SC notice on Kerala GST law permitting levy of tax under VAT scheme

Subject : Economy

Section: Fiscal Policy

Concept :

The Supreme Court this week sought responses from the Central government and the State of Kerala in a plea challenging provisions of the Kerala Goods and Services Tax (GST) Act that permit assessment and collection of tax under the old tax regime.
The petitioner’s business was registered under the erstwhile Kerala Value Added Tax (VAT) Act, which was repealed when the GST regime came into force.
It was the petitioner’s case that the GST Act allowed certain provisions of the earlier regime to continue with relation to levy, collection and assessment of tax.
When the tax department issued pre-assessment notices in 2018 under the provisions that were in force at the time, the constitutional validity of the notices was challenged by various petitioners.
The plea was dismissed by a single-judge of the High Court, who reasoned that the State had sufficient legislative powers to include a savings clause under the Kerala GST Act.

Savings Clause under GST

Section 174 of the CGST Act, is the customary ‘Repeal and Savings’ clause introduced by the Legislature to save transactions under pre-GST enactments.
The said provision provides for saving of any right, privilege, obligation, or liability acquired or incurred under the repealed Acts.

Value Added Tax Regime

Value-Added Tax (VAT) is a form of tax that is assessed incrementally.
It is levied on the actual transaction value of a product or service at each stage of production, distribution, or sale to the end consumer.
VAT essentially compensates for the shared service and infrastructure provided in a certain locality by a state and funded by its taxpayers that were used in the creation of the said product and service.
From a global perspective, although there isn’t much difference between GST and VAT, in India the difference existed due to implementation.
Hence to eliminate the cascading tax effect GST subsumed many indirect taxes including VAT.