Retrospective tax amendment on damaged wheat held arbitrary where it created new liability without justification.

A retrospective amendment excluding damaged wheat from the definition of "animal feed" under the Haryana VAT regime was treated as introducing taxability for the first time rather than merely clarifying the law. Because damaged wheat had earlier been understood to fall within the exempt entry, the backward effect altered the tax position and created liability retrospectively. The Court held that retrospective fiscal legislation must be justified and non-arbitrary, and that the same restraint applies to delegated legislation. As no contemporaneous dispute required clarification and no reason was shown for retrospective exclusion, the amendment's retrospective operation was found arbitrary and beyond the rule-making authority's competence.

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Issues: Whether the retrospective amendment excluding damaged wheat from the expression "animal feed" in Schedule B to the Haryana Value Added Tax Act, 2003 was merely clarificatory or whether it imposed taxability for the first time with retrospective effect.

Analysis: The entry "animal feed" had earlier been construed to include damaged wheat and the goods were treated as exempt. The impugned amendment, by excluding damaged wheat with effect from an earlier date, altered the tax position and created liability retrospectively. Retrospective fiscal legislation is permissible only where it is justified and not arbitrary; a retrospective amendment that introduces taxability for the first time, without any discernible necessity or justification, may be struck down as unreasonable. The Court found that there was no dispute requiring clarification during the relevant period and no reason was shown for giving the exclusion retrospective operation. The limitation on arbitrary retrospective exercise applies equally to delegated legislation.

Conclusion: The retrospective operation of the amendment was held to be arbitrary and beyond the competence of the rule-making authority, and the petitioner succeeded on the validity challenge.

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