Supreme Court upholds verdict holding Telangana VAT (Second Amendment) Act unconstitutional

The Supreme Court on Friday upheld a Telangana High Court verdict that had held that the Telangana Value Added Tax (Second Amendment) Act, 2017 was unconstitutional..A Bench of Justices S Ravindra Bhat, and Aravind Kumar ruled that the amendments in Telangana were correctly held void for want of legislative competence..The Court was hearing appeals against judgments of the Telangana High Court and the Bombay High Court..The Telangana High Court had in July 2022 held the Telangana Value Added Tax (Second Amendment) Act, 2017 unconstitutional. A Bench of then Chief Justice Ujjal Bhuyan and Justice P Madhavi Devi had set aside the Act and notices issued under it, while stating that the parliament’s intention while bringing in the GST regime was to avoid multiplicity of taxes by subsuming those indirect taxes in a single tax.The Court found that after the 101st Constitution Amendment Act came into force in 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did not have the competence to legislate the Second Amendment Act.It was thus concluded that once the VAT Act stood repealed, except in the case of limited categories, the question to amend it would not arise..It further held that Section 19 of the Constitution Amendment Act was not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..Supreme Court judgmentThe bench noted that Telangana's amendment act could not have been given effect to post the enactment of the GST regime."The ordinance’s validity and effect might not have been suspect on the date of its promulgation; yet, the issue is that on the date when it was in fact, approved and given shape as an amendment, the State legislature had ceased to possess the power. By that time, the State GST and the Central GST Acts had come into force (on 01.07.2017). Therefore, Section 19 ceased to be effective. The original entry (Entry 54 of the State List) ceased to exist."The apex court came to the following other conclusions:- Section 19 of the Constitution (101st Amendment) Act, 2016 and Article 246A enacted in exercise of constituent power, formed part of the transitional arrangement for the limited duration of its operation, and had the effect of continuing the operation of inconsistent laws for the period(s) specified by it and, by virtue of its operation, allowed state legislatures and Parliament to amend or repeal such existing laws. (ii) Since other provisions of the said Amendment Act, had the effect of deleting heads of legislation, from List I and List II (of the Seventh Schedule to the Constitution of India), both Section 19 and Article 246A reflected the constituent expression that existing laws would continue and could be amended. The source or fields of legislation, to the extent they were deleted from the two lists, for a brief while, were contained in Section 19. As a result, there were no limitations on the power to amend. .[Read judgment]