Shivakantjha.org - 'In a Nutshell' - 2: The reach of the retrospective law in the Vodafone situation: my concise reflections

'In a Nutshell' - 2

The reach of the retrospective law in the Vodafone situation: my concise reflections

By Shiva Kant Jha

March 29, 2012

MY short article, 'Govt within its rights to make retrospective law', published on March 20, 2012 in the Hindustan Times, has evoked much interest, and has raised a number of points as to the reach of the 'retrospective provisions', and how they are likely to operate under our legal system. The context for this reflection is the much discussed Vodafone Case. I summarise in this short article the principles in the light of which the various retrospective provisions of the Finance Bill, if enacted, would work.

The provisions of the Finance Bill, to which retrospective effect is being given, are ex facie valid because they are within the legislative competence of the Parliament, and because they would not offend Article 13 of our Constitution that grants to our Supreme Court the power of judicial review. Our Supreme Court's Constitution Bench had stated with masterly brevity in Indira Gandhi v. Raj Narain AIR 1975 SC: “The rendering of a judgment ineffective by changing the basis by legislative enactment is not encroachment on judicial power because the legislation is within the competence of the legislature.” In that case the challenge to Article 329A(4) of the Constitution succeeded because it had excluded judicial review to immunize Mrs Gandhi's election from judicial scrutiny; but her appeal was allowed and the cross-appeal dismissed because of the retrospective application of the Election Laws (Amendment) Act, 1975 had altered law.

The sweep of the retrospective amendment can be wide though it cannot pertain to criminal matters. The plea of inconvenience cannot be advanced against the exercise of legislative sovereignty. It was held that the validity of the imposition of sales tax with retrospective effect cannot be challenged even on the ground that it was not possible for the sellers to pass on such tax to the consumers.

In the context of the Vodafone Case, it can be said that the proposed retrospective provisions of the Finance Bill, when enacted, would not be an exercise of legislative judgement superseding or modifying the Supreme Court's decision in Vodafone. They are sought to change the law from 1962 so that the governing law for deciding the issues in the Vodafone would be as they would stand by our Parliament. In effect, the legal foundation of the Vodafone Judgement is sought to be legislatively altered. The effect of the law, as it reigns at a particular point of time, must be given. It is interesting to notice a wonderful sync and synergy between the two great organs of the State illustrated through the principle that when judiciary declares a law ultra vires, it ceases to have effect though it is not erased; and when legislature knocks down the legal foundation on which a judgement stands, it ceases to operate though it is not erased.

Once the proposed provisions become the law of the land, the Income-tax Act would operate de novo on the facts of the Vodafone Case in the light of law as altered. All points of disputes would come to be governed by the altered provisions Facts would be investigated and examined by the income-tax authorities, and courts, to determine relevant adjudicative facts. Both the chargeability of capital gains and the process of tax recovery would be done in accordance with the law as it stands altered. The established proposition of law is 'that the Constitution and the laws bind every court in India, and that though the courts are free to interpret, they are not free to overlook or disregard the Constitution and the laws.'