Retrospective Amendments-Separation of Powers vis-à-vis Judiciary and Legislature

One of the most fundamental concepts of Indian Democracy is “Separation of Powers” which means that each of the three Pillars i.e. Executive, Judiciary as well as Legislature would be independent in its domain and there would be no interference. The retrospective amendment w.e.f. 1^st July, 2017 as proposed by GST Council and could be adopted by the Legislature to over-come the verdict dt. 3^rd October, 2024 by the Hon’ble Supreme Court of India in the matter of Chief Commissioner of Central Goods & Services Tax v. Safari Retreats Private Ltd, CIVIL APPEAL No 2948 of 2023 is nothing but interference in Judicial Independence.

The independence of the judiciary is fundamental to the ‘Rule of Law’. Legislation can be invalidated based on breach of ‘separation of judicial power’ since such breach is negation of equality under Article 14. Law can be declared void if it is found to have transgressed the constitutional limitations. The legislature cannot declare any decision of a court of law to be void or of no effect and that too from a retrospective date.

The present Government under the umbrella of GST Council has resorted to an unfair method of rectifying the so called errors of drafting in Section 17(5) of the CGST Act, 2017 wherein the said change “to align the provisions of section 17(5)(d) of CGST Act, 2017 with the intent of the said section, the Council has recommended amending section 17(5)(d) of CGST Act, 2017, to replace the phrase “plant or machinery” with “plant and machinery”, retrospectively, with effect from 01.07.2017, so that the said phrase may be interpreted as per the Explanation at the end of section 17 of CGST Act, 2017.” has been proposed. The objective of avoiding cascading effect as one of the maim aims of GST has been thrown to the dustbin through this proposed retrospective amendment.

The legislature can make a validating law. Making validation as such, it removes the defect which the court finds in the existing law. There should not be an attempt to interfere with the judicial process, and such law may be invalidated. The questions to be examined are whether the legislation targeted at the decided case, what are the terms of law; the issues with which it deals and the nature of the judgment that has attained finality. If law interferes with the judicial functions the Court may declare the law as unconstitutional.

Taxpayers cannot act such as to confirm to a retrospective amendment in a commercial law like GST for the past period. Therefore, the insertion of the clause of retrospective application puts them in a dilemma that whether their execution according to law in the past period was correct or not. It is creating lot of confusion and instability in business (domestic as well as FDIs) which is certainly not good for the Country which needs long term funds for development from inside as well as outside.

No doubt, the Government has the power to make the retrospective amendment. Suffice it to say that retrospective amendments can be struck down if such amendment creating any unreasonable restriction which violate the right to carry on business or the right to hold and dispose of the property. The instant case of retrospective amendment may pass through this judicial test.

Retroactive laws pose a challenge to the fundamental principles of equality, certainty and predictability underlying the ‘Rule of Law’. Retrospective means looking backward; contemplating what is past; having reference to a statute or things existing before the Act in question. Retrospective law means a law which looks backward or contemplates the past; one which is made to affect acts or facts occurring or rights occurring, before it came into force. Every statute which takes away or impairs vested rights acquired under existing laws or creates a new obligation, imposes a new duty or attaches a new disability in respect to transactions or considerations already passed. Retroactive statute means a statute which creates a new obligation on transactions or considerations already passed or destroys or impairs vested rights.

A statute which affects substantive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended meaning and should be strictly confined to its clearly defined limits.

Law relating to forum and limitation is procedural in nature, whereas law relating to right of action and right of appeal even though remedial is substantive in nature.

Every litigant has a vested right in substantive law but no such right exists in procedural law. A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished. A statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in operation, unless otherwise provided, either expressly or by necessary implication.

In Madras Bar Association v. Union of India (2022) 12 SCC 455, the Supreme Court, based on the various earlier pronouncements, laid out the following principles in accordance with which legislative overruling could be permissible:

“(i) The effect of the judgments of the court can be nullified by a legislative act removing the basis of the judgment. Such law can be retrospective. Retrospective amendment should be reasonable and not arbitrary and must not be violative of the fundamental rights guaranteed under the Constitution.

(ii) The test for determining the validity of a validating legislation is that the judgment pointing out the defect would not have been passed, if the altered position as sought to be brought in by the validating statute existed before the court at the time of rendering its judgment. In other words, the defect pointed out should have been cured such that the basis of the judgement pointing out the defect is removed.

(iii) Nullification of mandamus by an enactment would be impermissible legislative exercise. Even interim directions cannot be reversed by a legislative veto.

(iv) Transgression of constitutional limitations and intrusion into the judicial power by the Legislature is violative of the principle of separation of powers, the rule of law and of article 14 of the Constitution of India.”

The retrospective amendments would be a huge set back to the business as lot of precise planning have to be done before acting & designing the transection in accordance with Law. It would also create hindrance for the economic development as both domestic & overseas players would be hesitant in doing investments in India if law would be amended with retrospective operations, de-stabilization of Law must be avoided at any cost. Doctrine of “Ignorance of law is no excuse” would not be applicable in retrospective amendment as the Person is not supposed to predict the amendments in future. Also, retrospective amendments would be contrary to Doctrine of “Promissory estoppel” as well as “Legitimate expectation”. Promissory Estoppel is in the nature of an equitable plea and must be determined in the facts and circumstances of each case. That the principle underlying legitimate expectation is based on Article 14. Any action taken by the State which goes against the rule of fairness is liable to be struck down. Any administrative or executive action of the State even under the umbrella of GST Council which is arbitrary or unjust cannot be sustained as it violates Article 14 of the Constitution of India.

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