The government has told Calcutta High Court it has the power to charge a tax on retrospective basis and nothing in the Supreme Court judgment in the Vodafone case restricts it from doing so.
The assertion comes just few days before the Parthasarathi Shome committee gives its recommendations on the subject. The governments reply filed in the High Court is in response to the petition filed by tea company McLeod Russel. The case parallels the development in the more celebrated Vodafone case where the Supreme Court ruled adversely against the government in a $2 billion tax dispute.
The finance ministrys counter affidavit has said,It is well settled principle of law that legislature has the power to legislate within its field,both prospectively and retrospectively. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended.
The company,whose tax liability for the deal worth Rs 165 crore has been calculated to be around Rs 36 crore,excluding interest and penalty,has challenged the retrospective tax law,saying the amendments are unconstitutional and arbitrary.
The finance ministrys response to the petition was cleared by Attorney General Goolam E Vahanvati and Additional Solicitor General Mohan Parasaran,who is also likely to represent the government at the next hearing on October 3. While there is a huge difference in the tax liability calculated by the Income Tax Department with regard to McLeod Russel and Vodafone,both cases are similar because of the cross-border nature of the buy-out deals.
It is always open to the legislature particularly in tax matters to enact validation laws which apply retrospectively. The basis of the law declared in a judgment can always be altered retrospectively and the same would not amount to supersede a judgment of the Court or an incursion on the judicial power of the Court but is a statutory exercise of the constituent power to suitably amend the law and to validate the actions which have been declared to be bad or invalid, the reply says.
Asking the Court to consider all the relevant and surrounding facts and circumstances in relation to the taxation while deciding the issue,the ministry has said that an amending act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and,therefore,if the principal Act was existing law when the Constitution came into force,the amending Act also will be part of the existing law, the reply says. It also questions the filing of the petition in the high court by the company,saying it has the alternate and efficacious remedy to approach the Commissioner of Income Tax (Appeal) as this jurisdictional fact has to be necessarily gone into by the CIT (A).