Indian Constitutionis one of the longest written Constitution. India, being one of the most diverse countries with various changing needs the makers of the Constitution were of opinion that amendments are necessary to ensure the Constitution remains relevant and adaptable to evolving political, social, and economic circumstances. Changes reflect societal progress, legal reforms, and the need to address new challenges or correct past errors while keeping foundational principles intact.
Article 368 was inserted in the Constitutionwhich gave power to the Indian Parliament to amend or make changes in the Constitution as per the changing needs and diverse requirements. Amendments can be made by a special majority in both Houses, and in some cases, require ratification by half of the state legislatures. However, Parliament’s power isn’t absolute, amendments cannot alter the Constitution’s basic structure, as defined by the Supreme Court through the Basic Structure Doctrine. Article 368 thus ensures flexibility but upholds the core democratic principles.
The I.C. Golaknath& Ors. v. State of Punjab, AIR 1967 SC 1643,was a turning point for balance of power between Parliament and Judiciary regarding the modification of Fundamental Rights in India. It stressed that Parliament could not amend the Fundamental rights enshrined in the Constitution.This judgment established stronger judicial oversight over Constitutional amendments and introduced the Doctrine of Prospective Overruling, meaning the decision would affect only future amendments, not past ones. As a result, the case acted as a check on Parliamentary power until its effects were later neutralized by the 24th Constitutional Amendment and the Kesavananda Bharati judgment, which redefined Parliament’s power, introducing the Basic Structure Doctrine.
In Kesavananda Bharati v.State of Kerala(1973) 4 SCC 225, the court was of opinion that amendments could be helpful and satisfy the changing needs, but it must not be such that it entirely changes the basic structure of the Constitution by bringing something completely different to the table.
Amendments
An Amendment is a minor change or addition, deletion, variation, modification or repeal of the text. The first amendment of the Indian Constitution took place a year later to the formation of the Constitution in the year 1951 through addition of ninth schedule in response to the Supreme Court’s decision in the Shankari Prasad case(1951), which emphasized that laws enacted by the Parliament could be challenged upon violation of the fundamental rights guaranteed by the Constitution.
Amendments are generally classified as –
- Prospective Amendments
- Retrospective Amendments
- Retroactive Amendments
Prospective amendmentsare those amendments which are made applicable either from a future date or from the date of enactment of the law and does not affect the past which means anything that took place before the amendment will not be affected by such amendment.Every amendment made is Prospective unless specifically mentioned as Retrospective or Retroactive.
Retrospective amendments on the contrary applies backwards in time, altering the effect of law on the past actions as if it was always like this. Unlike prospective amendments which comes into effect on a future date or from date of enactment of the law, retrospective amendments take effect from a Past date and not future date. The word retrospective itself means looking backwards or looking back at the past.
Retroactive amendments are those amendments that affects and impacts the actions and transactions that are already completed in the past. They are sometimes used interchangeably with the retrospective amendments but are slightly different as retrospective amendments are made applicable from a past date but does not affect the completed transactions and are just treated as if it was always like this which means anything undergoing will be dealt according to the retrospective amendment but any matter that is already decided or dealt with will have no impact from such amendment. However, it is different in case of Retroactive Amendments which can even impact the completed transactions. Therefore, Retroactive Amendments are more intrusive when compared to Retrospective Amendments.
Retrospective Amendments in taxation
Retrospective amendments in taxation or Retrospective Taxation is not something easily accepted by taxpayers unless it benefits them. If such taxation puts more burden on the taxpayer or forces them to pay unreasonable and unexpected new taxes, then it might even be opposed by them. Bringing Retrospective changes in tax system may also weaken the trust and interest of the foreign investors.
Therefore, any Retrospective change in taxation may be welcomed only if its beneficial or in favour of the taxpayers or else it might be accepted reluctantly. Thus, the validity of such tax might depend on the situation that are there at that point of time.
The Vodafone Hutchison case and Cairn Energy case are landmark matters in Indian taxation history, especially concerning retrospective amendments. In the caseofVodafone International Holdings B.V. v. Union of India(2012) 6 SCC 613 popularly known asVodafone Hutchison Case, the Supreme court ruled in the favour of Vodafone stating India does not have any jurisdiction to tax offshore indirect transfer of Indian assets. However, the then Finance Minister, Mr. Pranab Mukherjee, introduced the retrospective amendment in the Budget, 2012 and Section 9 of the Income Tax Act was amended and came to be known as the retrospective tax law of India. It was one of the most debatable changes brought in the tax system. As it introduced tax on indirect transfers of Indian assets. This directly nullified the Supreme Court’s judgment.
Later, in the year 2021 through Cairn Energy Plc Cairn UK Holdings Limited v. Union of India, PCA case no. 2016-07, in the Permanent Court of Arbitration(PCA), India repealed the 2012 retrospective tax law for indirect transfers, offering to refund amounts collected (without interest). Both Vodafone and Cairn settled their disputes after this repeal. And this was how the cairn case became the biggest fallout of the retrospective law, leading to India facing international arbitration and eventually repealing the law.
Retrospective taxes are generally imposed with the intention to increase government’s overall tax revenue but at the same time they must not be exploitative towards taxpayers. Retrospective taxes are introduced with the intention to address or amend or rectify the loopholes left behind by the earlier tax legislations.
Taxation in itself is a vast concept with various complications and these complication increases with introduction of retrospective tax laws. Therefore, Retrospective tax laws must be introduced with care and caution.
Conclusion:
Retrospective amendments can be the essential in dealing with loopholes in the taxation system but can be tiring to taxpayers as they will have to deal with closed matters. It mightcause a doubtand confusion in the minds of taxpayers,if the matters will ever be sorted out. For instance, if there is any retrospective amendment made in taxation which is applied retrospectively from 01.07.2017, in such circumstances the taxpayers will have to reverse the ITC accumulated, if not it might lead to initiation of fresh litigation from the department demanding the already claimed ITC that too along with interestand penalty.This might place unnecessary burden on the taxpayers.However, Retrospective amendments can sometimes be beneficial, especially when they reduce the liabilities on the taxpayers.
Author Name- Vishnupriya Tawania
