THIRUVANANTHAPURAM: The State Goods and Services Tax Department’s efforts to recover VAT dues that had accumulated since 2010-11 from gold retailers have hit a serious legal hurdle. Malabar Gold, which was asked to pay nearly Rs 10 crore as tax arrears and penalty for 2010-11 and 2011-12, had secured a High Court stay on the proceedings. Though the Taxes Department argues that the stay is only for a single case, there is a looming fear that Malabar Gold’s temporary victory could set off a series of litigations by other aggrieved parties.
The urgency of the issue is reflected in the letter written by the special government pleader C E Unnikrishnan to the Taxes secretary on April 4, the day Malabar Gold secured the stay. “Since the challenge made in the writ petition will have far-reaching consequences on the action taken under the KVAT Act, 2003, the matter has to be dealt with seriously and with utmost priority,” Mr Unnirsihnan said.
Malabar Gold’s contention was that it was unconstitutional to issue penalty orders for arrears under a tax system that had expired. The orders were issued in February and March this year for Rs 7.18 lakh (2010-11) and Rs 8.13 crore (2011-12). It was argued that the 101st Constitution amendment, 2016, which subsumed all indirect taxes into a single Goods and Services Tax, had stripped the states of their powers to make law on taxes on sale or purchase of goods, other than petroleum products and liquor.
Further, Section 19 of the 101st amendment states that VAT will expire one year from the date of the commencement of the 101st amendment (September 16, 2016) or on June 22, 2017, the day the Kerala Goods and Services Act came into force. Malabar Gold therefore argued that the provisions of Kerala Value Added Tax Act 2003 could be enforced only till September 16, 2017, or June 22, 2017, whichever was earlier. In short, penalty proceedings should have been completed before June 22, 2017. The GST Department has sent notices only in 2018.
It is further argued that protective clauses contained in Kerala GST Act, 2017, which allows for re-assessment and grants power to impose penalties under the repealed Act without any time limit, is “patently inconsistent” with the provisions of section 19 of the 101 Constitution Amendment. “We are just ordered to pay the penalty within 15 days, and we are not even given a hearing,” said advocate S Abdul Nazar of All Kerala Gold and Silver Merchants Association.
“Even criminals sentenced to death are given time to send a mercy petition to the President,” he added. Gold retailers have also questioned the ‘scrutiny module’ developed by the Taxes Department to assess the arrears. “The module was prepared without taking us into confidence. We were not even given a mock demonstration of how the module works,” Mr Nazar added.