Retrospective tax rule amendments cannot burden concluded sales or upset discounts already granted through credit notes.

Retrospective amendment of the proviso to rule 3(2)(c) of the Karnataka Value Added Tax Rules, 2005, requiring the tax invoice or bill of sale to show the discount amount, was held unconstitutional when applied to completed sales. The court accepted that the dealer had granted discounts through post-sale credit notes under the earlier statutory scheme, and held that retrospective rule-making cannot impose an unreasonable, oppressive or unworkable burden on concluded transactions or disturb existing contractual arrangements. The amendment, as applied to April and May 2006, was found to create an additional tax burden and violate Articles 14 and 19(1)(g); the reassessment order and demand notice were quashed.

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Issues: Whether the retrospective insertion of the requirement that the tax invoice or bill of sale must show the amount of discount, in the proviso to rule 3(2)(c) of the Karnataka Value Added Tax Rules, 2005, was unconstitutional and whether the reassessment based on that amendment was liable to be quashed.

Analysis: The petitioner had granted discounts through credit notes after completion of the sale transactions, which was consistent with the then existing statutory scheme and the manner in which credit and debit notes were recognised under section 30 of the Karnataka Value Added Tax Act, 2003. Though the State had power under section 88(4) of the Act to frame rules with retrospective effect, that power could not be exercised so as to impose an unreasonable and oppressive burden on completed transactions or compel dealers to alter concluded invoices and contractual arrangements retrospectively. The amendment, as applied to the months of April and May 2006, was found to create an additional tax burden, to be unworkable in practice, and to operate harshly against transactions already completed under the earlier regime.

Conclusion: The retrospective operation of the amended proviso to rule 3(2)(c) was held unconstitutional as violative of Articles 14 and 19(1)(g) of the Constitution of India, and the reassessment order and demand notice founded on that amendment for April and May 2006 were quashed.

Ratio Decidendi: A delegated rule made with retrospective effect is invalid to the extent it unreasonably disturbs concluded transactions and imposes an oppressive, unworkable tax burden on dealers, thereby offending constitutional guarantees of equality and freedom of trade.

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