Is Res-Judicata Applicable In Tax Matters

IS RES-JUDICATA APPLICABLE IN TAX MATTERS

This article explains nuances of whether res-judicata applies in tax cases, examining key judicial precedents and the doctrine’s implications in the realm of taxation. Res-judicata is a latin word which means “A thing adjudged”. A thing or a matter that has been finally juridically decided on merits and cannot be litigated again between the same parties is known as res-judicata.

The term Res-judicata is often used in reference to the maxim that repeated reexamination of adjudicated disputes is not in anybody’s interest. It has been held that one judicial contest is enough for the litigants on a particular claim of defense. A matter can be resolved by a Tribunal, High Court or Supreme Court but it can be diversified by other Tribunal or other High Courts or the same High Court or Supreme Court in which the predecessor judgement has been decided and for deferring with earlier judgement, there should be a ground.

Three maxims which are the key basis for the doctrine “Res-judicata”, are 1. Nemo debet bisvexari (prouna eteadem causa) i.e. no person should be vexed twice. 2. Interest reipublicaeut sit finislitium i.e. it is in the interest of the State that there should be amend to litigation and 3. Res judicata pro veritate accipiter: A decision of a judicial authority must be duly accepted as correct .

Several judgements which has been rendered by a Tribunal, High Court can be decided for or against the appellant or respondents in a case by the Hon’ble Apex Court and unless the Hon’ble Apex Court considers that a Division Bench or a Larger Bench or Constitutional Bench of 5 Judges, 7 Judges, 9 Judges has held a judgment or a case which requires to be relooked into depending upon the set of questions that the earlier Bench has failed to look into or the earlier bench has misconstrued the law, larger bench or a Constitutional Bench can consider the judgments.

Till a larger constitutional bench deals with the situation, the judgement has supposed to attain finality and once it attains the finality, the doctrine of “res-judicata” come into play. The doctrine of “res-judicata” and its applicability in taxation laws is a question at large and the answer is the doctrine of “res-judicata” is applicable to taxation matters also. The doctrine of “res-judicata” does not hold itself to be applicable to one type of law but it’s a doctrine and a legal maxim that is applicable to each and every law, and hence the taxation law is not an excuse from applying the doctrine of res-judicata.

The Hon’ble High Courts and Supreme Court sometimes do not apply this doctrine by virtue of which the cases are piled up in the courts and the Government being the biggest litigant chooses to file the cases even when the Supreme Court has decided he case.

Once such incident is when the Hon’ble Apex Court has decided the case in case of Crane Betel Nut Works reported in 2008(221) ELT 99 and dismissed the Departmental appeal holding that the nut powder manufactured by the Crane is a betel nut referring to various case laws and is exempt from duty then the question of again passing the same order by the Department of Central Excise should not arise.

But for various reasons, the department of Central Excise has passed orders which has gone to the Tribunal and the Tribunal following the Hon’ble Supreme Court judgement rendered the case in favour of the manufacturer and the Hon’ble High Court has also rendered the judgement in favour of the manufacturer and the department has canvased the case to the Hon’ble Apex Court and the Hon’ble Apex Court has again referring to the earlier judgement reported in 2008(221) ELT Page 99 has passed the favourable orders in favour of the manufacturer which is reported in 2010 (256) ELT A17. The Hon’ble Apex Court should have stopped the department from pursing this sort of litigation and would have informed the department that it will take serious action against the department, but however when it come to the Government, the Hon’ble Courts are also showing some leniency towards the department.

It is trite that in tax matters also the doctrine of res-judicata shall apply but one concept is that the res-judicata has defined under section 11 of the Code of Civil Procedure 1908 which prescribes that no court shall try any suit or issue in which the matter directly or substantially any issue in a former suit between the same parties or between other parties under whom they are litigating under the same title in Court competent to try such subsequent suit or the suit in which such issue has been subsequently raised and heard and finally decided by the Court. This particular section is applicable to administrative law, however when such comes to the doctrine as such the concept was so augmented that slowly but sturdily the other Acts and statutes also started to admit the concept of the “res-judicata” with its ambit. Going by the above theory “res-judicata” can be applied in taxation as it is applicable to all Acts either Civil, Criminal or taxation etc.,

It is not said that the principle res-judicata will not be applicable in tax matters. What the Hon’ble Courts have said is as the tax matters varies for each and every assessment year and the assessing authority can assess the assesse depending on every assessment year, the concept of res-judicata will not apply.

I defer with this aspect as the Hon’ble Courts have clearly held that when a particular law has been settled by the Hon’ble Apex Court or the High Court the concept of res-judicata applies when the assessing authority has to determine the case basing upon the principle which was decided by the Hon’ble Courts. Hence the concept of res-judicata applies according to me to the taxation principles also. The Madras High Court in TTM Sankaralinga Nadar and brothers Vs. CIT reported in (1929) 4 STC 226 has held that the doctrine of “res-judicata” applies to the questions relating to rights of parties not varying with income of the party if decided by Court should be “res-judicata” and the same question should not be argued by either department or the assesse subsequently as the doctrine of res-judicata is applicable.

The Allahabad High Court reiterated the same principle and applied the decision of Madras High Court in Kamalagath Motilal Vs. CIT reported in (1950) 18 ITR 812.

However the Bombay High Court has taken a different view that the applicability of “res-judicata” is to be removed to tax matters

However when the matter has been decided by the Hon’ble Apex Court on the question of law, the applicability of “res-judicata” to the tax matters is a trite law and though the applicability of res-judicata has lost the site as far as the tax matters are concerned, the Supreme Court has held that the principle of res-judicata comes into play when the judgement and order or a decision of a particular issue has been decided by the Court, it shall be deemed to have been necessarily decided by the Hon’be Court and the principle of res-judicata on that issue is directly applicable.

This question had been also decided by the Hon’ble Apex Court in Amalgamated Coldfields reported in 1964 AIR SC 1013 and it was held by the Hon’ble Apex Court that in considering of this question, it may be necessary to distinguish between decision on question of law which directly or substantially arise in any dispute about the liability for a particular year and a question of law which arise incidentally or in a collateral manner …… “effect of legal decisions establishing the law would be a different matter”. The Hon’ble Apex Court gave a scale and a balanced approach and it distinguish between the question which arise incidentally and question of law which arise directly and which may arise in any financial year and it has significantly held that if an issue on question of law has been decided then the principle of res-judicata in tax matters is also applicable.

There are divergent opinions on applicability of res-judicata in tax matter and the Hon’ble Apex Court has held that when once a decision has been taken by the Courts, the Principle of res-judicata will apply, the same view was expressed by the combined High Court of Andhra Pradesh in 2014 where the Hon’ble Apex Court considering the judgement of its own has held that when once the decision is taken by the Hon’ble Apex Court then the res-judicata is applicable and the department cannot file any further appeal.

One cannot forget that under article 141 of the Constitution, the law declared by the Supreme Court shall be binding on all courts within territory of India. A judgment which is decided on question of law cannot be termed as perineurium when it comes to different cases and because of same point that is raised by the Petitioners which they are not entitled to and the Hon’ble Courts should deal in a stringent manner in such type of situations and hold that the earlier judgements holds good and therefo0re the decision in the earlier judgement has to be applied.

In a Isabella Johnson Vs. M.A. Susai in AIR 1991 SC 993, the Hon’ble Apex Court held that the “Court which has no jurisdiction in law cannot be conferred with the jurisdiction by applying principles of res-judicata”.

It is well settled that there can be no estoppel on a pure question of law and in this case, the question of jurisdiction is a pure question of law”

It is also held in MPS Jaiswal’s case reported in 1970 (3) SCR 830 “doctrine of res-judicata belongs to the domain of procedure, it cannot be exhorted to the status of a legislative direction between the parties so as to determine the questions relating to the applicably of amendment effecting the jurisdiction of a Court finally between them, even though no question of fact or mixed question of law and fact relating to the appellant in dispute between parties has been determined thereby the ………… A decision on a issue of law will be as rejudicata in a subsequent proceeding between the same parties if the cause of action of the subsequent proceeding for the same as in the previous proceeding but not when the cause of action is different nor when the law as since the enquiry decision by altered by a competent authority nor when the decision relates to the jurisdiction of the Court to try the earlier proceedings nor when the earlier decision declares valid transactions which is prohibited by law ……..”

In Susheel Kumar Mehta’s case MANU/SC/0593/1989 : (1990) 1 SCC 193, the Supreme Court held as follows:

“Thus it is settled law that normally a decree passed by a court of competent jurisdiction, after adjudication on merits of the rights of the parties, operates as “res-judicata” in a subsequent suit or proceedings and binds the parties or the persons claiming right, title or interest from the parties. Its validity should be assailed only in an appeal or revision as the case may be. In subsequent proceedings its validity cannot be questioned. A decree passed by a court without jurisdiction over the subject-matter or on other grounds which goes to the root of its exercise or jurisdiction, lacks inherent jurisdiction. It is a coram non judice. A decree passed by such a court is a nullity and is non est. Its invalidity can be set up whenever it is sought to be enforced or is acted upon as a foundation for a right, even at the stage of execution or in collateral proceedings. The defect of jurisdiction strikes at the authority of the court to pass a decree which cannot be cured by consent or waiver of the party………But the question relating to the interpretation of a statute touching the jurisdiction of a court unrelated to questions of fact or law or mixed questions does not operate as “res-judicata” even between the parties or persons claiming under them. The reason is obvious; a pure question of law unrelated to facts which are the basis or foundation of a right, cannot be deemed to be a matter in issue. The principle of “res-judicata” is a facet of procedure but not of substantive law. The decision on an issue of law founded on fact in issue would operate as res-judicata. But when the law has since the earlier decision been altered by a competent authority or when the earlier decision declares a transaction to be valid despite prohibition by law it does not operate as “res-judicata”……….A question relating to jurisdiction of a court or interpretation of provisions of a statute cannot be deemed to have been finally determined by an erroneous decision of a court. Therefore, the doctrine of res-judicata does not apply to a case of decree of nullity. If the court inherently lacks jurisdiction consent cannot confer jurisdiction.”

The other judgements where res-judicata operates are Pujari Bai Vs. Madan Gopal reported in 1989 (3) SCC 433, workmen Vs. Board of Trustees of the Cochin Port Trust reported in AIR 1978 SC 1283, Grih Kalyan Kendra Workers Union Vs. Union of India reported in 1991 (1) SCC 619, Gulab Chand Sharma Vs. H.P. Sharma, CIT reported in 1974 (95) ITR 117, CIT Vs. J.K. Charitable Trust reported in (2008) 220 CTR 105 (SC), Installment Supply (Pvt) Ltd Vs. Union of India reported in AIR 1976 SC 53, H.A. Shah and Co Vs. CIT reported in 1956 (30) ITR 618.

In view of the divergent opinions and in view of the Hon’ble Apex Court judgements holding that res-judicata is applicable on a question of law even in tax matters which is applicable to the view expressed by me , the doctrine of res-judicata can be applied in tax matters also. The opinion expressed above is solely my opinion and any views on this aspect are welcome.

|| Jai Hind||