FEBRUARY 22, 2019

By Mukul Gupta, Shiva Nagesh & Nainshree Goyal, Advocates

SECTION 109(1) of The Central Goods and Services Act 2017 (Central Act) mandates Central Government to constitute a Goods and Services Tax Appellate Tribunal (GSTAT) on the recommendations of the GST Council.

Let us examine Section 109 and sub section (1), (2) and (3) which is reproduced:

1. Sub Section (1) empowers the Central Government to constitute the Goods and Services Tax Appellate Tribunal (GSTAT)

2. Sub Section (2) provides for the exercise of powers of the Tribunal by the National Bench, State Benches, Regional Benches and Area Benches

3. Sub Section (3) is the most important and critical statutory provision since it specifies about the composition of the GSTAT that the National Bench would be presided over by the President and shall consist of one Technical Member (Centre) and one Technical Member (State)

The Union Cabinet on 23rd January 2019 approved and released a press note for the creation of Goods and Services Appellate Tribunal (GSTAT) with the National Bench of the Goods and Services Tax Appellate Tribunal (GSTAT) to be located at New Delhi and shall consist of a President and two technical members one from the Centre and one from the State respectively. After the creation of the GSTAT any person aggrieved by an order passed against him under Section 107 or Section 108 of this Central Goods and Services Act (CGST) or the State Goods and Services Act (SGST) or the Union Territory Goods and Services Act (UTGST) may appeal to the Appellate Tribunal against such order within three months from the date on which order sought to be appealed against is communicated to person preferring the appeal. The creation of the GSTAT without any judicial member in the bench stands on a very weak judicial footing and will have to withstand the judicial scrutiny against the settled legal position.

Current Legal position

The Supreme Court has held in unequivocal terms in plethora of judgments that the presence of Judicial Member in the Tribunal is sine-qua-non for its creation. Absence of Judicial Member would render the entire judicial process otiose. It is apprehended that absence of Judicial Member would hinder the correct dispensation of justice resulting in clogging of the Judicial system with litigants travelling all the way to High Courts and Supreme Court and thereby defeating the main objective of creation of Tribunals i.e. to mitigate the burden on the higher judiciary. It is imperative that the Higher Courts namely High Courts and Apex Court are not required to consume their precious time and energy in examining issue and rendering justice on issues which could be decided at the level of the Tribunal. Presence of a Judicial Member will ensure that the tax litigant is given a fair hearing before the Tribunal and absence of a Judicial Member would be violating Article 323 B of the Constitution of India. The creation of GSTAT without a Judicial Member would be directly against settled legal position held by the Apex Court in a plethora of Judgments over the years. It is imperative that the Tribunal being a creature of Statute must apply its mind on all the issues agitated before it both on facts and on law interpreting the Statute in its entirety and applying the correct principles of Law. GST Law is in its nascent stage and it is absolutely necessary that proper justice is rendered to the assessees from the inception who approach the Tribunal in the hope of obtaining a fair hearing and orders. Currently the CESTAT continues to hear the appeals filed before it under the erstwhile regime of Central Excise Act and Finance Act. The assesses are heard by a Single member bench or Double member bench depending on the pecuniary limits of the appeals by either a judicial or technical member (Single bench) or by both technical and judicial members collectively (Double bench) as the case may be. It is submitted that the GST law committee should immediately recommend to the GST council for amending Section 109 sub section (4) in particular and include one judicial member in the National Bench and in all other Benches proposed to be constituted. Such a step should be taken immediately before the Central Government notifies the creation of the Tribunal.

History of Tribunals in the Indian legal system

Part XIVA and Article 323 A and 323 B of the Constitution of India mandates the Parliament to provide for Administrative Tribunals and Tribunals for other matters respectively. Appellate Tribunals under different Acts have been set up over the years to provide judicial support and acts as mediator between the judicial system and department and public. Tribunals have been established under different statutes with the aim to overcome lags and delays in the judicial system, answer the queries of public with respect to functioning of the administrative authorities. "The term 'Tribunal', not being a term of art, referred to any dispute-resolution body or process, from the regular courts of law, through domestic bodies regulating clubs, societies and professions, to ministers making decisions in the course of their administrative duties." Stebbings, Chantal, Legal Foundations of Tribunals in Nineteenth Century England, Cambridge University Press, New York, 1st edn., 2006 at p. 3. It reduces the burden of judiciary by sharing lower value cases or cases involving and deciphering facts. Based on the recommendations of the Swaran Singh Committee, Part XIV-A was added by the Constitution (Forty-Second Amendment) Act, 1976, titled as 'Tribunals' which provided for the establishment of 'Administrative Tribunals' under Article 323-A and 'Tribunals for other matters' under Article 323-B. The Constitution (Forty-Second Amendment) Act, 1976 is as under:

"To reduce the mounting arrears in High Courts and to secure the speedy disposal of service matters, revenue matters and certain other matters of special importance in the context of the socio-economic development and progress, it is considered expedient to provide for administrative and other tribunals for dealing with such matters while preserving the jurisdiction of the Supreme Court in regard to such matters under article 136 of the Constitution."

Administrative Tribunals Act 1985 helped achieve the aim of establishing the Tribunals to reduce the burden with the courts. Various matters come under these Tribunals. Administrative Tribunals created under Article 323A do not have to follow rules of Evidence Act 1872 but have been vested with the powers of Civil Court in respect of some matters including the review of their own decisions and are bound by the principles of law and natural justice.

"Where a statutory Authority is empowered to take a decision which affects the rights of persons and such an authority under the relevant law required to make an enquiry and hear the parties, such authority is quasi-judicial and decision rendered by it is a quasi-judicial act." Quasi-Judicial, Justice (R) Shabbir Ahmed, available at:

Rex v. Electricity Commissioners, (1924) 1 KB 171

To ensure that Tribunal fulfils the principle of law and natural justice and is fulfilling its duty judicially, the Members of Tribunals must be member of judicial or legal fraternity. Setting up of tribunal with technical members only and no judicial members will reduce the number of cases reaching the courts directly, but will it be sufficient to achieve the goal? The technical members do not have in-depth understanding of the law. They have pro-department/revenue approach in their decision making thought process. This may initially reduce the number of cases going to courts, but will ultimately increase the cases as, those not satisfied with the order of the appellate tribunal will go to the court ultimately. This is burden on the people and the economy as well. This does not help in achieving the aim of setting up appellate tribunals. Tribunal has not been defined, but various cases set the principle and working for tribunals and appellate tribunals. In Associated Cement Co. Ltd. v. P.N. Sharma AIR 1965 S.C. 1595 it was held that "the basic and fundamental feature that is common to both the Courts and the tribunals is that they discharge judicial functions and exercise judicial powers which inherently vest in a sovereign State". In Durga Shankar Mehta v. Raghuraj Singh AIR 1954 SC 520, the Supreme Court of India held that the 'Tribunal' according to Article 136 does not mean 'Court' but includes within it, all adjudicating bodies, provided they are constituted by State to exercise judicial powers as distinguished from discharging of administrative or legislative functions.

Existing Tribunals under other non-Tax Statutes

A cursory glance at the composition of various tribunals under other non-tax statutes would prove that all of them have one judicial member in the bench constituted under the respective Acts.

A few examples are cited below:

1. Companies Act 2013 under Section 411 states the qualifications of Chair-person and Members of Appellate Tribunal where a (1) The Chairperson shall be a person who is or has been a Judge of the Supreme Court or the Chief Justice of a High Court and (2) A Judicial Member shall be a person who is or has been a Judge of a High Court or is a Judicial Member of the Tribunal for five years. The competition law follows the same pattern for appellate tribunal. Insurance Act also works through NCLAT.

2. Composition of Securities Appellate Tribunal under Section 15L under Securities and Exchange Board of India Act, 1992 also makes it mandatory to include Judicial Member as the member of the Appellate Tribunal with being judge of 5-7 years of experience.

3. In the Foreign Exchange Management Act, 1999, S. 20 of the Act gives description of composition of the Appellate Tribunal which makes it compulsory to have Judicial Members as the member of the Appellate Tribunal.

Existing Tribunals under the Tax regime

- Income tax Act 1961

ITAT (Income Tax Appellate Tribunal) must have a Judicial Member under Section 252 of Income tax Act 1961.

"The Central Government shall constitute an Appellate Tribunal consisting of as many judicial and accountant members as it thinks fit to exercise the powers and discharge the functions conferred on the Appellate Tribunal by this Act." as well as

"A Judicial Member shall be a person who has for at least ten years held a judicial office in the territory of India or who has been a member of the Central Legal Service and has held a post in Grade 1 of that Service or any equivalent or higher post for at least three years or who has been an advocate for at least ten years."

- Customs Act 1962

Section 129 of the Customs Act 1962 provides for the establishment of Central Excise and Service Tax Appellate Tribunal (erstwhile CEGAT) which runs "The Central Government shall constitute an Appellate Tribunal to be called the 'Customs, Excise and Service Tax Appellate Tribunal consisting of as many judicial and technical members as it thinks fit to exercise the powers and discharge the functions conferred on the Appellate Tribunal by this Act." Further, it provides "A judicial member shall be a person who has for at least ten years held a judicial office in the territory of India or who has been a member of the Indian Legal Service and has held a post in Grade I of that service or any equivalent or higher post for at least three years, or who has been an advocate for at least ten years."

There is no need for any departure from the existing practice of having a judicial member especially in the GST regime which is touted as the most revolutionary indirect tax regime post Independent India and glorified as "ONE NATION ONE TAX". Over the years we have witnessed some landmark orders passed by the tax tribunals and CESTAT in particular. The Honble Supreme has taken cognizance of the various orders passed by the CESTAT by confirming them.

- Central Sales Tax Act 1956

S. 19 of the Central Sales Tax Act mandates creation of Central Sales Tax Appellate Authority, and states explicitly as follows

"The Authority shall consist of the following Members appointed by the Central Government, namely:- (a) a Chairman, who is a retired Judge of the Supreme Court, or a retired Chief Justice of a High Court; (b) an officer of the Indian Legal Service who is, or is qualified to be, an Additional Secretary to the Government of India".

- State VAT Tribunal constituted under the erstwhile State VAT Acts

Most of the erstwhile State VAT statutes created Tribunals at the State level to hear and dispose-off VAT tax disputes and Judicial Members were a part of the bench which heard the case and passed orders. Every State has the President/Chairman as a Judicial Member along with a Judicial Member and Technical Member in their larger bench and a Judicial Member along with a Technical Member in their double bench.

Judicial precedents -Settled Legal position

The Apex courts in a series of judgements have time and again reiterated the presence of judicial member as a sine-qua-non for the validity of the Tribunals. Some of the illustrious judgments rendered by the Apex Court:

In the case of Union of India (UOI) Vs. R. Gandhi and Ors - 2010-TIOL-39-SC-MISC, the following extracts have been taken from Para 18, "Tribunals should have a Judicial Member and a Technical Member. The Judicial Member will act as a bulwark against apprehensions of bias and will ensure compliance with basic principles of natural justice such as fair hearing and reasoned orders. The Judicial Member would also ensure impartiality, fairness and reasonableness in consideration. The presence of Technical Member ensures the availability of expertise and experience related to the field of adjudication for which the special Tribunal is created, thereby improving the quality of adjudication and decision-making". Para 14 brought the point that, "Courts are exclusively manned by Judges. Tribunals can have a Judge as the sole member, or can have a combination of a Judicial Member and a Technical Member who is an 'expert' in the field to which Tribunal relates. Some highly specialized fact finding Tribunals may have only Technical Members, but they are rare and are exceptions." And para 35 says that, "In respect of such Tribunals, only members of the Judiciary should be the Presiding Officers/members of such Tribunals. Typical examples of such special Tribunals are Rent Tribunals, Motor Accident Tribunals and Special Courts under several Enactments."

Also for our consideration, "It was expected that a judicious mix of judicial members and those with grass-roots experience would best serve this purpose. To hold that the Tribunal should consist only of judicial members would attack the primary basis of the theory pursuant to which they have been constituted." L. Chandra Kumar v. Union of India - 2002-TIOL-159-SC-CB

The Constitution Bench in Union of India (UOI) Vs. R. Gandhi observed that if Tribunals are to be given judicial power which was earlier exercised by courts, they must possess independence, security and capacity associated with courts.

In Madras Bar Association versus Union of India - 2014-TIOL-82-SC-MISC-CB, it was observed that the newly constituted Tribunals will be invalidly constituted unless its members are appointed in same manner and are entitled to same conditions of service as were available to the judges of the courts sought to be substituted. Appointment of non-judicial members may constitute dilution and encroachment upon independence of judiciary and rule of law. The accountant members or technical members could not handle complicated questions of law. The judicial members are to handle substantial questions of law. Mere technical knowledge or knowledge of accounts was not enough Paras 126-127.

In Gujarat Urja Vikas Nigam Limited versus Essar Power Limited, it was upheld that, "Composition of the appellate Tribunal dealing with questions of law being manned by non-judicial members was not desirable which called for a review of composition of such Tribunals" (2016) 9 SCC 103.

Conclusion and recommendation

In view of the above discussion and settled legal position it is imperative that the proposed GSTAT must have a judicial member in all the benches. The step to create an Appellate Tribunal under GST is much-needed and welcome move but the attempt to have bias-free decision making mechanism will fail if the Tribunal does not have a Judicial Member. The Appellate Tribunal must have at least one Judicial Member along with Technical Member to ensure a fair hearing and to ensure decisions based on correct interpretation of GST Act across the country. There is need to have judicial member in the appellate tribunal along with the presiding officer, both shall be of the legal background/ judicial member with certain number of experience in the industry. The number of members in the appellate authority is always odd number for the majority to prevail while deciding the case, where there is no veto power. Hence, inclusion of judicial member is must. In all fairness let us start the process of GSTAT creation on the right note and ensure a fair and reasonable hearing to all the stake holders in tax litigation in the interest of Justice.

(The authors are Senior Partner, Partner-Litigation & Advisory and Associate Lawyer respectively with Sharnam Legal, Ghaziabad. The views expressed are strictly personal.)