2023 (10) TMI 1208 - SC - GST

Judgment clarifies Sections 19-20 of 101st Amendment are transitional; States lack post-GST power to amend VAT laws

SC held that Sections 19 and 20 of the Constitution (101st Amendment) Act, 2016 are transitional provisions enacted in exercise of constituent power, not ... Continuance of inconsistent laws as a transitional provision - power to amend or repeal existing tax laws under Section 19 - Article 246A as a source of concurrent legislative field for goods and services tax - legislative competence of State Legislatures post-GST commencement - validity and effect of ordinances and their confirmation by legislatures - retrospective validating / curative legislation and limits of competenceContinuance of inconsistent laws as a transitional provision - power to amend or repeal existing tax laws under Section 19 - Article 246A as a source of concurrent legislative field for goods and services tax - Scope and legal character of Section 19 of the Constitution (101st Amendment) Act, 2016 read with Article 246A. - HELD THAT: - The Court held that Sections 19 and 20, enacted as part of the 101st Amendment, are transitory and incidental provisions enacted in the exercise of constituent power and formed part of the transitional arrangement for a limited duration. Section 19 enabled continuance in force of laws relating to tax on goods or services which were inconsistent with the amended Constitution and allowed competent legislatures to amend or repeal such laws during the limited period. Read with Article 246A, Section 19 operated to fill the vacuum created by alteration of legislative entries in the Seventh Schedule and thus supplied the source for amendment or repeal by competent legislatures until the GST framework became operative. Consequently, the word 'amend' in Section 19 was not to be narrowly construed as confined to purely curative changes; it encompassed a plenary legislative activity (subject to constitutional limits) for the limited duration specified by the provision. [Paras 73, 80, 83, 95, 116]Section 19 and Article 246A, as part of the constituent enactment, constituted the transitional source enabling continuation and amendment or repeal of inconsistent tax laws for the limited period specified; the power to amend under Section 19 was not confined to purely curative adjustments.Legislative competence of State Legislatures post-GST commencement - retrospective validating / curative legislation and limits of competence - Whether State legislatures had competence after 01.07.2017 to enact amendments (including retrospective validating provisions) to pre-GST VAT laws. - HELD THAT: - The Court reaffirmed that legislative competence must exist at the time the impugned amendment is enacted. Once the GST laws came into force on 01.07.2017 and the entries in the Seventh Schedule were reconstituted, the State Legislatures ceased to have competence to legislate on matters outside the narrow residual scope preserved by the amended Entry 54. Accordingly, amendments enacted after the GST commencement date that sought to extend or revive substantive powers beyond the competence then available (including retrospective validating provisions enacted after 01.07.2017) could not be sustained. The Court observed that while curative or validating legislation is permissible in principle, its validity depends on the competence of the legislature when the validating amendment is made. [Paras 90, 92, 112, 115, 116]Amendments to pre-GST VAT statutes enacted after 01.07.2017 which exceeded the legislative competence of the State as of that date are void; retrospective validating legislation cannot cure lack of competence at the time of enactment.Validity and effect of ordinances and their confirmation by legislatures - legislative competence of State Legislatures post-GST commencement - Validity of the Telangana amendments effected first by ordinance on 17.06.2017 and later confirmed by State enactment (on 02.12.2017) to extend limitation and reopen assessments. - HELD THAT: - The Court analysed ordinance jurisprudence and the requirement of legislative competence at the time of confirmation. Although an ordinance has the same force as law while validly in operation, confirmation by the legislature must itself be within the legislature's competence at the time of enactment. The Telangana ordinance promulgated on 17.06.2017 operated during the transitional window; however, when the ordinance's terms were later embodied in a State enactment after the GST laws took effect, the State no longer had competence to make the substantive amendment. As a result, the confirmation/ enactment effected after 01.07.2017 could not validate an exercise of power beyond the legislature's competence, and the amendments were held void for want of legislative competence. [Paras 104, 105, 106, 116, 117]The Telangana amendments (including those confirmed after GST commencement) that extended limitation and authorised reopening of assessments were invalid for want of legislative competence when enacted and are therefore void.Retrospective validating / curative legislation and limits of competence - legislative competence of State Legislatures post-GST commencement - Validity of the Gujarat Section 84A and Maharashtra amendments (and explanations) enacted after 01.07.2017 to enlarge limitation or impose pre-deposit conditions. - HELD THAT: - The Court considered the Gujarat and Maharashtra statutes which, by retrospective or explanatory amendments made after GST commencement, sought to exclude periods of litigation or impose pre-deposit conditions to enable reopening or continuation of assessments. Although recognizing that curative and validating legislation can be permissible, the Court held that such measures cannot be employed when the legislature lacked the competence to make the substantive change at the time of enactment. Consequently, the Gujarat provision Section 84A (enacted with retrospective effect in 2018) and the Maharashtra amendments/ explanations (enacted after GST commencement) were beyond the State's competence and liable to be struck down. The Court also accepted that amendments which are purely procedural and within competence may survive, but the impugned measures went beyond such permissible scope. [Paras 108, 111, 114, 115, 116]The Gujarat and Maharashtra amendments enacted after the GST commencement date insofar as they exceeded the States' legislative competence (including retrospective validating provisions and measures to reopen finalised assessments or extend limitation) are unconstitutional and void.Final Conclusion: The Court concluded that Section 19 and Article 246A formed part of the transitional architecture enabling continuance and amendment or repeal of inconsistent pre-GST tax laws for a limited duration, but legislative competence must exist at the time of enactment. Accordingly, the Telangana and Gujarat appeals are dismissed (their post-GST amendments struck down for lack of competence); the assessees' appeals against the Bombay High Court succeed to the extent indicated. No order as to costs. Issues Involved:1. Interpretation of Section 19.2. Whether the power of amendment or repeal is subject to limitations under Section 19.3. Validity of Telangana Act tested from the touchstone of its originating as an ordinance.4. Validity of Gujarat and Maharashtra Acts.Summary:I. Interpretation of Section 19Section 19 of the Constitution (101st Amendment) Act, 2016, was enacted as part of the constituent power and has the same force as the rest of the constitutional amendment. It was not a mere legislative device but a transitional provision to preserve the existing state and central indirect tax regime for a period of one year from the date of commencement of the Amendment or until a new law is enacted, whichever is earlier. This provision allowed competent legislatures to amend or repeal existing laws during this transitional period. The Court held that the absence of Section 19 would have jeopardized several state enactments and central laws, leading to catastrophic consequences.II. Whether the power of amendment or repeal is subject to limitations under Section 19Section 19 conferred a limited legislative power to amend or repeal existing laws, but this power was not constricted to merely bringing existing enactments in line with the new provisions of the Constitution. The Court held that Section 19 and Article 246A should be understood as both the power enabling the existing state of affairs to continue and also enabling both the center and the states to make necessary changes in the existing laws through amendment or repeal. The authority to legislate is expressed through Section 19, read with Article 246A, and there were no limitations on the power to amend.III. Validity of Telangana Act tested from the touchstone of its originating as an ordinanceThe Telangana ordinance was promulgated on 17.06.2016, and the Telangana State GST Act was enacted and brought into force on 01.07.2017. The Court held that the validity of the amendment by the state legislature, which conformed to the ordinance on 02.12.2017, went to its root of jurisdiction, rendering it void and unenforceable. The Court also held that acts done in pursuance of the ordinance cannot lapse, but the invalidity of the amendment rendered any action taken under the ordinance void.IV. Validity of Gujarat and Maharashtra ActsThe Gujarat VAT Act was amended to add Section 84A, which was given retrospective effect. The Court held that the retrospective effect given to the amendment could not save it after the coming into force of the GST laws on 01.07.2017. The Maharashtra VAT Act was also amended to require a mandatory pre-deposit of 10% of the disputed tax liability. The Court held that the Maharashtra legislature ceased to have any authority over the subject matter after 01.07.2017, when the GST regime came into effect, rendering the amendments void.VI. Conclusions1. Section 19 and Article 246A formed part of the transitional arrangement and allowed state legislatures and Parliament to amend or repeal existing laws.2. There were no limitations on the power to amend under Section 19.3. The amendments to the Telangana VAT Act and the Gujarat VAT Act after 01.07.2017 were correctly held void for want of legislative competence.4. The judgment of the Bombay High Court was in error, and the amendment to the Maharashtra Act requiring pre-deposit was held void.The appeals filed by the States of Telangana and Gujarat were dismissed, and the appeals of the assessees against the judgment of the Bombay High Court were allowed. There was no order on costs.