2022 (8) TMI 1246 - HC - VAT and Sales Tax

Court rules KVAT Act amendment is prospective, not retrospective. Another amendment beyond State Legislature's power. Appeals dismissed.

State Tax Officer, State of Kerala Versus Baiju. A.A., Proprietor, ARC Tech and Others

The court held that the amendment to Section 25(1) of the KVAT Act through Finance Act 11/2017 is prospective and does not apply retrospectively. ... Constitutional validity of retrospective amendment to VAT act after amendment to Constitution to introduce GST laws - Validity of assessment notices - notices are without jurisdiction and competence of the Assessing Officers or not - competence of the Assessing Officer under amended Section 25(1) of the KVAT Act through Kerala State Finance Act Nos.11/2017 and 5/2018 - time limitation - HELD THAT:- The liability to pay tax is incurred with the taxable event as per the charging section. The liability arising from the taxable event is independent of any consideration of time or period of limitation. The time limit for reassessment is for the convenience of the dealers. Therefore, the amendment to Section 25(1) made with effect from 01.04.2017 shall be read as enabling the officers to initiate proceedings within six years with the end of the Assessment Year. Hence, the time limit and the year and date on which the notice is issued, are relevant. What is the plain expression either for the commencement of the Act or for the operation of the Finance Act 11 of 2017? - HELD THAT:- The long and short of the conclusion is the substituted words ‘six years’, being operational in the Statute Book with effect from 01.04.2017, the Assessment Year 2010-11 is excluded from the reassessment enquiry by 31.03.2017. The fundamental rule in any interpretation is that if the legislative expression is unambiguous; the Courts employ the golden rule of interpretation and give the meaning applicable to the words employed by the State Legislature. It is clear to one's mind and interpretation that the amendment to Section 25(1) of KVAT Act substituting the words ‘five years’ to ‘six years’ is prospective. Competence of the State Legislature to amend the Kerala Value Added Tax Act through Finance Act 5/2018 - HELD THAT:- Since the legislative competence is traceable to Article 246A, which speaks about goods – supply of goods or services, the argument canvassed is that under Article 246A, the State Legislature has broader power than what it had before 16.09.2016. The repeal of the KVAT Act shall not be understood as taking away the original power of the State Legislature to make amendments to the repealed Act. The amendments are not simultaneously operating along with Kerala Goods and Services Tax Act. Still, the amendments provide for the extension of the period of limitation for assessment attracting Section 25(1) of the KVAT Act, and the same is legal and constitutionally valid. The legislative competence to amend KVAT Act through Finance Act 5/2018 is not established. It is found from the scope and scheme of powers enjoyed by the Centre and the State as regards the supply of goods and services, power to amend the KVAT Act is unavailable - The amendment to KVAT Act by Finance Act 5/2018 is without competence. Appeal dismissed. Issues Involved:1. Retrospective application of the amendment to Section 25(1) of the Kerala Value Added Tax Act (KVAT Act) through Finance Act 11/2017.2. Legislative competence of the State Legislature to amend the KVAT Act through Finance Act 5/2018 after the Constitution (101st Amendment) Act, 2016 (CAA 2016) and the repeal of the KVAT Act.Detailed Analysis:1. Retrospective Application of the Amendment to Section 25(1) of the KVAT Act:The primary issue was whether the amendment to Section 25(1) of the KVAT Act, which extended the limitation period for initiating assessment from five years to six years, applied retrospectively to the assessment year 2010-11. The court examined the legislative intent and the language of the amendment. The court noted that the amendment made through Finance Act 11/2017 was effective from 01.04.2017. The court held that the amendment is prospective and does not apply to assessments for which the limitation period expired by 31.03.2017. The court emphasized that the legislative intent was clear, and the amendment was not meant to have retrospective effect. The court also referred to the principle that a statute is not to be construed to have a larger retrospective operation than its language renders necessary.The court relied on the judgment in *Commercial Tax Officer v. Najeem* and concluded that the amendment to Section 25(1) of the KVAT Act is prospective. The court rejected the argument that the amendment should be read as retrospective, stating that the legislative intent was to apply the amendment from 01.04.2017.2. Legislative Competence to Amend the KVAT Act through Finance Act 5/2018:The second issue was whether the State Legislature had the competence to amend the KVAT Act through Finance Act 5/2018 after the CAA 2016 and the repeal of the KVAT Act. The court examined the changes brought by the CAA 2016, which introduced Article 246A, conferring concurrent taxing powers on the Union and the States for levying GST on the supply of goods or services. The court noted that the CAA 2016 denuded the State Legislatures of their power to legislate in respect of taxes on the sale or purchase of goods, except for specific commodities.The court referred to the judgment in *Baiju A A v. State Tax Officer* and the decisions of the Gujarat and Telangana High Courts, which held that the State Legislature lacked the legislative competence to amend the KVAT Act after the repeal of the Act. The court concluded that the amendment to the third proviso of Section 25(1) of the KVAT Act through Finance Act 5/2018, which extended the period for reopening assessments to 31.03.2019, was beyond the legislative competence of the State Legislature.The court also referred to the judgment in *Union of India v. Mohit Minerals Pvt. Ltd.*, which highlighted that the power under Article 246A can be exercised simultaneously by the State Legislature and Parliament, and none hold any unilateral or exclusive legislative power. The court held that the legislative competence to amend the KVAT Act was not established, and the amendment through Finance Act 5/2018 was without competence.Conclusion:The court dismissed the appeals, holding that the amendment to Section 25(1) of the KVAT Act through Finance Act 11/2017 is prospective and does not apply to assessments for which the limitation period expired by 31.03.2017. The court also held that the amendment to the third proviso of Section 25(1) of the KVAT Act through Finance Act 5/2018 is beyond the legislative competence of the State Legislature after the CAA 2016 and the repeal of the KVAT Act.