Retrospective taxation is valid when the levy stays within competence and does not impose an unconstitutional burden.

Retrospective taxation under the Bihar Taxation on Passengers and Goods Act, 1961 was examined against legislative competence and constitutional limits. The Act fell within Entry 56 of List II, because it remained a tax on passengers and goods carried by road, and the retrospective feature did not change the essential character of the levy or the recovery mechanism. The Court stated that legislative power includes the authority to enact retrospective and validating laws. It also held that reasonableness of retrospective operation must be assessed in context, including prior litigation and the need to cure defects in earlier legislation. On the facts, the retrospective operation was not shown to be arbitrary or unconstitutional.

---

---

Issues: Whether the retrospective operation of the Bihar Taxation on Passengers and Goods (Carried by Public Service Motor Vehicles) Act, 1961, and its validating provisions were beyond the legislative competence of the Bihar Legislature or imposed unreasonable restrictions contrary to Articles 19 and 304(b) of the Constitution of India.

Analysis: The Act was within Entry 56 of List II of the Seventh Schedule, which empowers the State Legislature to levy taxes on passengers and goods carried by road. The retrospective feature did not alter the essential character of the levy, because the tax continued to be a tax on passengers and goods and the recovery machinery from vehicle owners remained the same for past and future periods. The Court held that legislative power includes the authority to enact retrospective laws and to validate earlier invalid legislation. It further held that the reasonableness of retrospective operation cannot be judged by a mechanical test of duration alone; the surrounding circumstances, including prior litigation, injunctions, and the need to cure the defect in the earlier Act, were relevant. On the facts, the retrospective operation was not shown to be arbitrary, confiscatory, or otherwise unconstitutional.

Conclusion: The retrospective operation and validating provisions were upheld and the challenge to the Act failed.

Ratio Decidendi: A taxing statute within legislative competence does not become ultra vires merely because it operates retrospectively, and such retrospective operation is valid unless it is shown, on the facts and circumstances, to impose an unreasonable or constitutionally impermissible restriction.

---