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Retro Is Not The New 'In'!

Published on Thu, Jul 19,2012 | 12:56, Updated at Thu, Jul 19 at 12:59Source : 

By: K. Venkatachalam, Executive Director -Tax and Regulatory Services, PwC India

In a recent ruling (Avani Exports vs. CIT)   the Gujarat High Court has some relief for tax payers affected by a retrospective amendment.


S. 80HHC was amended by the Taxation Laws (Second Amendment) Act, 2005 with retrospective effect from 1.4.1998 to provide that the deduction in respect of exporters having a turnover of more than Rs.10 Crore would be available only if there was evidence to prove that the assessee had an option to choose either duty drawback or DEPB and that he chose DEPB, even when he was entitled to higher benefit under the duty drawback scheme.

The contentions of the petitioners were

a. Amendment was arbitrary and unreasonable, distinguishing between exporters having turnover of Rs. 10 crore and above and others, as also absurd as no person would chose an option with lower benefits.
b. Amendment was violative of Article 14, as it distinguishes between assessees whose assessments were complete and pending on the other hand.
c. The amendment was unworkable because of the twin conditions.
d. The onus of proving reasonableness of the provisions was on the revenue and in any case being a substantive amendment should not be retrospective.
e. Being an incentive provision the deprivation cannot be retrospective and this was against the principle of promissory estoppel.

The contentions of the revenue were

a. There was no intention to grant benefit to exporters in respect of profits from sale of DEPB entitlements.
b. As some irrational and legally untenable views were taken by a bench of the Tribunal, spate of litigation arose, and relief by amendment was sought to be given to small and medium exporters.
c. Granting a benefit to a particular class of assessees based on turnover is reasonable and not arbitrary, and is granted by other provisions of the act.

The key takeaways of the ruling are

(i) Classification based on turnover is not arbitrary;
(ii) The legislature is not bound by the doctrine of promissory estoppel;  
(iii) The amendment is violative for its retrospective operation in order to overcome the decision of the tribunal. And depriving the benefit granted to a class of assessees whose assessments were pending and being available for others whose assessments are concluded; and 
(iv) In a substantive amendment, retrospective operation can be given only if it is for the benefit of the assessee but not in a case where it affects even a fewer section of the assessees.

Some Nuggets

The Finance Minister who moved this amendment said “I could have waited for ten years. Thousands of rupees would have been spent by everybody fighting litigation at every level – before the Assessing officer, before the Appellate commissioner, before the ITAT, before the High Court and before the Supreme Court. So, we said: “All right. We will look into this matter. We will try to find a solution which does not affect the revenue and which tries to give some relief to the exporter."

The Hon High Court’s observation, that, if a valid piece of legislation is wrongly interpreted by the Tribunal, the aggrieved party should move the higher judicial forum for correct interpretation.

What this ruling means

That the Hon High Court has held this amendment to be violative of Art 14 of the Constitution of India by a clear speaking order will be an extremely useful precedent for the future.  While this may not stop retrospective amendments the government would be well advised to consider the tests laid out. 

The way forward could be

• A clear commitment that a ruling of the Supreme Court will not be negated by a retrospective amendment; and/or
• Introduction of advance ruling provisions for all tax payers.


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