TMI Blog2021 (4) TMI 961X X X X Extracts X X X X X X X X Extracts X X X X ..... s basic contention is that the State is denuded of its power to re-assess a dealer s tax liability under the provisions of the KVAT Act after amendment to Entry 54 of the State List vide the Constitution (101st Amendment) Act, 2016, (the Amendment Act), which was notified to be brought into force w.e.f., 16.9.2016 and the subsequent repeal of the KVAT Act w.e.f., 1.7.2017, vide Section 173 of the KGST Act. The appellant s contention is totally untenable in view of the insertion of saving clause, namely Section 174 of the KGST Act in order to ensure that the repeal of the KVAT Act shall not affect liabilities accrued or tax payable under the KVAT Act. Therefore, in view of the savings clause under Section 174, the appellant s contention that the State cannot reassess the liability incurred prior to repeal of the KVAT Act is totally baseless. Constitutional validity and the assertion that the State s legislative power have been taken away - HELD THAT:- It is pertinent to note that the power to enact Section 174 of the KGST Act can be traced to Article 246A, which, when read with Article 366(12-A), confers power on the States to make laws with respect to any tax on supply of goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution Amendment starts with non obstante clause which provides that any provision of any law relating to tax on goods or service or on both in force in any State immediately before the commencement of the Constitution Amendment Act which is inconsistent with the provisions of the Constitution as amended, shall continue to be in force until amended or repealed or until expiration of one year, whichever is earlier. 4. It was further contended that before the learned Single Judge that the Constitution Amendment Act was notified on 16.9.2016 and one year expired on 15.9.2017. The Karnataka Goods and Service Tax Act, 2017 was introduced w.e.f., 1.7.2017. Therefore, KVAT Act can be enforced only till 15.9.2017 or 1.7.2017, whichever is earlier. It was further contended that as per Section 2 of the Constitution Amendment Act, Article 246A was introduced which authorizes the legislation of law relating to Goods and Service Tax. Sourcing the above powers, Karnataka Goods and Service Tax Act, 2017 was introduced w.e.f., 1.7.2017. Section 174 of Karnataka Goods and Service Tax Act, 2017 provides Repeal and Savings clause and Section 174(1) clauses (d) and (e) protect the tax, penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /7046839 (201213)/2017-18) dated 31.3.2018 passed by the 1st Respondent (Annexure-C) under Section 39(1) of the Karnataka Value Added Tax Act, 2003 as rectified by order endorsement dated 25.4.2018 (Annexure-F) as it is passed beyond the period stipulated under section 19 of the Constitution One Hundred and First Amendment Act in the absence of source of power under Entry 54. iii) To declare that clauses (d) and (e) of section 174(1) of the Karnataka Goods and Service Tax Act, 2017 are inconsistent and contradictory with the provisions of section 19 of the Constitution One Hundred and First Amendment Act 2016 and hence they are ultravires to the Constitution of India. iv) To declare that the powers under erstwhile Entry 54 do not exist post 15.9.2017 and therefore the provisions of the Karnataka Value Added Tax Act cannot be enforced after 15.9.2017 so long as the old Entry 54 has not been saved. v) To declare that when the provisions of Constitution are inconsistent with the provisions of a statute, the provisions of Constitution will prevail over the provisions of statute and so provisions of section 174 of the Karnataka Goods and Service Tax Act 2017 to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the KGST Act, 2017 does not affect the validity of KVAT Act, 2003 and the Orders passed under that enactment. 9. Therefore, the larger constitutional questions raised in the present writ petition and as sought to be canvassed by the learned Senior Counsel for the petitioner like the substitution of Entry 54 in List II, effect of Article 246-A inserted by the 101stConstitutional Amendment Act of 2016, the sunset Clause as the learned Senior Counsel chose to name it, namely Clause 19 of the said 101st Constitutional Amendment Act etc, are all the questions which can be raised and considered only in an appropriate case to which these amended Constitutional and statutory legal provisions under the GST law regime are applicable for a tax period which falls after 01/07/2017. The Entry 54 of List II and KVAT Act, 2003 for the tax period in question, viz. 2012-13 was very much in existence for the said period and these provisions are not under challenge. Merely passing of the re-assessment order after 01/07/2017 does not get adversely affected on the basis of the said arguments sought to be canvassed by the learned counsel for the petitioner. 10. The learned Advocate General, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is dismissed with a liberty to the petitioner Assessee Company to avail the remedy by way of an appeal if it so chooses and if any such an appeal is filed within four weeks from today, the objection of limitation shall not come in the way of the Assessee petitioner subject to the other conditions for maintaining such appeal being fulfilled by the Assessee petitioner. 15. Accordingly, the present writ petition is dismissed with no order as to costs. 9. Learned counsel appearing for the appellant has vehemently argued before this Court that the learned Single Judge has erred in law and in facts in holding that there is an alternative remedy available in the matter. His contention is that the basic question that arises for decision is whether Section 174 of the Karnataka Goods and Services Act, 2017, relating to savings of the erstwhile KVAT Act, 2003, is within the competence of the State legislature. 10. Learned Counsel has further contended that the authority to tax sale of goods and enact a law like the Karnataka VAT Act, 2003 flows from Article 246 read with Entry 54, List II of the Seventh Schedule of the Constitution of India. On account of the Constitution (101 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r transitory scheme by the state legislature to negate the full effect of that provision. 14. He has further contended that the manner in which Section 19 operates is that all provisions of the Karnataka VAT Act, 2003 and other similar laws made by the States cannot survive the one year outer limit prescribed in that provision. If an amendment is affected to Karnataka VAT Act, 2003 within one year, the said amended provision along with the Karnataka VAT Act, 2003 would operate till the expiry of one year. If a partial repeal of the Karnataka VAT Act, 2003 is affected by the legislature within one year that would take effect. The unrepealed provision will continue to operate. But, a full repeal will take place on the expiry of one year and the unrepealed provisions will also stand repealed. In other words, irrespective of the exercise of the power of amendment or repeal under Section 19 by the State within one year, no vestige of the Karnataka VAT Act, 2003 can survive the one year guillotine. 15. Learned Counsel has further contended that the savings attempted through Section 174 is to allow the Karnataka VAT Act, 2003 to continue to operate for the purposes specified in that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Moreover, Section 19 of the Constitution (101st Amendment) Act, 2016 is a transitory, temporary law that does not operate beyond one year of its commencement. Also Entry 54, List II of the Seventh Schedule of the Constitution of India is substituted. An omission and substitution is not repeal. Hence, Section 6 of the General Clauses Act 1897 does not apply or save either the original Entry 54, List II of the Seventh Schedule of the Constitution of India or the provisions of the Karnataka VAT Act, 2003. Reliance has been placed upon the following judgments delivered by the Hon ble Supreme Court; a) Royala Corporation (P) Ltd Ors., vs. Director of Enforcement, New Delhi, reported in (1969) 2 SCC 412. b) Kohlapur Canesugar Works Ltd., vs. Union of India, reported in (2000) 2 SCC 536. c) General Finance Co. Ors., vs. Assistant Commissioner of Income Tax, Punjab, reported in AIR 2002 SC 3126. d) State of Punjab vs. Mohar Singh, reported in AIR 1955 SC 84. e) Gian Singh vs. State of Punjab, reported in 1999(9) SCC 312. 19. On the other side, learned counsel for the State of Karnataka has argued that the appellant s case, in short, is that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny tax on the supply of goods. The crucial difference between the power conferred under the erstwhile Entry 54 and Article 246A is that the power under Entry 54 was restricted only to taxes on sale or purchase of goods, whereas now under Article 246A, the States have the power to make laws with respect to taxes on supplies of goods. He has further submitted that the term supply of goods is of much wider amplitude than the term sale of goods. It is axiomatic that the term supply of goods includes sale of goods and, therefore, the power to legislate with respect to tax on the supply of goods would include the power to legislate with respect to tax on the sale of goods. He has further contended that in short, the legislative power to make laws with respect to sale of goods continues to vest in the State Government and the only difference is that previously, the power vested exclusively with the State, vide Article 246(3) read with Entry 54 of List II, whereas now, the power is conferred simultaneously on the Centre and the States under Article 246A. 23. He has further submitted that the power to enact Section 174 of the KGST Act can be traced to Article 246A, which, when re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Centre and the States revenues would not be affected during the interregnum. Therefore, section 19 does not confer any power on the State to enact Section 174 of the KGST Act, which as submitted earlier, can be traced to the power conferred under Article 246A. 26. Learned Counsel has further submitted that it is beyond any doubt that during the tax periods in question in this appeal (2012-13), Article 246(3), read with Entry 54 of the State List, empowered the State to legislate with regard to levy of tax on sale or purchase of goods. The periods in question in the instant appeal are prior to the coming into force of the 101st Constitution Amendment Act. Therefore, the taxable events, that is, the sale or purchase of goods, occurred prior to the repeal of the KVAT Act, during which time the State had full power to levy, assess, and collect tax. He has further submitted that the levy, assessment, and collection of tax had occurred prior to the repeal of the KVAT Act. The same is in view of the fact that under the scheme of the Act, tax is levied under Section 3 at the time of sale of goods (which occurred during the tax periods in question), assessed at the time of filing of ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution to pave way to enable the parliament and the State Legislature to enact unified indirect taxation law on goods and service tax. The amendment inserted Articles i.e., 246A, 269A and 279A. Articles 248, 249, 250, 268, 269, 270, 271, 286, 366, 368 were amended and Article 268A was omitted. The 101st Amendment Act, 2016 introduced a new Article after Article 246 i.e., Article 246A and the same reads as under: 246A special provisions with regard to Goods and Service Tax (1) Notwithstanding anything contained in Article 246 and 254, Parliament, and subject to clause (2) the Legislature of every State have power to make laws with respect to Goods and Service Tax imposed by Union or by such State. (2) Parliament has exclusive power to make laws with respect to goods and service tax where the supply of goods or of service or both takes place in the course of interstate trade or commerce................................... 31. As per the Amendment Act, 2016, 7th Schedule to the Constitution was also amended. List II (State List) was also amended. By the Amendment, Entry 52 (Entry Tax) Entry 55 (Tax on advertisement) were omitted. Entry 54 (tax on sale or purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) affect the previous operation of the repealed Acts and orders or anything duly done or suffered there under; or (c) affect any right, privilege, obligation, or liability acquired, accrued or incurred under the repealed Acts or orders under such repealed Acts: Provided that any tax exemption granted as an incentive against investment through a notification shall not continue as privilege if the said notification is rescinded on or after the appointed day; or (d) affect any tax, surcharge, penalty, fine, interest as are due or may become due or any forfeiture or punishment incurred or inflicted in respect of any offence or violation committed against the provisions of the repealed Acts; or (e) affect any 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, as aforesaid, and any such investigation, inquiry, verification (including scrutiny and audit), assessment proceedings, adjudication and other legal proceedings or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving Mills Ltd., vs. State of Maharashtra, reported in (1997) 6 SCC 12 , in paragraphs 8 to 11 has held as under: 8. A conjoint reading of the provisions of the Code and the respective Entries would indicate that land revenue including the assessment and collection of revenue, the maintenance of land records, survey for revenue purposes and records of rights, and alienation of revenue lie under the broad-head 'land revenue'. It is well-settled legal position that the land has been widely interpreted. In Navinchandra Mafatlal vs. The CIT, [(1965) 1 SCR 829 at 836 ] a Constitution Bench had observed that the question before this Court related to the correct interpretation of a word appearing in a Constitution Act which, as has been said, must not be construed in a narrow and pedantic sense. The interpretation of the statute would apply to the interpretation of the entries subject to reservation that their application is of necessity conditioned by the subject-matter of the enactment itself. It should be remembered that the problem before us is to construe a word appearing in Entry 54 which is a head of legislative power. It cannot be read in a narrow or restricted sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e construed in any narrow or pedantic sense and that construction must not be construed in any narrow or pedantic sense and that construction which is most beneficial to the widest possible amplitude of its power, must be adopted. An exclusionary clause in any of the entries should be strictly and, therefore, narrowly construed. No entry should, however, be so read as not (sic) to rob it of entire content. A broad and liberal spirit should, therefore, inspire those whose duty it is to interpret the Constitution, and the courts are not free to stretch or to prevent the language of an enactment in the interest of any legal or constitutional theory. Constitutional adjudication is not strengthened by such an attempt but it must seek to declare the law but it must not try to give meaning on the theory of what the law should be but it must so look upon a organic thing and must adapt itself to the changing situations and pattern in which it has to be interpreted. It has also to be borne in mind that where division of powers and jurisdiction in a federal Constitution is the scheme, it is desirable to read the Constitution in harmonious way. It is also necessary that in deciding whether any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slature has explicit power to make law for that State with respect to the matters enumerated in List II (State List) to the Seventh Schedule to the Constitution. The State s power to impose tax is derived from the Constitution. The entries in the three lists of the Seventh Schedule are not power of legislation but merely fields of legislation. The power is derived under Article 246 and other related articles of the Constitution. The legislative fields are of enabling character designed to define and delimit the respective areas of legislative competitive areas of legislative competence of the respective legislature. There is neither implied restriction imposed on the legislature nor is any duty prescribed to exercise that legislative power in a particular manner. But the legislation must be subject to the limitations prescribed under the Constitution. 20. When the vires of an enactment is challenged, it is very difficult to ascertain the limits of the legislative power. Therefore, the controversy must be resolved as far as possible, in favour of the legislative body putting the most liberal construction upon the relevant legislative entry so that it may have the widest amplitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ronouncing on the constitutional validity of a statute, the Court is not concerned with the wisdom or un-wisdom, the justice or injustice of the law. If that which is passed into law is within the scope of the power conferred on a Legislature and violates no restrictions on that power, the law must be upheld whatever a Court may think of it. [See State of Bombay vs. F.N.Balsara, AIR 1951 SC 318 ]. 39. In the aforesaid judgment, it has been held that where a validity of a statute is questioned and there are two interpretations, one of which would make law valid and the other void, the former must be preferred and validity of law upheld. 40. A similar and unsuccessive challenge was made in respect of constitutional validity in the case of Sheen Golden Jewels (I) P.Ltd., vs. State Tax Officer (IB), SGST Department, Thiruvananthapuram, reported in 2019(23) G.S.T.L 4 (Ker). The High Court of Kerala has dismissed the writ petition with a liberty to prefer appeal before the appellate authority within a period of 30 days. 41. The appellant s basic contention is that the State is denuded of its power to re-assess a dealer s tax liability under the provisions of the KVAT Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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