Telangana High Court calls State VAT Amendment Act unconstitutional

Telangana High Court calls State VAT Amendment Act unconstitutional

The bench was hearing a batch of petitions challenging it

The Telangana High Court has held that the Telangana Value Added Tax (Second Amendment) Act, 2017 was unconstitutional and passed without legislative competence.

The bench of Chief Justice Ujjal Bhuyan and Justice P Madhavi Devi rejected the Act and notices issued under it while underscoring that the intention of the Parliament while bringing in the Goods and Service Tax (GST) regime was to avoid multiplicity of taxes by subsuming indirect taxes in a single tax called GST

The court stated, "The amendments brought in by the Second Amendment Act are wholly inconsistent with the scheme of the Constitution Amendment Act read with the Central Goods and Services Tax (CGST) Act and the Telangana Goods and Services Tax (TGST) Act."

The bench was hearing a batch of petitions challenging the Act's constitutionality and seeking all notices issued on the strength of the amendment to be quashed.

The petitions stated that the CGST and the Integrated Goods and Service Tax (IGST) Acts were enacted through the 101st Amendment to the Constitution. Similarly, the TGST Act was also introduced owing to which, the VAT Act stood repealed.

However, the State government published an ordinance to further amend the VAT Act, reasoning that the GST Act had not yet been brought into force. Pursuant to this, the petitioners challenged the amendment stressing that the State was denuded of legislative competence after the introduction of GST.

According to the Court, the States did not have the competence to make law to levy VAT or such tax on any goods other than certain specified goods.

On the other hand, Telangana submitted that the legislature was competent to make laws for saving the repealed Acts under the Constitution Amendment Act.

However, the court noted that after the 101st Constitution Amendment Act came into force in September 2016, the State legislature's competence was truncated. Since it did not have the competence to legislate the Second Amendment Act once the VAT Act stood repealed (except in the case of limited categories), the question to amend it did not arise.

Responding to the arguments put forth by the State, the court held that the Constitution Amendment Act was not a source of power to enable the State legislature to enact the Second Amendment Act, since it was a transitional provision.

It stated, "The Constitution Amendment Act, which can be construed to be a sunset clause, provided for a window of one year to remove the laws inconsistent with the Constitution Amendment Act either by way of amendment or by way of repeal."

Stating that the window period was given to remove the inconsistencies, not to prolong them, the court held, "We have no hesitation in holding that the Second Amendment Act is unconstitutional being devoid of legislative competence."