STATE’S POWER TO AMEND VAT LAW AFTER GST HELD ULTRA VIRES : SUPREME COURT

STATE’S POWER TO AMEND VAT LAW AFTER GST HELD ULTRA VIRES: SUPREME COURT 

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

THE STATE OF TELANGANA & ORS.

  VERSUS

M/S TIRUMALA CONSTRUCTIONS 

   CIVIL APPEAL NO(S). 1628 OF 2023

DATE OF JUDGEMENT : OCTOBER 20, 2023

HEADNOTE:-

The Batch of Appeals arising from Judgments delivered by the Telangana, Gujarat and Bombay High Court has been filed with respect to the validity of VAT Amendment Act in their respective States. The concerned States (Telangana and Gujarat) have appealed aggrieved by the judgments. HELD-The amendments in question, made to the Telangana VAT Act, and the Gujarat VAT Act, after 01.07.2017 were correctly held void, for want of legislative competence, by the two High Courts (Telangana and Gujarat High Court). The judgment of the Bombay High Court is held to be in error; it is set aside; the amendment to the Maharashtra Act, to the extent it required pre-deposit is held void.

IMPORTANT PARAS:-

A. Interpretation of Section 19-

PARA 73. Section 19 seeks to achieve three aims. The first is to preserve the existing status quo with regard to the state and central indirect tax regime, for a period of one year from the date of commencement of the Amendment or till a new law is enacted whichever is earlier. The second is authorizing the competent legislatures i.e. the State Legislatures and Parliament to amend existing laws which were in force in states and other parts of the country (obviously both Central and State laws. The third was the repeal of such laws. Now, that Section 19 was meant to be transitional cannot be doubted. In its absence, the several hundreds of state enactments and central laws which were in force, would have been jeopardized. Other than Section 19 there is no saving provision which is part of the the procedure of that as such majority of not less than two thirds of the members present and voting in both the Houses of Parliament. After the passage of the Bill, it is to be presented to the President for assent. Unlike in the case of recommendations of the cabinet, or when any other bill is presented, the President has no choice, but “shall” assent to the Amendment. The proviso to Article 368 requires that wherever enumerated provisions or parts of the Constitution are sought to be amended in addition there is a category of amendments which have to be ratified by the legislature of not less than one half of the States by the resolutions of their state legislatures.

B. Whether the power of amendment or repeal is subject to limitations under Section 19

PARA 97. It is, therefore, held that there were no limitations under Section 19 (read together with Article 246A), of the Amendment. That provision constituted the expression of the sovereign legislative power, available to both Parliament and state legislatures, to make necessary changes through amendment to the existing laws. As held in Rama Krishna Ramanath (supra) the transitional power (in that case, Section 143 (3)) “the provision by its implication confers a limited legislative power to desire or not to desire the continuance of the levy.” This limited legislative power was not constricted or limited, in the manner alleged by the states; it is circumscribed by the time limit, indicated (i.e. one year, or till the new GST law was enacted). It could, therefore, enact provisions other than those bringing the existing provisions in conformity with the amended Constitution.

C. Validity of Telangana Act tested from the touch stone of its originating as an ordinance

PARA 102. In the present case, the Telangana ordinance was promulgated on 17.6.2016. The Telangana State GST Act was enacted and received the assent of the Governor on 25.05.2017; it was brought into force on 01.07.2017. The state GST Act contained a savings and repeal law, which sought to save acts done, privileges and rights accrued under the repealed enactment, i.e. the State VAT Act. It was sought to be argued that once the State Legislature approved the ordinance and enacted the amendment, in conformity with it, the provisions of the Ordinance became part of the act. The question of legislative competence would not arise, because the mere confirmation of an ordinance is within the competence of the State legislature. Since the law was introduced through a different procedure, i.e. ordinance, the effect of that law, empowering the VAT officials to reopen or complete assessments, was no different.

PARA 105. The state of Telangana had argued to the contrary, and explained that when the ordinance was issued, there was no doubt about the state possessing legislative competence. As of that date (17.06.2017) the power to amend existing laws, was permissible under Section 19 of the Amendment. However, that argument is not tenable, because the ordinance’s validity and effect might not have been suspect on the date of its promulgation; yet, the issue is that on the date when it was in fact, approved and given shape as an amendment, the State legislature had ceased to possess the power. By that time, the State GST and the Central GST Acts had come into force (on 01.07.2017). Therefore, Section 19 ceased to be effective. The original entry (Entry 54 of the State List) ceased to exist. In the circumstances, the state legislature had no legislative competence to enact the amendment, which approved the ordinance, which consequently was rendered void.

Conclusions:-

PARA No. 116 In view of the foregoing discussion and conclusions, the findings of the court in these cases are:

1. Section 19 of the Constitution (101^st Amendment) Act, 2016 and Article 246A enacted in exercise of constituent power, formed part of the transitional arrangement for the limited duration of its operation, and had the effect of continuing the operation of inconsistent laws for the period(s) specified by it and, by virtue of its operation, allowed state legislatures and Parliament to amend or repeal such existing laws.
2. Since other provisions of the said Amendment Act, had the effect of deleting heads of legislation, from List I and List II (of the Seventh Schedule to the Constitution of India), both Section 19 and Article 246A reflected the constituent expression that existing laws would continue and could be amended. The source or fields of legislation, to the extent they were deleted from the two lists, for a brief while, were contained in Section 19 . As a result, there were no limitations on the power to amend.
3.  The above finding is in view of the vacuum created by the coming into force of the 101^st  Amendment, which resulted in deletion of the heads of legislation in the two lists aforesaid.
4.  The amendments in question, made to the Telangana VAT Act, and the Gujarat VAT Act,  after 01.07.2017 were correctly held void, for want of legislative competence, by the two High Courts (Telangana and Gujarat High Court). The judgment of the Bombay High Court is, for the above reasons, held to be in error; it is set aside; the amendment to the Maharashtra Act, to the extent it required pre-deposit is held void.