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Constitutional LawSupreme Court of India

The State of Telangana & Ors. vs M/S Tirumala Constructions

Civil Appeal · 2023 INSC 942Decided 20 Oct 2023
Civil Appeal No. 1628 of 2023

Background

The Constitution (101st Amendment) Act, 2016 introduced the GST regime and, from 1 July 2017, took away the States' and Parliament's exclusive power to tax sales/VAT, service tax, and central excise under the old Entries in the Union and State Lists, replacing it with the shared power under the new Article 246A. Section 19 of the Amendment Act allowed existing tax laws inconsistent with the new scheme to continue operating only for a maximum transitional period of one year (i.e., until 16 September 2017), during which States could amend or repeal them. After this cut-off, Telangana, Gujarat, and Maharashtra each amended their VAT laws, mostly to extend limitation periods or reopen closed tax assessments, with some amendments made retrospectively or after the transitional window had closed. Traders and VAT-payers challenged these amendments before their respective High Courts; the Telangana and Gujarat High Courts struck the amendments down for want of legislative competence, while the Bombay High Court only partly read down Maharashtra's amendment. Both the States and the aggrieved taxpayers appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that Section 19 of the 101st Amendment and Article 246A together formed a transitional arrangement that allowed existing (inconsistent) tax laws to continue and be amended only for the specified limited period. Because the underlying constitutional entries for VAT/sales tax had been deleted from the State and Union Lists, once that transitional period expired, the States lost legislative competence to further amend those tax laws. Applying this, the Court upheld the Telangana and Gujarat High Courts' rulings striking down VAT amendments made after 1 July 2017 as void for lack of legislative competence, and held that the Bombay High Court had erred in only partly reading down Maharashtra's similar amendment: that amendment (to the extent it required pre-deposit for reopened assessments) was also void. Accordingly, the States' appeals were dismissed and the taxpayers' appeals against the Bombay High Court succeeded.

Lesson Learnt

Once a constitutional amendment permanently reallocates a taxing power (such as GST subsuming VAT), a State legislature's power to tinker with its old tax law during the transition period is time-bound and disappears once that window closes: any amendment made afterward, even to protect revenue by reopening old assessments, is void for want of legislative competence, regardless of the State's good intentions.

The State of Telangana & Ors. vs M/S Tirumala Constructions – Legal Case Shots | LegalAware