Retrospective tax validation upheld where input tax rebate had to be apportioned between taxable and tax-free goods.

A competent legislature may retrospectively amend a tax statute to remove the defect underlying an adverse judicial decision, provided the amendment stays within constitutional limits. Applying that principle, the Madhya Pradesh VAT Validation Act, 2017 was upheld because it retrospectively gave effect to the explanation requiring input tax rebate in mixed manufacturing to be apportioned between taxable and tax-free goods. The validating legislation lawfully neutralised the basis of the writ petitioners' claim, and they were not entitled to full input tax rebate without apportionment.

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Issues: Whether the Madhya Pradesh Value Added Tax Amendment (Validation) Act, 2017, which gave retrospective effect to the explanation inserted in section 14 of the Madhya Pradesh Value Added Tax Act, 2002, was constitutionally valid and whether the retrospective validation could sustain apportionment of input tax rebate where taxable and tax-free goods were manufactured together.

Analysis: The challenge turned on the settled distinction between legislative and judicial functions. A legislature competent to enact the tax law may retrospectively amend the statute to remove the defect or lacuna noticed by the Court and thereby neutralize the earlier decision, provided the amendment does not transgress constitutional limits. The Validation Act was enacted to give retrospective effect to the explanation that input tax rebate in a mixed manufacturing process must be computed by apportioning input tax between Schedule I and Schedule II goods. The Court held that the earlier basis of the writ petitioners' claim had been removed by the competent retrospective amendment and that the validating legislation did not amount to impermissible overruling of the judicial decision.

Conclusion: The Validation Act was upheld, the retrospective amendment was held valid, and the petitioners were not entitled to full input tax rebate without apportionment.

Final Conclusion: The retrospective validating legislation was sustained as a lawful exercise of legislative power, and the writ petition was dismissed.

Ratio Decidendi: A competent legislature may retrospectively amend a tax statute to remove the defect forming the foundation of an adverse judgment, and such validating legislation is valid if it does not exceed constitutional competence or otherwise violate constitutional limitations.

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