2022 (7) TMI 420 - HC - VAT and Sales Tax

Telangana VAT Amendment Act 2017 Ruled Unconstitutional

M/s. Sri Sri Engineering Works and others Versus The Deputy Commissioner (CT), Begumpet Division, Hyderabad, and others.

M/s. Sri Sri Engineering Works and others Versus The Deputy Commissioner (CT), Begumpet Division, Hyderabad, and others. - [2022] 104 G S.T.R. 51 ... Issues Involved:1. Constitutionality of the Telangana Value Added Tax (Second Amendment) Act, 2017.2. Legislative competence of the State of Telangana to enact the Second Amendment Act post the Constitution (101st Amendment) Act, 2016.3. Validity of extending the limitation period for assessments and revisions from four years to six years.Detailed Analysis:Constitutionality of the Telangana Value Added Tax (Second Amendment) Act, 2017:The petitioners challenged the constitutionality of the Telangana Value Added Tax (Second Amendment) Act, 2017, arguing it was ultra vires the Constitution of India. They sought a declaration that all notices and orders issued based on the extended limitation period of six years should be declared illegal, null, and void.Legislative Competence of the State of Telangana:The petitioners contended that after the Constitution (101st Amendment) Act, 2016, the State of Telangana lacked the legislative competence to enact the Second Amendment Act. The amendment to Entry 54 of List II restricted the State's power to levy taxes only on specific goods (petroleum products and alcoholic liquor for human consumption). The State could not legislate on goods in general. The argument was supported by various judgments, including those from the Gujarat High Court in Reliance Industries Limited and the Kerala High Court in Hindalco Industries Limited.The court agreed, stating that the legislative competence must be traceable to the Constitution. Post the Constitution Amendment Act, the State's power was confined to the goods mentioned in the amended Entry 54. The Second Amendment Act, which extended the limitation period for all goods, was beyond the State's legislative competence.Validity of Extending the Limitation Period:The Second Amendment Act extended the limitation period for assessments and revisions from four years to six years. The petitioners argued that this extension was invalid as it was enacted after the GST regime had come into effect. The court noted that the Constitution Amendment Act aimed to subsume multiple indirect taxes into a single GST, thereby eliminating the State's power to legislate on VAT for goods other than those specified in the amended Entry 54.The court held that the Second Amendment Act could not be sustained as it was inconsistent with the scheme of the Constitution Amendment Act and the GST regime. Section 19 of the Constitution Amendment Act provided a transitional period of one year for States to amend or repeal inconsistent laws. The Second Amendment Act, enacted after this period, was invalid.Ordinance and Retrospective Effect:The State argued that the Second Amendment Act was a continuation of an Ordinance promulgated within the one-year transitional period. The court rejected this argument, stating that legislative competence must be derived from the Constitution, not from an earlier legislation or ordinance. The Ordinance, although promulgated within the transitional period, could not validate the Second Amendment Act enacted after the State had lost its legislative competence.Conclusion:The court declared the Telangana Value Added Tax (Second Amendment) Act, 2017, unconstitutional and devoid of legislative competence. Consequently, all notices and orders issued under the extended limitation period were set aside and quashed. The writ petitions were allowed, and the court emphasized the need for legislative actions to align with constitutional provisions and the GST regime.