Entry 54 Omission of State List No Bar: Kerala HC Upholds S.174 KGST Saving Pre-GST Liabilities Against Josco Jewellers [Read Order]

In a batch of writ petitions led by Josco Jewellers Pvt. Ltd., the Kerala High Court has delivered a decisive ruling on the scope of State legislative competence in the post-GST era.

The petitioners, comprising jewellers, distributors, and other commercial entities, challenged the validity of Section 174 of the Kerala Goods and Services Tax Act, 2017 (“KGST Act”), which is a saving clause designed to preserve pre-GST tax liabilities, assessments, and recovery proceedings under the Kerala Value Added Tax Act, 2003 (“KVAT Act”) and allied statutes.

The central argument advanced by the petitioners was that the 101st Constitutional Amendment, which ushered in the Goods and Services Tax regime, fundamentally altered the fiscal legislative landscape.

Specifically, the amendment deleted and modified Entry 54 of List II in the Seventh Schedule, thereby denuding States of their power to levy sales tax on goods now subsumed under GST. Petitioners contended that Section 19 of the Constitutional Amendment Act permitted only a temporary continuation of pre-GST laws until 16 September 2017, after which the KVAT Act became a “dead letter.”

Consequently, they argued, the State lacked competence to enact Section 174 KGST Act, and any attempt to enforce past VAT liabilities was unconstitutional.

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The State, represented by the Additional Advocate General, countered that Section 174 was a valid saving provision enacted under the State’s residual legislative powers. It was argued that the omission of Entry 54 did not retrospectively extinguish liabilities already accrued under the KVAT Act.

Instead, the saving clause ensured continuity of enforcement, preventing a legal vacuum and protecting the State’s revenue interests. The State emphasised that the GST framework was never intended to wipe out past obligations, but only to restructure taxation prospectively.

Justice Dama Seshadri Naidu, delivering the judgment, upheld the State’s position. The Court reasoned that constitutional amendments do not automatically nullify accrued rights and liabilities unless expressly provided.

Section 174 of the KGST Act was held to be a legitimate exercise of legislative power, enabling the State to safeguard assessments, demands, and recovery proceedings initiated under pre-GST laws.

The Court rejected the contention that Entry 54’s omission permanently barred the State from saving past events, noting that fiscal discipline and continuity are essential to federal governance.

The ruling specifically addressed notices issued under Section 67 of the KVAT Act to Josco Jewellers for assessment years 2009-2012.

The Court held that such proceedings were validly saved by Section 174 and could be lawfully pursued. By dismissing the petitions, the Court affirmed that businesses cannot escape legacy tax liabilities merely because of the constitutional transition to GST.

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