Gujarat high court explains the constitutional mandate of taxation.


A. Facts

  1. In view of the judgment of the apex court, dated 22.09.2017, in case of another dealer, Addl. Commissioner issued revision notice on 06.11.17 u/s 75 of the GVAT Act.
  2. On 16.03.2018, the high court set aside the revision notice being beyond the period of limitation period.
  3. By virtue of the VAT Amendment Act, 2018, Section 84A came to be added in the VAT Act to be operative retrospectively w.e.f 01.04.2006, inter alia, providing for the exclusion of the period commencing from the date of the decision of high court dated 18.01.2013 rendered against the revenue up to the date of the decision of the Supreme Court i.e., 22.09.2017 being in favor of the revenue and thereby removing the basis of the judgment dated 16.03.2018.

B. Points of challenge

  1. On the basis of above Addl. Commissioner issued another revision notice dated 01.09.2018 which is challenged on following grounds;
    • Section 84A of the GVAT Act is ultra vires and beyond the legislative competence of the State under Entry 54 of List II of the seventh schedule to the Constitution of India.
    • Section 84A of the GVAT Act is manifestly arbitrary and violative of the Articles 14 and 19(1)(g) of the Constitution of India.
    • Section 84A of the GVAT Act is not a validating Act.

C. Reasoning

  1. After insertion of Article 246A (to enact a law relating to GST) of the constitution, the scope of Entry 54 has been drastically curtailed to six specific products only and State Legislature does not have the competence to enact any law under Entry 54 except the law concerning only the six specific products. Therefore, the power to amend any law with respect to levy of tax on the sale or purchase of goods such as the “Gujarat VAT Act” could be said to have been abolished with the aforesaid amendment in the Entry 54 in List II in Schedule VII of the Constitution of India.
  2. If at the time of the amendment, the Legislature does not have the competence, then the law cannot be enacted on the ground that the same is concerning the period when the Legislature had the necessary competence.
  3. Section 84A of the VAT Act is not saved under Article 246A of the Constitution. Article 246A of the Constitution was inserted by the 101st Constitution Amendment Act with the prime object of subsuming multiple indirect taxes and to confirm concurrent power upon the Parliament and State Legislature to impose “Goods & Services Tax’ in accordance with the recommendations of the Goods & Services Tax Council constituted under Article 279A of the Constitution.
  4. Section 84A has been inserted in the Gujarat Value Added Tax Act, 2003 with retrospective effect. However, it does not provide for any validation of various acts of the revenue authorities namely the assessment, re-assessment, collection, etc. Accordingly, the said Act cannot be treated as a “validating Act”.
  5. Section 64 of the VAT Act requires the dealer to preserve books of accounts only for a period of six 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, the retrospective operation of the provision w.e.f 1st April, 2006 allows reopening of assessments of years in respect of which a dealer was not required to preserve the books of accounts and, therefore, the retrospective operation is all the more onerous and manifestly arbitrary. (Shayara Bano vs. Union of India – 9 SCC 1)
  6. If an unlimited time period is available to the Revenue for assessment/reassessment/revision in any case based on a decision rendered in the case of any other dealer the same would lead to an irreparable situation and, in such circumstances, it renders Section 84A manifestly arbitrary and unreasonable.

D. Conclusion

Accordingly, the amendment was held to be beyond legislative competence, manifestly arbitrary, and not being a validating act and was struck down.

(Reliance Industries Limited vs State of Gujarat – SCA No. 14206 of 2018 – Date 16.04.2020)

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