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:
