Supreme Court strikes down Retrospective Application to Amendment on Telangana VAT Act on Initiation of GST Regime [Read Judgement]

The Supreme Court of India struck down the retrospective application to amendment on Telangana (Value Added Tax) VAT Act on initiation of GST Regime.

The VAT amendment was through an Ordinance, and was brought into force on 17.06.2017, i.e. 13 days before the time granted by the 101st Amendment Act, i.e. one year. The Amendment came into force on 16.09.2016. The ordinance sought to extend the period of limitation, and permitted to re-open assessments. This ordinance, continued till the State Legislature enacted it.

The Governor then assented to the law, and it came into force on 02.12.2017. Feeling aggrieved many traders and VAT payers approached the Telangana High Court, challenging the amendments to the local VAT Act. By the impugned judgment, the High Court accepted the challenge and struck it down, on various counts, including that the State had limited scope to amend its VAT Act, which in terms of Section 19 of the Amendment could have done it only to bring it in conformity with the amended Constitution. Other reasons included that the ordinance, could not have been confirmed, as the state was denuded of legislative competence after 01.07.2017.

In the batch of appeals arising from the judgment of the Bombay High Court, the parties were aggrieved by the fact that the Maharashtra VAT Amendment Act, which was initially made on 15.04.2017, was read down by a Division Bench judgment, of the Bombay High Court. That position was sought to be reversed, through an amendment which was brought into force, on 15.04.2017 and later in an effort to reverse the effect of a judgment, given retrospective effect. The writ petitions filed by such aggrieved parties, were dismissed. Consequently, they are in appeal.

The counsel for the Telangana State submitted that if one takes into account the fact that the effect of an ordinance and the effect of law are identical which is that they bind the space or subject matter to the extent they provide for it, the difference lies only in the manner of their creation. The counsel emphasized that the distinction lies in the procedure adopted rather than the content or the effect of the law. Whereas the origin of an ordinance is through a different entity which is the executive (clothed with limited legislative power), the Act, on the other hand, is an expression of a State legislative or Parliament.

It was argued on behalf of the assessee-respondents by Kapil Sibal, S. Ganesh, Nankani and Soparkar, Senior counsel and Sujit Ghosh, Advocate (hereafter “the assesses”) that continuance of inconsistent existing law is solely for the purposes of making them consistent (through amendments) with the amended architecture of the Constitution. It was submitted that to elucidate the ambit of powers under Section 19 of the Amendment, an inference can be drawn from Article 243ZF of the Constitution, which has been couched in a manner identical to Section 19.

A Two-Judge Bench comprising Justice S Ravindra Bhat and Justice Aravind Kumar observed that “The amendments in question, made to the Telangana VAT Act, and the Gujarat VAT Act, after 01.07.2017 were correctly held void, for want of legislative competence, by the two High Courts (Telangana and Gujarat High Court). The judgment of the Bombay High Court is, for the above reasons, held to be in error; it is set aside; the amendment to the Maharashtra Act, to the extent it required pre-deposit is held void.”

To Read the full text of the Order CLICK HERE

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