Customs, Excise and Services Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

   

Customs, Excise and Service Tax Appellate Tribunal: The coram of Ramesh Nair (Judicial Member) and Raju (Technical Member) set aside the order of the Commissioner confirming imposition of service tax and interest thereon along with penalties for ‘Broadcasting Services’ on an ‘Advertising Services’ agency. The Tribunal has directed Prasar Bharti to return the amount of Rs. 36,92,874 collected by it, under the garb of its liability to pay service tax when actually it was not liable, to all those customers from whom it was collected that too within a period of two months.

Facts of the Case

The appellant provided services falling under the category of ‘Advertising Agency Service’. After the scrutiny of the appellant’s records, it was revealed that they purchased the time slots from electronic media for which they got agency commission and sold the same slot of time to their clients who in turn used the slot for screening the advertisements. It was also revealed that the electronic media raised bills to Appellant on the time slots sold to them and charged them service tax under the category of ‘Broadcasting Service’. It was stated that appellant further issued bills to their clients included the gross value of broadcasting service and the service tax charged by the electronic media.

It was contended that as per the definitions and provisions of Section 65 of the Finance Act, 1994 (hereinafter “the Act”), the activities of the appellant do not qualify as broadcasting agency nor can be classified under ‘Broadcasting Services’ but have collected the service tax on broadcasting charges from their clients under the category of ‘Broadcasting Service’, thereby, contravening the provisions of Section 73-A(2) of Act. Therefore, the amount of service tax recovered by appellant from their clients was required to be recovered from them under Section 73A(3) of the Act.

Accordingly, a show cause notice was issued demanding service tax amounting to Rs. 5,74,98,622 under Sections 73A(2), 73A(3) and 73(1) of the Act. The show cause notice also demanded interest on the said amount and imposed penalties under the provisions of the Act. The Commissioner passed the order confirming the demand of service tax along with interest and imposed penalties under Sections 76, 77 and 78 of the Act. Hence, the present appeal was filed.

Question for Consideration

Whether the amount of service tax collected by the appellant related to the broadcasting service from their clients was required to be deposited with the department in terms of the provisions of Section 73A of the Act?

Analysis, Law and Decision

The Tribunal noted that the adjudicating authority had misconceived the provisions of Section 73A of the Act. The Tribunal opined that the provisions of Section 73A of the Act are applicable where the amount of service tax has been collected and retained by the assessee. The order of the Commissioner confirming the demand of service tax without discussing the activity of the appellant and without going into the facts of the case, was not legally correct. The Tribunal went through the activity of the appellant and found that in addition to the service of advertising agency, the appellant had been acting as a mediator/ facilitator between the broadcasting companies and the clients, by collecting money from the clients on behalf of the broadcasting company.

The Tribunal also found that the appellant has collected the service tax from the clients on behalf of the Broadcasters in relations to service of ‘Broadcasting Services’ and transferred the said service tax amount to Broadcasters for discharging service tax liability on ‘Broadcasting Services’. Moreover, the Broadcasters have already deposited the service tax amount to the Government. Therefore, the Tribunal held that the demand of service tax under Section 73A is improper when the appellant has not retained the amount collected as service tax and the same had already been paid to the Government. Lastly, the Tribunal held that the order confirming the demand for service tax under Section 73A of the Act was not sustainable and needed to be set aside.

[Triton Communication Pvt Ltd v. CST – Service Tax, Ahmedabad, 2022 SCC OnLine CESTAT 730, decided on 1-11-2022]


Advocates who appeared in this case :

Shri Rishi Murarka and Shri Raj Thakkar, Advocates for the Applicant;

Shri J.A. Patel, Superintendent (AR) for the Respondent.

Customs, Excise and Services Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The coram of Dilip Gupta (President) and P.V. Subba Rao (Technical Member) allowed the appeals which assailed from the demand and confirmed recovery of differential duty aggregating to Rs. 16.75 crores in addition to penalties in the matter of “works contract service”.

The appellant is engaged in the business of setting up stalls for various companies at exhibitions and had classified its services under the head of erection, commissioning and installation service and commercial or industrial construction service prior to 01-06-2007 and it has classified them as ‘works contract service’ after 01-06-2007 when Section 65(105)(zzzza) was introduced as a separate taxable service in the Finance Act, 1994. Show cause notices were issued by the Revenue covering the period 2006-2007, 2016-2017. All the show cause notices proposed classifying the appellant’s service under the head “Pandal and Shamiana” services and recover differential duty from the appellant.

Counsel for the appellant submitted that the appellant provides ‘works contract service’ by designing and constructing office interiors, customized exhibitions booths/stalls, television studios and retail fit outs. Its services include (a) lay out and designing of exhibition or interior space as per client’s design and (b) fabricating and installing interior projects as per client’s design. It had further been submitted by the Counsel that while passing the impugned order no efforts have been made to reconcile the information provided by the appellant.

The Tribunal after hearing both the parties clarified that the services provided by the appellant were on turnkey basis and a composite amount is charged by the appellant for its services and for the goods used in providing them. It is undisputed that the appellant treated this as works contract services and paid VAT to the respective State Governments as appropriate. The Tribunal further reproduced what was settled in case of Larsen & Toubro, 2015 (39) STR 913 (SC) stating that composite works contract services involving supply of goods/deemed supply of goods and rendering services are a separate species of contract known to commerce and must be treated as works contract services only. Such services become taxable under the head of works contract service under Section 65(105)(zzzza) of the Finance Act, 1994 with effect from 01-06-2007. Prior to this, there was no charge of service tax on works contract services.

Thus, the Tribunal finally held that since it is undisputed that the appellant’s contract involved provisions of services as well as supply/deemed supply of goods they can only be classified under the head “works contract services”. Such services could not have been charged with service tax under any other head either before or after 01-06-2007.

[Sconce Global (P) Ltd. v. Commr. of ST, 2022 SCC OnLine CESTAT 571, decided on 27-07-2022]


Advocates who appeared in this case :

A.K. Sood & Madhumita, Advocates, for the Appellant;

Dr. Radhe Tallo, Authorised Representative ,Advocate ,for the Respondent.


*Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: The bench of MR Shah* and BV Nagarathna, JJ has modified the order passed by the Allahabad High Court wherein it had quashed several reassessment notices issued by the Revenue, issued under section 148 of the Income Tax Act, 1961, on the ground that the same are bad in law in view of the amendment by the Finance Act, 2021 which has amended Income Tax Act by introducing  new provisions i.e. sections 147to151 w.e.f. 1st April, 2021.

Observing that some leeway must be shown to the Revenue as ultimately it is the public exchequer which would suffer, the Court has held that instead of quashing and setting aside the reassessment notices issued under the unamended provision of IT Act, the notices should be contrued as those deemed to have been issued under section 148A of the IT Act as per the new provision section 148A and the Revenue be permitted to proceed further with the reassessment proceedings as per the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021, subject to compliance of all   the procedural requirements and the defences, which may be available to the assessee under the substituted provisions of sections 147 to 151 of the IT Act and which may be available under the Finance Act, 2021 and in law.

Legislative and Factual History

The Parliament introduced reformative changes to Sections 147 to 151 of the Income Tax Act, 1961 governing reassessment proceedings by way of the Finance  Act, 2021, which was passed on 28th  March, 2021.

Under the substituted provisions of the IT Act vide Finance Act, 2021, no notice under section 148 of the IT Act can be issued without following the procedure prescribed under section 148A of the IT Act. Along with the notice under 22 section 148 of the IT Act, the assessing officer (AO) is required to serve the order passed under section 148A of the IT Act. section 148A of the IT Act is a new provision which is in the nature of a condition precedent. Introduction of section 148A of the IT Act can thus be said to be a game changer with an aim to achieve the ultimate object of simplifying the tax administration, ease compliance and reduce litigation.

But prior to pre-Finance Act, 2021, while reopening an assessment, the procedure of giving the reasons for reopening and an opportunity to the assessee and the decision of the objectives were required to be followed as per the ruling in GKN Driveshafts (India) Ltd. v. Income Tax Officer, (2003) 1 SCC 72.

Despite the substituted sections 147 to 151 of the Income Tax Act, 1961 by the Finance Act, 2021 coming into force 19 on 1st April, 2021, the Revenue issued approximately 90,000 reassessment notices to the respective assessees under the erstwhile sections 148 to 151 thereof by relying on explanations in the Notifications dated 31st March, 2021 and 27th April, 2021.

Approximately 90,000 such reassessment notices under section 148 of the unamended Income Tax Act were issued by the Revenue after 01.04.2021, which were the subject matter of more than 9000 writ petitions before various High Courts across the country and by different judgments and orders, , the High Courts have taken a similar view as that of the Allahabad High Court and have set aside the respective reassessment notices issued under section 148 on similar grounds.

Supreme Court’s Ruling

While the Revenue was contemplating to prefer appeals against the similar judgments and orders passed by various High Courts, the Court passed PAN INDIA order and observed that the Revenue need not file separate individual appeals which may be more than 9000 in numbers.

The Supreme Court observed that the new provisions substituted by the Finance Act, 2021 being remedial and benevolent in nature and substituted with a specific aim and object to protect the rights and interest of the assessee as well as and the same being in public interest, the respective High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to past assessment years, provided section 148 notice has been issued on or after 1st April, 2021.

However, at the same time, it was conscious of the fact that the judgments of the several High Courts would result in no reassessment proceedings at all, even if the same are permissible under the Finance Act, 2021 and as per substituted sections 147 to 151 of the IT Act.

Observing that the Revenue cannot be made remediless and the object and purpose of reassessment proceedings cannot be frustrated, the Court noticed,

“It is true that due to a bonafide mistake and in view of subsequent extension of time vide various notifications, the Revenue issued the impugned notices under section 148 after the amendment was enforced w.e.f. 01.04.2021, under the unamended section 148. In our view the same ought not to have been issued under the unamended Act and ought to have been issued under the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021. There appears to be genuine non-application of the amendments as the officers of the Revenue may have been under a bonafide belief   that the amendments may not yet have been enforced.”

Therefore, in order to strike a balance between the rights of the Revenue as well as the respective assesses as because of a bonafide belief of the officers of the Revenue in issuing approximately 90000 such notices, the Revenue may not suffer as ultimately it is the public exchequer which would suffer, the Court modified the order of the High Court to the following extent:

(i) The impugned section 148 notices issued to the respective assessees which were issued under unamended section 148 of the IT Act, which were the subject matter of writ petitions before the various respective High Courts shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and construed or treated to be show-cause notices in terms of section 148A(b). The assessing officer shall, within thirty days the date of order provide to the respective assessees information and material relied upon by the Revenue, so that the assesees can reply to the show-cause notices within two weeks thereafter;

(ii) The requirement of conducting any enquiry, if required, with the prior approval of specified authority under section 148A(a) is hereby dispensed with as a one-time measure vis-à-vis those notices which have been issued under section 148 of  the unamended Act from 01.04.2021 till date, including those which have been quashed by the High Courts. Even otherwise as observed hereinabove holding any enquiry with the prior approval of specified authority is not mandatory but it is for the concerned Assessing Officers to hold any enquiry, if required;

(iii) The assessing officers shall thereafter pass orders in terms of section 148A(d) in respect of each of the concerned assessees; Thereafter after following the procedure as required under section 148A may issue notice under section 148 (as substituted);

(iv) All defences which may be available to the assesses including those available under section 149 of the IT Act and all rights and contentions which may be available to the concerned assessees and Revenue under the Finance Act, 2021 and in law shall continue to be available.

The Court clarified that the present order shall be applicable PAN INDIA and all judgments and orders passed by different High Courts on the issue and under which similar notices which were issued after 01.04.2021 issued under section 148 of the Act are set aside and shall be governed by the present order and shall stand modified to the aforesaid extent.

The present order will also govern the pending writ petitions, pending before various High Courts in which similar notices under Section 148 of the Act issued after 01.04.2021 are under challenge.

[Union of India v. Ashish Agarwal, 2022 SCC OnLine SC 543, decided on 04.05.2022]


*Judgment by: Justice MR Shah

For Revenue: ASG N. Venkataraman

For Assessees: Senior Advocates C.A. Sundaram and S. Ganesh

Income Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT), New Delhi: The Coram of Pradip Kumar Kedia (Accountant Member) and Narender Kumar Choudhry (Judicial Member) allowed an appeal which was filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals) -XXXVI, New Delhi passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 concerning AY 2013-14. The instant appeal challenged the disallowance of Rs 45,60,061 on account of delayed payment of employee’s contribution towards EPF and ESIC.

The Tribunal on perusal of records observed that the Assessing Officer has made the impugned addition on the ground that the assessee has deposited employee’s contribution towards Provident Fund and ESI amounting to Rs 45,60,061/ – after due date as prescribed under the relevant Act/ Rules in breach of Explanation 5 to Section 43B of the Act. The Assessing Officer accordingly resorted to the additions under Section 36(1)(va) read with Section 2(24) (x) of the Act. Case of the assessee before lower authorities was that it had deposited the employee’s contribution in EPF and ESIC before the due date of filing of return of income stipulated under Section 139(1) of the Act.

The Tribunal found that a similar issue was decided in favour of the assessee by the Delhi High Court in the case of Pr.CIT v. Pro Interactive Service (India) (P) Ltd., ITA No.983 of 2018 order dated 10-09-2018 extract of which is as under:

“In view of the judgment of the Division Bench of Delhi High Court in Commissioner of Income-Tax versus Aimil Limited, (2010) 321 ITR 508 (Del ) the issue is covered against the Revenue and, therefore, no substantial quest ion of law arises for consideration in this appeal . The legislative intent was / is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee’s Provident Fund (EPF) and Employee’s State Insurance Scheme (ESI ) as deemed income of the employer under Sect ion 2(24) (x) of the Act .”

Following the above binding precedents the Tribunal directed the Assessing Officer to allow the claim of the assessee and delete the addition. The Tribunal allowed the appeal of the assessee finding that the delayed payment of employee’s contribution to EPF/ESIC is not disallowable as the amendments to Section 36(1) (va) and Section 43B effected by Finance Act, 2021 were applicable prospectively in relation to Assessment Year 2021-22 and subsequent years. Therefore, the claim of deduction of contribution to Employee’s State Insurance Scheme (ESI) and Provident Fund u/s.36(1) (va) could not be denied to the assessee in Assessment Year 2014-15 in question on the basis of amendments made by Finance Act , 2021 finding support from the decision of the Co-ordinate Bench of Tribunal in the case of The Continental Restaurant and Café Company v. ITO, (2021) 91 ITR (Trib. )(S.N. ) 60 (Bang. ) and Adyar Ananda Bhavan Sweets India P. Ltd. vs. ACIT, ITA No.402 and 403/Chny/2021 order dated 08-12-2021.[Kiwi Enterprises (P) Ltd. v. ACIT, 2022 SCC OnLine ITAT 148, decided on 21-04-2022]


Appellant by: None

Respondent by: Shri Parikshit Singh, Sr.D.R.


Suchita Shukla, Editorial Assistant has reported this brief.

Op EdsOP. ED.

Introduction

When determining the constitutional validity of taxation laws, the Court generally analyses whether the challenged provision makes a reasonable classification or not. The general tendency of courts in cases where taxation statutes are challenged on the ground of Article 14[1] of the Indian Constitution (Article 14) can be summed up in the words of the Supreme Court in N. Venugopala Ravi Varma Rajah v. Union of India,[2] which noted as follows– “A taxing statute is not, therefore, exposed to attack on the ground of discrimination merely because different rates of taxation are prescribed for different categories of persons, transactions, occupations or objects.” In this article the recent decision of the Supreme Court in CIT v. Pepsi Foods Ltd.[3] (Pepsi Foods decision), has been analysed in view of the above principle of law.

Relevant jurisprudence

A. Relationship between Article 14 and taxation laws

It is accepted that, “the State is allowed to pick and choose objects for taxation if it does do reasonably.” While the above extract is from the laws of the United States of America, the principle has been reiterated by the Indian courts in many decisions.[4] The Supreme Court in Amalgamated Tea Estates Co. Ltd. v. State of Kerala,[5]  held that, “as revenue is the first necessity of the State and as taxes are raised for various purposes and by an adjustment of diverse elements, the Court grants to the State greater choice of classification in the field of taxation than in other spheres.” They went ahead and in view of the above reasoning declared that, “On a challenge to a statute on the ground of Article 14, the Court would generally raise a presumption in favour of its constitutionality.”

For our analysis, it is pertinent to know that any classification made qua taxation legislature, must be based on “rational” grounds and should not be “arbitrary”. Thereby, what one requires to determine is whether the distinction created by the challenged provision is based on “intelligible differentia”. In such cases, the test of permissible classification dictates that a statute may create a distinction so long as it fulfils the two conditions. These are, first, that the classification must be based upon intelligible differentia and must distinguish persons who are grouped together from the rest and second, that the same must have a rational relationship with the objective sought to be achieved by the statute in question.[6]

The Indian courts have dealt with this proposition of law many times, in some cases even declaring taxation laws as unconstitutional. Some instances as highlighted by the Supreme Court in the Pepsi Foods decision[7] are as follows:

(a) Suraj Mall Mohta v. A.V. Visvanatha Sastri[8]– Section 5(4), the Taxation on Income (Investigation Commission) Act, 1947 was held unconstitutional qua Article 14 on the basis that the procedure was substantially more prejudicial and drastic to the assessee than the one contained under the Income Tax Act. The Court noted that, “Classification means segregation in classes which have a systematic relation, usually found in common properties and characteristics.”

(b) Kunnathat Thatehunni Moopil Nair v. State of Kerala[9]Land revenue/tax called “basic tax” challenged on grounds to have treated unequals equally. Classification made under the Land Tax Act, 1955 held to be creating an improper classification and provision held unconstitutional qua Article 14.  In this case, the Court on the ground that the imposition of the above law was ex facie hard on certain classes of people than the other owing to the productivity of their lands, set aside Section 4 of the Act.

(c) Union of India v. A. Sanyasi Rao[10]Section 44[11], the Income Tax Act held unconstitutional for singling out only certain trade whereby relief under Sections 28[12] and 43-C[13] denied to them. Accordingly, the Court held, that the above was “unfair and arbitrary as denying equal treatment under law”.

B. Law of interpretation of statutes

The “golden” rule of interpretation is relevant to the analysis of the Pepsi Foods decision[14]. The first rule of interpretation is ita scriptum est, which states that the Court must not add/modify the law and should carry out a simple literal or grammatical interpretation. However, Lord Wensleydale, in Grey v. Pearson, noted that in many circumstances grammatical or literal interpretation of statute leads to absurdity, repugnance or inconsistency in regard to the object of the statute.[15] Thus, the Court in such cases where the rule of literal interpretation fails may modify the law only with view to remove the said absurdity.

Background to the case

Section 254(2-A)[16], was introduced via amendment to the Finance Act, 1999[17]. It grants the Income Tax Appellate Tribunal (ITAT) power to pass orders in respect to appeals before it and declares that the same will decide the appeal within 4 years from end of financial year it was filed in. The controversy lies in the third proviso to the same which states, that if the appeal is not disposed within the above, order of stay shall stand vacated even if “delay not attributable to taxpayer.”

The genesis of this proviso may be traced to the decision of the Court in ITO v. M.K. Mohammed Kunhi,[18] where it was held that power granted to the Tribunal under Section 254(2-A), implicates that all incidental and necessary powers as well can be exercised such as the power to grant a stay. Power of stay may be exercised, by the Tribunal, however, not as routine and only when strong reasons support the grant of such a stay. The Tribunal must be convinced that the entire purpose of appeal will be frustrated if stay is not granted and recovery proceedings are allowed to continue.

The facts relevant to the present case are; the respondent (assessee) was initially a US based company which merged with PepsiCo India Holdings Pvt. Ltd. w.e.f. 1-4-2010, in view of a scheme of arrangement duly approved by Punjab & Haryana High Court. In the Assessment Year 2008-2009, a return was filed declaring the total income. A final assessment award was made against the assessee on 19-10-2012. The assessee filed an appeal before the Income Tax Appellate Tribunal on 29-4-2013. On 31-5-2013 a stay of the operation of the order of the assessing officer was granted for six months by the Tribunal. The stay extended for 6 months, and was subsequently extended till 28-5-2014. Since, the statutory period for extension of stay was to expire as under Section 254(2-A) was to end of 30-5-2014, the assessee filed a writ petition in the Delhi High Court. The Delhi HC struck down third proviso to Section 254(2-A) which did not permit extension of stay beyond 365 days even if assessee was not responsible for delay in hearing of appeal. The bunch of appeals before the Supreme Court which yielded in the Pepsi Foods decision[19], which is analysed in this article, aimed to seek whether Section 254(2-A), the Income Tax Act, 1961 was constitutional vis-à-vis Article 14 and challenged the orders of various High Courts[20] which also declared the provision unconstitutional.

Synopsis of arguments

The table below will illustrate the main arguments led by the counsels.

S. No. In regard to Petitioner Respondent
1. Whether there is a right to “stay”? No right to stay the judgment of appellate proceedings and the same dependent upon discretion of the appellate court, which once exercised the same does result in an automatic extension in cases of expiry of reasonable period. Once discretionary relief granted it would be arbitrary and discriminatory that such stay be vacated automatically without reference to whether or not the assessee responsible for such delay in appellate proceedings.
2. Whether remedy of stay available? Discretionary remedy of stay part and parcel with right to appeal, which is statutory and may be taken away. Once vested right to appeal there is a vested right to seek stay.

 

3. Whether Article 14 may be used to challenge constitutionality of tax legislations? Article 14 cannot be applied mechanically to tax laws. Discriminatory taxation may be struck down under Article 14 qua the test of Manifest Arbitrariness (Shayara Bano v. Union of India[21]).

 

Ratio of the decision[22]

The Court held that the third proviso to Section 254(2-A) is both arbitrary and discriminatory and thereby, offends Article 14 of the Constitution. This is for twofold reason, firstly, it treats unequals as equals. This is for reason that the same treats assessee who is responsible for delay in proceedings with those who are not. The astonishing feature pointed by the Court under Proviso 3 which in itself spells out the said distinction. Secondly, the third proviso was inserted with view to stay achieve speedy disposal of cases wherein stay has been granted in favour of the assessee. The Court noted that such an objective cannot be discriminatory or arbitrary. Therefore, the above distinction does not fulfil the twin test[23] laid down in Nagpur Improvement Trust v. Vithal Rao[24]. Accordingly, the third proviso which stated “automatic vacation of stay on completion of 365 days, whether or not assessee responsible for the same or not”, was held to be prima facie discriminatory and thus, violative of Article 14. Further, the provision was termed to be “capricious, irrational and disproportionate” towards the assessee.

The Court lay their reasoning in bedrock of various decisions outlining necessary facets of the present matter. The Court took reference from the decision in Essar Steel (India) Ltd. v. Satish Kumar Gupta[25], where the term “mandatorily” as used under Section 12(3) of the Insolvency and Bankruptcy Code, 2016[26] was struck down. The aforementioned decision noted that time taken in a proceeding should not operate to harm the litigant for no fault of their own. The Court went ahead and instead of categorising the entire provision as arbitrary only struck down the term “mandatorily” for being manifestly arbitrary and unreasonably excessive. Further, the Court also noted that where the “tax was imposed deliberately with the object of differentiating between persons similarly circumstanced” the same should be struck down.

Conclusion

In view of the above, the Court held that in the present matter, unequals have deliberately been treated as equals qua equating assesses who are responsible for the delay in appellate proceedings with those who are not. Such a distinction was categorised by the Court as arbitrary and discriminatory and accordingly liable to be struck down. The Court thus, upheld the decision of the Delhi High Court and held that the Section 254(2-A) third proviso must be read without the word, “even” and “is not” after the words, “delay in disposing of appeal”. Thereby, the Court following the golden rule of interpretation simply modified the part of the challenged law which created the absurdity. The unreasonable and arbitrary distinction so created on the grounds of being contrary to Article 14 of the Indian Constitution has been transformed instead of being struck down in its entirety. This has been done both to fit the scheme and fulfil objective of the Income Tax Act.


 Associate, Jusip, e-mail: ananyasharma.ail@gmail.com.

[1] <http://www.scconline.com/DocumentLink/h7G5KbD4>.

[2] (1969) 1 SCC 681 : (1969) 74 ITR 49.

[3] 2021 SCC Online SC 283.

[4] Jagannath Baksh Singh v. State of U.P., AIR 1962 SC 1563.

[5] (1974) 4 SCC 415  

[6] Grey v. Pearson (1857) 6 HL Cas 61, 106: 26 LJ Ch 473, 481.

[7] 2021 SCC Online SC 283.

[8] AIR 1954 SC 545 : (1955) 1 SCR 448.

[9] AIR 1961 SC 552 : (1961) 3 SCR 77.

[10] (1996) 3 SCC 465.

[11]  Income Tax Act, 1961, S. 44.

[12]  Income Tax Act, 1961, S. 28.

[13]  Income Tax Act, 1961, S. 43-C.

[14]  2021 SCC Online SC 283.

[15] (1857) 6 HL Cas 61, 106: 26 LJ Ch 473, 481.

[16]  Income Tax Act, 1961, S. 254(2-A).

[17]  Finance Act, 1999.

[18] AIR 1969 SC 430 : (1969) 71 ITR 815.

[19]  2021 SCC Online SC 283.

[20] CIT v. Ronuk Industries Ltd., 2010 SCC OnLine Bom 2064 : (2011) 333 ITR 99; Narang Overseas (P) Ltd. v. Income Tax Appellate Tribunal, 2007 SCC OnLine Bom 671 : (2007) 295 ITR 22; Pepsi Foods (P) Ltd. v. CIT, 2015 SCC OnLine Del 9543.

[21] (2017) 9 SCC 1.

[22] Paras 22 & 23, Pepsi Foods decision, 2021 SCC Online SC 283.

[23] Twin Test – (i) must be founded on intelligible deferential; and (ii) the differentia must have rational relation with the objective sought to be achieved by the legislation.

[24] (1973) 1 SCC 500.

[25] (2020) 8 SCC 531.

[26]  Insolvency and Bankruptcy Code, 2016, S. 12(3).

Case BriefsSupreme Court

Supreme Court: A 3-Judge Bench of the Supreme Court, by a majority of 2:1, has declared that certain portions of Section 184 of the Finance Act, 2017 as amended by the Tribunal Reforms (Rationalisation and Conditions of Service) Ordinance, 2021 are unconstitutional and inoperative. Section 184 consists of provisions relating to the qualifications, appointment, etc., of Chairperson and Members of tribunals. The majority was formed by L. Nageswara Rao, J. who delivered the leading opinion, and S. Ravindra Bhat, J. penning a separate concurring opinion. Whereas, Hemant Gupta, J. wrote a substantially dissenting opinion.

The Challenge

The Madras Bar Association filed the instant writ petition seeking a declaration that Section 12 of the Tribunal Reforms (Rationalisation and Conditions of Service) Ordinance, 2021 (“Ordinance”) and Section 184 of the Finance Act, 2017 as amended by the Ordinance are ultra vires Articles 14, 21 and 50 of the Constitution of India inasmuch as these are violative of the principles of separation of powers and independence of judiciary, apart from being contrary to the principles laid down by several earlier judgments[1] of the Supreme Court.

The dispute raised in the writ petition relates to:

(i) First proviso to Section 184(1) according to which a person below the age of 50 years shall not be eligible for appointment as Chairperson or Member; and also the second proviso, read with the third proviso, which stipulates that the allowances and benefits payable to Chairpersons and Members shall be the same as a Central Government officer holding a post carrying the same pay as that of the Chairpersons and Members.

(ii) Section 184(7) which stipulates that the Selection Committee shall recommend a panel of two names for appointment to the post of Chairperson or Member and the Central Government shall take a decision preferably within three months from the date of the recommendation of the Committee, notwithstanding any judgment, order or decree of any Court.

(iii) Section 184(11) which shall be deemed to have been inserted with effect from 26-5-2017, provides that the term of office of the Chairperson and Member of a tribunal shall be four years. The age of retirement of the Chairperson and Members is specified as 70 years and 67 years, respectively. As per the proviso, if the term of office or the age of retirement specified in the order of appointment issued by the Central Government for those who have been appointed between 26-5-2017 and 4-4-2021 is greater than that specified in Section 184(11), the term of office or the age of retirement shall be as set out in the order of appointment, subject to a maximum term of office of five years.

The Finance Act and the Ordinance

The Finance Act, 2017 was brought into force from 31-3-2017 to give effect to the financial proposals for the financial year 2017-18. Sections 183 to 189 thereof dealt with conditions of service of Chairperson and Members of Tribunals, Appellate Tribunals and other authorities.

The Tribunal Reforms (Rationalisation and Conditions of Service) Bill, 2021 was introduced in the Lok Sabha on 13-2-2021 but could not be taken up for consideration. According to the Statement of Objects and Reasons, the said Bill was proposed with a view to streamline tribunals and sought to abolish certain tribunals and other authorities, which “only add to another additional layer of litigation” and were not “beneficial for the public at large”. Thereafter, the Tribunal Reforms (Rationalisation and Conditions of Service) Ordinance, 2021 was promulgated on 4-4-2021. Chapter XI thereof makes amendments to the Finance Act, 2017.

Discussion and Observations

  1. Separation of Power

Discussing this indispensable concept, the Court said that the doctrine of separation of powers, though not expressly engrafted in the Constitution, its sweep, operation and visibility are apparent from the scheme of the Indian Constitution. It forms part of basic structure of the Constitution. The Constitution has made demarcation, without drawing formal lines between the three organs ─ legislature, executive and judiciary, which is nothing but a consequence of principles of equality enshrined in Article 14 of the Constitution. Accordingly, breach of separation of judicial power may amount to negation of equality under Article 14. Stating thus, the Court reaffirmed:

Violation of separation of powers would result in infringement of Article 14 of the Constitution. A legislation can be declared as unconstitutional if it is in violation of the principle of separation of powers.

  1. Independence of Judiciary

On this point, the Court recorded that independence of judiciary is a fighting faith of our Constitution. It is cardinal principle of the Constitution that an independent judiciary is the most essential characteristic of a free society like ours and the judiciary which is to act as a bastion of the rights and freedom of people is given certain constitutional guarantees to safeguard independence of judiciary. An independent and efficient judicial system has been recognised as a part of basic structure of our Constitution.

After discussing Article 50 (which provides that the State shall take steps to separate the judiciary from the executive in the public services of the State) and Article 37 (which declares that the principles laid down in Part IV of the Constitution are fundamental in the governance of the country and it should be the duty of the State to apply the principles in making laws), the Court observed:

[Independence] is the lifeblood of the judiciary. … It is the freedom from interference and pressures which provides the judicial atmosphere where [a Judge] can work with absolute commitment to the cause of justice and constitutional values. It is also the discipline in life, habits and outlook that enables a Judge to be impartial. Its existence depends however not only on philosophical, ethical or moral aspects but also upon several mundane things ─ security in tenure, freedom from ordinary monetary worries, freedom from influences and pressures within (from others in the judiciary) and without (from the executive).

  1. Judicial Decisions and Legislative Overruling

The controversy that arose for consideration of the Court in the instant writ petition relates to the legislative response to the judgment of the Court in Madras Bar Assn. v. Union of India, 2020 SCC OnLine SC 962 (“Madras Bar Assn. case“). In that case, the validity of the Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2020 (“2020 Rules”) was challenged by the Madras Bar Association. The relevant portions of the decision in Madras Bar Assn. case along with the affect of the Ordinance are discussed below at relevant place.

(A) Judicial Review

Appreciating the scope of judicial review of ordinances, the Court noted that it is the same as that of a legislative act. Article 123 of the Constitution empowers the President to promulgate an ordinance during recess of the Parliament, which shall have the same force and effect as an act of the Parliament. The validity of an ordinance can be challenged on grounds available for judicial review of a legislative act.

The power to strike down primary legislation enacted by the Union of India or the State legislatures is on limited grounds. Where there is challenge to the constitutional validity of a law enacted by the legislature, the Court must keep in view that there is always a presumption of constitutionality of an enactment and a clear transgression of constitutional principles must be shown. The Court reiterated that:

[S]ans flagrant violation of the constitutional provisions, the law made by Parliament or a State legislature is not declared bad and legislative enactment can be struck down only on two grounds: (i) that the appropriate legislature does not have the competence to make the law, and (ii) that it takes away or abridges any of the fundamental rights enumerated in Part III of the Constitution or any other constitutional provisions. [‘Manifest arbitrariness’ is also recognised] as a ground under Article 14 on the basis of which a legislative enactment can be judicially reviewed.

(B) Permissible Legislative Overruling

The Court culled out the principles in accordance with which legislative overruling could be permissible:

(i) The effect of the judgments of the Court can be nullified by a legislative act removing the basis of the judgment. Such law can be retrospective. Retrospective amendment should be reasonable and not arbitrary and must not be violative of the fundamental rights guaranteed under the Constitution.

(ii) The test for determining the validity of validating legislation is that the judgment pointing out the defect would not have been passed, if the altered position as sought to be brought in by the validating statute existed before the Court at the time of rendering its judgment. In other words, the defect pointed out should have been cured such that the basis of the judgment pointing out the defect is removed.

(iii) Nullification of mandamus by an enactment would be an impermissible legislative exercise. Even interim directions cannot be reversed by a legislative veto.

(iv) Transgression of constitutional limitations and intrusion into the judicial power by the legislature is violative of the principle of separation of powers, the rule of law and of Article 14 of the Constitution of India.

Validity of the Ordinance and Amended Provisions

The grievance of the petitioners was mainly related to the violation of the first proviso and the second proviso, read with the third proviso, to Section 184(1), Sections 184(7) and 184(11) of the Finance Act, 2017 as amended by the Ordinance.

  1. Section 184(1)

(A) The first proviso of Section 184(1) provides minimum age for appointment as Chairperson or Member of a tribunal as 50 years.

One of the issues considered in Madras Bar Assn. case was the correctness of the conditions imposed in the 2020 Rules that an advocate is eligible for appointment as a Member only if he has 25 years of experience. It is relevant to state that advocates were ineligible for most of the tribunals. In Madras Bar Assn. case, the Court found the exclusion of advocates from being appointed as Members to be contrary to earlier judgments of the Court. In such view of the matter, a direction was given to amend the 2020 Rules to make advocates with at least 10 years of experience at the bar eligible for appointment as Members in tribunals.

Discussing that the direction given in the nature of mandamus in Madras Bar Assn. case is to the effect that advocates are eligible for appointment as Members, provided they have experience of 10 years, the Court in the instant petition observed:

The first proviso to Section 184 which prescribes a minimum age of 50 years is an attempt to circumvent the direction issued in Madras Bar Assn. case striking down the experience requirement of 25 years at the bar for advocates to be eligible. Introduction of the first proviso to Section 184(1) is a direct affront to the judgment of this Court in Madras Bar Assn. case.”

Underlining the importance of recruitment of Members from the bar at a young age to ensure a longer tenure, the Court was of the view that fixing a minimum age for recruitment of Members as 50 years would act as a deterrent for competent advocates to seek appointment. Practically, it would be difficult for an advocate appointed after attaining the age of 50 years to resume legal practice after completion of one term, in case he is not reappointed. Security of tenure and conditions of service are recognised as core components of independence of the judiciary. Independence of the judiciary can be sustained only when the incumbents are assured of fair and reasonable conditions of service, which include adequate remuneration and security of tenure.

The Court found that first proviso to Section 184(1) is in violation of the doctrine of separation of powers as the judgment Madras Bar Assn. case has been frustrated by an impermissible legislative override.

Resultantly, the first proviso to Section 184(1) was declared unconstitutional as it is violative of Article 14 of the Constitution.

It was directed that the selections conducted for appointment of Members, ITAT pursuant to the advertisement issued in 2018 should be finalised and appointments made by considering the candidates between 35 to 50 years as also eligible.

Ravindra Bhat, J., in his separate concurring opinion said that:

Prescribing 50 years as a minimum age limit for consideration of advocates has the devastating effect of entirely excluding successful young advocates, especially those who might be trained and competent in the particular subject (such as Indirect Taxation, Anti-Dumping, Income-Tax, International Taxation and Telecom Regulation). The exclusion of such eligible candidates in preference to those who are more than 50 years of age is inexplicable and therefore entirely arbitrary.

(B) The second proviso to Section 184(1) deals with the allowances and benefits payable to the Members which are to be the same as are admissible to a Central Government officer holding a post carrying the same pay.

In Madras Bar Assn. case, the Court considered Rule 15 of the 2020 Rules according to which, Chairpersons and Members of tribunals were entitled to House Rent Allowance at the same rate as admissible to officers with the Government of India holding Group ‘A’ post carrying the same pay. In that case, it was noted that an amount of Rs 75,000 per month which was paid as HRA was not sufficient to get a decent accommodation in Delhi for Chairpersons and Members of tribunals. Taking note of the serious problem of housing and the inadequate amount that was being paid as HRA to the Members, the Court in that case directed enhancement of HRA to Rs 1,25,000 per month to the Members and Rs 1,50,000 per month to Chairperson or Vice-Chairperson or President of tribunals. This direction was made effective from 1-1-2021.

Noting the submission of the Amicus Curiae that result of the instant amendment made by the Ordinance is that the Members of tribunals working in Delhi will get Rs 60,000 as HRA, the Court was of the view that the second proviso to Section 184(1), read with the third proviso, is an affront to the judgment in Madras Bar Assn. case. The direction issued in Madras Bar Assn. case for payment of HRA was to ensure that decent accommodation is provided to tribunal Members. Such direction was issued to uphold independence of the judiciary and it cannot be subject matter of legislative response. The Court held that a mandamus issued by the Supreme Court cannot be reversed by the legislature as it would amount to impermissible legislative override.

Therefore, the second proviso, read with the third proviso, to Section 184(1) was declared as unconstitutional.

The Court noted that after the judgment in the instant writ petition was reserved on 3-6-2021, the Ministry of Finance amended the 2020 Rules whereby the earlier Rule 15 was substituted[2]. The Explanatory Memorandum at the end of the notification states that the amendment to Rule 15 of the 2020 Rules on HRA, shall be given retrospective operation with effect from 1-1-2021, in order to give effect to the judgment in Madras Bar Assn. case. The Court was of the opinion that this amendment to Rule 15 is in conformity with the directions on the subject of HRA in Madras Bar Assn. case. In view thereof, no further direction is required to be given with respect to HRA.

  1. Section 184(7)

(A) Section 184(7) stipulates that a Search-cum-Selection Committee shall recommend a panel of two names for appointment to the post of Chairperson or Member and the Central Government shall take a decision preferably within three months from the date of the recommendation of the Committee, notwithstanding any judgment, order or decree of any Court.

Rule 4(2) of the 2020 Rules pertains to the procedure to be followed by the Selection Committee. According to the said Rule, the Selection Committee should recommend two or three names for appointment to each post. A direction was given in Madras Bar Assn. case to amend Rule 4(2) of the 2020 Rules to provide that the Selection Committee shall recommend one person for appointment in each post in place of a panel of two or three persons for appointment to each post.

The Court recorded that sufficient reasons were given in Madras Bar Assn. case to hold that executive influence should be avoided in matters of appointments to tribunals ─ therefore, the direction that only one person shall be recommended to each post. The decision of the Court in that regard is law laid down under Article 141 of the Constitution. The only way the legislature could nullify the said decision was by curing the defect in Rule 4(2). There is no such attempt made except to repeat the provision of Rule 4(2) of the 2020 Rules in the Ordinance amending the Finance Act, 2017.

Ergo, Section 184(7) was declared to be unsustainable in law as it is an attempt to override the law laid down by the Supreme Court.

(B) The second part of Section 184(7) provides that the Government shall take a decision regarding the recommendations made by the Selection Committee preferably within a period of three months. This was in response to the direction in Madras Bar Assn. case that the Government shall make appointments to tribunals within three months from the completion of the selection and recommendation by the Selection Committee.

Such direction, the Court noted, was necessitated in view of the lethargy shown by the Union of India in making appointments and filling up the posts of Chairpersons and Members of tribunals which have been long vacant. The direction given in Madras Bar Assn. case for expediting the process of appointment was in the larger interest of administration of justice and to uphold the rule of law.

The Court held, Section 184(7) as amended by the Ordinance permitting the Government to take a decision preferably within three months from the date of recommendation of the Selection Committee is invalid and unconstitutional, as this amended provision simply seeks to negate the directions of the Supreme Court.

  1. Section 184(11)

(A) The tenure of the Chairperson and Member of a tribunal is fixed at four years by Section 184(11), notwithstanding anything contained in any judgment, order or decree of any court. Sub-section (11) of Section 184 has been given retrospective effect from 26-5-2017.

Rule 9 of 2020 Rules had specified the term of appointment of the Chairperson or Member of the Tribunal as four years.  After perusing the law laid down by earlier judgments that a short stint is anti-merit, the Court in the Madras Bar Assn. case directed the modification of tenure in Rules 9(1) and 9(2) as five years in respect of Chairpersons and Members of tribunals.

The Court, in the instant petition, held that insertion of Section 184(11) prescribing a term of four years for the Chairpersons and Members of tribunals by giving retrospective effect to the provision from 26-5-2017 is clearly an attempt to override the declaration of law by the Supreme Court under Article 141 in the Madras Bar Assn. case.

Therefore, clauses (i) and (ii) of Section 184(11) were declared as void and unconstitutional.

(B) The proviso to Section 184(11) refers to appointments that were made to the posts of Chairperson or Members between 26-5-2017 and the notified date, i.e., 4-4-2021. The proviso lays down that the term of office of Chairperson and Members of tribunals who were appointed between 26-5-2017 and 4-4-2021 shall be five years even though the order of appointment issued by the Government had a higher term of office or age of retirement.

On this point, the Court referred to the interim directions given by the Supreme Court on 9-2-2018 in Kudrat Sandhu v. Union of India, 2018 SCC OnLine SC 2898 wherein it was held that all selections to the post of Chairperson/ Chairman, Judicial/ Administrative Members shall be for a period as provided in the Act and the Rules in respect of all tribunals. Reference was also made to certain subsequent orders passed in the same case of Kudrat Sandhu.

Coming back to the instant petition, the Court was of the opinion that though, there is nothing wrong with the proviso to Section 184(11) being given retrospective effect, the appointments made pursuant to the interim directions passed by the Supreme Court cannot be interfered with. The Court pointed out that even the interim orders passed by the Supreme Court cannot be overruled by a legislative act.

While making it clear that the appointments that are made to the CESTAT on the basis of interim orders passed by the Supreme Court shall be governed by the relevant statute and the rules framed thereunder, as they existed prior to the Finance Act, 2017, the Court upheld the retrospectivity given to the proviso to Section 184(11). Clarifying further, the Court stated that appointments after 4-4-2021 shall be governed by the Ordinance, as modified by the directions in the instant judgment.

Consequently, Section 12 of the Ordinance making amendments in the earlier Section 184 of the Finance Act, 2017, also stands invalidated.

The Dissent

Lastly, it may also be mentioned that the upshot of the dissenting opinion written by Hemant Gupta, J. (as summarised by S. Ravindra Bhat, J. in his opinion) was that as regards prescription of minimum age or with respect to conditions of service such as payment of house rent allowance, the Court ought to respect legislative wisdom; and that the directions issued in past judgments cannot bind Parliament, as they fell outside the judicial sphere.

The writ petition stood disposed of in terms of the majority judgment. [Madras Bar Assn. v. Union of India, 2021 SCC OnLine SC 463, decided on 14-7-2021]


[1] Union of India v. Madras Bar Assn., (2010) 11 SCC 1; Madras Bar Assn. v. Union of India, (2014) 10 SCC 1; Rojer Mathew v. South Indian Bank Ltd., (2020) 6 SCC 1; and Madras Bar Assn. v. Union of India, 2020 SCC OnLine SC 962

[2] Vide Rule 6, the Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) (Amendment) Rules, 2021


Tejaswi Pandit, Senior Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Ashok Jindal (Judicial Member) allowed an appeal which was filed against the rejection of a refund claim.

Initially, the proceedings were initiated against the appellant for non-payment of service tax under reverse charge mechanism for a commission paid to the foreign-based commission agent and during the course of audit, the objection was raised, the appellant paid the entire amount of service tax along with interest and prayed that the proceedings against the appellant was to be closed but the department issued a show-cause notice by invoking the extended period of limitation. The demands of service tax along with interest paid by the appellant were appropriated and the penalties were also imposed.

The appellant filed an appeal against the said order and prayed that in this case, the extended period of limitation was not invokable as whatever service tax was to be paid by them; they were entitled to take credit of the same. Therefore, it was a case of revenue neutrality. The Tribunal had concluded with the same and that appeal was allowed. In consequence, to the order the appellant had filed a refund claim of service tax paid for the extended period of limitation and interest. The adjudicating authority had rejected the same and on appeal before the Commissioner (Appeals), it was concluded that the appellant had already paid service tax along with interest in terms of Section 73 (3) of the Finance Act, 1994, the proceedings stood concluded, therefore, the refund of the amount claimed by the appellant was not admissible. Thus, the instant appeal was filed.

The Tribunal observed that both the parties had admitted the fact that in the earlier round of litigation, this Tribunal had passed the order and dropping the demand of service tax for an extended period of limitation along with interest and in that circumstance the refund claim filed consequent that order was admissible in the eyes of law. The Tribunal allowed the appeal while setting aside the impugned order.[Spray Engineering Devices Ltd. v. CCE & ST, 2021 SCC OnLine CESTAT 10, decided on 11-01-2021]


Suchita Shukla, Editorial Assistant has put this story together

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of P. Venkata Subba Rao (Technical Member) and P. Dinesha (Judicial Member) allowed an appeal filed against Order-in-Appeal passed by Commissioner of Customs, Central Excise & Service Tax, (Appeals-II).

The appellant was a 100% Export Oriented Unit (EOU) and was engaged in research and development services of advanced pharmaceutical ingredients and other biopharma products, a wholly-owned subsidiary of Nektar USA. An employee of the parent company, Nektar USA, was sent to India on a secondment to work as a full-time Managing Director of the appellant company. During his tenure as the Managing Director of the appellant, the ‘secondee’ was a full-time employee of the appellant and that there was a relationship of employer-employee between the appellant and the ‘secondee’. Further, since the ‘secondee’ was a citizen of America, the parent company and the appellant company entered into a ‘salary reimbursement agreement’ for the sake of administrative convenience so that the salary of the ‘secondee’ would be paid in foreign currency outside India by the parent company which would be reimbursed by the appellant to its parent entity. The issue that arose was whether the reimbursement of salary paid to the ‘secondee’, to the parent company, Nektar USA amounted to consideration for the provision of manpower recruitment and supply agency services, within the meaning of section 65(68) of the Finance Act, 1994.

The Tribunal relied upon the CESTAT judgments of Nissin Brake India Pvt. Ltd. v. CCE, 2018 SCC OnLine CESTAT 1690, reiterated in Komatsu (India) (P) Ltd. v. CST, and in Goldman Sachs Services (P) Ltd. v. CST.

The Tribunal while reproducing the relevant portion of Komatsu India (P) Ltd. v. CST allowed the appeal holding that the revenue was not disputing that the ‘secondee’ was always under the control and supervision of the appellant and that the appellant’s parent company had absolutely no obligation to pay the salary and other charges to the ‘secondee’ but for remitting secondee’s salary in foreign exchange based on the salary reimbursement agreement. [Nektar Therapeutics (India) (P) Ltd. v. CCE, 2020 SCC OnLine CESTAT 382, decided on 10-12-2020]


Sakshi Shukla, Editorial Assistant has put this story together

Legislation UpdatesNotifications

In furtherance to the declared policy objective of the Government to encourage digital economy and move towards a less-cash economy, a new provision namely Section 269SU was inserted in the Income-tax Act, 1961 (“the Act”), vide the Finance Act 2019 (“the Finance Act”), which provides that every person having a business turnover of more than Rs 50 Crore (“specified person”) shall mandatorily provide facilities for accepting payments through prescribed electronic modes. The said electronic modes have been prescribed vide notification no. 105/2019 dated 30.12.2019 (“prescribed electronic modes”). Therefore, with effect from 01-01-2020, the specified person must provide the facilities for accepting payment through the prescribed electronic modes. Further, Section 10A of the Payment and Settlement Systems Act 2007, inserted by the Finance Act, provides that no Bank or system provider shall impose any charge on a payer making payment, or a beneficiary receiving payment, through electronic modes prescribed under Section 269SU of the Act. Consequently, any charge including the MDR (Merchant Discount Rate) shall not be applicable on or after 01st January, 2020 on payment made through prescribed electronic modes.

2. In this connection, it may be noted that the Finance Act has also inserted Section 271 DB in the Act, which provides for levy of penalty of five thousand rupees per day in case of failure by the specified person to comply with the provisions of section 269SU. In order to allow sufficient time to the specified person to install and operationalise the facility for accepting payment through the prescribed electronic modes, it is hereby clarified that the penalty under section 271 DB of the Act shall not be levied if the specified person installs and operationalises the facilities on or before 31″ January, 2020. However, if the specified person fails to do so, he shall be liable to pay a penalty of five thousand rupees per day from 1-02-2020 under section 271 DB of the Act for such failure.


Ministry of Finance

[Notification dt. 30-12-2019]

Case BriefsSupreme Court (Constitution Benches)

Supreme Court: On September 26, 2019, the 5-judge bench of former CJ Dipak Misra and A.K. Sikri, A.M. Khanwilkar, Dr D.Y. Chandrachud and Ashok Bhushan, JJ, ‘finally’ put an end to the Aadhaar dilemma in a 4:1 verdict and declared that the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 was valid and not violative of the fundamental right to privacy. The Court also held that Section 7 was the core provision of the Aadhaar Act and since it satisfied the condition of Article 110 of the Constitution, the Aadhaar Act was validly passed as Money Bill.

Just over a year later, when another 5-judge bench sat to decide the validity of Finance Act, 2017 as a Money Bill, it realised that the Aadhaar issue might not just be over yet.

The 5-judge Constitution Bench of Ranjan Goigoi, CJ and NV Ramana, Dr. DY Chandrachud, Deepak Gupta and Sanjiv Khanna, JJ went through the the judgment in K.S. Puttaswamy v. Union of India (Aadhaar-5 Judge), (2019) 1 SCC 1 when both parties in the Finance Act validity case relied upon it.

After “extensively examining” the issue, the Bench noticed that the majority in K.S. Puttaswamy (Aadhaar-5) pronounced the nature of the Aadhaar Act, 2016 without first delineating the scope of Article 110(1) and principles for interpretation or the repercussions of such process. It, hence, said,

“It is clear to us that the majority dictum in K.S. Puttaswamy (Aadhaar-5) did not substantially discuss the effect of the word ‘only’ in Article 110(1) and offers little guidance on the repercussions of a finding when some of the provisions of an enactment passed as a “Money Bill” do not conform to Article 110(1)(a) to (g).”

In the Aadhaar-5 Verdict, referring to the definition of “Money Bill” and the meaning and purpose of the word ‘only’ used in Article 110(1) of the Constitution, Ashok Bhushan, J. had observed that legislative intent was that the main and substantive provision of an enactment should only be any or all of the sub-clauses from (a) to (f). In the event the main or substantive provisions of the Act are not covered by sub-clauses (a) to (f), the bill cannot be said to be a “Money Bill”. It was further observed that the use of the word ‘only’ in Article 110(1) has its purpose, which is clear restriction for a bill to be certified as a “Money Bill”. It was, hence, observed that the Aadhaar Act veers around the government’s constitutional obligation to provide for subsidies, benefits and services to individuals and other provisions are only incidental provisions to the main provision. Therefore, the Aadhaar Bill was rightly certified by the Speaker as a “Money Bill.

It is pertinent to note that Chandrachud, J was the lone dissenting judge in the 4:1 Aadhaar-5 verdict and he was also the part of the 5-judge bench that referred the issue of validity of Finance Act being passed as Money Bill to a 7-judge bench. In his minority opinion in the Aadhaar-5 verdict, Chandrachud, J had, referring to the word ‘only’ in Article 110(1) of the Constitution, observed that the pith and substance doctrine which is applicable to legislative entries would not apply when deciding the question whether or not a particular bill is a “Money Bill”. He had held,

“the Money Bill must deal with the declaration of any expenditure to be charged on the Consolidated Fund of India (or increasing the amount of expenditure) and, therefore, Section 7 of the Aadhaar Act did not have the effect of making the bill a Money Bill as it did not declare the expenditure incurred on services, benefits or subsidies to be a charge on the Consolidated Fund of India.”

Noticing that the majority judgment in K.S. Puttaswamy (Aadhaar-5) did not elucidate and explain the scope and ambit of sub-clauses (a) to (f) to clause (1) of Article 110 of the Constitution, a legal position and facet which arises for consideration in the present case and assumes considerable importance, the Court, held

“Given the various challenges made to the scope of judicial review and interpretative principles (or lack thereof) as adumbrated by the majority in K.S. Puttaswamy (Aadhaar-5) and the substantial precedential impact of its analysis of the Aadhaar Act, 2016, it becomes essential to determine its correctness. Being a Bench of equal strength as that in K.S. Puttaswamy (Aadhaar-5), we accordingly direct that this batch of matters be placed before Hon’ble the Chief Justice of India, on the administrative side, for consideration by a larger Bench.”

[Roger Mathew v. South India Bank Ltd.,  2019 SCC OnLine SC 1456, decided on 13.11.2019]


Read the full report on 2018 Aadhaar Judgment here.

Read the full report on the Finance Act judgment here

Case BriefsSupreme Court (Constitution Benches)

Supreme Court: The 5-judge Constitution Bench of Ranjan Goigoi, CJ and NV Ramana, Dr. DY Chandrachud, Deepak Gupta and Sanjiv Khanna, JJ has upheld the validity of Section 184 of the Finance Act, 2017 and held that the said Section does not suffer from excessive delegation of legislative functions as there are adequate principles to guide framing of delegated legislation, which would include the binding dictums of this Court.

The Court, however, struck down the Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2017, made under Section 184 of the Finance Act, 2017, for being contrary to the parent enactment and the principles envisaged in the Constitution.

In the 255-pages long verdict, CJI Ranjan Gogoi penned the majority opinion for the Bench and Justices DY Chandrachud and Deepak Gupta wrote separate but concurrent opinions.

Majority Opinion written by Gogoi, CJ

Finance Act being a Money Bill

The Court said that the provisions of Article 110(1) have to be given an appropriate meaning and interpretation to avoid and prevent over-inclusiveness or under-inclusiveness. Any interpretation would have far reaching consequences. It is therefore, necessary that there should be absolute clarity with regard to the provisions and any ambiguity and debate should be ironed out and affirmatively decided. In case of doubt, certainly the opinion of the Speaker would be conclusive, but that would not be a consideration to avoid answering and deciding the scope and ambit of “Money Bill” under Article 110(1) of the Constitution.

It, hence, held,

“The issue and question of Money Bill, as defined under Article 110(1) of the Constitution, and certification accorded by the Speaker of the Lok Sabha in respect of Part-XIV of the Finance Act, 2017 is referred to a larger Bench.”

Correctness of Aadhaar Verdict & reference to 7-judge bench

Since both the parties had relied upon the judgment in K.S. Puttaswamy v. Union of India (Aadhaar-5 Judge), (2019) 1 SCC 1, the Court extensively examined the issue and noticed that the majority in K.S. Puttaswamy (Aadhaar-5) pronounced the nature of the Aadhaar Act, 2016 without first delineating the scope of Article 110(1) and principles for interpretation or the repercussions of such process. It said,

“It is clear to us that the majority dictum in K.S. Puttaswamy (Aadhaar-5) did not substantially discuss the effect of the word ‘only’ in Article 110(1) and offers little guidance on the repercussions of a finding when some of the provisions of an enactment passed as a “Money Bill” do not conform to Article 110(1)(a) to (g).”

Noticing that the majority judgment in K.S. Puttaswamy (Aadhaar-5) did not elucidate and explain the scope and ambit of sub-clauses (a) to (f) to clause (1) of Article 110 of the Constitution, a legal position and facet which arises for consideration in the present case and assumes considerable importance, the Court, held

“Given the various challenges made to the scope of judicial review and interpretative principles (or lack thereof) as adumbrated by the majority in K.S. Puttaswamy (Aadhaar-5) and the substantial precedential impact of its analysis of the Aadhaar Act, 2016, it becomes essential to determine its correctness. Being a Bench of equal strength as that in K.S. Puttaswamy (Aadhaar-5), we accordingly direct that this batch of matters be placed before Hon’ble the Chief Justice of India, on the administrative side, for consideration by a larger Bench.”

Validity of Section 184 of Finance Act, 2017

Accepting the submission of Attorney General KK Venugopal that Section 184 was inserted to bring uniformity and with a view to harmonise the diverse and wide-ranging qualifications and methods of appointment across different tribunals carries weight, the Court said,

“we do not think that the power to prescribe qualifications, selection procedure and service conditions of members and other office holders of the tribunals is intended to vest solely with the Legislature for all times and purposes.”

Grounds for striking down the Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2017

  • Search-cum-Selection Committee as formulated under the Rules is an attempt to keep the judiciary away from the process of selection and appointment of Members, Vice-Chairman and Chairman of Tribunals.
  • There has been a blatant dilution of judicial character in appointments whereby candidates without any judicial experience are prescribed to be eligible for adjudicatory posts such as that of the Presiding Officer. Parliament cannot divest judicial functions upon technical members, devoid of the either adjudicatory experience or legal knowledge.
  • In many Tribunals like the National Green Tribunal where earlier removal of members or presiding officer could only be after an enquiry by Supreme Court Judges and with necessary consultation with the Chief Justice of India, under the present Rules it is permissible for the Central Government to appoint an enquiry committee for removal of any presiding officer or member on its own. The Rules are not explicit on who would be part of such a Committee and what would be the role of the Judiciary in the process. In doing so, it significantly weakens the independence of the Tribunal members.
  • The extremely short tenure of the Members of Tribunals is anti-merit and has the effect of discouraging meritorious candidates to accept posts of Judicial Members in Tribunals.
  • There are also certain contradiction in the Rules that warranted a relook.

The Court, hence, directed the Central Government to re-formulate the Rules ensuring non-discriminatory and uniform conditions of service, including assured tenure, keeping in mind the fact that the Chairperson and Members appointed after retirement and those who are appointed from the Bar or from other specialised professions/services, constitute two separate and distinct homogeneous classes.

The Court, however, granted interim relief and directed that appointments to the Tribunal/Appellate Tribunal and the terms and conditions of appointment shall be in terms of the respective statutes before the enactment of the Finance Bill, 2017 till the new Rules are framed.

Judicial Impact Assessment

The Court issues a writ of mandamus to the Ministry of Law and Justice to carry out a Judcial Impact Assessment of all the Tribunals referable to the Finance Act, 2017 so as to analyse the ramifications of the changes in the framework of Tribunals as provided under the Finance Act, 2017.

Direct Appeal to Supreme Court

The Court also asked the Central Government to re-visit the provisions of the statutes referable to the Finance Act, 2017 or other Acts and place appropriate proposals before the Parliament for consideration of the need to remove direct appeals to the Supreme Court from orders of Tribunals within 6 months.

Chandrachud, J’s separate but concurrent opinion

Chandrachud J, who was the lone dissenting judge in the 4:1 K.S. Puttaswamy (Aadhaar-5)  verdict, has held that Part XIV of the Finance Act 2017 could not have been enacted in the form of a Money Bill, hence, the aspect of money bill should be referred to a larger Bench.

He also suggested that a “National Tribunals Commission” be set up to oversee the selection process of members, criteria for appointment, salaries and allowances, introduction of common eligibility criteria, for removal of Chairpersons and Members as also for meeting the requirement of infrastructural and financial resources. It should comprise of:

  • Three serving judges of the Supreme Court of India nominated by the Chief Justice of India;
  • Two serving Chief Justices or judges of the High Court nominated by the Chief Justice of India;
  • Two members to be nominated by the Central Government from amongst officers holding at least the rank to a Secretary to the Union Government: one of them shall be the Secretary to the Department of Justice who will be the exofficio convener; and
  • Two independent expert members to be nominated by the Union government in consultation with the Chief Justice of India
  • The senior-most among the Judges nominated by the Chief Justice of India shall be designated as the Chairperson of the NTC.

Gupta J’s separate but concurrent opinion

While Gupta, J agreed that it was necessary to have such a Commission which is itself an independent body manned by honest and competent persons, he disagreed on the composition of the said Committee as suggested by Chandrachud, J. He said that the serving Judges of the Supreme Court or the Chief Justice of the High Courts were already overburdened and that it would be much better if they could spend their time and energy in filling up the vacancies in the High Courts rather than venturing into the field of tribunals.

He also said that having a very large committee would not serve the purpose. The Composition of the “National Tribunals Committee” as suggested by Gupta, J is:

  • Two retired Supreme Court Judges with the senior most being the Chairman
  • One retired Chief Justice of High Court to be appointed by the Chief Justice of India.
  • One member representing the executive to be nominated by the Central Government from amongst officers holding the rank of Secretary to the Government of India or equivalent. This member shall be the ex-officio convener.
  • One expert member can be co-opted by the by full time members. This expert member must have expertise and experience in the field/jurisdiction covered by the tribunal to which appointments are to be made.

[Roger Mathew v. South India Bank Ltd., 2019 SCC OnLine SC 1456, decided on 13.11.2019]

Business NewsNews

The Central Board of Direct Taxes (CBDT) has clarified that the pension received by a taxpayer from his former employer is taxable under the head “Salaries”. The Finance Act, 2018 has amended Section 16 of the Income–tax Act, 1961(“the Act”) to provide that a taxpayer having income chargeable under the head “Salaries” shall be allowed a deduction of Rs 40,000 or the amount of salary, whichever is less, for computing his taxable income. Accordingly, any taxpayer who is in receipt of pension from his former employer shall be entitled to claim a deduction of Rs 40,000 or the amount of pension, whichever is less, under Section 16 of the Act.

Earlier pensioners were not able to enjoy any allowance on account of transport and medical expenses, but after this provision they will also get the benefit of this deduction. Consequently the present exemption in respect of these two allowances stands withdrawn from FY18-19. However, in case of differently-abled persons, the transport allowance at enhanced rate shall continue to be available.

Pension received by dependent family members (as legal heirs) of the retired individual is known as family pension and is considered as ‘income from other sources’. So, in case an employee passes away, then after his death the for the family pension, a standard deduction under Section 57 (iia) is available under which an amount of Rs 15,000 or 1/3rd of the uncommuted pension received, whichever is less, shall be exempt. Spouse, children below the age of 25 years, unmarried daughter and dependent parents in certain cases shall come under the definition of dependent family members.

[Press Release no. 1527822, dt. 05-04-2018]

Ministry of Finance

Hot Off The PressNews

Supreme Court: On 04.08.2017, the bench of J.S. Khehar, CJ and Dr. D.Y. Chandrachud, J agreed to hear the plea filed by Congress leader Jairam Ramesh challenging the validity of some provisions of the Financy Act, 2017 on the ground that those provisions would destroy the independent functioning of the NGT and 18 other tribunals.

The Court, however, refused to stay the operation of the Act and tagged the petition with a  similar pending petition filed by NGO Social Action for Forest and Environment.

The Finance Act, 2017, which came into effect from April 1, led to framing of the Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2017 and these allegedly gave “unbridled” powers to the Executive to decide the qualification of the members, their appointment and removal among other issues. The petitioner said that the changes brought about by the Act would weaken functioning of tribunals including the NGT and curtail their powers and that the tribunal rules gave primacy to the Executive in the appointment and removal process of the chairperson or president and judicial members of the statutory tribunals and authorities and it amounted to attempting to usurp judicial appointment powers and influence the administration of justice.

Source: PTI