Bombay High Court Rules: Goa Value Added Tax (12th Amendment) Act, 2020 is an Impermissible Judicial Override Defying Doctrine of Separation of Powers

Bombay High Court Rules: Goa Value Added Tax (12th Amendment) Act, 2020 is an Impermissible Judicial Override Defying Doctrine of Separation of Powers

The Bombay High Court by its division judges bench comprising of Justices M.S. Sonak and Bharat P. Deshpande has affirmed that the Goa Value Added Tax (12th Amendment) Act, 2020, is an impermissible judicial override defying the doctrine of separation of powers.

A batch of petitions were filed, challenging the non-implementation of Bombay High Court's decisions in Writ Petition No.424 of 2018 and connected matters and in the alternative, petitioners challenged the constitutional validity of the Goa Value Added Tax (12th Amendment) Act, 2020 (impugned Amendment Act) on several grounds.

The brief facts of the case were that the Petitioner claimed to be a registered dealer at Panaji ward under the Goa Value Added Tax Act, 2005 (GVAT Act) involved in selling and purchasing iron ore in the State of Goa.

The Assessing Officer assessed the Petitioner's returns for 2011-12 and, by an assessment order dated 10 December, 2014, determined an amount of Rs. 3,08,24,730 as refundable to the petitioner due to the excess tax paid by the Petitioner for the said year.

By an order dated 6 December, 2017, the Commissioner of Commercial Taxes sanctioned a refund of Rs. 2,49,05,784, however this amount was actually refunded on 14 December, 2017. Yet, no statutorily prescribed interest at the rate of 8% per annum was paid to the Petitioner.

After raising several demands for payment of such interest, the Petitioner instituted Writ Petition No.720/2019, which was allowed by judgment and order dated 19 November, 2019.

Accordingly, the Court had issued a mandamus directing the respondents to pay the Petitioner an amount of Rs. 54,62,665 together with interest at the rate of 4% per annum to be computed from 14 December, 2017 till the date of actual payment within eight weeks.

The respondents failed to honor the mandamus within the timeline or beyond. At the belated stage, the respondents filed a misc. Civil application seeking an extension, and an extension of four weeks granted by order dated 24 February, 2020.

The Petitioner and the respondents exchanged correspondence regarding compliance with the Writ of mandamus issued by the High Court.

Further Assistant Commissioner's on 23 July, 2020 informed the Petitioner that a Special Leave Petition (SLP) had been preferred in the matter, and the request for the honor of the mandamus would be processed after the outcome of the SLP.

The Petitioner was shocked to learn that the Hon'ble Supreme Court had already dismissed the SLP on 8 June, 2020, even without any notice to the Petitioner.

In any case, the time limit for compliance had already expired, and the Supreme Court had granted no interim relief. Thus, even after the SLP was dismissed, the mandamus was not honored.

Accordingly, the Petitioner was constrained to institute Contempt Petition. After seeking several adjournments, the Assistant Commissioner of Commercial Taxes filed an affidavit in reply on 5 November, 2021.

In this affidavit, a reference was made to the Goa Value Added Tax Act, 2005 (GVAT Act, 2005), and based on that, it was submitted that the Court's decision in the Writ Petition and the mandamus issued therein “has been rendered ineffective due to the removal of the bases on which the said order was rendered.”

In this regard, the petitioner contended that the impugned amendment was an instance of impermissible legislative override and infringes the doctrine of separation of powers. The fundamental bases of the judicial decisions sought to be nullified or declared ineffective remain substantially untouched by the impugned Amendment Act. Even the Statement of Objects and Reasons to the Amendment Act admits that the Amendment Act was introduced simply because the interpretation in the decisions of this Court was different from the interpretation or intentions of the government of the provisions of the Act, regarding payment of interest on refund of tax.

The petitioner contended that the doctrine of separation of powers is accepted as one of the essential facets of the rule of law under our constitution scheme. Therefore, based upon the Amendment Act, the state cannot simply refuse to follow the binding judicial decisions of the Court, particularly after the Special Leave Petitions against it were dismissed by the Supreme Court.

Per Contra, the department while opposing to the petitioner stated that the GVAT Act, 2005, was not entirely repealed by Section 174 of the Goa Goods and Services Tax Act, 2017. Therefore, its amendment was validly brought about by the Amending Act. The repeal provision contains a saving clause that continues to govern the party's rights after repeal. The learned Advocate General submitted, that in such a situation, the state legislature could amend the repealed law with retrospective effect to govern the saved transactions.

The first question that fell for consideration before the bench was whether the impugned Amendment Act was an instance of impermissible judicial override to reverse or set at nought the judicial decisions of the Court even after SLPs against the same were dismissed by the Hon'ble Supreme Court.

After referring to various, decisions passed by the Supreme Court, the High Court was of the view that Separation of judicial power is a significant principle under the Constitution of India. Accordingly, breaching the separation of judicial power may negate equality under Article 14. Separation of powers between three organs – the Legislature, Executive and Judiciary, is also nothing but the consequence of principles of equality enshrined in Article 14 of the Constitution of India. Thus, legislation can be invalidated based on a breach of the separation of powers since such a breach negates equality under Article 14 of the Constitution, opined the bench.

While applying the principle to the present case the Court referred Statement of Objects and Reasons of the GVAT Act, 2005 and was of the view that the intention of the legislation was to overrule or reverse the judicial decisions simply because the Court's interpretation and findings did not align with the Government's viewpoint. The fundamental base about the arbitrariness involved in the State drawing undue advantage from the tardiness and procrastination of its own officials was never addressed.

The bench remarked that this fundamental defect continues. Such an exercise does not qualify as some genuine validation Act.

The Court noted that the primary amendment applies to Sections 10 and 33 of the GVAT Act, 2005. Because the judicial decisions (that are now sought to be rendered ineffective) had provided that interest on excess and found refundable tax was to be paid from the 91st day of the "refund order" under Sections 10 and 33 of the GVAT Act, 2005, the impugned Amendment Act now provides that such interest would become payable from the 91st day of "sanction order". The other bases, which were fundamental, had not been touched by the impugned Amendment Act.

The High Court noted that apart from the wordings of unamended Sections 10 and 33 of the GVAT Act, 2005, the foundation of the judicial decisions of this Court, as affirmed by the Hon'ble Supreme Court, was that the Revenue could reap no undue advantage from its own delays or due to the procrastination of its officials. Previously, the Court had felt that such a situation would be arbitrary, and even the statutory scheme did not support such a construction. Therefore, the Court thought that the 91st day from the sanction order could not be the starting point for the statutorily prescribed interest on excess refundable tax payable to the Assessee.

Therefore, the Court had previously held that the sanction order had to be obtained within 90 days of the refund order. The Court had also ruled that in case of any delay in getting the sanction order, such order, as and when obtained, would relate back to the refund order.

The bench retaliated that, “All these findings supported the fundamental premise that the State could not deny an Assessee interest on the excess tax refundable by taking undue advantage of the procrastination and delay of its Officials. Unfortunately, this fundamental premise or base of judicial decisions remains untouched by the impugned Amendment Act. Instead, the entire attempt is to perpetuate the arbitrary situation or the defect pointed out by the judicial decisions and yet decline to comply with the binding judicial decisions.”

The Court expressed its dismay that in the event retention of an excess tax unreasonably and without liability to pay any interest by taking undue advantage of the procrastination by the authorities in making a sanction order, shall amount to arbitrariness, which Article 14 of the Constitution shuns.

By this method, the Court remarked that the Revenue could freeze the interest for the period during which the Revenue Authorities fail to make a sanction order for a tax refund, which the Assessing Authority already determined as excess and, consequently, refundable.

Therefore, the Court concluded that the impugned Amendment Act cannot be called a legitimate validating Act. Instead, this was an impermissible legislative override to overrule or reverse judicial decisions in exercising legislative powers. The doctrine of separation of powers was breached in such a process.

The Court appositely stated that this doctrine is an essential constituent of the rule of law and Article 14 of the Constitution and such an exercise is unconstitutional.

Lastly, the Court directed that, independent of the validity or applicability of the Amendment Act, a mandamus in terms of the earlier judicial decisions must be reissued for the payment of interest on delayed refunds.