P DR. THUSHARA JAMES., ADDL. SOLICITOR GENERAL SRI.K.M. NATRAJ., CGC., JAISHANKAR v. NAIR., SR. SC. SRI. SREELAL N. WARRIER THIS WRIT PETITION

ADDL. AG K.K. RAVINDRANATH., SPL. G.P. SRI. C.E. UNNIKRISHNAN., GP DR. THUSHARA JAMES., ADDL.SOLICITOR GENERAL SRI.K.M. NATRAJ., CGC., JAISHANKAR V. NAIR., SR. SC. SRI. SREELAL N. WARRIER WPC No.11335/2018 & conn.cases 14 THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 11.01.2019, ALONG WITH WP(C).40561/2018, WP(C).40545/2018, WP(C).18326/2018, WP(C).25768/2018, WP(C).40543/2018, WP(C).15898/2018, WP(C).15851/2018, WP(C).15879/2018, WP(C).15523/2018, WP(C).11335/2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WPC No.11335/2018 & conn.cases 15 JUDGMENT [ WP(C) 11335/2018 ,WP(C).15523/2018 ,WP(C).15851/2018 ,WP(C).15879/2018 ,WP(C).15898/2018 ,WP(C).18326/2018 ,WP(C).25768/2018 ,WP(C).40543/2018 ,WP(C).40545/2018 ,WP(C).40561/2018 ,WP(C).40646/2018 ] Introduction: The lure of lucre and the power of purse are too seductive to be resisted—be it for an individual, or an institution, or even a nation. Internationally, the rhetoric of freedom, fraternity, comity, and human rights apart, the nations are guided by naked economic compulsions. The latter part of the last century dedicated itself to dismantling walls around the nations; this century has begun, it seems, determined to raise a few. At the national level, this clamour for economic hegemony is felt acutely, at least, institutionally.

2. Granted, federalism is the pinnacle of a democracy’s political maturity; sharing the power signifies its wisdom. But there, too, fiscal discipline demands a watertight division. Our Constitution has, as a case in point, kept the fiscal legislative powers in water-tight divisions —either in List I or in List II. None in List III. In a federal polity, good legislative fences make good political neighbours. A vigilant WPC No.11335/2018 & conn.cases 16 policeman always guards a thief’s virtue, anywhere; as the constitution prevents federal fiscal turf wars.

3. To be explicit, constitutionally, fiscal powers between the Centre and the States stand demarcated. The legislative scheme admits of almost no overlap between the respective domains. The Centre has the powers to levy a tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics, and so on); the States, on the other hand, have the powers to levy a tax on the sale of goods. With inter-state sales, the Centre has the powers to levy a tax (the Central Sales Tax). But the tax is collected and retained entirely by the originating States. As for services, it is the Centre alone that is empowered to levy Service Tax.

4. Since the States had the legislative competence to impose a sales tax, under Entry 54, List II, indiscriminate tax rates were applied by the respective States resulting in tax wars, tax holidays, deferrals, incentives, and concessions. Each State started to offer attractive schemes to invite investments into its States. When the Central levies such as the Customs Duty and the Excise Duties remained the same throughout the Country, Sales Tax rates varied among States. WPC No.11335/2018 & conn.cases 17

5. To avoid a lopsided or imbalanced growth, the Union Government took steps, beginning with constituting Empowered Committees, to usher in further tax reforms. Besides that, then the Sales Tax, in its original form, was invariably a single tax levy, imposed at the first stage of the sale. The subsequent resale and its value addition were not captured to tax. This and other shortcomings made the Sales Tax give way to the Value Added Tax; the sale at every stage till the point of consumption got taxed, and the taxes paid in the previous stages were subsumed as Input Tax Credit. The Scope:

6. Earlier, as we have noted, the taxing powers of the Union and the States had been well-demarcated. Recently, with the 101st Constitutional Amendment, the Goods and Services Tax regime has been ushered in. The Constitutional Amendment Act (the “CA Act”) has led to a federal fiscal experiment by engendering a host of enactments: the Central Goods and Services Tax Act, 2017; the Integrated Goods and Services Tax Act, 2017; the Union Territory Goods and Services Tax Act, 2017; the Goods and Services Tax (Compensation to States) Act, 2017; The “X” State Goods and WPC No.11335/2018 & conn.cases 18 Services Act, 2017 (State specific).

7. For the first time, in the taxation sphere, both the Union and the States have come to enjoy simultaneous powers, thus putting paid to the repugnancy doctrine, at least, in particular areas of taxation. With the insertion, amendment, and deletion of a few constitutional provisions—particularly with the insertion of Article 246A of the Constitution and deletion of Entry 52 of List II in Seventh Schedule— there has been a realignment of legislative powers of the Union and the States. Now, Entry 54 stands modified. In its attenuated form, it denudes, according to the petitioners, from

16.09.2016, the State’s legislative power to tax on those items now removed from that Entry. They insist that Section 19 of the CA Act allows “interim or temporary continuation” of all the Acts made earlier under the unamended Entry 54 only up to 16.09.2017. As a case in point, the petitioners assert that the Kerala Value Added Tax Act has become a dead letter from 16.09.2017.

8. Section 174 of the Kerala Goods and Services Act, 2017, is a saving provision brought about by the State Legislature to save the transactions under the State's various pre-GST enactments, including WPC No.11335/2018 & conn.cases 19 the KVAT Act. About that provision, the petitioners, first, maintain that Section 19 of the CA Act has repealed all the State laws inconsistent with the GST Laws. And they also, second, insist that the States have been denuded of the legislative power to enact Section 174 because of the amendment to Entry 54 of List II.

9. So the question, the Core Question as the petitioners put it, is does the State have the legislative competence to enact section 174 and save the past taxation events—comprising levy, assessment, and recovery—when Entry 54, List II, which is the field of legislation empowering the State, stood omitted permanently with effect from

16.09.2017? Of course, this core question engenders a few collateral questions. We will answer them all. Facts: WP (C) No.15879 of 2018:

10. The petitioner, a Private Limited Company, is a dealer under the Kerala Value Added Tax Act and Central Sales Tax Act. It has opted to pay the tax at the compounded rates under Section 8 of the KVAT Act. So for the assessment years (AY) 2010-2011 and 2011- 2012 and thereafter, too, the petitioner filed returns in terms of the WPC No.11335/2018 & conn.cases 20 compounding scheme—in Form 10DA.

11. But the Intelligence Officer (IB)-II, Thiruvananthapuram, issued to the petitioner notices under Sec 67 in the KVAT Act for the assessment years 2009-2010, 2010-2011 and 2011-2012. The grounds of the notices are not germane here, though the petitioner’s objections to the notices are. Succinctly stated, the petitioner is accused of not maintaining the true and correct accounts, and that has led to evasion of tax. So the Intelligence Officer proposed penalty under Sec 67(1)(b) and (d) of the KVAT Act. The petitioner replied to the notices for AYs 2010-2011 and 2011-12 and produced material in defence. Yet the Intelligence Officer confirmed the proposal for imposing a penalty. Aggrieved, the petitioner challenged the penalty orders before this Court in W. P.(c) No.12648 of 2016. This Court admitted the Writ Petition and stayed the recovery of the penalty.

12. On parallel lines, the Assessing Authority sought the Deputy Commissioner’s prior approval for cancelling the “compounding permission” granted to the petitioner, as mandated under the proviso to Section 8(f)(iv). After securing the permission under Section 8(f)(iv) of the KVAT Act pending W.P. No.12648 of WPC No.11335/2018 & conn.cases 21 2016, now the Assessment Officer, the 3rd Respondent, has issued a notice for a best-judgment assessment under Section 25, read with Section 42(3), of the KVAT Act. The notice concerns the AYs 2010- 2011 and 2011-2012 and proposes to cancel the compounding under Section 8(1)(iv). To be explicit, the notice proposes to revise the compounded tax for 2010-11 and 2011-2012, based on the alleged escapement of tax for the previous year. The petitioner did reply to the notice. The notice, as the petitioner contends, is a composite one; it proposes to cancel the compounding, besides undertaking a best judgment assessment—simultaneously. The composite notice, the petitioner asserts, is a fait accompli.

13. So the petitioner has filed this writ petition questioning the notices under Section 25, read with Section 42(3) and Section 8(1)(iv), of the KVAT Act. WP (C) No.11335 of 2018:

14. The Petitioner, a jeweler, is a dealer under the Kerala Value Added Tax Act. The State Tax Officer, the second respondent, inspected the petitioner’s business premises in November 2012, seized some records and, later, issued a notice. He directed the WPC No.11335/2018 & conn.cases 22 petitioner to produce books of accounts. The petitioner, instead, asked for the return of the seized records. But they were not returned. So the petitioner filed WP (C) No.25376 of 2012. The Court stayed further proceedings.

15. When the stay was in force, in March 2013, the second respondent issued a penalty Notice under section 67 (1) of the KVAT Act, proposing to impose penalties of Rs.88,22,948/- and Rs.40,99,06,936/- for the years 2010-11 and 2011-12 respectively. Reminded of the Court’s restraint order in WP (C) No.25376 of 2012, the second respondent recalled those notices. Finally, in June 2013, the WP (C) No.25376 of 2012 was disposed of. And as nothing was heard until 12.05.2016, the second respondent asked the petitioner to produce the books of accounts. The petitioner complied with that direction: it supplied the required information in May 2016 and October 2017. Then in December 2017, the second respondent issued a “common notice” proposing to impose penalties of over seven crores and eight crores for the years 2010-11 and 2011-12 respectively.

16. Eventually, in February 2018, the first respondent passed an WPC No.11335/2018 & conn.cases 23 order under Section 67 (1) of the KVAT Act for AY 2010-11. He imposed a penalty of Rs.7,17,630/-. In March 2018, through another order, for the next assessment year, he imposed a penalty of Rs.8,12,56,734/-.

17. The petitioner challenges these orders as ultra vires of the authorities—constitutionally invalid. WP (C) No.40646 of 2018:

18. The petitioner, a registered dealer under the KVAT Act, is a Government Electrical Contractor. He filed all returns and remitted tax under the KVAT Act for the AYs 2012-13, 2013-14, 2014-15, 2015- 16 and 2016-17. The Assessing Officer accepted all the returns filed and the tax paid, with no demur. So the assessments for the years are deemed to have been completed under Section 21 of the KVAT Act.

19. But recently, on 23.11.2018, the Assessing Officer served on the petitioner the pre-assessment notices under Section 25(1) of the KVAT Act 2003, proposing to assess an alleged escapement of turnover for all the above years. So the petitioner challenges those notices on the premise that the Assessing Officer has no jurisdiction to invoke the KVAT Act, for it stood repealed with the 101st WPC No.11335/2018 & conn.cases 24 Constitutional Amendment (“the CA Act”). WP (C) No. 40561 of 2018:

20. The petitioner, an assessee, claims to have been filing “proper returns” periodically, besides paying tax. But on 05.12.2018 he received a notice for AY 2012-13 under Section 25(1) of the KVAT Act 2003. The petitioner, in this writ petition, maintains that as per the Amendment Act, the provisions of the KVAT Act could be enforced for one year after the CA Act, but not “indefinitely without any limitation.” WP (C) No.40543 of 2018:

21. The Petitioner, a registered dealer under the erstwhile KVAT Act, claims to have filed all returns on time and paid the taxes due. But, later, the Assessing Officer reopened the petitioner’s final assessments for 2012-13 and 2013-14, under Section 25 (1) of the KVAT Act by making huge additions.

22. The main reason for the Assessing Officer to resort to the best judgment assessment is that after his verifying the petitioner’s sales and purchases through the KVATIS module, he found certain unaccounted transactions. The additional reason is that the WPC No.11335/2018 & conn.cases 25 Intelligence Wing of the Department has imposed a penalty upon the Petitioner under Section 47 (6) of the KVAT Act for the offence of attempted evasion of tax while his transporting goods. So the petitioner has assailed the Assessment Orders as unconstitutional and without jurisdiction. Submissions: Petitioners’:

23. In the past one year, a rash of writ petitions has been filed. Those writ petitions may count up to a few thousands. But only a handful of advocates—about half a dozen—argued; the rest adopted those arguments. Shri Abhishek Manu Singhvi, the learned Senior Counsel, instructed by Shri A. Kumar, the counsel on record, led the arguments. He was admirably complemented by Shri N.Venkitaraman, another learned Senior Counsel, instructed by Shri K.P.Abdul Azees and Shri Akhil Suresh. Then they were ably supplemented by Sri K. S. Hariharan, Sri Sukumar Nainan Oomen, and a few other counsel, well-informed and determined to press forward their clients’ cause.

24. All argued on the same theme—the constitutional validity of Section 174 of the KSGST Act. Then came the refutation, matching WPC No.11335/2018 & conn.cases 26 the petitioners’ counsel in erudition and expression, from Shri K.M. Nataraj, the learned Additional Solicitor General, instructed by Shri Jaishanker Nair, the learned Central Government Counsel; and Shri Ravindranath, the learned Additional Advocate General, assisted by Shri C.E. Unnikrishnan, the learned Senior Government Pleader and Dr. Thushara James, the learned Government Pleader.

25. If I list out, even encapsulate, each counsel’s arguments, they run into pages, besides sounding repetitive. So for brevity’s sake, I will set out their arguments compendiously and, to the extent possible, concisely, too. So the extracted arguments are party-specific, not counsel-specific. The Summary of the Petitioners’ Submissions: About the 101st Constitution Amendment Act:  On and from 16.09.2016, Article 246 yielded legislative ground to the newly engrafted Article 246A. Thus, Article 246 stood amended and modified in its operation. Consequently, a few items in both List I and List II suffered significant schematic changes. Article 246A, an enabling legislative provision, contains no concomitant schedule or iteration.  Entry 54 of List II stands substituted by 16.09.2016; the Constitutional Amendment does not save it. So the pre-amended WPC No.11335/2018 & conn.cases 27 Entry 54 of List II has ceased to exist. Instead, what reigns is the substituted Entry 54.  Section 19 of the Amendment Act is the transitional provision, besides being the saving provision. Nothing from the pre-existing legislative regime saves itself from or transits across what is set out in Section 19—a sunset clause.  First, Entry 54 abrogated, from 16.09.2016 the States have been denuded of the power of taxation. Second, the interim or transitional existence of the unamended Entry 54, if ever, could have survived only up to 16.09.2017, as per Section 19.  Any judicial effort to save or resurrect the erstwhile Entry 54 beyond 16.09.2017 renders Section 19 of the Amendment Act otiose, meaningless, and insignificant.  Section 19 of the Amendment Act itself provides for the repeal, for the savings, and for the consequences, too. So there remains no more power or authority for the State to have a further repeal and saving, as provided—erroneously though—in Section 174 of the SGST Act. Pithily put, Section 174 of the SGST Act cannot travel beyond Section 19 of the Amendment Act.  A law under Article 246A cannot be the source of power to save legislation under List II of Entry 54 at all. Article 367 & General Clauses Act:  Article 367, too, does not apply, as the constitutional command of repeal is explicit.  Neither KSGST nor CGST provides for repeal or re-enactment. WPC No.11335/2018 & conn.cases 28  So, primarily, the General Clauses Act cannot resurrect or rescue the repealed enactments, even if its Sections 6 and Section 24 are invoked.  The State stands protected for the Centre undertakes to reimburse its losses.  The clear and unequivocal legislative intent of Section 19 of the Amendment Act is to stop the operation of KVAT, 2003, from

16.09.2017.  A Statutory saving-provision, such as Section 174 of KSGST, emanating from the State’s legislative power, cannot nullify the constitutional mandate of Section 19 of the Amendment Act, emanating from the Parliament’s constituent power. Section 174 – Absence of Legislative Power:  Article 367 does not apply because repealing enactment itself provides explicitly for transition and saving. In other words, only in the absence of the repeal or saving is the General Clauses Act attracted.  Section 24 of the General Clauses Act saves the subordinate legislation and applies if there are repeals and re-enactments. Here neither is present. So machinery provisions are not saved. Then follows the well-accepted proposition: there is no tax without machinery provisions. Respondents’:  By the CA Act, the Parliament never intended that dealers or assessees should escape the tax network, letting the society or WPC No.11335/2018 & conn.cases 29 exchequer suffer.  The Parliament has enacted the Goods and Services Tax (Compensation to States) Act, 2017, empowered by Section 18 of the Amendment Act, on the recommendation of the GST Council, though. This enactment is, however, does not derive its legitimacy from any legislative entry or field of legislation enumerated in the Central List.  Similarly, Section 19 of the Amendment Act empowers the State Legislature to amend or repeal provisions of any existing law which are inconstant with the Constitution as amended by the amending Act.  The non-obstante Clause in Section 19 mandates that such legislation can be made notwithstanding anything contained in the Amendment Act. So the Entry 54, as it originally stood before the Amendment Act, remains available for the State, under Article 246 of the Constitution.  In the alternative, without Entry 54 as it originally stood, the newly introduced Article 246-A as per Section 2 of the Amending Act read with Section 19 of the amending Act, by itself gives power to the state legislature to enact the impugned provisions in the State GST Act.  A transitional provision in a Constitution Amendment Act has a higher status and better legal impact than a transitional provision in ordinary legislation. So Section 19 of the CA Act, read with Article 246-A, without any doubt, empowers the State Legislature to enact WPC No.11335/2018 & conn.cases 30 Section 174(b) and (c) of the KSGST Act, 2017.  The Legislature does not derive its power to legislate from the Entries in the three lists of the 7th Schedule; therefore, the substitution of an entry in any List of the 7th Schedule does not affect the State’s lawmaking power.  The Amendment Act is only prospective, and the constitutional amendment does not in any way deal with the past transactions or any rights and liabilities accrued.  The provisions contained in Sections 173 and 174 of the State Act are not inconsistent with the provisions contained in the Amendment Act. On the General Clauses Act and Its Application:  Every latter enactment which supersedes an earlier one or puts an end to a previous state of the law is presumed to intend the continuance of rights accrued and liabilities incurred under the superseded enactment.  This interpretative presumption could be negated only if there were sufficient indications express or implied in the later enactment designed to obliterate the earlier state of the law.  If the legislative intent to supersede the earlier law is the basis upon which the doctrine of implied repeal is founded, there could be no incongruity in attributing to the later legislation the same intent which Section 6 presumes where the word ‘repeal’ is expressly used.  Where an intention to effect repeal is attributed to a legislature, then the same would attract the incidence of the saving found in WPC No.11335/2018 & conn.cases 31 Section 6 of the General Clauses Act.  The power to make a law regarding a tax comprehends, within its power, how to levy that tax and determine the persons who are liable to pay such tax, the rate at which such tax is to be paid, and the event which will attract the liability regarding such tax.  The liability to pay the tax was not dependent upon assessment or demand but was an obligation to pay the tax either annually, quarterly, or monthly as the case may be. DISCUSSION: GST – Introduction:

26. In a federal constitutional set up, coordination rather than subordination as the guiding spirit, the States and the Centre as the constituents have demarcated spheres of legislation and governance. With clearly delineated legislative fields, neither can trespass upon the other's legislative territory—the residuary powers lying with the Centre, though. The division of powers is zealously guarded in no other sphere than fiscal. Taxation as the backbone of a welfare nation, which India is; the legislative fields are as distinct, yet interconnected, as the spinal segments are.

27. That said, 101st Constitutional Amendment is the epoch- making federal feat unparalleled in constitutional democracies— WPC No.11335/2018 & conn.cases 32 almost. It is, I may say, a constitutional coup de grâce delivered against the fiscal confusion compounded by conflicting taxation regimes. This amendment, perhaps, marks the crest of cooperative federalism. It has created even a constitutional institution—GST Council.

28. As constitutional democracies have gained experience, Utopian vision of justice has given way to utilitarian view. Material comfort or upliftment has become the hallmark of good governance. So economic analysis of law substitutes the notion of simple justice with that of economic efficiency and wealth maximisation. True, nations like France successfully embraced GST regimes in the 1950s. Even federal polities like Canada replaced MST (Manufacturer’s Sales Tax) with GST (Goods and Services Tax) in the 1980s. India joined the fiscal reform bandwagon a little late. Tentative it was to begin with, but determined it is in this new federal fiscal path.

29. To put the concept in perspective, GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the later stage of value addition. This process makes GST a tax on WPC No.11335/2018 & conn.cases 33 value addition at each stage. The consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

30. In other words, the focus was shifted from taxable event to destination-based taxation. It avoids the evil of cascading taxation or tax on tax trouble. So goes the motto: One Nation-One Market-One Tax.

31. A nascent enactment in a nebulous field of taxation will have many teething troubles. GST is no exception. In its path to perfection, GST has much dust to settle—legislatively and judicially. These are the days of confusion and cacophony: many views, many interpretations, and many jurisprudential mumblings. GST: The Origins:

32. Before its advent as a revolutionary indirect tax regime, Goods and Services Tax (GST) had been on the parliamentary anvil for more than a decade. Its need as a harmonised indirect tax, encompassing all goods and services was documented as early as in

2004. That year the Task Force on Implementation of the Fiscal Responsibility and Budget Management in its Report stressed the WPC No.11335/2018 & conn.cases 34 need. The first official announcement for a transition to GST, though, was made by the Government of India in 2006-07 (the Budget Speech). The Government’s commitment stood reiterated in the Budget Speech of 2008–09, too. But the Government of India took the first step towards the transition to GST when it announced certain policy changes in the 2009–10 budget.

33. The next major landmark was the “First Discussion Paper on Goods and Services Tax in India” released by the Empowered Committee in November 2009. This was the first official document publicly delineating the contours of the proposed reform and nuances of the GST Model.[1]

34. The First Discussion Paper, in fact, explained the rationale for a constitutional amendment to introduce GST. It noted that while the Centre is empowered to tax services and goods up to the production stage, the States have the power to tax sale of goods. The States do not have the powers to levy a tax on the supply of services while the Centre does not have the power to levy a tax on the sale. Thus, it suggested for a constitutional amendment that would 1[] Tarun Jain’s Goods and Services Tax, Constitutional Law & Policy, ST, EBC, Ed.2018, p.59 (e-book) WPC No.11335/2018 & conn.cases 35 contain a mechanism for a harmonious structure of GST that would not affect the federal fabric.

35. Then, with the deliberations between the Centre and States, aided by the Empowered Committee, the constitutional amendment process to usher in GST began. It resulted in the “Constitution (One Hundred and Fifteenth Amendment) Bill, 2011”. After that one got lapsed, came the 2014 Amendment Bill (as passed by Parliament). Passed on 8 September 2016, this Bill became “the Constitution (One Hundred and First Amendment) Act, 2016”.

36. The GST Council, constituted in September 2016, is a constitutional institution comprising as its members the Finance Ministers of the Union and the States, including Union Territories with Legislatures. It has the authority “to recommend to the Union and the States on various facets of GST, including Model GST laws, principles to determine the place of supply, levy of the tax, design of GST, dispute settlement, special provisions for a special category of States, and so forth.”[2]

37. Adopting the recommendation of the GST Council, 2[] Id., p.69 (e-book) WPC No.11335/2018 & conn.cases 36 Parliament has enacted these pieces of legislation: (1) The Central Goods and Services Tax Act, 2017: it levies a tax on intra-State supplies of goods and services in all supplies within a State; (2) the Integrated Goods and Goods and Services Tax Act, 2017: it levies a tax on inter-State supplies of goods and services; (3) the Union Territory Goods and Services Tax Act, 2017: it levies a tax on intra- State supplies of goods and service.

38. Tarun Jain’s Goods and Services Tax, already copiously quoted, observes that in constitutional terms, GST is unique because of these aspects of its design:  1. It provides for the concurrent exercise of taxing powers by the Centre and the States on the same subject—a unique and unprecedented measure. 2. Both the Centre and the States are to act in tandem based on the GST Council’s recommendations. Salient features of GST:

39. The salient features of GST are these[3]: (i)GST applies on ‘supply’ of goods or services as against the present concept on the manufacture of goods, or on the sale of goods, or on the provision of services. 3[] http://gstcouncil.gov.in/brief-history-gst, accessed on 10th January 2019. WPC No.11335/2018 & conn.cases 37 (ii) GST is based on the principle of destination-based consumption taxation, as against the present principle of origin-based taxation. (iii) It is a dual GST with the Centre and the States simultaneously levying a tax on a common base. GST to be levied by the Centre is called Central GST(CGST) and that to be levied by the States called State GST (SGST). (iv) An Integrated GST (IGST) is levied on inter-state supply (including stock transfers) of goods or services. This shall be levied and collected by the Government of India, and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by Law on the recommendation of the GST Council. (v) Import of goods or services is treated as inter-state supplies and is subject to IGST, besides the applicable customs duties. (vi) CGST, SGST & IGST are levied at rates to be mutually agreed upon by the Centre and the States. The rates would be notified on the recommendation of the GST Council. To begin with, the GST Council has decided that GST would be levied at four rates viz. 5%, 12%, 18% and 28%. The schedule or list of items that would fall under each slab has been worked out. Besides these rates, a cess would be imposed on “demerit” goods to raise resources for compensating States as States may lose revenue owing to the implementation of GST. (ix) GST will apply to all goods and services except Alcohol for WPC No.11335/2018 & conn.cases 38 human consumption. (x) GST on five specified petroleum products (Crude, Petrol, Diesel, ATF & Natural Gas) will be applicable from a date to be recommended by the GSTC. (xi) Tobacco and tobacco products would be subject to GST. Besides, the Centre will have the power to levy Central Excise duty on these products. (xii) A common threshold exemption would apply to both CGST and SGST. Taxpayers with an annual turnover not exceeding Rs.20 lakh (Rs.10 Lakh for special category States) would be exempted from GST. For small taxpayers with an aggregate turnover up to 50 lakh in a financial year, a composition scheme is available. Under the scheme, a taxpayer shall pay tax as a percentage of his turnover in a State during the year without the benefit of Input Tax Credit. This scheme will be optional. (xiii) The list of exempted goods and services would be kept to a minimum, and it would be harmonized for the Centre and the States and across States as far as possible. (xiv) Exports would be zero-rated supplies. Thus, goods or services that are exported would not suffer input taxes or taxes on finished products. (xv) The credit of CGST paid on inputs may be used only for paying CGST on the output, and the credit of SGST paid on inputs may be used only for paying SGST. Input Tax Credit WPC No.11335/2018 & conn.cases 39 (ITC) of CGST cannot be used for payment of SGST and vice versa. In other words, the two streams of ITC cannot be cross- utilised, except in specified circumstances of inter-state supplies for payment of IGST. (xvi) Accounts would be settled periodically between the Centre and the States to ensure that the credit of SGST used for payment of IGST is transferred by the Exporting State to the Centre. Similarly, IGST used for payment of SGST would be transferred by the Centre to the Importing State. Further, the SGST portion of IGST collected on B2C supplies would also be transferred by the Centre to the destination State. The transfer of funds would be carried out based on information contained in the returns filed by the taxpayers. (xvii) The laws, regulations, and procedures for levy and collection of CGST and SGST would be harmonized to the extent possible.

40. GST replaces these taxes currently levied and collected by the Centre: (a) Central Excise Duty, (b) Duties of Excise (Medicinal and Toilet Preparations), (c) Additional Duties of Excise (Goods of Special Importance), (d) Additional Duties of Excise (Textiles and Textile Products), (e) Additional Duties of Customs (commonly known as CVD), (f) Special Additional Duty of Customs(SAD), (g) Service Tax, (h) Cesses and surcharges, in so far as they relate to the WPC No.11335/2018 & conn.cases 40 supply of goods and services.

41. State taxes that get subsumed within the GST are: (a) State VAT, (b) Central Sales Tax, (c) Purchase Tax, (d) Luxury Tax, (e) Entry Tax (All forms), (f) Entertainment Tax and Amusement Tax (except those levied by the local bodies), (g) Tax on advertisements, (h) Tax on lotteries, betting and gambling, (i) State cesses and surcharges in so far as they relate to the supply of goods and services,

42. To have the whole GST system backed by a robust IT system, Parliament has set up the Goods and Services Tax Network (GSTN). It will provide front end services and will also develop back end IT modules for States who chose the same. Constitutional Amendment Act, An Overview:

43. As we shall see, the CA Act inserts, repeals, and amends certain parts of the Constitution. Repealed is the Article 268A, inserted are the Articles 246A, 269A, and 279A; amended are Articles 248, 249, 250, 268, 269, 270, 271, 286, 366, and 279A. Besides that, the Sixth and the Seventh Schedules, too, have been amended.

44. Article 246A, inserted through Section 2 of the Amendment Act, is a marvel of the federal fiscal mechanism. By this Article, the WPC No.11335/2018 & conn.cases 41 State Legislatures now have the power to make laws regarding GST tax imposed by the Union or by that State and to implement them in intra-state trade. The Centre, of course, continues to have exclusive power to make GST laws regarding inter-state trade. Both the Union and States in India now have simultaneous powers to make law on the goods and services.

45. Article 269A, inserted through Section 9 of the Act, deals with levy and collection of goods and services tax in the course of inter-State trade or commerce. That is, in case of inter-state trade, the amount collected by the Centre is to be apportioned between the Centre and the States as per the GST Council’s recommendations. Under the GST, if the Centre collects the tax, it assigns State’s share to the State concerned; on the other hand, if the State collects the tax, it assigns the Centre’s share to the Centre. Those proceeds will not form a part of the Consolidated Fund of India, so it avoids having an Appropriation Bill passed every time a deposit is made.

46. And Article 279A provides for the constitution of a GST Council, besides prescribing its powers and positions. Earlier, Article 268A dealt with the service tax levied by Union and collected and WPC No.11335/2018 & conn.cases 42 appropriated by the Union and States. Now, this Article stands repealed. As to the amended constitutional provisions, Article 248 confers residuary legislative powers on Parliament. Now this provision is subject to Article 246A of the Constitution. Article 249, amended through Section 4 of the Act, now stands changed: if Rajya Sabha approves the resolution with 2/3 rd majority, Parliament will have powers to make necessary laws regarding GST, in the national interest. So has Article 250 been amended; Parliament will have powers to make laws on GST during the emergency period.

47. At a different plane are the other amendments. Article 268 has been amended so that excise duty on medicinal and toilet preparation are omitted from the State List and are subsumed in GST. And Article 269 would empower the Parliament to make GST related laws for inter-state trade or commerce. Article 270 now provides for collection and distribution of tax in terms of Article 246A. Then, under Article 271, GST has been exempted from being part of the Consolidated Fund of India. The amended Article 286 includes the supply of goods and services under its ambit, rather than just sale or purchase of goods; Article 366 now includes WPC No.11335/2018 & conn.cases 43 the definitions of Goods and Service Tax, Services and State. And finally, Article 279A has also been brought under the ambit of Article 368.[4]

48. As with the Schedules, the Sixth Schedule has been amended to give power to the District Councils to levy and collect taxes on entertainment and amusements. And the Seventh Schedule has also been amended. In the Union List, petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel, tobacco and tobacco products have been removed from the ambit of GST and have been subjected to Union jurisdiction. Newspapers, advertisements, and Service Tax have been brought under GST (entries 84, 92, 92C). Similarly, in the State List, petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel, and alcoholic liquor for the human consumption have been included, unless the sale is in the course of inter-State or International trade and commerce. Entry tax and Advertisement taxes have been removed. Taxes on entertainment are only to be included to the extent of that imposed by local bodies. 4[] Examining the Effect of the Constitution (One Hundred and First Amendment) Act, 2016, on Federalism. http://racolblegal.com/examining-the-effect-of-the-constitution-one-hundred-and- first-amendment-act-2016-on-federalism. Accessed on 10th January 2019. WPC No.11335/2018 & conn.cases 44 (entries 52, 54, 55, 62)[5]

49. To be explicit, in Article 366 of the Constitution, after clause (12), clause (12A) was inserted: "goods and services tax" means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption. After clause (26), clauses (26A) and (26B) were inserted: "Services" means anything other than goods; "State" with reference to Articles 246A, 268, 269, 269A and Article 279A includes a Union territory with Legislature.

50. Section 18 of the Amendment Act provides for compensation to States for loss of revenue because of the introduction of goods and services tax. Parliament shall, by law, on the recommendation of the GST Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for five years.

51. The overarching provision for our discussion is Section 19 of the Amendment Act. Section 19 - Transitional provisions: Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this 5[] Id. WPC No.11335/2018 & conn.cases 45 Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier.

52. Until the Constitution suffered its 101st Amendment—that is, The Constitution (One Hundred & First Amendment) Act, 2016— the Union and the State Governments have been collecting, as is relevant here, the indirect taxes under clearly demarcated legislative fields as shown in the Seventh Schedule. Then, there were 97 Entries in List-I, 66 in List-II, and 47 in List-III, not all those dealing with the Legislature’s taxing power though. In List I, principal among the Entries concerning taxes are Articles 41, 42, 83, 84, 87 to 92, 92A, 92B, 92C, 97; and in List II are Entries 26, 45, 47 to 61 and 63.

53. The CA Act has brought drastic changes in the federal taxing powers of the State; it has introduced a couple of Articles, amended a few, and done away with a few more. At a glance we can appreciate the changes: WPC No.11335/2018 & conn.cases 46 Before Amendment After Amendment Impact 246A Not existing Introduced Special provision on goods and services tax conferring simultaneous legislative powers on both the Union and the States. 248 Residuary power Amended Amended Power of Parliament to legislate regarding a matter in the State List in the national interest The Union’s residuary legislative subjected to Article 246A. It gives power to the Parliament to enact any law applicable to states on the matters mentioned even in states list. GST, not mentioned in States list, is now explicitly mentioned. Power of Parliament to legislate regarding any matter in the State List if a Proclamation of Emergency is in operation Duties levied by the Union but collected and appropriated by the States Amended It has a similar impact as does the amended Article 249 Amended Additional Duties of Excise (Medicinal and toilet preparations) stand subsumed into GST. 268A Service tax levied by Omitted Service Tax has been 249 250 268 WPC No.11335/2018 & conn.cases 47 Union and collected and appropriated by the Union and the States: subsumed into GST. So Entry No. 92C of List-I too stands omitted. 269 Amended Taxes levied and collected by the Union but assigned to the States The arrangement under Article 269 is subjected to Article 269A, a new provision. 269A Not existing Inserted Levy and collection of goods and services tax during inter-State trade or commerce. The power to levy and collect GST during inter- State trade or commerce is vested Government of India. The taxes so collected will be apportioned between the Union & the States in a manner prescribed. 270 Taxes levied and distributed between the Union and the States. Amended Now Article 268A and Entry No. 92C of List-I stand omitted; so service tax is subsumed under GST. So in Article 270, a reference to Article 268A has been omitted, and a new reference to Article 269A for levy of GST for Inter-state transactions has WPC No.11335/2018 & conn.cases 48 271 Surcharge on certain duties and taxes for purposes of the Union Amended 279A Not existing Inserted 286 Amended Restrictions on the imposition of tax on the sale or purchase of been introduced. Parliament’s powers to additional surcharge on Union taxes under Article 271 now amended: stands Parliament can levy no additional surcharge on GST. Provision for creating the GST a Council, constitutional body. First, the word “sales” is replaced with “supply”, and the word “goods” is replaced with “goods or services or both” States cannot legislate on the supply of goods or services if such supply is outside their state or is in the course of import or export. Originally, States could not levy and collect tax on Inter-state specific With transactions. omitting Clause (3), now inter-state transactions of that nature would attract GST. WPC No.11335/2018 & conn.cases 49 366 Definitions Inserted 368 Power of Parliament to amend the Constitution and procedure therefore Amended Three definitions have been added Constitution: (12A) Goods and Services Tax; (26A) Services; and (26B) State. As regards provisions and regarding GST Council, Parliament has been vested with the power Constitution. Amended It concerns powers to assess and collect land revenue and to impose taxes in the Tribal Areas of a few States. Sixth Schedule. Provisions on the Administration of Tribal Areas in the States of Assam, Meghalaya, Tripura, and Mizoram

8. Powers to assess and collect land revenue and to impose taxes. Seventh Schedule List I: Entry 84 Barring those excluded, the Union could levy excise duty on all other goods, including tobacco, manufactured or Amended Now excise duty is levied only on the enumerated items: (a) petroleum crude; (b) high-speed diesel; WPC No.11335/2018 & conn.cases 50 produced in India. The excluded ones are these: (a) alcoholic liquors for human consumption; (b) opium, Indian hemp, and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance in sub- paragraph (b). Omitted Entry 92 Taxes on the sale or purchase of newspapers and on advertisements published. Taxes on services. Omitted (c) motor spirit (commonly known as petrol); (d) natural gas; (e) aviation turbine fuel; (f) tobacco and tobacco products.” Now, taxes on the sale or purchase of newspapers and on advertisements published therein have been subsumed into GST. Service tax has also been subsumed into GST. Taxes on the entry of goods into a local area for consumption, use or sale therein. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I. (Entry 92A of List I Omitted Purchase tax, too, has been subsumed into GST. Amended Now taxes are confined to the sale of petroleum crude, high- speed diesel, motor spirit gas, natural (petrol), aviation turbine fuel, and alcoholic liquor Entry 92C List II Entry 52 Entry 54 WPC No.11335/2018 & conn.cases 51 concerns inter-State trade or commerce.) Entry 55 Taxes on Omitted advertisements other than advertisements published in the newspapers and advertisements broadcast by radio or television. Amended Entry 62 Taxes on luxuries, including taxes on entertainments, amusements, betting, and gambling. human consumption. But excluded is the sale in the course of inter-State trade or commerce. (Now the sale or purchase of goods stands subsumed by GST) Taxes on advertisements other than advertisements broadcast by radio or television has also been subsumed into GST. (a) Taxes on Luxury, betting, and gambling have been subsumed into GST. (b) Right to levy Tax on entertainments and amusements has been restricted to Panchayats, Municipalities, Regional Councils, and District Councils. WPC No.11335/2018 & conn.cases 52 The State Enactments:

54. In the above background, the States have enacted the respective State Goods and Services Tax Acts. These laws, among other things, (i) carry out the transition to GST; (ii) provide for the levy of GST on intra-State supplies within the State; and also (iii) modify/repeal the earlier State enactments which have to be modified/repealed because of transition to GST. Notable is the repeal of the VAT/Entry Tax/Luxury Tax, and so on, which earlier provided for levy of these taxes within the States.[6] Kerala Enactment:

55. Kerala State Goods and Services Tax Act, 2017 (Act 20 of 2017) received the Governor’s assent on the 16th day of September

2017. It provides for, as the preamble suggests, levy and collection of tax on intra-State supply of goods or services, or both by the State of Kerala. As it is in pari materia with the Central Goods and Services Tax Act, it needs no much elaboration, but for one provision: Section 174, the customary ‘repeal and saving’ provision.

174. Repeal and saving.— (1) Save as otherwise provided in this 6 [] Tarun Jain's Goods and Services Tax, Constitutional Law & Policy, ST, EBC, Ed.2018, p.70 (e-book) WPC No.11335/2018 & conn.cases 53 Act, on and from the date of commencement of this Act,— (i) the Kerala Value Added Tax Act, 2003 (30 of 2004) except in respect of goods included in entry 54 of the State List of the Seventh schedule to the Constitution including the Goods to which the Kerala General Sales Tax Act, 1963 (15 of 1963) is applicable as per the provisions of the Kerala Value Added Tax Act, 2003 (30 of 2004); (ii) the Kerala Tax on Entry of Goods into Local Areas Act, 1994 (15 of 1994); (iii) the Kerala Tax on Luxuries Act, 1976 (32 of 1976); and (iv) the Kerala Tax on Paper Lotteries Act, 2005 (20 of 2005) (hereinafter referred to as the repealed Acts) are hereby repealed. (2) The repeal of the said Acts and the amendment of the Acts specified in section 173 (“such amendment” or “amended Act”, as the case may be) to the extent mentioned in sub-section (1) or section 173 shall not,— (a) revive anything not in force or existing at the time of such amendment or repeal; or (b) affect the previous operation of the amended Acts or repealed Acts and orders or anything duly done or suffered thereunder; or (c) affect any right, privilege, obligation, or liability acquired, accrued or incurred under the amended Acts or repealed Acts or orders under such repealed or amended Acts: Provided that any tax exemption granted as an incentive against investment through a notification shall not continue as privilege if the said notification is rescinded on or after the appointed day; or (d) affect any tax, surcharge, penalty, fine, interest as are due or may become due or any forfeiture or punishment incurred or inflicted in respect of any offence or violation committed against the provisions of the amended Acts or repealed Acts; or WPC No.11335/2018 & conn.cases 54 (e) affect any investigation, inquiry, verification (including scrutiny and audit), assessment proceedings, adjudication and any other legal proceedings or recovery of arrears or remedy in respect of any such tax, surcharge, penalty, fine, interest, right, privilege, obligation, liability, forfeiture or punishment, as aforesaid, and any such investigation, inquiry, verification (including scrutiny and audit), assessment proceedings, adjudication and other legal proceedings or recovery of arrears or remedy may be instituted, continued or enforced, and any such tax, surcharge, penalty, fine, interest, forfeiture or punishment may be levied or imposed as if these Acts had not been so amended or repealed. (3) The mention of the particular matters referred to in section 173 and sub-sections (1) and (2) shall not be held to prejudice or affect the general application of section 4 of the Interpretation and General Clauses Act, 1125 (Act VII of 1125) with regard to the effect of repeal. (4) The Kerala Goods and Services Tax Ordinance, 2017 (11 of 2017) is hereby repealed. (5) Notwithstanding the repeal of the Kerala Goods and Services Tax Ordinance, 2017 (11 of 2017) anything done or any action taken under the said Ordinance, shall be deemed to have been done or taken under this Act. (f) affect any proceedings including that relating to an appeal, revision, review or reference, instituted before, on or after the appointed day under the said amended Acts or repealed Acts and such proceedings shall be continued under the said amended Acts or repealed Acts as if this Act had not come into force and the said Acts had not been amended or repealed. (italics supplied) WPC No.11335/2018 & conn.cases 55 Constitutional Invalidity:

56. This Court is called upon to examine the constitutional validity of Section 174 of the KSGST Act. Its invalidity is set up in the face of Section 19 of the CA Act. The petitioners argue, among other things, the State has no legislative power to override Section 19 of the CA Act.

57. A statute may be unconstitutional if it is enacted in the absence of legislative competence, in violation of Fundamental Rights guaranteed to the citizens of India, or in contravention of other constitutional constraints. For the Constitution is the fundamental or basic law to which all the laws must conform. It is superior even to the will of the legislature. Dr. C. D. Jha in his illuminating Judicial Review of Legislative Acts[7] enumerates five forms of unconstitutionality: (i) Legislative incompetence arising out of the distribution of powers; (ii) a delegation of essential legislative functions by the Legislature to the Executive; (iii) violation of the Fundamental Rights guaranteed in Part III of the Constitution; 7[] Lexis-Nexis, 2009 Ed., p.311 WPC No.11335/2018 & conn.cases 56 (iv) violation of other constitutional restrictions, prohibitions, and the limitations affecting legislative competence and jurisdiction, (v) infringement of the principles of natural justice. While determining the constitutionality of a provision or an Act, the Court looks at these aspects: (a) Has the Legislature been constitutionally empowered to pass the legislative Act? (b) Has the legislative act got the territorial nexus? (c) Are there any other connotational constraints or limitations which put fetters on the power of the Legislature?[8]

58. In State of Bihar v. Bihar Distillery Ltd,[9] the Supreme Court has laid down certain principles on how to judge the constitutionality of an enactment: the Court should (a) try to sustain the validity of the impugned law to the extent possible; (b) should not approach the enactment with a view to picking holes or to ferreting out defects of drafting or for the language employed; (c) should consider that the Act made by the legislature represents the will of the people and that cannot be lightly interfered with; (d) can strike down the Act only when the unconstitutionality is plainly and 8[] Id. Pp.312, 313 9[] JT 1996 (10) SC 854 WPC No.11335/2018 & conn.cases 57 clearly established; (e) and may recognize the fundamental nature and importance of legislative process and accord due regard and deference to it.

59. Here, it is a plain case of legislative competence. Let us see how Section 174 of the KSGST Act fares vis-a-vis the Amendment Act in general and Section 19 of it in particular. As it is a matter of vires and legislative competence, we must trace the source of power. How to judge the constitutionality of an enactment?

60. When faced with a challenge to interpret laws, Courts have to discharge a duty. The Judge cannot act, holds the Supreme Court in Bhanumati v. State of UP[10], like a phonographic recorder, but he must act as an interpreter of the social context articulated in the legal text. The Judge must be, in the words of Justice Krishna Iyer, "animated by a goal-oriented approach" because the judiciary is not a "mere umpire, as some assume, but an active catalyst in the Constitutional scheme". Then, referring to Bihar Distillery Ltd., the Court invokes Lord Denning’s observations in Seaford Court Estates Ltd Vs. Asher[11]: the job of a Judge in construing a statute must 10[] AIR 2010 SC 3796 11[] [1949 (2) KB 481] WPC No.11335/2018 & conn.cases 58 proceed on the constructive task of finding the intention of Parliament and this must be done (a) not only from the language of the Statute but also (b) upon consideration of the social conditions which gave rise to it, (c) and also of the mischief to remedy which the statute was passed; and if necessary, (d) the Judge must supplement the written word to give ‘force and life’ to the intention of the legislature. Constitution was prospective in its operation:

61. In Keshavan Madhava Menon v. The State of Bombay[12] the Supreme Court was concerned with the legality of the prosecution of the appellant for contravention of the Indian Press (Emergency Powers) Act, 1931. The offence had been committed before the Constitution came into force, and prosecution launched earlier was pending after January 26, 1950. The enactment which created the offence was held to be void under Art.19 (1) (a) read with Art. 13, as contradicting one of the Fundamental Rights guaranteed by Part III of the Constitution. Then, the question was whether the prosecution could be continued after the enactment became void. The majority held that the Constitution was prospective 12[] 1951 CriLJ 680 WPC No.11335/2018 & conn.cases 59 in its operation and that Art. 13(1) would not affect the validity of these proceedings commenced under pre-Constitution laws which were valid up to the date of the Constitution coming into force. For to hold that these proceedings were affected would amount to treating the Constitution as retrospective.

62. State of Orissa v. M.A. Tulloch and Co.[13], after quoting Keshavan Madhava Menon, elaborates on the doctrine of repugnancy: the test of two enactments containing contradictory provisions is not, however, the only criterion of repugnancy. If a competent legislature with a superior efficacy expressly or impliedly evinces its legislative intention to cover the whole field, the enactments of the other legislature whether passed before or after would be overturned on the ground of repugnance.

63. Every statute is, according to Kesavan v. State of Bombay[14], prima facie prospective unless it is expressly or by necessary implications made to have retrospective operation. There is no reason why this rule of interpretation should not be applied for interpreting our Constitution, and a constitutional amendment, too.