MAY 11, 2020

By Sumit Agarwal, DGM (Finance), Indian Oil Corporation Ltd

THE Gujarat High Court vide its order dt 16.04.2020 in the matter of Reliance Industries Vs State of Gujarat - 2020-TIOL-837-HC-AHM-VAT has held the Section 84Ai added in the VAT Act to be operative retrospectively w.e.f 01.04.2006, inter alia, providing for the exclusion of the period spent between the date of the decision of the appellate tribunal and that of the High Court as well as the Supreme Court in computing the period of limitation, referred to in Section 75 of the VAT Act as ultra vires.

In this article, an attempt has been made to list the key learnings which can be derived from the Judgment which will help the readers in understanding the GST laws and understanding the validity of the amendments made in the Various State VAT laws post implementation of GST.

1. The phrase "law in force in any State' mentioned in Section 19ii of the Constitution Amendment Act will include even a law made by the Parliament as it is in force in the state. The words used are not 'law enacted by state legislature'. Thus, even the Central levies such as the service tax, etc. will be covered by Section 19 of the Constitution (One Hundred and First) Amendment Act, 2016. Section 19 is not some section enacted under an Act of Parliament or State Legislature. It is a part of the constitution amendment Act and has to be read as an addendum to the Constitution.

2. Thus, the power to repeal or alter an enactment is co-extensive with the power to enact and may be retrospective or prospective. However, the legislature should have the competence at the time when such a repealing law is being enacted.

3. Repeal of the State VAT Act is not effected by the Constitution (One Hundred and First) Amendment Act, 2016. Repeal is effected by the State GST Acts. The repealing the VAT Acts by the State GST Act and providing the specific savings allows for assessments which can be initiated, continued and concluded

4. The Constitution nowhere provides that the Legislatures of the States can make law for imposing goods and services tax on the intra-State supply of goods or services or both. Further, the Constitution does not give powers to the Parliament for formulating principles for the purpose of determining which supplies shall be an intra-State supply of goods or services or both. The powers of Legislatures of States can be derived from Article 246A (1) read with Article 246A (2) and Article 286. There is no other provision in the Constitution which either confer the GST Law making the powers or curtails such law-making powers of the Legislatures of the States.

5. Amendment of State VAT Acts made after the 101st Amendment Act should be seen in accordance with the present provisions of the Constitution. The competence to make a law even for a past period depends on the present legislative power. After the amendment of the Constitution, both the Parliament and State Legislature have the competence to enact laws relating to the goods and services tax subject to Article 246A(2) read with Article 269A(5) and Article 286 and Article 279A.

6. The Entry 54 in List II in Schedule VII of the Constitution of India was amended to extinguish the power of states to levy taxes on sale or purchase of goods except taxes on the sale of petroleum products and alcoholic liquor for human consumption. Therefore, the power to amend any law with respect to levy of tax on the sale or purchase of goods such as "Gujarat VAT Act" could be said to have been abolished with the aforesaid amendment in the Entry 54 in List II in Schedule VII of the Constitution of India. Article 246A of the Constitution of India does not save Section 84A of the VAT Act from being declared invalid or ultra vires.

7. The entire scheme of the Constitution Amendment Act recognizes imposition of only "goods and services tax" under Article 246A of the Constitution of India. The phrase the "goods and services tax" is defined under Article 366(29A) to mean any tax on supply of goods or service or both except taxes on the supply of alcoholic liquor for human consumption. Such "supply" cannot be fragmented into different components by the State legislature and assume power to impose independent tax on the sale of goods without reference to the Goods and Services Tax Council. Such interpretation would be contrary to the entire scheme as well as the object and purpose of the Constitution Amendment Act. In fact, the provision providing for compensation to the States for the loss of revenue due to the goods and services tax would also be irrelevant if the State legislatures are independently empowered to enact sales tax/value added tax legislations by taking recourse to Article 246A of the Constitution of India.

8. If the State legislature has the power to enact the value added tax laws under Article 246A of the Constitution of India, then Entry 54 of List II of the Seventh Schedule to the Constitution which was retained to the extent of six products which are outside the GST regime will be rendered redundant. The very fact that Entry 54 of List II of the Seventh Schedule was retained in so far as the six products are concerned indicates that the sales tax/value added tax enactment is not permissible under Article 246A of the Constitution of India. Hence levy other than those goods mentioned in Entry 54 is not valid.

9. Unless the amendments made in VAT Act post GST is in the nature of Validating Act, the same is ultra vires with respect to goods covered under GST.

10. The provision requires the dealer to preserve books of accounts only for a period of six years from the end of the relevant accounting year. The proviso thereto requires further preservation of books of accounts only to the extent a matter is pending in appeal or revision. Therefore, any amendment in VAT law, exposing the dealer to assessment/reassessment/ revision for an indefinite period will is excessive and disproportionate.

i "84A.Exclusion of period in some cases

(1) Notwithstanding anything contained in this Act, an issue on which the Appellate Authority or the Appellate Tribunal or the High Court has given its decision which is prejudicial to the interest of revenue in some other proceedings and an appeal to the Appellate Tribunal or the High Court or the Supreme Court against such decision of the Appellate Authority or the Appellate Tribunal or the High Court is pending, the period spent between the date of the decision of the Appellate Authority and that of the Appellate Tribunal or the date of decision of the Appellate Tribunal and that of the High Court or the date of the decision of the High Court and that of the Supreme Court shall be excluded in computing the period referred to in section 34 or section 35.

(2) Notwithstanding anything contained in this Act, if any decision or order under section 73 or section 75 involves an issue on which the Revision Authority or Appellate Authority or the High Court has given its decision which is prejudicial to the interest of revenue in some other proceedings and an appeal to the High Court or the Supreme Court against such decision of the Appellate Tribunal or the High Court is pending, the period spent between the date of the decision of the Appellate Tribunal and the date of the decision of the High Court or the date of the decision of the High Court and the date of the decision of the Supreme Court shall be excluded in computing the period of limitation referred to in section 73 or section 75."

ii Section 19 of the Constitution (One Hundred and First) Amendment Act, 2016 reads as under:

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

[The author is FCA (Rank Holder), MBA and CFA. The views expressed are strictly personal.]