No Legislative Competence To Amend KVAT Act After Introduction Of GST Act: Kerala High Court

The division bench of S.V.Bhatti and Justice Basant Balaji has observed that the amendment made by the Finance Act of 2018 to the provisions of the erstwhile KVAT Act to enable the department to initiate assessment proceedings in respect of assessments pending as of March 31, 2018 was illegal because the KVAT Act has already been repealed.

A batch of petitions were filed by the department. The jurisdictional Assessing Officers have served notices under Section 25(1) of the KVAT Act proposing to reopen the assessment for the Assessment Years 2010–11 and 2011–12. The notices in the writ petitions were after January 1, 2017 or January 1, 2018.

The issue raised was whether the amendment made by the Finance Act, 2018 to the KVAT Act by which a one-year extension was given for initiating assessment w.e.f from 01.04.2018 has legislative competence.

Yet another issue raised was whether the substitution of the period from "five years" to "six years" for initiating assessment proceedings by the Finance Act, 2017 has a retrospective effect.

The department/appellant contended that the Constitution's 101st Amendment has not taken away the power of the State Legislature to amend the KVAT Act. The entries on the subject are more comprehensive, and the conclusion, viz., the absence of legislative power to amend the KVAT Act, was erroneous. Therefore, the amendment through Finance Act 5/2018 to the third proviso was valid and within the competence of the State Legislature.

The respondent/assessee contended that there could be different dates for the commencement of the Act and the operation of the Act. In the amendment carried out by Finance Act 11/2017, the commencement and operation of the Act could be the same, but two different dates are incorporated. The commencement and operation of the amendment made to Section 25(1) of the KVAT Act by the Finance Act 11/2017 is for the Legislature to determine, and the Legislature has determined the commencement and operation as 01.04.2017.

The assessee submitted that the amendment to Section 25(1), substituting "five years" for "six years", is substantive. The limitation is usually a procedural law, and retrospective operation is through strict construction, and the expression of the legislature must be unambiguous. The dealers/petitioners cannot be subjected to reassessment for the period completed by 31.03.2017 unless the amended provision inserted by amendment is either expressly or by necessary implication retrospective.

The assessee submitted that Amendment by Finance Act 5/2018 in Section 25(1), the third proviso is an amendment to a repealed Act which power cannot be stated as saved by Section 174(4) of the Kerala State Goods and Service Tax Act. The legislative competence was not traced through the saving provision, and the competence was traced when the legislature by amendment was carried out.

"We have taken note of the applicable amendments introduced by CAA to the Constitution of India, the corresponding changes in the schedules, and taken note of the repeal of the KVAT Act and the extent of operation of Section 174 of the Kerala Goods and Services Taxes Act. The legislative competence to amend the KVAT Act through Finance Act 5/2018 is not established," the court said while dismissing the appeal.

Case Title: State Tax Officer & Anr Vs. Baiju A.A

Citation: 2022 LiveLaw(Ker) 462

Citation: WA NO. 48 OF 2020

Dated: 22.08.2022

Counsel For Appellant: Advocate Mohamad Rafiq

Counsel For Respondent: Advocates A Kumar, Alan Dev for Aji V Dev, K P Abdul Azeez, K N Sreekumaran, Premjith Nagendran, Harishankar V Menon, S K Devi, Mr S Anil Kumar, Bobby John, N.Muraleedharan Nair, Mayankutty Mather, and P.S Soman

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