Case Law Details
State Tax Officer & Anr Vs. Baiju A.A (Kerala High Court)
Value Added Tax (VAT) Act Cannot Be Amended After Introduction Of CGST Act, 2017
The Hon’ble High Court of Kerala while disposing a batch of writ appeals and writ petitions (lead case being State Tax Officer & Anr Vs. Baiju A.A in WA No. 48/2020) declared on 22.08.2022 that the amendment brought in to the provisions of the erstwhile Kerala Value Added Tax Act,2003 (KVAT Act for short) by Finance Act, 2018 so as to enable the Tax authorities to initiate assessment proceedings in respect of the assessments pending as on 31.03.2018 is illegal and without authority as the KVAT Act has already been repealed. Two major points considered and decided by the Hon’ble Court are that;
- Under the KVAT Act,2003 for initiating assessment proceedings U/s. 25(1) was five years. However, by Finance Act,2017 it is substituted/enlarged as six years. Whether the same has retrospective effect? Held that the amendment has no retrospective effect but only prospective.
- By Finance Act,2018 the KVAT Act has been amended by which one-year extension was given for initiating assessment w.e. from 01.04.2018. Whether such an amendment has legislative competence? Held that it is illegal and without authority since KVAT Act has already been repealed [by the state legislature] and GST Acts,2017 came into force as on 01.07.2017 through the Constitution (101st Amendment Act,2016).
FACTS OF THE CASE
The writ petitioners/respondents herein have disputed the assessment notices/orders issued U/s. 25(1) of the Kerala Value Added Tax Act given for the assessment years 2010-11 and 2011-12 as without jurisdiction and competence of the Assessing Officers. The said challenge examined the competence of the Assessing Officer under amended Section 25(1) of the KVAT Act through Kerala State Finance Act Nos.11/2017 and 5/2018. The writ petitioners/respondents herein moved the Court through writ petitions [a] to declare that the amendment to Section 25(1) of the KVAT Act, through Finance Act 11/2017, substituting the limitation period for initiating assessment U/s. 25(1) from five years to six years does not apply to the Assessment Year 2010-11 because the amendment does not have a retrospective operation [b] Secondly, the Proviso cannot be understood as expanding the meaning of the substantive portion of amended Section 25(1) of the KVAT Act and [c] Thirdly, the amendment to Section 25(1) of the KVAT Act through Finance Act 5/2018 is without legislative competence, illegal and without authority since KVAT Act has already been repealed.
The judgment impugned (in the writ petition) accepted the prayer made on the retrospective operation of Section 25(1) as amended by Finance Act 11/2017 and held that the amendment to Section 25(1) third proviso of KVAT Act through Finance Act 5/2018 is beyond the legislative competence of the State Legislature. On writ appeal being filed by the state;
HELD BY THE COURT
- the Legislative Assembly, Kerala on 16.06.2017 passed the Finance Act,2017 but the commencement of the Act is from 01.04.2017. There is no prohibition in law to have two dates, one for commencement and another for the operation of provisions. The amendment in Section 6(3) intended for Section 25 of the KVAT Act substitutes the words “five years” with the words “six years”. It is here the State argues that the substitution, which is though from the phraseology used in Finance Act 11/2017 spells out 01.04.2017, still, the amendment is a substitution hence will have retrospective operation touching the assessments which are time-barred with the completion of 31.03.2017, i.e., for the assessment year 2010-11. The amendment in Act 11/2017 should not be read in isolation of the words saved as otherwise provided in this Act. Because of the plain language employed in Section 1 of Finance Act 11/2017, it would be clear that the Legislature, in its wisdom, employed the commencement and operation of substituted words with effect from 01.04.2017. The meaning now given by the appellants from the sequence of events and the very will expressed by the State Legislature through categorical words does not admit a meaning or construction canvassed by the appellants. In this context, the words save as provided by this Act means save as otherwise expressly stipulated by the Act. It can rightly be viewed that the amendment to Section 25(1) of the Act is effective from 01.04.2017 from the definite date used, i.e., 03.03.2017 by the State Legislature in the third proviso introduced through Section 6(3) of the Finance Act 11/2017. Therefore, from the very words used by the State Legislature, the State Legislature is conscious of the commencement date and operation date and employed them as intended.
- The long and short of the conclusion is the substituted words ‘six years’, being operational in the Statute Book with effect from 01.04.2017, the Assessment Year 2010-11 is excluded from the reassessment enquiry by 31.03.2017. The fundamental rule in any interpretation is that if the legislative expression is unambiguous; the Courts employ the golden rule of interpretation and give the meaning applicable to the words employed by the State Legislature. It is clear for the Court in mind and interpretation that the amendment to Section 25(1) of KVAT Act substituting the words ‘five years’ to ‘six years’ is prospective. The Court agree with the reasons and conclusions of the learned Single Judge on this behalf and therefore confirmed that the view taken in the judgment on the point.
- Next point for consideration arises on the competence of the State Legislature to amend the KVAT Act through Finance Act 5/2018. Constitution (101st Amendment) Act 2016 (‘CAA’) is in force from 16.09.2016. CAA made a few important changes by way of insertion, repeals, and amendments to a few clauses of the Constitution, including the Sixth and the Seventh Schedules to the Constitution of India. With effect from 22.06.2017, the State of Kerala repealed the KVAT Act and, in its place, legislated Kerala Goods and Services Tax Act. Section 174 of the KGST Act deals with the repeal and savings. The Kerala GST Act has been in force from 23.06.2017 in the State of Kerala. By Finance Act,2018, the time limit for initiating assessment, in respect of pending assessments as on 31.03.2018, is extended up to 31.03.2019 by an amendment brought in the third proviso to sub-section (1) of section 25. The ratio of constitutional bench judgment in Hajee Abdul Shakoor and Company case is categorical in holding that the State Legislature is free to enact laws which could have retrospective operation. Its competence to make law for specific past periods, however, would depend on its present legislative power and not on what it possesses at the time when the enactment would be in operation.
- The Supreme Court in M/s. Mohit Minerals Pvt. Ltd case has referred to the very conclusion now under challenge before this court in the intra-Court appeal. Therefore, any other view on legislative competence to amend the KVAT Act after CAA 10.09.2016 and GST Act 22.06.2017 is impermissible and would be contrary to two persuasive judgments of Gujarat and Telangana High Courts and the consideration by the Supreme Court in M/s. Mohit Minerals Pvt. Ltd case. It is not the case of appellants that the competence to legislate is directly derived from Entry 54 as it stood in 2018. But the attempt is to trace the power to Article 246A of the Constitution of India. It is taken note of the applicable amendments introduced by CAA to the Constitution of India, corresponding changes in the schedules, and taken note of the repeal of the KVAT Act and the extent of operation of Section 174 of Kerala Goods and Services Taxes Act. The legislative competence to amend KVAT Act through Finance Act 5/2018 is not established. From the scope and scheme of powers enjoyed by the Centre and the State as regards the supply of goods and services, power to amend the KVAT Act is unavailable. The principle laid down in the A Hajee Abdul Shukoor and Company case is also applied by the Gujarat and Telangana High Courts. The amendment to KVAT Act by Finance Act 5/2018 is without competence. The two points on which the appeals are maintained are rejected.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
We have heard the learned Special Government Pleader (Taxes) Mr Mohammed Rafiq for the appellants and learned Advocates Mr A Kumar, Mr Alan Dev for Mr Aji V. Dev, Mr K P Abdul Azeez, Mr K N Sreekumaran, Mr Premjith Nagendran, Mr Harishankar V. Menon, Ms S K Devi, Mr S Anil Kumar, Mr Bobby John, Mr N Muraleedharan Nair, Mr Mayankutty Mather, Mr P S Soman for the respondents.
2. The respondents in W.P.(C) No.9963/2019 and batch are the appellants. The writ appeals are from the common judgment dated 06.12.2019 in W.P.(C) No.9963/2019 and batch. The writ petitioners/respondents herein challenged the assessment notices issued under Section 25(1) of the Kerala Value Added Tax Act (for short, ‘KVAT Act’) given for the assessment years 2010-11 and 2011-12 as without jurisdiction and competence of the Assessing Officers. The said challenge examined the competence of the Assessing Officer under amended Section 25(1) of the KVAT Act through Kerala State Finance Act Nos.11/2017 and 5/2018. The parties are referred to as arrayed in the writ appeal.
3. The writ petitioners/respondents herein moved this Court to declare that the amendment to Section 25(1) of the KVAT Act, through Finance Act 11/2017, substituting the limitation period for initiating assessment under Section 25(1) from five years to six years does not apply to the Assessment Year 2010-11 because the amendment does not, by letter and application, have a retrospective operation. Secondly, the Proviso cannot be understood as expanding the meaning of the substantive portion of amended Section 25(1) of the KVAT Act. Thirdly, the amendment to Section 25(1) of the KVAT Act through Finance Act 5/2018 is without legislative competence. Hence, the notices issued under Section 25(1) of the KVAT Act are illegal and without authority. The common judgment disposes of the writ petitions. The operative portion reads thus:
“(i) the assessments in respect of which the period of limitation for re-opening under Section 25 of the KVAT Act was to expire by 31.03.2017 can be re-opened up to 31.03.2018 by virtue of the amendment to the third proviso to Section 25 (1) vide Kerala Finance Act, 2017.
(ii) the assessments in respect of which the period of limitation for re-opening under Section 25 of the KVAT Act was to expire by 31.03.2018 cannot be re-opened up to 31.03.2019 or thereafter, by relying on the amendments introduced through the Kerala Finance Act, 2018 since the State Legislature did not have the power to amend the KVAT Act after the CAA 2016, and the repeal of the KVAT Act pursuant thereto, on 22.06.2017.
(iii) The legality of the orders/notices impugned in these writ petitions shall stand determined by the declarations in (i) and (ii) above.”
The judgment impugned accepted the prayer made on the retrospective operation of Section 25(1) as amended by Finance Act 11/2017 and held that the amendment to Section 25(1) third proviso of KVAT Act through Finance Act 5/2018 is beyond the legislative competence of the State Legislature.
4. The State/respondents appeal against the declaration excerpted supra and the view taken on substitution by amendment from five years to six years limitation in Section 25(1) of the KVAT Act, by Finance Act 11/2017 as prospective. Hence the Writ Appeals.
5. In a nutshell, let us advert to the circumstances leading to the filing of writ petitions, viz. the jurisdictional Assessing Officers have served notices under Section 25(1) of the KVAT Act proposing to reopen the assessment for the Assessment Year 2010-11 and 2011-12. The notices impugned in the writ petitions are after 01.04.2017 or 01.04.2018 as the case may be. The parties are not in issue on the relevant dates by referring to which the legal grounds, viz. the amendments to Section 25(1) of KVAT Act through Finance Act 11/2017 is prospective and Finance Act 5/2018 as unconstitutional, are canvassed. So, for our purpose, we deem it unnecessary to narrate the dates of reassessment notices referred to in the individual writ petitions.
6. Mr Mohammed Rafiq, appearing for the appellants, argues that the reasoning in the judgment impugned on the alleged vested or accrued right in favour of respondents upon the completion on 31.03.2017 is erroneous, both in fact and law. Section 25 of the KVAT Act deals with the assessment of escaped turnover for one or the other situations adverted in Section 25(1) of the KVAT Act. The time limit is five years as per the unamended provision, or six years as per the amended provision is one of convenience for the Department and the dealer. The underlying idea in the assessment of escaped turnover is to assess and realize the tax component from the dealer legitimately due to the Government. Therefore, as understood, the expiry of limitation merely effaces the remedy but not the right of the Department. The argument that the claim is on an accrued or vested right is without basis. To bring home his statement on vested or accrued rights and further the legislative competence to amend the existing provision, he relies on reported judgment in Income Tax Officer v. Calcutta Discount Co. Ltd1.
6.1 The following excerpts are relied on by the learned counsel for the appellants.
“The Indian Income-tax Act, 11 of 1922, has recognised from the beginning that, for various reasons, the income of an assessee during a particular year may escape assessment altogether or that an assessment made of it may not bring the whole of the assessable income under tax or may not charge the proper amount of tax on it and it has therefore contained in S.34 a provision for making assessments beyond the normal time or re-opening assessments. The section has been amended from time to time and immediately before the amending Act of 1948.
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14 As already stated, amendments of the Income-tax Act were made by Ss.2 to 12 of Act 48 of 1948. That Act itself came into force on 8-9-1948 but, by S.1(2), it prescribed the dates on which certain of its provisions and certain amendments made to the Income-tax Act were to come into force. Section 1(2) is in the following terms: “Sections 3 to 12 shall be deemed to have come into force on 30-3-1948 and the amendment made in the Income-tax Act, 1922 (11 of 1922) by 5.2 shall be deemed to be operative so as to apply in relation to all assessments subsequent to the assessment for the year ending on 31-3-1948.”
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18. In my opinion, the reasoning of the learned judge does not dispose of the matter and if I may say so with respect, it does not seem to me to explore and examine fully the meaning of the new section being brought into force on 303-1948. It is true that the section must be taken to have come into force on that date and not on any earlier date. The date on which it came into operation cannot be pushed back further But given that the section came into operation on 303-1948, in deciding in what manner it would operate, & is pertinent to enquire first what the section itself says. The learned judge has observed that “the amendment is expressly made retrospective so far as 5.34 is concerned from 30-3-1948”, but that really is not the retrospective operation of S.34, but of the amending Act which, though it became law only on 8-9 1948, operates, so far as it substituted a new section for the old S.34, with effect from 30-3-1948/ The effect of S.8 of the amending Act so operating with respect to S.34 was that it placed the section on the statute-book as on 30-3-1948 and made it a part of the Income-tax Act on and from that date. But what was the effect of such introduction of the new S.34 on the Income-tax Act itself? The effect was that the Income-tax Act, speaking on and from 30-3-1948 with the new section as a part of it, began to say in the words of the section itself, and therefore expressly by its own words, that in cases coming under cl1(a) of the section, the Income-tax Officer would be entitled to issue a notice within eight years from the end of any assessment year in respect of which proceedings or further proceedings seemed to be called for. One has only to read the Act, standing so amended on 30-3-1948 and one finds at once a clear provision that all assessment years, ending within eight years from that date, are covered by it, as also all assessment years ending within eight years from subsequent dates. It is immaterial that some of them may be years ended before 30-3-1948. The question is not one of retrospective operation at all but a question of what the section says and how far the section, having come into force on 30-3-1948, extends by its own words. Had the section merely created a right in favour of the Income-tax Officer to issue a notice in respect of escaped or under-assessed income and not included a provision as to the period up to which computed from the end of the assessment year concerned, the right could be exercised, a question might conceivably arise as to whether it was intended to be retrospective in operation, but in view of its clear terms, the section gives rise to no such question.
The plain effect of the substitution of the new S.34 with effect from 30-3-1948 is that from that date the Income-tax Act is to be read as including the new section as a part thereof and if it is to be so read, the further effect of the express language of the section is that so far as cases coming within cl. (a) of sub-S.(1) are concerned, all assessment years ending within eight years from 30-3-1948 and from subsequent dates, are within its purview and it will apply to them, provided the notice contemplated is given within such eight years.
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23. In the view I have taken of S.34, no question of retrospective operation, as a question of interpretation, arises in the present case. The term ‘retrospective operation’, as has been observed, is ambiguous, because it is applied both to the fact that a particular enactment operates from before its date or so as to affect pre-existing rights and to the problem of construction which may be presented by an enactment as to whether it extends backwards or not. When an enactment extends backwards by its own clear language, it operates retrospectively, but presents no problem of construction. There can be no doubt that the Legislature is supreme and it can, if it chooses, legislate so as to alter rights with effect from a prior date. It is only when the intention of the Legislature does not lie on the surface that a question of interpretation arises and, in such a case, in deciding whether the enactment concerned is intended to operate retrospectively, certain well-known principles are followed. The present case does not belong to that type, because the effect of the manner in which 5.34 was incorporated in the Income-tax Act and of the words in which the section is expressed, is clear.”
(emphasis supplied)
6.2 The liability to pay tax is incurred with the taxable event as per the charging section. The liability arising from the taxable event is independent of any consideration of time or period of limitation. The time limit for reassessment is for the convenience of the dealers. Therefore, the amendment to Section 25(1) made with effect from 01.04.2017 shall be read as enabling the officers to initiate proceedings within six years with the end of the Assessment Year. Hence, the time limit and the year and date on which the notice is issued, are relevant. He placed reliance on the reported judgments in S.C. Prashar v. Vasantsen Dwarkadas2 and Ahmedabad Manufacturing and Calico Printing Co. Ltd v. S.G. Mehta3.
“S.C. Prashar v. Vasantsen Dwarkadas
Per S.K Das, J.
I am of the opinion that in its true scope and effect, S. 31 of the Amending. Act of 1953 puts beyond any doubt that the view expressed by the learned Chief Justice in 1953-23 ITR 471: (AIR 1953 Cal 721) is the correct view and amended S. 34 applies to assessment years prior to 1948-49, but it does not say that an assessment which had become final and in respect of which reassessment proceeding had become time-barred before the amended section came into force could be re-opened.
19. My conclusion, therefore, is that S. 31 of the Amending Act of 1953 does not validate the notice issued in the present case-a notice issued on April 30, 1954 long before which date the assessment had become final and in respect of which reassessment proceedings had become time-barred. The short answer to the argument based on S. 31 is that the notice in the present case was not issued in accordance with sub-section (1) of S. 34, and the first part of S. 31 requires that the notice must be so issued before the second part thereof can give any protection to it.
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Per Hidayatullah, J.
93. The Amending Act of 1948 was passed on September 8, 1948, and came into force from March 30, 1948. In some cases it has been held that its retrospectivity cannot be carried further than March 30, 1948. That is true in one sense but not in the sense how its provisions were to work in relation to the assessees.
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That liability to the State is independent of any consideration of time and, in the absence of any provision restricting action by a time limit, it can be enforced at any time. What the law does is to prevent harassment of assessees to the end of time by prescribing a limit of time for its own officers to take action. This limit of time is binding upon the (officers, but the liability under the charging section can only be said to be unenforceable after the expiry of the period under the law as it stands. In other words, though the liability to pay tax remains it cannot be enforced by the officers administering the tax laws. If the disability is removed or according to a new law a new time limit is created retrospectively, there is no reason why the liability should not be treated as still enforceable. The law does not deal with concluded claims or their revival but with the enforcement of a liability to the State which though existing remained to be enforced. This aspect was admirably summed up by Chakravartti C. J. (Sarkar J. concurring) in (1953) 23 ITR 471 at p. 482: (AIR 1953 Cal 721 at p. 724), as follows,
“The plain effect of the substitution of the new Section 34 with effect from the 30th March, 1948, is that from that date the Income-tax Act is to be read as including the new section as a part thereof and if it is to be so read, the further effect of the express language of the section is that so far as cases coming within clause (a) of sub-section (1) are concerned, all assessment years ending within eight years from the 30th march, 1948, and from subsequent dates are within its purview and it will apply to them, provided the notice contemplated is given, within such eight years. What is not within the purview of the section is an assessment year which ended before eight years from the 30th March 1948.”
94. We entirely agree with these observations and in our opinion after the passing of the 1948 Amendment which came into force on March 30, 1948, the Income-tax officer could take action in all cases in which the assessment years ended within eight years of the date of his action and in which there was an escapement of an assessment for the reasons indicated in clause (a) of the section as amended. In other words. action could be taken retrospectively in the cases indicated by Chakravartti C.J. If there be any doubt about the powers of the Income-tax officer the validating section passed in 1953 (S. 31) quite clearly indicates that section 34 as amended in 1948 was to be read in this manner.
Ahmedabad Manufacturing and Calico Printing Co. Ltd v. S.G. Mehta Under the well-settled rules of statutory construction no statute which impairs an existing right or obligation except as regards a matter of procedure, shall have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. Put differently, a statute is not to be construed to have a greater retrospective operation than its language renders necessary and it is submitted that “the general rule is that all statutes other than those which are merely declaratory, or which relate only to matters of procedure or of evidence are prima facie prospective; and retrospective effect is not to be given to them unless by express words or necessary implication, it appears that this was the Intention of the legislature” and “it is a corollary of this general presumption against retrospection that, even when a statute is intended to be to some extent retrospective, it is not to be construed as having a greater retrospective effect than its language renders necessary”. (Halsbury’s Laws of England, Vol. 36, Third Edn., p. 423 and p. 426).
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The principle is simply this. A statute which is not declaratory of a pre-existing law nor a matter relating to procedure but affects vested rights cannot be given a greater retrospective effect than its language renders necessary, and even in construing a section which is to a certain extent retrospective, the line is reached at which the words of the section cease to be plain. These are well settled principles, and there is no reason to doubt their accuracy,”
6.3 He contends with considerable force that the view expressed by the Division Bench in Commercial Tax Officer v. Najeem4, viz:
“16. The power of the legislature to make an amendment, with retrospective effect, is undisputed but the requirement is that unless the same is expressed in clear language or implied, without any scope for doubt, then the amendment would only be prospective. We are of the opinion that when there is a substitution, unless the same is expressed to be prospective the Courts could always interpret it to be retrospective, looking at the scheme of the enactment, the purpose and object of the amendment, especially when the amendment by substitution, was intended at removing an obvious anomaly or correcting a blatant error or obliterating an absurdity or bringing it in consonance with any other law or the Constitution; as was the case in Hassan Co-operative Union. On the other hand an amendment other than by substitution would be retrospective only if it is so expressed or it follows from necessary intendment, as is implicit from the language employed. Otherwise there is no requirement for the legislature to express the retrospectivity; it could very well make a substitution, which would operate from the inception of enactment.
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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 to, 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 invariably retrospective. We find the amendment by 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 the judgment. Though the legislature had the competence to extend the period of 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. Rai Ramakrishna, Meerut Development Authority, M/s. Arooran Sugars Limited, and Indian Aluminium Co. are cases in which the legislature despite the judgment of a constitutional court; brought in amendments removing the defect pointed out in the judgments, and also provided a validation clause by which the action taken under the defective provision stood validated under the retrospective amendment made. This exercise is totally absent in the amendment made to S.25 (1), substituting the period of limitation from five to six years.”
is not in line with the well-established principles of interpretation of a provision on retrospective operation of vested right or accrued right, whether the limitation in the present scenario is procedural or substantive, and commends to the court to take an independent view de hors the view of this Court in Najeems’s case.
6.4 He argues that the dictum in Najeem’s case is directly in conflict with the principle laid down in Additional Commissioner [Legal] v. Jyoti Traders5.
“That is not so in the present case. Under sub-section (1) of Section 21 of the Act before its amendment, the assessing authority may, after issuing notice to the dealer and making such inquiry as it may consider necessary, assess or reassess the dealer according to law. Sub-section (2) provided that except as otherwise provided in this section, no order for any assessment year shall be made after the expiry of 4 years from the end of such year. However, after the d amendment, a proviso was added to sub-section (2) under which the Commissioner of Sales Tax authorises the assessing authority to make assessment or reassessment before the expiration of 8 years from the end of such year notwithstanding that such assessment or reassessment may involve a change of opinion. The proviso came into force w.e.f. 19-2-1991. We do not think that sub-section (2) and the proviso added to it leave anyone in e doubt that as on the date when the proviso came into force, the Commissioner of Sales Tax could authorise making of assessment or reassessment before the expiration of 8 years from the end of that particular assessment year. It is immaterial if a period for assessment or reassessment under sub-section (2) of Section 21 before the addition of the said proviso had expired. Here, it is the completion of assessment or reassessment under Section 21 which is to be done before the expiration of 8 years of that particular assessment year. Read as it is, these provisions would mean that the assessment for the year 1985-86 could be reopened up to 313-1994. Authorisation by the Commissioner of Sales Tax and completion of assessment or reassessment under sub-section
(1) of Section 21 have to be assessee follows the authorisation by the Commissioner of Sales Tax, its service on the assessee is not a condition precedent to reopen the assessment. It is not disputed that a fiscal statute can have retrospective operation. If we accept the interpretation given by the respondents, the proviso added to sub section
(2) of Section 21 of the Act becomes redundant. Commencement of the Act can be different than the operation of the Act though sometimes, h both may be the same. The proviso now added to sub-section (2) of Section 21 of the Act does not put any embargo on the Commissioner of Sales Tax not to reopen the assessment if the period, as prescribed earlier, had expired before the proviso came into operation. One has to see the language of the provision. If it is clear, it has to be given its full effect. To reassure oneself, one may go into the intention of the legislature in enacting such provision. The date of commencement of the proviso to Section 21(2) of the Act does not control its retrospective operation. Earlier the assessment/reassessment “could have been completed within four years of that particular assessment year and now by the amendment adding the proviso to Section 21(2) of the Act it is eight years. The only safeguard being that it is after the satisfaction of the Commissioner of Sales Tax. The proviso is operative from 192-1991 and a bare reading of the proviso shows that the operation of this proviso relates and encompasses back to the previous eight assessment years. We need not refer to the provisions of the Income Tax Act to interpret the proviso to Section 21(2) the language, is which is clear and unambiguous We are, thus, of the view that the High Court was not right in quashing the sanction given by the Commissioner of Sales Tax and notices issued by the assessing authority in pursuance thereof.
(emphasis supplied)
6.5 A Division Bench in Paul Varghese v. State of Kerala6 relied on Jyothi Traders case, on the principle of commencement or retrospective operation held as follows on page 132:
“11. As we already noted, the second proviso to Sec. 17(6) added by the amending Act is specifically intended to cover the assessment year 1994-95. When the legislature has specifically made a provision regarding the period of limitation for completion of the assessment for 1994-95, in the absence of a challenge to the said provision it has to be given its full effect. Even in a case where the statute was amended by inserting a proviso enlarging the period of limitation for completion of assessment/re assessment after the expiry of the period for completion of the assessment, the Supreme Court has held that the intention of the legislature should be given its full effect. The second proviso as already noted, clearly expresses the intention of the legislature in giving retrospective operation in respect of the assessment year 1994-95. Here it must be noted that even in the decision of Supreme Court in Gadgil’s case relied on by the assessee it was observed that “the provision must be read subject to the rule that in the absence of an express provision or clear implication, the Legislature does not intend to attribute to the amending provision a greater retrospectivity than is expressly mentioned”. Hence all the decisions of the Supreme Court are to the effect that it is the legislative intention that must be given full effect. Hence in view of the authoritative prononcements of the Supreme Court discussed above, the contention of the petitioner that the assessment is barred by limitation has no substance. It is accordingly rejected.”
The impugned judgment is unsustainable for yet another contention, viz. that State of Punjab v. Shreyans Industries Ltd7 is relied, which dealt with an issue under Punjab Sales Tax Act vis- a-vis power of Commissioner under Section 11(10) of Punjab General Sales Tax Act to extend three years period of limitation. It is argued that the legislature’s plenary power is considered and decided in the negative by relying on a principle laid down in the background of the power of a functionary under the Punjab General Sales Tax Act. In conclusion, it is argued, once the distinguishing features of the Shreyans Industries Ltd case in fact and law are appreciated, the conclusion on the vested and accrued right is erroneous.
7. Adverting to the challenge to the Amendment made through Finance Act 5/2018 to the third proviso of Section 25(1) of the KVAT Act, he relies on the judgment of a learned Single Judge in Sheen Golden Jewels (India) Pvt. Ltd. v. State Tax Officer8 wherein the saving provision, section 174 of Kerala State Goods and Services Tax Act 2017, has been upheld. It is argued that the Constitution 101st Amendment has not taken away the power of the State Legislature to amend the KVAT Act. The entries on the subject are more comprehensive, and the conclusion, viz. absence of legislative power to amend the KVAT Act, is erroneous. Therefore, the amendment through Finance Act 5/2018 to the third proviso is valid and within the competence of the State Legislature.
8. Advocates A Kumar, Alan Dev for Aji V Dev, K P Abdul Azeez, K N Sreekumaran, Premjith Nagendran, Harishankar V Menon, S K Devi, Mr S Anil Kumar, Bobby John, N. Muraleedharan Nair, Mayankutty Mather, and P.S Soman have made detailed and elaborate submissions supporting the judgment under appeal. The arguments, we feel, are better noted by summing up as follows:
(i) The registered dealers/respondents are conscious of their obligations under the KVAT Act from the time a taxing event occurs till the payment of tax and filing of annual returns.
(ii) The dealers/respondents are not questioning the legislative competence of the State Legislature in amending the provisions of the KVAT Act; extending the above argument, it urged the plenary power of the State Legislature encompasses the power to make law retrospectively as well. But, it is argued with considerable force that the amendment to Section 25(1) made through Finance Act 11/2017 by clear expression is not retrospective. From the very amendment in the third proviso, it is spelt out in clear language that the legislature, by choice and expression, employed two different dates viz. Section (6) Sub-Section (3) of Finance Act 11/2017 i.e., 01.04.2017, and another date i.e., 31st March 2017 in the third proviso to Section 25 of the KVAT Act. Therefore, the prospective operation of the amendment made to Section 25(1) and retrospective operation to the third proviso are expressions given by the Legislature. The argument that amendment to Section 25(1) substituting five years to six years is retrospective and covers the assessments for which the period of limitation expired by 31.03.2017 would give more retrospective effect than what is expressed by the Legislature.
(iii) The assessments for which unamended provision is applicable by 31.03.2017, the jurisdiction to issue a notice under Section 25(1) is completed. Therefore, a right or defence is created in such cases where the five years were completed on 31.03.2017, and no steps for reassessment were taken up. In cases where a right is accrued or vested is noticed, the interpretation of the provision in the amended portion must receive strict construction.
(iv) The argument of appellants/State is that by expression and necessary implication, the amendment to Section 25(1) is retrospective; it is against the established principles of the construction of the statutes.
(v) There could be different dates for commencement of the Act and the operation of the Act. In the amendment carried out by Finance Act 11/2017, the commencement and operation of the Act could be the same, but two different dates are incorporated.
[See Jyothi Traders case: Commencement of the Act can be different than the operation of the Act though sometimes both may be the same]
It is for the Legislature to determine, and the Legislature has determined the commencement and operation as 01.04.2017 for the amendment made to Section 25(1) of KVAT Act by the Finance Act 11/2017.
(vi) The Calcutta Discount Co. Ltd case (supra) is appreciated in the background facts and dates noted in the judgment. The judgment is distinguishable, and the amending act in the said reported judgment provided the date of coming into operation of the amended provision as 30.03.1948.
(vii) The amendment to Section 25(1) substituting ‘five years’ to ‘six years’ is substantive. The limitation is usually a procedural law, and retrospective operation is through strict construction, and the expression of the legislature must be unambiguous.
(viii) The dealers/petitioners cannot be subjected to reassessment for the period completed by 31.03.2017 unless the amended provision inserted by amendment is either expressly or by necessary implication retrospective. (ix) In Najeem’s case, the Division Bench has examined the similar line of argument of the appellant/State and held that the Finance Act 11/2017 is prospective for the assessment year 2010-11 insofar as Section 25(1) of the Act.
(x) On the second ground of challenge in the Writ Appeal viz. the Constitutionality of amendment to the third proviso to Section 25(1) of the KVAT Act, the counsel refer, with considerable force, on the conclusions recorded by the learned Single Judge in the impugned judgment. It is further argued that the Gujarat and Telangana High Courts have referred to the very conclusion with approval in Reliance Industries Ltd v. State of Gujarath9; Sri Sri Engineering works v. Deputy Commissioner (CT) Begumpet Division, Hyderabad10. The operative portion of the judgment under appeal is noted in the judgment of the Supreme Court in the Union of India v. M/s.Mohit Minerals Pvt., Ltd, through Director11 case. The legislative competence, it is argued, is changed through an amendment to the constitution. Under Article 246A of the Constitution, the State cannot or could not have, by tracing to Entry 54 of Schedule II, amended a repealed Act.
(xi) Amendment by Finance Act 5/2018 in Section 25(1) the third proviso is an amendment to a repealed Act which power cannot be stated as saved by Section 174(4) of Kerala State Goods and Service Tax Act. The legislative competence is not traced through the saving provision, and the competence is traced to the present, i.e., when the legislature by amendment is carried out.
(xii) the citations relied on by them in support of their argument are:
(i) A. Hajee Abdul Shakoor and Company v. State of Madras12
(ii) Somaiya Organics (India) Ltd v. State of U.P13
(iii) The C.I.T Bombay v. Onkarmal Meghraj (H.U.F)14
(iv) K.M Sharma v. Income Tax Officer, Ward 13(7), New Delhi15
(v) S.S Gadgil v. Lal and Co.16
(vi) Commercial Motors Limited v. Commissioner of Trade Tax, Uttar Pradesh, Lucknow17
(vii) Reliance Industries Ltd. v. State of Gujarat18
(vii) M/s. Sri Sri Engineering Works and others v. The Deputy Commissioner (CT), Begumpet Division, Hyderabad and others19
The Counsel pray for dismissing the appeals.
9. We have noted the rival submissions made at the Bar, perused the record and the citations relied on by both sides. We would, before proceeding with our discussion, refer to the prefatory paragraph, which is apt to the case on hand in the Calcutta Discount Co. Ltd case, which reads as follows:
“1. This appeal involves a short and simple point, but it was sought to be presented as if it involved an Intricate question of interpretation of statutes and also a profound question of constitutional law. In my opinion, whatever the true answer to the question may be, there is no room for either intricacy or profoundity.”
The counsel on both sides made arguments from more than one perspective, in support of their respective cases, to some extent, expanding the area of consideration by this Court. But, we are convinced that the learned Single Judge has framed correct points for deliberation and answered as noted above. We prefer to consider in the batch of appeals the same points and lines answered against the appellant herein. Thus, the facets for our consideration would be (a) and (c).
10. Finance Act 11/2017 through Section 6 amended Section 25(1) and proviso of KVAT Act. The preamble and the proposed amendment read as follows:
1. Short title and commencement—
(1) This Act may be called the Kerala Finance Act, 2017.
(2) Save as otherwise provided in this Act, it shall be deemed to have come into force on the 1st day of April 2017.
The amended section 25 reads as shown in footnote20.
11. In the Jyoti Traders case, the Supreme Court referred to a few decisions relied on by the appellant and expressed the views excerpted above. The very language under construction or interpretation bears significance, and the well-established principles on cannons of interpretation are applied to ascertain the meaning of a text.
11.1 The rival submissions evaluated as a square or a circle result in the following principles:
(i) Construction of a statute is the act or process of interpreting or explaining the meaning of the legal text and is essentially a synonym of interpretation. The word ‘interpretation’ in legal parlance means: Properly the ascertainment of a text’s meaning or specifically the determination of how a text fittingly applies to the facts or controversies.
(ii) The commencement and actual date of an Act/amendment to an Act can be the same or different.
(iii) The plenary power of legislature enables the making of prospective and retrospective laws.
(iv) Law of limitation is normally considered procedural; the object of time limits in Section 25(1) of the KVAT Act does not create any right but prescribes periods within which proceedings may be initiated for reopening of assessment.
(v) As a general rule, almost invariable rule, a legislature makes law for the future, not for the past.
(vi) The presumption against retrospectivity is a guide to interpretation but not a constitutional imperative because the presumption applies even when the constitution does not forbid retroactive. Therefore, the presumption is a canon of interpretation and not a rule of constitutional law, so a Statute can explicitly or by clear implication be made retroactive.
(vii) The central issue in considering whether the right was acquired or is carried out will generally be whether steps that remain to be taken under the repealed statute were the steps necessary for acquiring a right or incurring liability or whether these steps were required merely for enforcing a right or liability that had come into existence. Unless there are words in the Statutes sufficient to show the intention of the legislature to affect existing rights, the legislation is deemed to be prospective only. As a logical corollary from the general rule that retrospective operation is not taken to be intended, unless that intention is manifested by expressed words or necessary implication, there is a subordinate rule to the effect that a Statute or a section in it is not to be construed to have a larger retrospective operation than its language renders such interpretation necessary.
[See Gardner & Co. v. Cone (1928) All ER Rep 458; S.S. Gadgil v. Lal & Co. AIR 1965 SC 171, pg.177; K.S. Paripoornan v. State of Kerala (1992) 1 SCC 684]
(viii) Lastly, close attention must be paid to the language of the statutory provision for determining the scope of the retrospectivity intended by Parliament.
[See Union of India v. Raghubir Singh 1989 (2) SCC 754; Sangam Spinners v. Regional Provident Commissioner (2008) 1 SCC 391 para 18]
In the above background let us analyse the circumstances of the case and the amendments carried out by the Finance Act 11/2017.
13. On 15/03/2017, Finance Bill No.5516/Leg.A2/ 2017/Law was placed before the Legislative Assembly of the State of Kerala. On 16th June 2017, the bill was passed into Act 11/2017 by the Legislative Assembly and the Act received the assent of the Governor. In the Bill, placed before the Legislative Assembly, the applicable sections read thus:
“1. Short title and commencement – (1) This Bill may be called the Kerala Finance Act, 2017
(2) Save as otherwise provided in this Bill, it shall be deemed to have come into force on the 1st day of April 2017.”
(emphasis supplied)
Section 6 deals with Amendment of Act 30 of 2004 of the KVAT Act. Sub-section (3) reads as follows:
“(3) in section 25, in sub-section (1)-
(i) for the words “ five years” the words “six years” shall be substituted:
(ii) for the third proviso, the following proviso shall be substituted, namely:-
“Provided also that the period for proceeding to determine any assessment including those subjected to extension under Section 25B which expires on 31st March, 2017, shall be extended up to 31st March 2018.”
14. Now let us construe what is the plain expression either for the commencement of the Act or for the operation of the Finance Act 11 of 2017. For the said purpose, we would refer to Section 1(2), which is excerpted above, and it begins with the words ‘Save as otherwise provided in the Act, the Act shall be deemed to have come into force on the 1st day of April 2017’. The Legislative Assembly on 16.06.2017 passed the Finance Act, but the commencement of the Act is from 01.04.2017. There is no prohibition in law to have two dates, one for commencement and another for the operation of provisions. The amendment in Section 6(3) intended for Section 25 of the KVAT Act substitutes the words “five years” with the words “six years”. It is here the State argues that the substitution, which is though from the phraseology used in Finance Act 11/2017 spells out 01.04.2017, still, the amendment is a substitution hence will have retrospective operation touching the assessments which are time-barred with the completion of 31.03.2017, i.e., for the assessment year 2010-11. The amendment in Act 11/2017 should not be read in isolation of the words saved as otherwise provided in this Act. Because of the plain language employed in Section 1 of Finance Act 11/2017, it would be clear that the Legislature, in its wisdom, employed the commencement and operation of substituted words with effect from 01.04.2017. The meaning now given by the appellants from the sequence of events noted in the preceding paragraphs and the very will expressed by the State Legislature through categorical words does not admit a meaning or construction canvassed by the appellants. In this context, the words save as provided by this Act means save as otherwise expressly stipulated by the Act. We gather further strength for our view that the amendment to Section 25(1) of the Act is effective from 01.04.2017 from the definite date used, i.e., 03.03.2017 by the State Legislature in the third proviso introduced through Section 6(3) of the Finance Act 11/2017. Therefore, from the very words used by the State Legislature, the State Legislature is conscious of the commencement date and operation date and employed them as intended.
15. The learned Single Judge, while answering point (a), has taken note of the different timelines stipulated by the State Legislature and noted the accrued right in the dealers/assessees for the Assessment Years for which limitation gets expired by 31.03.2017 has ticked on both the tests, namely that expression is clear that the substituted word, namely ‘five years’ to ‘six years’, could be effective from 01.04.2017. The competence of the Legislature to affect an accrued right is not canvassed. The purpose of construction through the principal tools is summed up in paragraph 11.1. The view of the learned Single Judge and our view would not make the amendment to Section 25(1) more than what is expressed and intended by the State Legislature. The long and short of the conclusion is the substituted words ‘six years’, being operational in the Statute Book with effect from 01.04.2017, the Assessment Year 2010-11 is excluded from the reassessment enquiry by 31.03.2017. The fundamental rule in any interpretation is that if the legislative expression is unambiguous; the Courts employ the golden rule of interpretation and give the meaning applicable to the words employed by the State Legislature. We are clear in our mind and interpretation that the amendment to Section 25(1) of KVAT Act substituting the words ‘five years’ to ‘six years’ is prospective, and for the above additional reasons we have stated in the preceding paragraphs, we confirm the view taken in the judgment on the point. Therefore, we agree with the reasons and conclusions of the learned Single Judge on this behalf.
16. The line of submissions now made by the appellant are additional arguments conceived to get over the conclusions recorded in Najeem’s case. The decisions relied on by the appellants before us, a substantial number of judgments were considered, and a conclusion that Section 25(1) amended by Finance Act 11/2017 is prospective has been recorded by this Court in Najeem’s case. The learned Single Judge followed the view expressed by the Division Bench in Najeem’s case. The substantial question is whether prospective or retrospective and vested rights have accrued to the dealers or not, where the time for reassessment expired by 31.03.2017 has been considered in Najeem’s case and also the impugned judgment. Though an attempt has been made to refer to the issue considered in Najeem’s case and being considered by us in this batch of appeals, which needs reconsideration by the Full Bench, we are convinced that the additional grounds now canvassed by keeping in perspective Najeem’s case do not change the conclusion arrived at in Najeem’s case in our consideration for the reasons we have recorded in the judgment.
17. The next point for consideration arises on the competence of the State Legislature to amend the Kerala Value Added Tax Act through Finance Act 5/2018. Constitution (101st Amendment) Act 2016 (for consistency ‘CAA’) is in force from 16.09.2016. CAA made a few important changes by way of insertion, repeals, and amendments to a few clauses of the Constitution, including the Sixth and the Seventh Schedules to the Constitution of India. With effect from 22.06.2017, the State of Kerala repealed the KVAT Act and, in its place, legislated Kerala Goods and Services Tax Act. Section 174 of the KGST Act deals with the repeal and savings. The Kerala GST Act has been in force from 23.06.2017 in the State of Kerala. On 31.03.2018, the Finance Act 5/2018 was passed by the Legislative Assembly and received the assent of the Governor of Kerala on the 31st day of March 2018. Section 10 of Finance Act 5/2018 deals with amendments proposed to the Kerala Value Added Tax Act, 2003. Section 10(1)(4) of Act 5/2018 deals with the amendment to the third proviso, and the amendment passed by the Legislature reads thus:
“(4) in section 25, in the third proviso to sub-section (1), for the words and figures “31st March, 2018” the words and figures “31st March, 2019” shall be substituted;”
18. By referring to the extended period of limitation in the third proviso to Section 25(1) of the KVAT Act, reopening or reassessment notices are issued by the Department. The grounds of challenge to the notices impugned are referred to in the judgment under appeal and are also reiterated before us, supporting and opposing notices. To avoid repetition, we are not referring to the arguments in detail.
19. The additional argument canvassed by the appellants is that Entry 54 of the Seventh Schedule is substituted with effect from 16.09.2016 by the CAA. The unamended and amended entries read thus:
| Unamended | Amended |
| “54. Taxes on the sale or purchase of goods other than newspapers, subject to the known as petrol), natural gas, aviation provisions of entry 92-A of List I:. |
54. Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods.” |
Since the legislative competence is traceable to Article 246A,
which speaks about goods – supply of goods or services, the argument canvassed is that under Article 246A, the State Legislature has broader power than what it had before 16.09.2016. The repeal of the KVAT Act shall not be understood as taking away the original power of the State Legislature to make amendments to the repealed Act. The amendments are not simultaneously operating along with Kerala Goods and Services Tax Act. Still, the amendments provide for the extension of the period of limitation for assessment attracting Section 25(1) of the KVAT Act, and the same is legal and constitutionally valid.
20. The learned counsel appearing for the respondents argue that CAA 101st Amendment has introduced major changes in the distribution of power to levy taxes between the State and the Centre. The KVAT Act, for all purposes, is repealed, and Section 174 of the KVAT Act cannot be understood in any way as continuing to remain with the State Legislature to make amendments to a repealed Act for all times to come. Once it is an accepted position in the constitutional scheme of things that the Legislature had the competence to enact the KVAT Act upon the amendment of the corresponding Articles and items in the schedule, the State Legislature is without power to legislate or amend or otherwise. The State Legislature, in the scheme of constitutional jurisdiction and separation of powers, cannot be said to derive its legislative power from a saving clause. The State Legislature must have competence on the day on which the Legislature is making the law. It is argued that on 31.03.2018 by referring to Entry in Value Added Tax, the State Legislature does not have competence.
21. The respondents rely on the Constitutional Bench judgment in Hajee Abdul Shakoor and Company v. State of Madras21 for the proposition that the State Legislature had lost the power to make amendments to the VAT Act after substitution made to Entry 54 by the CAA, which reads thus:
“This provision, however, did not apply to the 1939 Act which had been enacted much earlier than the commencement of the Constitution. By August 28, 1963, when the Act was enacted by the Madras Legislature, Art.286(3) had been amended and Act LII of 1952 had also been repealed. Consequently, there was no Constitutional requirement for the Act being reserved for the assent of the President before it could be enforced. It is contended for the petitioner that the Act really enacted for a period, when if passed, it had to receive the President’s assent for its enforcement and that therefore the State Legislature could not even in 1963 enact this provision affecting the taxation law in respect of the sale or purchase of goods which were goods declared essential for the life of the community. We do not see why such a fetter be placed on the legislative power of the State Legislature. The State legislature is free to enact laws which would have retrospective operation. Its competence to make law for a certain past period, depends on its present legislative power and not on what it possessed at the period of time when its enactment is to have operation. We, therefore, do not agree with this contention.”
(emphasis supplied)
The ratio in Hajee Abdul Shakoor and Company case is categorical in holding that the State Legislature is free to enact laws which could have retrospective operation. Its competence to make law for specific past periods, however, would depend on its present legislative power and not on what it possesses at the time when the enactment would be in operation. On 16.12.2019, through the impugned judgment, while answering point (c), the following conclusions are recorded by the learned Single Judge:
“18. I am given to understand that an intra-court appeal against the aforesaid judgment of the learned Single Judge is pending consideration before a Division Bench of this Court. At any rate, the said judgment, which dealt with actions taken by the revenue authorities before the amendments brought in to the KVAT Act through the Kerala Finance Act, 2018, did not have to consider the issue of legislative competence of the State Legislature to amend the KVAT Act, after the CAA, 2016, and the repeal of the KVAT Act pursuant thereto, on 22.06.2017. It is to a consideration of the said issue that I now turn.
19. As already noticed above, the amendments effected to Section 25 (1) of the KVAT Act, through the Kerala Finance Act 2017, were before the repeal of the KVAT Act with effect from 22.06.2017. The provision as it stood then, and in particular the third proviso thereto, authorised the re-opening of past assessments till 31.03.2018. The amendment effected through the Kerala Finance Act, 2018, with effect from 01.04.2018, enlarged the period for re-opening past assessments from 31.03.2018 to 31.03.2019. Under ordinary circumstances, and based on my findings above as regards the effect of the amendments brought into the third proviso to Section 25 (1) by the Kerala Finance Act, 2017, the legislative measures should have sufficed to justify a re opening of past assessments up to 31.03.2019, notwithstanding that the amendment itself was effective only from 01.04.2018. However, the intervention of the CAA 2016, and the consequent repeal of the KVAT Act with effect from 22.06.2017, has a bearing on the legality of the 2018 amendment. A distinction does exist between the saving of rights, privileges, immunities and liabilities under a repealed enactment, through a savings clause inserted in the new enactment traceable to the same legislative power, and an amendment brought in to a repealed enactment after the legislative power itself is taken away. While the legislative power justifying both actions, prior to the CAA 2016, could have been traced to Article 246 of our Constitution, read with the relevant entry in the VIIth Schedule thereto, the position changed when there was a fundamental shift in the nature of the tax levy and a fresh conferment of legislative power to legislate in respect of the new levy. After the CAA 2016, the State Legislatures stood denuded of their power to legislate in respect of taxes on sale or purchase of goods, that was covered under Entry 54 of List II of the VIIth Schedule to the Constitution, and they were instead conferred with legislative powers, to be exercised simultaneously with the Parliament, in respect of taxes on supply of goods or services or both. While the new legislative power could justify the inclusion of a savings clause in the new legislation enacted in respect of the new levy of tax, to save accrued rights, privileges, immunities etc. under the erstwhile enactment, the deletion of Entry 54 of List II automatically denuded the State Legislatures of the power to further legislate on the subject of taxes on sale or purchase of goods, except to the limited extent retained under the Constitution. The power to amend a statute being a facet of the legislative power itself, the State legislature could not have exercised a power to amend the KVAT Act, save to the extent permitted, when it did not retain any residual right to further legislate on the subject of taxes on sale or purchase of goods.
20. There is yet another aspect of the matter. It is trite that when a Court judges the Constitutionality of a legislative enactment it should try to sustain the validity of the enactment to the extent possible and it should strike down the law only when it is impossible to sustain it State of Bihar v. Bihar Distilery – IIT (1996) 10 SC 8541. At the same time, the Court must proceed to determine the intention of the Parliament, not only from the language used in the statute but also from surrounding circumstances and an understanding of the mischief that was sought to be remedied by the statute. When one applies the said test to the events that took place after the CAA, 2016, it cannot but be noticed that the very purpose of the CAA was to bring about a change in the system of indirect taxation in our country through the introduction of a Goods and Service Tax, and the phasing out of the multitude of indirect tax levies, including value added taxes, that were levied and collected by the Centre and the States. Section 19 of the CAA 2016, which is the sunset clause in the said enactment, envisaged the continuation of the erstwhile system of taxation for a period of one year from the date of enactment of the CAA or till such time as the State legislatures amended or repealed their respective VAT legislations, whichever was earlier. When the State legislature repealed the KVAT Act, while simultaneously bringing into force the new State GST Act, with a savings clause of limited operation, it effectively acknowledged the absence of any power to legislate thereafter on the subject of tax on sale or purchase of goods, except in respect of the limited commodities for which the said power was retained under the Constitution. In respect of all other commodities, the legislative power of the State was only in respect of taxes on the supply of goods or services or both, a power that had to be exercised simultaneously with the Parliament and not unilaterally or exclusively. Thus, at the time of repeal of the KVAT Act, and simultaneous enactment of the State GST Act with a savings clause therein, the savings clause operated only to save rights, privileges, immunities, action taken etc under the erstwhile enactment as it stood at the time of its repeal, which included the amendments brought in through the Kerala Finance Act, 2017. There could not have been any further legislative exercise by the State legislature in relation to the repealed KVAT Act.”
The above findings are under challenge in the intra-Court appeal.
22. The Division Bench of Gujarat High Court in Reliance Industries Ltd v. State of Gujarat22, while dealing with the competence of the State Legislature to amend VAT Act, by referring to repeal provision under Section 174 of the Act, referred to and relied on the view expressed by this Court in Baiju A A v. State Tax Officer23 and has summarized in paragraph 96 of the judgment as follows:
“96. The dictum as laid by the Kerala High Court may be summarized as under:
“Amendments made prior to introduction of GST The Legislature can take away a righ immunity by retrospective amendment. However, Section 25(1) which was made effective only from April 1 2017, has a prospective operation. Therefore, the Department cannot issue assessment notice where limitation period expired prior to the amendment.
The amendment to the third proviso of Section 25(1) is retrospective in nature. If the same is read to be prospective, the purpose of this amendment will not be met. The Court held that the assessment whose limitation period expired on March 31, 2017 (i.e. Financial Year 2011-12), could have been undertaken till March 31,2018.
Amendments made after the introduction of GST The Constitution (One Hundred and First) Amendment Act, 2016 (‘CAA’) which came into force on September 16, 2016, stripped the State Legislatures of their power to legislate in respect of sale or purchase of goods covered under Entry 54 of List II of the Schedule VII of the Constitution of India. The sunset clause under Section 19 of the CAA allowed continuation of the erstwhile State VAT laws till September 16, 2017 or until such statutes were repealed or amended, whichever was earlier. The KVAT Act was repealed with effect from June 22, 2017.
Since the power to amend is a legislative power, the State Legislature lacked the legislative competence to amend Section 25 of the KVAT Act after the repeal of KVAT Act on June 22, 2017. Therefore, the assessments for the FY 2011-12 could not have been re-opened after March 31, 2017 (till March 31, 2018) as provided by the Kerala Financial Act, 2018.
The existence of legislative competence is fundamental to the exercise of legislative functions and necessarily includes the power to amend. Prior to the repeal of the KVAT Act and the sunset date under the CAA, the Legislature was competent to amend the KVAT Act. Post repeal of the KVAT the savings clause under the KGST Act cannot be relied upon to make any amendments in the erstwhile VAT laws. The savings clause only saves the executive actions such as the power to issue notices and pass orders under the erstwhile laws but not the power to legislate in respect of the same.
Therefore, no amendments whether prospective or retrospective can be made after the concerned erstwhile low has been amended or repealed or if one year has lapsed from the enactment of the CAA.”
23. A Division Bench of High Court of Telangana referred to the view expressed by this Court and also the Division Bench of Gujarat High Court in Reliance Industries Ltd case, referring to the excerpt from Baiju A A case recorded a conclusion on the competence of State Legislature to make law after 16.09.2016 to VAT Act as follows:
“144. We are in respectful agreement with the views expressed by the Kerala High Court in Baiju A.A (10 supra). Intention of Parliament in ushering in the GST regime through the Constitution Amendment Act and enactment of the CGST Act and simultaneous enactment of various State GST Acts by the State Legislatures is to avoid multiplicity of taxes by subsuming those indirect taxes in a single tax called GST. It is in this context we have analyzed Section 19 of the Constitution Amendment Act. Viewed thus the amendments brought in by the Second Amendment Act, as discussed above, are wholly inconsistent with the scheme of the Constitution Amendment Act read with the CGST Act and the TGST Act.”
24. In M/s.Mohit Minerals Pvt., Ltd. case (supra) the Supreme Court considered and examined the scope and ambit of Article 246A, referred to Baiju A A case and held as follows:
“28 In Union of India v. Mohit Mineral Pvt. Ltd., this Court while deciding the constitutional validity of the GST (Compensation to States) Act 2017 noted that the Constitution Amendment Act 2016 introduced changes in the legislative powers of the Parliament and State legislature relating to indirect taxation. It observed that the amendment “confers concurrent taxing powers on the Union as well as the States for levying GST on transactions of supply of goods or services or both”. In Baiju v. State Tax Officer, GST2, a writ petition was filed challenging the legality of the notices and assessment orders issued under the Kerala Value Added Tax Act 200353 for the assessment years 2010-11 and 2011-12. The notices and orders were challenged on the ground that the authorities did not have the jurisdiction to issue them since the amendments introduced to Section 25(1) of the KVAT Act through the Kerala Finance Acts 2017 and 2018 did not operate retrospectively. The Kerala High Court had to decide whether the Kerala State legislature had the legislative competence to amend the KVAT Act after the introduction of Article 246A to the Constitution, and the repeal of KVAT pursuant to the amendment. The Court noted that the special power introduced by Article 246A allows Parliament and the State legislatures to ‘simultaneously’ make laws. Subsequently, while explaining the ‘simultaneous’ nature of power held by Parliament and State legislature, it was observed that the power under Article 246A can be exercised simultaneously by the State legislature and Parliament and none hold any ‘unilateral or exclusive’ legislative power.”
25. The learned counsel appearing for respondents argue in a straight and simple way that the new grounds now canvassed to trace competence to amend KVAT Act through Finance Act 5/2018 are considered in detail by the Gujarat and Telangana High Courts. The view has been approved and adopted as one of the reasons for setting aside the legislation impugned before the respective Courts. The Supreme Court in M/s. Mohit Minerals Pvt.Ltd case has referred to the very conclusion now under challenge before this court in the intra-Court appeal. Therefore, any other view on legislative competence to amend the KVAT Act after CAA 10.09.2016 and GST Act 22.06.2017 is impermissible and would be contrary to two persuasive judgments of Gujarat and Telangana High Courts and the consideration by the Supreme Court in M/s.Mohit Minerals Pvt. Ltd case. It is not the case of appellants that the competence to legislate is directly derived from Entry 54 as it stood in 2018. But the attempt is to trace the power to Article 246A of the Constitution of India.
26. We have taken note of the applicable amendments introduced by CAA to the Constitution of India, corresponding changes in the schedules, and taken note of the repeal of the KVAT Act and the extent of operation of Section 174 of Kerala Goods and Services Taxes Act. The legislative competence to amend KVAT Act through Finance Act 5/2018 is not established. In our view, and from the scope and scheme of powers enjoyed by the Centre and the State as regards the supply of goods and services, power to amend the KVAT Act is unavailable. The principle laid down in the A Hajee Abdul Shukoor and Company case is also applied by the Gujarat and Telangana High Courts.
The amendment to KVAT Act by Finance Act 5/2018 is without competence. We are in complete agreement with the view taken in the judgment under appeal i.e., Baiju A A case. The two points on which the appeals are maintained are rejected.
For the above reasons and discussions, the appeals fail and hence are dismissed accordingly.
Notes:
1 AIR 1953 Cal. 721
2 AIR 1963 SC 1356
3 AIR 1963 SC 1436
4 2018 (3) KLT 877
5 (1999) 2 SCC 77
6 (2005) 13 KTR 29 (Ker.)
7 (2016) 4SCC 769
8 2019 (1) KLT OnLine 3302
9 2020 (4) TMI 499
10 2022 (7) TMI 420
11 Civil Appeal No.1390/2022dated 19.05.2022
12 AIR 1964 SC 1729
13 2001 (5) SCC 519
14 1974 (3) SCC 349
15 2002 (4) SCC 339
16 AIR 1965 SC 171
17 2015 (15) SCC 168
18 2020 (4) TMI 499
19 2022 (7) TMI 420
20 “(3) in section 25, in sub-section (1), –
(i) for the words “five years”, the words “six years” shall be substituted;
(ii) for the third proviso, the following proviso shall be substituted, namely:
“Provided also that the period for proceeding to determine any assessment including those subjected to extension under section 25B which expires on 31st March 2017, shall be extended up to 31st March, 2018.”;
21 AIR 1964 SC 1729
22 2020 (4) TMI 499
23 2019 (27) KTR 119 (Ker.)
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Author/Blogger: Aji V. Dev, Advocate, High Court of Kerala at Aji V. Dev & Associates, Ernakulam, Kochi, available at ajivdev@yahoo.co.in/advajivdev@gmail.com/9447788404.
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