When the Supreme Court Speaks, the Law Speaks from the Beginning- Retrospectivity and Rectification under GST

Article 141 of the Constitution declares that the law laid down by the Supreme Court shall be binding on all courts within the territory of India. The Court does not create new law but declares what the law has always been. Unless a judgment is expressly limited prospectively, its operation is necessarily retrospective. The Court is presumed to have only clarified the meaning that the statute always bore.

2. From ITAT to GSTAT — The Rectificatory Power

In ASSISTANT COMMISSIONER, INCOME TAX, RAJKOT Versus SAURASHTRA KUTCH STOCK EXCHANGE LTD - 2008 (9) TMI 11 - Supreme Court, the Supreme Court held that a subsequent decision declaring the correct position of law constitutes a “mistake apparent from record” under Section 254(2) of the Income-tax Act. Hence, the Income Tax Appellate Tribunal could rectify an earlier order inconsistent with that declaration.

The same logic extends to rectification under Section 161 of the CGST Act, 2017, or to appellate authorities under Sections 107 and 113. When a later Supreme Court pronouncement reveals that an earlier adjudication proceeded on an erroneous view of law, the authority has both jurisdiction and duty to align its record with the law as declared.

3. Declaratory Nature of Judicial Pronouncements

The declaration by the Supreme Court relates back to the date of the enactment interpreted. In MA Murthy Versus State Of Karnataka And Others - 2003 (9) TMI 76 - Supreme Court, the Court reaffirmed that a judicial decision acts retrospectively unless stated otherwise. Even if delivered years later, it governs pending proceedings, completed assessments, and refund claims, subject to finality and limitation.

3A. The Qualification in Prakash D. Koli v. ITAT

Yet, the presumption of retrospectivity under Article 141 must be read in harmony with statutory finality. In Prakash D. Koli Versus Income Tax Appellate Tribunal Pune Bench & Others. - 2025 (7) TMI 766 - BOMBAY HIGH COURT, the Tribunal had originally allowed deduction of employees’ PF/ESI contributions following the law as then understood. When the Supreme Court later clarified the contrary position in CHECKMATE SERVICES P. LTD. Versus COMMISSIONER OF INCOME TAX-1 - 2022 (10) TMI 617 - Supreme Court (LB), the Department sought rectification under Section 254(2).

The High Court rejected it, holding that a later Supreme Court judgment, though declaratory, cannot by itself justify rectification of a valid order rendered under the then-prevailing view. Rectification is confined to mistakes apparent on the face of record as it stood; it cannot rewrite the past. The declaration of law may operate retrospectively in substance, but the mechanism of correction cannot transgress statutory limits.

This distinction between retrospective declaration and procedural finality is critical under GST: while the law declared by the Supreme Court governs all cases, concluded orders cannot be reopened unless the error was manifest at the time. The Koli ruling thus tempers administrative enthusiasm for limitless “retrospective compliance” in the name of Article 141.

4. Implications under GST

Under GST, this duality has practical importance:

• Classification and valuation disputes often hinge on interpretational clarity later supplied by the Supreme Court.
• Refund and transitional-credit issues may warrant reconsideration only if the original decision contained a visible error.
• Penalty and extended-period demands collapse when later jurisprudence shows the levy itself unsustainable.

But these consequences arise through legitimate appellate or review channels, not through indiscriminate rectification.

5. Need for Administrative Sensibility

Departmental hesitation to implement a Supreme Court ruling unless “made retrospective” betrays misunderstanding of Article 141. The law declared by the Court is inherently retrospective, save where prospectivity is expressly granted. Yet, as Koli reminds, statutory limitations on reopening cannot be ignored. In a tax system claiming to be based on reason and fairness, rectification after a Supreme Court ruling is not charity but constitutional obedience — provided it falls within jurisdiction.

6. Conclusion

The declaration of law by the Supreme Court does not await legislative or administrative endorsement. When the apex court interprets a GST provision, that interpretation must be treated as having always been the law. But rectification or reassessment in consequence must honour the procedural boundaries of the Act. The true harmony lies between retrospective truth and administrative finality — a balance that sustains both justice and certainty.

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By G. Jayaprakash, Advocate (Former Central Excise Officer)