Dr. M.V.K. Moorthy, Supreme Court Advocate

All the fraternity brethern practicing indirect tax laws as well as the revenue authorities are all well aware that in our country GST Regime was ushered in as a measure of great revolution in indirect tax laws with a prime motto namely “ONE NATION ONE TAX”. Indian GST Law was given effect from 01-07-2017 by enactment of GST Law. What happened in the country to other indirect tax laws ? to put it in a simple way barring Central Excise and Salt Act 1944 that preserved certain few items as well as the customs law, all other indirect tax laws came to an end with subsumation thereof with GST Law. It is also worthy to notice that introduction of GST Law in our country was not that much easy as the Indian Constitution general and the three lists in the VII Schedule in particular, provided no sanctity or authority for charge of tax on supply of goods or services. In the scheme of Indian constitutional law, the competence to legislate laws on various entries envisaged in the lists was specifically demarcated in article 246 of the Constitution. In order to see that there is no overlapping in legislation or for that matter there is no complaint that one legislature is intruding into another. The way in which legislative competence has been adumbrated in articles 245 and 246, it was very clear that a kind of federal poly is to be maintained. Since there was no power to levy tax on supply of goods or services, article 246 and other relevant articles required amendment to the Constitution. In this regard, the need to amend article 246 to enable introduction of GST regime in our country was imminent.

The amendments to facilitate levy of GST in the country have been ultimately done by the Constitution (101st Amendment) Act 2016 whereby a new article 246A was inserted by which a simultaneous power to levy GST both by the parliament and the State legislature was provided to say the Union of India as well as every State including Union Territory was enabled to levy GST on all intrastate supply of goods or services. However, by clause (2) of the newly inserted article exclusive power has been conferred to enact laws on the parliament only in relation to goods or services on supply of both that would take place in the course of interstate trade or commerce.

A new article 279A to constitute goods and services tax council and its composition and the scope of recommendations and to establish mechanism to adjudicate certain disputes was inserted. Article 366 which defines various expressions were also amended by insertion of a new clause (12A) namely GST to mean any tax on supply of goods or services or both except taxes on the supply of alcoholic liquor for human consumption. In Union List the scope of entry 84 providing for duties of excise was also amended to confine the duty on 6 products only as such products continued to be in VAT regime. Simultaneously entries 92 and 92C in the Union List were omitted, so also entry 54 in the State list was also modified to confine levy of sales tax on the products which are subject to duties of excise in terms of Entry 84 of the Union List. Entries 52 and 55 of state list were omitted, Entry 62 again is modified to define levy of tax on entertainments and amusements to the extent levied and collected by a Panchayat, Municipality or regional council or District Council. The Amendment Act was assented to by the President of India on 08-09-2016 and brought into force from 16-09-2016. However, a specific section providing for transitional provisions was also envisaged therein through section 19.

Pursuant to the amendment to the constitution, parliament enacted CGST Act to come into force from 01-07-2017. Simultaneously every State as also Union Territory legislature enacted State / Union Territory goods and services Tax Act to be effective from 01-07-2017. Both the Central and State Acts inter-alia provided section 174 to repeal the State VAT laws, Central Excise and Salt Act, Central Sales Tax Act, Service Tax and all other State VAT laws, Entry Tax, Luxury Tax as all these Acts were subsumed into GST Law. However, the said section inter-alia provided for saving the pending proceedings under the repealed laws as on the date of advent of the GST Law to attain disposal to a logical end.

Section 19 of the Constitutional Amendment Act, somehow was misunderstood and misinterpreted as the said provision stated that notwithstanding introduction of GST Law, the repealed laws though inconsistent with GST would however continue for a window period of one year from the date on which constitutional amendment Act was given effect. Resultantly Gujarat State, State of Maharashtra, State of Kerala, Sate of Telangana amended the provisions under the repealed VAT laws so as to enlarge the period of limitation for assessments, revisions, as well as rectifications so as to garner more revenue. Maharashtra VAT Act was amended by introducing new condition in the appellate provision as to requirement of pre deposit of 10% of the disputed tax for availing the remedy of appeal. Writ Petitions were filed by the aggrieved taxable persons questioning the amendments in the respective High Courts contending that the amendments so made after repeal of VAT Laws is not valid and as such it is a matter of legislative incompetence. The Gujarat High Court, Kerala High Court and Telangana High Court have struck down the amendments made to the VAT Laws on the important promise that the State legislature has no power and also competence to amend VAT Law. It was also held that the window of one year as envisaged in section 19 is not to bring new legislations, but to amend the VAT Law to the extent of the commodities mentioned in the modified /restructured entry 54 of the State List. However, in the case of Amendment to Maharashtra VAT Act, a Full Bench of Bombay High Court in the case of United Projects Vs. State of Maharashtra and Ors upheld the amendments to Maharashtra VAT Act 2017. The State Governments of Gujarat, Kerala and Telangana went in appeals to the Supreme Court against the orders of the respective High Courts, whereas, the assessees went in an appeal to the Supreme Court against the Full Bench judgement of the Bombay High Court. The Hon’ble Supreme Court in its landmark judgement dealing with the amendments affected to the four State VAT Laws vis-à-vis the scope and impact of section 19 of 101st Constitutional Amendment Act 2016 held that the amendments made to State VAT Acts in 2017 were without legislative competence and accordingly affirmed the judgements of Telangana, Kerala and Gujarat High Courts of striking down the amendments and reversed the Full Bench Bombay High Court in the case of united projects and others Vs. State of Maharashtra reported in 109 GSTR 314.

From the proposition of law laid down by the Hon’ble Supreme Court in its judgement dated 20-10-2023, it is clear that the window period as provided in section 19 does not authorize fresh amendments to the repealed VAT Laws. The Hon’ble Supreme Court in unequivocal terms echoed that the legislature lost its competence to legislate any fresh legislation or make amendments to the sales tax, / VAT law when entry 54 in the State list was modified taking away all goods from the net of Entry 54 and therefore the window period to amend VAT Law or sales tax only in respect of the goods preserved for VAT in Entry 54. Therefore new amendments were held clearly without power and without legislative competence.

The proposition of law or ratio decidendi that can be deduced is that constitution is supreme and either the Central or State legislature shall have to make laws within the contours laid down in the constitution and when the legislation is lawful and competent. The reasons and objects prompted, the amendments with respect to VAT Laws though laudable, were held to be impermissible as the amendments sought to create fresh liabilities on the taxable persons.

I hope that this article would enlighten the legal position on the supremacy of the constitution holding that every enactment of the legislature is inferior to the constitution and satisfy parameters setout to abide by the provisions of the constitution.