Sheen Golden Jewels (India) Pvt Ltd Vs State Tax Officer (IB)-1

The writ petitioners are the appellants, and the Writ Appeals are directed against the common judgment dated 11.01.2019 in W.P.(C) Nos.11335/2018 and related cases. Several Writ Appeals are independently disposed of following this common judgment. For consistency, we refer to the appellants as ‘Dealer’ and respondents as ‘Revenue’. This Court, in its common judgment, considers the challenge to Section 174(2) of the Kerala State Goods and Services Tax Act, 2017 (short ‘KSGST Act’). In analyzing these jurisprudential and constitutional issues, we will refer to a few Sections in the Constitution (101st Amendment) Act, 2016 (for short ‘CAA 2016’); Kerala Value Added Tax Act, 2003 (for short ‘KVAT Act’); The General Clauses Act, 1977 (for short ‘GC Act’); the Constitution of India (for short ‘Constitution’); and the Kerala Interpretation of Statutes and General Clauses Act, 1897 (for short ‘KGC Act’). With effect from 01.07.2017, by Article 246A of the Constitution, the levy of tax on the supply of goods or services or both is made by the Centre and States depending on the exigible event. We would preface our consideration of issues with a short prelude on GST. The GST is a tax on goods or services or both with a comprehensive and continuous chain of benefits from the producers and service providers’ level up to the retailer level. The GST is essentially a tax on value addition at each stage, and, at each stage, a supplier of goods or services is permitted to avail set off through a tax credit mechanism. The GST paid on purchasing goods and services is available for set off on the GST to be paid on the supply of goods and services. In this chain of events, the final consumer will thus bear the GST charged by the last dealer in the supply chain, with a set of benefits at all the previous stages. Quoted from the Select Committee report 2015: “GST is a value-added tax levied across goods and services. The GST regime intends to subsume most indirect taxes under a single taxation regime. The broad objectives of GST are to widen the tax base, eliminate cascading of taxes, increase compliance through lowering the overall tax burden on goods and services, and reduce economic distortions caused by inter-State variations in taxes levied and collected. By doing away with latent or embedded taxes, it would provide leeway for the competitiveness of domestic industry vis-à-vis imports and in international markets. Unifying the tax structure across States, the new tax regime scheme would pave the way for a common national market for goods and services”. Selective and precise words could simplify the concept of GST, but implementation, as experience disclosed, is an arduous task. The GST has a far-reaching impact on the economy and tax administration, fundamentally altering how indirect taxes are levied and collected. The essence of GST lies in its potential to transform the economic landscape by creating a unified tax structure that facilitates ease of doing business, enhances tax compliance, and ultimately fosters a more robust and competitive economic environment. The case before us involves a critical examination of the statutory framework governing GST, particularly the provisions that address the transitional aspects of moving from the previous tax regime to the GST regime. The petitioners challenge the vires of Section 174(2) of the KSGST Act, contending that it is beyond the legislative competence of the State Legislature. The petitioners argue that this provision, which deals with the repeal and savings of earlier tax laws, has been framed in a manner that results in undue hardship and legal inconsistencies, particularly concerning the demands and liabilities arising under the pre-GST laws. They contend that the transitional provisions under the KSGST Act should not override the protections and safeguards provided under the earlier tax statutes, such as the KVAT Act and the GC Act. The Revenue, on the other hand, maintains that Section 174(2) of the KSGST Act is constitutionally valid and necessary to ensure a smooth transition to the GST regime. They argue that the provision has been enacted within the legislative competence of the State Legislature and is consistent with the objectives of the CAA 2016. The Revenue asserts that the transitional provisions are designed to address the complexities and practical challenges associated with the shift to the GST regime, including the treatment of pending assessments, appeals, and other proceedings under the earlier tax laws. The core issue in this case is whether the impugned provision of the KSGST Act can be sustained in light of the constitutional scheme and the principles governing legislative competence and federalism. This case also brings to the fore the broader policy considerations underlying the GST, particularly the need for legal certainty, fairness, and consistency in the transitional arrangements. As we delve into the merits of the petitioners’ challenge, it is imperative to consider the legislative intent and the practical implications of the contested provision. The adjudication of this case will have significant implications not only for the parties involved but also for the broader framework of GST implementation and the legal landscape governing indirect taxation in India. The judgment in this case will contribute to the evolving jurisprudence on GST and its interface with the constitutional principles of legislative competence, federalism, and the rule of law. The decision will also serve as a precedent for similar challenges and disputes arising from the transitional provisions and the interpretation of the GST laws across different States. In summary, this case represents a critical juncture in the GST transition process, highlighting the legal, administrative, and policy challenges inherent in implementing a comprehensive tax reform of this magnitude. The resolution of this case will provide much-needed clarity and guidance on the scope and application of the transitional provisions under the GST laws, ensuring a more predictable and stable tax environment for businesses and taxpayers alike.