Constitutional validity of Amendment to KVAT post GST: limits on reopening assessments and 2018 amendment held beyond State's legislative competence

Constitutional challenge concerned amendments to Section 25(1) of the KVAT Act expanding limitation for reopening assessments around introduction of GST. Court found the 2017 amendment intended to permit reopening of past assessments expiring by 31.03.2017 until 31.03.2018, but the extended six-year prospective rule could not revive cases already time-barred by 31.03.2017. The 2018 amendment purporting to further extend reopening to 31.03.2019 was held beyond the State legislatures competence after repeal of KVAT on commencement of GST; the 2018 amendments were declared illegal and unconstitutional.

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Issues Involved:

1. Legality of notices and assessment orders issued under the Kerala Value Added Tax Act (KVAT Act) for the assessment years 2010-11 and 2011-12.
2. Retrospective operation of amendments to Section 25 (1) of the KVAT Act.
3. Legislative competence of the State Legislature to amend the KVAT Act after the Constitution (One Hundred and First Amendment) Act, 2016 (CAA 2016) and repeal of the KVAT Act.
4. Justification of pre-assessment notices and assessment orders based on the savings clause under Section 174 of the SGST Act.

Issue-wise Detailed Analysis:

Re: Issues (a) and (b):

The petitioners argued that the amendments to Section 25 (1) of the KVAT Act, which extended the limitation period for reopening assessments from five to six years effective from 01.04.2017, could not be applied retrospectively to assessments that had already become final by 31.03.2017. They cited several Supreme Court decisions, including Garikapati Veeraya v. N.Subbiah Choudhry and S.S. Gadgil v. Lal & Co., to support their contention that an amendment in a taxing statute cannot revive assessments that had attained finality before the amendment.

The respondents contended that the amendment conferred the power to reopen assessments for up to six years prior to 01.04.2017, relying on the Supreme Court decision in S.C. Prashar and another v. Vasantsen Dwarkadas and others. They argued that the third proviso to Section 25 (1) allowed reopening assessments for the year 2010-11 until 31.03.2018.

The court held that while the main part of Section 25 (1) had prospective effect from 01.04.2017, the third proviso allowed reopening assessments that would have expired by 31.03.2017 until 31.03.2018. The court found that the legislative intent was to permit reopening past assessments until 31.03.2018, thus answering issue (a) in the negative and issue (b) in the affirmative.

Re: Issues (c) and (d):

The court noted that the validity of Section 174 of the State GST Act had been upheld in Sheen Golden Jewels (India) Pvt. Ltd. v. State Tax Officer & Ors., which found that the repeal of the KVAT Act did not render it inapplicable to actions saved by Section 174. However, the court had to consider the legislative competence of the State Legislature to amend the KVAT Act after the CAA 2016 and its repeal on 22.06.2017.

The court observed that post-CAA 2016, the State Legislatures lost the power to legislate on taxes on the sale or purchase of goods, except for limited commodities. The power to amend a statute is a facet of legislative power, which the State Legislature did not retain after the CAA 2016. The court concluded that the State Legislature lacked the competence to amend the KVAT Act through the Kerala Finance Act, 2018, making such amendments unconstitutional.

Conclusion:

(i) Assessments that could be reopened until 31.03.2017 could be reopened until 31.03.2018 due to the amendment to the third proviso to Section 25 (1) via the Kerala Finance Act, 2017.
(ii) Assessments that could be reopened until 31.03.2018 could not be reopened until 31.03.2019 or thereafter based on the Kerala Finance Act, 2018, as the State Legislature lacked the power to amend the KVAT Act post-CAA 2016.
(iii) The legality of the impugned orders/notices is determined by the above declarations.

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