DTAA or Domestic Law - That is the Question!
Karnataka HC, in a recent decision in case of Vodafone South Ltd. (‘VSL’) has made some significant observations on the treaty override concept. Noting that the sovereign power of Parliament extends not only to making but also ‘breaking’ a DTAA, HC has categorically stated that ‘unilateral cancellation’ of DTAA through an amendment to domestic law, subsequent to conclusion of a DTAA, is a recognized sovereign power. HC further remarked that if after the DTAA has come into force, an Act of Parliament is passed which contains a contrary provision, the scope and effect of the legislation cannot be curtailed by reference to DTAA.
While HC has left the question unanswered as VSL did not challenge the legality of the retrospective amendments made to Sec 9(1)(vi) vide Finance Act, 2012, has it opened a pandora's box as to whether a domestic law amendment can override beneficial provisions of a DTAA? Does the HC judgment 'unsettle' a seemingly settled law as propounded by SC in Azadi Bachao and Andhra Pradesh HC in Sanofi case? Will the Supreme Court once again have to weigh in on this debate?