Case Law Details

Case Name : Baiju A. A. Vs State Tax Officer (Kerala High Court)
Appeal Number : W.P(C).No.9963 of 2019(U)
Date of Judgement/Order : 06.12.2019
Related Assessment Year :
Courts : All High Courts (6276) Kerala High Court (354)

Baiju A. A. Vs State Tax Officer (Kerala High Court)

(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.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

In these writ petitions, the issue that arises for consideration is the legality of the notices and assessment orders issued to the petitioners in connection with the assessment under the Kerala Value Added Tax Act [hereinafter referred to as the ‘KVAT Act’] for the assessment years 2010-11 and 2011-12. The notices and orders are impugned, inter alia, on the ground that the authorities concerned 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 of 2017 and 2018, notified through gazette notifications dated 19.06.2017 and 31.03.2018 respectively, did not contemplate a retrospective operation of the amended provisions.

2. Before framing the issues that arise for adjudication in these writ petitions, it would be apposite to refer to the legislative exercises that were undertaken in respect of Section 25 (1) of the KVAT Act during the period between 2016 and 2018. Section 25 (1) as it stood immediately prior to its amendment with effect from 01.04.2017 read as follows:

25. Assessment of escaped turnover:– (1) Where for any reason the whole or any part of the turnover of business of a dealer has escaped assessment to tax in any year or return period or has been under-assessed or has been assessed at a rate lower than the rate at which it is assessable or any deduction has been wrongly made therefrom, or where any input tax or special rebate credit has been wrongly availed of, the assessing authority may, at any time within five years from the last date of the year to which the return relates, proceed to determine, to the best of its judgment,the turnover which has escaped assessment to tax or has been underassessed or has been assessed at a rate lower than the rate at which it is assessable or the deduction in respect of which has been wrongly made or input tax or special rebate credit that has been wrongly availed of and assess the tax payable on such turn over or disallow the input tax or special rebate credit wrongly availed of, after issuing a notice on the dealer and after making such enquiry as it may consider necessary:

Provided that before making an assessment under this sub-section the dealer shall be given a reasonable opportunity of being heard.

Provided further that where the escapement is due to the application of incorrect rate of tax, no assessment under this sub-section shall be made where the dealer files revised return and pays the tax which has escaped assessment along with interest under sub-section (5) of section 31 and thrice the interest as settlement fee.

Provided also that the period for the completion of assessments including those subjected to extension under section 25B which expired on 31st March, 2015, shall be extended up to 31st March, 2016.”

3. The provision was amended through the Kerala Finance Act, 2017 with effect from 01.04.2017 when the period of limitation under Section 25 (1) for proceeding to determine the escaped turnover was changed from “five years” to “six years from the end of the year to which the assessment relates” and the third proviso thereto was amended to read as follows:

“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.”

4. The third proviso to Section 25 (1) was once again amended through the Kerala Finance Act, 2018, with effect from 01.04.2018 to read as follows.

“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, 2019.”

5. It is relevant to note, at this juncture, that on 8th September, 2016, the Constitution (One Hundred and First Amendment) Act, 2016 (hereinafter referred to as ‘CAA’ for brevity) received the assent of the President and the erstwhile regime of levy of taxes on Sale or Purchase of goods, gave way to a new regime for levy of taxes on the supply of Goods and Services. Through the amendment, taxing powers were conferred on the Union as well as the States and the Union Territories with legislatures, to make laws for levying Goods and Services Tax (GST) on every transaction of supply of goods or services or both. In the future, Central and State GST was to be levied on all transactions involving supply of goods and services, except those that were kept out of the purview of GST. Amendments were carried out in Articles 248, 249, 250, 268, 268A, 269, 270, 271, 286, 366 and 368. The sixth and seventh Schedules to the Constitution were also suitably amended. Through the introduction of a new Article 246A, both the Parliament and the State Legislatures were given the powers to make laws with respect to Goods and Services tax imposed by the Union or by the State. The exclusive power to make laws regarding GST, where the supply of goods or services or both took place in the course of inter-state trade or commerce, was retained with the Parliament. Sections 14, 17(b) and 19 of the CAA are relevant for the purposes of these writ petitions and are therefore extracted hereunder.

“14. In Article 366 of the Constitution,—

(i) after clause (12), the following clause shall be inserted, namely:—

‘(12A) “goods and services tax” means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption;’;

(ii) after clause (26), the following clauses shall be inserted, namely:—

‘(26A) “Services” means anything other than goods;

(26B) “State” with reference to articles 246A, 268, 269, 269A and article 279A includes a Union territory with Legislature;

……………… …………………………….. ………………………..
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17. In the Seventh Schedule to the Constitution,—

(a)………………………………..

(b) in List II — State List,—

(i) entry 52 shall be omitted;

(ii) for entry 54, the following entry shall be substituted, namely:—

“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 couse of international trade or commerce of such goods.”;

(iii) entry 55 shall be omitted;

(iv) for entry 62, the following entry shall be substituted, namely:—

“62. Taxes on entertainments and amusements to the extent levied and collected by a Panchayat or a Municipality or a Regional Council or a District Council.”.

19. Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier.”

6. On going through the pleadings in the writ petitions and on considering the arguments advanced before me by counsel on either side, I find that the issues that arise for consideration in these writ petitions are as follows:

(a) Whether under the provisions of Section 25 (1) of the KVAT Act, as amended by the Kerala Finance Act, 2017, and before the repeal of the KVAT Act on 22.06.2017, the six year period of limitation for re-opening assessments could be relied upon to issue pre-assessment notices in cases where, by 31.03.2017, the five year period for re­opening assessments under the unamended provisions of Section 25 (1) of the KVAT Act had already expired?

(b) If issue (a) is answered in the negative, whether the amendment to the third proviso to Section 25 (1) of the KVAT Act, through the Kerala Finance Act, 2017, would enable the revenue to re-open assessments in cases where, by 31.03.2017, the five year period for re-opening assessments under the un-amended provisions of Section 25 (1) of the KVAT Act had already expired?

(c) Whether, after the CAA, 2016, and the repeal of the KVAT Act pursuant thereto, on 22.06.2017, the State legislature retained any residual power of legislation so as to amend the provisions of Section 25 (1) of the KVAT Act through the Kerala Finance Act, 2018?

(d) Whether the amendment to the provisions of Section 25 (1) of the KVAT Act, through the Kerala Finance Act, 2018, and the pre-assessment notices and assessment orders issued consequent thereto, could be justified by relying on the savings clause under Section 174 of the SGST Act?

7. For the sake of convenience, issues (a) and (b) are taken together for consideration first and issues (c) and (d) taken together thereafter. The arguments advanced before me by counsel on either side have also followed the said pattern.

Re: Issues (a) and (b):

It is the contention of learned counsel for the writ petitioners that, when under the provisions of Section 25 (1) of the KVAT Act, as it stood prior to its amendment with effect from 01.04.2017, the limitation period for re-opening an assessment under the Act was five years from the end of the relevant assessment year, and no notices had been served on the assessees within the said period, the subsequent amendment that increased the period of limitation to six years would not confer a jurisdiction on the assessing authorities to re-open an assessment that had become final by 31.03.2017. It is pointed out, with reference to the decisions in Garikapati Veeraya v. N.Subbiah Choudhry – [AIR 1957 SC  540], S.S. Gadgil v. Lal & Co. – [AIR 1965 SC 171], I.T.O.,  Ahmedabad v. Devshankar Bhatt – [AIR 1969 SC 778], State of Punjab and Others v. M/s.Shreyans Indus Ltd., etc. –  [AIR 2016 SC 1185] and Commercial Tax Officer, Anchal and  Others v. S. Najeem and Another – [2018 (4) KHC 666 (DB)], that an amendment in a taxing statute cannot be viewed as retrospective in its operation so as to revive assessments that had already attained finality prior to the date of amendment.

8. Alternatively, it is contended that even if the amendment to the main provision of Section 25 (1) of the KVAT Act can be seen as empowering the assessing authorities to re-open assessments for the assessment years up to six years prior to 01.04.2017, the third proviso cannot have the effect of empowering the authorities to re-open assessments beyond six years prior to 01.04.2017. This is because a proviso cannot expand the ambit of the main provision and must necessarily be subservient to it. Reliance is placed on the decisions in Gajraj Singh etc. v. The State Transport Appellate Tribunal and Others etc. – [AIR 1997 SC 412], M/s. Gurcharan Singh Baldev Singh v. Yashwant Singh and Others  – [AIR 1992 SC 180], Isha Valiamohamad and another v. Haji Gulam Mohamad & Haji Dada Trust – [AIR 1974 SC 2061]  and J.K. Synthetics Limited v. Commercial Taxes Officer – [(1994) 4 SCC 276] to support the said contention.

9. Per Contra, it is the submission of Sri. C.E Unnikrishnan, learned Special Government Pleader, that the amendment brought in with effect from 01.04.2017, conferred on the assessing authorities the power to re-open assessments for assessment years up to six years prior to 01.04.2017. He relies upon the judgment of a Constitution Bench of the Supreme Court in S.C. Prashar and another v. Vasantsen Dwarkadas and others – [AIR 1963 SC 1356] to fortify his submission. He also places reliance on the decisions of this Court in Binu Gopinath v. State of Kerala – [2018 (2) KLT 991] and Paul Varghese v. State of Kerala – [(2005) 13 KTR 29 (Ker)] to suggest that the amendments brought about through the Kerala Finance Act, 2017 are retrospective in their operation. As regards the amendment effected to the third proviso to Section 25 (1) of the KVAT Act with effect from 01.04.2017, it is his contention that the amendment brought in significant changes to the wording of the proviso in that, while earlier the phraseology used mandated that assessments already re-opened had to be completed within a particular period, the amendment had the effect of empowering authorities to re-open assessments within the extended period mentioned in the proviso. He points out that this is particularly so in relation to the assessment year 2010-11, where the six year period under Section 25 (1) would expire by 31.03.2017 but now, on account of the amended third proviso, the assessment for 2010-11 could be re­opened before 31.03.2018. It is his contention that the amendments under the Act have to be seen as retrospective by implication as the sole purpose of the amendment was to recover such tax as had not been assessed in the years prior to the changeover to the GST regime.

10. I have considered the rival submissions on the above issues. It is now well settled that on the expiry of the period of limitation prescribed under a fiscal statute for re-opening an assessment, the assessee gets a valuable right in the form of immunity from assessments under the Act. The said vested right/immunity cannot be taken away through any power of extension of the period of limitation, exercised after the expiry of the said period, by any authority in whom such power to extend is conferred by the statute. The power to extend a period of limitation must be exercised before the expiry of the normal period, as has been held in Shreyans case (Supra).

11. The question then arises as to whether a legislative amendment can confer such a power on a statutory authority to take away a right/immunity that has accrued to an assessee? The answer to that question is in the affirmative. It is well settled that the legislature can, through a retrospective amendment of the statutory provisions, take away such vested rights that have accrued to assessees. But, was there such a retrospective amendment in the instant cases? As already noticed, the amendment in question was expressly made effective only from 01.04.2017. The period for re-opening assessments under Section 25 (1) of the Act was enlarged from five years to six years only with effect from 01.04.2017. The provisions of Section 25 (1), save the third proviso thereto, have therefore to be construed as having only a prospective operation.

12. As regards the third proviso to Section 25 (1), which too was amended with effect from the same date, to state that “the period for proceeding to determine any assessment which expires on 31.03.2017 shall be extended up to 31.03.2018, the position is slightly different. A Division Bench of this Court in Commercial Tax Officer, Anchal and Others v. S. Najeem and Another – [2018 (4) KHC 666 (DB)], while rejecting the argument of the Government pleader who sought to justify a re-opening of assessments based on the amended provisions of Section 25 (1) of the KVAT Act, with effect from 01.04.2017, observed as follows at paras 14 and 32;

“14. The learned Special Government Pleader (Taxes) lastly argued that there was an amendment by substitution to Section 25(1) by which the period for proceeding to determine was made 6 years. When a substitution is made as distinguished from addition, deletion or insertion then, the substituted provision would relate back to the date of the enactment unless otherwise specified. Strong reliance was placed on AIR 2014 Karnataka 120 (Full Bench) [Hassan Co­operative Milk Producers Societies Union Limited v. State W.A.No.230 of 2017 & – 18 – connected cases of Karnataka] to urge the position. At least the notices issued within the six year period has to be sustained argues the Special G.P. In Hassan Co-operative Union the Full bench considered the issue of a substitution made, changing the term of an elected committee of a cooperative society from “five co-operative years” to “five years from the date of election”. The State sought to appoint an Administrator as per the pre-amended provision deeming the term of the committees elected prior to the substitution, as having expired at the end of the cooperative year. The Full Bench was considering the issue as referred by a Division Bench (D.B) doubting the decision of another D.B in Shankarappa Mallappa Kelagiri Vs. The Co­operative Election Commissioner.

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 W.A.No.230 of 2017 & – 43 – connected cases 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 Section 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 section 25 (1), substituting the period of limitation from five to six years.”

13. Thereafter, however, the court referred to the decision in Binu Gopinath – [2018 (3) KHC 482] to observe as follows with respect to the amended provisions of the 3rd proviso to Section 25 (1) of the KVAT Act;

“33. Binu Gopinath v. State of Kerala [2018 (3) KHC 482] was also relied on by the learned Special Government Pleader. The W.A.No.230 of 2017 & – 44 – connected cases provision which was considered therein was distinct from that considered here. Finance Act, 2017, as we noticed, substituted the provision under sub-section (1) of Section 25 and provided six years from the last date of the assessment year, as the period of limitation for proceeding to determine the tax payable. The assessment which came up for consideration before the learned Single Judge was of the year 2011-12. As per the earlier provision and the limitation provided of five years, the period stood expired on 31.03.2017, after which the amendment by substitution was brought into the statute book. We have already held that substitution as such would not have any retrospective effect. The learned Single Judge had also not declared the assessment to be retrospective merely for reason of a substitution having been made. There was a proviso in the substituted sub-section extending upto 31.03.2017, the period for proceeding for any assessment which expires on 31.03.2017. Hence, the proviso by necessary intendment granted retrospective effect to the six year period at least for the assessment year 2011-12. The decision has absolutely no application on the facts emanating from the appeals before us.”

14. The suggestion that the amendments effected to the third proviso to Section 25 (1) of the KVAT Act, through the Kerala Finance Act, 2017, would enable the revenue authorities to re-open assessments, even in those cases where the erstwhile period of limitation of five years had expired as on 31.03.2017, finds support in another Division Bench decision of this Court in Paul Varghese v. State of Kerala – [(2005) 13 KTR 29 (Ker)], where, while interpreting a similar proviso under the erstwhile Kerala General Sales Tax Act, that sought to extend the period for completion of assessments through an amendment that was brought in after expiry of the period for completion of assessments under the unamended Act, the court relied on the decisions of the Supreme Court in Commercial Tax Officer v. M/s.Biswanath Jhunjhunwala – [AIR 1997 SC 357] and Additional  Commissioner (Legal) v. Jyothi Traders – [1999 (112) STC  277] to hold as follows:

“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 the 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 pronouncements 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.”

15. In the instant cases, it can be seen that the purpose of the amendment to the third proviso to Section 25 (1) of the KVAT Act was only to extend the time for re-opening those assessments where the period of limitation for re-opening under the unamended provisions was to expire by 31.03.2017. The object of the amendment was to permit a re-opening of such cases till 31.03.2018. The amendment has to be viewed in the backdrop of the introduction of the new regime of GST in the State with effect from 22.06.2017, on which date the KVAT Act was repealed by the State legislature. In my view, the circumstances under which the amendment was carried out clearly bring out the intention of the legislature to permit a re-opening of past assessments under the KVAT Act up to 31.03.2018 and it is this intention that must be read into the third proviso to Section 25 (1), as amended with effect from 01.04.2017, so as to give it full effect.

16. Before parting with the issues, I must also address the arguments of learned counsel for the petitioners that, going by the well-settled principles of statutory interpretation, a proviso cannot enlarge the scope of the main provision to which it is appended. The contention is essentially that, inasmuch as the provisions of Section 25 (1) of the KVAT Act enlarged the period for re-opening assessments from five years to six years only with effect from 01.04.2017, the third proviso could not be seen as permitting a re- opening of past assessments beyond the five-year period of limitation prescribed under the unamended Act. The legal position with regard to the principles that must guide an interpretation of a proviso have been pithily stated in the decision of the Supreme Court in S.Sundaram Pillai & Ors. v. V.R.Pattabiraman & Ors. – [(1985) 1 SCC 591] as follows:

“A proviso may serve four different purposes:

1. Qualifying or excepting certain provisions from the main enactment;

2. It may entirely change the very concept of the intendment of the main enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable;

3. It may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and

4. It may be used merely to act as an optional addendum to the enactment with the sole object of explaining the real intendment of the statutory provision.”

17. In the instant cases, as already noticed above, while the main part of Section 25 (1) clearly indicates that the extended period of six years for re-opening assessments is to operate prospectively with effect from 01.04.2017, the third proviso seeks to carve out those assessments, where the period of re-opening would have expired by 31.03.2017, for a differential treatment, by stating that in such cases, the re-opening could be carried out before 31.03.2018. To treat the said proviso as having only prospective effect would render meaningless the words used by the legislature in the said proviso and accord to it the same meaning as the main provision. Going by the tests enumerated in Sundaram Pillai (Supra), the third proviso to Section 25 (1), as amended with effect from 01.04.2017, has to be seen as qualifying the ambit of the main enactment with the object of explaining the real intendment of the statutory exercise. I therefore find that issue (a) has to be answered in the negative and in favour of the assessees, and issue (b) in the affirmative, in favour of the revenue and against the assessees.

Re: Issues (c) and (d):

Although detailed arguments have been advanced before me on both these issues, I find that I need confine myself only to a consideration of issue (c) in these cases. This is because issue (d) had come up for consideration before a learned single judge in a batch of cases where the validity of Section 174 of the State GST Act had been called in question. Rejecting the contentions of the assessees in those cases, the court in Sheen Golden Jewels  (India) Pvt. Ltd. v. State Tax Officer & Ors. – [2019 (27) KTR  119 (Ker)] found that the mere repeal of the KVAT Act with effect from 22.06.2017 did not have the effect of making the KVAT inapplicable in respect of those actions that were expressly saved by the provisions of Section 174 of the State GST Act. The Court found that the State legislature retained its legislative power to enact the savings clause under Section 174 of the State GST Act and that the only difference in the nature of that power was that, while prior to the introduction of GST through the CAA the State Legislatures enjoyed exclusivity in the mater of legislation on the subject of taxes on sale or purchase of goods, after the CAA, they had simultaneous legislative power, with the Parliament, to legislate in respect of taxes on supply (which included sale) of goods or services or both. The challenge to the notices and orders issued/passed by the revenue authorities was rejected on the finding that the actions of the revenue authorities, in issuing such notices and passing such orders, were saved by the provisions of Section 174 of the State GST Act, the validity of which was also upheld.

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 re­opening 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 – [JT (1996) 10 SC 854]. 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.

21. I therefore find that issue (c) has to be answered in the negative and in favour of the writ petitioners. The amendments to Section 25 of the KVAT Act, through the Kerala Finance Act, 2018 are declared illegal and unconstitutional in as much as they were beyond the legislative competence of the State Legislature.

In the result, these writ petitions are disposed by declaring that,

(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.

(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 31.03.2018 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.

(ii) The legality of the orders/notices impugned in these writ petitions shall stand determined by the declarations in (i) and (ii) above.

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