Retrospective validation of tax notifications can cure initial invalidity and confirm the applicable tax rate for the period

A validating enactment can retrospectively cure the invalidity of a tax notification and extend to assessments, orders and collections made under it, even where the notification had earlier been superseded. The U.P. Sales Tax notification fixing tax on cotton yarn under section 3-AA was initially unauthorised, but section 3 of Act No. 14 of 1964 validated that notification and the actions taken pursuant to it. As a result, the notified rate of 2 per cent applied to yarn turnover for the relevant period, and the tax rate for that period stood confirmed.

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Issues: (i) Whether the notification fixing the rate of tax on cotton yarn was invalid at inception and, if so, whether it was validated by the amending enactment; (ii) what was the proper rate of tax on yarn for the relevant period.

Issue (i): Whether the notification fixing the rate of tax on cotton yarn was invalid at inception and, if so, whether it was validated by the amending enactment.

Analysis: The notification had been issued under section 3-AA of the U.P. Sales Tax Act and was earlier held invalid because that provision, as it then stood, did not authorise the State Government to fix the rate of tax for the commodities covered by it. Section 3 of Act No. 14 of 1964 was enacted to validate notifications issued under section 3-AA and also to validate actions, orders, assessments, and tax collections made in pursuance of such notifications. The validating language was held wide enough to cover notifications that had been superseded or had ceased to operate, and to sustain orders made under them.

Conclusion: The notification was invalid when issued, but it stood validated by Act No. 14 of 1964.

Issue (ii): What was the proper rate of tax on yarn for the relevant period.

Analysis: Since the notification fixing the rate at 2 per cent for the period from 1st August, 1958 to 31st March, 1959 was held to be validated, that rate governed the turnover for the disputed period.

Conclusion: The proper rate of tax on yarn for the relevant period was 2 per cent.

Final Conclusion: The reference was answered in support of the revenue, with the challenged notification upheld by statutory validation and the tax rate for the disputed period confirmed at 2 per cent.

Ratio Decidendi: A validating enactment expressed in broad terms can retrospectively cure the invalidity of a tax notification and can also validate assessments and other actions taken under it, even if the notification had earlier been superseded.

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