A response to Arvind Datar's article on the Supreme Court's recent judgments in tax cases

I had the opportunity to read the article of Arvind P Datar, Senior Advocate, titled Turbulent times for Tax cases, published in Bar & Bench with the sub-heading “With the retirement of Justice MR Shah, the curtain comes down on a difficult period when judgments in tax cases were almost invariably against the Assessee”.

The learned and distinguished author had referred to three cases and the leading one is the case of Ashish Agarwal, wherein the Supreme Court had extended Article 142 of the Constitution to a tax matter, which according to the author, was the first of its kind in tax litigation, missing out the decisions rendered by the Supreme Court, both earlier and present in the following cases:

i. A seven-judge Constitution Bench judgment in the case of Synthetics and Chemicals Ltd and Others v. State of UP and Others (1990 1 SCC 109, vide para 89) - in favour of the assessees.

ii. Union of India and Another v. Filco Trade Centre Pvt. Ltd. and Another (2023 1 SCC 562) (extension of TRAN 1 Benefit) - in favour of assessees.

iii. New Noble Educational Society v. Chief Commissioner of Income Tax I and Another (2022 SCC OnLine SC 1458, vide para 88)- in favour of assessee.

iv. The author had referred to the decision of Prashanti Medical Services and Research Foundation v. Union of India (2020 14 SCC 785), wherein the Supreme Court, vide para 30, held that once a levy is upheld, the question of invoking Article 142 may not arise. Unfortunately, the earlier judgments rendered by the Supreme Court was not cited before it. More importantly, through a recent decision rendered by the Court in Union of India and Others v. Cosmo films Ltd (2023 SCC OnLine SC 518, Para 85), had taken exactly the contrary position, of course in favour of the assessee. The Supreme Court, after upholding the levy to be constitutionally valid, had extended the benefit to those assessees who had enjoyed the benefit of interim orders.

Therefore, the theory proposed in the article that tax laws and Article 142 are sworn enemies, is legally incorrect. 

Having been a party to Ashish Agarwal, I felt it is my duty towards the readers to give the factual and legal perspective which led to the exercise of the constitutional power under Article 142 by the Court in that batch of matters.

The ratio that was unanimously rendered in favour of the assessee by various High Courts, was that the amendment brought by the Finance Act, 2021 operates retrospectively and the assessees could rely on this amendment even for past assessment years, even though the then prevailing law was in operation. These consistent views of the High Courts were upheld by the Supreme Court in Ashish Agarwal. There was no further need for all the High Court judgments to be before the Court, as the ultimate decision on merits has been rendered only in favour of the assessees.

While doing so, what was contended by the Revenue was if the new law can travel back, can the Court consider all the notices issued under the old law to be compatible enough under the new law, with an undertaking that further proceedings will be carried out as per the new law?

The Court felt it proper that this should be done in the interest of justice and extended its constitutional power under Article 142 to render complete justice. The judgment makes it clear that the Revenue is not empowered to issue any new notice, the judgment would apply only to such notices issued already and all those notices should follow the new procedure. 

It was an exercise of constitutional power to bring about fruition to proceedings which would have otherwise ended in hiatus.

The assumption in the article that this judgment has opened the floodgates for a second round of litigation, in our respectful view, is again incorrect. What is being contended in the second round of litigation is altogether a different legal issue on the applicability of TOLA 2020, a legal point available to the assessees even while contesting the issues in the first round of battle, which they did not choose to, and kept it in their sleeves for a second innings.

The assessees could have very well raised this issue in the first round as one of their contentions was to plead the bar of limitation, which they did not do and none of the High Courts even remotely went into this issue. When this was raised in the second innings, divergent views have been expressed by the High Courts and matters are pending before the Supreme Court.

The need for providing this perspective through this article would not have arisen at all at the first instance, had there been only a legal discussion on Ashish Agarwal, since counsel and authors are entitled to their perspectives and views.

The need arises only because the article travels beyond the discussion of a legal issue and concludes that the curtain has now come down after a difficult era of handling tax cases before the Supreme Court. It ends up suggesting remedial action which are legal issues under debate in various matters and not concluded ratios.

It is under these circumstances that this humble attempt is made, more as a duty to bring out certain vital aspects that have been missed out or overlooked in the article, which if provided may lead to a proper understanding of the ground realities:

a. The assumption that the article seeks to project, as though the tax portfolio had been held by one judge of the Supreme Court, and the curtains have come down now, is factually incorrect.

b. It is important to impress that major tax matters of public importance which had gone in favour of the Revenue in the last three years had been disposed of by various Benches of the Supreme Court headed by the following judges:

i.  Justice UU Lalit

ii. Justice DY Chandrachud

iii. Justice AM Khanwilkar

iv. Justice KM Joseph

v. Justice Subhash Reddy

vi. Justice Dinesh Maheshwari

vii. Justice Sanjiv Khanna

viii. Justice BR Gavai

ix. Justice Surya Kant

x. Justice Ravindra Bhat

c. All these verdicts rendered by the above mentioned judges are reported judgments dealing with very important tax issues.

d. During his farewell, it was conveyed that Justice MR Shah had authored around 712 judgments, of which more than a hundred would be tax cases. The sample size referred to in the article is three and being a party to one, I was able to clarify the other perspective. It would not be difficult to place the Revenue’s perspectives in all the judgments rendered by the Court.

e. Commenting on a judgment and offering one’s own perspective to it, is distinct from commenting on a court as one loaded in favour of the Revenue. Therefore, there is a necessity to clarify that plural benches at various points of time had decided tax cases which had gone in favour of the Revenue, an important angle conspicuous by its absence in the article.

f. Going by set theory, when there is a larger set with larger samples available for discussion, taking out a smaller set and smaller sample size does invariably lead to a subjective analysis rather than an objective one. Hence, the need for those perspectives to be brought on record for the benefit of the readers.

This article is only meant to provide an overall perspective to the issue discussed and is conveyed with the highest regard both to the Court and to the author, who hails from the same Bar and who had remained a source of inspiration for many of us. 

N Venkataraman is an Additional Solicitor General of India.