Former chief justice of India J S Verma has termed the Supreme Court’s judgment in the Vodafone tax case as one of its three judgments “which are best forgotten or allowed to pass”.
Verma had first criticised the judgment on Saturday when he spoke at the launch of the book My Experience with the office of Additional Solicitor General of India by former ASG Bishwajit Bhattacharyya. On Thursday, speaking to The Indian Express at his Noida home, the jurist spelt out why he felt the Vodafone judgment delivered on January 20 by a bench headed by then CJI S H Kapadia deserved to be clubbed with the controversial judgments of the apex court in the habeas corpus case during the Emergency — often referred to as the lowest point in the history of Indian judiciary — and the JMM bribery case.
“At the book launch, I said I agreed with the analysis of Bishwajit Bhattacharyya as to why the judgment was incorrect on merits. But, I have some other reasons why I don’t think this judgment to be correct or appropriate in law,” Verma said. “The first reason is that, in my understanding, the three-judge judgment in Vodafone bypasses a five-judge constitution bench judgment in the McDowell matter in 1985. The McDowell judgment in substance said that in this context what you have to see is the substance of the transaction to determine the tax liability and not merely the form of the transaction. But, as far as I understand the Vodafone judgment, the court has said the opposite. They (judges) have gone by the form and not the substance. According to me that is not the correct position,” he said.
The Supreme Court, in its landmark judgment in the McDowell case, had said that behind every tax law there was “as much moral sanction as behind any other welfare legislation” and that “it is neither fair nor desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation”.
Asked about the other reasons why he was not convinced with the Vodafone judgment, Verma said, “The moral foundation is as much available to tax laws as it is to welfare legislation. It is therefore necessary that while interpreting taxation laws you have to bear that fact in mind. Also, see the implication. While the law permits legitimate avoidance of tax by tax planning, illegitimate tax avoidance by adopting a subterfuge is not permissible. This should be shunned by the courts. This is something that has been settled by most cases. McDowell settled this and is the law of the land.”
He, however, clarified that he was not suggesting that the courts couldn’t take a view different from settled law. “But, the different view can’t be treated as law if it is taken by a three-judge bench. The bench should have referred it to a larger bench. I don’t think the CJI-led bench could have bypassed or distinguished from McDowell,” Verma added.
“However, there is a much bigger reason. Judges need to be committed to constitutional philosophy and not the philosophy of the ruling party. The constitutional philosophy in this case as laid out in Articles 38 and 39. The effect of benefiting a corporate is to cast a higher tax burden on the common man and when you uphold an illegal tax avoidance, then you cast a higher tax burden on the honest tax payer. According to me the Vodafone judgment has all these implications,” the former chief justice said.
“That is why, unfortunately and sadly, Vodafone completes the trinity of infamous judgments of the SC, which, the sooner they are forgotten or overcome, the better it would be.”