1971 (11) TMI 141 - SC - VAT and Sales Tax

Although the definition of business was substituted by the Second Amendment Act of 1964 it was not made retrospective by the usual words that it should be deemed to have been always substituted nor was any other language employed to show that the substantive provision, namely, the definition of business was being amended retrospectively. Section 9, therefore, can be of no avail to the revenue. It has been pointed out that in the other decision rendered by this court, in which similar validation provision appeared, the substantive section had not been amended at all. That, in our judgment, will not make any difference because the essence of the matter is that the definition of the word businesss which was material was amended only prospectively and not with retrospective effect - Appeal dismissed

Summary

Issues:
1. Interpretation of the definition of "business" under the Madras General Sales Tax Act, 1959.
2. Retroactive application of the definition of "business" as per the Second Amendment Act, 1964.
3. Validity of tax assessments in light of retrospective legislative amendments.

Analysis:
The judgment by the Supreme Court of India, delivered by Justice Grover, dealt with appeals arising from the Madras High Court concerning the assessment of sales tax under the Madras General Sales Tax Act, 1959. The primary issue revolved around the interpretation of the term "business" as defined in the Act. The court examined the definitions of "business," "dealer," and "sale" under Section 2 of the Act to determine the scope of taxable turnover. It was established that the activity must possess a commercial character in the course of trade or commerce, irrespective of profit motive, to fall within the ambit of the Act.

The court delved into the amendments introduced by the Madras General Sales Tax (Second Amendment) Act, 1964, particularly the substitution of the definition of "business." The crux of the matter was the retrospective application of this amended definition, which was pivotal in determining the tax liability of the assessee. The court scrutinized Section 9 of the Amendment Act, which validated the levy and collection of certain taxes, to ascertain if it conferred retrospective effect to the amended definition of "business." However, the court concluded that Section 9 did not inherently render the amendment retrospective, emphasizing the necessity of explicit language for retrospective application.

Drawing parallels to prior legal precedents, the court elucidated that retrospective validation of taxes is permissible only if the grounds of illegality or invalidity are rectifiable. The court highlighted that the absence of specific language in the Amendment Act to indicate retrospective application precluded the revenue from invoking retrospective taxation based on the amended definition of "business." The court underscored that the retrospective amendment did not align with the legislative intent, as evidenced by the absence of requisite language for retrospective operation.

Ultimately, the court dismissed the appeals, affirming that without retrospective application of the amended definition of "business," the revenue's stance was untenable. The judgment refrained from addressing the assessee's liability post the Second Amendment Act of 1964, focusing solely on the retrospective application of the amended definition. By elucidating the principles governing retrospective legislative amendments and tax validations, the court provided a definitive ruling on the interpretation and application of tax laws in the context of retrospective amendments.