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Business News/ Politics / Policy/  The apex court’s tax bench experiment

The apex court’s tax bench experiment

The numbers seem to suggest that the tax bench has been a success all around, but its future is uncertain

The positive experience of the tax bench suggests that the SC should aim to expand this experiment to other categories.Premium
The positive experience of the tax bench suggests that the SC should aim to expand this experiment to other categories.

A year ago, then chief justice of India H.L. Dattu constituted a bench that would only hear tax cases, recognizing the need to reduce the pile of pending cases in the Supreme Court.

With increasing political recognition of the link between economic growth and tangled tax laws and litigation, it was a reform that seemed necessary.

Fortunately, the numbers seem to suggest that the tax bench has been a success all around. The bench of justices A.K. Sikri and Rohinton Nariman heard tax cases until the second week of December, and in 2015, the Supreme Court delivered 197 judgements in tax law.

This is almost as many as the apex court managed in the three years preceding 2015, when it passed 206 tax judgements; or a nearly four-fold increase in its productivity in each of 2014 and 2013.

The vast increase in numbers was undoubtedly due to the efficiency of the tax bench—in the nine months that it was operational, the bench delivered 170 out of the 197 tax case judgements delivered in all of 2015.

The total number of tax judgements delivered in 2015 is the highest for a year since 2007. And if one counts the orders where the Supreme Court didn’t delve in depth into the reasoning, then a total of 289 such orders and judgements were delivered, disposing of 1,043 cases.

The bulk of the judgements were rendered in central indirect tax cases, both relating to central and state indirect taxes. Of the 170 judgements delivered by the tax bench, an astounding 149 were authored by Sikri and 21 by Nariman.

Even when not sitting on the tax bench, Sikri delivered a further seven tax judgments relating to earlier years, bringing his tally to 156 over the course of the year. While detailed numbers are not available for earlier years, Sikri now probably holds the record for having delivered the highest number of tax judgements in a year in the Supreme Court.

Knock-on effect

Because many of the tax cases involved multiple ones that had been filed over the years, several were tagged and heard together, as with other judgements in the Supreme Court.

This meant that through the 197 Supreme Court judgements in 2015, a total of 518 connected cases that dealt with similar points of law were disposed of (the tax bench’s judgements themselves were directly responsible for clearing 400 cases off the books in 2015 with an additional 490 being disposed of through orders).

More importantly, for tax laws, the precedents created by the Supreme Court will guide the revenue authorities and the litigant for future years and other pending cases, bringing a measure of certainty to tax administration in the country.

While figures have not yet been made public by the revenue department, it is likely that the overall value of tax revenue held up in tax litigation in the Supreme Court will have come down by a substantial amount as a result of the work of the tax bench over the course of the year.

Senior advocate Balbir Singh agreed that the bench’s trickle-down effect was significant: “Based on the decisions given by that (tax) bench, also lower courts and tribunals can (dispose of more cases) and this can cut down a lot of litigation at (the tax) tribunal and lower court level."

Out with the old

What the disposal of such a large number of tax cases also reveals is the delays that have taken place in these cases. The tax bench seems to have focused on disposing those tax cases that have been pending for long, including, as the table below shows, one dating back to 1997.

The bulk of the tax matters disposed of by the Supreme Court therefore seem to be cases that are 8-12 years old. This does not necessarily mean that more recent cases have taken a back-seat; they are likely to have been tagged with the older cases and disposed of when the questions of law were similar or identical.

By all accounts, Supreme Court lawyers and litigants are happy that the tax bench was set up to function over the course of the year to decide only tax cases. Without the routine change of roster, the judges were able to focus and go in depth into the area of law in question.

“I feel it was a huge success both in terms of quantity and quality," commented senior advocate Harish Salve on the bench’s output in 2015. “Tax is a specialist field and terse judgments to the point are always better precedents. General comments in long judgements create problems.

“This bench was superb in their grasp and in their judgements."

“The bench really worked well in terms of disposal and quality of decisions," said Singh. “Although it largely dealt with indirect tax cases… they have settled quite a significant number of points on issues like (excise) valuation and a few disputes on anti-dumping (regulations)," he said.

Nariman also settled the question of whether tax liability can pass from an assessee, once deceased, onto his or her heirs (no in the case of indirect taxes; yes for direct taxes), said Singh.

However, the bench has not been reconstituted so far this year, with tax cases having been moved to three or four different benches.

“I hope the new Chief (Justice of India) will also come up with some plan like this and can form a separate bench to focus just on direct tax this time," said Singh.

Another word of caution is also required.

While the number of tax judgements delivered by the Supreme Court has indeed seen a dramatic jump, the overall number of judgements delivered by the Supreme Court in 2015 did not see such an increase (see chart).

Although only two judges retired during the course of the year and the Supreme Court was at near 90% capacity, it did not deliver substantially more judgments than the previous year, 2014, where 10 judges retired over the course of the year.

This may suggest that the specialized benches only end up allocating scarce judicial resources between case categories without necessarily improving efficiency overall.

However, according to the details given by former chief justice Dattu, the number of cases pending in the Supreme Court has come down to 57,000 from nearly 63,000 over the course of 2015.

Nevertheless, the positive experience of the tax bench suggests that the Supreme Court should aim to expand this experiment to other categories such as land acquisition cases, criminal cases and others that have pending for long.

This will help in systematically reducing the burgeoning backlog of cases in the Supreme Court.

Key judgements and orders delivered by the tax bench

1. Central Commission for Central Excise vs Hindustan Lever Ltd: The Supreme Court clarified that Vaseline intensive care heel guard was a drug and not a cosmetic and it was up to the tax authorities to prove that there was no prophylactic or curative value to a product.

2. Commissioner of Income Tax v Veena Developers: The Supreme Court laid down that deductions for construction of low-cost residential apartments will also be available to those who constructed mixed commercial and residential buildings, thereby resolving a large batch of pending cases.

3. Castleton Investments Pvt. Ltd v Director General of Income Tax: In line with a 2015 report by the justice A.P. Shah committee on direct tax matters, and a subsequent circular by the government, the Supreme Court clarified that there would be no imposition of minimum alternate tax on foreign institutional investors.

Alok Prasanna Kumar is a senior resident fellow at the Vidhi Centre for Legal Policy. Tushar Joshi, Wafa Jallu and Kanishk Devesh, interns at Vidhi, contributed to this story.

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Updated: 21 Mar 2016, 01:15 AM IST
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