States Lack Power To Amend VAT Acts Post-GST Implementation, Supreme Court Says

After the Goods and Services Tax came into effect in 2017, the states were stripped of their powers to make amendments to their respective Value Added Tax Acts, the Supreme Court said.

It said so in a batch of appeals filed against amendments brought out by the states of Telangana, Gujarat and Maharashtra to their respective VAT Acts.

The top court was dealing with the interpretation of Section 19 of the Constitution (One Hundred and First Amendment) Act, which came into force in September 2016.

The provision said that the states had the power to amend or repeal all the earlier legislation that dealt with the taxation of goods and services so as to bring them in line with the upcoming GST regime.

It also said that if the requisite changes are not brought in, these laws would automatically expire after the new law is enacted, or after the expiry of one year, whichever date comes earlier.

The GST Act was subsequently enacted in July 2017.

Thereafter, amendments were brought into the VAT Acts by the states of Telangana, Gujarat and Maharashtra.

These amendments were challenged in their respective high courts.

While the high courts of Telangana and Gujarat struck down the amendments due to a lack of legislative competence on the part of the legislature, the high court of Bombay upheld the amendments.

The apex court explained that the aim of Section 19 was to preserve existing fiscal and taxation laws prevailing in various statutes for a limited duration of one year or until they were amended or repealed.

If there was no transitional provision, such as the one contained in Section 19, and the states were not allowed to cure the defects of the existing laws, the results could have been catastrophic, the court said.

However, it was observed that amendments to all the VAT Acts in question came after the enactment of the GST Act. Therefore, the top court agreed with the fact that these amendments lacked legislative competence and were overruled.