“Constitution of GST Appellate Tribunal is unconstitutional.”
Madras High Court: A Division Bench comprising of S. Manikumar and Subramonium Prasad, JJ., while deciding a writ petition in respect to declaring Sections 109 and 110 of the Central Goods and Services Tax Act, 2017 and Tamil Nadu Goods and Services Tax Act, 2017 held that,
- 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, is 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), is struck down.
- The argument that Sections 109 & 110 of the CGST Act, 2017 and TNGST Act, 2017 are ultra vires, in so far as exclusion of lawyers from the scope and view for consideration as members of the tribunal, is rejected. 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.
Facts pertaining to the present case:
Present writ petition was filed for the issuance of a writ declaration in order to declare Sections 109 and 110 of the Central Goods and Services Tax Act, 2017 and Tamil Nadu Goods and Services Tax Act, 2017 as void, defective and unconstitutional.
The above-said sections relate to the constitution of the Goods and Services Tax Appellate Tribunal and the qualification and appointment of members.
Section 109 of the CGST Act, 2017 and the TNGST Act, 2017 lays down the constitution of the Appellate Tribunal and the benches thereof and Section 110 prescribes the qualification of the President and the members of the Appellate Tribunal.
Section 109 of the CGST Act, states that the Government shall on the recommendations of the Council, constitute an Appellate Tribunal, known as the Goods and Services Tax Appellate Tribunal, for hearing appeals against the orders passed by the Appellate Authority or the Revisional Authority.
Section 110 of the Act prescribes the qualification, appointment and conditions of service, etc., of the President and the Members of the Appellate Tribunal. President of the Appellate Tribunal is a retired judge of the Supreme Court of India or a sitting or retired Chief Justice of any High Court or a Judge of a High Court or a retired Judge of a High Court, with not less than five years of service.
Section 110 (2) prescribes that the President and the Judicial Members of the National Bench and Revisional Benches shall be appointed by the Government of India after consultation with the Chief Justice of India or its nominee.
The present writ petition challenges the validity of Sections 109 and 110 of the CGST Act, 2017 and TNGST Act, 2017, particularly the composition and qualification of the members to the Goods and Services Tax Appellate Tribunal.
Challenges laid down:
First Challenge – It is to the vires of Section 110 (1) (b) of the CGST Act on the ground of exclusion of lawyers from being eligible to be appointed as a Judicial Member of the Tribunal. The exclusion of lawyers from the zone of consideration as a Judicial Member is violative of Article 14 of the Constitution of India.
Advocates are eligible to be considered as members of various tribunals and there is no justification or reason as to why they should be excluded from the zone of consideration of being appointed as Judicial members under the CGST and TNGST Act.
There has been no valid explanation as to why the CGST Act, 2017 and TNGST Act, 2017 exclude Advocates having more than 10 years of experience, from being considered as Judicial Members of the Tribunal.
Another Challenge- Challenge to the consideration of a Member of the Indian Legal Services who is eligible for being appointed as a member of the Appellate Tribunal has also been placed.
Next Challenge- It is in respect to the Composition of the Appellate Tribunal.
Composition of the Appellate Tribunal of CGST or TNGST, as the case may be, under Sections 109(3) and 109(9) of the CGST Act, 2017 prescribes that the tribunal will consist of one Judicial Member, one Technical Member (Centre) and one Technical Member (State). Thus, there are two Technical Members as against one Judicial Member. The two Technical Members, therefore, can overrule the Judicial Member who will be in minority.
Contentions of the Senior Counsel, Arvind Datar, representing the petitioners:
He submitted that Section 110 (1) (b) of the CGST Act, 2017 lays down the qualification for appointment of a Judicial Member for Appellate Tribunal excludes advocates.
It is a departure from the existing practice of making Advocates with ten years experience at Bar and Advocates qualified for appointment as a Judge of a High Court, being considered as a Judicial Member of the tribunal.
Senior Counsel, Arvind Datar, placed reliance on the Supreme Court Judgment in R.K. Jain v. Union of India, (1993) 4 SCC 119, wherein the emphasis was on the need for recruitment of members f the Bar to man the tribunal.
“…Judicial review and remedy are fundamental rights of the citizens. The dispensation of justice by the tribunals is much to be desired. We are not doubting the ability of the members or Vice- Chairmen (non-Judges) who may be experts in their regular service. But judicial adjudication is a special process and would efficiently be administered by advocate Judges…”
Further substantiating his submissions, he stated that a lawyer with 10 years of experience in the subject would be in a better place to understand, appreciate and adjudicate the matters, which would be placed before the tribunal compared to a District Judge, who would not have experience at all for selection as a Judicial Member.
Reliance was placed on the decision of the Supreme Court in Madras Bar Association v. Union of India, (2014) 10 SCC 1, wherein it was that,
“…where the prescription of qualification was found by the court, to be not proper and conducive for the proper functioning of the Tribunal, it will result in invalidation of the relevant provisions relating to the constitution of the Tribunal. If the qualifications/eligibility criteria for appointment fail to ensure that the members of the Tribunal are able to discharge judicial functions, the said provisions cannot pass the scrutiny of the higher Judiciary.”
Section 110 (1) (b) which excludes lawyers from being considered eligible for appointment as Judicial Member of the Tribunal is arbitrary of Article 14 of the Constitution of India.
Counsel for the petitioner reiterated that a District Judge even though be fit to be a Judge of High Court, might not be as oriented to deal with subjects, without having any expertise in the taxation laws.
An officer of the Indian Legal Services would also have no training in law or judicial expertise. Excluding lawyers from the ambit of consideration without any reason whatsoever makes the Section 110(1) (b) as violative of Article 14 of the Constitution of India.
Practice of considering advocates for appointments to specialised tax tribunals have been continued without break from 1941 with the advent of the Income Tax Appellate Tribunal.
Denying the Advocates even the right of being considered will fall foul of the constitutional protection under Article 14 of the Constitution of India, as it would be capricious and irrational and more so, when there is no reason forthcoming from the respondents as to why lawyers are being excluded and why is there a departure from the norm of considering lawyers eligible to be appointed as Judicial Members of the tribunal.
For challenge in respect to the eligibility of a member of the Indian Legal Service for being considered as Judicial Member, reliance was placed on the Supreme Court decision in Union of India v. R. Gandhi, (2010) 11 SCC 1, to state that persons who have held a Group A post under Central or State Government with experience in the Indian Company Law Service (Legal Branch) and the Indian
Legal Service (Grade I) cannot be considered for appointment as judicial members while dealing with Section 10-FD(2)(c) and (d) of the Companies Act, 2013.
Adding to the above, he stated that Section 110(b)(iii) is per se contrary to the law laid down by the Supreme Court in the said judgment and must be struck down.
Further the Counsel for the petitioner submits that composition of the Benches in which the Technical Members would be in majority is unconstitutional and Section 109 of the CGST Act, 2017 which prescribes that two administrative members as against one judicial member is contrary to mandate of Article 50 of the Constitution of India and such a composition would seriously affect the independence of the judiciary.
Article 50 of the Constitution of India, provides that State shall take steps to separate the judiciary from the executive in the public services of the State.
If the majority members on the bench are administrative members then Article 50 stands diluted.
In all the cases, which come to the tribunal, the revenue is either respondent or the appellant and that any assessee would not be confident of getting justice because the composition of the tribunal is such, it would give a genuine impression that the tribunal might not be an independent body and that it will only carry out the orders of the Government.
It was also pointed by the Counsel for the petitioner that it is for the first time that a statute provides for a composition of a tribunal where the administrative members exceed the judicial members.
Judgments of the Supreme Court in Supreme Court Advocates-on-Record Assn. v. Union of India, (1993) 4 SCC 441 and Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17 was relied on.
Rajagopalan, Additional Solicitor General and Aparna Nandakumar, appeared on behalf of the Union of India:
They contended that there is no fundamental right for an Advocate to be considered for appointment as a Judicial Member of the tribunal.
Advocates Act, 1961 does not give any right to an Advocate, to be considered to be appointed as a Judge in a Tribunal and it is for the Government to decide as to whether an Advocate must or must not be considered to be eligible to be appointed as Judicial Member of the tribunal.
Union of India submitted that, since the minimum quorum of two members has already been prescribed under the GST Act, the apprehension entertained by the petitioner herein that there would be preponderance of technical members over judicial member is wholly untenable.
Conclusion
Bench considered the following issues:
- 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.
- 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 Supreme Court in Union of India v. R. Gandhi, (2010) 11 SCC 1.
- whether the composition of the National Bench, Regional Benches, State Bench and Area Benches 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 and the judgments of the Supreme Court of India.
High Court on perusal of the facts and submissions, has put its analysis and observation below:
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 or TNGST, yet this court is 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.
Senior Counsel Arvind Datar is justified in contending that 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 Officers.
Judgment of the Supreme Court case in R.K. Jain v. Union of India, it was held that
“…the Members of the tribunal must have a judicial approach and also knowledge and expertise in the particular branch of law.”
A lawyer practising for 10 years in Taxation would definitely be well-equipped to grapple with the legal issues arising under the Act.
High Court recommends that the Parliament should reconsider the issue regarding the eligibility of lawyers to be appointed as Judicial Members in the Appellate Tribunal.
Further, the Court added in respect to the other challenge of 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 3 years, is no longer res integra. The issue stand settled.
In Union of India v. R. Gandhi, (2010) 11 SCC 1, it has been categorically stated that a person who has held a position under the Indian Legal service cannot be considered for appointment as judicial members.
Court agreed with Counsel for the petitioner’s submission that the GSTAT is replacing the CESTAT, Sales Tax/ VAT Tribunals. The composition of GSTAT, therefore, has to be on the same lines.
Article 50 of the Constitution of India which provides for separation of the judiciary from the executive, must be interpreted in such a way that the dominance of the departmental/technical members, cannot overwhelmingly outweigh the judicial members.
Tribunals that primarily decide disputes between the State and citizens cannot be run by a majority consisting of non-judicial members.
Supreme Court in L. Chandrakumar v. Union of India, (1997) 3 SCC 261, after analysing the provisions in S.P. Sampath Kumar v. Union of India, 1987 (1) SCC 124 and M.B.Majumdar v. Union of India, (1990) 4 SCC 501, went on to hold that the tribunals created under Articles 323 and 323-B would not be a substitute for the High Court for the purpose of exercising Articles 226 & 227 of the Constitution of India. If that being so, then and in such cases, in order to maintain the independence of the judiciary, the expert members cannot outnumber the judicial members.
Supreme Court in L. Chandrakumar v. Union of India, (1997) 3 SCC 261 adverted to the Report of the Arrears Committee (1980-90), popularly known as the Manlimath Committee, which has made recommendations regarding functions of tribunals.
It specifically stated that tribunals have not inspired confidence in the public mind and the foremost reason being lack of competence, objectivity and judicial approach.
High Court added to its observation that 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 Government would create a further apprehension of bias, and lead an Assessee to believe, that perhaps the remedy itself is non-existent.
The issue regarding dominance of the technical members and constitutional validity of the same shall have to be examined keeping in mind the Judgments of the 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.
Following cases were noted by the Court with respect to the independence of judiciary:
- Indira Nehru Gandhi v. Raj Narain, 1975 Supp SCC 1
- Union of India v. Sankalchand Himatlal Sheth, (1977) 4 SCC 193
- Brij Mohan Lal v. Union of India, (2012) 6 SCC 502;
“… To preserve the doctrine of separation of powers, it is necessary that the provisions falling in the domain of judicial field are discharged by the judiciary and that too, effectively.”
- S.P. Gupta v. Union of India, 1981 Supp SC 87
Thus, the law has been settled by the Supreme Court, insofar, as the creation of alternative institutions that would exercise judicial function, would be that the alternative institutional mechanism must not be less effective than the High Court.
To be 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.
Even though the judgment of the State Bench or the Area Benches is subject to an appeal to High Court, it is well settled that while giving judicial decisions, Judges should be able to act impartially, objectively and without any bias.
Supreme Court in Manak Lal v. Prem Chand Singhvi, 1957 SCR 575 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 Court also stated the fact that the appellate tribunal is constituted also to see whether the legal principles and the decision-making process are correct and fair. The expert members, who are not well trained in the law, cannot be permitted to overrule the judicial member on these aspects.
Hence, 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 the interpretation of notifications and sections under the CGST Act a properly trained judicially 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. [Revenue Bar Assn. v. Union of India, 2019 SCC OnLine Mad 8910, decided on 20-09-2019]
