Given that litigation in GST is yet to reach the Tribunal level, it is not late to imbibe the learnings from erstwhile laws under the GST regime
By Tarun Jain
A recent decision of the Supreme Court reveals that the appellate hierarchy in an indirect tax dispute resolution system, particularly GST, requires an overhaul.
In the 1980s, acting on the constitutional empowerment to constitute specialised tribunals to adjudicate disputes, the Parliament constituted an appellate Tribunal (now known as the CESTAT) for determination of customs and other indirect tax disputes. However, the Customs law curiously provided that certain class of appeals from orders of CESTAT would lie before the Supreme Court, whereas, all other appeals would lie before the High Court, even though both class of appeals must involve substantial question of law. The test is whether the appeal relates to ‘determination of any question having a relation to the rate of customs duty or to the value of goods for purposes of assessment’. If the answer is in the affirmative, the appeal from an order of the CESTAT lies before the Supreme Court, else, the appeal would be considered by the jurisdictional High Court. A similar scheme was adopted for Central Excise and Service Tax disputes.
Over two decade ago, the Supreme Court in Navin Chemicals’ case (1993) clarified that issues relating to classification of goods, their valuation, availability of exemption notifications, etc. were relatable to ‘rate of duty’, and, thus, to be heard by the Supreme Court only. The matters, however, did not rest there as the taxpayers and the department continued to face rejection by the High Courts and the Supreme Court, for having wrongly filed the appeal. In particular, the tax-department was admonished by the Karnataka (Scott Wilson: 2011) and the Delhi High Court (EY: 2014) for having wrongly approached the High Court in disputes questioning taxability of activities. Parliament took note of these decisions and amended the law in 2014 to clarify that issues of taxability would also be heard by the Supreme Court to the exclusion of the High Court. The judicial observations and the legislative sanction, however, hardly changed the landscape.
The Supreme Court, fairly recently, highlighted its role as a constitutional court to declare that even though there is a statutory remedy of appeal against certain orders of CESTAT, it will hear only those appeals which “involve a substantial question of law which has not been answered or, on which, there is a conflict of decisions necessitating a resolution”. (SAIL: 2017). It later refused to hear appeals, though statutorily maintainable, against orders of CESTAT unless it is a case of grave necessity for the Supreme Court to pronounce on issues highlighted before it. (Aasu Exim: 2017). This effectively implies that a large number of CESTAT’s orders continue to escape judicial scrutiny, which is contrary to the fundamental constitutional tenet of judicial review.
Furthermore, in its decision pronounced earlier this month (Motorola: 2019) the Supreme Court has expressed its disinclination to adjudicate matters which are “purely inter-se between the parties” and “do not involve any question of law of general public importance which would be applicable to a class or category of [taxpayers] as a whole”. This case pertained to import of pagers in India in 2001. The CESTAT in 2006 rejected the stand of customs department that Motorola wrongly availed benefit of exemption under extant EXIM policy. The High Court in 2011 dismissed the appeal of the customs department against the CESTAT order opining that an appeal was instead to be heard by the Supreme Court, as it would involve determining Motorola’s liability to pay tax. In 2019, the Supreme Court has held that the High Court should instead have heard the matter on merits. Consequently, the issue will now again be canvassed before the High Court. When the High Court will decide on the merits, and ultimately when it will receive Supreme Court’s imprimatur, are questions best left unpredicted.
Much further, there is a larger issue to be addressed. In Navin Chemicals’ case the Supreme Court had specifically declared that applicability of an exemption notification to a given case was a question to be decided by the Supreme Court. In Motorola, however, the Supreme Court has concluded that factual satisfaction of a particular condition in an exemption notification must be decided by the High Court. This may amount to shifting of goalposts, which does not auger well for those seeking judicial redress. Such stance also dilutes the need for certainty and predictability in judicial standards.
One may opine that since then GST regime having replaced the erstwhile indirect taxes, the aforesaid reflections are of limited relevance. Unfortunately, this is not the case for multiple reasons. Firstly, the customs law continues to apply even in the GST regime. And therefore, these (inconsistent) principles will continue to apply to a host of matters, where both the taxpayer and tax-administration would continue to ponder over the correct forum to ventilate their grievances. Secondly, notwithstanding the fact that the GST puts a moratorium on application of earlier indirect taxes (i.e. upto June 2017), (a) tax-positions taken under the erstwhile regime are yet to be validated in large number of cases, (b) the pending investigations would culminate at their own logical time, and, most crucially, (c) the appellate orders of CESTAT will continue to be issued in the short and medium term. Thus, meandering through the cleavage in the appellate route will continue to haunt the taxpayers even for the erstwhile indirect taxes.
The real rub, however, comes from the fact that a similar yet more complex appellate structure has been adopted in the GST laws, which institutes two sets of tribunals to hear appeal against orders of tax-officers. The National Tribunal would hear all matters, which inter alia involve ‘place of supply’ issues. All other matters would be heard by State Tribunals. Put differently, a case which involves determining whether a particular supply is inter alia (i) inter-state or intra-State, (ii) amounts to import into India, or (iii) is considered as exported from India, would be addressed by the National Tribunal, whereas, all other cases would fall within the turf of the State Tribunals. As things currently stand, close to 30 State Tribunal benches have already been notified. Thus, both the taxpayer and the tax-department must now not only decide whether to approach the National Tribunal in a given case but also, where the jurisdiction is with a State Tribunal, to locate the correct bench which would hear the case. Clearly, this appellate structure does not fit with the fundamental tenet GST as ‘one nation one tax’.
Furthermore, retaining the customs’ structure, it is further provided that all appeals from the National Tribunal would lie before the Supreme Court, while State Tribunals would be subject to appellate jurisdiction of the High Court. Both in the customs’ appellate structure as also in GST, there appears to be no overwhelming cause for such differentiation. The High Courts are also constitutional courts and thus there seems to be no reason to subject certain tribunal orders for direct scrutiny of the Supreme Court.
The perceived logic that some issues decided by the Tribunals are of such wide application that they must be expeditiously addressed and directly heard by the Supreme Court is also set to naught by the time-tested practice and experience under the I-T law, which mandatorily subjects all tribunal orders to the scrutiny of the High Courts. Moreover, with the provision of direct appeals, the legislature is only burdening the Supreme Court to examine far greater number of disputes and that too without the benefit of the High Court having canvassed its opinion for commendation by the Supreme Court. With far more judicial time available to the High Court in comparison to the Supreme Court, one can expect material contribution to the tax jurisprudence by the High Courts. For illustration, the legal principles on transfer pricing in the Income Tax law largely own their origin to the High Court decisions.
Given that litigation in GST is yet to reach the Tribunal level, it is not late to imbibe the learnings from erstwhile laws under the GST regime. This would reduce the associated transactional costs and also ensure judicial redress on merits of the disputes rather than the taxpayers spending time and resources in determining the correct forum for canvassing their grievances. It is hoped that the policy-makers will pay heed to the past inefficiencies and ensure that these are not mechanically transported in the new GST regime. It is opportune time for the government to intervene and cut uncertainties for seamless dispute resolution.
The writer is Partner, BMR Legal. (Views are personal.)