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Monday, 19 March 2012 00:00
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Finmin’s clarificatory note adds insult to injury

If the government’s retrospective amendments to tax laws to be able to counter the Supreme Court’s (SC) decision wasn’t bad enough, the clarifications issued by the finance ministry the day after the Budget add salt to injury. The note, “Need to make retrospective amendment consequent to Vodafone judgment”, is quite upfront, if brazen, when it says that while the SC’s Vodafone judgment had said the government needed to bring in tax certainty, it “has not said that these legislative measures should be prospective or retrospective”! After saying that it was possible the law was badly drafted, the note says all the government was doing by way of its amendments was to “make the intention of the legislature clear”—going by what the law says is one thing, trying to figure out what was in the minds of lawmakers makes investing a whole lot more risky. While no one can possibly have any quarrel with the government’s right to make amendments to the law, the issue is of whether these should be retrospective or prospective. And this is where, if the ministry’s note is anything to go by, Vodafone and its lawyers should be getting seriously worried—the note says “there has been a long history of amending the Income-tax Act with retrospective effect to overcome the decisions of Court and the constitutional validity of these amendments has been upheld by the Courts”.

While that is a statement that will be tested in court at some point in time, it’s not quite clear as to how the government approaches such major decisions. A good example is the issue of the Presidential reference to the SC on the 2G matter. Now that the SC has cancelled 122 licences on grounds that First Come First Served was a flawed policy, telecom minister Kapil Sibal wants to ask if this means licences issued between 2003 and 2008 on the basis of the same policy should also be cancelled. Unless the SC dismisses this on grounds of the case being time-barred, it seems pretty logical it should answer in the affirmative. In other words, even if the SC hadn’t asked for the 2003-08 licences to be cancelled, a first-class crisis will be created. Which is why Planning Commission deputy chairman Montek Ahluwalia has come out strongly against the Presidential reference, saying it serves no practical purpose and will only worsen the investment climate. Ahluwalia’s written intervention may ensure a reasoned decision is taken on the Presidential reference, but are decisions such as retrospective amendments—and there are many, the ministry’s note suggests—just taken by a few bureaucrats in the finance ministry or is there a larger Cabinet consultative process?



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