This article has been written by Oishika Banerji, an undergraduate student at Amity Law School, Kolkata. This is an exhaustive article that deals with whether retrospective amendments are constitutionally legitimate or not.
Constitutional amendments have always been an essential requirement for the country because amendments help in bringing modifications in the existing statutes and thereby the statute adjusts itself to societal needs. With the country developing each day, the statutes and legislation should also develop in order to avoid any kind of miscarriage of law. The two kinds of amendments that can be carried out on legislation or a statute are,
- Prospective amendments
- Retrospective amendments
Prospective amendments are those amendments which are mostly preferred by the parliament for any kind of statute. This amendment is supposed to take either on the day of its promulgation or in any other future date as will be mentioned in the statute. Whereas retrospective amendment refers to those amendments which take effect on a past date and not in the future. The major disadvantage of the retrospective amendment is that it involves bias. As it involves bias, the question as to whether such amendments are constitutionally legitimate or not appears. All amendments that are made should be in accordance with the Constitution of India,1950 for any amendment which violates the provisions of the Indian Constitution, stands void by itself. The Indian Constitution gives a green signal for the retrospective amendment to apply in some fields whereas some fields oppose the same. Several judgments have been handled by the Supreme Court to come to a conclusion with respect to retrospective amendments. In 2018, the apex court in the case of Commissioner Of Income Tax vs M/S. Essar Teleholdings Ltd. made it clear that the legislature cannot scrap out any judgment of the court by giving a retrospective amendment of the concerned law as this will confer excessive power on the hands of a particular organ of the government suppressing the other two. Therefore, the question whether the retrospective amendment being constitutionally legitimate or not remains a question as this kind of amendment has received partial legitimacy and not a complete one which thus keeps it under observation.
What are retrospective amendments
Retrospective amendments are those amendments that are scheduled to be in force from a date that has already been mentioned in the past and therefore the same would be in effect from before and not in the future like the prospective amendments. The term retrospective signifies looking backwards. The term retrospective enactment can mean the following things:
- Putting effect to a contract that is already in existence
- Dealing with the past transaction by reopening them which was already closed
- Affecting the current procedure by past effects
- Affecting the rights and remedies which are laid down in the present by past decisions.
If an enactment by itself declares or mentions that it is supposed to be in effect from a past date then that enactment acquires a retrospective nature. It is then that the amendment starts affecting the rights and obligations that were currently existing under some statute by prohibiting them to operate or by curtailing or minimizing their effect to a reasonable extent. For a legislation to have a retrospective operation, there must be a clear mention of the same in the unequivocal language in the enactment itself.
It is to be noticed that a statute never has a retrospective operation in order to diminish a right or obligation that is already in existence rather it is the enactment which provides a retrospective operation to the procedure in which the statute is supposed to be carried out. In the case of Young v. Adams, the observation that was made revealed that a statue cannot be provided with a retrospective effect unless the language of the statute intends or expressly mentions the same. In general, the fact that the legislature can execute the power to extinguish the existing rights and obligations provided by a statute by means of retrospective enactment seems unfair. Therefore, retrospective amendment cannot seem favourable unless the motive of the legislature is transparent and distinct and it guarantees that the effect of the amendment would not exceed its limits and the language mentioned in the enactment after being enforced.
The term constitutional legitimacy signifies that the powers which are being exercised are justified and reasonable by nature itself. Legitimacy is different from legality in a way that all legitimate actions are supposed to be legal but not all legal actions are supposed to be legitimate in nature. It is possible that an action which is legal and justifiable does not necessarily have to be legitimate.
The road that connects legitimacy and legality is the Constitution of India. It is the duty of the Constitution to keep in check the powers provided to the state and protect the rights of the citizens in the country. If the Constitution maintains its legitimacy, then it stands obvious for the other legislations to abide by that legitimacy. Any statute which is not constitutionally legitimate is said to be in contravention with the Constitution of India. Legitimacy is one of the prerequisites of the Constitution. As the Constitution delegates the maintenance of its legitimacy to the statutes and legislations made, there arises a legitimacy gap between the Constitution and the statutes. Constitutional legitimacy establishes the fact as to why it is necessary to oblige by the laws which are constitutionally valid. A system of law-making is considered to be legitimate only if it follows laws in a realistic sense and ensures that laws that are made or are given effect should be fair and just. Therefore, legitimacy ensures that the laws which are made must be followed and obeyed because that is the correct thing to be done.
While deciding the case of Kesavananda Bharati v. Union of India, Justice Khanna said that any amending body which has been given a shape by a statutory scheme and has been conferred with unlimited powers, cannot change the fundamental pillars that support the concerned Constitutional authority because it’s very structure prohibits it from doing so. He further was with the opinion that amendments can bring about an alternative form of the Constitution but not a new Constitution altogether.
Are retrospective amendments constitutionally legitimate
Article 368 of the Constitution of India confers power on the parliament to amend the Constitution. Therefore, what can be inferred from the power that has been conferred is that after amendment there will be a change in the existing Constitution but the change will not result in a new Constitution. After such an amendment also, the Constitution will remain functioning the way it used to previously. Taking into consideration retrospective amendments, the fact that after this amendment as well the Constitution will function as it is will remain intact. Therefore, the question as to whether retrospective amendments are constitutionally legitimate or not arises.
In the case of Smt Dayawati v. Inderjit, it was held that an ordinary court of law cannot consider the application of a new law brought about after the judgment of the appeal handled by the court has been rendered for the rights provided to the litigant in the concerned appeal have been decided according to the law in force on that date when the suit was filed. Taking this into concern the court also observed that the laws affecting the procedure always acquire a retrospective nature. But this does not make way to eliminate the existing rights and obligation conferred to the litigant. The court will, therefore, inspect the new law on grounds that whatever it speaks should be clear and the same will help in solving pending matters as well, only then will the court of appeal give preference to the law even after the judgment has been passed by the court.
Therefore, in order to be constitutionally legitimate, retrospective amendments are supposed to be aligning with the following conditions:
- The statute provides it clearly through language that it will have a retrospective operation.
- Previous matters that are pending in the court can be cleared by the application of the existing law. Only then can it receive a retrospective operation.
- The law is not unjust and is not in contravention with the Constitution of India.
Retrospective amendments in criminal law
In the case of Prahlad Krishna v. The State of Bombay, the court observed that immunity is supposed to be provided to a person from being accused of the offence laid down under the present law which had been committed by him before such enactment. Clause 1 of Article 20 of the Constitution of India guarantees right against the operation of ex post facto laws. Similar kind of provision has also been provided under the American Constitution under Sections 9(3) and 10(1) which prohibits the State as well as the government from laying down ex post facto laws. The ex post facto laws always have a retrospective operation.
The Supreme Court in the case of Jawala Ram v. The State of Pepsu made it clear that it is only in case of criminal laws that there lies a prohibition of the application of retrospective laws whereas civil liabilities have been given the authority to be imposed by retrospective effects. Therefore, laws which make an activity offensive which was initially innocent when the same was committed, will not be declared as valid. As far as the ex post facto laws are concerned, it operates retroactively which means the act that has been done already but is not a retrospective law. A retrospective law is there to affect the rights occurring before the law was about to take force. Although retroactive laws and retrospective laws appear as synonymous, they connote different meanings. What has been inferred from case laws is that retrospective amendments are not applicable to criminal law in the country for it is unfair by its very nature and objective.
The doctrine of Separation of Powers
The doctrine of separation of powers aims to promote the independent working of the three organs of the government. Although in India, this doctrine does not have a stronghold, the Constitution supports it to some extent. Retrospective amendments have been in conflict with this doctrine for ages. The courts have seen several cases with respect to these scenarios as well. It has been observed that retrospective amendments provide an excessive power in the hands of one organ only thereby keeping the other two organs suppressed.
In the landmark judgment of Indira Gandhi v. Raj Narain, where there was again a question of the basic structure of the Constitution for Mrs Gandhi was accused of winning the election through malpractices. The court held that until any order was passed, Indira Gandhi was not supposed to function as a Prime Minister of the country nor draw any kind of salary or vote in parliamentary proceedings. During this time itself, the Parliament had passed the thirty-ninth amendment of the Constitution which mentioned that the judiciary was not supposed to interfere or adjudicate for any issue arising from the election of the President, Vice- President, Prime Minister, Lok Sabha Speaker. In place of the courts, the dispute will be handled by a separate body formed by the Parliament itself.
Parliament further brought in amendments in the Representation of People’s Act, 1951 and the same was placed under the Ninth Schedule of the Election Laws Amendment Act, 1975 in order to protect the Prime Minister from any kind of accusation by the apex court. When the Supreme Court was about to open the case, the Attorney General had directed to close the case according to the recent amendments that were brought in by the Parliament. The election of Prime Minister Indira Gandhi was therefore held to be valid by the court. The judiciary without any further word had to accept the power of the Parliament to pass laws having a retrospective effect. This case indeed appeared to be a reflection as to how the presence of retrospective amendments takes away the power of the Supreme Court to adjudicate in certain matters of relevance. Therefore, the acceptance of retrospective amendments is indeed a step towards the destruction of the doctrine of separation of powers which provides independence of the organs of the government. Excess checks by one organ on the other is detrimental for the organs as a whole.
The validity of retrospective amendments under the Income Tax Act, 1961
The Government of India preferred retrospective amendments as a way to introduce taxation under the Income Tax Act, 1961 in the country. The retrospective amendment can be brought in taxation laws in two ways:
- Introducing new legislation overruling an argument of the taxpayers that was legitimate which can be supported by any legal interpretation or judgments of the courts which will act as a precedent.
- Bringing in addition to the existing legislation declaring the same to be a medium of understanding the legal intent of the same.
The Finance Minister has also supported the introduction of retrospective amendments in tax laws as having been reflected in the budgets of a few recent years. But introducing such a taxation system brings along a lot of worries. It is difficult on the part of the government to apply and for the citizens to agree. This will increase the tax incidence among the public. The retrospective amendment initiates reopening of the contracts which were closed and had already ended. This makes it difficult for the parties who were involved in the same to arrange for a new levy for the interests of the other parties according to the new rules all over again.
Along with domestic issues like this, the foreign transactions will also take a toll for the adoption of the retrospective amendments resulting in an increase in financial crunches. It is obvious that the judiciary will have to adopt such a move by the legislature in order to pass its own judgments effectively thereby avoiding conflict between the two organs of the government. For direct taxes, the recovery of the sum is far easier compared to the scenario for indirect taxes as it is the principal taxpayer who is involved in the same. For the indirect taxes, the recovery of the tax from the parties becomes difficult keeping in concern the slow judiciary procedures and the current amendments. This affects the taxpayers in two ways which are:
- A huge amount of sum will be lost on the part of the taxpayer which will initiate the person to incur debts. For recovering the debts again there will arise a necessity to resort to the help of the judiciary which is again a long and complex process.
- There will be rising tension between the legislature and the judiciary concerning this matter under Article 245 and 246 of the Constitution which restricts the legislature from the usage of plenary power to declare the decisions taken by the judiciary as invalid.
The Finance Act, 2009 provides illustrations of several amendments having a retrospective effect under the Income Tax Act, 1961 from which it can be inferred that there exists an unrecognised burden upon the taxpayers for the amendments that have been in effect. If this situation is observed with a microscopic view, then the things which can be noticed are listed below:
- The weapon in the form of the retrospective amendment can be utilised by the government whenever it feels correct to do so. Therefore, the assessee is cleared with the fact that paying off the taxes is a safe path to follow rather than combating with the legislation in hand.
- Retrospective amendments arise when there is a conflict between the decision of the legislature with that of the judiciary. Therefore, the power in the hand of the legislature is way more than that of the judiciary. The legislature is bound to serve as to what the judiciary directs but it can overrule the decision of the judiciary by going for retrospective amendments.
In the famous case of CIT v. Vatika Township Private Limited, the Supreme Court of India provides clarification on the prospective and retrospective operation of the amendments brought in the tax system. The court said that it is not supposed to be intended whether the legislation asks for a retrospective or a prospective operation.
While saying this the apex court referred to the judgment passed by itself in the case of Govind Das v. Income Tax Officer. The principle which was followed in this case was, “lex prospicit non respicit”. This means that the law in hand always looks forward and not towards the back. The essence of this principle is to subject current activities under the current laws only. Further, the legislation which modified the existing rights were supposed to be considered as of prospective nature and not of retrospective unless the legislation was clearly removing the one which was in existence. The doctrine of fairness was another observation that was upheld by the court while deciding on retrospective amendments. To conclude about the taxation laws, what can be said is that no government of any nation has been provided with the authority to seek taxes from its citizens through harassment and force.
If also retrospective amendment is adopted in taxation laws, the burden as to provide a proper system for paying off the tax falls upon the nation’s government. In order to promote economic stability, the government must regulate the taxation laws in such a way that injustice is not caused to any citizen of the nation. Also, the government must resort to retrospective amendments only in rare cases and not in all cases so as to avoid chaos in the working of the organs of the government.
The Supreme Court repeatedly made it clear that in order to give effect to an amendment retrospectively, it should be clearly mentioned in the enactment that the Act is supposed to have retrospective operation. In the case of P.Mahendran and Others v. State of Karnataka and others, the apex court observed that the amended set of Recruitment Rules, 1987 was not of a retrospective nature and was instead of a prospective one. Therefore, the Karnataka Public Service Commission was not supposed to make any kind of regulation or determination of selection of members on the basis of the rules after the commencement of the same. If such selection was made, the same would be declared as illegal. The court made its judgment on the grounds that there were no provisions for making a retrospective effect in the Rules, 1987.
In the absence of similar provision, the Rules were to prospective effect only. In the recognised case of CIT Mumbai v. M/s Essar Teleholdings Ltd, the Supreme Court mentioned that the legislature wing of the government has been vested with plenary powers to decorate whether an amendment is to operate prospectively or retrospectively. Further, in general observation, the legislature considers any statute prima facie to be prospective only unless the statute has been expressly by necessary implication made to operate retrospectively.
In an international case called Philips v. Eyre, it was held that retrospective legislation was observed to be contrary to the established principle which said that legislation that has been mentioned from the very first time was not subjected to change the feature of the old transactions carried out on the belief of the then-existing law.
The element of fairness is necessary to be accompanying retrospective amendments. This was taken into concern by the court in the case of Mc Donald’s India Pvt Ltd vs CST. It was held that the principle to ascertain whether an amendment will have a retrospect effect is the fairness principle. Therefore, unless there is a clear indication as to the statute having a retrospective effect, the existing rights and obligations will continue to operate and remain valid.
In National Agricultural Cooperative Marketing Federation of India v Union of India, the Supreme Court was of the opinion that retrospective amendments will amount to be unconstitutional if there is less clarification on the part of the enactment which intends to overturn the previous decisions of the court or bring in a change in the existing law.
In the case of Rohtas Bhankhar and Others v. Union of India and Another, the court declared that whenever a retrospective amendment is to be made, it should be taken into concern that the amendment does not have an adverse effect on the public at large. In this case, a relaxation was provided to the candidates belonging to the category of Scheduled Caste and Scheduled Tribe for a competitive exam giving a retrospective effect to an existing statute.
In Avani Exports v Commissioner of Income Tax, a writ petition was filed under the Gujarat High Court to challenge the constitutional validity of Section 80HHC(3) of the Income Tax Act 1961 which was inserted by a retrospective amendment of the Income Tax Act, 1961. Article 14 of the Constitution was held to be in violation. The court further held that no substantive law could be amended by adding a retrospective effect to it. The same can only be applied if it benefits the assessee to some extent. This judgment of the Gujarat High Court challenged the retrospective amendment in a way that it is restrictive in several aspects. Thus, the judgments which have been mentioned above provide that the courts failed to agree with the retrospective amendments most of the time and have preferred prospective amendments for majority times.
Some of the decisions of the Supreme Court regarding the clarification to be provided by the retrospective legislation are important in the context of the Income Tax Act, 1961. It provides relief to the investors to provide them with a scope to challenge the retrospective amendments made in the Act. The Supreme Court in 2018 declared that the legislature cannot overrule any decisions of the judiciary by retrospective amendments because that will amount to violating the concept of separation of powers in the country as having been mentioned previously also.
The Supreme Court was of the opinion that the judiciary must be respected and its judgments must be given recognition and preference at times of necessity. Such a judgment cannot be nullified by the legislature through the retrospective amendments. Instead, the legislature has been conferred the power to erase the foundation of the judicial pronouncement and bring in a change in the same which will benefit the people at large. This order was passed by the court while handling the constitutional validity of the amendments brought in the Money Lenders Act, 1961 and Pawn Brokers Act, 1966 by the Karnataka Assembly. Therefore, retrospective amendments to be constitutionally legitimate has to be promulgated only when the necessity arises.
From the above discussions and observation, it can be inferred that constitutional legitimacy with respect to the retrospective amendment is still under a hold. On some grounds, it is held to be valid while majorly it is considered to be inconsistent with the judgments delivered by the courts. Courts, therefore, directed that it is only in exceptional cases, that the retrospective amendments will have an effect. Judgments made by the apex court in concern with these amendments have sought clarity and fairness from the same because it is not correct to take away the rights and obligations that have already been conferred to an individual based on the existing law for the sake of the implementation of a retrospective amendment. This by itself stands against the Constitution of India in several ways.
Therefore, the necessity to keep a check on the retrospective amendments is necessary to maintain the integrity of the Constitution. As far as the conflict between the legislature and the judiciary is concerned, the legislature must make sure that it allows a legislature to operate retrospectively only when it is extremely necessary and in a way help the judiciary to deliver pending judgments. Similarly, the judiciary should carry the responsibility to keep the movement of the legislature in check thereby keeping the Constitution of India intact. Therefore, both these organs must work interdependently for better regulation of statutes in the country.
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