State of Gujarat v. Kirankumar Rameshbhai Devmani Civil Appeal No. 7208/2015

On the 3rd of May, 2018, a division bench of the Supreme Court dismissed an appeal filed by the maker of a Gujarati film on the topic of homosexuality. In this post, we will investigate whether the reasons for this dismissal were correct in law. I will argue that they were not. More specifically, we will ask whether a change of the substantive law on a particular matter during the pendency of appeal should change the substantive law governing that matter? This question will also be answered in the negative, with some qualifications.

HISTORY OF LITIGATION OF THE FILM
The film was called Meghdhanushya and had been the subject of litigation at the Gujarat High Court as well. At the High Court, the filmmaker, who was also the producer of the film had challenged the denial of entertainment tax exemption to the film. On the 28th of February, 2014, the High Court found the denial to be illegal and unconstitutional, and ordered that the tax exemption be offered to the film, and a certificate issued to that effect by the office of the Commissioner of Entertainment Tax. I have summarized the reasoning of the High Court with arguments from both the sides in a previous post.

Note that the High Court battle was not about the whether the film could be released. The battle was about tax exemption. The film was always eligible for release. In fact, the State of Gujarat had argued, even if unsuccessfully, at the High Court level that the filmmaker was free to release the film without the tax exemption.[1]

Following the High Court decision, the State of Gujarat filed a petition before the Supreme Court seeking its leave to appeal the High Court decision. This petition was first called up for hearing on the 15th of April, 2014. On that date, the Supreme Court also stayed the High Court order. Permission to appeal was granted to the State of Gujarat on the 15th of September, 2015.

GROUNDS OF APPEAL
To be sure, the grounds on which the appeal was filed are not publicly available. However, without more, and anything to the contrary to suggest otherwise, the appeal was filed arguably to persuade the Supreme Court that the correct interpretation of the Gujarat tax exemption policy required denial of the entertainment tax exemption to the film. The State of Gujarat framed a scheme dated June 8, 1999 exempting all Gujarati colour films produced after April 1, 1997 from entertainment tax. According to para 4 of the scheme, films could be denied exemption only if they, depicted “evil customs, blind faith, sati, dowry, and such social evils and those which are against national unity.” Presumably, the counsel for the State of Gujarat sought to argue that the film in question fell under one of the above mentioned categories and therefore was rightly denied exemption. However, something seems to have changed during the course of those arguments, if one looks at the 3rd May judgment.

CHANGE IN SUBSTANTIVE LAW DURING PENDING APPEAL

According to the 3rd May judgment, the Gujarat counsel was arguing that the question of whether the film can be exempt from tax will now be considered under the Goods and Services Tax (GST) regime. However, at the time when the film was denied the exemption, the GST regime existed neither centrally nor at the State level. A key rule of interpretation is that the substantive law at the time of the cause of action should govern the matter. The philosophical foundations of this rule lie in fairness—no one should be subject to a law that did not exist at the time they performed an act, especially when it effects obligations and duties.[2] In fact, a changed substantive law does not have a retrospective application until it is expressly stated so in the legislation, or the changed law should by necessary implication have a retrospective effect.[3] Neither is true in our case since both the Central and State GSTs have neither stated that they will have retrospective effect nor is such a construction required by necessary implication. The GST was introduced in 2017 at both the central level and in Gujarat whereas the cause of action arose when the exemption was first denied by the Entertainment Tax Commissioner in Gujarat in April, 2013. In fact, Vepa Sarathi has expressly stated that a fiscal statue must expressly be made retrospective.[4] In the absence of any such declaration by either the Central or the State government, our case is further strengthened that the GST regime will govern future questions of tax exemption but not the present case. Therefore, according to this rule, the 1999 policy, which governed entertainment tax exemption question, when the matter arose in Gujarat, should govern the decision all through its very end in the Supreme Court.

Even if the substantive law has changed during the pendency of appeal, the appeal will be governed by the laws that existed when the cause of action arose (April, 2013). Therefore, this case should have been governed by the 1999 scheme and the judges ought to have heard it on that basis. In other words, the appeal at the Supreme Court level should have answered the question whether the film qualifies for the tax exemption under the 1999 scheme? However, as per the 3rd May judgment, the court dismissed the appeal because the taxing statute has since changed. This it was not entitled to do. By dismissing the appeal on an incorrect legal standard, the judgment has arguably set the stage for a review on grounds of a patent error of law.

[1] The film has an “A” certificate from the Central Board of Film Certification in India (Censor Board).

[2] Nova constitutio futuris formam imponere debet, non praeteritis.

[3] Vepa Sarathi, Interpretation of Statutes 466 (Eastern Book Company 2003).

[4] Vepa Sarathi, Interpretation of Statutes 466 (Eastern Book Company).

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