Dear Professional Colleagues,

Mockery of justice

ITC Ltd. won the legal battle at the highest court of the land against the Government. The Government has not been able to digest the defeat. Nullifying the Supreme Court decision, the Ordinance promulgated on 25-1-2005 has turned the legal victory of ITC Ltd. into a defeat.

One may try to justify the action of retrospective amendments to protect the revenue, in public interest, and may quote various precedents to canvass the view. However, there is no doubt that each piece of retrospective amendments affects the interest of the tax-payers and also raises the question of ethics. It is quite possible that the Government has lost at the highest court on account of technicalities and niceties of finer interpretation. This does not justify the retrospective amendment and that too promulgation of an Ordinance when the Parliament is to meet in a few weeks of time!

The question of ethics also needs to be viewed with the Constitutional validity of such acts by the Government The Government has also filed a review petition before the Supreme Court. The Ordinance, I believe, made the review petition infructuous. As asserted by one of the leading lawyers of the SC, the executive has performed a judicial function. This is ultra vires the doctrine of separation of power, which the SC has held to be a basic feature of the Constitution. Based on these premises, the Ordinance is likely to be struck down if challenged, whether the litigant subject was right or wrong, moral or immoral, ethical or unethical, is all immaterial. What is material is the fact that the subject has won the legal battle at the highest court and the decision of the court should be gracefully accepted. Protecting revenue is not the reason for justifying the action. Here ITC is called upon to pay balance Rs. 449 crores (749 less 300 crores) because of the retrospective amendments. Who is to see the interest of the shareholders of ITC!! Role of the democratic Government committed to financial reforms and equity is to provide conclusive atmosphere for sustained growth with policies which infuses confidence amongst all stake holders and also protects interests of all sections of the society. The retrospective amendment has shaken the very comfort level which the investors enjoy.

It is always felt that the litigation is time consuming, costly and cumbersome. At times these are chance taking also. However, with Ordinance, which amends the law retrospectively, message will go that even if one wins the legal battle at the SC, the State can still pounce on you! Surely such decision do not support for conducive investment climate. In fact, the Government should make sincere efforts to sustain its credibility even under very compulsive circumstances.

Isn’t this Ordinance mockery of justice! It is surprising that the upright and eminent persons like the Prime Minister and the President did not oppose the decision to promulgate an Ordinance.

Under the circumstances, to regain the lost ground, the Parliament should disapprove the Ordinance when it is taken up at the ensuing budget session. Long live democracy!!

I believe, the issue of valuations will lose its importance to a greater extent when VAT is introduced. Sooner it comes, better it is.

Imposition of Luxury Tax on tobacco/textiles

Recently, vide order dt. 20-1-2005 (Godfrey Philips India Ltd. & Others W.P nos. 567, 568/94 & others), the Hon’ble Supreme Court has held that the States are not competent to levy luxury tax on goods or articles.

Therefore, States, like Maharashtra, which levies luxury tax on tobacco, tobacco products, costly textiles are not competent to tax the same under the respective Luxury Tax Acts. The Supreme Court has applied the ratio of prospective ruling to same and the collection of luxury taxes on such goods and articles has invoked the doctrine of ‘unjust enrichment’ and has also held that the dealers who have collected the taxes, should pay up to the treasury. A detailed digest of this important judgment is appearing under the column 'From the Courts' in this Review.

Under this background, it is important that the Commissioner should spell out the Government's stand on the subject and issue a detailed circular instruction so that no further chaos is created.

VAT – where is the Act, where are the Rules!

VAT, it appears, is most likely to come w.e.f. 1-4-2005. But where is the Act and where are the Rules! We have communicated to the Government, and the tax authorities at all the available opportunities to make available the Act and Rules so that enough time is left with dealers and tax practitioners to understand and advice smooth implementation. But alas, till last week of Feb., 2005, the Act and Rules are not expected to be ready for public debate and understanding.