In a Significant ruling, the division bench of Gujarat High Court held upheld the Constitutional Validity of Section 52 of the Gujarat Value Added Tax Act, 2003.
In the Writ Petition, the Petitioner, Indus Tower Limited has challenged show cause notices and Section 52 of the Gujarat Value Added Tax Act, 2003 as ultra vires to the Constitution of India.
From the impugned show cause notices, the department has sought to levy of Value Added Tax under the Gujarat VAT Act on the consideration received by the Merging Entities/Transferor Companies with respect to the transactions undertaken under the Indefeasible Right to Use Agreements with the Transferee Company.It appears that the Emerging Entities/Transferor Company had, by way of an indefeasible right to use agreement provided to the petitioner-transferee company, an indefeasible right to use the Passive Infrastructure in lieu of consideration. The said transaction had taken place by virtue of Scheme of Arrangement sanctioned by the respective High Court, but after 1st April 2009.
The division bench comprising of Justice M.R Shah and Justice B.N Karia held that Section 52 of the Gujarat Value Added Tax Act cannot be said to be beyond legislative competence, and therefore, the same cannot be said to be ultra vires to Articles 246 & 252 of the Constitution of India.
The division bench also held that, it cannot be said that the notices issued upon the Merging companies with respect to tax event/taxing liability accrued or arisen between 1st April 2009 to 18th April 2013 can be said to be illegal and/or contrary to the provision of the GVAT Act.
“The amalgamation of the transferor companies with the transferee company, the liability to pay tax under the GVAT Act upon the transferor companies would not cease. At this stage, it is required to be noted that the incidence of payment of rent by the Transferee company to the Transferor companies during the period from 1st April 2009 to 18th April 2013 was nothing, but a “taxable event” within the meaning of Section 7 of the GVAT Act, read with Section 30 of the said Act, followed by the requirement of filing the monthly return, as per Section 29 of the GVAT Act read with Rule 19 of the GVAT Rules, 2006, which event had already occurred and completed prior to passing of the sanction order dated 18th April 2013 of amalgamation”, the bench said.
The division bench also held that, “Section 52 of the GVAT Act is within the State legislative competence under Entry 52 of List II of Seventh Schedule and the same cannot be said to be encroaching upon the powers of the Union legislation. Therefore, challenge to the constitutional validity of Sections 2 [23] (d) and 52 of the to the GVAT Act fails”.
While refusing to quash the impugned notices, the bench also added that, In view of the above and for the reasons aforestated, the show cause notices dated 4th February 2016 issued by the respondent no. 2 herein to the transferor companies, but served upon the petitioner Transferee Company also cannot be said to be illegal.
Read the full text of the Judgment below.
