Judgment
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 30TH DAY OF NOVEMBER 2022 / 9TH AGRAHAYANA, 1944 WA NO. 1286 OF 2019 AGAINST THE JUDGMENT IN WP(C) 15851/2018 OF HIGH COURT OF KERALA APPELLANT:
M/S.LEISURE STAYS AKKARAKALOM MEMOIRS, CHENNAMKARY.P.O, ALAPPUZHA,KERALA-688501, REPRESENTED BY ITS PARTNER JOBIN JOSEPH.
BY ADVS.
SRI.SUKUMAR NAINAN OOMMEN SRI.SHERRY SAMUEL OOMMEN SHRI.JONATHAN PREETHAM PAUL
RESPONDENTS:
1 STATE OF KERALA REPRESENTED BY THE CHIEF SECRETARY, GOVERNMENT SECRETARIAT,THIRUVANANTHAPURAM-695008.
2 STATE TAX OFFICER(LT), OFFICE OF THE DEPUTY COMMISSIONER OF STATE TAX,KALLUPALAM,ALAPPUZHA-688012.
BY ADVS.
GOVERNMENT PLEADER SRI.K.K.RAVINDRANATH, ADDL.ADVOCATE GENERAL
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OTHER PRESENT:
SPL. GP. MOHD RAFIQ., SR. GP. V.K. SHAMSUDHEEN., GP M.M. JASMIN THIS WRIT APPEAL HAVING RESERVED ON 23.11.2022, THE COURT ON 30.11.2022 DELIVERED THE FOLLOWING:
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J U D G M E N T S.V. Bhatti, J.
We have heard Mr Sukumar Nainan Oomen, learned counsel for the appellant, and Mr Mohammed Rafiq, learned Special Government Pleader (Taxes) for the Revenue.
2.
The subject Writ Appeal has been tagged with W.A.
No.747/2019 and the batch. The appeal is filed challenging the common judgment dated 11.01.2019.
3.
The writ petitioner is the appellant. The petitioner challenges the notice in Ext.P7 dated 26.04.2018 proposing to reopen the assessment for the Assessment Years 2014-15, 2015- 16 and 2016-17 under the Kerala Tax on Luxuries Act, 1976 (for short, ‘Act 1976’). The dealer challenges the notice on the ground that the State Legislature is not competent to save the provisions of Act 1976. The competence of the State Legislature
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is restricted by CAA 2016, particularly Section 19 of CAA 2016.
The learned counsel states that on the competence of the State Legislature, vis-à-vis Section 174(2) of the KSGST Act, is concerned, he adopts the arguments of the counsel appearing in the connected Writ Appeals and does not wish to reiterate the same contentions.
4.
The learned counsel, confining to the case on hand, argues that luxuries covered by Entry 62 of List II mean the activity of enjoyment of or indulgence in that which is costly or which is generally recognized as being beyond the necessary requirements of an average member of Society. Further, on the language of Entry 62 and the legislative history of Act 1976, the Supreme Court held that Entry 62 of List II does not permit levy of tax on goods or articles. [See Godfrey Philips (I) Ltd. v. State of Uttar Pradesh1]. The repealed Act 1976 is traceable to amended
1 (2005) 2 SCC 515
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Entry 62 of List II of the Seventh Schedule. The luxury is neither a sale of an article nor a supply of service under amended Entry 62 of List II of the Seventh Schedule. The provisions of the KSGST Act are not attracted both for want of authority under the Act and that luxury tax is one of the subsumed indirect taxes under CAA 2016.
5.
The contentions urged by him before the learned Single Judge on the 101st amendment, vis-à-vis Section 174 of the KSGST Act, are not specifically considered. The impugned notice is illegal for the tax on luxuries under Act 1976 is subsumed under the present regime of the Goods and Services Tax Act. Under Section 19, the State Legislature is competent to repeal the KVAT Act. The learned counsel Mr Oommen argues with considerable force that with the establishment of the GST Council, in terms of Article 279A(4)(a);)(h) and 279A(6) of the Constitution, the State Legislature can act on the
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recommendations of the CGST Council. The provision in Section 174(2) of the KSGST Act is relied on to issue the impugned notice in Ext.P7. Section 174(2) is not supported by a recommendation of the GST Council; the act and the action are illegal and unconstitutional. Under Article 246-A, the GST regime is authorized to provide for the establishment of a Goods and Services Tax Council. The State Legislature, without the view of the GST Council, has provided for a saving mechanism in Section 174(2) of the KSGST Act. The lack of a deliberative process before the GST Council and recommendation from GST renders Section 174(2) of the KSGST Act unconstitutional. The jurisdiction now enjoyed and enjoined by the Constitution is concurrent under Article 246A of the Act. Section 18 is an internal aid to interpret Section 19 of the CAA.
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6.
The learned counsel relies on Ramakrishna Ramnath v.
State of Maharashtra2 (paragraph 68) for the proposition that while determining the competence of the Legislature, the intention of the Legislature should have been taken note of. On the scope of applicability of a saving clause, the judgments reported in Keshavan Madhava Menon v. The State of Bombay3 and AIR 1997 SC 412 are relied on. The right to levy and collect taxes are mutually exclusive, and under the new regime, under Article 246A, it is simultaneously available to the Parliament and the State Legislature.
Union of India v. Madan Gopal Kabra AIR 1954 SC 158
7.
The object and purpose of Section 174, since are distinct from the CGST Act, the provisions of the Central Act will prevail over. The Central Act does not have a saving provision on Act 1976. Section 174 is ultra vires Constitution.
2 AIR 1962 SC 1073 3 1951 AIR 128
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The obligations under Act 1976, with effect from 01.07.2017 are entirely wiped out. [Gajraj Singh v. State Appellate Tribunal4 and Bansidhar v. State of Rajasthan5].
8.
The GST regime envisages and compensates states for loss of revenue. The compensation is towards revenue loss to the States on account of the subsumed indirect taxes levied and tax collected. The Act 1976 gets subsumed into GST, indirect taxes within the competence of the State Legislature were repealed, and the shortfall in revenue collection is a matter for a compensation claim under Section 18 of the CAA 2016 but not for reopening the returns already filed by the Dealers under Act 1976. The compensation is paid for the loss of revenue, and the protection provided for by the CAA 2016 makes good the loss suffered to the revenue collection of the State.
4 (1997) 1 SCC 650 5 (1989) 2 SCC 557
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9.
The learned counsel, though have adopted the arguments of the counsel appearing in the connected cases on the principal challenge, i.e., legislative competence, has supplemented his arguments on statutory interpretation of the effect of repeal. Actions contemplated are initiated in terms of Section 174(2)(c) & (d) are like actions that could be taken by operation of a saving provision in the repealing enactment. The source of power is traceable to CAA 2016, which does not contain a saving provision. The Courts appreciate the intention of the Parliament by looking into the very provisions of CAA 2016.
10. Alternatively, and without prejudice to principal submissions, it is argued that the right to collect tax under the repealed act is available as an accrued right only if the Revenue has initiated steps required under the repealed Act to collect tax. The Central Act (CAA) and Section 174 of the KSGST Act
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have distinct objects and purposes. Therefore, CAA will prevail over the State law, i.e., Section 174(2) of the KSGST Act.
Therefore, the State law is inoperable. The notices issued are for reassessment and assessment of escaped turnover leading to the determination of tax due. Therefore, the phrase ‘tax due’ denotes the tax that has obtained finality. The issue of notices under Section 6 of the KSGST Act is illegal and unavailable. A fresh liability is sought to be determined and recovered from the Dealer through impugned notices. During the GST regime, such recovery is impermissible.
11. The argument challenging the impugned notices is that luxury, subsequent to the 101st Amendment, is neither sale of an article nor the supply of a service. Therefore, the saving clause in Section 174(2)(b), (c), and (d), insofar as the tax on luxury, is illegal.
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12. Mr Mohammed Rafiq replies that the notice now impugned in the writ petition is not issued for levying a tax on any luxury item post 17.09.2017. But the reassessment of alleged tax evasion is not affected by the amendment to Entry 55 of List II of the Seventh Schedule. Therefore, reliance on Godfrey Philips (I) Ltd. is entirely beside the point.
13. The argument, though attractive, when it comes to applying to the circumstances of the case, suffers from an inherent fallacy. In Godfrey Philips (I) Ltd., the Supreme Court has held that ‘luxury’ means the activity of enjoyment of or indulgence in that which is costly or generally recognised as being beyond the requirements of an average member of Society and not articles of luxury. Through the impugned notice, the tax demanded is only towards a tax on luxury during the currency of the Kerala Tax on Luxuries Act. Without much deliberation, though the reasoning is brief, we are convinced
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this contention need not be carried further to reject. Hence, the argument fails and is rejected.
14. It is argued that under Article 246-A, subsumed taxes are levied as Goods and Services Tax. Article 279-A clause (1) provides for establishing the Goods and Services Tax Council to make recommendations to the Union and the States in the implementation of ‘One Nation One Tax. Legislation not recommended by GST Council is unconstitutional.
15. In Mohit Minerals Pvt. Ltd, the Supreme Court has elaborated on the role of the GST Council.
The recommendations of the Council are mandatory under Sections 6, 7(1), 7(2) etc, of the KSGST Act. Section 174(2) is incorporated without the recommendation of the GST Council. Therefore, wrong in law. Section 18 of the CAA deals with compensation to States for loss of revenue. With State taxes getting subsumed into the GST, the State suffers the loss of revenue, and the loss
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of income is compensated under Section 18 of the CAA.
Therefore, the notices impugned under the KVAT Act should not have been issued by referring to alleged revenue loss.
16. Mr Rafiq answers the argument that Section 174(2) has been incorporated without the recommendation of the GST Council and is without merit. The State is empowered under Section 19 of the CAA 2016 to amend or repeal State laws inconsistent with the new tax regime. The GST Council’s recommendations start operating post-GST regime but do not affect the saving power available to the State Legislature.
Replying to the argument on compensation, he invites our attention to the powers and functions of the GST Council and argues that the GST Council does not have a role to play for transactions before 17.0.2017. Therefore, the State Legislature is not under obligation to take the advice or recommendation of the GST Council. It is further argued that the compensation is
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paid for the loss of revenue ex post facto on the repeal of indirect taxes levied by the State.
17. Section 174(2), we have held in the connected Writ Appeals disposed of by a separate order, is well within the State Legislature's competence and not in derogating the mandate of Section 19 of the CAA 2016. The said reasoning and conclusion apply to the challenge under consideration.
18. The function of the GST Council is to make recommendations to the Union and State on taxes, Cesses and surcharges levied by the Union and the State under the GST regime. Secondly, the goods and services that may be subjected to tax are exempted from the GST. Therefore, the argument that repeal and savings are provided without the recommendation of the GST Council is without foundation in law. Hence, rejected.
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19. Adverting to compensation, much deliberation is not needed since compensation is provided for five years and compensation is envisaged on account of changes in the dynamics of point of sale, supply, destination basic tax etc, on supply of goods or services or both. The notice impugned is not relatable to any aspects covered by the compensation post-GST regime. Firstly, the compensation is not payable for the recovery or failure to recover by the States due to them before 16.09.2017, and secondly, the failure in future for not promptly reassessing the returns already filed of the return period before 17.09.2017 cannot be assimilated into revenue loss suffered by the State for measuring the compensation. Thirdly, the Central Government is not accepting the obligation of a defaulter of tax dues to compensate the State Governments. Such an approach is beyond the comprehension of the roadmap laid, followed and
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implemented to date. The said argument would consequently fail and is rejected.
20. The learned Counsel for the appellant on the main points, namely competence, scope and extent of operation of the saving clause, adopted the argument of the counsel in connected Writ Appeals. The point is answered against the Dealer.
By adopting the same reasoning on the competence, repeal etc., W.A. No.1286/2019 fails and is accordingly dismissed.
Sd/- S.V.BHATTI JUDGE
Sd/- BASANT BALAJI JUDGE jjj
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APPENDIX OF WA 1286/2019
PETITIONER ANNEXURES ANNEXURE A1 TRUE COPY OF ASSESSMENT ORDER NO.32042543027/14- 15 DATED 15.03.2019 ISSUED BY 2ND RESPONDENT ANNEXURE A2(COLLY)- TRUE COPY OF DEMAND NOTICES DATED 15.03.2019 ANNEXURE A3 JUDGEMENT DATED 22.03.2019 IN W.A.NO.747/2019.