SEPTEMBER 25, 2019

By Vijay Kumar

TO add one more line of confusion to the much battered simple tax called GST, the GST Appellate Tribunal was all set to be launched before the unfortunate taxpayers and their legal counsels. But wait, there is a break.

To recall the salient features of the to be soon launched Tribunal, each bench of the GSTAT will have two technical members and one judicial member. The Technical Members are from the GST Departments and the Judicial Members are to be selected from High Court Judges, District Judges and Indian Legal Service officers of Additional Secretary level. Why should these distinguished dignitaries join the Tribunal to sit along with Additional Commissioners of the GST Department, is a question we will have to answer in the days to come. And the fun is the bench will have a majority of these additional commissioners who can overrule the decision of the minority Judicial Member who is a judge of a High Court or District Court. Another funny feature is that lawyers are not eligible to be appointed as Judicial Members of this mighty Tribunal. A lawyer can be straight away catapulted from the Bar to Bench. He can be appointed as a Supreme Court Judge, a High Court Judge or a Judicial Member in many of the Tribunals, but GST Appellate Tribunal, No. There is a bar on bar.

Anyway, fortunately, when bureaucrats, who write the laws for the legislators and then interpret them as to what the legislative intent was, make a mess of legal drafting, the higher courts in the country have not hesitated to iron the creases.

Just a few days ago, the Madras High Court held the constitution of the GST Appellate Tribunal unconstitutional. - 2019-TIOL-2188-HC-MAD-GST

The questions before the High Court were:

1.   Whether the exclusion of advocates from being considered for appointment as a Judicial Member in GST Appellate Tribunal, is violative of Article 14 of the Constitution of India.

2. Whether Section 110 (b)(iii) which makes a member of the Indian Legal Service, eligible to be appointed as a Judicial Member of the appellate tribunal, contrary to the law laid down by the Hon'ble Supreme Court in Union of India Vs. R.Gandhi reported in 2010-TIOL-39-SC-MISC .

3.   Whether the composition of the GST Appellate Tribunal, which consists of one Judicial Member, one Technical Member (Centre) and one Technical Member (State), by which the administrative members outnumber the judicial member is violative of Articles 14 and 50 of the Constitution of India.

Lawyers as Judicial Members : Even though the constitutional validity of Section 110(1)(b) cannot be struck down on the ground of non-inclusion of advocates as being eligible for being considered for appointment as Judicial Member to the Appellate Tribunal under the CGST, yet the High Court was of the opinion that the Union of India must evaluate as to why it is making a departure from the existing practice. Advocates are eligible to be appointed as Judicial Members in the ITAT which is the oldest Tribunal in the country. Lawyers are eligible for appointment as Judicial Member in the Customs, Excise and Service Tax Appellate Tribunal. When the constitution provides that lawyers are eligible to be appointed as Judges of the High Court, then there is no reason to exclude them from being considered for appointment as Judicial Members. Keeping in mind the existing practice in appointing lawyers to various Tribunals as Judicial Members and the various issues that are likely to arise while adjudicating disputes under the CGST Act, the High Court recommended that the Parliament should reconsider the issue regarding the eligibility of lawyers to be appointed as Judicial Members in the Appellate Tribunal.

Indian Legal Service Officers as Judicial Members : The challenge to appointment of a person, who is or has been a member of Indian Legal Service and has held a post not less than Additional Secretary for a period of three years, is no longer res integra. The issue stands settled. Paragraph No.120 in Union of India Vs. R.Gandhi categorically states that a person who has held a position under the Indian Legal service cannot be considered for appointment as judicial members. And the High Court had no difficulty in striking down this provision.

Majority of Technical Members : The High Court observed that tribunals which primarily decide disputes between State and citizens cannot be run by a majority consisting of non-judicial members. The High Court further noted;

The tribunal consists of three members. Out of the three members, only one is a judicial member. The other two members are technical members, who would ordinarily possess little experience in law, though they might be otherwise adept in the understanding of the taxing statute. In these circumstances, in a bench of 3 members, two of which would be technical members, there exists the possibility of the two technical members, arriving at a view, different from that of the Judicial member. Undoubtedly, mere possibility of the malafide exercise of power is no ground to strike down an enactment, but in the instant case, the appropriateness of the tribunal discharging judicial function was in question. Naturally, in all GST related issues, the litigation shall be between an Assessee and the Govt. and this is yet another reason, that the presence of two members from the Govt. would create a further apprehension of bias, and lead an Assessee to believe, that perhaps the remedy itself is non-existent. This is of greater importance in view of the fact, that the Tribunal is discharging Judicial Function.

Even under the Income Tax Act, 1961, the Parliament consciously chose to create a tribunal, which would comprise of a single judicial member, and a single accountant member. This would ensure that the matter before the ITAT, would have both a Judicial mind and an accountant mind applying to it, and both would have equal weight in the matter.

The issue regarding dominance of the technical members and constitutional validity of the same shall have to be examined keeping in mind the Judgements of the Hon'ble Supreme Court, relating to the importance of the independence of the Judiciary, as well as the manner in which the Parliament could establish Tribunals, to discharge what is essentially a Judicial Function.

Law has been settled by the Hon'ble Supreme Court, insofar, as the creation of alternative institutions which would exercise judicial function, would be that the alternative institutional mechanism must not be less effective than the High Court. The Parliament, therefore, only has the power to set up an alternative institutional mechanism, insofar as such institution offers an effective mechanism which is no less effective than a High Court. To be as effective as a High Court, would not be limited to having powers akin to High Court, it would also include the ability to exercise judicial function akin to a High Court, in the sense of being impartial and independent.

It is well settled that while giving judicial decisions, Judges should be able to act impartially, objectively and without any bias. Infact the Hon'ble Supreme Court in Manak Lal (Shri), Advocate Vs. Prem Chand Singhvi and Others, reported in 2002-TIOL-2725-SC-MISC-LB has observed that when a tribunal or a Court decides the matter, the test is not whether in fact a bias has affected the judgment. The test always is and must be whether a litigant could reasonably apprehend that a bias attributable to a member of the Tribunal might have operated against him in the final decision of the tribunal .

The principle which emerges is that while deciding issues as to whether the decision making process by the adjudicating authority or the appellate authority was just, fair and reasonable and to decide issues regarding interpretation of notifications and sections under the CGST Act a properly trained judicial mind is necessary which the experts will not have. The number of expert members, therefore, cannot exceed the number of judicial members on the bench.

In the result, the High Court -

(i)   Struck down Section 110(1)(b)(iii) of the CGST Act which states that a Member of the Indian Legal Services, who has held a post not less than Additional Secretary for three years, can be appointed as a Judicial Member in GSTAT.

(ii) Struck down Section 109(3) and 109(9) of the CGST Act, 2017 which prescribes that the tribunal shall consists of one Judicial Member, one Technical Member (Centre) and one Technical Member (State).

(iii)  Rejected the argument that Sections 109 & 110 of the CGST Act, 2017 and TNGST Act, 2017are ultra vires, insofar as exclusion of lawyers from the scope and view for consideration as members of the tribunal. However, the High Court recommended that the Parliament must consider to amend section for including lawyers to be eligible to be appointed as Judicial Members to the Appellate Tribunal in view of the issues which are likely to arise for adjudication under the CGST Act and in order to maintain uniformity in various statutes.

What Will Happen Now?

The Government has two major options:

1.   Respect the High Court Order and amend the Act accordingly.

2.   Contest the High Court Order in the Supreme Court.

What Happens to appeals?:

While the GSTAT cannot function now due to the High Court's order, what is the fate of appeals which are to be made to the Tribunal? They will all go to the High Courts. The heavy burden of GST has fallen on our already overloaded High Courts.

Also read our Guest column article - Time to revamp GSTAT

The Technical Majority:

A Judicial Member of the CESTAT once told me that he was amazed at the jurisprudential knowledge and judicial mind of some technical members and he has learnt quite a bit of law from them. We had some very erudite technical Members in the CESTAT, whose understanding and interpretation of laws were of a very high standard. A recently retired Judicial Member said his guru in the CESTAT was a technical Member, who was held in awe even by the President who was a retired Chief Justice. But there has been a classic case of three Technical Members of the Tribunal not agreeing with the decision of the Judicial Members including the President and that too on a purely judicial matter. The erudite conclusions arrived at by the President after extensive research into the amazing realms of judicial interpretation of various shades of legislation - was overruled by three technical members - interpreting legislative principles. -  2015-TIOL-527-CESTAT-DEL-LB .

Until Next Week