Retrospective tax levy on rab struck down as arbitrary where it created a fresh liability without a clarificatory basis.

Retrospective taxation of "rab" was invalid because the amendment created a fresh liability without showing that the commodity had previously been taxable or that the notification was merely clarificatory or validating. The Tribunal held that imposing tax retrospectively for a period when no liability was contemplated placed an unexpected burden on sellers and was arbitrary and unreasonable. The retrospective operation of the notification was therefore ultra vires, and the assessment for the pre-notification period was set aside to that extent, reducing the demand on sales of "rab" to nil. The amendment's prospective operation remained valid.

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Issues: Whether the retrospective operation of Notification No. 2598-F.T. dated August 1, 2001, which brought "rab" within the taxable schedule with effect from January 1, 2000, was valid and whether the assessment based on that retrospective levy could be sustained.

Analysis: The Tribunal found that "rab" had not been shown to have been treated as a taxable commodity before the impugned notification and that no material was produced to establish that the amendment merely clarified an existing taxing position. It distinguished cases where retrospective legislation is explanatory or validating and noted that a fresh levy imposed retrospectively may be examined for reasonableness and arbitrariness, especially where the tax could not previously have been collected from purchasers. On the facts, the retrospective levy imposed an unexpected burden on sellers for a period when no tax liability was contemplated, and the justification for retrospectivity was not established.

Conclusion: The retrospective operation of the notification was held to be arbitrary, unreasonable, and ultra vires the Constitution. The assessment for the period prior to August 1, 2001 was set aside to the extent it levied tax on sales of "rab" and the tax demand for that period was reduced to nil.

Final Conclusion: The challenge succeeded on the constitutional validity of the retrospective levy, while the prospective operation of the amendment remained valid.

Ratio Decidendi: A retrospective taxing provision that creates a fresh liability for a commodity not shown to have been previously taxable, and that imposes an unexpected financial burden without a clarificatory or validating purpose, may be struck down as arbitrary and unreasonable.

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