That the government has the power to amend provisions of the law, particularly related to taxation matters, retrospectively, is a well-established fact. Such retrospective amendment laws have also been subjected to legal scrutiny. The Vodafone-Hutchison case is one such prime example.
Retrospective amendments are usually carried out for the removal of doubts to bring in more clarity or to align with or to overcome the judgments of the Supreme Court (SC), High Courts (HC), or Tax Tribunals on a particular issue. There are two ways in which retrospective amendments are generally carried out:
One, where it is explicitly provided in the Amended Act itself that the amendment to a particular provision/provisions of the law will be effective from a retrospective date, and second, whereby the amendment, usually, is by way of an insertion of an explanation, which begins with the words ‘For removal of doubts,’ giving it a color of being clarificatory in nature, justifying it to be effective retrospectively. It is a settled law that, even otherwise, for any amendment to be effective retrospectively, it has to be clarificatory in nature.
On the other hand, if it is bringing about any substantive changes in the law or is adversely affecting the taxpayers, then the amendment has been held to be prospective in nature.
RETROSPECTIVE POWERS UNDER GST – Under GST Law too, there are specific powers to issue notification/ insert explanation with retrospective effect. If we peruse the provisions of Section 168A (2) of the CGST Act, Govt. has given itself the power to issue notification for the purpose of extending time limit for reasons due to force majeure, as specified in sub-section (1), with retrospective effect to such notification from a date not earlier from the date of commencement of the Act. Similarly, the provision of Section 11 of the Act gives the Govt, the power to exempt tax and to issue notification or order accordingly. It also confers the power to insert an explanation to such notification or order as the case may be, by notification at any time within one year of issue of the notification under subsection (1) or order under sub-section (2), and every such explanation shall have effect as if it had always been the part of the first such notification or order, as the case may be. Similarly, Section 164 gives the power to make rules for carrying out the provisions of the CGST Act and sub-section (3) to the said Section gives the power to give retrospective effect to the rules or any of them from a date not earlier than the date on which the CGST Act come into force.
In the above context, let’s try to understand one such Amendment Act passed under GST Law.
CASE STUDY – ‘THE CENTRAL GOODS AND SERVICES TAX (AMENDMENT) ACT, 2018 (31 of 2018) –
Clause (2) of Section 1 of the said Amendment Act, reads as under –
‘ (2) Save as otherwise provided, the provisions of this Act shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint:
Provided that different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.’
Section 3 of the said Amendment Act– It carries out certain amendments to Section 7 of the principal Act (i.e. The CGST Act, 2017) as under-
3. In section 7 of the principal Act, with effect from the 1st day of July, 2017,–– (a) in sub-section (1), ––
(i) in clause (b), after the words “or furtherance of business;”, the word “and” shall be inserted and shall always be deemed to have been inserted;
(ii) in clause (c), after the words “a consideration”, the word “and” shall be omitted and shall always be deemed to have been omitted;
(iii) clause (d) shall be omitted and shall always be deemed to have been omitted;
(b) after sub-section (1), the following sub-section shall be inserted and shall always be deemed to have been inserted, namely:––
“(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.”;
(c) in sub-section (3), for the words, brackets and figures “sub-sections (1) and (2)”, the words, brackets, figures and letter “sub-sections (1), (1A) and (2)” shall be substituted.
As could be seen from the above amendment, the same has been specifically provided to be ‘with effect from the 1st day of July, 2017’ i.e the effective date of the principal act, The CGST Act, 2017 and the insertions or omissions made to the said Section 7 has been specifically provided to be deemed to have always been inserted/ omitted, as the case may be. Thus, in accordance with the main clause (2) of Section 1 of the Amendment Act, as the amendment to Section 7 of the CGST Act, 2017, has been specifically provided to be effective from 1st of July 2017, the same will be retrospectively effective from 1.7.2017.
Section 2 of the Amendment Act – It carries out certain amendments to Section 2 of the principal Act, as under-
“2. In section 2 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the principal Act),––
(a) in clause (4),––
(i) for the words “Central Board of Excise and Customs”, the words “Central Board of Indirect Taxes and Customs” shall be substituted;
(ii) for the words “the Appellate Authority and the Appellate Tribunal”, the words, brackets and figures “the Appellate Authority, the Appellate Tribunal and the Authority referred to in sub-section (2) of section 171” shall be substituted;
(b) in clause (17), for sub-clause (h), the following sub-clause shall be substituted, namely:—
“(h) activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; and”;
(c) clause (18) shall be omitted;
(d) in clause (35), for the word, brackets and letter “clause (c)”, the word, brackets and letter “clause (b)” shall be substituted;
(e) in clause (69), in sub-clause (f), after the word and figures “article 371”, the words, figures and letter “and article 371J” shall be inserted;
(f) in clause (102), the following Explanation shall be inserted, namely:––
‘Explanation.––For the removal of doubts, it is hereby clarified that the expression “services”
includes facilitating or arranging transactions in securities;’. ”
As could be seen, Section 2 of the Amendment Act, has not provided for a specific effective date for the amendments carried out to Section 2 of the CGST Act, to come into force.
It is seen that in terms of the proviso clause (2) to Section 1 of the Amendment Act, notification no. 2/2019-CT dated 29th Jan 2019, has been issued appointing 1st day of Feb 2019, as the date on which the provisions of the CGST (Amendment) Act, 2018 (31 of 2018) except clause (b) of section 8, section 17, section 18, clause (a) of section 20, sub-clause (i) of clause (b) and sub-clause (i) of clause (c) of section 28, shall come into force. In other words, the amendments to Section 2 and Section 7 of the CGST Act, 2017 carried out by Section 2 and 3 of the Amendment Act, will come into force wef 1.2.2019. However, incidentally, as the amendment to Section 7 as already been provided to be effective from 1st July 2017 as per the main clause(2) of Section 1 of the Amendment Act, the said amendments to Section 7 will be effective from 1.7.2017 [The notification could have very well included Section 3 of the Amendment Act within the exclusion clause of the said notification.]
Now, let’s take the example of the amendment carried out to Section 2(102) of the CGST Act, as an Explanation has been inserted to the said section, which begins with the words –“For removal of doubts”. So, the question, is that even though the amendment has been brought into force as on 1.2.2019, just because the explanation begins with the words ‘For removal of doubts’, can the said amendment be held to be retrospective in nature.
AMENDMENT TO SECTION 2(102) OF CGST ACT –
Section2(102) of the CGST Act, pertains to the definition of ‘services’, which has been amended by way of insertion of explanation, as under-
Section 2(102) – “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
[Explanation.- For the removal of doubts, it is hereby clarified that the expression “services” includes facilitating or arranging transactions in securities;]- Inserted wef 1.2.2019 vide notification no.22/2019-CT(R) dated 30.9.2019.
Thus, initially from the inception of the CGST Act, ‘securities’, as such, was excluded from the definition of ‘services’. Incidentally, ‘securities’ is also excluded from the definition of ‘goods’ as defined under Section 2(52) of the Act. However, vide the Amendment Act, by virtue of notification no.22/2019-CT(R) dated 30.9.2019, the definition of ‘services’ was amended by including ‘facilitating or arranging transactions in securities’ within the ambit of ‘services’. Thus, there is no doubt, that wef 1.2.2019 the activity of ‘facilitating or arranging transactions in securities’ falls within the scope of ‘services’. The issue here is whether the same can be said to be effective retrospectively i.e. from the date of the principal Act -1st July 2017, particularly, as the explanation begins with the words – ‘for removal of doubts’.
‘SERVICES OF LENDING OF SECURITIES’, is one such example of transactions in ‘securities’. Vide notification no.22/2019-CT(R) dated 30.9.2019, wef 1.10.2019, the said service was brought under reverse charge mechanism, vide insertion of sr. no.16 to the table annexed to the notification no. 13/2017 dated 28.6.2017, as under-
|
SR. |
CATEGORY OF SUPPLY OF SERVICE |
SUPPLIER OF SERVICE | RECEIPIENT OF SERVICE |
| 16 | Services of lending of securities under Securities Lending Scheme, 1997 (“Scheme”) of Securities and Exchange Board of India (“SEBI”), as amended. | Lender i.e. a person who deposits the securities registered in his name or in the name of any other person duly authorised on his behalf with a approved intermediary for the purpose of lending under the Scheme of SEBI. | Borrower i.e. a person who borrows the securities under the Scheme through an approved intermediary of SEBI.”. |
From the above, there is no doubt that from 1.2.2019 to 30.9.2019, the activity of ‘lending of securities’ will be liable to GST under forward charge mechanism and from 1.10.2019 onwards, it will be liable to
GST under reverse charge mechanism. The question again to be raised is whether the activity of ‘lending of securities’ will be liable to GST retrospectively i.e. under forward charge for the period from 1.7.2017 to 31.1.2019. In this context, Circular no. 119/38/2019-GST dated 11.10.2019, has issued clarification that for the said past period too, GST is payable under forward charge by the lender, as the explanation inserted to Sec 2(102) is only clarificatory in nature, which again raises two questions-
1) whether Circular, in general, can issue instructions or directions clarifying the amendments to be with retrospective effect, and/
2) when the explanations are added to any specific provision, just by addition of the words – ‘For removal of doubts’, will it automatically be effective retrospectively, particularly, when no specific date has been provided for, in the amended provision, but at the same time, when, an effective date has also been notified, for the said amended provision to come into effect.
1) CIRCULAR- RETROSPECTIVE EFFECT ?
It has already been pointed out that, as regards the issuance of notification for the purpose of extending time limit in special circumstances, in terms of Section 168A of the CGST Act, with retrospective effect, as also, insertion of explanation to an exemption notification or order issued under Section 11 of the Act, with retrospective effect, within one year of the issuance thereof, the same is with legal backing. Similarly, Govt also has the power to give retrospective effect to the rules made under the CGST Act. However, can a Circular be issued clarifying that the amendment to a provision by way of an insertion of an explanation is to have effect retrospectively.
Most of the Circulars are being issued specifically invoking the powers conferred under Section 168 of the CGST Act, which reads as under-
168. (1) The Board may, if it considers it necessary or expedient so to do for the purpose of uniformity in the implementation of this Act, issue such orders, instructions or directions to the central tax officers as it may deem fit, and thereupon all such officers and all other persons employed in the implementation of this Act shall observe and follow such orders, instructions or directions.
(2) The Commissioner specified in clause (91) of section 2, sub-section (3) of section 5, clause (b) of sub-section (9) of section 25, sub-sections (3) and (4) of section 35, sub-section (1) of section 37, sub-section (6) of section 39, [section 44], sub-sections (4) and (5) of section 52,] [sub-section (1) of section 143, except the second proviso thereof], clause (l) of subsection (3) of section 158 and section 167 shall mean a Commissioner or Joint Secretary posted in the Board and such Commissioner or Joint Secretary shall exercise the powers specified in the said sections with the approval of the Board.
So, from the above provision, it is clear that there is no power conferred on it to issue clarifications by way of issuance of Circular, giving effect to the clarification, retrospectively. The Circular no. 119/38/2019-GST dated 11.10.2019 has not quoted any provision of the Act under which it has issued the clarification, but has stated that the clarification has been issued based on the request from trade, whereas the clarifications to be issued under Section 168 are for the taxpayers to follow. It has, however, gone on to clarify that the explanation will be effective retrospectively for the past period too i.e. beyond the period of amendment to the definition of ‘services’, as discussed herein above. So, in the given context, the question that still remains is whether by insertion of the words, ‘For removal of doubts’, whether the said provision can automatically be legally inferred to be retrospective in nature.
2) EXPLANATIONS -RETROSPECTIVE EFFECT ?
In this context, reference may be had to the Apex Court decision in the case of Union of India v. Martin Lottery Agencies Ltd., reported in (2009) 12 SCC 209 wherein the Hon’ble Apex Court has held at para 34, 37, 43, 50, 51, as under:-
“34. No doubt, the Explanation begins with the words “for removal of doubts”. Does it mean that it is conclusive in nature? In law, it is not. It is not a case where by reason of a judgment of a court, the law was found to be vague or ambiguous. There is also nothing to show that it was found to be vague or ambiguous by the executive. In fact, the Board circular shows that invocation of sub-clause (ii) had never been in contemplation of the taxing authorities.
37. As it is not possible for us to arrive at the said conclusion, we have no other option but to hold that by inserting the Explanation appended to clause (19) of Section 65 of the Act, a new concept of imposition of tax has been brought in. Parliament may be entitled to do so. It would be entitled to raise a legal fiction, but when a new type of tax is introduced or a new concept of tax is introduced so as to widen the net, it, in our opinion, should not be construed to have a retrospective operation on the premise that it is clarificatory or declaratory in nature.
48. The question as to whether a subordinate legislation or a parliamentary statute would be held to be clarificatory or declaratory or not would indisputably depend upon the nature thereof as also the object it seeks to achieve. What we intend to say is that if two views are not possible, resort to clarification and/or declaration may not be permissible.
50. It is, therefore, evident that by reason of an explanation, a substantive law may also be introduced. If a substantive law is introduced, it will have no retrospective effect. The notice issued to the assessee by the appellant has, thus, rightly been held to be liable to be set aside.
51. Subject to the constitutionality of the Act, in view of the Explanation appended to this [sic Section 65(19)(ii) of the Finance Act, 1994], we are of the opinion that the service tax, if any, would be payable only with effect from May 2008 and not with retrospective effect. In a case of this nature, the Court must be satisfied that Parliament did not intend to introduce a substantive change in the law.
Now let’s see the changes brought about in clause (102) of Section 2 of the CGST Act, 2017. As per the initial provision of Section 2(102), ‘goods, money and securities’ were carved out as exception to the definition of ‘services’. However, it was made clear that any activity related to money as mentioned therein could amount to ‘services’. There was no such specification iro ‘securities’ as was done in the case of ‘money’. Also, there was never any ambiguity or doubt, that ‘securities’ or any activity related to ‘securities’, including lending of ‘securities’, were out of the ambit of ‘services’ as per the said definition. It is also not a case where by reason of any judgement of a court, any ambiguity was found related to the activity pertaining to ‘securities’. It is also not a case, wherein, from the initial provision of Section 2(102), two views were emerging requiring clarification i.r.o ‘securities’. Infact, the said Board Circular, while clarifying that the activity of ‘lending of securities’ is also liable to pay GST on such activity, retrospectively, for the period prior to 1.2.2019 too (i.e from 1.7.2017 to 31.1.2019) has not brought out any fact of ambiguity or doubt prevailing, iro the said activity for the prior period.
On the other hand, by virtue of the insertion of ‘Explanation’ to clause (102) of the said Section (2) of CGST Act, a substantive change has been brought about in law, whereby, the activity of ‘facilitating or arranging transactions in securities’ was brought under the ambit of ‘services’ and thereby making it liable to GST. Explanations are in general added to a provision to bring in more clarity. Even otherwise, it is a settled principle of law, that, if an explanation is adversely affecting the taxpayer, then the same will be effective prospectively. Moreover, mere use of the term explanation will not be indicative of fact that amendment is clarificatory / declaratory. Thus, in the case under discussion, in my personal view, the amendment carried out to Section 2(102) of CGST Act, by way of insertion of the said explanation cannot be said to be clarificatory and hence not effective retrospectively. It can have only prospective effect i.e. from 1.2.2019.
CONCLUSION :
1. The government possesses the authority to amend any provision of the law with retrospective effect, but this power must be explicitly granted within the Amendment Act itself.
2. Under the CGST Act of 2017, Sections 11 and 168A provide the government with the power, on the recommendations of the Council, to issue notifications or orders with retrospective effect in specific circumstances, subject to the limitations and conditions outlined therein. Section 164(3) also grants the authority to apply retrospective effect to rules established under the Act, provided it is not earlier than the date on which the CGST Act came into force.
3. If an explanation inserted into a provision of law serves a genuinely clarificatory purpose and aligns with established legal principles, it may be applied retrospectively.
4. An explanation in a provision of law, regardless of whether it includes the phrase “For removal of doubts,” is likely to have prospective effect if it introduces a substantive change in the law or a new concept of tax imposition.
Whether, an amendment has brought about a substantive change in Law, shall always be subjective and there are bound to be difference of opinion. In the subject case study, according to me, it appears to be a substantive change in law. Divergent views, if any, may be posted in the comment box or mailed to me at my personal mail id- anil_janardhan@yahoo.com. Anyways, the purpose of this article is to throw some light on the way retrospective amendments are carried out, particularly, related to GST Law.
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