TIOL - COB( WEB ) - 963
MARCH 13, 2025

By Shailendra Kumar, Founder Editor

UNLIKE the past years, TIOL Congress 2025, held on 1st March in Mumbai, was a structurally different event. Apart from the inaugural session, which was addressed by the ITAT President, Justice C V Bhadang, there were five technical sessions comprising of two non-taxation hot-button issues pertinent to the future growth of the Indian economy - Sustainability and Ease of Doing Business in New Age Digital Economy. The trope of one of the taxation sessions was the much-debated incendiary issue of retrospective taxation.

In his article "Retrospective Taxation - the Indian Experience", Shri Harish Salve, Senior Advocate mentions - ‘ The first major tax to be imposed by the British was a tax on income. It was unsurprisingly resented because it was imposed to make India pay for the whole of the extra regiment sent to India , and also to recover retrospectively the costs of the regiment for the past six months [Major Wingate 1859 quoted in an article in the SARCAJC.]'.

Strangely, retrospective amendments continue to be cause célèbre almost every year after annual finance bill is tabled in the Parliament. Whether it is direct tax law or GST or even Customs, retro amendments have their non-negotiable place in the finance bill. Since it is intrinsic to fiscal competency of the legislature and also, since the Executive, in our case, bigfoots the majority in the House, the legislature gets arrayed against many other political considerations. In the process, even pivotal amendments fall in the grips of talons of party politics and the legislature ends up validating contentious retro amendments. Lack of debate in the House also tends to undo what has been decided on merit by the highest court of the land. In this backdrop, the technical session was themed as "Retro Amendment - Surge in GST Litigation - Possible Remedies".

While rolling the ball, the moderator, Mr Jai Kumar, advocate, Swamy Associates, minced no words and volleyed his first question relating to the recent Apex Court decision in the case of Safari Retreats [2024-TIOL-101-SC-GST ]. . Referring to the recent retro amendment in the finance bill 2025 undoing the Supreme Court ruling, he asked - Whether it is moral to unravel an accrued right to ITC? It is more so, as the assessee, having utilised ITC, has foregone depreciation under Income Tax. Taking a deep dive into the twin compartments of retro laws, Mr Sujit Ghosh, Senior Advocate, said that there are legislative retro amendment and the other is departmental retro amendment, which is a perennial pain for the taxpayers. He further explained that there is no denying the fact that the sovereign has the power to do so but the doctrine of reasonableness, which infuses the question of morality into retro legislation, ought not to be overlooked. If a retro amendment is going to affect the vested right of a taxpayer, it would not pass the test of reasonability. He also talked about the doctrine of small repair which puts the onus on the legislature to go for retro amendment only to deal with abuse or unintended effects of the law but certainly not any substantive change. If both the doctrines are applied to assess retro amendments done in India, many of them would not pass the muster. He opined that a major problem in our case is - law-making has been left to the tax boards, which trigger conflict of interests as they also make retro amendments in the rules.

In response to the question, Mr S K Rahman, the Chief Commissioner of GST, said that the Revenue resorts to retro amendment also to favour taxpayers a la Sec 50 of the CGST Act where interest benefits were passed on to taxpayers. Referring to the Safari Retreats decision, he said that the Apex Court itself has upheld the constitutional validity of Sections 16(4) and 17(5). Justifying the denial of ITC, he referred to 2006 amendment in CENVAT Rules where no credit was allowed to civil construction industry. When GST was introduced, elements of consistency were maintained by denying credit. Even while arguing the case the ASG had submitted that the Government's intent was not to allow ITC and the mistake in legislation was admitted. He further observed that although the Odisha High Court had ruled in favour of the assessee, the taxpayers knew that it was not the intent of the legislature and that is why very few of them took the risk of utilising such credit. He concluded that retro amendment to undo the consequences of the Safari case is certainly not an overture to take away vested right of the taxpayers. It is merely a case of repairing an error.

Commenting on Mr Rahman's take on the Safari case, Mr Jai Kumar observed that when GST is levied on rent, how fair is it to deny ITC. Secondly, he also observed that when an issue is litigated, different verdicts are given by different judicial forums - sometimes in favour of the assessee but when the same is overturned by the Supreme Court, the Revenue collects interest from the day one. And it is also retrospective in effect. He recommended that if a judgement is overruled against the assessee, interest should be charged from that day of the ruling which was given in favour of the taxpayer. Mr Abhishek Rastogi, Advocate, concurred with his view and stated that for improving ease of doing business, the government should certainly train its eyes on interest, too! He further observed that retro amendment should be resorted to in rarest of rare cases. Secondly, he observed that even if an Apex Court ruling is undone, such retro amendment has to swim through the test of constitutional validity. He is of the view that ITC is a vested right and if one has utilised such credits based on the decision of the court, the Supreme Court should review the case at least for those petitioners who were favoured by the SC decision.

The next panellist, Mr M S Mani, Partner, Deloitte, avoided joining the cacophony over Safari Retreats and said that prior to the introduction of GST, the Government told the industry that GST was going to be far more liberal and fairer system and the taxpayers hailed it whole-heartedly unlike many South American countries which were bogged down by protests. Secondly, he explained that GST is different from income tax, which taxes profit but GST comes before profit and is intrinsic to business. If ITC is available, it enables a business to plan cash flow and pricing. Ergo, there is a need for a new provision in the GST avowing that there would be no retro amendment. However, if there is a mischief in law, government may go for repair but only prospectively. This is more so as retro amendments have far-reaching implications for the business planned on the basis of what is permitted in the law of the day and certainly not the law of the future. So, if retro amendment is done to deny certain benefits, the larger question is - Is government going to parallelly amend other tax laws like income tax to allow depreciation or to revise audited books of accounts. Mr Mani's final take was - GST planning of a business should not be upset retrospectively.

Concurring with Mr Mani, the next speaker, Shri Arun Agarwal, Senior Vice-President of Raymond Group, said that industries plan their businesses based on the prevailing law. So, if certain provisions are amended with retro effect, it adversely affects the industry and also investors' sentiments and the industry slips into turmoil. He further observed that the GST is a fast-settling law but the GST Council needs to make it much simpler as MSMEs continue to face serious problems. About his own textile industry, he highlighted that the inverted duty structure continues to give them sleepless nights and notwithstanding several representations, distortions are yet to be steamrolled. Supporting his views, Mr Ghosh observed by citing the growing pain of the online gaming industry that the lack of certainty is an acute problem with India's tax administration. He also referred to a doctrine - Preserve the past and protect the future, which means that the Parliament should not allow the Executive to upset the past and whatever amendments are required to be done, should only be prospective. In his concluding note, Mr Jai Kumar wished that the legislature should admit if there is a mistake in the law as taxpayers' trust is of paramount import.

On my part, I would like to recommend that our legislature needs to break itself free from the routine regimen followed in the past and make a fresh beginning by adopting a new approach to law-making against the rapidly-evolving business models in the economy. Like the removal of difficulty provision, which has become a permanent resident in many new legislations passed in the recent years, a time has come to go for another necessary provision in all laws to embed an 'embargo' provision to clip the wings of retro culture. In other words, at the time of passing a legislation, the Parliament should put a 'circuit breaker' provision like the limitation period so that even if certain errors are identified, they cannot be cured after certain period unless the amendment is not going to harm any vested rights of the taxpayers. Such a solution may provide leeway to the Executive to undertake an exercise to review a year after a law is introduced and any detrimental misstep may be repaired within a reasonable time-frame. Such a provision would oust any chance of a case going up to the Apex Court and the Legislature undoing the same by retro amendment! I sincerely hope that the law-makers would ponder over my suggestion and may further improve it!