Telangana VAT (Second Amendment) Act unconstitutional, against parliamentary intention: Telangana High Court

The Telangana High Court recently held that the Telangana Value Added Tax (Second Amendment) Act, 2017 was unconstitutional and passed without legislative competence [Sri Sri Engineering Works v. The Deputy Commissioner]..A Bench of Chief Justice Ujjal Bhuyan and Justice P Madhavi Devi set aside the Act and notices issued under it, while underscoring that parliament’s intention while bringing in the Goods and Service Tax (GST) regime was to avoid multiplicity of taxes by subsuming those indirect taxes in a single tax called GST.“Viewed thus the amendments brought in by the Second Amendment Act, as discussed above, are wholly inconsistent with the scheme of the Constitution Amendment Act read with the CGST Act and the TGST Act,” the Court said..The Bench was hearing a batch of petitions challenging the Act’s constitutionality and seeking for all notices issued on the strength of the amendment to be quashed..The petition stated that through the 101st Amendment to the Constitution, the CGST and IGST Acts were enacted. Similarly, the Telangana GST Act was also introduced owing to which, the VAT Act, amongst others, would be repealed..However, the State government published an ordinance to further amend the VAT Act, reasoning that the GST Acts had not yet been brought into force.Pursuant to this, the petitioners challenged the amendment on the ground that the State was denuded of legislative competence after the introduction of the GST regime..To buttress their arguments, the petitioners relied on judgments by the Gujarat and Kerala High Courts in which VAT legislations enacted after the introduction of GST were struck down.The State, on the other hand, submitted that the legislature was competent to make laws for saving repealed Acts under Section 19 of the Constitution Amendment Act..The Court, however, found that after the 101st Constitution Amendment Act came into force with effect from September 16, 2016, the State legislature’s competence was truncated. Therefore, the legislature did not have the competence to legislate the Second Amendment Act.It was thus, concluded that once the VAT Act stood repealed and except in the case of limited categories, the question to amend it would not arise..The Division Bench, responding to the argument put forth by the State, held that Section 19 of 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.“Section 19 of 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."In this regard, it was stated that the window period was given to remove the inconsistencies, not to prolong them..Considering these aspects, the Court found that the amendment was unconstitutional and allowed the writ petitions."Thus, upon thorough consideration of all aspects of the matter, we have no hesitation in holding that the Second Amendment Act is unconstitutional being devoid of legislative competence.".Senior Advocates S Ravi and S Dwarakanath, along with Advoctaes SRR Viswanath, V Bhaskar Reddy, Shaik Jeelani Basha, Karan Talwar, G Narendra Chetty, AVA Siva Kartikeya, P Karthik Ramana, B Srinivas, Tej Prakash Toshniwal, Pasam Mohith and Venkatram Reddy Mantur appeared for the petitioners.Advocate General BS Prasad and Advocate K Raji Reddy appeared for the State..[Read Judgment]