1. The meaning of the word retrospective is backdated or to look back. Therefore, the retrospective law is a law that has backdated effect or is effective since before the time it is passed. The retrospective law is also referred to as ex post facto law.
2. Whether the Retrospective law is ultra vires to the Constitution or against the law of natural justice? The answer to this question depends upon the nature of the law passed. Whenever the retrospective law impairs the obligation of contract, it is void. However, law which only varies the remedies, divests no right, but is curative and merely cures a defect in the proceedings is fair and valid.
3. Article 20 of the Constitution of India prohibits the legislature to make retrospective criminal laws, however, it does not prohibit a civil liability retrospectively i.e. with effect from a past date. Therefore, tax can be levied retrospectively. However, in tax law, if there is a penal provision, retrospectivity is not permitted to that extent.
4. The validity and scope of retrospective legislation can be understood and analysed from some of the judgments, of the Hon’ble Apex Court and High Courts, wherein the guidelines and law has been laid down therein, as follows:
a. In the matter of Hitendra Vishnu Thakur v. State of Maharashtra [(1994) 4 SCC 602; AIR 1994 SC 2623] the Hon’ble Supreme Court laid down the ambit and scope of an amending Act and its retrospective operation as follows:
“(i) 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.
(ii) 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.
(iii) Every litigant has a vested right in substantive law but no such right exists in procedural law.
(iv) 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:
(v) 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.”
b. In JK Spinning & Wvg. Mills Ltd. v. UOI [1988 SCR (1) 700] it was held by the Hon’ble Supreme Court that tax could be retrospectively charged due to retrospective amendment of Central Excise Rules 9 and 49, but there could not be any retrospective imposition of penalty or confiscation of goods.
Explanatory and clarificatory amendments in law, which are applicable retrospective, are permissible. However, fresh imposition of tax is not permissible retrospectively.
c. The Constitution Bench of the Hon’ble Supreme Court in the case of Shyam Sunder v. Ram Kumar [AIR 2001 S.C. 2472] has held:
“23. In Maxwell on the Interpretation of Statutes, 12th Edn. the statement of law in this regard is stated thus:
“Perhaps no rule of construction is more firmly established than thus – that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation, otherwise than as regards matters of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only.’ The rule has, in fact, two aspects, for it, “involves another and subordinate rule, to the effect that a statute is not to be construed so as to have a greater retrospective operation than its language renders necessary.”
44. In R. Rajagopal Reddy (dead) by Lrs. & Ors. v. Padmini Chandrasekharan (dead) by Lrs. [1995 (2) SCC 630], it was held thus:
“Declaratory enactment declares and clarifies the real intention of the legislature in connection with an earlier existing transaction or enactment, it does not create new rights or obligations. If a statute is curative or merely declaratory of the previous law retrospective operation is generally intended….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. If a new Act is to explain an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act.”
45. From the aforesaid decisions, the legal principle that emerges is that the function of a declaratory or explanatory Act is to supply an obvious omission or to clear up doubts as to meaning of the previous Act and such an Act comes into effect from the date of passing of the previous Act…..”
d. In Godrej Soaps Ltd. & Anr. v. State of Maharashtra & Ors. (2006 145 STC 137 Bom.) it was observed by the Hon’ble Bombay High Court as follows:
“41. Having taken survey of the law laid down by the Apex Court from time to time; some of which are referred to hereinabove, we may venture to add that clarificatory amendment to the fiscal legislation with retrospective effect is usually held not to be unreasonable or arbitrary. In the case of any validating Act, the intention of the legislature is generally made sufficiently clear in the Section or in the Act which is declared invalid on account of some flaw or defect which is within the competence of the legislature. The clarificatory amendment, it may be observed, do not in fact have the effect of imposing a fresh tax with retrospective effect. They only clarify the levy which was already imposed. There is in effect and substance no imposition of any new tax for the earlier years by virtue of the retrospective operation and the retrospective operation merely validates the levy already imposed and possibly collected.”
e. In Neoluxe India Private Limited & Anr. v. Commissioner of Sales Tax, Vikrakar Bhavan, Bombay & Anr. ( 13 VST 157 (Bom)) it was observed by the Hon’ble Bombay High Court:
“40. The argument of the petitioners that the very fact that the legislature chose to amend the Entry C-II-9 with retrospective effect from 1-7-1981 shows that upto the date of amendment, the goods in question were taxable at 6% under Entry C-II-9 is also without any merit, because, by the retrospective amendment, none of the items set out in Entry C-II-9 have been deleted. What is done by the retrospective amendment is to clarify that the items covered under Entry C-II-61 were never covered under Entry C-II-9. In other words, by retrospectively amending entry C-II-9 it is clarified that the goods covered under Entry C-II-61 were always intended to be excluded from Entry C-II-9.
41. Once it is held that the impugned legislation is clarificatory and the retrospective amendment does not affect the assessments made in the past, the question of granting refund to the petitioners does not arise. The fact that the petitioners have refunded tax to their customers in anticipation of getting refund cannot be a ground to invalidate the impugned legislation which is otherwise valid.
42. The next contention of the petitioners is that no reasons are given as to why the entries C-II-9 and C-II-61 have been amended with retrospective effect from 1-7-1981. As rightly contended by Mr. Nair, the amendment is made with retrospective effect from 1-7-1981 because from that day entry C-II-61 relating to ‘plastic laminates’ came into force. The goods in question were taxed under entry C-II-61 as plastic laminates with effect from 1st July, 1981. In these circumstances, the amendment to entry C-II-9 and C-II-61 with retrospective effect from 1-7-1981 cannot be said to be arbitrary or unreasonable.”
f. In Misrilal Jain v. State of Orissa (AIR 1977 SC 1686) it was observed by the Hon’ble Supreme Court as follows:
“5. Mr. Gobind Das, appearing on behalf of some of the appellants, raised points commonly associated with high Constitutional concepts, but lacking in substance. He urged that the Act of 1968 is a piece of colourable legislation, that it constitutes a flagrant encroachment on the functions of the judiciary and that since the Act has no operation in futuro and operates only on the dead past, it is void as lacking in legislative competence. Learned counsel also employed the not unfamiliar phrase that the Act is a fraud on the Constitution. Happily all’ of these attacks, in so far as they at all require an answer, can be met effectively in a brief compass. In Khyerbari Tea Co. Ltd. v. State of Assam (AIR 1964 SC 925), it was held by this Court that Art. 304 (b) of the Constitution does not require that laws passed under it must always be prospective. Nor was it correct to say that once the State Legislature passes an Act without recourse to that Article and that Act is struck down, the Legislature cannot re-enact, that Act under that Article and give it retrospective effect. The Court further held in Khyerbari (supra) that the mere fact that a validating taking statute has. Retrospective operation does not change the character of the tax nor can it justify the Act being branded as a colourable piece of legislation in any sense. We may only add that since it is well-settled that the power to legislate carries with it the power to legislate retrospectively as much as prospectively, the circumstance that an enactment operates entirely in the past and has no prospective life cannot effect the competence of the legislature to pass the enactment, if it fails within the list on which that competence can operate. As regards the power to pass a validating Act, that power is essentially subsidiary to the legislative competence to pass a law under an appropriate entry of the relevant list. Thus the impugned enactment is a valid exercise of legislative power and is in no sense a fraud on the Constitution.
6. As regards the alleged encroachment by the legislature on fields judicial, the argument overlooks that the Act of 1968 does not, like the Act under consideration in Jawaharmal (AIR 1966 SC 764), declare that an invalid Act shall be deemed to be valid. It cures the constitutional vice from which the Act of 1959 suffered by obtaining the requisite sanction of the President and thus armed, it imposes a new tax, though with retrospective effect. Imposition of taxes or validation of action taken under void laws is not the function of the judiciary and therefore, by taking these steps the legislature cannot be accused of trespassing on the preserve of the judiciary. Courts have to be vigilant to ensure that the nice balance of power so thoughtfully conceived by our Constitution is not allowed to be upset but the concern for safeguarding the judicial power does not justify conjuring up trespasses for invalidating laws. There is a large volume of authority showing that if the vice from which an enactment suffers is cured by due compliance with the legal or constitutional requirements, the legislature has the competence to validate the enactment and such validation does not constitute an encroachment on the functions of the judiciary. The validity of a validating taxing law depends upon whether the legislature possesses the competence over the subject-matter of the law, whether in making the validation it has removed the defect from which the earlier enactment suffered and whether it has made due and adequate provision in the validating law for a valid imposition of the tax…”
g. In the matter of Empire Industries Limited & Anr. v. Union Of India & Ors. Etc. (1985 SCCC (3) 314) the Hon’ble Supreme Court held as follows:
“3. The President of India promulgated an Ordinance being Central ordinance No. 12 of 1979 called the Central Excise and Salt and Additional Duties of Excise (Amendment) Ordinance 1979. The said Ordinance was replaced by the Act called the Central Excise and Salt and Additional Duties of Excise (Amendment) Act, 1980 (hereinafter referred to as the “impugned Act”). The said impugned Act received the assent of the President on February 12, 1980, and under Section 1(2) of the impugned Act, retrospective effect to the Act was given from February 24, 1979.
50. Imposition of tax by legislation makes the subjects pay taxes. It is well-recognised that tax may be imposed retrospectively. It is also well-settled that by itself would not be unreasonable restriction on the right to carry on business. It was urged, however, that unreasonable restrictions would be there because of the retrospectivity. The power of the Parliament to make retrospective legislation including fiscal legislation are well-settled. (See M/s. Krishnamurthi & Co. v. State of Madras  2 SCR 54; 31 STC 190 (SC)). Such legislation per se is not unreasonable. There is no particular feature of this legislation which can be said to create any unreasonable restriction upon the petitioners.
51. In the view we have taken of the expression ‘manufacture’, the concept of process being embodied in certain situation in the idea of manufacture, the impugned legislation is only making ‘small repairs’ and that is permissible mode of legislation. In 73rd volume of Harward Law Review p. 692 at p. 795, it has been stated as follows:-
“It is necessary that the legislature should be able to cure inadvertent defects in statutes or their administration by making what has been aptly called ‘small repairs’. Moreover, the individual who claims that a vested right has arisen from the defect is seeking a windfall since had the legislature’s or administrator’s action had the effect it was intended to and could have had, no such right would have arisen. Thus, the interest in the retroactive curing of such a defect in the administration of government outweighs the individual’s interest in benefiting from the defect….. The Court has been extremely reluctant to override the legislative judgment as to the necessity for retrospective taxation, not only because of the paramount governmental interest in obtaining adequate revenues, but also because taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of government amount those who benefit from it.”
52. The impugned legislation does not act harshly nor there is any scope for arbitrariness or discrimination.
59. Good deal of arguments were canvassed before us for variation or vacation of the interim orders passed in these cases. Different Courts sometimes pass different orders as the courts think fit. It is a matter of common knowledge that the interim orders passed by particular courts on certain consideration are not precedents for other cases may be on similar facts. An argument is being built up now-a-days that once an interim order has been passed by this court on certain factors specially in fiscal matters, in subsequent matters on more or less similar facts, there should not be a different order passed nor should there be any variation with that kind of interim order passed. It is submitted at the Bar that such variance creates discrimination. This is an unfortunate approach. Every Bench hearing a matter on the facts and circumstances of each case should have the right to grant interim orders on such terms as it considers fit and proper and if it had granted interim order at one stage, it should have right to vary or alter such interim orders. We venture to suggest, however, that a consensus should be developed in matter of interim orders.
60. If we may venture to suggest, in fiscal matters specially in cases involving indirect taxes where normally taxes have been realised from the consumers but have not been paid over to the exchequer or where taxes are to be realised from consumers by the dealers or others who are parties before the court, interim orders staying the payment of such taxes until final disposal of the matters should not be passed. It is a matter of balance of public convenience. Large amounts of taxes are involved in these types of litigations. Final disposal of matters unfortunately in the present state of affairs in our courts takes enormously long time and non-realisation of taxes for long time creates an upsetting effect on industry and economic life causing great inconvenience to ordinary people. Governments are run on public funds and if large amounts all over the country are held up during the pendency of litigations, it becomes difficult for the Governments to run and become oppressive to the people. Governments’ expenditures cannot be made on bank guarantees or securities. In that view of the matter as we said before, if we may venture to suggest for consideration by our learned brothren that this Court should refrain from passing any interim orders staying the realisations of indirect taxes or passing such orders which have the effect of non-realisation of indirect taxes. This will be healthy for the country and for the courts.”
h. In the matter of M/s. Krishnamurthi & Co. Etc. v. State of Madras & Anr. ((1973) (2) SCR 54) it was held that:
“…… At the same time, we have to bear in mind that the legislative power conferred on the appropriate legislatures to enact laws in respect of topics covered by the several entries in the three lists can be exercised both prospectively and retrospectively. Where the legislature can make a valid law, it may provide not only for the prospective operation of the material provisions of the said law, it can also provide for the retrospective operation of the said provisions. The legislative power, in addition, includes the subsidiary or auxiliary power to validate laws which have been found to be invalid. If a law passed by a legislature is struck down by the Court as being invalid for one infirmity or another, it would be competent to the appropriate legislature to cure the said infirmity and pass a validating law so as to make the provisions of the said earlier law effective from the date when it was passed [see Ramakrishna & Others v. The State of Bihar ( 1 S.C.R. 897)]
…….. It is axiomatic that the Government needs revenue to carry on the administration and fulfil its obligation to the citizens. For that purpose it resorts to taxation. The total amount needed is a apportioned under different heads. The fiscal enactments brought on the statute book in that connection are sometimes challenged by the tax payer in courts of law. The courts then scrutinise the legal provision to decide whether the levy of tax is legally valid or suffers from some infirmity. In case the court comes to the conclusion that the levy of tax is not valid as the legal provision enacted for this purpose does not warrant the levy of tax imposed because of some defect in phraseology or other infirmity. The legislature quite often passes an amending and validating Act. The object of such an enactment is to remove and rectify the defect in phraseology or lacuna of other nature and also to validate the proceedings, including realisation of tax, which have taken place in pursuance of the earlier enactment which has been found by the Court to be vitiated by an infirmity. Such an amending and validating Act in the very nature of things has a retrospective operation. Its aim is to effectuate and carry out the object for which the earlier principal Act had been enacted. Such an amending and validating Act to make small a permissible mode of legislation and is frequently resorted to in fiscal enactments. As observed in 73 Harvard Law Review 692 at p. 705 :
“It is necessary that the legislature should be able to cure inadvertent defects in statutes or their administration by making what has been aptly called ‘small repairs’ Moreover, the individual who claims that a vested right has arisen from the defect is seeking a windfall since had the legislature’s or administrator’s action had the effect it was intended to and could have had, no such right would have arisen. Thus, the interest in the retroactive duration of such a defect in the administration of Government outweighs the individual’s interest in benefiting from the defect. The Court has been extremely reluctant to override the legislative judgment as to the necessity for retrospective taxation not only because of the paramount governmental interest in obtaining adequate revenues, but also because taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs. of government among those who benefit from it.”
i. In the matter of Hira Lal Rattan Lal v. Sales Tax Officer, Section III, Kanpur, & Anr. Etc. ( 31 S.T.C. 178) it was held that:
“The facts of the case lie within a narrow compass. The appellants are dealers in foodgrains including cereals and pulses especially split or processed foodgrains and dal. The dispute in this case centers round the question whether the Government is competent to levy sales tax on the purchases made by the appellants of split processed foodgrains and dal under the provisions of the United Provinces Sales Tax Act, 1948 as amended by the Uttar Pradesh Sales Tax Act (Amendment and Validation) Act. 1970 (which will hereinafter be referred to as the Act).
The Amending Act also added a validating provision to the principal Act viz., Section 7. That section reads:
“Notwithstanding any judgment, decree or order of any court or Tribunal to the contrary, every notification issued or purporting to have been issued under Section 3-A or Section 3-D of the principal Act before the commencement of this Act shall be deemed to have been issued under that section as amended by this Act and shall be so interpreted and be deemed to be and always to have been as valid as if the provisions of this Act were in force at all material times; and accordingly anything done or any action taken (including any order made, proceeding taken, jurisdiction exercised, assessment made, or tax levied, collected or paid purporting to have been done or taken in pursuance of any such notification) shall be deemed to be, and always to have been, validly and lawfully done or taken.”
The source of the legislative power to levy sales or purchase tax on goods is Entry 54 of the List II of the Constitution. It is well settled that subject to Constitutional restrictions a power to legislate includes a power to legislate prospectively as well as retrospectively. In this regard legislative power to impose tax also includes within itself the power to tax retrospectively. See The Union of India v. Madan Gopal Kabra ( S.C.R. 541); M. P. Sundararamier & Co. v. The State of Andhra Pradesh and Anr.  S. C. R. 1422; J. K. Jute Mills Co. Ltd. v. The State of Uttar Pradesh and Anr. 12 S.T.C. 429; Chhotabhai Jethabhai Patel and Co. v. The Union of India and Anr.  Supp. (2) S.C.R. p. 1; Sri Ramkrishna and Ors. v. The State of Bihar. In the last mentioned case it was specifically decided that where the legislature can make a valid law, it can provide not only for the prospective operation of the material provisions of the said law but it can also provide for the retrospective operation of the said provisions.”