Patna High Court Archives

Patna High Court Upholds Constitutionality of Section 16(4), CGST Act, 2017

January 11, 2024September 20, 2023 by Rav Singh

In a recent judgment^[1], the Patna High Court upheld the constitutionality of Section 16(4), Central Goods and Services Tax Act, 2017 (‘CGST Act’) and Bihar Goods and Services Tax Act, 2017. Section 16(4), as it stood then, did not allow Input Tax Credit (‘ITC’) in respect of any invoice or debit note for supply of goods or services after due date of furnishing returns under Section 39 of the said Acts. The petitioners alleged the said condition under Section 16(4) to be violative of Article 14 and 300A of the Constitution. The High Court made detailed observations about right to property and nature of ITC to reject the claim of petitioners. In this post, I examine the High Court’s reasoning and whether it withstands scrutiny.

Introduction

The petitioners apart from claiming that Section 16(4) violated Article 14 and 300A, also argued that conditions to claim ITC prescribed in Section 16(4) should be understood as procedural in nature as opposed to the ‘substantive’ conditions under Section 16(1) and Section 16(2). And that the former could not override the latter. The petitioners also alternatively argued that Section 16(4) should be read down to apply only to invoices or debit notes received after end of financial year beyond September of the financial year.

The writ petition involved several cases clubbed together since their facts were similar. The facts of representative case were that the assessee was denied ITC for the tax period February and March 2019 because of late filing of GSTR-3B return. The officer in question relied on Section 16(4), CGST Act, 2017 to deny petitioner’s ITC claim. Section 16(4) which prescribes eligibility and conditions for claiming input tax credit, as it stood then, stated that:

A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.

Petitioner’s Arguments

The petitioner made several arguments, but in this post, I will concentrate on the interface of ITC as vested right and right to property under Article 300A. Petitioner argued that ITC constituted a vested right under Article 300A since it was tax paid at the time of purchase of goods and services and is adjusted against tax liability payable on sale of goods and services. And that Section 16(4) was confiscatory in nature as denial of ITC is implied in confiscation of property in the shape of financial benefit belonging to the registered person. (para 15) The petitioner also tried to make the claim that ITC was an indefeasible right. By characterizing ITC as a vested right of the taxpayer, the petitioner was trying to persuade the Court that its denial would amount to deprivation of property and thus violate the constitutional right to property under Article 300A.

The State, on the other hand, argued that ITC is not a vested right, but a concession/benefit extended by the State and can only be availed as per the conditions laid down in the statute. It was argued that condition prescribed under Section 16(4) are uniformly applicable to all the taxpayers and there is no question it being discriminatory and violating Article 14 of the Constitution.

The characterization of ITC either as a vested right of the taxpayer or a concession extended by the State is not just a superficial exercise, it would determine the extent and nature of restrictions that the State can impose on taxpayers for claiming ITC and the grounds on which ITC can be denied.

Patna High Court Decides

The arguments of the petitioners and the State mentioned above, clearly reveal that the petitioner’s view ITC as a vested right while the State views it as a benefit/concession. The imprecise nature of ITC is an eternally indeterminate issue under VAT/GST laws. And the judicial oscillation on this issue tends to provide to a wider than necessary leeway to the State in prescribing onerous conditions to avail ITC and consequently also to deny ITC claims. In adjudicating the issue, the Patna High Court in the impugned case framed the issue in interesting terms, it stated that the question before it is: whether ITC per se is a vested right, the denial of which under Section 16(4) would amount to infringement of constitutional right under Article 300-A of the Constitution? (para 18)

The Patna High Court laid emphasis on the phrase ‘deprive of his property’ used in Article 300-A of the Constitution to state that the property in question of the person must be deprived without the sanction of the law for it constitute a violation of the right to property under Article 300-A. Thus, it is important for a successful claim under Article 300-A for the petitioner to prove that they possessed the property in the first place. The High Court first examined the language deployed by Section 16 and concluded that there was no ambiguity in the provision and there was no need to read down the provision, as claimed by petitioners in their alternative arguments. And noting the conditions prescribed under Section 16, for a taxpayer to claim ITC, the High Court concluded that:

we note here that ITC is not unconditional and a registered person becomes entitled to ITC only if the requisite conditions stipulated therein are fulfilled and the restrictions contemplated under sub-section (2) of Section 16 do not apply. One of the conditions to make a registered person entitled to take ITC is prescribed under sub-section (4) of Section 16. The right of a registered person to take ITC under sub-section (1) of Section 16 of the Act becomes a vested right only if the conditions to take it are fulfilled, free of restrictions prescribed under sub-section (2) thereof. (para 26) (emphasis added)

The highlighted part in the above paragraph indicates that the High Court agreed with the petitioner’s argument that ITC is a vested right, but with the added condition that ITC becomes a vested right only if the statutory conditions are fulfilled. Thus, it is possible to deduce from the above that ITC remains a concession/benefit provided by the State prior to the taxpayer fulfilling the statutory conditions, and transforms into a vested right of the taxpayer on fulfilment of the statutory conditions.

Having stated the above, the High Court logically also arrived at the conclusion that Section 16(4) did not violate Article 300-A of the Constitution as ITC was not a taxpayer’s vested right before fulfilment of the conditions under Section 16(4). Thus, question of deprivation of property did not arise prior to fulfilment of those conditions. It also referred to select precedents in a cursory manner to reiterate that Section 16(4) does not violate Article 19(1)(g) and Article 14 of the Constitution. Though the High Court in a latter part of the judgment observed that ‘the concession of ITC’ is dependent on various conditions laid under Section 16 of CGST Act, 2017. (para 36) This, on the face of it, contradicts its opinion of ITC being a vested right; though one can argue that the latter observation was in the context of ITC before fulfilment of the statutory conditions.

Conclusion

The nature of ITC has never been sufficiently scrutinised by Courts to arrive at a determinative finding if it constitutes a concession or a vested right of the taxpayer. Hence, when faced with onerous conditions, taxpayers challenge them on the ground that their vested right is being infringed while the State typically responds by claiming that ITC is a concession; impliedly asserting that it has wide powers to prescribe conditions to avail ITC. Courts have preferred to adjudicate such disputes by limiting their observations to the facts without clearly opining on the nature of ITC. And, to the extent, there are some observations, as in the impugned case, they are rarely built upon by other Courts to build a coherent jurisprudence on the issue. This is a trend that needs to be arrested, else similar disputes on ITC are likely to be decided on an ad hoc basis without creating a conceptually sound jurisprudence under GST.

^[1] Gobinda Construction v Union of India 2023 LiveLaw (Pat) 109.

Patna High Court Castigates Tax Officer for Recovering Tax Illegally

September 9, 2023 by Rav Singh

In a recent judgment^[1], the Patna High Court has castigated a tax officer for effecting a tax recovery and ignoring the legislative mandate. Section 78, CGST Act, 2017 allows for recovery of tax from taxpayers within 3 months of passing of an order. The Proviso to Section 78, CGST Act, 2017 allows a proper officer to initiate recovery before 3 months if he ‘considers it expedient in the interest of revenue’. In the impugned case, the proper officer had no cogent reason except for the fact that financial year would have ended if recovery was delayed, nor was any reasonable explanation offered as to why the taxpayer was not informed through a prior notice.

Facts

One day after the appellant’s/taxpayer’s appeal was dismissed, the tax was recovered from the bank accounts of the taxpayer. However, the taxpayer’s appellate remedy was not exhausted; yet, at the same time the appellate tribunal had not been constituted. In view of the non-constitution of appellate tribunals, Courts have typically directed that the taxpayer should deposit 20 per cent of the amount – required as a deposit for filing an appeal before the appellate tribunal – and stayed recovery till the appellate tribunal is constituted. The 20 per cent is as per the statutory provisions, which in the impugned case was Section 112(8), Bihar Goods and Services Tax Act, 2017.

In the impugned case, the taxpayer’s appeal was rejected on 27.03.2023, and immediately on the next the tax officer in question sent a notice to bank managers of the banks where the taxpayer had bank accounts. The entire amount was recovered by the tax officer without sending a notice to the taxpayer which led to a petition before the Patna High Court. The Revenue’s reason for effecting such a quick recovery without informing the taxpayer beforehand was that there was that bank holidays were approaching and thereafter the financial year would have ended. The Patna High Court expressed ‘deep anguish and dissatisfaction’ in the reasons recorded by the tax officer. (para 10)

The Patna High Court stressed on the need for adhering to principles of natural justice especially when quasi-judicial powers of officers led to prejudicial result for the taxpayer. While Proviso to Section 78, CGST Act, 2017 does not expressly lay down the requirement for a notice to the taxpayer, the High Court read into the provision the said requirement and hled that:

In fact, on a reading of the proviso we are of the definite opinion that there is a requirement of notice, if not prior to the recording of reasons; at least intimation of the reasons which motivates the proper officer to recover the amounts due, considering such recovery to be expedient in the interest of revenue with clear specification of the period; less than a period of three months, within which the amounts are to be paid. (para 12)

Thus, the tax officer has to inform the taxpayer as to why the payment should be made before 3 months and specify exactly the period of payment. And while the Patna High Court did not approve of the actions of the tax officer per se, it did note that if recovery had to be initiated it should have been limited to 20 per cent of the amount due and any admitted tax, etc. The High Court observed that the action taken by the tax officer constituted an egregious error, high handed and contrary to legislative mandate.

Guidelines for Recovery

The Patna High Court thereafter, laid down certain guidelines for effectuating recovery under Section 78 which I will reproduce in full:

There shall be no recovery of tax within the time limit for filing an appeal and when a stay application is filed in a properly instituted appeal, before the stay application is disposed of by the Appellate Authority;
Even when the stay application in the appeal is disposed of, the recovery shall be initiated only after a reasonable period so as to enable the assessee to move a higher forum;
However, in cases where the Assessing Officer has reason to believe that the assessee may defeat the demand or that it is expedient in the interest of Revenue, as is provided under the proviso to Section 78, there can be a recovery but with notice to the assessee, which notice shows the reasons for initiating it and specifies the lesser time within which the assessee is directed to satisfy the dues;
Though a bank account could be attached; before withdrawing the amount, reasonable prior notice should be furnished to the assessee to enable the assessee to make a representation or seek recourse to a remedy in law;
We also remind the Tax Authorities, as was done in the UTI Mutual Fund case^[2] that the ‘authorities under the tax enactment shall not act as a mere tax gatherer but act as a quasi-judicial authority vested with the public duty of protecting the interest of the Revenue while at the same time balancing the need to mitigate the hardship to the assessee.’ (para 16)

Courts have issued various guidelines in different contexts – tax and otherwise, only for them to be ignored or be adhered in form rather than substance. It remains to be seen if mere enunciation of certain guidelines would prevent tax officers from contravening the statutory mandate especially if they are chasing targets set by superior officials. (para 15)

Conclusion

The Patna High Court elaborated one the final guideline to state that even though tax is a compulsory extraction, it is meant for the larger good. And that tax authorities should act as facilitators of business and economy instead of looking to extract their pound of flesh for personal reasons or to please the higher authorities. (para 18) And fined the tax officer concerned Rs 5,000/- for the high-handed action. (para 21) Again, the views of the High Court about the role of a tax officer and tax authorities in general are hard to find fault with; but, if and to what extent they are adhered to will be the bigger test. For now, there is solace in the fact that Courts endorse the need for balance between revenue extraction and protection of rights of businesspersons whose business can be paralyzed if such huge amounts are recovered without giving them prior notice. (para 17)

^[1] Sita Pandey v The State of Bihar (2023), available at https://www.livelaw.in/pdf_upload/sita-pandey-490868.pdf

^[2] UTI Mutual Fund v Income Tax Officer and Others [2012] 345 ITR 71 (Bom).

Patna High Court Opines on ITC Claims: Interprets Section 16 of CGST Act, 2017 Strictly

September 5, 2023 by Rav Singh

In a recent judgment^[1], the Patna High Court engaged with the issue of whether a claim for Input Tax Credit (‘ITC’) is sustainable when the purchasing dealer has made the tax payment to the seller, but the latter does not pay tax to the State. The issue of non-payment of tax by the seller and its impact on purchaser’s ITC claims has arisen frequently under pre-GST and GST regime, with no clear resolution. Recently, the Calcutta High Court – where issue of GST returns was central – opined that the Revenue should first proceed against the seller instead of reversing the ITC of purchaser. In the impugned case, the Patna High Court adopted a different approach where the ingredients of Section 16, CGST Act, 2017^[2] were central in deciding the impugned case.

Introduction

The purchasing dealer claimed that the seller has not paid tax to the State despite the former making the payment to the latter. As per the purchaser, the liability of purchaser stood satisfied on payment of tax to the seller and the State seeking to recover the said tax from the purchaser would amount to double taxation and diluting the rationale of ITC, i.e., prevention of cascading effect of taxes. The State, on the other hand, argued that the conditions prescribed in Section 16, CGST Act, 2017 need to be satisfied for a taxpayer to claim ITC successfully.

The purchasing dealer tried to argue that the Supreme Court’s observations in ECom Gill Coffee case^[3] that the purchaser had to prove ‘prove beyond doubt’ the genuineness of transaction in question to claim ITC was inapplicable in the impugned case since the said case was decided under the KVAT Act. The Patna High Court agreed with the argument but noted that the inapplicability of the ECom Gill Coffee case would still not absolve the dealer of the requirement under Section 16(2)(c) which requires payment of tax as a pre-condition for successfully claiming ITC.

Patna High Court Mandates Compliance with Section 16

The Patna High Court while emphasizing that unless the purchaser satisfies the conditions prescribed under Section 16, cannot successfully claim ITC made two observations that are important to highlight as to how Courts struggle to categorise ITC. For example, the High Court first observed that the condition under Section 16(2)(c) requiring payment of tax via cash or ITC is a burden:

This in effect is a burden of proof cast on the purchasing dealer who claims Input Tax Credit, which is a right created under statute; sustained only under the specific terms of the statute. (para 10) (emphasis added)

In the following paragraph, the Patna High Court observed that ITC was a benefit conferred by the statute:

Necessarily, the conditions for such availment of credit has to be scrupulously followed failing which there can be no benefit conferred on the assessee. The benefit is one conferred by the statute and if the conditions prescribed in the statute are not complied; no benefit flows to the claimant. (para 11) (emphasis added)

The prima facie effect of observations in the above paragraphs is that ITC is both a right created under the statute and a benefit conferred by the statute. In my opinion, it is important to categorise it one and unambiguously so; it would determine the extent and nature of conditions can be imposed on taxpayers before they can successfully claim ITC. Courts through casual remarks on the nature of ITC, such as in the impugned case, only add confusion instead of conceptual clarity.

Conclusion

Nonetheless, the Patna High Court was categorical in conclusion that ITC postulates that there should be credit in ledger of the purchasing dealer and the said credit can only arise once the seller has paid the tax to the State. Mere production of invoices by the purchaser is not sufficient to claim ITC. Strangely, though the High Court noted that purchaser and seller have an ‘independent contract’ without junction of the Government. But it nonetheless noted that the purchaser’s claim of ITC is dependent on seller paying the tax, a statutory condition under Section 16(2)(c). In other words, the purchaser must either ensure that the seller fulfils its statutory obligation of paying tax to the State or be at the mercy of seller. Because the purchaser cannot successfully claim ITC until the seller pays the tax. Thus, it can also be said that Section 16 is an in-built condition in the purchaser-seller ‘independent contract’ for the purchaser to claim ITC.

While the State claiming that conditions of Section 16 need to be strictly fulfilled for a purchaser to claim ITC is valid, what is unsettling and legally indeterminate are two things: first, if the State can impose such a statutory condition? The answer to this question would be partially supplied once we have judicial clarity on whether ITC is a right or a concession, for in the latter case such onerous conditions could be justified; second, it is unclear if the seller acts an agent of the State or purchaser once it collects the tax? In my opinion, only in the latter case is it defensible to make the purchaser’s claim of ITC dependent on seller paying the tax. Otherwise, it is not far-fetched to say that conditions under Section 16 are aligned to the State’s interest rather than a coherent conceptual approach towards transactions and the parties that generate GST.

^[1] M/s Aastha Enterprises v The State of Bihar 2023 LiveLaw (Pat) 96.

^[2] This provision is pari materia with Section 16, Bihar Goods and Services Tax Act, 2017, the impugned provision in this case.

^[3] State of Karnataka v M/s Ecom Gill Coffee Trading Private Limited 2023 SCC OnLine SC 248.

Patna High Court Directs Substantive Compliance with Section 129, CGST Act, 2017

August 1, 2023July 20, 2023 by Rav Singh

Short Note

In a concise judgment^[1], a Division Bench of the Patna High Court provided relief to a taxpayer who was made liable under Section 129, CGST Act, 2017 for transporting goods on an expired e-way bill. The High Court held that the proper officer levied penalty without application of mind.

The petitioner was transporting goods without a valid e-way bill. The petitioner argued that since the vehicle broke down it could not travel the State of Bihar before the expiry of the e-way bill. And that the petitioner’s bona fide reason was not considered by the authorities which levied a penalty mechanically. To emphasise the latter point, the petitioner highlighted that the notice and order of penalty were issued on the same date. The proper officer issued a notice to the petitioner on 28.03.2022 and followed it by levying a penalty on the petitioner under Section 129(3) by an order dated 28.03.2022 itself.

The Revenue, on the other hand, argued that the e-way bill was valid only upto 16.03.2022 while the petitioner’s vehicle was intercepted on 23.03.2022 when the goods were still in movement. The State argued that under Section 129, CGST Act, 2017 the petitioner had a window of 8 hours to renew an expired e-way bill and thus was liable to face penalty for transporting goods accompanied by an expired e-way bill.

The Patna High Court took cognizance of the fact that the proper officer had issued the notice and order imposing penalty simultaneously. It also noted that the order passed by the proper officer did not record the presence or hearing of the petitioner prior to passing of the order.

Further, the High Court observed that:

This Court would find that the notice issued under Section 129(1)(a) was nothing more than an empty formality as no time/opportunity has been allowed pursuant to the notice, and immediately, on the same date, penalty has been recorded under Section 129(3). The determination of penalty under Section 129(3) is, therefore, in contravention of the statutory requirement under Section 129 of the Act. The requisite compliance with principles of natural justice, inherent in Section 129(4) has thus been violated. (para 9)

The order imposing penalty was thus held to be unsustainable and was quashed. The High Court noted that the petitioner’s response to the notice should be considered and an opportunity of being heard should be provided as per the statutory mandate.

It is important to highlight that Section 129 mandates the proper officer to not only issue a notice to the taxpayer before imposing a penalty, but also provide an opportunity of being heard to the taxpayer before passing an order imposing penalty. In the impugned case, the Patna High Court clearly endorsed that the issuance of notice should not be a mechanical exercise and providing an opportunity of being heard to the taxpayer cannot be dispensed with. Hopefully, the latter will not be adhered to in a mechanical fashion by the Revenue.

^[1] M/S Sangam Wires v The State of Bihar. Available at https://www.livelaw.in/pdf_upload/ca825b59-583c-4d04-995d-6b0436d311ea-481343.pdf

Patna High Court Prevents Levy of Entertainment Tax Citing 101st Constitutional Amendment

August 1, 2023June 5, 2023 by Rav Singh

A Division Bench of the Patna High Court on 18 May 2023 pronounced a judgment that inter alia required it to examine the interaction of Bihar Entertainment Tax Act, 1948 (Act of 1948) with the 101^st Constitutional Amendment Act, 2016 (‘101^st Amendment’). While the case involved both, statutory and constitutional issues relating to the scope and nature of entertainment tax, in this post I will focus on the Constitutional aspect of the case. More specifically, nature and scope of power of States to levy entertainment tax after the 101^stAmendment.

Introduction

The petitioner was a Multi System Operator (‘MCO’) who challenged its tax liability under the Act of 1948. State of Bihar argued that the MCO was liable to pay entertainment tax for transmitting programs it received through satellite. The MCO argued that the tax liability was that of local cable operators who broadcasted those signals to the subscribers and were responsible were providing connection to the subscribers, latter being the taxable event under the Act of 1948. One of the petitioner’s grounds of challenge was the State of Bihar’s lack of competence to levy entertainment tax after the 101^st Amendment. There were two prongs to the petitioner’s argument: first, Entry 62 in List II has been amended by the 101^st Amendment denuding State the power to levy entertainment tax. Pre and post amendment versions of Entry 62 in List II are respectively as follows:

Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling.

Taxes on entertainments and amusements to the extent levied and collected by a Panchayat or a Municipality or a Regional Council or a District Council.

As per the petitioner the field of legislation, i.e., entertainment tax, was no longer available to a State in the form it was available before the 101^st Amendment. Entry 62 in List II has been substituted and only permits levy and collection by local bodies. Consequently, after the 101^st Amendment, State of Bihar cannot levy and collect entertainment tax through Commercial Tax Officers as provided in the Act of 1948 and the relevant Rules.

The second prong of the petitioner’s argument rested on Section 19 of the 101^st Amendment which states as follows:

Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier. (emphasis added)

The petitioner urged that the Act of 1948 cannot justify levy of entertainment tax after the 101^st Amendment and one can agree that is a reasonable conclusion since Section 19 only saves ‘law relating to tax on goods or services or on both’. But the petitioner went a step ahead and argued that there is no justification for levy and collection of entertainment tax for the period prior to the 101^st Amendment since the power for levy and collection stands extinguished by the substitution of Entry 62 in List II. Now courts have recognized that the effect of substitution is that it repeals and introduces a new law, but the doctrine of ‘substitution effect’ has not yet been fully tested and applied regarding legislative entries in the Constitution. Neither is there complete jurisprudential clarity if the effect of substitution is retrospective in nature. (paras 7-9) In my opinion, the petitioner in making the latter argument was making a novel claim in the constitutional context.

The State of Bihar, on the other hand, tried to justify its power to levy and collect entertainment tax despite the 101^st Amendment amending Entry 62. To begin with, it stated that the 101^st Amendment introduced a new clause, i.e., Article 366(26A) which defined ‘services’ as anything other than goods. The State adopted an unusually wide and non-contextual interpretation of ‘services’ to argue that every tax other than on goods would be covered by Section 19 of the 101^st Amendment including entertainment tax. The State further referred to Sections 173 and 174 of the Bihar Goods and Services Tax Act, 2017 and claimed that while these provisions repealed the Act of 1948, recovery of arrears of tax was allowed as if the Act of 1948 was not repealed. The State made an alternative plea that the levy and collection of entertainment tax before the 101^stAmendment certainly cannot be challenged. The State argued that the repeal and saving clause of Bihar Goods and Services Tax Act, 2017 not only preserved pre-existing tax liability, but also saved the levy and collection of tax prior to the 101^st Amendment.

101^st Constitution Amendment Narrows State’s Power to Levy Entertainment Tax

Patna High Court agreed with the petitioner’s arguments and made some interesting though not fully reasoned observations.

To begin with, the High Court did not agree with the State’s argument that the definition of services encompassed entertainment tax. The High Court rightly reasoned that if the term ‘services’ was intended to subsume every tax there was no reason to retain Entry 62 and it could have been deleted like some other entries such as Entry 52 relating to entry taxes which was deleted via the 101^st Amendment. Entertainment tax survived the 101^st Amendment albeit in a modified form presumably with an intent to keep it as a separate levy instead of subsuming it under GST. In stating so, the High Court offered a more credible interpretation as compared to the State’s expansive understanding of the term ‘services’ under Article 366. (paras 32 and 33)

As regards the impact and effect of Section 19, the High Court stated that inconsistent provisions in State legislations could be continued for one year or till their repeal/amendment by respective State legislatures, whichever was earlier. However, the Act of 1948 while validly legislated under Entry 62, as it existed then, could not be sustained after the 101^st Amendment because of the changes made to Entry 62. This conclusion also is a right understanding and naturally flows from the High Court’s understanding of the scope of Section 19, i.e., it did not extend to entertainment tax.

However, as regards the petitioner’s argument that entertainment tax cannot be collected even for the period before the 101^st Amendment, the High Court concluded that:

The tax for the period prior to the amendment, though levied on the taxable event occurring, cannot also be collected since there is no transition provision available under the 101st Amendment making such collection of entertainment tax permissible for one year or by way of a repeal; by an enactment, consistent with the amendment, with a saving clause for continuance of the levy and collection under the old Act as it was never repealed. (para 40) (emphasis added)

The above observation does not fully add up. Why would a transition provision be necessary to collect tax for a taxable event that occurred before the 101^st Amendment? If at the time of occurrence of the taxable event, State of Bihar had the authority to levy and collect entertainment tax, it should be allowed to recover the same even after the 101^st Amendment. Why should the power to recover pre-amendment tax liabilities cease abruptly if the transition provision does not encompass entertainment tax? Transition provisions, such as Section 19, aim to smoothen transition and allow States time to impose taxes under pre-existing laws such as VAT and/or amend the stated laws in consonance with the new regime, in this case GST. The High Court was right in observing that Section 19 excluded entertainment tax and thereby did not allow States to levy and collect entertainment tax for taxable event under the Act of 1948 occurring after the 1.07.2017, the date of 101^st Amendment. However, there is little to justify that Section 19 also implies that taxable events occurred and tax liabilities incurred by taxpayers before that date should not be satisfied by taxpayers.

The High Court to fortify its reasoning needed to engage more deeply with the argument that Entry 62 in List II has been substituted and its resultant effect. A prima facie conclusion is that Entry 62 has been amended/modified, retaining power regarding entertainment tax with the State subject to it being levied and collected at the local level. However, given the transformative changes introduced in indirect tax regime – labelled under the umbrella heading of GST regime – by the 101^st Amendment it would not be out of context to suggest that Entry 62 is substituted. There are arguments that can be made from both sides, but the judgment provides little insight about the scope of arguments and neither does it engage with this crucial issue in a meaningful manner. In my view, States are allowed to recover arrears of tax relating to the period before the 101^st Amendment and a typical savings clause such as in Sections 173 and 174 of the Bihar Goods and Services Act, 2017 is usually beyond reproach. The onus is on the petitioners to prove that the tax arrears cannot be collected. In this case, the High Court thought that the petitioners have discharged the burden, but its reasoning didn’t seem sufficiently persuasive.