In a landmark judgment, the Supreme Court has ruled on the validity of state amendments to the Value Added Tax (VAT) Amendment Acts in the aftermath of the Goods and Services Tax (GST) implementation. This decisive ruling pertains to the amendments made by several states, notably Telangana, Gujarat, and Maharashtra.
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The crux of the matter revolved around the legislative competence of states to introduce amendments to their VAT laws following the inception of the GST regime on July 1, 2017. As per Section 19 of the Constitution (101st Amendment) Act, 2016, there was a stipulated one-year timeframe for modifying laws related to the taxation of goods and services in alignment with the newly amended Constitution. The pivotal question was whether states possessed the authority to introduce amendments beyond this designated period.
The Division Bench of the Supreme Court, consisting of Justices S. Ravindra Bhat and Aravind Kumar, made several significant determinations:
“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.”
The Court’s observations were profound and multifaceted. It noted that
“Section 19 of the Constitution (101st Amendment) Act, 2016 and Article 246A enacted in exercise of constituent power, formed part of the transitional arrangement for the limited duration of its operation, and had the effect of continuing the operation of inconsistent laws for the period(s) specified by it and, by virtue of its operation, allowed state legislatures and Parliament to amend or repeal such existing laws.”
Further elaborating on the term ‘amend’, the Court observed:
“The meaning of the term ‘amend’ is well-known it takes within its sweep the idea of correcting something, adding something, deleting, or substituting something or doing something to an existing document, enactment, or rule to make it better.”
In the case of Telangana, an ordinance introduced alterations to the local VAT Act before the one-year amendment deadline. However, by the time it was enacted, the state legislature had lost its legislative competence. The Court explained,
“However, that argument is not tenable, because the ordinance’s validity and effect might not have been suspect on the date of its promulgation; yet, the issue is that on the date when it was in fact, approved and given shape as an amendment, the State legislature had ceased to possess the power. By that time, the State GST and the Central GST Acts had come into force (on 01.07.2017). Therefore, Section 19 ceased to be effective. In the circumstances, the state legislature had no legislative competence to enact the amendment, which approved the ordinance, which consequently was rendered void.”
For Gujarat, an amendment with retrospective effect from 1.4.2006 was declared unconstitutional after the GST laws were implemented. In Maharashtra, the legislative authority ceased once the GST regime began, making retrospective amendments null and void.
The Court’s judgment underscores the importance of a seamless transition to the GST regime. It provides clarity on the boundaries of state legislative power concerning VAT law amendments post-GST, setting a precedent for future cases.
Case Title: The State of Telangana & Ors. V. M/S Tirumala Constructions., Civil Appeal No(S). 1628 Of 2023.
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