THE STATE OF TELANGANA & ORS. v. M/S TIRUMALA CONSTRUCTIONS

JUDGMENT / ORDER OF THE SUPREME COURT

JUDGMENT

S. RAVINDRA BHAT, J. Table of Contents I. Background and relevant provisions ......................................2 II. Facts .........................................................................................9 III. Arguments of the appellant-states......................................... 11 IV. Arguments of the respondent-assessees ................................20 V. Analysis and reasoning .........................................................33 A. Interpretation of Section 19 ..................................................35 B. Whether the power of amendment or repeal is subject to limitations under Section 19 .............................................40

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C. Validity of Telangana Act tested from the touch stone of its originating as an ordinance .............................................50 D. Gujarat and Maharashtra Acts .............................................57 VI. Conclusions ............................................................................63

1Copy pinpoint1. This batch of appeals arise from judgments delivered by the Telangana, Gujarat and Bombay High Court. The concerned states (Telangana and Gujarat) have appealed aggrieved by the judgments. The assessee petitioners are appellants, and are aggrieved by the judgments of Bombay High Court. I. Background and relevant provisions

2Copy pinpoint2. The Constitution (101st Amendment) Act, 2016, (hereafter referred to as “the Amendment”) introduces a fundamental re-ordering of the constitutional premise of taxation by the Union and State Governments in India. It is the framework to enable the introduction of the Goods and Services Tax (GST). It confers new powers upon the Union Parliament and State Legislative Assemblies, and also creates institutions that have a significant bearing on the federal character of the Constitution.

3Copy pinpoint3. The pre-Amendment constitutional scheme had a vision of taxation of goods and services supplied within India. Excise and customs duty and excise on manufacture were within the scope of the legislative powers of the Union Parliament1, under the Seventh Schedule. No separate entry for Service Tax existed in the Constitution at the time it was enacted. In T.N.Kalyana Mandapam Assn. v. Union of India2, this court held that service tax as a subject matter was within the “residuary power” of the Union; nevertheless, Entry 92C was introduced into the Union List by the Constitution (88th Amendment) Act, 2004 clarifying that the Union had exclusive authority to impose a service tax. Taxation of sale and movement of goods was within the exclusive purview of the States,by Entries 52 and 54 of the State List (List II of the VIIth Schedule to the Constitution). The delineation of Union and State taxation powers through the Union and State Lists of the Seventh Schedule was precise and clear, leaving little room for

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any overlap in the kind of taxes that the Union could impose and those that a State could levy. The “Concurrent List” (or List III of the VII th Schedule) contained no taxing entries, signifying that the constitutional scheme for taxation was to apportion two distinct, exclusive spheres of taxation for the Union and the States.

4Copy pinpoint4. The initial move to introduce GST was through the Fiscal Responsibility and Budget Management Report and the first official announcement for a transition to GST, was made by the Government of India in 2006-07 by the Budget Speech of the then Finance Minister; this was reiterated in the Budget Speech of 2008-09 and followed up in 2009-10 when certain policy changes were announced in the Budget for that year. The “First Discussion Paper on Goods and Services Tax in India” released by the Empowered Committee in November 2009 was the first official document publicly delineating the contours of the proposed reform and nuances of the GST Model.

5Copy pinpoint5. The First Discussion Paper, in fact, explained the rationale for a constitutional amendment to introduce GST. It noted that while the Centre is empowered to tax services and goods up to the production stage, the States have the power to tax the sale of goods. The States do not have the power to levy a tax on the supply of services while the Centre does not have the power to levy a tax on the sale. It suggested for a constitutional amendment that would contain a mechanism for a harmonious structure of GST that would not affect the federal fabric.

6Copy pinpoint6. Then, with the deliberations between the Centre and States, aided by the Empowered Committee, the constitutional amendment process to usher in GST began. It resulted in the “Constitution (One Hundred and Fifteenth Amendment) Bill, 2011” After that failed attempt, the 2014 Amendment Bill was adopted and passed on 8 September 2016. The Bill became “the Constitution (One Hundred and First Amendment) Act, 2016”.

7Copy pinpoint7. The GST Council was constituted in September 2016. It is a constitutional institution comprising as its members the Finance Ministers of the Union and the States including Union Territories with members of the legislatures. It has the authority

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“to recommend to the Union and the States on various facets of GST, including Model GST laws, principles to determine the place of supply, levy of the tax, design of GST, dispute settlement, special provisions for a special category of States, and so forth”. GST Council’s recommendations led Parliament to enacted legislation.3

8Copy pinpoint8. The coming into force of the GST regime, and the passage of the amendment demonstrates a rare unanimity, a resolve across the political spectrum, to ensure that there is a single indirect taxation regime. The effect of the Amendment is to subsume all state and union taxes, on goods and services. Both the Union and the States will ostensibly have the power to tax the supply of goods and services. The 101 st Amendment Act takes away neither the Union's nor the States' taxing power but instead gives them the power to impose taxes on supply of goods and supply of services respectively.Through Article 246-A the Amendment creates: a. a new legislative field, conferring b. legislative authority outside the three Lists of the Seventh Schedule; c. concurrent powers to both Parliament and the State Legislatures to enact legislations on the same subject-matter and at the same time.

9Copy pinpoint9. There consequently is a fundamental change to the scheme of legislative relations between the Union and the States by departing from the underlying theory of exclusivity of legislative fields between Parliament and the State legislatures,in terms of the distribution of legislative powers carried out by Chapter I of Part XI of the Constitution4.

10Copy pinpoint10. To exemplify this:whilst Article 246-A changes the legislative distribution of powers, however, it does not upset the balance between

3 The Central Goods and Services Tax Act, 2017: it levies a tax on intra-State supplies of goods and services in all supplies within a State; the Integrated Goods and Goods and Services Tax Act, 2017: it levies a tax on inter-State supplies of goods and services; and (3) the Union Territory Goods and Services Tax Act, 2017: it levies a tax on intra-State supplies of goods and service. 4 Godfrey Phillips India Ltd. v. State of U.P. (2005) 1 SCR732,

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the Union and the States. Instead, it carries out the function of cross- empowerment. On the one hand, it enables the Union to legislative and collect taxes on certain subjects which were hitherto within the exclusive fold of the States (such as the taxes on sale and purchase of goods, luxury taxes, advertisement taxes, etc.), while retaining the legislative rights it hitherto possessed (such as taxes on manufacture, taxes on services, etc.) except that these taxes are subsumed in a larger legislative field - i.e., GST - and would be levied thereunder. On the other hand, Article 246-A also expands the legislative reach of the States to bring within their fold the subjects which were hitherto beyond their competence-such as tax on the supply of services, etc. As in the case of the Union, the States also continue to enact and impose taxes on the legislative fields they hitherto possessed (such as taxes on sale and purchase, taxes on betting and gambling, and taxes on advertisements), albeit as a partof GST which subsumes these legislative fields.

11Copy pinpoint11. Article 279-A provides for the Goods and Services Tax Council (hereafter “GST Council”). This provision also changes the underlying constitutional philosophy to a certain extent. Sub-clause (1) of Article 279- A creates a new constitutional institution; (2) confers upon it the power to make recommendations to the Union and the States; (3) provides that certain functions of other constitutional institutions shall be carried out on the basis of the recommendations of the GST Council5; (4) has overarching jurisdiction and carries extensive functions in relation to the design and structure of the goods and services tax; (5) has substantial role in resolution of disputes amongst the executive governments relating to GST, etc.6 In fact, the GST Council is empowered to even recommend on the model legislations and rates of tax on supply of goods and services.

12Copy pinpoint12. The relevant parts of the Amending Act, read as follows: In terms of Section 2 of the aforesaid Constitution Amendment Act, after Article 246, a new Article 246-A came to be inserted which reads as under:

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“246A. Special Provision with respect to goods and services tax--- (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State. (2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce. Explanation.---The provisions of this article, in respect of goods and services tax referred to in clause (5) of the article 279A, take effect from the date recommended by the Goods and Services Tax Council.” By Section 7, Article 268-A was omitted. After Article 269, Article 269-A has been inserted, which reads as under: “269A. Levy and collection of goods and services tax in course of inter-state trade or commerce--- (1) Goods and Services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council. Explanation---For the purposes of this clause, supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce. (2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India. (3) Where an amount collected as tax levied under clause (1) has been used for payment of the tax levied by a State under article 246A, such amount shall not form part of the Consolidated Fund of India. (4) Where an amount collected as tax levied by a State under article 246A has been used for payment of the tax levied under clause (1), such amount shall not form part of the Consolidated Fund of the State.

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(5) Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.” Section 12 of the Amendment inserted Article 279-A, which reads as follows: “279A. Goods and Services Tax Council --- (1) The President shall, within sixty days from the date of commencement of the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services Tax Council. (2) The Goods and Services Tax Council shall consist of the following members, namely:- (a) the Union Finance Minister.......Chairperson; (b) the Union Minister of State in charge of Revenue or Finance...... Member; (c) The Minister in charge of Finance or Taxation or any other Minister nominated by each State Government .....Members. (3) The Members of the Goods and Services Tax Council referred to in sub-clause (c) of the clause (2) shall, as soon as may be, choose one amongst themselves to be the Vice-Chairperson of the Council for such period as they may decide. (4) The Goods and Services Tax Council shall make recommendations to the Union and the State on--- (a) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax; (b) the goods and services that may be subjected to, or exempted from the goods and services tax; (c) model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-state trade or commerce under article 269-A and the principles that govern the place of supply;

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(d) the threshold limit of turnover below which goods and services may be exempted from goods and services tax; (e) the rates including floor rates with bands of goods and services tax; (f) any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster; (g) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and (h) any other matter relating to the goods and services tax, as the Council may decide. (5) The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel. (6) While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the need for a harmonized structure of goods and services tax and for the development of a harmonised national market for goods and services. (7) One-half of the total number of Members of the Goods and Services Tax Council shall constitute the quorum at its meetings. (8) The Goods and Services Tax Council shall determine the procedure in the performance of its functions. (9) Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely:--- (a) the vote of the Central Government shall be a weightage of one- third of the total votes cast, and (b) the votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting.

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(10) No act or proceedings of the Goods and Services Tax Council shall be invalid merely by reason of--- (a) any vacancy in, or any defect in, the constitution of the Council; or (b) any defect in the appointment of a person as a Member of the Council; or (c) any procedural irregularity of the Council not affecting the merits of the case. (11) The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute--- (a) between the Government of India and one or more States; or (b) between the Government of India and any State or States on one side and one or more other States on the other side; or (c) between two or more States, arising out of the recommendations of the Council or implementation thereof.”

13Copy pinpoint13. Section 14 (of the Amendment)had the effect of introducing Article 366 (12A), (26-A) and (26-B). A crucial amendment was in the VIIth Schedule to the Constitution. In List I (Union List) for Entry 84, the following entry was substituted: “84. Duties of excise on the following goods manufactured or produced in India, namely:--- (a) Petroleum crude; (b) High speed diesel; (c) Motor spirit (commonly known as petrol); (d) Natural gas; (e) Aviation turbine fuel; and (f) Tobacco and tobacco products.”; Entries 92 and 92 C (Union List)were omitted. Similarly, Entry 52 was omitted and Entry 54 was substituted. The new Entry 54, reads as follows:

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“54. Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods.” Section 19 read as follows: “19. Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier.” Section 20 read as follows: “20. (1) If any difficulty arises in giving effect to the provisions of the Constitution as amended by this Act (including any difficulty in relation to the transition from the provisions of the Constitution as they stood immediately before the date of assent of the President to this Act to the provisions of the Constitution as amended by this Act), the President may, by order, make such provisions, including any adaptation or modification of any provision of the Constitution as amended by this Act or law, as appear to the President to be necessary or expedient for the purpose of removing the difficulty: Provided that no such order shall be made after the expiry of three years from the date of such assent. (2) Every order made under sub-section (1) shall, as soon as may be after it is made, be laid before each House of Parliament.” II. Facts

14Copy pinpoint14. There are three batches of appeals, arising from separate special leave petitions filed in this case. One batch relates to the State of Telangana. The facts in relation to that State are that the local VAT Act was amended – after the Amendment was introduced. The VAT amendment was through an Ordinance, and was brought into force on 17.06.2017, i.e. 13 days before

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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.

15Copy pinpoint15. 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.

16Copy pinpoint16. In the Gujarat batch of cases, Section 84A was introduced in the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as “the Gujarat VAT Act”) by the Gujarat Value Added Tax (Amendment) Act, 2018, gazetted on 06.04.2018 but with retrospective effect from 1.4.2006. It inter-alia provided that if for a particular issue in “some other proceedings” a lower forum, gave a decision which is prejudicial to the interest of the revenue and an appeal against such decision is pending before the higher forum then the period spent in such litigation will be excluded while computing period of limitation for revision. By giving such provision retrospective effect the State legislature thus sought to enable reopening of assessments which had already attained finality. The Gujarat High Court struck down the amendment on the ground of lack of legislative competence, on the part of the legislature, after 01.07.2017, and also that it was manifestly arbitrary.

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III. Arguments of the appellant-states

17Copy pinpoint17. It was argued on behalf of the State of Telangana, by Mr. Arvind Datar, Senior Advocate, Mr. Balbir Singh, learned Additional Solicitor General (ASG), on behalf of Maharashtra, that the Constitutional Amendment was introduced on 16.09.2016. It was highlighted that by its provisions various entries in the State and Union list were amended drastically to limit the powers of the two legislatures. The object of the amendment was to re- organize the powers of indirect taxation that the original Constitution makers had envisioned. Indirect taxes: more specifically, sales tax, service tax, central excise and value added tax were the subject matter of this amendment. The original intent of the Constitution and powers in relation to levy of customs duty were retained as it were. For the first time, the amendments denuded the States and Parliament of exclusive fields of legislation and introduced the concept of shared or pooled sovereign powers in relation to value added tax, central excise and service tax. These were brought into one compendious term “goods and services tax”, ensuring that all aspects in this field of taxation were covered. For the first time, the power of taxation could be traced to a substantive provision of the Constitution, introduced by the Amendment. Furthermore, the issue of evolving principles division of pooled field of taxation was left to a new entity, the Goods and Service Tax Council (hereafter “GST Council”), created as a constitutional entity. This design was to ensure that the federal balance of power was retained and in fact furthered.

18Copy pinpoint18. Learned counsel relied upon the provisions of the Amendment to emphasize that the GST Council is comprised of Finance Ministers of all States and that the Union has only 1/3rd weightage in its decision making. The balance is with the States collectively. Furthermore, any decision in the council becomes effective when it is voted for by a 3/4 ths majority.

19Copy pinpoint19. It was contended, that the almost the revolutionary change brought about by redistribution of indirect taxation power and the giving effect to it through the Amendment meant that both Parliamentary and state legislative powers were denuded in respect of fields of taxation as far as they covered central excise, service tax, sales tax and other taxes which the states could hitherto levy and collect. As an effect of the Amendment, the fields of taxation in Entries 84 of the Union List (List I) of the Seventh Schedule to

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the Constitution of India and Entries 54 and 62 of the State List, too were amended. The revamping of these fields of taxation resulted in such powers getting pooled or collected as a sovereign taxation power, shared by the state and the centre. This became the subject matter of a separate entry, i.e. Article 246A. Article 246A is expressed in overriding terms and begins with a non-obstante clause and overrides Article 246 which deals with the distribution of legislative powers vis-à-vis the Union and the States in terms of Lists 1 and 2, and of Article 254 which deals with the subject matter of Concurrent List, i.e. List III and the resolution of any conflict (in terms of repugnancy) between laws enacted by the States and the Parliament.

20Copy pinpoint20. The effect of Article 246A is that both the Parliament and the State legislatures have the power to enact laws with respect to goods and service imposed by the Union or such State. Article 246A (2) states that Parliament has the overriding power to enact laws with respect to goods and services taxes qua supply of goods and services and both of them in the course of inter-state trade and commerce. Another substantial provision is Article 269A which authorizes the Union to collect GST on supplies in the course of inter-State trade or commerce which “shall be apportioned between the Union and the States in the manner as may be provided by the Parliament on the recommendations of the GST Council”. The other provisions of Article 269A clarify the nature of the collections which are not to form the Consolidated Fund of India. Article 279A provides for the GST Council and elaborately deals with its structure to ensure balanced decision making, ensure democratic participation of the Union and the States.

21Copy pinpoint21. It was also submitted that consequent to these amendments, Article 366 [12(A)]was introduced, which defined GST, astax on supply of goods and Services or both, excluding alcoholic liquor for human consumption It was urged on behalf of the States that with the coming into force of the amendment, Parliament and the states realized that any changes in the law or the practical application of the existing law would become impossible. As a consequence, to cater to these eventualities, certain constitutional provisions were made, i.e. Section 19 which provided firstly that laws relating to tax on goods or services or both “in force in any state immediately before the commencement of the amendment Act shall continue to be in force until amended or repealed by a competent legislature or other

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competent authority.” The other eventuality was that with or without such amendments such laws were to be in force only for a period of one year from the commencement of the amendment. Section 20 authorized the President to, by order, make provisions, including modification and adoption of “any provision of the Constitution as amended by the amendment Act in case of any defect, including defect in relation to transition from the provisions of the State as they stood immediately before the commencement of the amendment Act, for a period of three years.”

22Copy pinpoint22. In view of Section 19 of the Amendment, the Telangana legislature amended the existing state statute – Value Added Tax Act (hereafter “the Telangana VAT Act”)7. The amended provisions empowered the Assessing Officer to reassess the returns which had been assessed previously – additionally for a period of two years. In other words, originally the power to reassess was limited to four years. The lengthening of the period by two more years meant that dealers whose assessments had either escaped notice and who had mis-declared or withheld information could now be exposed to the possibility of reassessment for a further period of two years.

23Copy pinpoint23. It was submitted that this amendment was made through an ordinance issued by the Governor of Telangana on 17.06.2017. The State VAT Act was to cease to have any effect, on 30.06.2017. However, before that, its provisions were amended through the ordinance which was later transformed into law through an Act of the State legislature and brought into force on 02.12.2017. The Telangana GST Act was enacted and came into force before 30.06.2017. It repealed the existing law, i.e. the State VAT Act, but by virtue of Section 174, the existing provisions of the State VAT Act were continued and all pending proceedings so far as they related to ongoing assessment proceedings and matters which had not become final.

24Copy pinpoint24. The learned counsel submitted that the impugned judgments of the Telangana and Gujarat High Courts are erroneous. It was submitted that the Telangana High Court’s interpretation that the expression “amend” had limited import is without basis. Learned counsel highlighted that the

7 Sections 20(4), 21(3), 21(4), 21(6), 21(7), 21(8), 31(1), 32(3), 32(6), 32(7) and 57(5).

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ordinance in terms of the several judgments of this Court, especially A.K. Roy v. UOI8 (hereafter, “AK Roy”) and the seven judge decision in Krishna Kumar Singh v. State of Bihar9 (hereafter, “Krishna Kumar Singh”) have declared that there is no difference between the effect of an ordinance and that of a law enacted by the State legislature. Being in the nature of special power to cater to unforeseen eventualities, the executive was empowered to enact laws for a limited duration as far as the conditions spelt out in Article

213. The Union executive in a like manner was authorized by Article 123 to promulgate ordinances.

25Copy pinpoint25. Learned counsel also relied upon the decision of this Court in Ramkrishna Ramanath v. Janpad Sabha10 (hereafter, “Rama Krishna Ramanath”) and relied upon the principle that so long as the power to amend existed, both the Parliament and the State legislatures could not be limited in the exercise of that power which was plenary and sovereign. The interpretation placed by the Telangana and the Gujarat high Courts that the expression amend only conferred a constricted power which is to bring the existing enactments in line with the amendments of the Constitution, was erroneous. In fact, it amounted to unduly restricting – without any warning – the purport and amplitude of the saving and Presidential power expressed through Section 19.

26Copy pinpoint26. Learned counsel 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. Learned 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. This distinction cannot obliterate the effect of the law which is the same and would continue to bind the parties for which express provision is made.

8 (1982) 2 SCR 272 9 (2017) 5 SCR160 10 1962 Suppl. (3) SCR 70

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27Copy pinpoint27. In support of the proposition that there is no difference between the legislative power of the State and that of the executive, learned counsel relied upon the decision of the Constitution Bench of this Court in R.K. Garg v. Union of India11. It was argued further that the provision requiring placing or tabling the ordinance before the house, either the State legislature or the Parliament was entirely different from the exercise of tabling an enacted legislation. The former amounted to a part of the legislative activity itself. In the event the legislature, i.e. the State legislature or the Parliament approves the ordinance in its own terms, it becomes a parliamentary or State enactment. Learned counsel stressed upon the issue or point that a separate embodiment of the terms of the ordinance is not essentially a requirement under the Constitution. A mere approval of the ordinance results in its enactment and acceptance by the State legislature which in turn assimilates the terms of the ordinance through the body of law enacted by it. In other words, if the State legislature or the Parliament disapproves the ordinance or does not approve any part of the ordinance and embodies the ordinance in the form of an enactment, that enactment would then be decisive from the date the ordinance itself was brought into force. However, in the case of disapproval, in terms of the disapproval, the limited life of the ordinance would cease. It was thus argued that upon the State legislature approving the terms of the ordinance in Telangana and embodying it in terms of the second amendment which was brought into force on 02.12.2017, its terms related back. Therefore, the State power to legislate has to be viewed in continuum or as continuing from the date it was brought into force which is 17.06.2017 and formed from the State enactment. Consequentially, even the power to enact the law on the part of the state was preserved. Learned counsel also relied upon the decision of this Court in Fuerst Day Lawson Ltd v Jindal Exports Ltd12 in support of the submission. In the case of Maharashtra VAT Act, it was highlighted that the amendment Act was brought into force on 15.04.2017. The Central Goods and Services Tax Act (hereafter “CGST Act”) came into force on 01.07.2017. In terms of the amendment to the State VAT Act, the pre-deposit of 10% became the condition for hearing the appeal.

11 (1982) 1 SCR947 12 2001 (3) SCR 479

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28Copy pinpoint28. It was argued on behalf of the State of Maharashtra that what is material is the existence of a power to legislate and not the manner of exercise of that power. Therefore, the existence of a power to legislate was preserved by Section 19; its purpose was to preserve both the portion of existing laws and also to permit the State legislature and the Parliament to amend or repeal the existing law. Being a constitutional amendment, no expression or term ought to be interpreted in a limited manner. The reasoning of the Telangana and Gujarat High Courts that the power of amendment was limited to bringing the existing enactments, i.e. State VAT Acts in conformity with the express terms of the 101st amendment, was erroneous. It was submitted that till the date specified in the 101st amendment, i.e. the expiration of one year which was effectively 30th June, 2017, the power of the competent legislatures, i.e. the State and the Union was untrammeled. Learned counsel also pointed to amendments made to the Central Excise Act, much in the same terms as in the case of the Telangana and Gujarat amendments which enlarged the period of limitation in certain respects. It is fallacious to contend that the State legislatures were denuded the power to legislate. The power was traceable to the amended provisions of the Constitution notwithstanding that relevant entries in the State List 54 and 62 had been altered. It was submitted that such a view was taken notice of and discussed in UOI & Anr. v. Mohit Minerals Private Limited13.

29Copy pinpoint29. It is urged that the power to amend the Constitution is a constituent power of the Parliament in accordance with Article 368. Under Article 368(2), the amendment to the Constitution is initiated by introduction of a bill and after assent to the bill by the President, the Constitution stands amended in accordance with the terms of the Bill. In other words, every single provision in the Constitutional Amendment Bill becomes a part of the amended Constitution.

30Copy pinpoint30. It is further submitted that absence of specifically inserting Section 19 in the Constitution makes no difference. It is still a part of the Constitution as amended. The reference in this regard is made to the seventh constitutional amendment which conferred power upon the President to frame regulations for administering Part D States. After the said Amendment,

13 2022 (9) SCR300

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the Regulations were continued for a limited period. The constitutional amendment completely became part of the Constitution. This Court in the matter of A.K. Roy (supra) has considered the issue.

31Copy pinpoint31. It was urged, on behalf of the Maharashtra state that the amendment to Section 26 of Maharashtra Value Added Tax Act, 2002 (hereafter as “MVAT Act”) requiring a pre-deposit is not inconsistent with the Amendment. It is procedural in nature and no vested right of the assessee was taken away. It is also not in dispute that the same is in respect of past levies prior to the introduction of GST w.e.f. 1st July, 2017 and therefore, even otherwise are saved by Section 174 of the Maharashtra GST Act.

32Copy pinpoint32. It is submitted that the plain language of Section 26(6A) and 26(6B) of the MVAT Act clarifies that it applies in all cases where the order is passed after 15th April, 2017 and an appeal is preferred. That provision only requires a pre-deposit of 10% and takes away the discretion of the Appellate Authority/Tribunal. It does not take away the statutory right of appeal and only regulates the same by removing the discretion of the Tribunal. The condition of pre-deposit is also not even an onerous condition to make it arbitrary. The only question, therefore, is whether there is any vested right of filing an appeal without a pre-deposit. The plain language of the amendment has taken away the discretion of the Appellate Authority and not the right of appeal in case where the order is passed by the original authority after 15th April, 2017. The state relies on the decisions, to say that the right to appeal remains unaltered, only its conditions are controlled, or regulated, with pre-deposit requirements, at the appellate stage, i.e. Anant Mills Company Limited v. State of Maharashtra 14; Vijay Prakash D. Mehta v. Collector of Customs (Preventive), Bombay15 State of Haryana v. Maruti Udyog Limited &Ors16Thirumali Chemicals Limited v. Union of India17; Neena Aneja & Anr. v. Jai Prakash Associated Limited18.

33Copy pinpoint33. The State of Gujarat urges that the High Court fell into error in not recognizing that in somewhat similar situations, this court in A. Hajee

14 (1975) 3 SCR220 15 (1988) Supp (2) SCR 434 16 (2000) Supp 3 SCR 185 17 (2011) 4 SCR739 18 (2021) 15 SCR96

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Abdul Shakoor& Co v. State of Madras19 (hereafter, “Hajee Abdul Shukoor”) recognized the power of states to even retrospectively validate assessments under the Act of 1939 even though the earlier Act had failed for want of Presidential assent. It was also pointed out that this court in M/s West Ramnad Electric Distribution Co. Ltd. v. State of Madras20 validated the power of states to retrospectively validate actions taken under notifications of enactments which had been declared unconstitutional and non-est. Reliance is also placed on this court’s decision in State of Rajasthan v. Mangilal Pindwal21 upheld the power of the legislature to amend repealed provisions for a period when these provisions were in operation till the date of repeal. The repealing of Section 166 of the Gujarat GST Act clearly shows that the VAT Act has not been repealed at all and hence, the consequences of repeal cannot follow.

34Copy pinpoint34. It is submitted that Section 84 A is neither arbitrary nor unreasonable but aims at equity and restitution by allowing the tax authorities to collect the tax from those dealers who have passed on the burden of tax on the ultimate consumer but not paid it into the government treasury thus avoiding unjust enrichment of money as held by a special larger Constitution bench in Mafatlal Industries Ltd. v. Union of India22 (hereafter, “Mafatlal Industries”). It is urged that restitution and prevention of unjust enrichment is a principle of equity applicable irrespective of any statutory provisions. Further, it is argued that Section 84 A does not impose new tax or liability, but merely facilitates the collection of tax whose burden was passed on to the ultimate consumer and that collected tax, being public money and its incidence and burden is always presumed in indirect taxes, it will be most inequitable and improper to allow some dealers to retain the benefit of tax which has been passed on.

35Copy pinpoint35. It was next urged that Section 84 A is a validating Act which increases the time limit thereby enabling the collection of public funds in the hands of the dealers of tax. The revision notices were sent after the judgment delivered by this court in the State of Gujarat v. Reliance Industries

19 1964 (8) SCR 217; AIR 1964 SC 1729 20 1963 (2) SCR 747 21 (1996) Supp (3) SCR 98 22 1996 Suppl.(10) SCR 585

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Ltd23. Counsel submitted that the time limit prescribed under Section 84 A is not too long if Articles 61(b), 62, 63(b), 64, 65, 66, 67, 92, 94, 96, 106, 107, 108, 109, 110 and 136 of the Limitation Act, 1963 are viewed which provide for time limits of 12 or even 30 years from the occurrence of any event which may also take many years to occur. IV. Arguments of the respondent-assessees

36Copy pinpoint36. It was argued on behalf of the assessee-respondents by Mr. Kapil Sibal, Mr. S. Ganesh, Mr Nankani and Mr Soparkar, learned Senior counsel and Mr. 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. There are however, two distinctive features inter se between them, first, being, that unlike Section 19 Article 243ZF was incorporated into the body of the Constitution, and the second is while Article 243ZF has a non-obstante clause seeking to override all Articles contained in Part IXA of the Constitution, Section 19 of the Constitutional Amendment Act, 2017 (“CAA”) only overrides the provision of the Amendment and not the Constitution of India. In other words, ex facie Article 243ZF of the Constitution can be said to be at a pedestal higher than that of CAA. It is argued that this court had interpreted Article 243ZF in Sundergarh

Zilla Adivasi Advocates Association and Ors v State of Odisha and Ors 24

(hereafter, Sundergarh Zilla”)., wherein this court, at para held as follows: “....Clearly, the purpose of continuing an existing law (even though it may be inconsistent with Part IX-A) was to enable necessary amendments to be made to the existing law to make it in consonance with Part IX-A.”

37Copy pinpoint37. It is submitted that considering that the language of Article 243ZF of the Constitution and Section 19 are near pari materia, placing reliance on

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Sundergarh Zilla (supra), it is clear that the amending power under Section 19 is limited to making the existing inconsistent legislations consistent with the Amendment. In other words, the purpose is to cure the inconsistencies and iron out the creases. Further, in view of the fact that, unlike Article 243ZF which is a part of the Constitution and also overrides part IXA of the Constitution, Section 19 is not part of the Constitution and also not overriding any provision of the Constitution, the power to amend under Section 19 of the CAA would be even narrower as compared to the power to amend available under Article 243ZF as interpreted in Sundergarh Zilla (Supra).

38Copy pinpoint38. Counsel urged that a similar transitional provision was introduced in the form of Section 143(2) of the Government of India Act 1935, with the introduction of Part III introducing the concept of ‘provisional legislation’ in Rama Krishna Ramanath (supra).

39Copy pinpoint39. It is submitted that even where express power to continue the levy was granted through incorporation into the Government of India Act, 1935, the Constitution Bench of this Court proceeded to hold that even in such cases, the power of the Provincial Legislature is extremely limited and certainly cannot be used to ‘alter the incidence’. In the present case, such powers to continue the levy are wholly absent and accordingly powers under Section 19 of the CAA would be construed in an extremely narrow framework, i.e. limited to bring the legislation in consonance with the Constitution.

40Copy pinpoint40. It was submitted that the term ‘amend’ ought not to be interpreted textually, instead contextual interpretation ought to be adopted. By applying contextual interpretation, it would appear that Section 19 of the Amendment Act is couched in a manner which contemplates ultimate repeal and obliteration from the statute books. This suggests that the legislature contemplated a diminishing life of the legislation concerned and the state could not have used the power to amend to breathe any more life into the statute concerned. Further, the usage of the word ‘inconsistent’ followed later with the word ‘until amended’, clearly suggests that the intention was to let the inconsistent provisions survive for a limited time, until it is amended to make it consistent. Had the intention been to confer plenary power to amend, then section 19 would have been couched in a manner such that it provided for ‘subject to amendment’, which would have then suggested

THE STATE OF TELANGANA & ORS. v. M/S TIRUMALA 169 CONSTRUCTIONS [S. RAVINDRA BHAT, J.]

that the existing inconsistent law ‘as is’ or ‘as amended’, could continue to be in force until the lapse of one year or its repeal, whichever was earlier. However, such is not the case for the nonce.

41Copy pinpoint41. Further, by applying purposive construction, Section 19 of the CAA admits to the exercise of ‘curative legislative action’. This is so because with the advent of GST, as per Article 279-A(6) of the Constitution, the need for a harmonized structure of goods and services tax and for the development of a harmonized national market for goods and services was specifically provided within the Constitution. This harmony has been interpreted by the Supreme Court in Union of India v. VKC Footsteps India (P)Ltd25, to mean legislative harmony between the State and the Centre with a view to achieve co-operative federalism. Therefore, this avowed purpose of harmony between the Centre and the State or inter se between the States cannot be achieved if using the power of amendment under Section 19 of the Amendment, a given State enlarges the operation and sweep of an existing tax law even after the introduction of

42Copy pinpoint42. It is argued that to interpret Section 19 as conferring legislative power which is non- curative and breathing more life into it than what existed earlier, would be in the teeth of constitutional morality and contrary to the principle of the ‘Pure Theory of Law’ propounded by Kelsen. This is so because plenary legislation stands at a pedestal lower than the Constitution of India and can never clash with the Grundnorm. Accordingly, whatever legislative power may be couched in Section 19 of the Amendment, will have to be subservient to Articles 245 and 246 of the Constitution. If under the latter two Articles, there is no power available with the State to legislate on a subject which has been deleted or truncated from List II of the Seventh Schedule, then Section 19 of the Amendment cannot be pressed into services to override such a Constitutional restriction. Counsel urges that the entire Amendment was enacted by following the procedure under Article368 of the Constitution. While the said Article confers constituent power to the Parliament to amend the Constitution, stricto senso the enactment of Section 19 of the Amendment not being made a part of the Constitution may be viewed as not having been enacted in exercise of powers under Article 368

25 2021 (15) SCR 169

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of the Constitution. However, considering that along with the remaining provisions of the Amendment, Section 19 of the Amendment also went through the entire drill prescribed under the Amendment, a possible view emerges that Section 19 of the Amendment is perhaps an adjunct to exercise the powers under Article 368 of the Constitution which have been enacted using the ‘incidental and ancillary’ powers available to the Legislature. It is well known and well settled that incidental and ancillary powers are exercised in aid of the main Legislation (Reliance is placed on the decision of this court in R. Abdul Quader v. Sales Tax Officer26). Therefore, to interpret the word “amend” in Section 19 of the Amendment to mean conferment of a parallel power wider than making curative legislation, which runs contrary to the revised Constitutional architecture of simultaneous levy through the introduction of GST, cannot be said to be in aid of the main subject of Amendment.

43Copy pinpoint43. It is alternatively argued that assuming arguendo, Section 19 has been legislated by the Parliament in exercise of power under Entry 97 of List I of the Seventh Schedule (being a residuary entry for matters not enumerated in List II or List III including any tax not mentioned in List II or III), even then in such cases, such power can only be exercised by the Parliament and can in no manner be said to be transferred to the State Legislatures thereby enabling them to amend the plenary legislations. Neither Article 258 nor Article 258A of the Constitution admits of any transfer of legislative power by the Parliament to the State Legislatures. It cannot, therefore, be said that Parliament entrusted the legislative functions to the State Legislature.

44Copy pinpoint44. Counsel argued that the amendment to the VAT legislation cannot also find its source of power in Article 246A. This is for two reasons, firstly, under Article 246A, there must be a simultaneous levy by the state as well as by the centre, the scope of which does not arise in the present case. Secondly, Article 246A contemplates, the power to legislate on Goods and Service Tax, which is a defined term, entirely different as also wider than a tax on sales. GST cannot be equated with tax on sales by any stretch.

45Copy pinpoint45. It is argued that Section 19 contemplates that ‘any provision of any law relating to tax on goods or services or both in force in any State

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THE STATE OF TELANGANA & ORS. v. M/S TIRUMALA 171 CONSTRUCTIONS [S. RAVINDRA BHAT, J.]

immediately before the commencement of this Act’ shall continue to be in force until amended or repealed or until the expiration of one year which is earlier. Hence, the edifice of Section 19 is based on the law being in force before the Commencement of the Amendment i.e. on 15.09.2016.

46Copy pinpoint46. In one of the cases, pursuant to the order dated 31.12.2007 of the AP High Court in Sree Rayalaseema Alkalies and Allied Chemicals Limited v. State of Andhra Pradesh and Ors27., the levy of entry tax under AP Tax on Entry of Goods into Local Areas Act of 2001, was declared unconstitutional. The said decision of the A.P High Court was set aside by this court on 29.03.2017 by Order dated 29.03.2017 which is much after the Amendment which came into effect on 16.09.2016. In the meanwhile, the AP Tax on Entry of Goods into Local Areas Act, 2001whichwasdeclared unconstitutional, was also adopted by the State of Telangana vide G.0.M No.45 dated 01.06.2016.

47Copy pinpoint47. It is submitted that where the law was declared as unconstitutional and thereby obliterated from the statute book, such law cannot be treated as ‘a law in force’ as contemplated under the Amendment. Accordingly, where the AP Tax on Entry of Goods into Local Area Act of 2001 was not in force on the date immediately before the commencement of the Amendment, such legislation in any case, cannot continue to be in force in the manner as contemplated under the Amendment.

48Copy pinpoint48. It is further submitted that even the adoption of the AP Tax on Entry of Goods into Local Area Act, 2001 by the State of Telangana was also unconstitutional in as much as the AP Tax on Entry of Goods into Local Area Act, 2001 was already declared as unconstitutional as on 31.12.2007. Accordingly, being a dead law, the same could not have been adopted by the State of Telangana on 01.06.2016. Further, the subsequent decision of this court which set aside the order of the Hon’ble AP High Court cannot breathe life and validate the adoption as it was well settled that the validity of a statute is to be tested at the time of enactment by the legislature. An After-acquired power cannot ex proprio vigore validate a statute void when enacted.

27 2007 SCC OnLine AP 1158 : (2008) 13 VST 15

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49Copy pinpoint49. Section 6 of the Telangana Tax on Entry of Goods into Local Area Act, 2001 incorporates the provisions of the Telangana VAT Act in relation to assessment, returns etc. Accordingly, the present is a case of ‘legislation by incorporation’.On this basis, it is submitted that the amendments in the Telangana VAT Act will have no impact and bearing on the Telangana Tax on Entry of Goods into Local Area Act, 2001 and as such the extension in the period of limitation from 4 to 6 years would not be applicable to the assessment made in respect of entry tax. This is based on a well settled principle of law as laid down by this Court in the case of State of Madhya Pradesh v. M.V. Narasimhan (hereafter, “M.V. Narasimhan”) 28, which held that where a subsequent enactment incorporates the provisions of a previous act, then the borrowed provisions become an integral and independent part of the subsequent act and are totally unaffected by any repeal or amendment in the previous act. The exception to this principle is: (i) Where the subsequent Act and previous Act are supplemental to each other; (ii) Where the two Acts are pari materia; (iii)Where the amendment in the previous Act if not imported into the subsequent Act also, would render the subsequent Act wholly unworkable and ineffectual; (iv)Where the amendment of the previous Act, either expressly or by necessary intendment applies the said provisions to the subsequent Act.

50Copy pinpoint50. In the present case, since none of the exceptions as laid down by this court in M.V. Narasimhan (supra)stand satisfied, the amendment in the Telangana VAT Act would not be applicable to the Telangana Tax on Entry of Goods into Local Area Act, 2001 and as such the entire demand is in any case barred by limitation.

51Copy pinpoint51. The intention behind Section 19 was to stipulate a time frame for subsuming of erstwhile indirect taxes and for States to amend or repeal to pave the way for imposition of SGST. It was not for permitting States to freely amend their legislation till GST laws were enforced. Post 16.09.2016

28 (1976) 1 SCR6

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the States had no competence to freely legislate on goods other than those mentioned in Entry 54List II of Constitution as amended by the 101st CAA. Section 19 was intended only to allow the States to bring their laws into compliance with the Constitution as amended by the 101stCAA. Section19 is pari materia with Article 243ZT. In Vipulbhai M Chaudhary v Gujarat Milk Mktg Federation Ltdṅ29 (hereafter, “Vipulbhai”), it was observed, in the context of Article 243ZT, which required laws relating to co-operative societies in force in States prior to the Amendment Act to be in tune with and in terms of the constitutional concept and set up of cooperative societies and provided a period of one year, it was held that “the Constitution enables the competent legislature or authority to suitably amend the existing provisions in their laws in tune with the constitutional mandate.”

52Copy pinpoint52. The Telangana Amendment Act to the extent it seeks to legislate on the basis of erstwhile Entry 54 of List Il of the 7th Schedule is bereft of legislative competence.Section19 contemplates amendment by a “competent legislature”. Post amendment the competence has to be determined with reference to post amendment provisions. It is submitted that States had legislative competence only as an incidental power to amend or repeal the provisions dealing with State indirect taxes so as to bring them in line with the amended Constitution. An example of a valid amendment would have been to amend the definition of “goods” in the Telangana VAT Act. The same was however achieved by S.174(1)(i) of the Telangana Goods and Services Tax Act, 2017 (“TGST Act”) by confining the repeal of the Telangana VAT Act to all goods except those covered by Entry 54 of List II of the 7th Schedule. Section 19 of the101stAmendment is pari materia with Clause 20 of the Constitution 122nd Amendment Bill, 2014. The said Bill was considered by the Select Committee of Rajya Sabha in its report dated 22.07.2015.

53Copy pinpoint53. The assessees also argue that the extension of limitation is done so with a view to secure revenue of the state by enlarging the duration. It is submitted that this argument is not tenable and cannot be sustained. The further argument that provisions of limitation on assessments etc., are only procedural and aspects of levy and assessment are not substantial, is also untenable.

29 2015 (3) SCR997

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54Copy pinpoint54. It was argued that the Telangana Ordinance was issued with effect from 17.6.2017. However, Section 7 of the Telangana Amendment Act clearly repealed the Ordinance without any savings clause. Further, under Section 1(2) the Telangana Amendment Act was deemed to retrospectively come into effect from 17.6.2017. Thus, the Telangana Amendment clearly intended to obliterate the Ordinance altogether and not merely continue the law. Thus, all submissions to the effect that the issuance of the Ordinance and its incorporation into an enactment constitutes a single law making power being exercised akin to a principal ratifying an agent’s actions are belied by the very provisions of the State Amendment.

55Copy pinpoint55. Thus, the lack of legislative competence is immediate. That is not the subject matter of Section 19. Instead, what is kept in suspension under Section 19, is the effect of such incompetence on enactments that had already been passed prior to the Amendment, i.e., enactments in force. Section 19 is pari materia to Article 243 ZF and must be given the above interpretation in accordance with Bondu Ramaswamy v. Bangalore Development Authority30 (hereafter, “Bondu Ramaswamy”) Further, the words “shall come into force” in Section 1(2) will have no meaning if Section 19 is interpreted to mean that the operation of the Amendment itself is to be stayed for a period of one year.

56Copy pinpoint56. Counsel stated that a transitional provision cannot be used for oblique purposes. The scope of a power to ‘amend’ a statute is co-terminus with the scope of legislative competence and cannot travel beyond such Competence as on the date of such amendment. With effect from 16.09.2016, and therefore, as on o 17.06.2017, the competence of the State Legislature to make law with respect to Article 246(3) read with unamended Entry 54 did not exist. The word ‘amend’ in Section 9 therefore cannot be read to be wider than the competence of the State Legislature on 17.06.2017. Instead, the word ‘amend’ is limited to the power to make law only with respect to the new contours of Entry 54.The term ‘until’ indicates that the lifetime of an inconsistent law is immediately decided by Section 19. An inconsistent law continues to be in force until:

30 (2010) 6 SCR29

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a. The State legislature amends the inconsistent law to bring it in conformity with the Constitution as amended by the 101stAmendment OR b. The State Legislature repeals the inconsistent law OR c. The period of one year from the commencement of the Act expires i.e., 15.09.2017.

57Copy pinpoint57. The purpose of using the word ‘amend’ is to allow the State Legislature to bring existing laws in conformity with the 101st Constitution Amendment so that they can continue to operate. If the legislatures chooses to take such a route, the inconsistent provisions of the Act cease to exist upon amendment. In the language of Section 19 - until it was amended. Therefore, the State Legislature did not possess any legislative competence with respect to goods other than those included in the new and limited Entry 54 either on the date of the Ordinance i.e., 17.06.2017, or on the date of the Amendment Act, i.e., 02.12.2017.

58Copy pinpoint58. The Telangana VAT Act 2005, was effectively repealed from 01.07.2017 by Section 174(1)(i) of the TGST Act 2017 except in respect of goods included in Entry 54 of List II. Section 174(1) operates as an express acknowledgment and acceptance of the 101st Amendment. Therefore, the TVAT Amendment of 02.12.2017 applicable to all goods cannot be made after such repeal.

59Copy pinpoint59. Article 246A embodies the principle of simultaneous levy by both Parliament and the State Legislature and is distinct from the principle of concurrence. Article 246A creates both the power and the subject matter of legislation. This makes it distinct from a concurrent power of legislation u/a 246(2) which requires one to travel to List III, Schedule VIl to find the subject matters with respect to which the power may be exercised. When concurrence as a principle already exists in such a manner, the decision of the Parliament to house both the power and the subject matter in a single article of the Constitution, i.e., Article 246A, leads to the conclusion that such power is to be exercised simultaneously by the Parliament and the State and cannot be exercised independently as they do under the provisions of Article 246(3).

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60Copy pinpoint60. Therefore, the State Legislature can only exercise its taxing powers with respect to goods and services either under Article 246A, which is to be exercised along with the Parliament, or under Article 246(3) r/w amended Entry 54 only with respect to the six items mentioned therein.

61Copy pinpoint61. It is argued on behalf of the assesses of Maharashtra that the High Court proceeded erroneously to uphold the state’s power to legislate with respect to its extant sales tax laws, in this case,the Maharashtra VAT Act,

2002. The High Court failed to appreciate that Article 246-A has no relation whatsoever to the earlier sales tax laws as it specifically deals with GST, which was specifically defined under the Constitution to mean a tax on the “supply of goods and services”. Applying the pith and substance test, the phrase “goods and services tax” referred to in Article246-A is totally different and distinct from the earlier tax levied on the sale of goods by the State Legislature.

62Copy pinpoint62. Further, it is submitted that GST is a tax on “supply”. Supply is the new taxable event, as opposed to as opposed to the taxable events existing prior to the 101stConstitution Amendment Act. The mere fact that the word “supply” has been defined under the GST Acts to cover the manufacture, service and sale, for the purpose of levy and assessment of GST, does not mean that the legislative competence of the State Legislature should also be construed widely relying on the definitions meant for the purposes of the GST Acts and not the Constitution of India.

63Copy pinpoint63. Further, the High Court failed to appreciate that Article 367 of the Constitution of India incorporates the provision of the General Clauses Act, 1897 and makes them applicable to the Constitution. It is in this context, that the effect of the General Clauses Act, needs to be examined at two levels. One with reference to the101st Constitutional Amendment Act, 2016 and the other with reference to amendment to MVAT Act. As regards to 101st Constitutional Amendment, the power under the old Article 246 has been abridged by simultaneously a mending the fields of legislation in Entry-54 of List-II, which is referred to therein. In this case, there is no question of any power to legislate in respect of rest of the goods, other than the 6 presently covered by Entry-54, which survives post-amendment, even by applying the provisions of the General Clauses Act, 1897.

THE STATE OF TELANGANA & ORS. v. M/S TIRUMALA 177 CONSTRUCTIONS [S. RAVINDRA BHAT, J.]

64Copy pinpoint64. It is submitted that Section 19 of CAA does not confer unabridged or wide powers on the state legislatures/ Parliament to make any and every amendment in the laws existing in force at the time of enacting the Amendment Act. The power referred to in Section 19 is a limited power granted to the State Legislature for a limited period to make such amendments as may be necessary to remove inconsistencies, if any, and bring the existing laws in consonance with the GST legislations. Accordingly, it is submitted that only the power to enact the aligning act enacted in Maharashtra to align its existing laws with the GST provisions, will be saved interms of Section 19. Consequently,the State of Maharashtra lacked the power to make the impugned amendments which were enacted not for removing any inconsistency but as a regular amendment under the Maharashtra Act.

65Copy pinpoint65. Counsel appearing in the Gujarat batch of appeals argued that the impugned Section 84A was introduced in the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as “the Gujarat VAT Act”) by the Gujarat Value Added Tax (Amendment) Act, 2018 gazetted on 06.04.2018 but with retrospective effect from 1.4.2006 whereby it is inter-alia provided that if for a particular issue in “some other proceedings” a lower forum, has given a decision which is prejudicial to the interest of revenue and appeal against such decision is pending before higher forum then the period spent in such litigation will be excluded while computing period of limitation for revision. By giving such provision retrospective effect the State legislature thus sought to enable reopening of assessments which had already attained finality before such amendment was brought into force.

66Copy pinpoint66. Section 19 cannot be applied to save the impugned Section 84A of the Gujarat VAT Act since Section 19 of the CAA had a limited shelf life for 1 year from 16.9.2016 or till the date of implementation or the GST regime i.e. 1.7.2017 whichever is earlier and the impugned Section 84A of the Gujarat Act was enacted on 06.04.2018 i.e. much after expiry of Section 19.

67Copy pinpoint67. It was argued that in any case section 84A of the Gujarat VAT Act is manifestly arbitrary and violates Article 14 and 19(1) (g) of the Constitution of India. When assessment for a particular year attains finality the same creates a vested right in favour of the dealer. The dealer arranges his affairs considering the fact that his liability has crystalized for periods where

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assessments have attained finality. Alteration of such position without any definite time limit only on the ground that judgement in favour of the revenue has been pronounced by a Court in another case is manifestly arbitrary and illegal. Moreover, the impugned provision has been retrospectively introduced w.e.f. 1.4.2006. Therefore High Court has rightly struck it down as being manifestly arbitrary and illegal.

68Copy pinpoint68. It is argued that if an unlimited time period is available to the revenue for assessment/reassessment/revision in any case based on decisions in the case of other dealers will lead to unimaginable chaos and therefore it is rightly struck down as being manifestly arbitrary and illegal. The Respondent is supported on all fours by the judgement of Hon. 9 judge bench of this Court in the case of Mafatlal Industries (supra).In that case, this court was faced with a situation converse to the present case in as much as assesses used to claim a refund after number of years on the basis of judgements rendered in the case of other assesses. This court observed that allowing refund claims beyond the stipulated period of limitation based on decisions rendered in other cases would do violence to several well-accepted principles of law. It was further observed that one of the important principles of law, based upon public policy, is the sanctity attaching to the finality of any proceeding, be it a suit or any other proceeding.” Denouncing the legality of the practice of claiming a refund after a number of years based on subsequent decisions it was observed that an order or decree of a court does not become ineffective or unenforceable simply because at a later point of time, a different view of law is taken and that if this theory is applied universally. It will lead to unimaginable chaos.

69Copy pinpoint69. Section 64 of the Gujarat VAT Act requires the dealer to preserve books of accounts only for a period of 6 years from the end of the relevant accounting year. The proviso thereto requires further preservation of books of accounts only to the extent a matter is pending in appeal or revision. However, the impugned provision exposes the dealer to assessment/ reassessment/revision for an indefinite period which is excessive and disproportionate. In fact, retrospective operation of the provision w.e.f. 1.4.2006 allows the reopening of assessments of years in respect of which a dealer was not required to preserve books of accounts and therefore retrospective operation is all the more onerous and manifestly arbitrary.

THE STATE OF TELANGANA & ORS. v. M/S TIRUMALA 179 CONSTRUCTIONS [S. RAVINDRA BHAT, J.]

V. Analysis and reasoning

70Copy pinpoint70. In the Telangana batch of cases, the facts are that the amendment to the State VAT Act was confined to two provisions which are Sections 21 and 32. Their effect was to prolong or extend the period of limitation to issue notice of reassessment and reopen cases as well as extend the period of limitation for deciding pending revisions and proceedings. These were subjected to a time limit of four years in the existing law. By virtue of the amendment, these were enlarged by a further period of two years (i.e., to six years). This became the subject matter of challenge before the Telangana High Court which culminated in the impugned judgment.

71Copy pinpoint71. So far as the Gujarat set of cases is concerned, the facts are that the Gujarat VAT Act came into force on 01.07.2017. After that date, the Gujarat legislature repealed the State VAT Act. The High Court had set aside an assessment, based on an interpretation of the existing VAT Act, much before 16.9.2016. The Gujarat Legislature amended the VAT Act (after its repeal) by introducing a new provision, Section 84A, which was given retrospective effect. The effect of this amendment was to exclude the period spent during the pendency of any appeal or revision before the appellate authority or High Court, for the purpose of revision or reopening which in the interest of the revenue, was necessary to reopen. These became the subject matter of challenge on diverse grounds before the High Court. The High Court, by its elaborate and reasoned judgment, held the amendment to be unconstitutional on the ground that the legislature lacked competence to enact the provision having regard to Section 19 of the 101st amendment and furthermore that the amended provision was manifestly arbitrary. In the Maharashtra batch of matters, subject matter of the proceedings was MVAT and amendments made to it. MVAT came into force on 01.03.2005 to consolidate laws regarding the collection of tax in sales and purchase of goods. 101st CAA came into effect in 16.09.2016 and by the CAA, the power of the state government to levy tax on sales and purchase of goods under Entry 54 of List II was sought to be restricted only with respect to the 6 goods mentioned therein. The state government amended Section 26 of the MVAT Act and inserted sections 6A, 6B and 6C requiring assessee to deposit 10% of the disputed tax amount, failing which the appeal of the concerned assessee will be dismissed. HC upheld the amendment made to

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the MVAT Act requiring assessee’s to deposit 10% of the disputed amount before filing the appeal A. Interpretation of Section 19

72Copy pinpoint72. The petitioners contended that the language of Section 19 of the Amendment Act does not attach itself to the body of the Constitution unlike the other provisions. The further argument was that the power to amend is to be seen in the context. The other provisions of the amendment inserted new provisions of the Constitution itself. They also altered substantially entries of taxation particularly Entry 54 of the State List beyond recognition, denuding states of power to levy VAT on most items. Those provisions become effective immediately upon the bringing into force of the Amendment i.e. 16.09.2016. A contextual interpretation of Section 19 therefore would mean that it preserved the operation of existing laws till they were repealed or such laws were brought in line with the other provisions of the amendment which became part of the Constitution. It was submitted in this context, that Section 19 cannot be considered as a part of the Constitution, but merely as an incidental provision with limited operation.

73Copy pinpoint73. Section 19 seeks to achieve three aims. The first is to preserve the existing status quo with regard to the state and central indirect tax regime, for a period of one year from the date of commencement of the Amendment or till a new law is enacted whichever is earlier. The second is authorizing the competent legislatures i.e. the State Legislatures and Parliament to amend existing laws which were in force in states and other parts of the country (obviously both Central and State laws. The third was the repeal of such laws. Now, that Section 19 was meant to be transitional cannot be doubted. In its absence, the several hundreds of state enactments and central laws which were in force, would have been jeopardized. Other than Section 19 there is no saving provision which is part of the Amendment. It is questionable whether Section 6 of the General Clauses Act, 1897, would have applied on its own force. Consequently, Parliament, acting in a constituent capacity, amended the substantive parts of the Constitution, and also, at the same time ensured through Section 19 that limited operation of existing laws continued till the legal regime was changed in accordance with the amended parts of the Constitution. Keeping in mind that the Amendment, denuded the States – and even Parliament of legislative authority in regard to the pre-existing

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(i.e. pre-amendment) powers and fields of taxation, the absence of such a transitional provision might have been catastrophic. It was in this context that Section 19 also clarified that not only were the laws to be continued, in force but also that the States – and Parliament, could amend, or repeal them.

74Copy pinpoint74. The petitioners have relied upon the Judgments of this court in Bondu Ramaswamy (supra) and Vipulbhai (supra).In the present case, there is no dispute with respect to the fact that Section 19 also seeks to achieve the same objects i.e. the preservation of existing fiscal and taxation laws prevailing in various statutes and in other parts of the country for a limited duration of one year or till they were amended or repealed. The distinction pointed out by the petitioners is that transitional provisions as they were involved in those cases become the part of the Constitution, as they continued and still continue in force long after the amendment. Whereas in the present case, Section 19 has a limited life and would not ever become part of the Constitution.

75Copy pinpoint75. The question is – Is that really so? It is undisputed that the amendment was enacted pursuant to what is now recognized as constituent power, which is sourced from Article 368. The present frame of Article 368 underwent a change after the Constitutional 25 th Amendment Act of

1971. Before that amendment, the title of the provision was “procedure for amendment of the Constitution”. By virtue of the amendment, Article 368 is described as “power of Parliament to amend the Constitution and the procedure therefor”. Article 368 (2) outlines the manner of initiation of the amendment i.e. through a Bill and thereafter outlines the procedure of that as such majority of not less than two thirds of the members present and voting in both the Houses of Parliament. After the passage of the Bill, it is to be presented to the President for assent. Unlike in the case of recommendations of the cabinet, or when any other bill is presented, the President has no choice, but “shall” assent to the Amendment. The proviso to Article 368 requires that wherever enumerated provisions or parts of the Constitution are sought to be amended in addition there is a category of amendments which have to be ratified by the legislature of not less than one half of the States by the resolutions of their state legislatures.

76Copy pinpoint76. It is unnecessary to recount the well documented path that led to the amendment of Article 368 and the subsequent amendments or the fate they

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met with. What needs to be underlined is that unlike ordinary legislation, which is traced to the power of Parliament or any other legislative body, the amendment power is distinct inasmuch as it is expressly a constituent power. In Kesavananda Bharati v State of Kerala31 case, the largest bench formed, this court ever sat in (13 Judges) declared that the power under Article 368 though constituent and though seemingly unbounded and does not expressly constrict, yet has impliedly limited by the “essential features” or“basic structure” doctrine.

77Copy pinpoint77. An ordinary law such as an Act of Parliament, is a product of a legislative exercise. The source of that power is traced to the Constitution in some specific provisions or through fields of legislation enumerated in one or the other lists. Constitutional law on the other hand is that it arises out of the Constitution and creates different organs of the State, defines their power and imposes limitations on the functioning of the Executive and legislative wings through the fundamental rights and other limitations. An ordinary law can be made or changed by the same body, the legislating body in exercising legislative power. Since constitutional amendments relates to the fundamental law of the land which is a source of authority for other laws, it can be achieved only through fulfilling the special procedure.

78Copy pinpoint78. The distinction between constituent power and legislative power was commented upon by the late H.M. Seervai in the Constitutional Law of India32 : “the constituent power therefore a juristic entity or category separate from legislative power. In the case of India there are three different modes of amending the Constitution – the first is the easiest or the simplest where states reorganization or names of States are sought to be changed, in that event a Parliamentary enactment would suffice. In other cases, an amendment to the Constitution requires the special procedure of two thirds majority in both houses by members sitting and voting and assent by the President. In the special category carved out is proviso to Article 368, not only the special procedure to be resorted to but also super added to it is the requirement of amendment

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having to secure the ratification and the proviso of one half of the State Legislature by the Resolutions. Thus the nature of the amendment and structure of Article 368 distinctly brings home the point that it encapsulates both the power and also contains the procedure for amendment.”

79Copy pinpoint79. This Court had in the judgment reported as AK Roy (supra) dealt with some aspects of this issue. The challenge there essentially, was to provisions of the then National Security Act. One of the grounds of challenge is that it violated Article 22. Since Article 22 was amended by the 44th Amendment to the Constitution and provisions of those amendments were not brought into force, Section 1(2) of that Constitution Amendment was challenged. This Court, held as follows: “It is well settled that the power conferred upon the Parliament by Article 245 to make laws is plenary within the field of legislation upon which that power can operate. That power, by the terms of Article 245, is subject only to the provisions of the Constitution. The constituent power, subject to the limitation aforesaid, cannot be any the less plenary that the legislative power, especially when the power to amend the Constitution and the power to legislate are conferred on one and the same organ of the State, namely, the Parliament. The Parliament may have to follow a different procedure while exercising its constituent power under Article 368 than the procedure which it has to follow while exercising its legislative power under Article 245. But the obligation to follow different procedures while exercising the two different kinds of power cannot make any difference to the width of the power. In either event, it is plenary, subject in one case to the constraints of the basic structure of the Constitution and in the other, to the provisions of the Constitution. *** It is true that the constituent power, that is to say, the power to amend any provision of the Constitution by way of an addition, variation or repeal must be exercised by the Parliament itself and cannot be delegated to an outside agency. That is clear from Article 368 (1) which defines at once the scope of the constituent power of the Parliament and limits that power to the Parliament. The power to issue a notification

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