FEBRUARY 21, 2024

By Vijay Kumar

IN the recent Electoral Bonds case - Association for Democratic Reforms vs Union of India - 2024-TIOL-17-SC-IT-CB, an important principle applied was the doctrine of proportionality.

In his concurring judgement, Justice Sanjiv Khanna observed,

24. Hon'ble the Chief Justice has rejected the Union of India's submissions by applying the doctrine of proportionality. This is a principle applied by courts when they exercise their power of judicial review in cases involving a restriction on fundamental rights. It is applied to strike an appropriate balance between the fundamental right and the pursued purpose and objective of the restriction.

The test of proportionality comprises four steps:

Justice Khanna explained the doctrine:

The first two prongs of proportionality resemble a means-ends review of the traditional reasonableness analysis, and they are applied relatively consistently across jurisdictions. Courts first determine if the ends of the restriction serve a legitimate purpose, and then assess whether the proposed restriction is a suitable means for furthering the same ends, meaning it has a rational connection with the purpose.

In the third prong, courts examine whether the restriction is necessary to achieve the desired end. When assessing the necessity of the measure, the courts consider whether a less intrusive alternative is available to achieve the same ends, aiming for minimal impairment.

The fourth prong, the balancing stage has been a matter of debate amongst jurists and courts. Some jurists believe that balancing is ambiguous and value based. This stems from the premise of rule-based legal adjudication, where courts determine entitlements rather than balancing interests. However, proportionality is a standard-based review rather than a rule-based one. Given the diversity of factual scenarios, the balancing stage enables judges to consider various factors by analysing them against the standards proposed by the four prongs of proportionality. This ensures that all aspects of a case are carefully weighed in decision-making. This perspective finds support in the work of jurists who believe that constitutional rights and restrictions/measures are both principles, and thus they should be optimised/balanced to their fullest extent.

This is certainly not the first time that Courts in India have employed the doctrine of proportionality.

In Commissioner of Customs & Central Excise, Hyderabad vs H B Cargo Services - 2011-TIOL-198-HC-AP-CUS, the Andhra Pradesh High Court observed,

While issuance of signed blank shipping bills would, by itself, amount to negligence on the part of the CHA, their doing so for a consideration of Rs.150/- per shipping bill is an act of corruption. It is in this context that the proportionality of punishment imposed on the respondent, and the scope and amplitude of this doctrine, is required to be examined. "Proportionality" is a principle where the court is concerned with the process, method or manner in which the decision-maker has ordered his priorities, reached a conclusion or arrived at a decision. The very essence of decision-making consists in the attribution of relative importance to the factors and considerations in the case. The doctrine of proportionality places in focus the true nature of the exercise - the elaboration of a rule of permissible priorities. "Proportionality" involves "balancing test" and "necessity test". While the former (balancing test) permits scrutiny of excessive onerous penalties or infringement of rights or interests, and a manifest imbalance of relevant considerations, the latter (necessity test) limits infringement of human rights to the least restrictive alternative. What is otherwise within the discretionary domain and sole power of the decision maker to quantify the punishment, once the charge of misconduct stands proved, is exposed to judicial intervention if exercised in a manner which is out of proportion to the fault. Award of punishment, which is grossly in excess of the allegations, cannot claim immunity and remains open for interference under limited scope of judicial review. One of the tests to be applied, while dealing with the question of quantum of punishment, would be: would any reasonable person have imposed such punishment in like circumstances?

In CC Vs SPEEDY MULTIMODES PVT LTD, 2017-TIOL-3807-CESTAT-MUM the CESTAT observed,

Learned counsel submits that penalties imposed on others were very mild. Therefore, this respondent should not be imposed with a harsh penalty. It may be stated that doctrine of proportionality does not apply in penal proceedings when gravity of offence is different. Accordingly levy of suitable penalty is considered as proper measure to prevent recurrence of breach of law.

In Coimbatore District Central Co-operative Bank Ltd. vs Employees, the Supreme Court observed:

So far as the doctrine of proportionality is concerned, there is no gainsaying that the said doctrine has not only arrived in our legal system but has come to stay. With the rapid growth of administrative law and the need and necessity to control possible abuse of discretionary powers by various administrative authorities, certain principles have been evolved by courts. If an action taken by any authority is contrary to law, improper, irrational or otherwise unreasonable, a court of law can interfere with such action by exercising power of judicial review. One of such modes of exercising power, known to law is the doctrine - of proportionality.

Proportionality is a principle where the court is concerned with the process, method or manner in which the decision-maker has ordered his priorities, reached a conclusion or arrived at a decision. The very essence of decision-making consists in the attribution of relative importance to the factors and considerations in the case. The doctrine of proportionality thus steps in focus true nature of exercise - the elaboration of a rule of permissible priorities.

Even in our nascent simple GST, the Supreme Court applied the doctrine. In RADHA KRISHAN INDUSTRIES Vs STATE OF HP - 2021-TIOL-179-SC-GST, the Supreme Court observed,

By utilizing the expression "it is necessary so to do" the legislature has evinced an intent that an attachment is authorized not merely because it is expedient to do so (or profitable or practicable for the revenue to do so) but because it is necessary to do so in order to protect interest of the government revenue. Necessity postulates that the interest of the revenue can be protected only by a provisional attachment without which the interest of the revenue would stand defeated. Necessity in other words postulates a more stringent requirement than a mere expediency. A provisional attachment under Section 83 is contemplated during the pendency of certain proceedings, meaning thereby that a final demand or liability is yet to be crystallized. An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules. The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. Each of these ingredients must be strictly applied before a provisional attachment on the property of an assesses can be levied. The Commissioner must be alive to the fact that such provisions are not intended to authorize Commissioners to make pre-emptive strikes on the property of the assessee, merely because property is available for being attached. There must be a valid formation of the opinion that a provisional attachment is necessary for the purpose of protecting the interest of the government revenue.

These expressions in regard to both the purpose and necessity of provisional attachment implicate the doctrine of proportionality. Proportionality mandates the existence of a proximate or live link between the need for the attachment and the purpose which it is intended to secure. It also postulates the maintenance of a proportion between the nature and extent of the attachment and the purpose which is sought to be served by ordering it. Moreover, the words embodied in sub-Section (1) of Section 83, as interpreted above, would leave no manner of doubt that while ordering a provisional attachment the Commissioner must in the formation of the opinion act on the basis of tangible material on the basis of which the formation of opinion is based in regard to the existence of the statutory requirement.

In RK MOTORS Vs STATE TAX OFFICER, 2019-TIOL-431-HC-MAD-GST, the Madras High Court observed,

The specific stand taken by the writ petitioner is that the driver without knowing the correct route had taken a wrong turn and headed towards Sivakasi.

It is also not in dispute that the bill is addressed only to the writ petitioner's principal office at Sivakasi; delivery alone is to be made at Virudhunagar. I am of the view that even if by mistake, a wrong instruction had been given to the driver of the vehicle to head towards Sivakasi. Still, it would not really matter. The only question that the respondent ought to have posed is whether there is any attempt at evasion. It is not as if the goods had already been offloaded. The vehicle was intercepted when it was in transit. The respondent ought to have directed the driver of the vehicle to move back towards Virudhunagar. Instead adopting such a procedure, the respondent had chosen to be harsh and vindictive. When the writ petitioner is a registered dealer, when the tax in respect of the goods have already been remitted and when the transportation of goods is duly covered by proper documentation, the respondent ought to have taken a sympathetic and indulgent view of the lapse committed by the driver of the vehicle. The detention order dated 28.12.2018 and the order dated 11.01.2019 suffer from vice of gross unreasonableness and disproportionality. When a power is conferred on a statutory authority, it should be exercised in a reasonable manner.

GST officers should always keep in mind the sagacious words of the Supreme Court,

The Commissioner must be alive to the fact that such provisions are not intended to authorize Commissioners to make pre-emptive strikes on the property of the assessee, merely because property is available for being attached.

Doctrine of Proportionality in GST - It's like trying to fit an elephant into a mini-car - completely disproportionate!

Until next week