How harsh can a levy of tax in a Budget be

Budget imposes heavy taxes sometimes which the taxpayers consider as too harsh. It can be either be like a very high tax on news-print as in the late eighties or a new service tax which meant serious burden on the taxpayers in recent times. There has been an ongoing debate whet-her such imposition of tax could be legally regarded as too harsh which would vitiate the levy itself. Frequently the tax payers have brought this point before the judiciary that the imposition is so harsh that it will affect their business too hard. The classical reaction of Courts in the past and even now sometimes has been that harshness of tax is not for the Courts to see. If the legislation is legally valid, harsh-ness of tax is not issue and in any case it cannot be agita-ted before the judiciary. It can be canvassed before the legislature, that is , before the law-makers.

This issue has become somewhat of a topical issue after the recent judgement in the case of Shub TimB Steels Ltd vs. UOI, 2010 (20) STR 737 (P&H), the High Court has held that the renting of property for commercial services is an independent aspect covered by Entry 92C of List-1 of the Constitution and therefore a valid law. The taxpayersRs plea that the levy was too harsh because it was in addition to the income tax and property tax, was dismissed by the High Court which held that harshness does not make the law invalid. Such a plea could be made before the Minister of Finance but not before the judiciary.

The law relating harshness of levy of tax has been the subject matter of judicial pronouncement before in several occasions. The opposite of harshness or hardship is equity. The strictness of law bereft of equity is epitomi-sed by the oft-quoted dictum of Rowlatt J which runs thus:

“...in a taxing Act one has to look at what is clearly said. There is not equity about a tax.” But the law has moved onwards after that and in one of its latest judgements in the case of Government of India vs. Indian Tobacco Association -2005 (187) ELT 162 ,the Supreme Court has said that fairness is a relevant factor in determining the legality of retrospectivity. Also this was reiterated in the case of R C Tobacco vs. UOI-2005 (188) ELT 129 SC.

There are several judgements on the subject and the consensus is that there is trend towards admitting the need to be fair in giving a judgement which is more towards equity than towards harshness without doing violence to the language used.

If the language permits only one meaning and that meaning brings hardship either to Revenue or to the taxed, the Court cannot but accept that meaning. But if two interpretations are possible, then the one in favour if equity has to be chosen. Unless the language of the statute is absolutely clear, it should not be given an obviously unfair interpretation . This is a long way from the Cape Brandy Syndicate case mentioned above .

In this context we have to judge the latest pronouncement of the Supreme Court in the Subh Timb Steels case mentioned above when the constitutionality of the levy of the service tax was challenged on the ground of harshness. If the Supreme Court had set aside the levy on the ground of harshness, the whole Entry 92C of the Constitution itself would be a nullity. To order such a thing would be not only against the basic power of the Court, but it would even interfere into the power of the legislature to legislate on policy matter. The Supreme Court has laid down many times that the Supreme Court does not have the power to interfere into the policy matter of the legislature unless it impinges into the Fundamental Rights.

So the conclusion is that harshness or equity are considerations which are rele-vant when interpreting a sta-tute but they are not relevant when the statute is clear. In any case if the law does not interfere into the Fundamental Rights, the Court itself cannot interfere into it.

(The author is a former Member CBEC)

Email: smukher2000@yahoo.com