Substance over Form: Amendment to GST Law Truly Clarificatory?

[Arushi is a student at National Law Institute University Bhopal.]

The Finance Act 2025 (Finance Act), notified by the Government on 29 March 2025 made, among others, an amendment to section 17(5)(d) of Central Goods and Services Act (2017 Act). The section provided for certain situations where a taxable person was precluded from utilizing input tax credit (ITC) for the goods or services availed by him. One such situation was where the goods or services or both were received by a taxable person for construction of immovable property on his own account, including when such goods or services or both were used in the course or furtherance of business. The exception to this provision was when such goods or services were received for the construction of any immovable property which could be termed ‘plant or machinery’. Therefore, the section as it stood prior to the amendment stated that in a case where a person was receiving goods and services for the construction of ‘plant or machinery’, they would be allowed to utilize ITC. This expression, ‘plant or machinery’, was not defined in the 2017 Act, but the expression ‘plant and machinery’ had been defined to exclude, among other things, land, building or other civil structures.

This difference between ‘plant or machinery’ and ‘plant and machinery’ was held to be intentional and meaning two different things by the Supreme Court of India in Commissioner (CGST) v. Safari Retreats (Private) Limited (Safari Retreats), leading to the determination that structures which did not qualify the statutory definition of ‘plant and machinery’ could claim ITC, if they were ‘plant or machinery’. This interpretation given by the Supreme Court came as a great relief for companies and small-scale industries across the country. Further, the review petition filed by the Finance Ministry also came to be dismissed. 

However, it is this ruling that is sought to be nullified by the legislature through the introduction of the aforementioned amendment in the Finance Act, which is worded in the form of a declaratory or clarificatory amendment, stating that notwithstanding any judicial pronouncement to the contrary, ‘plant or machinery’ should be read as always having meant ‘plant and machinery’. The nature of a clarificatory amendment is such that it has retrospective effect. It employs legal fiction to declare that a certain interpretation of a statute would be deemed to have been the correct interpretation since the inception of the statute.

Such an amendment is generally identifiable as a clarificatory or a declaratory statute, when it employs certain words, such as ‘shall always be deemed’ or ‘notwithstanding anything to the contrary contained in any judgement’. The general intent behind employing such an amendment is to nullify the effect of a judgement, and while this is technically allowed, in that such amendments are not unconstitutional, they must not take away substantive rights. 

In this article, the author argues that the Finance Act has introduced this amendment in the form of a clarificatory amendment, but the same cannot be made retrospectively applicable, as it is not truly a clarificatory amendment, because the conditions requiring such an amendment were not met, and the amendment itself takes away a substantive right.  

The Law on Clarificatory / Declaratory Statutes 

The legislative power of Parliament is subject, generally, to a presumption of prospective application of the legislation, embodied in the maxim nova constitutio futuris formam imponere debet non praeteritis, meaning ‘a new law ought to regulate what is to follow, not the past’. 

This presumption is said to apply unless there is a clear indication to the contrary, either by an express provision in the statute itself, or if the same is clear through necessary implication. However, the presumption does not apply to declaratory statutes, which may operate retrospectively. A declaratory statute or amendment has been defined as one that seeks to clarify a particular position of law, and is meant to supply an obvious omission, or clear up doubts as to the meaning of the law laid down in the previous statute. 

Such an amendment is identifiable from the wording of the statute. Where the language suggests that a certain meaning would be construed to have been ascribed to the amended statute from the very beginning, the same is in the nature of a declaratory statute. 

Substance Overrides the Form of a Clarificatory Statute

Stating that the intent behind the amending act is to clarify a position of law or declare it does not put an end to the matter. The real test is to see if there has been a substantive change sought to be achieved in the law through the amendment. This stems from the fundamental nature of a declaratory or clarificatory provision, in that it is meant only to explain or clarify the existing position of law, and may not expand the scope of the same. 

The Supreme Court in Sree Sankaracharya University of Sanskrit v. Manu summarized the principles surrounding declaratory statutes, reiterating that merely because the wording of the statute suggests that the statute is declaratory or clarificatory, it would not be considered to be so, rather the substance of the amendment would have to be analyzed to determine its true nature. 

It further noted that for an amendment to be considered declaratory and therefore retrospectively applicable, the previous law must have been suffering from some vagueness or ambiguity, and it must have been impossible to reasonably interpret it without the amendment.

Therefore, for the amendment made to the 2017 Act to be considered a declaratory amendment, and for it to have retrospective application, it is necessary that the law as it previously stood was vague, ambiguous and could not have been reasonably interpreted without the amendment. It must also be shown that through the amendment, no substantive rights were granted, or taken away, as was noted in the above-mentioned case. The amendment and its implications on the law have been analyzed in the next section. 

Amendment To the 2017 Act: Declaratory In Nature?

It is argued on two grounds that the amendment is indeed not declaratory in nature, firstly because the pre-requisite of vagueness and ambiguity in the previously existing law has not been fulfilled, and secondly because the amendment seeks to do away with a substantive right that was previously existing. 

Pre-requisites not met

It has been noted above that a declaratory statute must only clarify the existing position of the law, and must not change the law per se, for it to have retrospective applicability. The amendment to the 2017 Act sought to change ‘plant or machinery’ to ‘plant and machinery’, despite the ruling in Safari Retreats that upheld the legislative intent behind the wording. It was argued before the Supreme Court by the Union, on behalf of the Commissioner of CGST, in the Safari Retreats case that the use of the word ‘or’ was a clerical error during the drafting, and therefore, should be read as ‘and’. However, the court ruled in favor of the respondents, and accepted their argument that the deliberate use of the word ‘or’ despite the very preceding section using the word ‘and’ is an indication of the specific legislative intent of Parliament. Further, as was argued before the court, the model GST law that was circulated earlier to enactment for the purpose of inviting suggestions used the word ‘and’ in Section 17(5)(c) and (d). If the 2017 Act was then worded differently, it shows the intent of the legislature to differentiate between the words ‘or’ and ‘and’. The purpose of rehashing the arguments in Safari Retreats is to show that there was no ambiguity in the understanding of the law. 

In another case, there was a similar situation where the word ‘after’ was replaced by the word ‘up to’, in the proviso to Section 13A of the Haryana Municipal Act 1973. In this case, the court held that the substitution would be retrospective in nature. However, the key difference between this case and the Safari Retreats case is that in the former, if the statute without the amendment had been subjected to judicial scrutiny, the courts would have interpreted in such a manner as to read ‘after’ as ‘up to’, as was stated in the judgement. In Safari Retreats, there was no similar glaring ambiguity that it could not have been interpreted as it stood before the amendment. In fact, the court upheld the legislative intent in differentiating between ‘plant or machinery’ and ‘plant and machinery’. 

The requirement is not simply that there have been a question of law, but an ambiguity surrounding that word or those words in the statute, of such a nature, that the statute could not have been reasonably interpreted without the amendment. The use of a declaratory amendment is not to simply make an unfavorable situation favorable, which is what the Finance Act seeks to do. 

Thus, the Supreme Court in the Safari Retreats case interpreted the previously existing law and also upheld the legislative intent therein, leaving no room for misinterpretation or ambiguity in the law, thus not warranting an amendment that seeks to correct an ambiguity. 

Substantive rights taken away through the Finance Act

An amendment that takes away or confers substantive rights cannot be considered to have retrospective application. The question of the nature of ITC is a settled one, with the courts having consistently ruled in favor of the authorities, that ITC is a concession that is bestowed upon the dealers, and is not a fundamental or absolute right. However, although the legislature does have the power to prescribe conditions that must be strictly followed to accrue the benefit of ITC, these conditions, especially when introduced as amendments applicable retrospectively, must meet the test of reasonableness. 

Further, the Safari Retreats judgement, while not deviating from this stance that ITC is a concession, did provide clarity. The court stated that the right to ITC is conferred by the statute, and therefore, it can be enforced, as long as there exists a provision under the statute. Therefore, for the time period from the introduction of the 2017 Act till the amendment was made, there existed a statutory right for those dealers who were involved in the business of constructing immovable property which was ‘plant or machinery’. The amendment takes away this substantive right that was available to those persons, and therefore, cannot simply be termed a clarificatory or declaratory amendment having retrospective effect. 

Conclusion

The rejection of the review petition on 21 May 2025 is highly deceptive, and provides hope to the taxpayers of the country. In truth, the review petition and its rejection is of no consequence. The retrospective amendment made by the Union is a massive blow to the Safari Retreats judgement, as it has essentially nullified it. The only way forward is to challenge the amendment to the Finance Act itself, on the grounds that it is not truly a clarificatory amendment, and therefore, the retrospective application of the amendment is void. The amendment as it stands is only clarificatory in its form, and not in its substance. It does not seek to clarify any obvious omission or glaring ambiguity that was previously existing in the law. Rather, it seeks to retrospectively take away the statutory right to ITC provided by the 2017 Act. In its substance, the amendment does not meet the requirements laid down to be considered a clarificatory amendment. 

The author’s contention is only to the retrospective applicability of the amendment. It is settled law that the legislature is well within its power to amend the law to state that ‘plant or machinery’ will now be considered to mean ‘plant and machinery’, as the concept of equity does not hold great importance in the context of tax laws. However, the retrospective applicability of the law should be challenged. 

The author hopes that the matter is brought before the courts soon and the courts bear in mind the importance of ITC and the significant benefit it accrues to the small scale industry owners and taxpayers of the country.