Madras High Court holds composition of GST Appellate Tribunals is Unconstitutional [Read Judgment]
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Madras High Court holds composition of GST Appellate Tribunals is Unconstitutional [Read Judgment]

Meera Emmanuel

The Madras High Court has found that the constitution of GST Appellate Tribunal (GSTAT) under the prevailing GST regime is unconstitutional. Particularly, the Court has held that the number of judicial members must exceed the number of technical members. However, it also concluded that advocates do not have a fundamental right to become judges/judicial members of the GSTAT, although they cannot be excluded from the zone of consideration for appointment as judicial members.

The Bench of Justices S Manikumar and Subramonium Prasad announced the judgment this afternoon in Chamber. The judgment reads,

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

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

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

The ruling was passed after extensive consideration of various Supreme Court judges including the R Gandhi case, the Madras Bar Association case, the Sampath Kumar case and the SP Gupta case. The Court eventually opined that the GSTAT is expected to discharge functions that are essentially judicial functions. Viewed from this angle, not only should it be ensured that technical members do not dominate over the judicial members, the Court also opined that there is no reason why lawyers with relevant expertise should be excluded from being appointed as judicial members. Pertinent observations made in this regard include the following,

On why lawyers should also be considered for appointment to the GSTAT:

Even though the constitutional validity of Section 110(1)(b) cannot be  struck down on the ground of non-inclusion of advocates as being eligible for  being considered for appointment as Judicial Member to the Appellate Tribunal  under the CGST or TNGST, yet this court is of the opinion that the Union of India  must evaluate as to why it is making a departure from the existing practice….Advocates are eligible to be appointed as Judicial Members in the ITAT which is  the oldest Tribunal in the country. Lawyers are eligible for appointment as  Judicial Member in the Customs Excise Service Tax Appellate Tribunals. Mr.Arvind  Datar is justified in contending that when the constitution provides that lawyers  are eligible to be appointed as Judges of the High Court, then there is no reason  to exclude them from being considered for appointment as Judicial Members…

For deciding the issues arising under the CGST Act and more particularly under Chapter III, it is necessary that the Judicial Member must have knowledge of various legal topics for which purpose a lawyer with sufficient experience and particularly with experience in Taxation Laws will be ideal to be appointed as a Judicial Member. Keeping in mind the existing practice in appointing lawyers to various Tribunals as Judicial Members and the various issues that are likely to arise while adjudicating disputes under the CGST Act, we recommend that the Parliament should reconsider the issue regarding the eligibility of lawyers to be appointed as Judicial Members in the Appellate Tribunal….

… The expert members who are not well trained in law, cannot be permitted to overrule the judicial member on these aspects. “

On why technical members should not outweigh the number of judicial members,

“….the GSTAT, is  replacing the CESTAT, Sales Tax / VAT Tribunals. The composition of GSTAT  therefore, has to be on the same lines. In fact, Article 50 of the Constitution of  India which provides for separation of the judiciary from the executive, must be  interpreted in such a way that the dominance of the departmental / technical members, cannot overwhelmingly outweigh the judicial members…

…The Court can take judicial notice of the fact that now the tribunals are taking over the subjects which were initially being dealt with / adjudicated by Courts. These subjects were adjudicated by Judicial Officers. Viewed in this angle, tribunals which primarily decide disputes between State and citizens cannot be run by a majority consisting of non-judicial members….

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

…  The principle which emerges [from a reading of the case of S Manoharan v. The Deputy Registrar, CAT]  is that while deciding issues as to whether the decision making process by the adjudicating authority or the appellate authority was just, fair and reasonable and to decide issues regarding interpretation of notifications and sections under the CGST Act a properly trained judicially mind is necessary which the experts will not have. The number of expert members therefore cannot exceed the number of judicial members on the bench. “

The Court had reserved judgment in the case last June.

The case involved two similar petitions, one by Advocate V Vasanthakumar and another by the Revenue Bar Association (RBA). Both petitions assail Sections 109 and 110 of Chapter XVIII of the Central Goods and Services Tax (GST) Act and the corresponding provisions in the state Act. These provisions lay down that the appellate tribunals for tax matters are to be constituted by one judicial member, one technical member (Centre) and one technical member (State) i.e. two technical members and a judicial member.

Justice S Manikumar (L) and Justice Subramonium Prasad (R)
Justice S Manikumar (L) and Justice Subramonium Prasad (R)

The petitioners had challenged this scheme, contending that the number of technical members on the tribunal cannot exceed the number of judicial members. The broad basis of the challenge was that the dominance of technical members on the GSTAT would would violate the doctrine of separation of powers and infringe upon the independence and impartiality of the judiciary.

Further, the exclusion of lawyers from being appointed as members of the GSTAT had also been challenged. Under the present GST regime, only civil servants and judicial officers are eligible for appointment as judicial members to the appellate tribunal.

The final round of hearings in the case had commenced before the present Bench on June 8. 

While concluding submissions on behalf of the RBA on June 21, Senior Advocate Arvind Dataasserted that such exclusion of advocates from appointment to the GSTAT was incomprehensible, irrational and illogical. Datar was briefed in the matter by Advocates Rahul Unnikrishnan and Karthik SundaramInter alia, Datar stated in his reply that the Constitutional scheme called for the appointment of persons with judicial expertise as opposed to domain expertise to the tribunal.

Appearing in person, Advocate Vasanthakumar had made allied submissions while referring to Articles 124, 217 and 233 of the Constitution, These provisions allow the direct recruitment of advocates having sufficient experience to the District Courts and the Higher Judiciary. This being the Constitutional position, Vasanthakumar asserted that there cannot be a deviation when it comes to recruitment of members to the GSTAT and that the Constitution scheme will prevail.

Among other cases, the petitioners placed reliance on the law laid  by the Supreme Court in the cases of Union of IndiaR Gandhi, MBA v UOI, SP Sampath Kumar v UOI and Union of India v. Delhi High Court Bar Association to buttress their arguments.

The State, on the other hand,  defended the validity of the challenged provisions by contending that the composition of tribunals must conform to the concerned statute. Without statutory backing, Additional Solicitor General G Rajagopalan argued, the appointment of lawyers as judges would be illegal. Inter alia, he had also submitted that a lawyer’s right to practice under Article 19 (1) (g) of the Constitution does not include the right to be appointed a judge. The ASG had appeared for the Union Ministry of Law and Justice.

Submissions were also made on behalf of the Union Finance Ministry and the GST Council, as well as by the state of Tamil Nadu supporting the Law Ministry’s stance. It was argued that what is required is that the Tribunal members are legally qualified and judicially trained. In this scenario, judicial training meant that the member had sufficient adjudicatory experience, it was argued.

Appearing tor the Finance Minister and the GST Council, Advocate Aparna Nandakumar submitted that in the case of the GSTAT, a selection committee would be tasked to select members who have such requisite adjudicatory experience. She pointed out that this selection committee is yet to be appointed and that the the present challenge is, therefore, premature as well. Allied submissions were also made by the State of Tamil Nadu, through Special Government Pleader (Taxes) Mohammed Shaffiq.

Inter alia, it had also argued that the MBA case cannot be relied upon in the instant case as the constitution of the GSTAT is traceable to Article 246A (exclusive power of the Parliament to make laws concerning GST, which was not in existence when the MBA judgment was pronounce) and not Article 323B (general power of the legislature of enact laws for the creation of tribunals) of the Constitution. However, the Court has expressly rejected this argument as well in its judgment.

[Read the Judgment]

Madras-HC-GSTAT-judgment-September-2019.pdf
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