Telangana High Court
M/S. Shree Ganesh Jewels vs Govt. Of Telangana on 3 July, 2023
Author: N.Tukaramji
Bench: N.Tukaramji
THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
AND
THE HON'BLE SRI JUSTICE N.TUKARAMJI
W.P.No.16709 of 2023
ORDER:(Per the Hon'ble the Chief Justice Ujjal Bhuyan) Heard Mr. T.Nitender Singh, learned counsel for the petitioner and Mr. L.Venkateswar Rao, learned Special Standing Counsel, Commercial Tax for the respondents.
2. By filing this petition under Article 226 of the Constitution of India, petitioner has assailed legality and validity of the Notice of Assessment of Value Added Tax (VAT) dated 21.06.2023 issued by respondent No.4.
3. Learned counsel for the petitioner submits that the impugned notice seeks to carry out assessment of the petitioner for the period from 01.04.2016 to 31.03.2017. He submits that the period of assessment is four years, which was extended to six years by the Telangana Value Added Tax (Second Amendment) Act, 2017 (Act 26 of 2017).
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4. This enactment was struck down by this Court as being unconstitutional vide judgment dated 05.07.2022 in W.P.No.7893 of 2020 and batch (M/s. Sri Sri Engineering Works v. Deputy Commissioner (CT)).
5. Relevant portion of the judgment of this Court in M/s. Sri Sri Engineering Works v. Deputy Commissioner (CT) (supra) reads as follows:
"As noticed above, the Ordinance was promulgated by the Governor on 17.06.2017. As per preamble to the Ordinance, it is stated that Government of India had enacted the CGST Act and Government of Telangana had enacted the TGST Act. But both the Acts had not been brought into force. Referring to the provisions of the VAT Act, it is stated that it empowers the State Government to levy tax on alcoholic liquor for human consumption and on petroleum products. According to the Constitution Amendment Act, levy of tax on those petroleum products and alcoholic liquor for human consumption is within the competence of the State Legislature. It further stated that repeal of the VAT Act except in respect of the goods included in Entry 54 of List II of the VII Schedule by the TGST Act, which was yet to be brought into force, would not affect any ::3::
investigation, inquiry, verification (including scrutiny and audit), assessment proceedings, adjudication and any other legal proceedings or recovery of arrears or remedy in respect of any such tax; surcharge, penalty, fine, interest, right, privilege, obligation, liability, forfeiture or punishment and any such investigation etc., may be instituted, continued or enforced and any such tax, surcharge etc, may be levied or imposed as if those Acts had not been so amended or repealed. Such repeal would not also affect any proceedings including those relating to appeal, revision, review or reference instituted before, on or after the appointed day under the said amended Acts or repealed Acts and such proceedings shall be continued under the amended Acts or repealed Acts.
Therefore, it was considered necessary to strengthen certain provisions of the VAT Act to overcome any limitations to help effective revenue realization. Therefore, it was decided to amend certain provisions of the VAT Act by undertaking a legislation. Since it was decided to give effect to such decision immediately and as the Legislature of Telangana was not in session, therefore, the Governor, in exercise of powers conferred by Clause (1) of Article 213 of the Constitution promulgated the Ordinance which basically extended the limitation from four years to six years in respect of assessments, reassessments, revision etc. ::4::
It is not necessary for us to go into the aspect as to whether the Ordinance was laid before the Assembly or not and as to whether it had ceased to operate after six seeks from reassembly of the Legislature. It may also not be necessary for us to labour on the aspect that the Second Amendment Act though published in the Telangana Gazette on 02.12.2017, was deemed to have come into force with effect from 17.06.2017 i.e. the date when the Ordinance was promulgated. This is because legislative competence cannot flow from an earlier legislation, be it an ordinance or an enactment. Legislative competence must be traceable to the Constitution. Therefore, no reliance can be placed on the Ordinance in support of the contention that the Second Amendment Act had derived competence from the Ordinance since it was a continuation of the law and had come into force from the date of promulgamation of the Ordinance. Such a line of reasoning, in our considered view, has no legal substance. Therefore, it is immaterial that the Ordinance was not challenged in Court.
That apart, the ostensible objective of the Ordinance as could be discerned from the preamble is to save any investigation, assessment, recovery of dues, legal proceedings etc., pending on the date of coming into force of the Constitution Amendment Act which is perfectly understandable and valid. But that does not ::5::
mean that limitation across the board could be extended by way of amendment to initiate fresh proceedings, such as, fresh revision proceedings, which otherwise had become time barred.
With effect from 16.09.2016 the Constitution was amended by virtue of the Constitution Amendment Act. While Article 246A was inserted immediately after Article 246, the earlier Entry 54 of List II was substituted by the new Entry 54, in the process denuding the States from making any law except on the sale of petroleum crude, high speed diesel, motor spirit (petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption. Thus the States did not have the competence to make law to levy VAT or such tax on any goods other than the above goods. Section 19 of the Constitution Amendment Act, which can be construed to be a sunset clause, provided for a window of one year to remove the laws inconsistent with the Constitution Amendment Act either by way of amendment or by way of repeal. The window period was given to remove the inconsistencies; not to prolong the inconsistencies. But what the State of Telangana did by promulgating the Ordinance was not to remove the inconsistencies in the VAT Act. As mentioned above, the Ordinance, in fact, introduced certain provisions extending limitation to enable initiation of fresh proceedings, such as, revisional ::6::
proceedings which are completely inconsistent with the scheme of the Constitution Amendment Act. On this ground itself, the Ordinance can be said to have no legal consequence.
However, by the Second Amendment Act, more particularly, by Section 7 thereof, the Ordinance was repealed. As already stated above, the Second Amendment Act cannot derive legislative competence from the Ordinance. It must derive legislative competence from the Constitution. Unfortunately, after substitution of Entry 54 of List II, State was denuded of such competence traceable to Article 246. As a standalone legislation, it cannot derive legitimacy traceable to Article 246A of the Constitution as well. Therefore, the Second Amendment Act made on 02.12.2017 though given retrospective effect from 17.06.2017 cannot be sustained as the same is devoid of legislative competence.
Needless to say, way back in 1964, Supreme Court in A.Hajee Abdul Shukoor (1 supra) was categorical in holding that while the State Legislature is free to enact laws which could have retrospective operation, its competence to make a law for a certain past period would, however, depend on its present legislative power and not on what it possessed at the period of time when the enactment would be in operation.
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Insofar the decisions relied upon by the learned Advocate General are concerned, we have already discussed why those would not be applicable to the facts and grounds of challenge made in this bunch of writ petitions.
Finally we may also look into the intention of the Parliament in enacting the Constitution Amendment Act. This is because it would give us a clear idea as to why the Constitution Amendment Act was brought about and why the Second Amendment Act cannot be sustained being completely inconsistent with the scheme of the Constitution Amendment Act and being denuded of its legislative competence. In Baiju A.A. (10 supra), Kerala High Court held as follows:
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 Distillery - [MANU/SC/0354/1997 : 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 ::8::
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.
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 ::9::
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.
Thus, upon thorough consideration of all aspects of the matter, we have no hesitation in holding that the Second Amendment Act is unconstitutional being devoid of legislative competence. It is accordingly declared as such. Consequently, the notices issued and orders passed under Section 32 (3) of the VAT Act which have been impugned in the present batch of writ petitions are hereby set aside and quashed."
6. From a perusal of the impugned notice dated 21.06.2023, we find that the said notice is clearly beyond the limitation period of four years from the end of the assessment period. Evidently, respondent No.4 has invoked the extended period of limitation of six years provided by Act 26 of 2017 though not specifically mentioned in the impugned notice. When this provision has been ::10::
declared unconstitutional by this Court, we are at a loss as to why respondent No.4 had issued the impugned notice based on such a provision.
7. In view of above and following the judgment of this Court in M/s. Sri Sri Engineering Works v. Deputy Commissioner (CT) (supra), impugned notice dated 21.06.2023 issued by respondent No.4 is hereby set aside.
8. Writ Petition is accordingly allowed. No costs.
As a sequel, miscellaneous petitions, pending if any, stand closed.
__________________ UJJAL BHUYAN, CJ _______________ N.TUKARAMJI, J Date: 03.07.2023 LUR