Case Law Details
Sheen Golden Jewels (India) Pvt. Ltd. Vs State Tax Officer (IB)-1 (Kerala High Court)
Kerala High Court held that proceedings initiated under Kerala Value Added Tax Act, 2003 (KVAT Act) after prelude of GST is valid on the basis of proceedings covered by the savings clause of section 174(2) of the Kerala State Goods and Services Tax Act, 2017 (KSGST Act).
Facts-
The writ petitioners are the appellants. We refer to the appellants as ‘Dealer’ and respondents as ‘Revenue’ for consistency in referring to the parties.
This Court, in this common judgment, would be considering the challenge to Section 174(2) of the Kerala State Goods and Services Tax Act, 2017 (short ‘KSGST Act’). In the WA Nos.747/2019, 1061/2019, 1146/2019 analysis of these jurisprudential and constitutional issues, we will advert to a few Sections in the Constitution (101st Amendment) Act, 2016 (for short ‘CAA 2016’); Kerala Value Added Tax Act, 2003 (for short ‘KVAT Act’); The General Clauses Act, 1977 (for short ‘GC Act’); the Constitution of India (for short ‘Constitution’); and the Kerala Interpretation of Statutes and General Clauses Act, 1897 (for short ‘KGC Act’). With effect from 01.07.2017, by Article 246A of the Constitution, the levy of tax on the supply of goods or services or both are made by the Centre and States depending on the exigible event. We would preface our consideration of issues with a short prelude on GST.
Conclusion-
Held that the State Legislature is competent to enact Section 174(2) of the KSGST Act. The consequence of such a conclusion is that clauses in Section 174(2) are within the competence of the State Legislature. To escape the saving clause’s effect, the arguments noted above are canvassed. In our view, the argument proceeds on the assumption that with the repeal of the KVAT Act, an absolute right in favour of Dealers erasing and effacing every legal obligation under the KVAT Act has been attracted. The purpose of savings is intended to have certainty on initiation, enquiry, etc., even after the repeal is given effect.
Our view is that the rolling over to the GST regime does not automatically liquidate the obligations fastened on the Dealers and rights and functions conferred on the machinery to enforce the obligation or liability said to have been occasioned under the KVAT Act. The absence of initiation of any proceeding before 16.09.2017 is not a criterion at all in the scheme of the KVAT Act. With the applicable saving clause, what is required in law is that when steps for reassessment etc., are taken up, those steps conform to the limitation covered by the applicable Section under the KVAT Act.
The migration to GST is not an amnesty given to defaulting dealers from paying the tax due under the KVAT Act. The self-assessment and the best judgment concepts are kept in perspective while assuming a right in favour or discharge of a legal obligation by a dealer. Juxtaposing the legal obligations under the KVAT Act fastened on a dealer or how the obligation could be said to have been discharged, we are of the considered view that the Revenue/State has not disentitled itself from enforcing its right to recover the defaulted tax or tax dues under the KVAT Act arising before 01/07/2017.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The writ petitioners are the appellants. The Writ Appeals are directed against the common judgment dated 11.01.2019 in W.P.(C) Nos.11335/2018 and batch. A few of the Writ Appeals are independently disposed of following the common judgment dated 11.01.2019. We refer to the appellants as ‘Dealer’ and respondents as ‘Revenue’ for consistency in referring to the parties.
2. This Court, in this common judgment, would be considering the challenge to Section 174(2) of the Kerala State Goods and Services Tax Act, 2017 (short ‘KSGST Act’). In the WA Nos.747/2019, 1061/2019, 1146/2019 analysis of these jurisprudential and constitutional issues, we will advert to a few Sections in the Constitution (101st Amendment) Act, 2016 (for short ‘CAA 2016’); Kerala Value Added Tax Act, 2003 (for short ‘KVAT Act’); The General Clauses Act, 1977 (for short ‘GC Act’); the Constitution of India (for short ‘Constitution’); and the Kerala Interpretation of Statutes and General Clauses Act, 1897 (for short ‘KGC Act’). With effect from 01.07.2017, by Article 246A of the Constitution, the levy of tax on the supply of goods or services or both are made by the Centre and States depending on the exigible event. We would preface our consideration of issues with a short prelude on GST. Goods and Services Tax
3. The GST is a tax on goods or services or both with a comprehensive and continuous chain of benefits from the producers and service providers’ level up to the retailer level. The GST is essentially a tax on value addition at each stage, and, at each stage, a supplier of goods or services is permitted to avail set off through a tax credit mechanism. The GST paid on purchasing goods and services is available for set off on the GST to be paid on the supply of goods and services. In this chain of events, the final consumer will thus bear the GST charged by the last dealer in the supply chain, with a set of benefits at all the previous stages. Quoted from the Select Committee report 2015: “GST is a value-added tax levied across goods and services. The GST regime intends to subsume most indirect taxes under a single taxation regime. The broad objectives of GST are to widen the tax bills, eliminate cascading of taxes, increase compliance through lowering the overall tax burden on goods and services, and reduce economic distortions caused by inter-State variations in taxes levied and collected. ‘By doing away with latent or embedded taxes, it would provide leeway for the competitiveness of domestic industry vis-à-vis imports and in international markets. Unifying the tax structure across States, the new tax regime scheme would pave the way for a common national market for goods and services”. Selective and precise words could simplify the concept of GST, but implementation, as experience disclosed, is an arduous task.
4. The new tax proposed as GST needed a substantial overhaul of several indirect tax legislations operated both by the Centre and the States coupled with essential amendments to the Constitution to achieve the above objectives within the existing federal structure of the Constitution and division of fiscal powers between the Centre and the States. The new regime of GST is an amalgamation of several Union and State levies on the supply of goods or services or both, implemented as One Nation, One Tax. The proposal to introduce ‘One Nation One Tax’ through the GST regime encompasses a host of indirect taxes levied by the Centre and the States. The Empowered Committee of State Finance Ministers has designed the road map for implementing GST. Finally, on 19.12.2014, CAA Bill 2014 was introduced in the Lok Sabha. On 06.05.2015, the CAA Bill was passed by the Lok Sabha. The Rajya Sabha referred the Bill to the Select Committee and had the advantage of the Select Committee’s report dated 22.07.2015. Finally, on 03.08.2016, the Bill was passed by Rajya Sabha with the amendment suggested by the Select Committee, and on 08.08.2016, the amended Bill was passed by the Lok Sabha, later the States ratified the amendment, resulting in the assent of the President of India on 08.09.2016. On 08.09.2016, CAA 2016 was notified in the Gazette of India.
5. The constitutional amendments carried out through the CAA 2016 have conferred sufficient power and legislative competence to both the Parliament and the States to levy tax on the supply of goods or services or both. The summary of amendments made to the Constitution is as follows:
“(i) Articles inserted: 246A, 269A, 279A, 366 (12A), 366 (26A).
(ii) Articles amended: 248, 249, 250, 268, 269, 270, 271, 286, 368, Schedule VI, Schedule VII, List I, Entry 84; List II. Entries 54 and 62.
(iii) Articles omitted: 268A, Schedule VII, List I, Entries 92 & 92C; Schedule VII List II, Entries 52, 55.”
6. Brevity is, of course, the soul of wit. But the economy should never be carried to such an extent as to sacrifice clarity. We are brief and concise in narrating the events touching upon questions of considerable importance.
7. Article 246-A is the most important Article, which in the present constitutional scheme of levy of taxes on goods and services, enables the Parliament and the State Legislatures to make laws concerning the goods and Services tax imposed both by the Union and the respective States.
8. On 22.06.2017, the State of Kerala promulgated the KSGST Ordinance. On 16.09.2017, KSGST Act was enacted by the State Legislature. On 16.09.2017, the KSGST Act received the assent of the Governor and is operational in the State of Kerala with effect from 01.07.2017. The legislative process undertaken by the State Legislature has repealed a few laws and amended the provisions. The debate in the batch cases is not on the competence of the State Legislature to repeal or amend the KVAT Act etc., but the crux of the matter is the competence of the State Legislature to enact a saving provision in Section 174(2) of the KSGST Act in purported compliance with the mandate of Section 19 of the CAA 2016. We find it convenient to excerpt the Section at this stage of our discussion. Section 174 of the KGST Act reads thus:
“174. Repeal and saving.—(1) Save as otherwise provided in this Act, on and from the date of commencement of this Act,—
(i) the Kerala Value Added Tax Act, 2003 (30 of 2004) except in respect of goods included in entry 54 of the State List of the Seventh schedule to the Constitution including the Goods to which the Kerala General Sales Tax Act, 1963 (15 of 1963) is applicable as per the provisions of the Kerala Value Added Tax Act, 2003 (30 of 2004);
(ii) the Kerala Tax on Entry of Goods into Local Areas Act, 1994 (15 of 1994);
(iii) the Kerala Tax on Luxuries Act, 1976 (32 of 1976); and
(iv) the Kerala Tax on Paper Lotteries Act, 2005 (20 of 2005) (hereinafter referred to as the repealed Acts) are hereby repealed.
(2) The repeal of the said Acts and the amendment of the Acts specified in section 173 (hereinafter referred to as “such amendment” or “amended Act”, as the case may be) to the extent mentioned in sub-section (1) or section 173 shall not,— (a) revive anything not in force or existing at the time of such amendment or repeal; or
(b) affect the previous operation of the amended Acts or repealed Acts and orders or anything duly done or suffered thereunder; or
(c) affect any right, privilege, obligation, or liability acquired, accrued or incurred under the amended Acts or repealed Acts or orders under such repealed or amended Acts:
Provided that any tax exemption granted as an incentive against investment through a notification shall not continue as privilege if the said notification is rescinded on or after the appointed day; or
(a) affect any tax, surcharge, penalty, fine, interest as are due or may become due or any forfeiture or punishment incurred or inflicted in respect of any offence or violation committed against the provisions of the amended Acts or repealed Acts; or
(c) affect any investigation, inquiry, verification (including scrutiny and audit), assessment proceedings, adjudication and any other legal proceedings or recovery of arrears or remedy in respect of any such tax, surcharge, penalty, fine, interest, right, privilege, obligation, liability, forfeiture or punishment, as aforesaid, and any such investigation, inquiry, verification (including scrutiny and audit), assessment proceedings, adjudication and other legal proceedings or recovery of arrears or remedy may be instituted, continued or enforced, and any such tax, surcharge, penalty, fine, interest, forfeiture or punishment may be levied or imposed as if these Acts had not been so amended or repealed;
(f) affect any proceedings, including that relating to an appeal, revision, review or reference, instituted before, on or after the appointed day under the said amended Acts or repealed Acts and such proceedings shall be continued under the said amended Acts or repealed Acts as if this Act had not come into force and the said Acts had not been amended or repealed.
(3) The mention of the particular matters referred to in section 173 and sub-sections (1) and (2) shall not be held to prejudice or affect the general application of section 4 of the Interpretation and General Clauses Act, 1125 (Act VII of 1125) with regard to the effect of repeal.
(4) The Kerala Goods and Services Tax Ordinance, 2017 (11 of 2017) is hereby repealed.
(5) Notwithstanding the repeal of the Kerala Goods and Services Tax Ordinance, 2017 (11 of 2017), anything done or any action taken under the said Ordinance, shall be deemed to have been done or taken under this Act.”
9. The Revenue, in purported exercise of saving power granted by Section 174(2) of the KSGST Act read with Section 25(1), Section 42(3), or Section 67 of the KVAT Act 2003, issued notices proposing to reopen the assessments of the Dealers, as the case may be for best judgment, penalty etc. To complete the narrative for invoking the writ jurisdiction of this Court, we note the very undisputed instances adverted to in the judgment under appeal and thus avoid repetition of these circumstances.
10. The dealers challenge the notices and orders of assessment/penalty as illegal and without jurisdiction. The Dealers question the competence of the State Legislature and the constitutional validity of Section 174(2) of the KSGST Act. The impugned judgment considered, in all fours, the concepts of legislative competence under Articles 246, 246A, Article 265, the idea of repeal and saving of provisions by the legislation, transitional provisions, and the sunset clause, and rejected the writ prayers. Hence the Writ Appeals.
11. We have heard the learned Counsel, P B Krishnan, A Kumar, K P Abdul Azeez, and Bobby John. The other learned counsel appearing for the appellants have adopted the arguments without burdening the Court with repetitive submissions. We have also heard the learned Special Government Pleaders (Taxes), Mohammed Rafiq, Senior Government Pleader V K Shamsudheen and Government Pleader M M Jasmine for the State.
12. The learned Counsel advanced detailed and exhaustive arguments touching upon the concepts or issues considered in the impugned judgment. A host of citations is relied upon and commended for our consideration in interpreting the Entries in List II of the Seventh Schedule, Section 19 of the CAA 2016 etc. Before we cut out the task in the batch of appeals, we reckon the view of Justice Learned Hand on interpretation “that the theory of legal interpretation is discussed interminably and often so obscurely leaves even the most intelligent readers, or especially the most intelligent readers, befuddled”. [See Learned Hand proceedings in commemoration of 50 years of federal judicial service]. So, the question then posed is why would we add to the number? We do not intend to engage in interminable discussion.
13. Far from proposing yet another novel approach, we remind ourselves of the oldest and most common sensical interpretative principle “In their full context, words mean what they convey to reasonable people at the time they were written…………….. ” With the understanding that general terms may embrace the innovative and path-breaking amendments made to the Constitution and the State Legislations.
14. We appreciate the arguments of the counsel appearing for both parties, and the job is not simple. But carefully analysed and appreciated, the relevant enquiry in the batch of appeals is pretty straightforward. Principles of interpretation guide solving the puzzle of textual meaning, and as in any good mystery, different clues often point in different directions. It is rare that each side does not appeal to a different cannon to suggest its discerned outcome. As Judges, the skill of sound construction lies in assessing the clarity and weight of each clue and deciding where the balance lies.
(i) The presumption against ineffectiveness is presumed in favour of competence follow inevitably from the circumstances that interpretation always depends on context.
(ii) context always includes evident purpose, and
(iii) evident purpose always includes effectiveness.
15. Set in this background, the arguments of learned counsel, are classified as follows:
Legislative competence
15.1 Article 246, read with unamended Entry 54 of List II of the Seventh Schedule of the Constitution, conferred legislative competence on the State to enact KVAT Act, 2003. In the scheme of things in operation before 09.07.2017, by operation of Section 98 of the KVAT Act 2003, a few of the products and incidences covered by the Kerala General Sales Tax Act, 1963, are saved. The dynamics of legislation, as noted above, could be preserved during the working of the KVAT Act, for Entry 54 of List II of the Seventh Schedule was available to the State Legislature till 16.09.2016.
15.2 CAA 2016 omitted and substituted Entry 54 covering six specified goods: petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption. Consequently, all other goods are out of Entry 54 of List II of the Seventh Schedule. The contemporaneous power to tax by the State Legislature relates to Article 246-A of the Constitution. The result is that the State Legislature does not have the ability to legislate the saving clause in Section 174(2) of the KSGST Act, as the saving clause deals with tax on the purchase or sale of goods. Article 246-A is a simultaneous power to legislate on the supply of goods and services but not on the sale and purchase of goods exercised simultaneously by the Parliament and the State Legislature. Therefore, Article 246-A is unavailable to the State Legislature to justify legislation of Section 174(2) of the KSGST Act.
15.3 Section 19, a transitional provision in CAA 2016, has two facets, namely that the laws inconsistent with the provisions of the Constitution as amended by CAA 2016 shall continue to be in force (a) until amended (b) or repealed by a competent legislature or other competent authority, secondly ‘until the expiration of one year from such commencement, namely 16.09.2016. Being so, the scheme of repeal and savings taper beyond any of the limitations prescribed by Section 19 of CAA 2016. Therefore, Section 174(2) of the KSGST is unconstitutional.
15.4 The State Legislature does not have the competence to make laws on savings. Article 246-A confers legislative competence and not a field by referring to which the State Legislature could have the power to continue collecting taxes beyond 17.09.2017 under the KVAT Act.
15.5 Section 19 confers on the State Legislature the power of repeal. In the absence of power from the Constitution or Section 19 of the CAA 2016, the State Legislature lacks the competence to enact Section 174(2)- Saving Clauses. The power to legislate was derived from Article 246, read with unamended Entry 54 of List II of the Seventh Schedule of the Constitution. By the amendment and substitution of Entry 54 of List-II, the Legislature is denuded of competence to legislate saving provisions.
16. The declaration in Article 265 of the Constitution insists that legislative competence must exist at all stages of the levy, i.e. making law, assessment/quantification and recovery. The competence to legislate is examined when the State Legislature exercises the power to legislate. Section 19 of CAA 2016 enables the Legislature to repeal laws inconsistent with the amended provisions of the Constitution. The saving provision in Section 174(2) in effect is incompatible with the amended provisions of the Constitution. The amendment will not survive the sunset period of one year provided by Section 19 of CAA 2016.
16.1 With effect from 17.09.2017, KVAT Act is a dead enactment; Section 174 cannot revive KVAT Act. Since no notice before 16.09.2016 is issued, no proceedings can be stated to have been pending as of 15.09.2016, and issuance of notice or order etc., after 16.09.2017 is unavailable to State and illegal. Hence, no demand could be enforced without initiation and determination of tax liability before 16.09.2016.
16.2 The saving clause does not distinguish between vested, accrued, and acquired rights and proceeds to protect the powers and functions of the repealed enactment.
16.3 The jurisdiction or right of Revenue to proceed under Sections 25, 42 and 67 is a mere right available on the date of repeal, and it is not a right accrued to continue to enquire or investigate the omissions and commissions allegedly made by the dealer under the VAT regime. Tax, as per returns, if paid, then is a case of no tax due. What remains to be carried out is to assess to tax the returns already filed, and no vested or accrued right to reopen the assessment or reassess the tax liability is available. In the preface to our deliberation, we have referred to Learned Hand on interpretation. The catena of citations is filed in the compilations, but a few citations are relied on.
17. The learned counsel for the Dealers in support of the two contentions, namely that the State Legislature firstly lacks the competence to enact Section 174(2) of the KGST Act and secondly, that the saving clause in Section 174(2) either under Section 6 of Interpretation and General Clauses Act (Kerala) cannot survive to live beyond 16.09.2017 have placed reliance on a few citations.
18. Before embarking upon the applicability of the cited judgments and the ratio laid down to the question on hand, we refer to what constitutes a binding precedent, ratio decidendi, and obiter dicta of the judgments. The provisions for interpretation in the batch of appeals arise under CAA 2016, the Articles of Constitution, and provisions of the KSGST Act. In more than one sense, the Articles/provisions of law we examine are unique to the standard scheme of things under the Constitution before 08.09.2016, i.e., the day on which both Houses of Parliament passed CAA 2016.
19. In Islamic Academy of Education v. State of Karnataka1, 1 (2003) 6 SCC 697 the Supreme Court, in paragraph 2 of the judgment, held that:
“The ratio decidendi of a Judgment has to be found out only on reading the entire Judgment. In fact the ratio of the judgment is what is set out in the judgment itself. The answer to the question would necessarily have to be read in the context of what is set out in the judgment and not in isolation. In case of any doubt as regards any observations, reasons and principles, the other part of the judgment has to be looked into. By reading a line here and there from the judgment, one cannot find out the entire ratio decidendi of the judgment.”
In the same judgment, on the interpretation of a judgment, Their Lordships of the Constitution Bench have laid down the criteria and, to say briefly, the dos and don’ts a Judge, the Court, while relying on the judgment, must keep in perspective. As is expected of a translator to translate precisely and convey the full same meaning, we follow the ruling by excerpting the following paragraphs.
“Interpretation of a Judgment :
139. A judgment, it is trite, is not to be read as a statute. The ratio decidendi of a judgment is its reasoning which can be deciphered only upon reading the same in its entirety. The ratio decidendi of a case or the principles and reasons on which it is based is distinct from the relief finally granted or the manner adopted for its disposal. [See Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa v. N.C. Budharaj LRs (2001) 2 SCC 721]
140. In Padma Sundara Rao. v. State of T.N. (2002) 3 SCC 533, it is stated: (ISCC p.540, paragraph 9)
“There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morris in Herrington v. British Railways Board ((1972) 2 WLR 537) [Sub nom British Railways Board v. Herrington, (1972) 1 All ER 749 (HL)]). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases.”
[See also Haryana Financial Corporation v. Jagadamba Oil Mills (2002) 3 SCC 496]
141. In General Electric Co. v. Renusagar Power Co (1987) 4 SCC 137, it was held:
“As often enough pointed out by us, words and expressions used in a judgment are not to be construed in the same manner as statutes or as words and expressions defined in statutes. We do not have any doubt that when the words “adjudication of the merits of the controversy in the suit” were used by this Court in State of U.P. v. Janki Saran Kailash Chandra (1973) 2 SCC 96, the words were not used to take in every adjudication which brought to an end the proceeding before the court in whatever manner but were meant to cover only such adjudication as touched upon the real dispute between the parties which gave rise to the action. Objections to adjudication of the disputes between the parties, on whatever ground are in truth not aids to the progress of the suit but hurdles to such progress. Adjudication of such objections cannot be termed as adjudication of the merits of the controversy in the suit. As we said earlier, a broad view has to be taken of the principles involved and narrow and technical interpretation which tends to defeat the object of the legislation must be avoided.”
142. In Rajeshwar Prasad Mishra v. The State of West Bengal reported in AIR 1965 SC 1887, it was held:
” Article 141 empowers the Supreme Court to declare the law and enact it. Hence the observation of the Supreme Court should not be read as statutory enactments. It is also well known that ratio of a decision is the reasons assigned therein.”
(See also Amar Nath Om Prakash v. State of Punjab (1985) 1 SCC 345 and Hameed Joharan v. Abdul Salam (2001) 7 SCC 573).
143. It will not, therefore, be correct to contend, as has been contended by Mr. Nariman, that answers to the questions would be the ratio to a judgment. The answers to the questions are merely conclusions. They have to be interpreted, in a case of doubt or dispute with the reasons assigned in support thereof in the body of the judgment, wherefor, it would be essential to read the other paragraphs of the judgment also. It is also permissible for this purpose (albeit only in certain cases and if there exist strong and cogent reasons) to look to the pleadings of the parties.
144. In Keshav Chandra Joshi v. Union of India [1992 Supp (1) SCC 272], this Court when faced with difficulties where specific guidelines had been laid down for determination of seniority in Direct Recruits Class II Engineering Officers’ Association v. State of Maharashtra, (1990) 2 SCC 715 , held that the conclusions have to be read along with the discussions and the reasons given in the body of the judgment.
145. It is further trite that a decision is an authority for what it decides and not what can be logically deduced therefrom. [See Union of India v. Chajju Ram (2003) 5 SCC 568]”
20. District Mining Officer v. Tata Iron and Steel Co,2 a precedent cited for the Dealers, was dealing with a batch of cases related to the levy and demand of Cess and other taxes on minerals (Validation Act 1992). The question considered by the Apex Court was whether, by the Validation Act 1992, what has been validated is only the taxes on minerals already realized under the invalid law or the right to levy tax and which became due up to 04.04.1991. In the said background, the Supreme Court has held as follows:
“At this stage, it would be appropriate to discuss the provisions of Article 265 of the Constitution and its impact on the interpretation of the Validation Act. Under Article of the Constitution, no tax shall be levied or collected except by authority of law. It is thus explicit that not only the levy, but also the collection of a tax must be under the authority of some law. The authority of law refers to a valid law which in turn would mean that the tax proposed to be levied must be within the legislative competence of the legislature, imposing the tax and the law must be validly enacted, I must not also contravene the specific provisions of the Constitution and the tax in question must be be authorised by such valid law. The expression “levy and collection” are used in Article 265 in a comprehensive sense and are intended to include the entire process of taxation commencing from taxing statute to the taking away of the money from the citizen. What the Article enjoins is that every stage in this entire process must be authorised by the law. This being the position, in the case in hand, several tax legislations enumerated in the Schedule to the Validation Act having been declared ultra vires, on the ground that the State Legislature had not the legislative competence to make the legislation, there existed no authority of law for making any levy or collection of tax and cesses on minerals. The Parliamentary intervention by enacting the Validation Act and giving it retrospective effect and making the law existed till 04.04.91.”
21. The ratio decidendi laid down in Tata Iron and Steel Co. cannot be applied to the circumstances in which the competence of the State Legislature to incorporate Section 174(2) of the KSGST Act could be considered. To point out a few distinguishing circumstances concerning the argument of the Counsel, we note that Tata Iron and Steel Co. case dealt with the Validation Act necessitated by the judgment in P. Kannadasan v. State of Tamil Nadu3. The Parliament enacted the Cess and other taxes on minerals (Validation Act 1992). The question considered by the Supreme Court principally was whether an act, after being declared invalid to the extent enabled by the Validation Act, still under the enactment said as invalid, the State Governments could continue to collect taxes under an invalid law. The circumstances in the case on hand are distinguishable, and we believe that the principles enumerated in Tata Iron and Steel Co. case do not apply to the question on hand.
22. State of Utter Pradesh v. Seth Jagmander Das4 deals with the continuation of prosecution under Section 120-B of IPC read with Rules 81(4) and 121 of the Defence of India Rules. The glaring circumstance in Seth Jagmander Das case is that the respondents were prosecuted for the alleged infringement of Section 2 of the Non-Ferrous Metals Control Order, 1942, during the years 1943-1945. The respondents in the reported judgment were not prosecuted till 16.01.1950. The respondents challenged the initiation and continuation of prosecution for offences under the Defence of India Act, and the Rules framed thereunder expired or repealed by the Constitution of India. It is in this background that Their Lordships noted that “when a Statute is repealed or comes to an automatic end by efflux of time, no prosecution for acts done during the continuance of the repealed or expired Act can be commenced after the date of its repeal or expiry because that would amount to the enforcement of a repealed or a dead Act”.
23. The counsel, though, have laid much emphasis on the view mentioned above of the Hon’ble Supreme Court, the argument misses the very next line, which reads that “In cases of the repeal of Statutes this rule [i.e., the Central Rule stated above] stands modified by Section 6 of the General Clauses Act”. The Supreme Court has considered that the Central Legislature passed the “Repealing and Amending Act, 1947 (Act 2 of 1948)”. Among other Acts and Ordinances repealed was Ordinance 12 of 1946. The Supreme Court recorded that when the Defence of India Act itself could be said to be repealed by Act 2 of 1948 and had not expired by efflux of time, this saving clause undoubtedly permitting prosecution for offences was also dead. The foremost question for consideration is the scope and, purpose, effect of Section 19 of CAA 2016 during and post the currency of its validity. Hence, we consider that the said judgment, from the mere narration of the circumstances therein, is distinguishable and not applicable to the propositions for which it relied on.
24. A Division Bench of Gujarat High Court in Ravi Electronics v. Assistant Commercial Tax Commissioner (2), Enforcement5 was considering a challenge to the notices issued by the Sales Tax Department of the State of Gujarat for reopening previously closed assessments. To wit, the dealer for the Financial Year 2003-04 filed the returns under Gujarat Sales Tax Act, 1969. On 05.03.2012, notice impugned in the reported judgment was issued to reopen the assessment between April 1, 2003, and March 31, 2004. The Division Bench considered the scheme of provisions such as the power of reassessment, reopening, penalty, suo motu revision etc., under the Gujarat Sales Tax Act. The VAT Act retains a provision for the reassessment of previously closed assessments. In such circumstances, the central question is whether such a modified time limit would apply to all cases that were not instituted when the Sales Tax Act was repealed and the VAT Act was enacted.
24.1 Answering the said question, the Gujarat High Court held:
“a mere right to take advantage of the provisions of a Act is not an ‘accrued right’. In the present case, it may be that when the Sales Tax Act was in operation, it was open for the authorities to reopen an assessment previously framed within eight years from the end of the period to which the escaped turnover related, subject to the Commissioner having a view that the dealer had concealed sales etc. That mere right to issue notice cannot be equated with any accrued or acquired right. Correspondingly, it cannot be said that in the absence of any notice having been issued, the assessees had any obligation or liability which they acquired, accrued or incurred for being subjected to reopening of the assessment as per the old provisions”.
24.2 The narrative in Ravi Electronics is distinguishable in appreciating the right/liability, accrued rights and vested rights between the Dealer and the Revenue under the KVAT Act. It would be narrated at the appropriate stage of the judgment.
25. Yet another judgment on which the counsel for the Dealers places strong reliance is Associated Cement Company Limited v. Commercial Tax Officer, Kota,6 arising under the Rajasthan Sales Tax Act, 1954 and the Central Sales Tax Act, 1956. The circumstances leading to the controversy in the said case are that the assessee did not include in the taxable turnover, in the returns filed by the assessee, the amount of freight paid in respect of the goods sold under the bona fide impression that the amount of freight did not form part of the sale price and was not includable in the taxable turnover of the assessee. Whether freight is to be included in the taxable turnover of a dealer or not became no more res Integra with the judgment in Hyderabad Asbestos Cement Products Limited v. State of Andhra Pradesh7. While answering this controversy, the dissenting judgment of Hon’ble Mr Justice Bhagwati, as he then was, held that the tax payable is ascertained when the Assessing Authority makes the assessment under Section 10 or when the assessee himself quantifies it through the process of self-assessment under sub-section (2) of Section 7. The dissenting judgment, it is argued, has been accepted by the Supreme Court in subsequent judgment. So, the argument proceeds that the tax-determined point is crucial for taking any step by the Department post 16.09.2017.
26. We have perused the judgments commended to us during the hearing. As an illustration, we have taken out three of the strongly relied-on judgments and explained how the judgments are distinguishable and cannot be applied in all fours to the controversy on hand. We refrain from explaining further how the other judgments relied on by the counsel appearing for the Dealers are distinguishable, and the inapplicability of those precedents to the singular controversy in hand would be sufficiently clear when we take up the core questions for consideration in the following paragraphs:
Section 19 of CAA 2016
27. A Statute can be said to be either perpetual or temporary. It is perpetual when no time is fixed for its duration, and such a Statute remains in force until its repeal, which may be expressed or implied. But a Statute is temporary when its course is for a specified time, and such a Statute expires on the expiry of the time specified unless it is repealed earlier.
27.1 Hence from the above, the argument proceeds that Section 19 of CAA 2016 is operational or in force for one year i.e., from 16.09.2016 to 16.9.2017. Either plain construction or cardinal Rule of Interpretation, it cannot be said that the steps authorized to be taken by the Legislature to repeal or amend would lapse with the expiry of one year period. The amendment or repeal carried out ex post facto to the date of coming into operation the Goods and Services Tax regime should not be in contradiction with the law made by the Parliament by the CAA 2016.
28. The leading authority on the point is the case of Steavenson v. Oliver8. The Supreme Court has applied these principles in State of Orissa v. Bhupendra Kumar Bose9:
“Applying the ratio of the aforesaid case, the case in hand and in view of our conclusion earlier as to the true object and import for which the Validation Act had been enacted by the Parliament, giving the life to a State Law till to 4th April 1991, it is not possible for us to hold that any right can be said to have been created in favour of the State of an enduring nature which could be enforced even after the expiry of the life of the Act itself.”
The argument referring to the above dictum of the Supreme Court is that Section 19 is a temporary provision in CAA 2016. The provision and the enabling part of that provision would have a life of one year from 16.09.2016.
29. The discussion raises the following questions for consideration.
(i) Whether Section 174(2) of the KSGST Act is ultra vires; beyond the legislative competence of the State Legislature and contrary to Section 19 of CAA 2016?
(ii) Whether Section 174(2) of the KSGST Act confers a right or a vested right or accrued right to proceed to reopen assessments for enforcing the legal obligation/liability arising before 16.09.2016 or not?
30. Before one arrives at 08.09.2016, when the CAA 2016 was enacted, resulting in Constitutional Amendments, a few milestones in the journey of bringing into existence tax on the supply of goods and services from the Value Added Tax regime are noted:
30.1 The Empowered Committee of State Finance Ministers, through their report dated 30.04.2008, had submitted the final version of the model and roadmap for the GST. The burden of multiple taxations under the Central Excise Act and the General Sales Tax Act etc. was felt, resulting in the introduction of VAT. Before the introduction of VAT, any commodity produced, inputs into the commodity were taxed and then after the commodity got produced with input tax load, output was taxed again. The Nation needed to lessen the burden on multiple taxations with a cascading effect. With the introduction of VAT in place of Central Excise Duty, a set-off is given, and a deduction is made from the overall tax burden for input tax. VAT was introduced in place of the General Sales Tax levy. A set-off is given from the tax burden, not only for input tax paid but also for the tax paid on previous purchases. Though the VAT regime is stated to have provided success vis-à-vis indirect taxes on manufacturers, sellers, agriculturists, and consumers, it has been felt at the federal level of our confederacy that the Value Added Tax in operation still had a few shortcomings.
31. By choice, we refrain from narrating the shortcomings noted in the VAT regime for migration to One Nation One Tax or GST. But the idea for rolling on to the GST regime is that the introduction of GST at the Central/State level will comprehensively include more or all indirect Central taxes and integrate Goods and Service Taxes for the set-off levy. In the GST regime, the cascading effects on VAT and Service Tax are removed with set-off, and a continuous chain of set-off from the original producer’s point and service provider’s point up to the retailer’s level is established, which reduces the burden of all cascading effects. This is the essence of GST, which is why GST is not simply VAT plus Service Tax but an improvement over the previous VAT and disjointed Service Tax system.
32. A roadmap prepared for introducing the GST regime in the Country is a dual GST structure with defined powers, functions and responsibilities on the Centre and the States. The provided mechanism ensures the exercise of legislative power and the smooth working of the dual taxation system: one levied by the Centre as the Central GST and the other imposed by the State as the State’s GST on the supply of goods or services or both.
33. It is essential that to exercise such power, the States are conferred with the power to levy taxes on all services. The power of levy of service taxes has been with the Centre. The constitutional amendment proposed must ensure a harmonious structure of GST and that the State’s autonomy in the federal framework under our Constitution is kept intact. The State Governments have distinct and different responsibilities assigned under the Constitution, and augmentation of revenue through indirect taxes is one of the essential requirements for ensuring the State’s autonomy in a federal system. The bargain, as we in retrospect appreciate, is that the Centre gives a few concessions in favour of the State. A few reciprocal accommodations between the Centre and the States are accepted to introduce GST, which would enable both the State and the Centre to levy tax on the supply of goods or services or both, and, in effect, legislative competence to both the Centre and States is conferred by the constitutional amendments.
Thereby, several indirect taxes are subsumed into GST, resulting in CGST and SGST on the supply of goods and services. The narrative is necessitated for dealers’ arguments assume that in the bargain of concurrent power to levy tax on the supply of goods and services, the State Legislatures have been denuded of power under the KVAT, post 01.07.2017 even for the alleged legal obligation arising before the introduction of GST. This we will consider in detail a little later in our judgment.
35. The conspectus of pre and post-amendments to the Constitution has been very well tabulated in the judgment under appeal. For continuity, we prefer to excerpt the very same tabular statement, which reads thus:
| Before Amendment | After Amendment | Impact | |
| 246A | Not existing | Introduced | Special provision on goods and services tax conferring simultaneous legislative powers on both the Union and the States. |
| 248 | Residuary power | Amended | The Union’s residuary legislative power is subjected to Article 246A. |
| 249 | Power of Parliament to legislate regarding a matter in the State List in the national interest | Amended | It gives power to the Parliament to enact any law applicable to states on the matters mentioned even in states list. GST, not mentioned in States list, is now explicitly mentioned. |
| 250 | Power of Parliament to legislate regarding any matter in the State List if a Proclamation of Emergency is in operation | Amended | It has a similar impact as does the amended Article 249 |
| 268 | Duties levied by the Union but collected and appropriated by the States | Amended | Additional Duties of Excise (Medicinal and toilet preparations) stand subsumed into GST. |
| 268A | Service tax levied by Union and collected and appropriated by the Union and the States: | Omitted | Service Tax has been subsumed into GST. So Entry No. 92C of List-I too stands omitted. |
| 269 | Taxes levied and collected by the Union but assigned to the
States |
Amended | The arrangement under Article 269 is subjected to Article 269A, a new provision. |
| 269A | Not existing | Inserted | Levy and collection of goods and services tax during inter-State trade or commerce.
The power to levy and collect GST during interState trade or commerce is vested with the Government of India. The taxes so collected will be apportioned between the Union & the States in a manner prescribed. |
| 270 | Taxes levied and distributed between the Union and the States. | Amended | Now Article 268A and Entry No. 92C of List-I stand omitted; so service tax is subsumed under GST. So in Article 270, a reference to Article 268A has been omitted, and a new reference to Article 269A for levy of GST for Inter-state transactions has been introduced. |
| 271 | Surcharge on certain duties and taxes for purposes of the Union | Amended | Parliament’s powers to levy an additional surcharge on Union taxes under Article 271 now stands amended:
Parliament can levy no additional surcharge on GST. |
| 279A | Not existing | Inserted | Provision for creating the GST Council, a constitutional body. |
| 286 | Restrictions on the imposition of tax on the sale or purchase of goods | Amended | First, the word “sales” is replaced with “supply”, and the word “goods” is replaced with “goods or services or both”
States cannot legislate on the supply of goods or services if such supply is outside their state or is in the course of import or export. Originally, States could not levy and collect tax on specific Interstate transactions. With omitting Clause (3), now even inter-state transactions of that nature would attract GST. |
| 366 | Definitions | Inserted | Three definitions have been added to the Constitution: (12A) Goods and Services Tax; (26A) Services; and (26B) State. |
| 368 | Power of Parliament to amend the Constitution and procedure therefore | Amended | As regards provisions and laws regarding GST Council, Parliament has been vested with the power to amend the Constitution. |
| Sixth Schedule. | Provisions on the Administration of Tribal Areas in the States of Assam, Meghalaya, Tripura, and Mizoram
8. Powers to assess and collect land revenue and to impose taxes. |
Amended | It concerns powers to assess and collect land revenue and to impose taxes in the Tribal Areas of a few States. |
| Seventh Schedule | |||
| List I: Entry 84 |
Barring those excluded, the Union could levy excise duty on all other goods, including tobacco, manufactured or produced in India. The excluded ones are these: (a) alcoholic liquors for human consumption; (b) opium, Indian hemp, and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance in subparagraph (b). | Amended | Now excise duty is levied only on the enumerated items:
(a) petroleum crude; (b) high-speed diesel; (c) motor spirit (d) natural gas; (e) aviation turbine fuel; and (f) tobacco and tobacco products.” |
–
| Entry 92 | Taxes on the sale or purchase of newspapers and on advertisements published. | Omitted | Now, taxes on the sale or purchase of newspapers and on advertisements published therein have been subsumed into GST. |
| Entry 92C | Taxes on services. | Omitted | Service tax has also been subsumed into GST. |
| List II Entry 52 | Taxes on the entry of goods into a local area for consumption, use or sale therein. | Omitted | Purchase tax, too, has been subsumed into GST. |
| Entry 54 | Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I.
(Entry 92A of List I concerns inter-State trade or commerce.) |
Amended | |
| Entry 55 | Taxes on advertisements other than advertisements published in the newspapers and advertisements broadcast by radio or television. | Omitted | Taxes on advertisements other than advertisements broadcast by radio or television has also been subsumed into GST. |
| Entry 62 | Taxes on luxuries, including taxes on entertainments, amusements, betting, and gambling. | Amended | (a) Taxes on Luxury, betting, and gambling have been subsumed into GST.
(b) Right to levy Tax on entertainments and amusements has been restricted to Panchayats, Municipalities, Regional Councils, and District Councils. |
Consideration
Point No.(i) Whether Section 174(2) of the KSGST Act is ultra vires, beyond the legislative competence of the State Legislature and contrary to Section 19 of CAA 2016?
35. The preceding paragraphs narrated the history and roadmap for implementing GST and Constitutional/ Statutory amendments made by the Parliament and the State Legislature.
35.1 On 16.09.2016, the CAA 2016 Gazette and consequential amendments in the Constitution have become effective. On 22.06.2017, the State of Kerala promulgated Kerala State Goods and Services Act, Ordinance No.11/2017. KSGST Act, by repealing the Ordinance, was notified on 16.09.2017 [Act 20 of 2017]. The steps envisaged by Section 19 are taken within one year from 16.09.2016. The argument on legislative competence rests on the alleged overshooting of the legislative measure taken in Section 174(2) of the KSGST Act beyond one year. The consideration of the core issue turns upon the interpretation of Section 19 of CAA 2016.
35.2 The sheet anchor of the arguments for the Dealers is that lack of competence to legislate Sec 174 (2) of KSGST Act.
(i) On 22.07.2015, the report of the Empowered Committee of State Ministers was taken forward, leading to the passing of the CAA Bill 2014 by the Parliament and on 03.08.2016 by the Rajya Sabha and the amendments made by the Rajya Sabha were accepted by the Parliament On 06.09.2016.
(ii) On 16.09.2016, notification of CAA 2016 was issued. The result of enactment and notification is that Article 246-A was inserted after Article 246.
(iii) The other amendments are tabulated in paragraph … and for the present purpose, the amendments to Article 268-A, Article 269-A and Article 366(12) are noted along with amendment of the Seventh Schedule List I and List II. Entry 84 of List I is substituted.
(iii) Entry 52 of List II was omitted, and Entry 54 was substituted by the amending entry.
(iv) By operation of Section 19 of CAA 2016 and with effect from 16.09.2016, the law relating to tax on goods or services or both in any State as of 15.09.2016, which is inconsistent with the amended provisions of the Constitution shall remain in force:
(a) until amended by a competent legislature or other competent authority
(b) until repealed by a competent legislature or other competent authority, or
(c) until the expiration of one year from such commencement.
35.3 The argument is that on 22.06.2017, KSGST Ordinance was promulgated, followed by KSGST Act. The State Legislature, in purported power of legislation available under Article 246-A, enacted KSGST Act. Article 246, read with Entry 54, does not provide for competence or authority to make any law relating to tax on goods or services. The competence traceable to unamended Entry 54 is no more available with the coming into force of Section 19 of CAA 2016. Therefore, the legislative mechanism through Section 174(2) is unconstitutional. 35.4 Article 265 of the Constitution deals with the imposition of taxes, and the Article begins with the words, ‘No tax shall be levied or collected except by authority of law ..’
When it comes to fiscal legislation, the authority of law is referable to the distribution of powers between the Centre and the State as there is no Entry on 22.06.2017 giving authority to the State Legislature to make provisions in the form of saving to actions, rights etc., covered under the KVAT Act. In the interpretative process, the words ‘repeal’, ‘amended’, and ‘substituted’ have definite connotations. Thus appreciated, Entry 54 is substituted by a new Entry. So, the State Legislature under the present Entry or amended Entry lacks competence.
35.5 Mr Krishnan and Mr Kumar have relied on the following excerpt from Justice G P Singh on Principles of Statutory Interpretation (Eighth Edition 2001) for appreciating the general principles of strict construction of taxation Statutes:
“A taxing statute is to be strictly construed. The well-established rule in the familiar words of Lord Wensleydale, reaffirmed by Lord Halsbury and Lord Simonds, means: “The subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words.’ In a classic passage Lord Cairns stated the principle thus: ‘If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of law the case might otherwise appear to be. In other words, if there be admissible in any statute, what is called an equitable construction, certainly, such a construction is not admissible in a taxing statute where you can simply adhere to the words of the statute.’ Viscount Simon quoted with approval a passage from Rowlatt, J. expressing the principle in the following words: ‘In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.'” (at p. 635)”
35.6 The concluding comment of the counsel for the Dealers is that in tax Statutes, the Court does not keep within its perspective hardship in the implementation of taxing Statutes or equities.
Reply of Centre and the State
36. The Centre and the States, on a consensus view on the necessity of indirect tax reforms, designed the GST regime.
The object of CAA 2016 is to confer simultaneous power on the Centre and the States to levy tax on the supply of goods or services or both. The amendments to various Articles realign the distribution of powers between the Centre and the States on the levy of indirect taxes on goods and services. The amendment of the Articles relates to the federal character, which may be characterised as the entrenched provisions, which need further amendment in addition to the passage of the Amending Act by the special majority in two houses of Parliament, ratification by half of the State’s Legislature. The negotiations and bargains between the Centre and the State, fiscal relations are kept in perspective, and the operation of GST was made from 01.09.2017. In other words, the amendments are prospective.
36.1 Dealers’ argument on the competence to legislate the saving clause suffers from an inherent fallacy. CAA 2016 and Section 19, both by word and meaning, are prospective. Section 19 saves law and levy of tax on the sale and purchase of goods/services in the interregnum. In other words, the unamended Articles and Entries operate with an outer limit of one year from 16.09.2016. From this implication, the collection of indirect taxes till 01.07.2017 is legitimate and legal. Section 19 has two stages, and the mandate of Section 19 extinguishes within one year if the laws relating to the sale and purchase of goods and tax on luxuries are repealed. Suppose the competent Legislature or other competent authority does not take steps to amend or repeal the provisions. In that case, any laws inconsistent with the GST regime shall cease to operate on completion of one year.
36.2 Section 19 of CAA 2016, being an Act of Parliament, called upon a competent Legislature or other competent authority to repeal or amend the laws inconsistent with amended constitutional provisions and mandate must be understood in the background of the distribution of fiscal powers or entries existing at that point in time between the Centre and the State. The words ‘to repeal’ or ‘to amend’ used in Section 19 of CAA 2016 mean and presuppose that the State has the power, the State can repeal the laws inconsistent with amended Articles. If laws inconsistent with the GST regime are amended or repealed by an act of Parliament, there is nothing for the State Legislature to do. The CAA 2016, speaking through Section 19, called upon States to come on board the GST regime by repealing and enacting new GST laws. As the State Legislature is given the Constitutional obligation to discharge, the words ‘to repeal’ and ‘to amend’ are used in Section 19 of CAA 2016.
36.3 The argument that repeal must be restricted to mean repeal alone and not to savings ignores the competence to repeal and the effect of repeal in interpreting the KGC Act. The State Legislature, when made the KSGST Act, is authorised by Article 246-A of the Constitution to legislate on intra-State tax on the supply of goods or services or both and in the same law, by recourse to Section 19, the competence of State Legislature is inbuilt in repeal mechanism so that the saving provision could be enacted simultaneously.
36.4 The indirect taxes regime in operation up to 16.09.2017 in the State has conferred the right on dealers to collect indirect taxes on the exigible event happening; the procedure for reassessment and penalty suo motu proceedings are provided in the KVAT Act to avoid evasion of indirect taxes collected by the Dealers.
The amendments shall not be understood as completely effacing the obligations fastened on the dealers for the transactions made till 01.07.2017.
36.5 The Dealers’ argument on lack of power to enact a saving clause is accepted; the State then would be denied of its legislative competence during the currency of unamended Entry 54, List II of the Seventh Schedule. Within the mechanism provided under Section 19 of the CAA 2016, the State Legislature repealed and saved to collect taxes from the defaulting Dealers liable under the KVAT regime.
36.6 It is neither by expression nor intention that the legislative power of the State Legislature on indirect taxes covered by unamended Entry 52, 54, 55 and 62 is abrogated by CAA 2016 or consequential constitutional amendments. He relies on the same judgments relied on by the learned Counsel for the appellants and also a few paragraphs from the judgment under appeal and argues that the whole controversy centres around the legislative competence, distribution of powers, fiscal legislation, repeal, amendment, and substitute, which have been considered in great detail in the impugned judgment and no exception is pointed out on the line of reasoning adopted therein.
36.7 The argument on the applicability of the KGC Act vis-à-vis Article 367 is canvassed. The mechanism provided by Section 19 of the CAA 2016 relegates the issue to the State Legislature. Therefore, as a consequence of power under Section 6 of the KGC Act, the effect of repeal is attracted, and to obliterate any argument, saving clause in Section 174(2), to the extent without being contrary to amended constitutional provisions, has been enacted.
37. We have appreciated the arguments of counsel for the Dealers and the State. A catena of judgments cited by the learned counsel on both sides circle around the interpretation of constitutional provision/constitutional amendment act, repeal, amend, substitution, transitional provision or a sunset clause. There is no debate on the principles per se, but their applicability to the case on hand is the crux. In our view, most of the judgments cited are not on point.
37.1 In the judgment under appeal, the learned Single Judge, in great detail, has considered the concepts of ‘repeal’, ‘amend’ and also ‘substitute’, ‘transitional provision’, and the ‘sunset clause’. [See paragraphs nos.92 to 99 in judgment in W.P.(C) No.11335/2018]
37.2 In Ashok Tanwar v. State of Himachal Pradesh10 the Supreme Court held that the constitution is intended to serve the needs of the day when it was enacted and meet the needs of the changing conditions in new circumstances. Constitution has no fixed meaning, and its interpretation must be based on the experience of the people in the course of working on the Constitution. However, the same thing cannot be said about interpreting the words and expressions in a Statute.
37.3 Kept in perspective that the liberal judicial interpretation of the written constitution arises from the feeling that the function of interpreting a written constitution is very crucial to the governmental process in the Country and, therefore, the approach of the Court to the task of interpretation of Constitution has to be entirely different from that of interpreting a Statute. In interpreting a Statute, it is needless to state affects one way or the other and a limited number of persons and actions are taken within the fold of such interpretation. Per contra, interpreting the Constitution and its schedules will affect the policymaking of the constitutional process initiated by the Parliament in the Country. The Constitution is the fabric for good governance in the Country and, among other things, in clear terms, provides for structure, scheme, power, and functions of the organs of the State and also between the Centre and the States. This Court appreciates the interpretation of the amendments made by CAA 2016 as the Constitutional Amendment Act made by the Parliament would arrive at competence by testing the argument on the well-established principles.
37.4 A law, to be valid, must conform to Constitutional norms. The unconstitutionality of a Statute arises from various constitutional violations, namely
(1) violation of the scheme of distribution of powers between the Centre and the States
(2) infringement of a fundamental right
(3) violation of other constitutional restrictions/limitations.
37.5 The Supreme Court in Milk Food Ltd v. GMC Ice cream (P) Ltd.11 held in paras 103 and 105 that a transitional provision is to be interpreted in the light of facts and circumstances existing on the date the new Act is coming into force and, therefore, the construction of such provision must depend upon its terms.
37.6 In Union of India v. Filip Tiago De Gama of Vedem Vasco De Gama12, the purpose and the scope of transitional provision are held as follows:
“The purpose of incorporating Transitional Provision in any Act or amendment is to clarify as to when and how the operative parts of the enactments are to take effect. The Transitional Provisions generally are intended to take care of the events during the period of transition.
Mr Francis Bennion in his book on Statutory Interpretation (14th Edn.,p. 142) outlines the purpose of such provisions:
189. Transitional Provisions.-Where an Act contains substantive, amending or repealing enactments, it commonly also includes transitional provisions which regulates the coming into operation of those enactments and modify their effect during the period of transition. Where an Act fails to include such provisions expressly, the court is required to draw such inferences as to the intended transitional arrangements as, in the light of interpretative criteria, it considers Parliament to have intended.
As stated by Thornton,
The function of a transitional provision is to make special provision for the application of legislation to the circumstances which exist at the time when the legislation comes into force ‘and that’ what appears to be the plain meaning of a substantive enactment is often modified by transitional provisions located elsewhere in the Act. [K S Pariporrnan v. State of Kerala, (1994) 5 SCC 593]”
(emphasis supplied)
A temporary Statute, in the absence of a saving provision like Section 6 of the General Clauses Act, may not be construed as dead for all purposes. The effect of expiry is essentially one of the construction of the Act.
37.7 The Dealers rely on Article 367 of the Constitution and argue that the General Clauses Act or KGC Act do not apply to interpret the Constitution. Therefore, the effect of repeal is not traceable to Section 6 of the General Clauses Act. Consequently, for both reasons, viz., Section 19 does not enable making a saving clause, and General Clauses Act is not applicable. Therefore, the saving clause fails. The challenge on these lines is no more maiden for the following reasons.
37.8 A Division Bench of Gujarat High Court (Justice J B Pardiwala, as he then was, and Justice A C Rao) considered a challenge to the Legislative competence of the Gujarat Legislature to amend the Gujarat Value Added Tax Act, 2003. Through Gujarat Act No.10/2018, the State Legislature amended the Gujarat Value Added Tax, incorporating Section 84A, purporting to exclude the period of time spent in a few cases for reopening the assessments. The Gujarat Value Added Tax Amendment Act 2019 was enacted and notified beyond one year covered by Section 19 of the CAA 2016. The Division Bench judgment reported in Reliance Industries Ltd v. State of Gujarat13 referred to the judgment under appeal and also the judgment of a learned Single Judge in Baiju A A v. State Tax Officer14 [W.P.(C) No. 9963/2019 and batch]. The judgment in Reliance Industries Ltd has considered the three stages of migration from the Value Added Tax regime to the GST regime, the constitutional amendments during the operation of transitional and post- transitional provisions. The arguments now made in this Court have direct answers in Reliance Industries Ltd’s judgment, and we excerpt the applicable portion from Reliance Industries Ltd.
“69. Applicability of the General Clauses Act, 1897 for the interpretation of the Constitution
69.1 Article 367(1) of the Constitution states that the General Clauses Act, 1897 (subject to the adaptations and modification made under Article 372) shall apply for the interpretation of the Constitution. The relevant extract is as under:
“367.(1) Unless the context otherwise requires, the General Clauses Act, 1897, shall, subject to any adaptations and modifications that may be made therein under Article 372, apply for the interpretation of this Constitution as it applies for the interpretation of an Act of the Legislature of the Dominion of India.”
69.2 Thus, the General Clause Act applies only to the interpretation of Constitution. The General Clauses Act defines various terms in section 3. These definitions will apply for the interpretation when these words are employed in the Constitution. Apart from the definition, Section 16 (power to appoint to include power to suspend or dismiss), Section 21 (Power to issue to include power to add to, amend, vary or rescind Notification, Orders, Rules or Bye-laws), etc. which are general rules of construction and which are otherwise in accord with the common law may also apply for the interpretation of the Constitution.
69.3 Therefore, perhaps, the other matters such as the savings in the case of repeal (Section 6), revival of repeal enactments (Section 7), construction of references to the repealed enactments (Section 8), continuation of order issued under the repealed enactment and re-enacted (Section 24), etc. which are not related to interpretation may not apply by virtue of Article 367.
69.4 Further, Section 6 applies only to repeal of an enactment. Enactment is defined under Section 3(19) of the General Clauses Act to include regulation or any provision contained in any Act or regulation. However, Constitution is not an enactment. The Constitution is supreme and is, in fact, the foundation of all the enactment. This has been observed by the Law Commission in its 60th Report on the General Clauses Act, 1897 in the context of Section 8 (construction of references of repealed enactment). The relevant extract of the report is as under:
“1.30.Effect of section 8 on Article 367.- Will section 8 of the General Clauses Act, which provides that when an enactment is repealed and re-enacted, references to the old enactment will be construed as references to that, re-enacted one, make any difference? We do not think so. It should be noted that the words “unless the context otherwise requires” (in Article 367) mean that the General Clauses Act, section 8, is to be excluded. Even by its terms, section 8 of the General Clauses Act will not apply to the Constitution, expression “enactment” (which occurs in section 8) would not take in the Constitution, which is not an “enactment”. The Constitution is supreme and is, in fact, the foundation of all enactments.”
69.5 Thus, Section 6 of the General Clauses Act, 1897 will not apply to the Constitution (contrary view taken by the Allahabad High Court in the case of Farzand v. Mohand, AIR 1968 All 67(73). However, no reasoning has been given to apply Section 6 of the General Clauses Act, 1897 to the Constitution.)
69.6 The above principle about the non-applicability of the General Clauses Act, 1897 is relevant and applicable even to the Constitutional Amendment Acts as they are made by the Parliament in exercise of its constituent powers under Article normal legislative 368 and not in exercise of normal legislative powers under Article 245 of the Constitution.
69.7 The question as to whether Section 6 applies to the Constitution is relevant to determine whether after the repeal of the Entry in the legislative list, the laws made in pursuance of such legislative powers can be saved. That provision has presently been made under Section 19 of the Constitution (One hundred and First) Amendment Act, 2016. Thus, contextually also Section 6 will not apply to the present case.
(Emphasis supplied)
Section 19 of CAA 2016 has provided the power, as has been held in Reliance Industries Ltd, to State Legislature. The contentions on repeal and saving are also examined in the Reliance Industries Ltd, and the following paras are excerpted.
xxx xxx xxx
74. Possibility of amendment of a repealed Act, after its repeal when it is not in operation.
74.1 The Madras High Court in the case of Kalyanam Veerabhadrayya v. King, AIR 1960 Mad 243 held that a repealed Act which is non-existent cannot be amended unless the competent legislature revives or re-enact the repealed Act and then make amendments to it.
74.2 The facts in the case before the Madras High Court were these: The Maintenance of Public Order Act, 1947 was enacted for a period of one year. However, the Act provided that the Provincial Government is empowered to extend the operation of the Act beyond the period of one year. This power was held to be bad as it amounts to delegation of legislative function. The Madras Maintenance of Public Order Removal of Doubts Ordinance, 1949 was passed to declare that the Maintenance of Public Order Act, 1947 remains in force and shall continue to be in force. In these facts the court held that the amendments can be made only to an existing Act. However, the legislature is competent to revive or re-enact the repealed legislation and make amendments to it. In the facts of that case, the court held that the legislature had not done so. The relevant extract of the judgement is as under:
“An amending Act is not an independent Act but an Act passed with a view to effect an improvement or to more effectively carry out the purpose for which the original law was passed. To remove doubts by a declaratory Act, there should be in existence an Act, the doubts in which have to be removed. It the Act had already ceased to be in force, a declaratory Act would have no operation. An amending Act also presumes the existence of an original Act. If the original Act, which was a temporary Act, terminated after the lapse of time, the amending Act would be inoperative.”
74.3 For the aforesaid proposition, the court relied on the decision of Federal Court in the case of Jatindra Nath Gupta v. Province of Bihar, AIR 1949 FC 175 wherein Mukherjee J. held as under:
“It is certainly competent to the Legislature in exercise of its plenary powers to revive or re-enact a legislation which has already expired by lapse of time. The Legislature is also competent to legislate with retrospective effect; but neither of these things seems to have been done in the present case. The Legislature proceeds on the footing that the old Act was alive at the date. Then the new Act was passed, and the new Act merely purports to amend one of the provisions of the old Act. There could be no amendment of an enactment which a not in existence and from the fact that the Legislature purports to amend an Act, it could not held as a matter of construction that the intention of the Legislature was to renew a dead Act or make a new enactment on the same terms as the old with retrospective effect.”
74.4 However, in the case of State of Rajasthan v. Mangilal Pindwal, AIR 1996 SC 2181, the Supreme Court held that retrospective amendments can be made to the repealed statutes in respect of the transactions past and closed. The judgement has been summarised in Justice GP Singh’s Principles of Statutory Interpretation, 14th Edition at page 757758 as under:
“Since repeal of a law takes effect from the date of repeal and the law repealed remains in operation for the period before its repeal without assistance of nay saving clause for transaction past and closed, it can be retrospectively amended to affect such transactions even after its repeal. Thus, when Rule B made under Article 309 of the Constitution substitutes Rule A, which in effect means that A is repealed and B is enacted in its place, A can be amended retrospectively for the period during which it was in operation to validate transactions past and closed. In the case from which the above principle is deduced, a rule permitted compulsory retirement of a Government servant by paying period the retired in payment of an three months salary. This rule was later repealed by substituting another rule in its place. During the was in operation, a Government amount was as salary but which was found on calculation later to be little short of three months salary making the retirement invalid. The rule was after its repeal amended for the period it was in operation to retire a Government servant forthwith without paying him three months salary but entitling him to claim three months salary after retirement. This amendment was held to be valid and effective to validate the retirement of the Government servant concerned.”
74.5 The above referred cases, however, are not concerned with the competence of the legislature to enact retrospective laws, but only with the issue as to whether the amendments can be made to the repealed laws.
75. Repeal of the State VAT Act is not effected by the Constitution (One Hundred and First) Amendment Act, 2016. Repeal is effected by the State GST Acts. Such Acts provide for savings of the pending proceedings. Thus, assessments can be initiated, continued and concluded in pursuance of such saving clause contained in the respective GST laws.
75.1 In respect of the pending assessments, they can be initiated, continued and concluded. This is because while repealing the VAT Acts by the State GST Act, specific savings have been provided in this regard.
75.2 This provision can perhaps be traced to Section 19 of the Constitution (One Hundred and First) Amendment Act, 2016. Section 19 is not some section enacted under an Act of Parliament or State Legislature. It is a part of the constitution amendment Act and has to be read as an addendum to the Constitution.
(emphasis supplied)
75.3 Section 19 provides that the laws relating to the goods and services tax which are inconsistent with the amended Constitution shall continue until amended or repealed by a competent legislature. It is a debatable issue as to who is the competent legislature for the purpose of Section 19: the State Legislature or Parliament?
75.4 It is argued on behalf of the State that the law relates to tax on sales, which may be covered within the ambit of Article 24CA. It has been argued that the State Legislature will be a competent legislature for the purpose of Section 19.
75.5 Further, Section 19 can be said to be an independent and limited legislative power to repeal the earlier enactments. Such power will also include all ancillary powers necessary to exercise the main powers. Further, as this is an independent power, by necessary implication it may exclude the applicability of other articles such as Article 286, Article 279A, etc. Thus, the saving clause can also be enacted in exercise of such power to save the initiation, continuation and conclusion of assessments.
(emphasis supplied)
38. The above declaration of law on a detailed exposition should end the debate on legislative competence introduced by the Dealers. Be that as it may, the interpretation of Section 19 of CAA 2016 is an act of Parliament and must be on the language of Section 19 of CAA 2016. Considering the purpose and object of the new regime, it is challenging to roll out the GST regime with the break of day and the sun’s rising. Section 19, in a concise form, authorized the States to repeal or amend the laws contrary to the amended provisions of the Constitution within one year, and the outer limit for such exercise is one year from 16.09.2019. As rightly pointed out by Mr. Mohammed Rafiq, no State, after the constitutional amendments came into operation, could take the risk of firstly, making its legislature for tax on the sale of goods and services and alternatively not making sufficient saving provision for exigencies covered by the State Act, i.e., the KVAT Act, while repealing the laws inconsistent in terms of Section 19 of CAA 2016.
38.1 The marginal notes of Section 19 describe Section 19 as a transitional provision. Section 19 reads thus:
“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.”
The Section permits State laws inconsistent with the amended provision to be in force only for one year. With the completion of one year, the power to levy tax on the supply of goods or services or both is traceable to Article 246A of the Constitution. The other implication of Section 19 on a plain interpretation is that the Section calls upon the State legislatures to amend or repeal laws inconsistent with the amended Articles through CAA 2016. To amend or repeal inconsistent laws provided by the Parliament presupposes that such amendment or repeal again, as has been held by the Gujarat High Court in the Reliance Industries Ltd, is in the competence enjoined on the State legislature by Section 19. The limitation is that the legislative measure taken by the State legislature must not, in any way, beyond 16.09.2017, revive or continue to levy tax on the sale or purchase of goods or any other indirect tax that the State legislature was empowered to enact under pre-amended Entry 54 read with Article 246 of the Constitution. There is, however, no prohibition under Section 19 of CAA 2016 to effect repeal in such a way as to save past rights, obligations and transactions arising under the VAT regime.
38.2 The saving clauses, it is argued, in a sense, operate KVAT along with KSGST, and such a course is impermissible. The argument, though canvassed, is a half-hearted contention, the operation of any of the saving clauses is not relatable to the post-GST regime, but the levy and collection relate to pre- 01.07.2017, i.e., the KVAT regime. The learned Counsel for the Dealers have relied on a catena of citations; the cited cases are different from the question now this court is considering in subject appeals. The argument of the counsel for Dealers restricting the effect of repeal or amendment in Section 19 of CAA 2016 would make the CAA 2016 more retrospective than what is expressed by the Parliament and consented upon by the State legislatures. The reasons for employing the simple words, viz. to amend or repeal, are not far from searching because the Parliament left it to States to decide on the working of the VAT in respective States. In other words, instead of providing any saving mechanism through Section 19 of CAA 2016 or any other Section, the States are empowered to amend or to repeal, which authority would mean and include the power to provide for savings as well. The repeal of an Act is again by the Legislature competent to do so. Once the competence to repeal by the State Legislature is concurred by the Dealers, the competence to legislate a saving clause is a shadow to the primary power. A similar challenge was raised in the Karnataka High Court in M/s. Prosper Jewel Arcade LLP v. The Deputy Commissioner15 and the Division Bench held that the State Legislature is competent under Section 19 to repeal and also provide for saving as in Section 174(2).
39. We have kept in our perspective the principle on which the constitutional amendments are to be interpreted, the purpose of the proposed amendment, and the transitory provisions provided for migration from the VAT regime to the GST regime. In the impugned judgment, the learned Single Judge considers the power of the saving and transitory provisions in the paragraphs excerpted hereunder:
“141. Now, let us examine both Section 19 of the CA Act and Section 174 of the KSGST Act. Section 19 mandates that any inconsistent law relating to tax on goods and services in force in any State before 16.09.2016 (the commencement of the CA Act) shall continue to be in force “until amended or repealed by a competent Legislature or other competent authority”. So the States were, first, required to amend the inconsistent laws to bring them in harmony with the CA Act. Otherwise, the States must repeal them. And they were given one year for achieving this. If the States do neither, those inconsistent acts stand repealed.
142. Here, the States acted; they amended a few inconsistent Acts. They also repealed a few more. As with the KVAT Act, the repeal, if it were, has not resulted in its abrogation or annihilation. So the operation of the so-called sunset clause (as provided in Section 19) has not denuded the State’s power to enforce the KVAT Act in its amended form. The Act remained, with its remit reduced, though. Thus goes out of reckoning the petitioners’ another assertion: that with the repeal of the enactments, the procedural mechanism has disappeared. It has not. The prospectivity of the amendment undisputed, what remains to be examined is the State’s power to save what had happened before the CA Act came into force or, more precisely, until one year after that Act came into force. Indeed, the CA Act allowed the State Acts in the same legislative field to coexist for one year: the window period.
143. So I must hold that Section 19 of the CA Act is—transitional as it may have been—a repealing clause simpliciter, not a saving clause. Nothing more. That job of saving is done by Section 174 of the KSGST Act. Well and truly. So the repeal has not, as Section 174 elaborates, affected “the previous operation of the amended Acts or repealed Acts and orders or anything duly done or suffered thereunder.” In other words, the repeal has not affected “any right, privilege, obligation, or liability acquired, accrued or incurred under the amended Acts or repealed Acts or orders under such repealed or amended Acts.” Nor has it affected “any tax, surcharge, penalty, fine, interest as are due or may become due or any forfeiture or punishment incurred or inflicted in respect of any offence or violation committed against the provisions of the amended Acts or repealed Acts”.
144. In other words, the repeal has not affected “any investigation, inquiry, verification (including scrutiny and audit), assessment proceedings, adjudication, and any other legal proceedings or recovery arrears or remedy in respect of any such tax, surcharge, penalty, fine, interest, right, privilege, obligation, liability, forfeiture or punishment, as aforesaid, and any such investigation, inquiry, verification (including scrutiny and audit), assessment proceedings, adjudication and other legal proceedings or recovery of arrears or remedy may be instituted, continued or enforced, and any such tax, surcharge, penalty, fine, interest, forfeiture or punishment may be levied or imposed as if these Acts had not been so amended or repealed.”
145. Collaterally it follows that all the judicial and quasi judicial proceedings arising from the above contingencies, too, stand saved.”
40. The learned Single Judge pithily has explained the power of the State Legislature before 16.09.2016 and post 16.09.2017. We, for these reasons, hold that the argument under Article 265, read with Section 19 of the CAA 2016, is untenable, as the Legislature, by operation of Section 19 of CAA 2016, is competent to amend or repeal which inhere in the State Legislature to enact a saving clause as well. It is contextual to bear in perspective the fact that in the issue in Reliance Industries Ltd case, viz., amendment was made post-GST regime and also amended to revive, concluded issues on the levy and demand of VAT. We are of the considered view that the Parliament, through CAA 2016, called upon the State Legislature to repeal or amend laws inconsistent with amended provisions through CAA 2016. The Parliament desired the State to exercise its legislative power during the window period provided by Section 19 of CAA 2016 to enact laws on the levy of tax on the supply of goods and services in their respective States.
41. The argument of the learned counsel for the Dealers sounds attractively audible; the acceptance of the said argument, in the light of the decisions referred to above and the view taken in Reliance Industries Ltd, is not tenable. Hence, we reject the argument and hold that the State Legislature is competent to enact Section 174 of the KSGST Act. No other interpretation of Section 19 of CAA 2016 is permissible.
41.1 The lack of legislative competence to enact saving provisions is traceable to the selective prism of citations relied on by the learned counsel for the Dealers. As held in the Reliance Industries Ltd case, this agreement is untenable for more than one reason. It is legally impermissible to hold that by enacting Section 19, Parliament, through word, desired only repeal but not enacting saving clauses. The repeal and savings co-exist in most of the enactments. CAA 2016, as an objective, desired to implement ‘One Nation One Tax’ from 17.09.2017.
The saving circumstances incidences, what to save, etc., are matters of consideration by the respective State Legislatures.
So, in its wisdom, as expressed through words, the Parliament succinctly enabled the State Legislature/competent authority to repeal or amend the laws inconsistent with the amendments carried out through CAA 2016. The legislature, by enacting the saving clause, cannot be understood as carrying the vestige of its legislative competence as amended by CAA 2016. The saving clause does save a few rights, functions and duties only for completing the obligations and functions which has arisen during the currency of the KVAT Act.
41.2 To sum up:
(i) Section 19 of CAA 2016 confers the power to repeal the earlier enactments dealing with indirect taxes.
(ii) As a corollary to such power, all ancillary powers, such as the saving clause, necessary to exercise the main power are included.
(iii) The Gujarat and Karnataka High Courts have held that the power to repeal includes the power to save the repealing provisions.
(iv) The power to repeal or amend inhere or ingrained with the power to enact saving clause as well.
(v) Any other construction on Section 19 of CAA 2016 would negate the presumption against ineffectiveness presumed in favour of competence would follow inevitably from circumstances that (a) interpretation always depends on context; (b) the context always includes evident purpose; (c) evident purpose always includes effectiveness.
(vi) The learned Single Judge has examined the question on authoritative principles and rendered legal and correct findings on the competence of the State Legislature. We are in full accord with the conclusions recorded in the impugned judgment.
The point is answered against the Dealers and in favour of the State.
Point (ii): Whether Section 174(2) of the KSGST Act confers a right or a vested right or accrued right to proceed to reopen assessments for enforcing the legal obligation/liability arising before 16.09.2016 or not?
42. The Dealers challenge notices of reopening, orders etc., issued after the commencement of the GST regime under the KVAT Act purporting to exercise power retained through one or the other saving clause of Section 174(2) of the KSGST Act on the ground that the notices/orders impugned in the writ petitions are per se illegal, without jurisdiction and contrary to a binding precedent on the concept of a right, vested right, accrued right, legal obligation etc.
43. Before addressing the contentions on either side on the point under consideration, we would consider a few of the provisions under the KVAT Act to appreciate the rights, obligations etc, under the said Act.
43.1 Section 2(lviii) defines ‘tax’ meaning a tax payable under the KVAT Act. Section 6 is the charging section, which mandates that every dealer subject to the conditions stipulated in Section 6 shall be liable to pay tax on the sales or purchases of goods as provided in the KVAT Act and the liability to pay tax is on the taxable turnover. Section 20 obligates dealers registered or liable to be registered under the KVAT Act to submit returns before the period stipulated and, in such manner prescribed by the Rules, accompanied by such documents as may be prescribed. Section 21 defines the procedure for self-assessment, subject to Sections 22, 24 and 25 of the KVAT Act. Section 23 deals with the visit of dealers’ premises, audit of accounts, or other records by the Officers of the Department. Section 24 provides for consequential audit assessment by the Department. Section 25 exclusively deals with the assessment of escaped or under-assessed turnover or turnover assessed at a lower rate than the applicable or assessable rate, erroneous deductions including input tax, special rebate wrongly availed, the Assessing Officer within five years or six years as the case may be from the last date of the year to which the return relates, proceed to determine to the best of his judgment the turnover escaped or under assessed etc. and collect the VA Tax from the Dealer.
43.2 Another mechanism in Section 31 of the KVAT Act is payment and tax recovery. Sections 56, 58 and 67 deal with the suo motu revisional power of the Deputy Commissioner and the Commissioner. The conspectus of indirect taxes under the KVAT Act is that the dealer is obligated to pay the Government the tax payable on the returns for the exigible event of sale or purchase. The exigency in a given case, i.e., non-filing of correct returns or non-payment of correct VAT by a Dealer, is taken care of by reassessment, best judgment, suo motu revision, etc. In other words, a return filed accompanied by all statements, records and tax payable on the return is deemed to have been assessed under Section 21 of the Act. The converse of the example is that where the Dealer does not properly reflect the taxable turnover, the Department, on verification under Section 23 of the KVAT Act or under Section 25 of the KVAT Act, gets jurisdiction to reassess the return and determine the tax liability of a dealer. The extended mechanism to protect the revenue of the State is covered by Sections 56 and 58 of the KVAT Act.
44. We appreciate and note that under the Scheme of the KVAT Act, several obligations arise for performance by the Dealer, and jurisdictional rights are conferred on the Officials of the Department to prevent revenue loss under the KVAT Act.
44.1 The arguments for the Dealers summed up as follows:
The impugned notices are contrary to Sections 174 (2)(a)(b) and (c) of the KSGST Act since:
(a) Section 174(2)(a) revives KVAT Act 2003 only to continue the proceedings and revival of pre-supposes the pre-existence of reviving a valid Act. On 16.09.2017 KVAT Act is not in force.
Therefore, what is a dead letter cannot be revived?
(b) Section 174(2)(b) cannot be used to invoke a fresh cause of action under the repealed KVAT Act.
(c) Section 174(2)(c) saves any right etc acquired or incurred under the amended Acts, but since no liability is acquired or accrued for no action against the Dealers for the subject Assessment Years was taken during the currency of the KVAT Act.
(d) Section 174(2) (d), (e) and (f) are not attracted for the very grounds available to the Dealer under section 174(2)(a), (b) and (c).
The Department has failed to initiate action for any of the purposes under the KVAT Act when the Act is repealed.
Therefore, the issuance of notices independently is illegal.
45. Per contra, Mr Mohammed Rafiq argues that:
(1) to effect repeal is authorised by Section 19 of the CAA 2016.
(2) The saving clause means and pre-supposes as an exception or a special thing out of general things mentioned in a Statute. The limitation for the State Legislature with the advent of the GST regime is either in the repeal or saving clause. The competence of the State Legislature ought not to be overshooting 16.09.2017 and make law on the sale of goods and purchases. With the above limitation, the State Legislature is competent to create exceptions for the general things mentioned in the repealed Statute.
(3) The State Legislature is competent to repeal the KVAT Act. The Legislature, in its financial interest and recovery of amounts due under the KVAT Act, can undoubtedly make exceptions as saving clauses.
(4) The claim of Dealers by referring to right, accrued right, or vested right is unavailable for the simple reason that any right or any obligation is relatable to a document or a Statute.
(5) The Dealers are under a legal obligation to pay turnover tax and file returns compliant with the KVAT Act and Rules.
(6) Reopening of escaped assessment is available subject to the limitation prescribed in respective Sections.
(7) Till the period of limitation prescribed under Section 25, illustratively stated, is over, the Dealer is said to have been not discharged from the legal obligation, ripening into a right or vested right.
45.1 Assuming a right in favour of the Dealers, contrary to the scheme of KVAT, would be illegal. To narrate his case, he juxtaposed the view taken by this Court in Commercial Tax Officer v. Najeem16, which considered the stage at which a right is said to have been accrued in favour of the Dealer on account of completion of the period of limitation. Conversely, it is argued that even before the expiry of any of the timelines under the KVAT Act, the dealers claim a right etc., because the KVAT Act is repealed. According to him, the argument is a contradiction in terms.
45.2 Lastly, it is argued that the State Legislature is competent to make transitory arrangements within the time granted by Section 19 and the State Legislature in exercising its power enacted saving clause. The implementation of GST does not efface the legal obligations of the Dealers subject to other limitations under the KVAT Act. The argument of Dealers is contrary to the scheme and structure of the KVT Act. Explained by way of illustration, it is stated that even in respect of the return period 2016-17, also in spite of one or other contingencies referred to in Section 25 noticed, still the Department could be precluded from initiating action against such Dealer. Such interpretation affects the competence and power enjoyed by the State Legislature during the currency of the KVAT Act and is protected by the transitory provision. The liability to pay VAT is attracted with the occasioning of a taxable event and could be discharged in the mode and manner stated in the KVAT Act.
46. In Najeem’s case, a Division Bench of this Court, in paragraph 32, on the concept of substitution by amendment, its legal effect has noticed thus:
“32. Having gone through the gamut of decisions placed before us, both by the State and the respondent-assessees, from which we have copiously referred, we find the State’s contention to be supported only by the judgment of the Full Bench of the Karnataka High Court, which we have dissented from. We have demonstrated from the various decisions of the Hon’ble Supreme Court placed before us by both the parties that there is no irrefutable rule that an amendment by substitution is substitution in the present case, extending the period of limitation from 5 years to 6 years to be not applicable to those assessments which stood completed and the 5 year period for re-opening of assessment under S.25(1) stood expired. We do not see any reason to interfere with the impugned judgments on the basis of the amendment made subsequent to limitation with retrospective effect, the same was not done. We cannot but observe that even if such an exercise was carried out, necessarily there should have been a validation clause so as to get over the judgment of the writ Court. ….”
(emphasis supplied)
46.1 To wit, the Division Bench accepted that the expiry of five-year period of limitation prescribed by Section 25 of the KVAT Act and the amendment does not affect the right accrued in favour of a Dealer against whom the five-year period for reassessment stood expired.
Consideration
47. We have, while answering the first point, held that the State Legislature is competent to enact Section 174(2) of the KSGST Act. The consequence of such a conclusion is that clauses in Section 174(2) are within the competence of the State Legislature. To escape the saving clause’s effect, the arguments noted above are canvassed. In our view, the argument proceeds on the assumption that with the repeal of the KVAT Act, an absolute right in favour of Dealers erasing and effacing every legal obligation under the KVAT Act has been attracted. The purpose of savings is intended to have certainty on initiation, enquiry, etc., even after the repeal is given effect.
48. Statutory obligation means an obligation arising under a Statute. Legal obligation means an obligation that derives from the operation of law. These obligations are discharged by duly complying with the requirement thereof, or the obligation stands discharged with the efflux of limitation.
The third way now canvassed is that since notices are issued after 01.07.2017, the State cannot proceed to recover the amount. Our view is that the rolling over to the GST regime does not automatically liquidate the obligations fastened on the Dealers and rights and functions conferred on the machinery to enforce the obligation or liability said to have been occasioned under the KVAT Act. The absence of initiation of any proceeding before 16.09.2017 is not a criterion at all in the scheme of the KVAT Act. With the applicable saving clause, what is required in law is that when steps for reassessment etc., are taken up, those steps conform to the limitation covered by the applicable Section under the KVAT Act.
49. The notices now impugned are well within the period under Section 25 or within the reasonable period under Sections 56, 58 and 67; such proceedings are covered by the saving clause of Section 174(2) of the KSGST Act. The converse of the above deliberation is that the State Legislature, however, has the power to repeal and provide for a saving clause; still, on the interpretation now suggested to various clauses, again, the provisions of the KVAT Act could be rendered ineffective. The effect of the saving clause cannot be defeated on any of the grounds now raised by the Dealers. The Dealers must complete the legal obligations, or the timelines expire to assume rights either accrued or vested. It is not the case of Dealers that beyond the period of limitation, the impugned notices are issued or orders made. The migration to GST is not an amnesty given to defaulting dealers from paying the tax due under the KVAT Act. The self-assessment and the best judgment concepts are kept in perspective while assuming a right in favour or discharge of a legal obligation by a dealer. Juxtaposing the legal obligations under the KVAT Act fastened on a dealer or how the obligation could be said to have been discharged, we are of the considered view that the Revenue/State has not disentitled itself from enforcing its right to recover the defaulted tax or tax dues under the KVAT Act arising before 01/07/2017.
For the above reasons, we hold that the impugned notices are saved by clauses (i) to (iv) of Section 174(2) of the KSGST Act and are within the competence of the Department.
50. The counsel for the Dealers have not made independent arguments on the conclusions or consideration in the judgment under appeal. The judgment under appeal is one of the first judgments on CAA 2016. We have perused the structured judgment written by the learned Single Judge.
Interpretation and legislative competence have been considered in great erudition and through intense analysis of various interdependent principles and Doctrines on the transitory provision, sunset clause, and constitutionality. To achieve a judgment of this standard, we are sure the learned Judge, with his in-depth knowledge of the language, law, and several quotes on wit, wisdom and virtue, would have reminded himself of what the French Poet Boileau advises:
Polissez le sans cesse, et le replissez:
Ajoutez quelquefois, et souvent effacez.
[Polish it without ceasing and polish it again: add occasionally, and more often, rub out]
The judgment under appeal is a product of such an effort.
51. The Constitutionality of Section 174(2) of the KSGST Act and legality of notices/ orders as the case may be impugned in the respective Writ Appeals are answered against the dealers, hence necessarily, the Writ Appeals must fail and accordingly are dismissed.
52. The dismissal of the Writ Appeals, it is observed, shall not be understood as denying or depriving the Dealers to avail the remedy/opportunity available against the notice/order impugned in the respective Writ Petitions, as the instance may be. Hence, we grant liberty to such of the Dealers interested in availing the remedy of reply/appeal/revision as the case may be to avail the remedy within eight weeks from today by enclosing a copy of the judgment. The authorities are directed to entertain the statutory remedy or reply as the case may be without referring to the delay occasioned during the pendency of the Writ Petitions and Writ Appeals. The authorities are further directed to consider each one of the objections raised on merits and record their views while disposing of the matter pending before them. Writ Appeals fail. No order as to costs.
All Interlocutory Applications as regard interim matters stand closed.
Notes:-
2 (2001) 7 SCC 358
3 AIR 1996 SC 2560
4 AIR 1954 SC 683
5 (2013) 63 VST 414 (Guj)
6 (1981) 4 SCC 578
7 (1969) 24 STC 487
8 (1841) 151 ER 1024
9 1962 AIR 945
10 (2005) 2 SCC 104
11 (2004) 7 SCC 288
12 (1990) 1 SCC 277
13 Judgment dated 16.04.2020 in Civil Application No.14206/2018 and batch
14 2019 (27) KTR 119 (Ker.)
15 Judgment dated 25.03.2021 in WA No.3052/2018
16 2018 (3) KLT 877
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