Madras HC declares composition of GST Appellate Tribunal as unconstitutional; recommends Parliament to evaluate lawyer’s eligibility as ‘judicial member’

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Synopsis: The Hon’ble Madras HC in the matter of Revenue Bar Association v. Union of India and Others, has held that the composition of GST Appellate Tribunal is unconstitutional and thus struck down Section 109(3) & (9) and Section 110(1)(b)(iii) of the CGST Act, 2017. Further, recommended the parliament to evaluate lawyer’s eligibility as ‘judicial member’.

Issues involved:

  1. Whether the exclusion of advocates from being considered for appointment as a Judicial Member in GST Appellate Tribunal, is violative of Article 14 of the Constitution of India.
  2. Whether Section 110(1)(b)(iii) of CGST Act, 2017 (“CGST Act”) and Tamil Nadu GST Act, 2017 (“TNGST Act”) which makes a member of the Indian Legal Service, eligible to be appointed as a Judicial Member of the appellate tribunal, contrary to the law laid down by the Hon’ble Supreme Court in Union of India Vs. R. Gandhi [2010(11) SCC 1].
  3. Whether the composition of the National Bench, Regional Benches, State Bench and Area Benches of the GST Appellate Tribunal, which consists of one Judicial Member, one Technical Member (Centre) and one Technical Member (State), by which the administrative members outnumber the judicial member is violative of Articles 14 and 50 of the Constitution of India and the judgments of the Hon’ble Supreme Court of India.

Petitioner’s contentions:

  • The composition of the Appellate Tribunal of CGST or TNGST, as the case may be, under Section 109(3) and 109(9) of the CGST Act, prescribes that the tribunal will consists of one Judicial Member, one Technical Member (Centre) and one Technical Member (State). Thus, there are two Technical Members as against one Judicial Member.
  • The composition of the Benches in which the Technical Members would be majority is unconstitutional and thus Section 109 of the CGST Act, which prescribes two administrative members as against one judicial member is contrary to mandate of Article 50 of the Constitution of India and such a composition would seriously affect the independence of judiciary.
  • It was pleaded that for independence, impartiality and to ensure public confidence in the justice delivery system, it is essentially incumbent that the administrative members should not be in majority in a Bench.
  • It was therefore contended that any tribunal in which the Government is always the party against whom the relief is sought for, the number of administrative members cannot be more than the judicial member in the Bench. Simply put, bureaucrats cannot overrule a Judicial Member, who is or has been a Judge. It is stated that the proceedings in the tribunal are judicial proceedings and the administrative members cannot overrule a Judge.
  • The Petitioner challenged the vires of Section 110(1)(b) of the CGST Act, on the ground of exclusion of lawyers from being eligible to be appointed as a Judicial Member of the tribunal. It was contended that exclusion of lawyers from zone of consideration as a Judicial Member, is violative of Article 14 of the Constitution of India.
  • Advocates are eligible to be considered as members of various tribunals and there is no justification or reason as to why they should be excluded from the zone of consideration of being appointed as Judicial Members under the CGST and TNGST Act.
  • The Hon’ble Supreme Court in K.Jain v. Union of India [1993 (4) SCC 119] and some other cases has held that the tribunal members must have a judicial approach and expertise in that particular branch of Constitution, administrative and tax laws.
  • Therefore, it was submitted that lawyers having more than ten years of experience in that branch of law should be considered for appointment as judicial members, as they have the legal expertise and judicial experience and are legally trained to understand, examine and adjudicate upon complex question of law, which would arise for consideration.
  • The Petitioner also challenged the consideration of a Member of the Indian Legal Services who is eligible for being appointed as a member of the Appellate Tribunal. It was the submitted that Members of the Indian Legal Services have been held not to be eligible for being appointed as members of NCLT and other tribunals in Union of India v. R. Gandhi [2010(11) SCC 1].

Held:

The Hon’ble HC, Madras observed Section 109 and 110 of the CGST Act in W.P. Nos. 21147, 21148 and 14919 of 2018 and WMP Nos. 24826, 24827, 17635 & 17636 of 2018 decided on September 20, 2019 and held as under:

Challenge to exclusion of lawyers from being eligible to be appointed as a Judicial Member of the tribunal-

  • There is no vested right for being considered for appointment to a post. The Hon’ble Supreme Court has time and again held that the right to be considered arises only when the rules provide for the same. But, in the absence of any right, one cannot contend that a person’s right to be considered is taken away.
  • At the same time, the fact that Advocates were being considered for appointment to various tribunal does not mean that they have a constitutional/ legal right to be considered for appointment as a member of any tribunal.
  • The observations made in R.K.Jain’s case were made only because the Act provided that the Advocates will be eligible to be considered for appointment as members of the tribunal. In the absence of any constitutional right, the vires of a Section 110 (1)(b) cannot be struck down, because it does not include Advocates to be eligible to be appointed as Judicial Members.
  • However, 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.
  • 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.

Challenge to appointment of a member of Indian Legal Service:

  • The issue stands settled. Paragraph No. 120 in Union of India v. R.Gandhi reported in 2010(11) SCC 1, categorically states that a person who has held a position under the Indian Legal service cannot be considered for appointment as judicial members.
  • This dictum of the Hon’ble Supreme Court would apply to the appellate tribunal constituted under the CGST and TNGST also. The Members of Indian Legal Service cannot be considered for appointment as Judicial Members.
  • HC thus struck down Section 110(1)(b)(iii) of the CGST Act which stated 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.

Challenge to the constitution of tribunal:

  • The tribunal consists of three members. Out of the three members, only one is a judicial member. The other two members are technical members, who would ordinarily possess little experience in law, though they might be otherwise adept in the understanding of the taxing statute.
  • In these circumstances in a bench of 3 members, two of which would be technical members, there exists the possibility of the two technical members, arriving at a view, different from that of the Judicial member.
  • Undoubtedly, mere possibility of the malafide exercise of power is no ground to strike down an enactment, (Refer D.K. Trivedi & Sons, v State of Gujarat (1986) Supp SCC 20.), but in the instant case, the appropriateness of the tribunal discharging judicial function was in question.
  • Naturally, in all GST related issues, the litigation shall be between an Assessee and the Govt. and this is yet another reason, that the presence of two members from the Govt. would create a further apprehension of bias, and lead an Assessee to believe, that perhaps the remedy itself is non-existent. This is of greater importance in view of the fact, that the Tribunal is discharging Judical Function.
  • Even under the Income Tax Act, 1961, the Parliament consciously chose to create a tribunal, which would comprise of a single judicial member, and a single accountant member. This would ensure that the matter before the ITAT, would have both a Judicial mind and an accountant mind applying to it, and both would have equal weight in the matter.
  • HC further referred to the case of Indira Nehru Gandhi v. Raj Narain, 1975 Supp SCC 1, Union of India v. Sankalchand Himatlal Sheth, (1977) 4 SCC 19, Ministry of Health & Welfare, Government of Maharashtra v. S.C. Malte, (2012) 13 SCC 118, Brij Mohan Lal v. Union of India, (2012) 6 SCC 502, S.P. Gupta v. Union of India, 1981 Supp SCC 87, S.P. Sampath Kumar v. Union of India, (1987) 1 SCC 124 : (1987) 2 ATC 82.
  • HC concluded that 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 appellate tribunal is constituted also to see whether the legal principles and the decision-making process are correct and fair. The expert members who are not well trained in law, cannot be permitted to overrule the judicial member on these aspects.
  • The principle which emerges 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.
  • Section 109(3) and 109(9) of the CGST Act, which prescribes that the tribunal shall consists of one Judicial Member, one Technical Member (Centre) and one Technical Member (State), is struck down.

Important Legal Provisions:

Section 109(3) and 109(9) of the CGST Act/ TNGST Act

“109. Constitution of Appellate Tribunal and Benches thereof.

(3) The National Bench of the Appellate Tribunal shall be situated at New Delhi which shall be presided over by the President and shall consist of one Technical Member (Centre) and one Technical Member (State).

(9) Each State Bench and Area Benches of the Appellate Tribunal shall consist of a Judicial Member, one Technical Member (Centre) and one Technical Member (State) and the State Government may designate the senior most Judicial Member in a State as the State President.”

Section 110(1)(b)(iii) of the CGST Act/ TNGST Act

110. President and Members of Appellate Tribunal, their qualification, appointment, conditions of service, etc.

(1) A person shall not be qualified for appointment as-

(a) …

(b) a Judicial Member, unless he-

.

.

(iii) is or has been a Member of Indian Legal Service and has held a post not less than Additional Secretary for three years;”