Retrospective Legislation | When can be Made | Whether such Retrospective Legislation is Valid or Not?
The Power to legislate a particular provision in a statute with a retrospective amendment is always available to the union or State legislatures. This power is a plenary power in respect of the fields that are demarcated to them and subject to constitutional restrictions and judicial review.
Passing a retrospective amendment after the courts have decided on an issue may be challenged on the ground that the retrospective legislature is void ab-initio. This statement is made by me because retrospective legislation is made by the Governments in order to see that the anomaly creeping in the Act is overcome by bringing an amendment, be that may, because of the decision of the courts or by a self realization or recognition.
Competence to make a law on a subject depending upon the circumstances and the competence to make that subject in the present law is always the Golden Metwand and needs to be considered when challenged.
The Hon’ble Courts have dealt with so many cases basing upon the situation that has come up before it and have held that whether a legislation giving a retrospective amendment is valid.
In particular in a taxing statute according to me retrospective legislation giving scope for levy of a higher rate of tax or giving scope for a section to fix the time limit to file a return or to file an appeal is the precise question.
In order to give a retrospective validation, the legislature may make a law which is in operation for a limited period of time prior to the date of the legislation giving retrospectivity.
By virtue of giving retrospectivity to the present legislation which is in force, would cease to be force, for the retrospective legislation would override the old legislation and would be treated as the legislation to be on the statute from the beginning of the introduction of the statute or from a date of the convenience as felt by the legislation.
It is my opinion that the legislation giving retrospectivity to a statue or a part thereof would be valid if the retrospectivity does not change the colours of the frontiers of a section -for example the rates of tax earlier mentioned in the schedules would be varying with a sequel addition to liability because of a retrospective legislation and the person or the dealer has obviously to pay the enhanced rate of tax on this particular subject. Then in indirect tax laws, as well known tax would be levied on a person and such tax has to be collected from the person who is paying the tax cannot be collected in better terms, I would say that the dealer would be acting as an agent on behalf of the principal. The principal herein is the Government and the dealer would be acting as an agent on behalf of the principal in collecting the taxes from the purchaser to makeover. By giving retrospectivity to a section or a schedule or a rule, Government would be demanding tax amount (i.e. enhanced rate) from the agent and the agent would be left with no other choice except to fulfill the demands and to pay the taxes from his own pockets as it would not be possible as also practicable to recover such enhanced amount in respect of concluded transactions.
The other aspect direct taxes and indirect tax laws by a retrospective amendment, tax would enhanced or a section would be given retrospectivity depending upon ratio decidendi or proposition of law in the judgements of the courts or a self realization that may come to the Government on a later date, which is also improper as in direct taxes, the person who has to pay the tax would be thrived with a higher tax by virtue of the retrospectivity that is given to a particular section or the rate of tax then it would be very difficult for the person who is paying the tax to pay the enhanced rate of tax or deduct the TDS at an enhanced rate followed by the interest and penalties which would be waived by the Government, it would lead to a difficult situation.
I have only canvassed the two examples in order to make my article more easily understandable. The challenge to these sections or schedules would be logical and would be appropriate also as the Government would be burdening the citizens with tax that may not be bearable by the citizens.
The power to make retrospective legislation enables the Government to amend the Act completely and to repeal the law as it existed before amending the Act. This power has also been often used for validating prior executive and legislative act for curing the defect which led to the invalidity of a particular provision or the Act.
The other example is, an Act which can be passed only by parliament but the State enacts the Act and when the Act is questioned before the Courts such act of the State would be set aside by the Courts. Then what is destined to follow is the question. Whether any retrospectivity can be possible in such cases. The answer is that parliament can legislate such Acts and parliament can retrospectively legislate such Act and such acts of the parliament are found to be valid. Please see the judgement in AIR 1996 SC 2560 in the case of P. Kannadasan Etc. Vs State Of Tamil Nadu & Ors.
Now the question is, can parliament legislate an Act which is already legislated by the State and in the case of taxes whether such Act can be considered as valid. My reply to such question would be the parliament can legislate such Act with retrospective amendment and as the consumer or the tax payer is paying the tax to the State, there would not be difficult for him as it would be between the State and the Center to adjust their accounts.
Now the question is whether statutes dealing with the substantive rights can be amended by retrospective legislation. Naturally every Statute would be considered prospective and it is the conditional principal of construction unless, it is expressly or by necessary implication made to have retrospective operation. Please see the case cited in AIR 1951 SC 128 in the case of Keshavan Madhava Menon vs The State Of Bombay.
The rule as general is applicable where the object of the Statute is to effect vested rights to impose new burdens or to impair existing obligations. The intention of the legislation to effect the vested rights or to effect the existing obligation should be clear with no ambiguity and then also it is deemed to be prospective only. This is because the fundamental principle behind an amendment is to curb or validate or to change the effective rights or the statutory rights and in the concept of taxation, the rate of tax etc., which shall be enforced by the legislature prospectively as it is for the citizen who would be burdened with the plenary action of curbing or effecting and taxing at a higher rate.
As a logical Corollary to general rule of retrospective operation is not taken to be intended unless that intention is manifested by express words or necessary implications, there is a subordinate rule to the effect that a statute or rule in a section in it is not be construed so as to have larger retrospective operation then its language renders necessary. Please see S. S. Gadgil, Income-Tax Officer, … vs Lal And Company reported in AIR 1965 SC 171, AIR 1966 SC 1499 – Mohd. Idris & Others vs Sat Narain.
In other words , the word should be so clear and the language is vivid giving retrospectivity as intended by the parliament so that the courts can determine whether the retrospectivity is proper or not. If the retrospectivity intended by the parliament or State legislature in the literal reading of the provision gives an anomaly or absurdity, then prima facie such retrospectivity would be considered as illegal.
This rule of strict construction in the case of retrospective legislation would not be applicable in the case of procedural law. The Statute not dealing with substantive rights, but dealing with merely matters of procedure are presumed to be retrospective unless such construction is technically inadmissible. It does not apply to statutes which only, alter the form of procedure or the admissibility of evidence or the effect which the courts give to evidence. If the new Act effects procedure only then the retrospective operation would apply to the pending actions as well as future actions. See K. Eapen Chacko vs The Provident Investment Company reported in AIR 1976 SC 2610.
A change in the forum should be considered as proper except in pending proceedings and therefore if a new Act requires certain types of original proceedings to be instituted before the special tribunals under the Act to exclude the civil courts, all the proceedings of that type whether based on old or new causes of action will have to be instituted before the Tribunal. See New India Insurance Co. Ltd vs Smt. Shanti Misra, Adult –AIR 1976 SC 237.
So also in the case of arbitration on the same principle it can be said that an arbitration award made in a foreign country is enforceable as a convention award, if the foreign country is a party to the present dispute when proceedings for enforcing the award are taken although it was not such a party at that time of making the award.
The classification of a statute cannot necessarily be determined whether that statute as a retrospective operation where the operation is considered to be substantive or procedural. For example a statute of limitation is generally regarded as a procedural, but if the application to a past cause of the action is the effect of reviving or extinguishing right of suit , such an operation cannot be said to be procedural.
The language also cannot be treated as decisive rule deciding the retrospective legislation but at the same time it cannot be stated as an inflexible rule that use of present tense or present perfect tense is decisive of the matter that the statute does not draw upon post events for its operation. See the judgement in AIR 1961 SC 307 in the case of The State Of Maharashtra vs Vishnu Ramchandra. Therefore the language cannot be found to decisive by the courts to hold a particular retrospective legislation to be invalid or valid.
The statutes in the case of succession which are given retrospective amendment have to be held as invalid because the statutes that are given retrospectivity for regulating succession should not applicable to succession, which had already opened as the effect will be to divest the estate from the person in whom it has vested. In Hindu law Inheritance Act 1921 it was held that in a case where the female heir died after coming into force of the Act though the male to whom she had succeeded has died prior to enforcement then by applying the retrospectivity it was not to deprive the person of the rights which are already vested in them for under the Hindu law of female heir, though a limited owner, fully represents the estate and the reversionars during her lifetime have no interest in it the words “dying intestate as used in the Act, were construed to me “in the case of intestacy of a Hindu Female” section 8 of the Hindu Succession Act 1956 which enacts the property of a male Hindu “dying intestate” shall devolve according to the provisions of the Act has been held to be inapplicable to a case where succession opened before the Act. But the same has been applied to a case of a Female limited owner who died after the Act although the male to whom she had succeeded had died prior to the Act. Succession in such a case opens again after the death of limited owner and to find out to whom are the heirs , who can succeed to the deceased male, the law in force at the time of the limited owners death has to be seen. See the case laws in the case of Eramma v. Veerupana reported in AIR 1966 SC 1879 and Daya Singh (Dead) Through L.Rs. & … vs Dhan Kaur reported in AIR 1974 SC 665.
Section 14 of the Hindu Succession Act 1956 which is enacted for the purpose that any property possessed by a female Hindu acquired whether before or after the Act shall be held by her as full owner thereof and not as a limited owner. The section is a retrospective one and the only qualification being that the Hindu Female should possess the estate at the time of the Act came into force. Having regard to the object of the section ameliorate the status of Hindu Female the word “possessed” has been construed in a broad sense so as to mean the state to owning or having anyone’s hand or power and to include actual constitutes possession. For the section have not been given a retrospective operation then what the language permits and therefore it has been held that if the Female Hindu had alienated the estate prior coming into force of the Act neither she or her alliance gets the right of full ownership under the Section. But if the alliance reconveys the property to a Hindu Female after commencement of the Act she would become full owner , she would then be possess the property acquired after act which is also covered by section 14(1). Therefore a widow losing her right to the property or right to maintenance, by virtue of which she was possessed of the property by her remarriage before the Act does not get the benefit of section 14(1). See the case of Gummalapura Taggina … vs Setra Veeravva reported in AIR 1959 SC 577, Munnalal v. Rajkumar, AIR 1962 SC 1493, Munshi Singh Vs. Sohan Bai (Dead) in AIR 1989 SC 1179, Kalawatibai vs Soiryabai And Others in AIR 1991 SC 1581, Naresh Kutnari v. Shakshi Lal (AIR 1999 SC 928), Jagannathan Pillai vs Kunjithapadam Pillai & Ors in AIR 1987 SC 1493, Velamuri Venkata Sivaprasad v. Kothuri Venkateswarlu AIR 2000 SC 434, Amireddi Rajagopala Rao And … vs Amireddi Sitharamamma And Others in AIR 1965 SC 1970.
Coming to the fiscal statute, the general presumption is that when a retrospectivity is given to a statute in a whole or in part of the statute it would be generally governed by the normal presumption that it is not retrospective and it is a cardinal principle of taxation law to be applied is the one which is in force in the assessment year unless otherwise provided expressly by necessary implication. As explained by me, a taxation statute cannot however be called retrospective if the taxes and events which are continuing or not complete when the amendment comes into force. A default which is a continuing default can be dealt with under the provisions of the new Act if it continues when the new act came into force though it has commenced when the old Act was in force.
A penal statue can be only considered to be prospective in operation as the offence would be taking much prior to the amendment brought in and that would lead to entrenching the civil rights of a party and so the civil obligation of a party and the criminal obligation of the party. Offence may be a civil offence or criminal offence converging the civil offence into criminal offence by a retrospective amendment would violate the civil rights and also enhancing the present period or enhancing the tax rate of penalty with a retrospective legislation would also effect the rights of the human being which would be definitely violative of articles 14, 19, 21 and also article 265 of the Constitution. As per article 20 of the constitution, to enact retrospective penal laws has no application of law, which only modifies the rigor of an existing penal law. Therefore Article 20 of the Constitution of India safeguards and protects the rights of an individual which cannot be taken away by a retrospective legislation.
Coming to the statutes prescribing posterior disqualification and past conduct which would hold to be bad in law when the statute imposes the penalty after commencement of the statute, then certainly retrospectivity would be held invalid as the offence has commenced before the retrospectivity of a statute. See the case law in AIR 1961 SC 307 in the case of The State Of Maharashtra vs Vishnu Ramchandra.
Next comes is declarative status and the presumption against retrospective operation is not applicable to declaratory status. Here I would like to rely upon the statement of CRAIES and approved by the Supreme Court “for modern purpose declaratory Act may be defined as a Act to remove debts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing of declaratory Act is to set aside what parliament deems to have been judicial error whether statement of the common law or in the interpretation of statues. Usually, if not invariably such an act contains preamble and also the word “it is declared as well as the word ‘enacted’”. The use of the words ‘it is declared’ is not conclusive then the Act is declaratory for these words, may yet times used to introduced new rules of law as the Act in the later case will only be amending the law and will not necessarily be retrospective.
It is well settled that if a statue is curative or merely declaratory of the previous law of retrospective operation is generally intended.
In the absence of clear words indicating that the amending Act is declaratory it would not be so construed when the pre amended provision was clear and unambiguous. An amendment Act may be purely clarificatory and a clear meaning of provision of the principal Act which would already implicit, clarificatory amendment of this nature will have retrospective effective and therefore the principal Act which was existing law then Amending Act also will be the part of the existing law. The judgements of Keshavlal Jethalal Shah vs Mohanlal Bhagwandas & Anr reported in AIR 1968 SC 1336, K. Govindam & Sons Vs. CIT reported in AIR 2001 SC 254, M/S. Birla Cement Works vs The Central Board Of Direct Taxes reported in AIR 2001 SC 1080 where it was held that mere addition of an explanation by an amending Act in a taxing Act cannot, without more be held to be clarificatory and retrospective. In Commissioner of Income tax, Bhopal vs M/S. Shelly Products And Another reported in 2003(5) SCC 461, it was held that provisos (a) and (b) added in section 240 of Income Tax Act 1961 by amending Act which came into force on 01-04-1989 were held to be clarificatory and retrospective. See also Chennan Singh Vs. Jai Kaur reported in AIR 1970 SC 349, Commissioner Of Income-Tax, … vs M/S. Straw Products Ltd., Bhopal reported in AIR 1966 SC 1113, Union of India & Ors Vs S. Muthyam Reddy reported in 1999(7) SCC 545, Punjab Traders Vs. State of Punjab Traders reported in 1991 (1) SCC 86, R. Rajagopal Reddy *(Dead) by L.Rs Vs. Padmini Chandrashekaran (Deal) by L.Rs reported in 1995 (1) Scale 692, Allied Motors (P) Ltd vs Commissioner Of Income-Tax, reported in AIR 1997 SC 1361. So any amendment unless it has the nature of a clarification cannot be construed as valid when it is given retrospective amendment and any retrospectivity cannot be held to be valid if it is not in the nature of a clarification, or giving a meaning by interpreting the section.
Coming to the statues dealing with the appeal it has been held that the right of entering a superior court and invoking its aid and interposition to redress an error of the court below and though procedure does scored an appeal the Central idea is the right this has been held by the Full Bench of Nagpur High Court led by Mohammad Hidayatullah as his Lordships was sitting.
The right of appeal has been recognized as a right which vests in the party who is initiating the original proceedings. Any charge in law after initiation of law would be held to be not applicable to the appeal and law should be declared as prospective in operation only. For example an amendment has been brought by the Andhra Pradesh Government in the Sales Tax Act in 2001 i.e. 30-11-2001 whereby the appeal has to be filed by paying 12.5% or 25% or 50% when filed before the Tribunal such Act was held to be prospective only and should confine the law to be applicable for the appeals that would be filed from the year 2004 onwards.
But an amendment was also brought in 1995 to the appeals to be filed within 30 days and further period of 30 days to be condoned by the appellate authority and 60d ays further period of 60 days if the appeal has to be filed before the Tribunal and such amendment was held to be retrospective in operation , means the appeals though they belong to the previous years, the amendment that was brought in the year 1995 would be applicable, if the appeal is filed in or after 1995.
Therefore retrospective operation in the case of appeals has to be strictly and stringently followed.
Now coming to the recent amendment that was brought by the Union of India to the GST Act by amending retrospectively section 140 r/w section 148 because of the Delhi High Court decision in the case of Reliance Electric Works Vs. Union of India where Delhi High Court has said that the time limit of three years as per the Limitation Act was applicable to claim the benefit of transitional relief and the time limit would be applicable till 30th June 2020 as the section of the statute dealing with the transitional credit does not specify any time limit but it is only the rule 117 that prescribes the time limit which is extended from time to time.
According to me with great respect to the Union as also to the Delhi High Court, the section need not be amended when once in the Act the word prescribed is defined and to be referred by the rules etc., the rule 117 prescribing the time limit for filing the Tran-1 which was subsequently extended of various reasons of technical glitches, there is no requirement for any amendment to the statute or the section with great respect to the judgement of the Delhi High Court, article -300A cannot be made applicable or imposed into the fiscal statute which prescribes that the applicability of civil laws are ousted, cannot be made applicable and in my considered opinion the Union ought not to have amended section 140 giving a retrospectivity and the Delhi High Court with great respect should not have declared that article 300A which is a civil right has an application for the reason that giving input tax credit is the sole right of the union or the state and it is only the mercy of the union or the State to give the input tax credit.
With these I conclude my article on the retrospective legislation and hope that this article throws some light and would edify and enlighten the youngster generations.
*Author Mr. M. V. J. K. KUMAR, is Senior Standing Counsel for Central Excise, Customs & Service Tax at High Court of Hyderabad.