FEBRUARY 05, 2025

By Vijay Kumar

NO Budget is complete without a dose of retrospective legislation.

Years ago, a senior officer in the Health Ministry asked my suggestion on how to get a retrospective amendment passed in Parliament. I submitted that he should take the help of his colleagues from the Finance Ministry who are experts in that. All that he needs is to bring in a Bill in Parliament. The Health Ministry official was not convinced; he said, "The Finance Ministry has a Bill every year and it is routinely passed, but my department has not gone to Parliament with a Bill in the last twenty years and if I go now, it will be subject to micro scrutiny and the government would be in deep trouble." I suggested that he could request the Finance Ministry to carry it in the Finance Bill. They can carry anything in the Finance Bill. Remember Aadhaar as a money bill?

Example:

1. In the 2019 Budget, they proposed amendments to

a.  The Insurance Act, 1938

b. Securities Contracts (Regulation) Act, 1956

c. Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970

d. General Insurance Business (Nationalisation) Act, 1972

e. Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980

f. National Housing Bank Act, 1987

2.  In the 2018 Finance Bill, they proposed amendments to

a.  Depositories Act, 1996

b. Vice-President's Pension Act, 1997

c. Central Road Fund Act, 2000

d. Prevention of Money-Laundering Act, 2002

3.  And in the latest Budget 2025, they propose to amend the Government Securities Act, 2006

Recently there was a colossal dispute:

Does 'plant or machinery' and 'plant and machinery' mean the same thing?

This is not a simple question. It went all the way up to the Supreme Court.

Revenue submitted that  'or'  must be read as  'and'  stating it to be the mistake of the legislature. Just a typo!

The Supreme Court held: Safari Retreats - 2024-TIOL-101-SC-GST

1.  As the expression  "plant or machinery"  appears to be intentionally incorporated, it is not possible to accept the contention that the word "or" should be read as "and". 

2. The legislature has made this distinction consciously. Therefore, the expression "plant and machinery" and "plant or machinery" cannot be given the same meaning. 

3.  While interpreting taxing statutes, it is not a function of the Court to supply the deficiencies.

What will happen if the legislature makes a mistake? The Supreme Court observed,

There is nothing unjust in the taxpayer escaping if the letter of the law fails to catch him on account of the legislature's failure to express itself clearly .

So, if the legislature has made a mistake (legislature making a mistake means the law drafters in the government making a mistake), we should allow the benefit of the mistake.

In Read "AND" as "OR" or "OR" as "AND" I had mentioned,

The Supreme Court says, "If it was a drafting mistake, as suggested by learned ASG, the legislature could have stepped in to correct it".

They will - now. Maybe the mistake was detected only now.

And this budget corrects that mistake - retrospectively.

Clause 119 of the Finance Bill 2025 proposes:

In section 17 of the Central Goods and Services Tax Act, in sub-section (5), in clause (d)

(i) for the words "plant or machinery", the words "plant and machinery" shall be substituted and shall be deemed to have been substituted with effect from the 1st day of July 2017;

Explanation 2. - For the purposes of clause (d), it is hereby clarified that notwithstanding anything to the contrary contained in any judgment, decree or order of any court, tribunal, or other authority, any reference to "plant or machinery" shall be construed and shall always be deemed to have been construed as a reference to "plant and machinery".

So, the Supreme Court judgement has been nullified - right from the beginning of GST.

What happens to all the taxpayers who went up to the Supreme Court spending a lot of time and money? They have learnt the meaning of 'and' and 'or' and also learnt that it is not all that wise to challenge the mistakes of government - you will end up in a retrospective law against you.

Why Litigation; Why Courts?  

If   retrospective legislation is so right and legal, why do we need the courts and why should anyone enter into litigation? Is it fair for the Government to change the rules after they have lost the game? Most of the retrospective laws are not even read in Parliament and often it takes about 120 seconds to pass a retrospective legislation. The Law is actually made by the babus, often by an Under Secretary, almost always to cover up the mistakes of the bureaucrats and this cover-up is given respect in the name of "legislative will". Many of us believe that in tax litigation, the Supreme Court is the highest authority in the country, but little realise that there is an Under Secretary in the Ministry who can undo the Supreme Court judgement by initiating a retrospective amendment.

If they want to change the law retrospectively, why can't they do it before the Supreme Court gives its judgement? They fight the battle in the Supreme Court in all seriousness, sure of winning either way "heads I win; tails you lose." If they win in the Supreme Court, that's fine; if they lose, they can always amend the law retrospectively!  

Retrospective Legislation - fair or legal?

But the disturbing question is whether the Government is fair and right in bringing retrospective legislation? The blatant way of the Government nullifying Supreme Court orders by unfair retrospective amendment, is astounding.

"Reasonableness of legislative measures is unknown to our Constitution", said the Supreme Court in the Indira Gandhi election petition case and added, "Giving retrospective effect to legislative amendment is accepted to be valid exercise of legislative power. The power of the Legislature to pass a law includes a power to pass it retrospectively."

As early as in 1959, the Supreme Court observed,

It cannot be disputed that the legislature has power in appropriate cases to pass even retrospective legislation.

The Apex Court had consistently held that Parliament indeed had the power to bring in retrospective legislation.

It is not disputed that the power to make a law necessarily includes the power to make the provisions of the law retrospective.

No windfall from legislature's mistakes:

It is necessary that the legislature should be able to cure defects in statutes. No individual can acquire a vested right from a defect in a statute and seek a windfall from the legislature's mistakes.

Taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of government amongst those who benefit from it.

The legislative power to make law with retrospective effect is well recognised.

It is also well settled that though the legislature has no power to sit over Court's judgment or usurp judicial power, but, it has, subject to the competence to make law, power to remove the basis which led to the Court's decision.

Every sovereign legislature possesses the right to make retrospective legislation.

All fine, but why go all the way up to the Supreme Court if the Government is going to bring in a retrospective legislation? Can there be some Advance Ruling Authority for this? Or, before a case is admitted in the Supreme Court, the Government should be made to give an undertaking that there will be no retrospective legislation on that issue; if the Government does not give that undertaking, retrospective legislation should be done immediately. And the power to amend the law retrospectively should be delegated to the Under Secretary - that will save a lot of time, money and paper and reduce litigation!

The fascinating world of retrospective legislation in taxes, is not a creation of 2025 Budget. 46 years ago, the President issued an ordinance called "Central Excises and Salt and Additional Duties of Excise (Amendment) Ordinance, 1979" bringing out major changes in the law, including the definition of manufacture - of course with retrospective effect! Not only was this ordinance approved by Parliament, but it also got the judicial nod from the Supreme Court of India.

In 1982, Rules 9 and 49 of the Central Excise Rules were amended retrospectively - with effect from 1944. Going back nearly four decades!

In 1999, the Central Excise Rules were amended to retrospectively provide for lapsing of credit as the Supreme Court had ruled that there was no provision for this.

In 2001, Section 38A was inserted in the Central Excise Act with effect from 28.2.1944 to provide for saving clause for the repealed rules under Central Excise. This was necessary because somebody in North Block forgot to save these rules and the Government was badly mauled in the Courts.

Why retrospective legislation?

The theory that emerges is that almost every retrospective legislation is with the lofty aim of protecting the guilty. The babus who have made a bad law with their poor drafting skills cannot bear the beating from the judiciary. Most of them believe that they are the law makers endowed with great skills and if the courts are not good enough to understand their language, they, poor ones, have no other go, except to bring in retrospective legislation to protect the interests of this nation. They are capable of convincing any Finance Minister and here party affiliations do not matter. The FM's job is to protect the bureaucracy by getting these retrospective laws passed.

The Twist in the Tale:

While the government has proposed the retrospective amendment in this Budget, on 07.01.2025, it filed a review petition in the Supreme Court against the Safari "and or or" judgement. Fighting on all fronts!

The Supreme Court had in the very famous Ranadey Micronutrients case observed,

Consistency and discipline are of far greater importance than the winning or losing of court proceedings.

Nani Palkhivala described retrospective amendment as a triumph of bureaucratic obstinacy over good sense.

In fairness to the babus, it must be admitted that it is not all that easy to make faultless laws, for they are human - but if the Supreme Court thinks they made a mistake, you can always resort to retrospective amendment.

It has often been said that death and taxes are equally undesirable aspects of human life. Yet, it can be said in favour of death that it is never retrospective.

Until next week

Comments/feedback welcome at vijaywrite@tiol.in or 9848111243 (WhatsApp)