Taxpayer's paradox: Extending the scope of the Consumer Protection Act to government services

Taxpayers of India are in a paradoxical position. They fund the State through compulsory exactions, expect services in return and, yet, when those services fail time and again, they are often treated as strangers to the very system they sustain through their taxes.

Not a week goes by without hearing or reading about a bridge collapsing or a pillar of a metro bridge falling on someone and killing them or someone falling in a pothole. But what do the affected people get as compensation? A meagre ex gratia sum from the government, almost as an inadequate and insulting remedy.

More often than not, the Consumer Protection Act, 2019 offers little succour, as courts have consistently held that taxes do not constitute “consideration” for services under the Act.

This article critically examines this accountability gap, challenges the judicial reasoning that excludes taxpayers from the definition of “consumer” and states that governmental service-delivery functions must be brought within the Act’s ambit to ensure meaningful redressal.

The Consumer Protection Act, 2019 is designed to empower the weak against the powerful and mighty suppliers of goods and services. But its present wording and judicial interpretation largely excludes services rendered by the State or its instrumentalities in discharge of their core public duties, such as maintaining roads, drains, public spaces etc.

This exclusion has dire consequences for both the consumer and the service provider. Consider a common example: a municipal corporation fails to maintain a public road, a pothole forms and a citizen falls into it, consequently suffering a grievous injury. Under the present consumer protection doctrine, the citizen will almost certainly be told that he is not a “consumer” of the services of the municipal corporation, because he has not “hired or availed” any service for consideration. His legal recourse, most likely, lies in the complex and expensive domain of constitutional litigation or tort suits. This gap is normatively unjustifiable and the Act should be amended to recognise taxpayers as consumers of governmental services, even if only in cases of service-delivery failures.

Section 2(42) of the Act defines “service” as, “service of any description which...includes, but not limited to, the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, telecom, boarding or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service.”

Section 2(7) defines “consumer” broadly as a person who buys goods or hires or avails of any service for a consideration, including beneficiaries of such goods or services used with the approval of the person who hired or bought them.

These definitions are broad enough to include several public sector activities. They do not necessarily differentiate between private and public suppliers, nor do they carve out statutory authorities as such. The exclusions are only for services rendered either free of charge or under a contract of personal service. Nevertheless, courts have read a judicial limitation into the Act. Sovereign or statutory functions financed out of tax revenues are not “services” hired or availed for “consideration” by individual citizens.

Courts and forums have more often than not declined to treat a citizen as a “consumer” where the State acts purely in discharge of statutory obligations funded from taxation.

The Kerala High Court in Thrissur Municipal Corporation v. Ummer Koya Haji, held,

“While local bodies do certain acts as services rendered for payment of fee in respect of which there is quid pro quo coming within the purview of the Consumer Protection Act, in respect of the sovereign functions exercised by the local bodies...it cannot be said that the local bodies are rendering any services, in respect of which the tax payer can maintain a complaint under the Consumer Protection Act.”

The Supreme Court in Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindro Thirtha Swamiar of Sri Shirur Mutt held that “a tax is the compulsory extraction of money by public authority for public purposes enforceable by law and is not payment of service rendered.”

The NCDRC in Mayor, Calcutta Municipal Corporation v. Tarapada Chatterjee (1993) held that taxpayers are not “consumers” when receiving services like water supply, as they are the statutory obligations of the State rather than its contractual service. Therefore, these kinds of disputes would not fall under the Consumer Protection Act.

In a country like India, where the bulk of the services are delivered by the State apparatus, consumer rights are bound to get intertwined with fundamental rights. Consumer rights such as access to services, fair procedures and effective remedies are embedded in the broader guarantees of the Constitution. The Supreme Court has read a range of socio-economic entitlements into the guarantee of life and personal liberty under Article 21. Many of these entitlements are realised through government service delivery systems like public hospitals, schools, ration systems, digital identity and welfare platforms etc, which are paid for collectively by taxpayers.

Excluding governmental services, which are funded by taxes, from the ambit of “service” under the Act leaves citizens with only public law remedies such as writ petitions, PILs, etc. These remedies are often expensive and structurally ill-suited for small and individualised service deficiencies.

The purpose of consumer fora is to provide quick, inexpensive, individual redressal for harms arising out of defective goods or deficient services. When the same citizen suffers similar harm due to the actions of some government department, he has to opt for constitutional litigation, even though the harm is functionally indistinguishable from a private sector’s “deficiency in service”.

This effectively ensures that the government remains insulated from the bulk of claims of the citizenry, which it would have to inevitably face, had a legal recourse been provided to the public in a consumer forum. To make the government more accountable, it has to be taken to task for its each and every shortcoming. This would only be possible if legal recourse is provided to the people through easily accessible consumer fora.

The key term in the Act is “consideration” - a service must be rendered “for consideration” for the Act to apply. The argument that taxes do not constitute consideration rests on a flawed foundation. While taxes are not contractual payments, they are exactions made by the citizens that are supposed to develop and sustain various government services, programmes and schemes related to roads, sanitation, public health etc.

The NCDRC in A Srinivasa Murthy v. Chairman, Bangalore Development Authority (1990) held that payment of tax which goes into the general revenue of the State or local authority will not legally constitute payment of consideration for any specific service.

For example, when citizens pay Goods and Services Tax (GST) on mobile recharges or pay municipal property tax, these levies are collected specifically to fund the governmental machinery that delivers services to that very payer. This relationship is transactional in essence, even if not contractual in form.

Every function performed by the government need not be brought under the ambit of the Act. Activities that are performed by the government in exercise of its sovereignty - like administration of justice, defence, external affairs, elections, etc - must remain immune from the purview of the Act. However, service delivery functions of the government - sanitation, maintenance of roads, public health etc - which could very well be carried out by private entities, should be brought within the purview of the Act.

It is not as if this line of thinking does not have any judicial recognition. A three-judge bench of the Supreme Court in Punjab Urban Planning and Development Authority (Now GLADA) v. Ram Singh, held that “not all statutory obligations are sovereign functions” and that even within departments discharging sovereign functions, sub-units providing services for consideration can be considered within the Act’s ambit.

The modern life of an individual is dependent on one or more services provided by the State, be it water, sanitation, hospitals, schools, etc. All of these services are funded by the taxpayers. The idea that a citizen’s tax is not “consideration” for any of these services is a legal fallacy that serves governmental impunity over accountability towards citizens.

Shubhang Shukla is an advocate and an IP attorney practicing in Delhi.