Retrospective tax amendment and recovery sequence: validating law can override earlier basis, but transferee recovery must follow statutory priority.

A retrospective validating amendment to the sales tax law may alter the legal basis of an earlier Supreme Court decision, so the plea of res judicata and Article 141 failed because the legislature had changed the underlying law. However, where the transfer-of-business proviso required recovery to be attempted first from the transferor-firm and only then from the transferee-firm, direct first-instance recovery against the transferee was inconsistent with the statute. The recovery notice was therefore required to be modified so that recovery proceeded first against the transferor-side.

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Issues: (i) Whether retrospective amendment and validation of the sales tax law could nullify an earlier Supreme Court decision between the same parties and defeat the plea of res judicata and the effect of Article 141 of the Constitution of India; (ii) Whether recovery of arrears of tax could in the first instance be made from the transferee-firm instead of proceeding first against the transferor-firm under the statutory proviso governing transfer of business.

Issue (i): Whether retrospective amendment and validation of the sales tax law could nullify an earlier Supreme Court decision between the same parties and defeat the plea of res judicata and the effect of Article 141 of the Constitution of India.

Analysis: The retrospective insertion of section 18-A by the amendment legislation was directed to cases where assessments had not been made or had already been initiated for earlier periods, and it expressly operated notwithstanding prior judgments or orders. The Court held that a competent legislature may validly amend the principal Act retrospectively and thereby change the legal basis on which an earlier judicial decision rested. Such retrospective amendment does not amount to a forbidden declaration that a Supreme Court judgment is ineffective; rather, it changes the underlying law and may consequently remove the foundation of the earlier decision. On that footing, the plea based on res judicata and Article 141 was rejected.

Conclusion: The retrospective validating amendment was upheld, and the challenge based on res judicata and Article 141 failed.

Issue (ii): Whether recovery of arrears of tax could in the first instance be made from the transferee-firm instead of proceeding first against the transferor-firm under the statutory proviso governing transfer of business.

Analysis: Section 33(4) made the liability of the transferor and transferee joint and several, but the first proviso required that recovery should first be attempted from the transferor-firm or its partners and, only if the amount could not be recovered there, could recourse be had to the transferee-firm. The recovery notice showed no such prior attempt against the transferor-side, and the authorities had proceeded directly against the transferee-side. That sequence was inconsistent with the proviso, so the recovery action required modification.

Conclusion: The recovery notice and related order were quashed to the extent they authorized first-instance recovery from the transferee-firm, and recovery was directed to proceed first against the transferor-firm.

Final Conclusion: The first challenge failed, while the second succeeded in part, leaving the assessees with only partial relief on the recovery issue.

Ratio Decidendi: A legislature may retrospectively amend the taxing law so as to alter the legal basis of an earlier decision, but where the statute itself prescribes a sequence for tax recovery, the taxing authority must follow that sequence before proceeding against the transferee.

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