JANUARY 19, 2015

GST Bill - a mind boggling constitutional complexity

Excerpts from the speech of Justice Raghuram at FAPCCI, Hyderabad on January 17, 2015

INDIRECT taxes is a new beast even for the regular tax practitioners.As a new kid on the block, I was made to sit on a tax bench in Andhra Pradesh. Before sitting in the tax bench or while sitting on the tax bench or after having demitted office as a judge of the Andhra Pradesh high court, I still do not know how to fill up my income tax form. But I still decided a few tax cases and some of my friends even in their saner moments say that I didn't do so badly.

When it comes to tax administration I am a district level hospital in the hierarchy; the primary health centre is the adjudicating commissioner, may be a superintendent adjudicator or a commissioner adjudicator; high court is something like a general hospital. Supreme Court is intensive care unit and mostly either bypassing the Supreme Court or before the Supreme Court you go to the mortuary; the gestation period in the Supreme Court ultimately kills the enterprise. It is like Kuchela's family in the Supreme Court; all the children are crying and you don't have the money. After sometime they get desensitised due to the volumes before them. Even in the tribunal, I am dealing with something in the region of a hundred thousand cases today and a modest estimate is about Rs. 2.47 lakh crores i.e. the money that is in the pipeline of adjudication in the tribunal and the statistical data shows that the success of departmental adjudication is in the order of fifteen percent. There is too much of public money - salaries and establishment chasing too little of real accretion to the consolidated fund of India.

This is a compulsive evidence of a deep pathology in departmental adjudication. Two interpretations are possible - one that the judges are not able to understand the law as well as the commissioners are able to - one interpretation, which is comfortable for the departmental family. For some reason the legal profession is unable to sell the jurisprudence of indirect taxation to the judiciary. Judges are not able to receive appropriate signals and understand the law as well as my commissioners are able to do.But perhaps that may not be the accurate way of looking at it because in the hierarchical situation what the judge says is the law. That is the nature of the interpretive beast. If the pro-family interpretation is to be assumed as hallucinatory, then we are left with the inescapable conclusion that something is pathologically, terminally and seriously wrong with our departmental adjudication.

Are all our departmental officers bad? What is wrong with our departmental adjudication? In my experience, somewhere we have lost our identity with democracy. The democratic integrity of law requires every public servant to recognise that he is not collecting. A commissioner is not collecting taxes; a commissioner is executing the mandate of the parliament; if a commissioner thinks (and using commissioner as a common integer for the department)that he is collecting the taxes, the country is in peril because that is what our Hollywood and Bollywood rowdies do; they collect money without the authority of law. We don't collect the money; we execute the mandate of Parliament; we are administrators of the legislative mandate.

The second great pathology of departmental adjudication is every assessee is looked upon with suspicion. In a democracy the assessee is writing the confidential report of the commissioner at the highest epistemological philosophical level; the assessees is saying I sent Mr. Chidambaram, Mr Jaitley and five hundred and forty two others to make laws; my representatives to whom I gave a five year tenure only and if they don't deliver I will give them the order of the boot every five years. The excise law, the customs law and the service tax law - these are my laws; I have appointed these commissioner chaps. I have created a good body of my employees. I give them salary, give them comforts, I give them a car; I give them LTC, I give them promotions; 7th and 8th Pay Commissions. I give them a reasonable upkeep. Even when he is making my assessment at the epistemological level the assessees is saying ‘this fellow has understood the law reasonably well. He has rightly found me liable to pay taxes. I will give him a good grade.' This is what happens in a democracy. The fellow who is waiting to be sentenced to death by the district judge is simultaneously writing the confidential report of the district judge - that is the essence of democracy. Therefore if you start with the presumption that all assessees are crooks, then you have committed an autocide since we do not recruit our public servants from non-Indians. If 1.2 billon Indians are crooks then it is impossible to have an honest commissioner. Commissioner is also a crook because he comes from the same fabric that India produces.

Take each case on its merits; analyse the evidence and if you find a particular assessee pathological, then he is a crook in that assessment only; next assessment he is an honest citizen and again he will write your confidential report. So you should have an attitude of consistent neutrality in your mind; you should banish the demons, the anti-democratic demons and treat every assessee fairly and give them the benefit of doubt. It is not a judicial principle; it's principle for survival.

Any interpreter of law should try to understand and interpret law under its normal principles of interpretation. After you acquire certain level of expertise in the branch of jurisprudence and interpretation then you can play with the notes.

If you rush the young lawyer he will become a bad old lawyer.

In interpreting a statute, take the plain meaning. When you take the plain meaning what are you reading? What is a unit of interpretation? The unit of interpretation is not a rule or provision of a central excise rule or a punctuation mark or a dead mosquito in the customs tariff; it is that provision in a setting in customs law and excise law or whatever in a setting of Board circulars; in a setting of organic charter of the constitution; in a setting of international law were the world is merging in to a global village - all the signals converge to interpret the law. That is why many persons who are at the lower level of comprehension of law tend to disagree more and more with higher courts' judgements. Good accomplished judges look at law with multiple lenses. They look at law with a telephoto lens; with a wide-angle lens;with a close-up lens - you get a whole portrait. Otherwise it is the blind men of Hindustan describing the elephant as a fan, a palm tree a, rope; you have to look at law with multiple lenses. The panorama of law is very wide; the orbit of law is a small planet in a multiple galaxy.

When you start practising law in the traditional form you understand your law better, you have a neutral commitment to law as a discipline by itself. And then you identify the principles of law, you expend a similar amount of intellectual and forensic skills on the identification of facts whether it be an evasion case or a clandestine manufacture case or a case of interpretation or misinterpretation or a wrong interpretation of a provision of service tax, you have to identify the facts.

The lawyer churns or distils the great ore of facts that the client offers. And takes out the rough diamond, that rough diamond is presented to the judge as a brilliant Crystal - the other side says it is an American diamond. The judge analyses, uses his skills, cuts the diamond - the Surat job done and if it's a useless piece of crystal, it is rejected. If it's a good piece of carbon, then it is polished into a fine piece of diamond ready to adorn the heart of a discerning public. This process of mining of facts, the transformation and transmutation of rough facts into processed legal facts takes at one level before the lawyer and the consultant. And the final polishing industry is the judge.The judge is like the river; he doesn't normally rise above the banks. Flooding is only occasional. And flooding is disaster. If a judge starts regularly flooding, it will only be a flood - disaster. Normally the judge is guided by the bar, by the consultant, by the lawyers; you have to guide him properly. Adversarial no doubt but still a guide. Just as the river has two banks the revenue lawyers and the assessee's lawyers put the judges in the locus of the law and facts and guide him to the port of comfort - legal comfort.

Assessees are normally at war with the commissioners. War has, subject to Vienna conventions, no moral connotations. You fight to kill. In a civil engagement whether it's a civil engagement or a tax engagement, there are ethical values around which we operate. The assessee should realise that the commissioner is his employee administering his law not the commissioner's law. If you are administering commissioner's law it will be shameful to live in this country. The reason; Article 265 dictates that there cannot be taxation without representation- this has its roots in the American civil war - no taxes without representation. Only you can tax yourself, nobody else has the guts to tax you. If anybody is taxing you without the authority of law, he is a thug and he requires to be arrested, put behind bars, his liberty ceased and property confiscated. You need to have the authority of legislation to extract the tax. A legislative extraction is a sine-qua-non for taxation. So assessee should realize that he his taxing himself - that is what happens in a democracy.

Whenever an assessee or a group of assessees or a society of assessees come to believe that it is a Bollywood movie; we have to chase a commissioner all over the trees and see that he loses his path and comes only for the final group photograph when the hero has already taken care of the villain, then the country is in peril;when the country is in peril, the assessee is in peril. Therefore you are not at war with the commissioner. When the show cause notice is given, don't shiver; take it boldly because there is nothing to shiver. If you are a crook there is everything to shiver if you are not, if you are merely putting a point - put the facts before him and say these are my facts. This is my understanding of the law, you must assess me. You don't hide facts. You tell him these are the whole facts.

My dear Commissioners, you have the power of the Indian Republic behind you. Don't have the arrogance of power; have the humility of public responsibility. Stand up boldly, represent the people of India, understand the Law rightly, analyse the facts correctly, marry the appropriate law, the distilled law with the appreciated facts and the result will come. Don't look down upon a poor assessee; don't genuflect before a powerful assessee.

People respect you for what you have not done; for not being arrogant, for not being corrupt, for not displaying the pathologies of public power, for being simple - they respect you; that respect is not derived by the wielders of public power. That power goes away on the date of your retirement. That is why many people feel sad on the day of their retirement; they don't see it as a day of liberation. They see it as a day of deprivation of public power. But if you are a good public servant, if you wear your coat light - you should take public service as a Railway platform where you have a platform ticket for two hours, you own neither the train nor the platform.

The assessee must respect the Commissioner. Respect the Commissioner as doing your own job.

When the law becomes dysfunctional more harsh laws come. The harsher the law, the harsher the execution.

Today most assessees going to the Commissioner at the departmental adjudication level feels it is an inevitable trauma. I cannot go to the Tribunal unless I go through the tortuous vicuna of the Commissioner's office. That is a shameful episode in our Republic. I practically find no damn difference between the Chief Justice of India and the Superintendent adjudicator. When the assessee loses faith in us - he treats us an enemy, as an unavoidable trauma, then the war is lost even before it has begun.

I have been interacting with the highest level of Government on this pathology. I have submitted a 60 page report to the Parthasarathy Shome Committee saying that this whole thing is nonsensical and blasphemous.

I have told the highest policy makers of this country that departmental adjudication is a blasphemy; it is something like a Superintendent of Police writing the confidential report of a District Judge. If a revenue collecting Chief Commissioner is writing the confidential report of an adjudicating Commissioner or Superintendent something seriously wrong has taken place in the adjudication process of our country. An adjudicating Officer should be assessed on the basis of adjudicatory qualities. How is the quality of judgement, how is the appreciation of evidence, how is the understanding of law, not how much he has collected.

Coming to the Law proper, Customs and Central Excise, the law has stabilised. The clandestine removal and all that are the usual whod unit stories that can be easily taken care of by the application of principles of evidence - criminal and civil substantive laws. The classification and valuation disputes are mostly settled. Service Tax is absolutely new beast. And even in the positive list it was extremely and excessively dynamic. By the time you got used to that metabolic disorder, you had the negative list. By the time you are coming to terms with this additional metabolic disorder, now you have the GST on the anvil. You are in a continuous state of pathology economically very beneficial to the practitioner but traumatic to him as well.

In traditional law what happens is if you are a hardworking fellow, in one year you will understand the law; and you know what to speak; it will take you to the next forty years till you retire to understand when to shut your mouth. Like a history teacher - battle of Panipat - five years of hard work and the rest of your life you can cash in on that.

When I saw the GST Bill, it is mind boggling constitutional complexity. It is neither the exclusive list nor the concurrent list; it's a fourth dimensional animal. It is post Einstenian Physics. Heisenberg's uncertainty of quantum mechanics is elementary compared to the complexity of this. Even the political complexity of States and Union coming together on a continual basis to ratchet the policy of GST is a huge challenge. It is an economical challenge, it is a political challenge, policy challenge, an administrative challenge; it's an adjudication challenge. So that is the next animal that is waiting to pounce on you. But we have to fight, we have to survive.

As far as professionals are concerned, you can no longer live on the battle of Panipat. Every day history is being written and therefore you cannot ride into your professional sun set by just memorising the battle of Panipat. That is the challenge of dynamic tax legislation.

As Justice Actin said, there is no presumption that the Judge knows the law. The legitimacy of the bar is dependent on the presumption that the judge does not know the Law. The assessee manufactures the facts, the consultant presents the facts mixed with the adversarial law. The judge is only like a server in a five star hotel who wears a glove and then whatever the cook prepares he serves it well on the table.

I don't have delusions of being a pundit at law. I only believe that I can understand when a law is argued before me and a fact is presented before me. And I am a reasonably trained chef.

[Please also see DDT 2520]