This Tax Alert summarizes a recent ruling of the Supreme Court (SC). The issue involved was whether the State Government can amend Value Added Tax (VAT) laws post introduction of Goods and Services Tax (GST).
Amendments were carried out in Telangana, Maharashtra and Gujarat VAT Act post 1 July 2017. Earlier, Telangana and Gujarat High Court (HC) had struck down the amendment on the ground that the existing law could only be amended to make it consistent with the changes made to the Constitution and State did not have the legislative competence post 1 July 2017. However, Bombay HC had upheld the validity of the amendment carried out in the Maharashtra VAT Act.
SC observed that Section 19 of the Constitution (101st Amendment) Act, 2016 is an incidental and transitory provision of the Constitution which has a limited life and was enacted by Parliament using its constituent power. It has the same force as a constitutional amendment, which is more than a mere Parliamentary enactment.
Further, there is no limitation on the power to amend, under Section 19. This power is not limited to bringing the existing laws into conformity with the amended Constitution. However, it is circumscribed by the time limit of one year, or until the GST law is enacted.
W.r.t situation where the Ordinance was brought before 1 July 2017, but it became Act post 1 July 2017, SC held that the State legislature no longer had the legislative competence on the date when it was actually approved as an amendment.
Accordingly, SC upheld the Telangana and Gujarat HC ruling and set aside the Bombay HC ruling.
Comments
Taxpayers may re-evaluate the limitation period and timelines for revision and reopening of assessments under Telangana and Gujarat VAT laws in view of the SC ruling.
Since the insertion of Explanation in relation to pre-deposit is rendered invalid by the Apex Court, the taxpayers in Maharashtra can reassess the requirement of pre-deposit in light of earlier Bombay HC ruling which read down the provisions.
The businesses should also analyse the validity of amendments made in other State VAT and Entry Tax Act post 1 July 2017.
It is relevant to note that Kerala HC had also held that amendment in Kerala VAT Act cannot be made post introduction of GST [2022-VIL-595-KER].
