Subversion Of The Rule Of Law– bishwajit bhattacharyya
India&’s legal structure cannot be allowed to be hijacked in the garb of “foreign investments”. No civilised country will allow its rule of law to be subverted so brazenly. Those who are acting as obliging allies of Vodafone must ponder. There has to be a limit to playing around with the rule of law
THIS subversion of the rule of law is unbelievable. The Government makes a tax demand on Vodafone and then effects a U-turn to propose conciliation! This is a new brand of jurisprudence that is emerging in India. Will 30 million other direct tax assessees, from whom the Government has budgeted to garner Rs 666,000 crore during 2013/14, enjoy similar privilege?
It&’s time to work out the contribution by foreign investors to the kitty of Rs 666,000 crore. Such an exercise would be an eye-opener for those bending backwards to appease Vodafone. The hard reality is that it is India&’s tax-payers and India&’s investors, who are primarily holding the fort of the nation, “submerged” in a “tidal wave of corruption”, as Fali S Nariman writes in his latest book on the state of the nation.
We do, however, need foreign investments, but at what cost? If the cost is “a carefully crafted” leakage from the exchequer and bullying the Government into acquiescence, then the Government must have the spine to decline. India is the biggest emerging market for any investor ~ domestic or foreign ~ particularly in the telecom sector. If one Vodafone goes, many others would jostle to stand in the queue ~ from India and abroad. India can surely dictate terms, and not take dictation like a stenographer. It is intriguing why the Government has allowed the situation to drift for 15 months thereby deliberately creating all round confusion.
Fifteen months ago the new law was enacted by Parliament. Till date the Government has lacked courage to enforce the law. What signal does it send to foreign investors across the globe? That India is a country where the rule of law can be subverted by knowing an important X or Y or Z in the Government? Will such a signal bolster India&’s credibility as a fertile ground to invest? Surely not.
Credibility crisis apart, if the nation&’s highest forum, that is Parliament, has enacted a law, does executive Government have any power to ignore the law, and allow the law to hibernate? The answer again is an emphatic “no”. Why has the Income-Tax (IT) department not enforced a valid tax demand on Vodafone till date? Who, if at all, has asked/ instructed the IT department not to enforce the law? Even if such an instruction has been issued, the IT department must disregard such unlawful instructions and strictly comply with the provisions of the IT Act, 1961. And if no such instruction has been issued, has any action been initiated against the IT officials responsible for enforcing the lawful demand against Vodafone? These questions merit an answer under the RTI Act.
The demand on Vodafone is entirely lawful, I reiterate. Vodafone chooses not to challenge Parliament&’s enactment in a court of law. Vodafone also chooses not to appeal against the tax demand. In the teeth of these facts, does IT department have any choice but to enforce the demand?
Instead of implementing/enforcing the law, the Government now announces the impending non-binding conciliation. Under which law? Chidambaram says it is under the Indian arbitration law. But can an income-tax demand be a subject-matter for conciliation under the extant laws? Let us analyse.
Section 61 of the Act stipulates : “Save as otherwise provided by any law…this part shall apply to conciliation of disputes…”. “Otherwise” has been provided in the Income Tax Act, 1961, which does not provide for any conciliation against a tax demand. The IT Act provides for an appeal under the IT Act. Therefore, triggering conciliation proceedings against a tax demand/dispute would be ab initio illegal, and ultra vires the Acts (Arbitration as well as IT). Secondly, where is the dispute? Till today, Vodafone has not challenged the demand. Ignoring a lawful income-tax demand cannot constitute any dispute. What will be the point at issue, if at all, in the conciliation proceedings? Amended Section 9 (enacted by Parliament in March 2012) of the Income Tax, 1961? Isn’t that a legislative function?
Therefore, Vodafone wishes to arm-twist the Government to be a part of India&’s impending legislative process. It&’s a wishful dream evidently to minimise, if not obliterate, its liability towards India&’s exchequer, through another impending retrospective enactment by Parliament. And the Government seems to be yielding happily when cabinet Ministers are heard to tell the press that we shall place it before Parliament. Is Parliament bound by Vodafone&’s wish? What about the wishs of 1.2 billion Indians?
The Vodafone verdict was delivered on 20 January 2012. The Supreme Court held that India has no territorial jurisdiction to tax off-shore transfer of shares/funds, though the transfer relates to telecom operations in India. The verdict was flawed. The late former Chief Justice of India, JS Verma, described the verdict as one of its worst! Parliament had to intervene. And intervene it did. The Finance Bill was introduced in the Lok Sabha on 16 March 2012. Both Houses passed the Bill and the President assented to it in May 2012 when it became the law of the land. Provisions of articles 109, 110, 111 and 112 of the Constitution were duly complied with. It is this law that Vodafone is wishing to subvert without challenging it in a court of law. Significantly, there was no proposal to amend this law in Finance Bill 2013 which shows the Government thought that law brought about by Parliament in 2012 was correct. Why then this sudden kid-glove treatment for Vodafone now? Has the situation changed between 28 February 2013 and now? How? The people of India have a right to ask this question.
The law declared by the Supreme Court always has retrospective operations unless the verdict stipulates otherwise. Obviously, the Vodafone verdict had retrospective operations. So, if the verdict had to be corrected, the amendment of the law also had to have retrospective operations. I wish Parthasarathi Shome had familiarised himself with these basic concepts, and all the tax case laws declared by the Supreme Court on retrospective amendments.
The context was Section 9 of the Income Tax Act which was legislated in 1961. Had Parliament not carried out the amendment of the law, many parties would perhaps have claimed refund of the tax already paid since 1961. Section 9 of the Income Tax Act, 1961 was duly clarified/amended by Parliament in March / May 2012. This clarification had to have retrospective operations.Very significantly, though the amendment was triggered by the Vodafone verdict, it was not only Vodafone specific. Section 9 was amended for every assessee in the country across the board.
India&’s legal structure cannot be allowed to be hijacked in the garb of “foreign investments”. No civilised country will allow its rule of law to be subverted so brazenly. Those who are acting as obliging allies of Vodafone must ponder. There has to be a limit to playing around with the rule of law. It&’s a sad day for the country that those who are required to enforce the extant law are subverting it. Who is losing? The coffers of India and its poor people.
The writer is Senior Advocate, Supreme Court, and former Additional Solicitor-General of India