Repeated Retrospective Amendments

It is a fundamental principle of tax law is that the law which is to be applied has to be the once which is in force during the assessment year, unless provided otherwise expressly or impliedly.[1] This applies to charging sections and other substantive provisions but does not apply to procedural provisions,[2] but a procedural provision, to the extent to which it is possible, would not be interpreted in a manner which would impact the finality of tax or reopen liability which had been barred.[3] Retrospective amendments are valid if they are meant to correct anomalies in the statute, remove technical defects, prevent highly abusive schemes of tax planning and expand the tax base.[4] Factually though, upholding retrospectivity in tax matters is ambivalent.[5] There must be a uniformity in the reasoning adopted in the judgments, as it would indeed benefit the taxpayers, particularly in light of Nani Palkhivala™s statement that retrospective amendments are a ˜bureaucrat™s dream and a taxpayer™s nightmare.™[6]

Another issue is that currently, it is unfortunate that the Executive, after losing cases before courts, often resorts to amending taxing statutes retrospectively.[7] Probably the most well-known instance in this regard is the Vodafone tax dispute. In Vodafone,[8] the Supreme Court ruled in favour of the Vodafone Group in the dispute between Vodafone and the Income Tax Department, involving a sum of approximately 12,000 crore. The government sought to nullify this decision by making certain retrospective amendments in the Income Tax Act of 1961 vide the Finance Act of 2012.[9] Retrospective amendments which have been made to the Central and state tax statutes have been upheld in most cases.[10] However, only recently the practice of attempting a back-door entry has started,[11] and it is hoped that the Executive does not continue this practice, as it is in clear violation of the principles of separation of powers[12] and the independence of the judiciary, which form the Basic Structure of the Constitution.[13]

Though these principles form the Basic Structure of the Constitution, only constitutional amendments can be tested against the touchstone of the Basic Structure. Thus, it seems that the only remedy left to the affected persons is to invoke Art. 14 of the Constitution- that the retrospective amendments are arbitrary in nature, as if a retrospective taxing statute introduces an element of unreasonableness, the restrictions imposed by it may be open to a serious challenge of unconstitutionality.[14]

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