Judicial Discipline under Indirect Taxes – Obligatory or Arbitrary?

• CA Lakshman Kumar Kadali
• CA Srimannarayana S

The GST has been introduced by subsuming various taxes levied by both Central and State Governments with an objective to remove the cascading effect and to simplify the compliance under indirect taxes in India. While introducing the GST, the Hon’ble Prime Minister had mentioned GST as Good and Simple Tax. However, considering the issues that were faced after the implementation of GST, the Government has made various amendments, had issued multiple notifications and circulars which made the GST a complex law in India. Though the intention of the Government is to simplify the GST laws, the changes made have created a lot of confusion which in-turn made the GST look complex.

This complexity has given rise to the increase in litigation across India. Particularly, during last 1 to 2 years, the due dates for completion of assessments for multiple Financial Years such as 2017-18, 2018-19, 2019-20 and 2020-21 have expired. During the course of assessments, the department have raised multiple issues starting from the non-filing of returns, non-payment of taxes, irregular ITC claims, classification issues, valuation issues and erroneous refund sanctions.

Several efforts are made by the Government to limit the ongoing litigation but it has failed to constitute the GST Tribunal from past 8 years of introduction of GST. Due to this, many taxpayers do not have any option except to approach the High Courts under Article 226 of Constitution of India to resolve the issues at the earliest. The High Courts and Supreme Courts have examined various issues under GST and have given its judgments. This shows that certain issues under GST were already settled by High Courts and Supreme Courts. Further, it is known fact that most of the provisions under GST are carried forwarded from pre-GST laws such as VAT, Central Excise and Service Tax and the same are pari materia. In such circumstances, the decisions under pre-GST regime are also equally applicable under GST.

Despite of having clarity on various issues under GST, the litigation under GST has seen a steep increase from last few years. One may get a doubt how can the litigation under GST can increase when there is a clarity on various issues. How we have arrived at this distressing scenario? Could it have been avoided either at the adjudication stage or at the appellate stage? The answer is yes, only if the department had followed the “JUDICIAL DISCIPLINE.”

What is Judicial Discipline?

In simple words, judicial discipline means, the lower authorities following the decisions of the higher authorities. In the GST context, the decisions given by the Appellate Authorities, Appellate Tribunals, High Courts, and Supreme Courts shall be obeyed by the lower authorities/lower courts.

Many of us often quote the judgments of the Tribunal, High Court of various states, the Supreme Court and even the judgments of Pre GST regime while submitting the replies/appeals under GST. Though there are various advantages of judicial discipline, the department officers are reluctant to follow the judicial discipline while completing the assessments. Do the officers at their whims and fancies can reject the various case laws quoted by the assesses? What is the binding nature of these decisions on the officers? Is it obligatory or arbitrary?

To understand the binding nature of the decisions, it is pertinent to refer Article 141 of the Constitution of India which provides that “The law declared by the Supreme Court shall be binding on all courts within the territory of India.” This shows that the decisions of Supreme Court are binding on all courts. This principle has been upheld by various High Courts including the Hon’ble High Court of Telangana in case of Sony India Pvt Ltd Vs UOI 2022 (379) ELT 588 (Telangana) by holding that Law declared by the Supreme Court, unless made prospective in operation in its judgment, is always deemed to be the law of the land. This was affirmed in Supreme Court vide UOI Vs Sony India Pvt Ltd 2023 (5) CENTAX 234 (SC).

Further, the Hon’ble High Court of Gujarat in case of Kamakshi Tradexim (India) Pvt Ltd Vs UOI 2017 (351) ELT 102 (Guj) held that it is settled legal position that an interpretation of any provision of law by the Supreme Court is the law of the land and the respondents are duty bound to respect and follow the same.

Also, Article 227 of the Indian Constitution, 1950 provides the binding nature of decisions of High Courts and the same reads as follows

“227. Power of superintendence over all courts by the High Court

(1) Every High Court shall have superintendence over all courts and tribunals throughout the territories interrelation to which it exercises jurisdiction.”

Article 227 provides that the High Court decisions are given higher priority and value when compared to the lower court decisions within the jurisdiction limits. In case of Commissioner of Income Tax Vidrarbha Vs Smt. Godavaridevi Saraf, Tumsar 1978 (2) ELT (J 624) (Bom) it was held that until a contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that law declared by the High Court, though of another State, is a final law of the land. This was also re-iterated by CESTAT, Delhi in the case of M/s. Commissioner of Central Excise., Chandigarh Versus H.S. Indus. Co. [2004 (163) E.L.T. 455 (Tri. – Del.)]  and M/s. Commissioner Of Central Excise., Chandigarh Versus Mount Everest Mineral Water Ltd. [2012 (285) E.L.T. 543 (Tri. – Del.)] wherein it was held as follows – “It is well settled that the judgment rendered by the Hon’ble High Court has to take precedence over the judgment of the Tribunal”.

Though Article 227 expressly does not provide for any authority to the decisions of the High Court unlike Article 141, it is pertinent to note that the High Court decisions get superiority over lower court decisions when read in conjunction with Article 261 which reads as follows

“261 (1) Full faith and credit shall be given throughout the territory of India to public acts, records and judicial proceedings of the Union and of every State.

(2) The manner in which and the conditions under which the acts, records and proceedings referred to in clause (1) shall be proved and the effect thereof determined shall be as provided by law made by Parliament.

(3) Final judgments or orders delivered or passed by civil courts in any part of the territory of India shall be capable of execution anywhere within that territory according to law.”

The above article of the Constitution of India evidently says that the judicial precedents of any state should be given faith. It infers that even though there is no binding nature of the judgments, reliance can be placed at the time of arriving the conclusion. Though there are no specific directives to enforce the decisions of other Jurisdiction High Courts, one can take the support of Article 261 of the Indian Constitution of India, 1950 to consider the decision of other High Courts.

There is another principle called the principle of comity. As per Bryan A. Garner’s Black Law’s Dictionary (9^th Edition), the comity is defined as under:

“1. A practice among political entities (as nations, states, or courts or different jurisdictions), involving esp. mutual recognition of legislative, executive, and judicial acts. Also termed comitas gentium; courtoisie internationale.”

Therefore, it is a well-nourished fact that the verdicts given by the Courts are a part of the Act and these are to be honoured irrespective of jurisdiction.

The importance of judicial discipline is explained by various High Courts including the Supreme Court in various instances. The Hon’ble Supreme Court in landmark case of Union Of India Vs Kamlakshi Finance Corporation Ltd 1991 (55) ELT 433 (SC) held that “utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities which are binding on them”

Further, the Karnataka High Court in case of XL Health Corporation India Pvt. Ltd. v. UOI & Others [2018 (19) G.S.T.L. 611 (Kar.)] stated that violation of judicial discipline reflects the callous, negligent and disrespectful behaviour of the authorities which may lead to more litigation and chaos and such public servants are actually threat to the society. Similar view was expressed by the Rajasthan High Court in case of Manu Yantralaya P Ltd Vs Commissioner of Central Excise, Jaipur-I 2022 (64) GSTL 448 (RAJ). Similar view was expressed by the Bombay High Court in case of Viacom 18 Media Pvt Ltd Vs State of Maharashtra 2019 (22) GSTL 338 (Bom), Calcutta High Court in case of Pr. Commissioner, CGST Kolkata North Commissionerate Vs Joint Commissioner (Appeals) 2022 (65) GSTL 187 (Cal) and Madras High Court in case of JUMBO BAGS LTD Vs Deputy Commissioner of GST & CE, Chennai 2020 (374) ELT 703 (Mad).

There are many reasons which would be given by the quasi-judicial authorities while rejecting the decisions submitted by the taxpayers. Few of such reasons and the remarks for the same are as follows

With respect to reliance on pre-GST decisions, it is a fact that the roots of the GST lie in the previous regime and the same is affirmed in various ways by the CBIC itself. Few such scenarios are as follows

• Circular 178/10/2022-GST dated 03.08.2022 has given reference to Service Tax for definition of Service and the scope of the term Services to include interest and penalties.
• Circular No. 220/14/2024-GST dated 26.06.2024 has compared the Place of Supply provisions under Section 13(8)(a) of the IGST Act, 2017 with Rule 9(a) of Place of Provision of Supply Rules, 2012 under service tax law and stated the same are similar and an equivalent view applies in both the tax laws as well.

When it is clear from the Circulars issued by the government itself that there is a clear nexus between the Service Tax and GST Laws, not applying the Service tax judgments to the GST cases shows an acute inclination to the pro-revenue instead of the right decision. However, while relying on the pre-GST decisions, sufficient care to be take to explain how the provisions are pari materia.

How to enforce the decisions on the departmental officers?

Making the quasi-judicial authorities aware of the consequences of not following the judicial discipline by quoting the relevant decisions help them to take the decision consciously. Maintaining relevancy in quoting the judgments will ensure removal of unnecessary ambiguity in deciding on a particular factor. Also, an initiative from the Government such as releasing advisories, and instructions to the department officers to strictly adhere to the judgments might help in making the department follow the settled judgments.

Further, if any authority has decided not to follow any of the judgments of either the Supreme Court, High Court, or Tribunal due to a difference in the facts of the case, it would be beneficial to the assessee if the reasons for not adhering to the judgment are mentioned in the order passed by the respective authority. 

Conclusion: When the judgments are welcomed and adopted accordingly, without disturbing the settled law, the litigation gets stabilized, and thereby, the credibility of the decisions gets guaranteed. Therefore, the department, instead of being entangled with unnecessary litigation, can channelise their attention towards the prominent issues to avoid the revenue leakages and contribute towards the boosting of the economy. This will also help in achieving the objective of making the GST a “Good and Simple Tax”. As re-iterated by various High Courts and Supreme Court, the judicial discipline is obligatory and not arbitrary.

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Special thanks to Chintala Deepthi for helping the authors in bringing out this article. Feedback can be shared to the authors on laxman@hnaindia.com and srimannarayana@hnaindia.com