e. 15.11.2013. However the Hon’ble High Court negated this argument of the petitioners and by quoting the Judgment of the Hon’ble Supreme Court where in the Hon’ble Apex Court has held that Commencement of the Act can be different than the operation of the Act. The Hon’ble High Court following the judgment held that there is a difference between the date on which the Act came into force and the date with effect from which the provisions thereof operate. The Hon’ble Court held that Legislature has the power to enact the laws, including laws dealing with taxation, with retrospective effect.

Another challenge was to the provisions of Section 29(10-A) which was enacted to overcome the two Judgments of the Hon’ble High Court in case of:

(1) A. B. Sugars Limited v. The State of Punjab and others 2010(29) VST 538 (P&H) where in the Hon’ble High Court read into the provision the principles of natural justice and held that that although the Commissioner was empowered to extend the period of limitation, he had to record the reasons for passing the order granting extension of time and he could not arrive at valid and acceptable reasons unless he afforded the assessee an opportunity of being heard.

(2) State of Punjab through Commissioner, Bathinda v. M/s Olam Agro India Ltd. 2013(46) PHT 194 (P&H) where in it was held that power of extension cannot be invoked without affording the assessee an opportunity of being heard. The Division Bench referred to Rule 86 of the Punjab Value Added Tax Rules, 2005 which provided the manner of serving notices namely, by hand and through courier to the addressee or to any agent duly authorized by him or to a person regularly employed by the addressee in connection with the business in respect of which he is registered as a person and by e-mail. The Hon’ble Court quashed the assessments being barred by limitation.

The Petitioners contended that the amendments do not cure or remove the defects and do not validate the defective action and infact over rules the judgments of this Court which is impermissible. It was further argued that the amendments tantamount to reversing the decision of this Court in exercise of judicial powers which the legislature does not possess. The petitioner submitted that the ineffective or invalid clause had not been removed and therefore, the validation of the acts which would have been illegal in view of the said judgments cannot be said to have been validated.

The Hon’ble Court while answering this question held that when the Parliament gives its own meaning or interpretation to a provision it does not encroach upon the Courts’ domain to interpret the laws enacted by it but infact interprets the provisions by giving it its own meaning by legislative fiat. Parliament could have done so originally. It can do so subsequently by an amendment both prospective and retrospective. The court further held in Para 43 of the Judgment.

“43. The original proviso was construed by this Court as requiring a notice to be served upon the assesse for the Commissioner to decide whether or not to allow assessment of a taxable person or a registered person after three years from the date when the annual statement was filed or was due to be filed by the assessee. The basis of this judgment has been neutralized. The legislature has given its own meaning and interpretation of Section 29 prior to the amendment. This it has done by explanation (2) to sub section (4) of Section 29 and by sub section (10-A) of Section 29.

44. Explanation (2) clarifies that prior to the commencement of the Amendment Act, the Commissioner was not required to issue notice to the concerned person before extending the limitation period of assessment. We do not read this clarification as a declaration that the judgments were wrong. The legislature has by legislative fiat given its own interpretation of the law and made it binding upon the Courts. It was sufficient for the legislature to enact only a clarificatory amendment. By doing so, the legislature has not overruled the judgments of this Court. It has removed the basis on which the judgments were delivered.

45. In A.B.Sugars Ltd. case the Division Bench held that the rules of natural justice must be read into the proviso to Section 29. This was in view of the fact that the proviso was silent on the issue and the rules of natural justice were not excluded either expressly or by necessary intendment. By explanation (2) and sub section (10-A) of the amended Section, the basis of the judgment has been nullified by providing that it was not necessary for the Commissioner to give any notice to extend the time for making the assessment.

The legislature has given its own meaning or interpretation of the original proviso. By doing so it has not merely declared that the decisions of this Court shall not bind the parties concerned. By giving its own meaning or interpretation to section 29, the legislature does not merely state that the section did not mean what the Courts said it meant but has furnished its own meaning and interpretation of the section and has made that meaning and interpretation applicable retrospectively. By virtue of the amendment, therefore, the judgments of this Court have not been reversed. The basis on which the judgments were delivered has, however, been removed.”

The petitioners also contended that as per Rule 47 of the PVAT Rules, 2005 the time period for keeping the books of accounts had expired for the years 2006-07 & 2007-08 and they may not have preserved the books beyond the period that they were statutorily bound to. The petitioners argued that if in respect of these assessment years, a notice is given for assessment, and they would be unable to produce the books. In that event, they may be subjected to a best assessment for no fault of theirs which is unfair, arbitrary and unduly excessive.

The Hon’ble Court held that this may well be a difficulty in the way of an assesse but it is not an insuperable difficulty as to render the enactment unconstitutional. The Hon’ble Court by giving marginal relief to the petitioners held that

“If the books are not available because they were destroyed or are otherwise unavailable to the assessee prior to the amendment, it would always be open to the assessee to bring this to the notice of the Assessing Authority who must take the same into consideration. It would be open to the assessee to take this factor as a defence and a justification for not having preserved the books. Obviously, in such cases, an adverse inference cannot be drawn against the assessee.”

The Hon’ble High Court by dismissing these petitions gave time of four weeks to the petitioners to adopt the appropriate proceedings and restrained the respondents in cases where assessment orders have already been passed from taking coercive steps till 21.09.2015.

The only remedy left with the petitioners is to File an SLP before the Hon’ble Supreme Court of India challenging the judgment of the Hon’ble High Court and in cases were the department will press for recovery of tax stay on recovery of demand can be obtained from the Hon’ble High Court of Punjab & Haryana by challenging the vires of Section 62(5) of the PVAT Act, 2005.

(Author: Varun Chadha (Advocate), Taxation Consultant Off: 3, Shastri Market-II, Jalandhar City. Ph: +91-9872200724 E-mail: [email protected])