Goa VAT Amendment Struck Down as Impermissible Legislative Override by Bombay High Court

Goa, India – In a significant ruling reaffirming the separation of powers, the High Court of Bombay at Goa has struck down key provisions of the Goa Value Added Tax (Twelfth Amendment) Act, 2020, finding them to be an impermissible legislative override aimed at nullifying previous court judgments regarding interest payments on delayed tax refunds.

A division bench of Justices M. S. Sonak and Bharat P. Deshpande delivered the judgment on April 20, 2023, allowing a batch of writ petitions led by Mr. Rohan Lobo and including companies like United Spirits Limited and Global Conveyor Systems Pvt. Ltd.

The petitioners had challenged the State's refusal to implement earlier judgments of the High Court, which mandated the payment of interest on tax refunds under the Goa VAT Act, 2005, from the 91st day following the 'refund order'. These previous decisions had attained finality after Special Leave Petitions filed by the State were dismissed by the Supreme Court.

The State, however, argued that the retrospective Goa VAT (Twelfth Amendment) Act, 2020, had altered the basis of these judgments by stipulating that interest would only accrue from the 91st day after the 'sanction order' for the refund, thereby rendering the previous judicial pronouncements ineffective.

The petitioners contended that this amendment was an instance of impermissible legislative override and violated the doctrine of separation of powers, as it did not genuinely remove the fundamental bases of the court's earlier decisions but merely sought to negate their effect because the judicial interpretation differed from the government's intent. They also raised grounds of legislative incompetence to amend a repealed statute and argued the amendment was manifestly arbitrary and deprived them of vested constitutional rights.

The State defended the amendment as a valid validating act that removed the statutory basis of the prior judgments.

The High Court, after examining numerous Supreme Court precedents on validating statutes and legislative override, including Shri Prithvi Cotton Mills Ltd. , State of Tamil Nadu vs. State of Kerala , and S.R. Bhagwat vs State of Mysore , concluded that the impugned amendment was indeed an impermissible legislative exercise.

The Court held that the previous judgments were not based solely on the interpretation of Sections 10 and 33 of the GVAT Act, as claimed by the State. Their foundation also rested on: 1. A schematic interpretation of relevant sections and rules. 2. Harmonious construction of the Act and Rules. 3. The principle that the Revenue cannot benefit from its own delays or procrastination. 4. The finding that the sanction order under Rule 30 relates back to the date of the refund order. 5. The finding that the 90-day time limit under Section 33(2) was the period within which the sanction must be obtained. 6. Constitutional principles enshrined in Articles 14 (non-arbitrariness), 265 (no tax without authority of law), and 300-A (right to property).

The Court noted that the impugned amendment primarily targeted changing the trigger for interest payment from the 'refund order' date to the 'sanction order' date but left untouched most of these other fundamental bases.

Quoting from the judgment, the bench observed, "The clear intention was to legislatively 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. This fundamental defect continues. Such an exercise does not qualify as some genuine validation Act."

The Court found that by seeking to deny interest based on delays in issuing sanction orders, the State was attempting to perpetuate an arbitrary situation and take undue advantage of its own officials' tardiness, which violates constitutional principles. The Validation Section (Section 5) was specifically criticized for explicitly attempting to nullify court judgments.

The bench stated, "Based upon the impugned amendment Act, the State cannot ignore the binding judicial decisions in these cases. Most decisions relied upon by the Learned Advocate General concerned genuine validation Acts where the defects pointed out by the judicial decisions were removed and the fundamental bases of the judicial decisions altered... the impugned Amendment Act cannot be regarded as a validation Act as contemplated by such decisions."

While the Court made prima facie observations questioning the legislative competence to amend a repealed Act concerning goods not covered by Entry 54 and finding merit in the challenge based on manifest arbitrariness and deprivation of vested constitutional rights with retrospective effect, it primarily based its decision on the finding of impermissible legislative override and defiance of the separation of powers.

Consequently, the Court allowed the petitions and directed the State respondents to implement the judicial decisions in the earlier writ petitions, which included payment of interest on delayed tax refunds as previously directed, within four weeks. The respondents were specifically ordered to deposit the determined amounts, along with accrued interest, in the Court within this timeframe.

This ruling reinforces the judiciary's role in safeguarding constitutional principles against legislative actions deemed to overstep the boundaries of permissible law-making, particularly when attempting to retrospectively nullify established rights and binding court orders.