Why Four Amendments Introduced via Finance Act 2017 Are Unconstitutional

A legislation that was enacted in the Parliament of India is the Finance Act, 2017, which introduced a lot of modifications to tax laws. Nevertheless, it had major amendments to several other laws that were not necessarily directly linked to taxation. These non-fiscal amendments, especially the one that amended the composition and operation of judicial and quasi-judicial tribunals was high on legal challenge. These issues were centred around the following two issues: the way in which the law was enacted as a Money Bill and the infringement of the independence of the judiciary.

This paper will demystify the legal and constitutional reasons as to why these amendments were found to be unhealthy by most legal scholars and, in certain instances, by the Supreme Court of India as well.

So what is the Finance Act, 2017?

A budget is presented annually by the government, and the Finance Bill is moved to amend the taxation laws in order to effect the Finance proposals. WHEN IT IS ENACTED BY THE PARLEMENT, IT IS TURN INTO THE FINANCE ACT. Usually, customs, GST, etc, are involved in these acts.

But it was not so in the case of the Finance Act, 2017. It was a huge bill, which consisted of changes to more than 40 other acts, some of which did not directly relate to governmental financial proposals. The most contentious amendments also covered the work of several tribunals including the Income Tax Appellate Tribunal and the National Green Tribunal.

The Four Deck Amendments, with Reasons Why people question them.

These issues are intersectional and were related to the four key areas of regulatory attention that concerned the Indian Constitution and had an influence on the values of this legal document:

1. The most important and comprehensive legal objection was the enactment of the Law using the Money Bill procedure. Article 110 of the Indian Constitution prevents bills from being branded as Money Bills unless they concern themselves with only particular issues such as taxation, government borrowing or expenditure out of the Consolidated Fund of India Another important aspect of a Money Bill is that the Lok Sabha (House of the People) enjoys absolute authority and the Rajya Sabha (Council of States) is granted a highly restricted role. The Rajya Sabha has no power but to recommend measures that the Lok Sabha can choose to accept or reject. The Rajya Sabha has 14 days to send back the bill, failure of which it is considered to have passed.

The opponents claimed that the Finance Bill, 2017 should not have been declared by the government as a Money Bill because of all the non-financial amendments infused into the Finance Bill which were extensive and involved the structure and independence of the tribunals. This was the view that it was a colourable exercise of power in order to avoid the Rajya Sabha where the government may not have had a majority. It was being argued that a bill with provisions that were not directly related to finance should be treated as a regular bill and thus it needs the consent of both sides of Parliament to pass the bill.

2. Weakening of Judicial Independence: One of the fundamental tenets of the Indian Constitution is the inherent nature of separation of power i.e. the three organs of the Government, the Legislature (Parliament), the Executive (Government) and the Judiciary (Courts and Tribunals) can and should operate independently. The Finance Act, 2017 amendments were perceived to be an out-and-out assault on this ideology.

In particular, the Act made the Central Government empowered to frame rules regarding qualifications, appointment, salaries, as well as other conditions of service for the members of different tribunals. These were previously set out in the founding acts establishing these tribunals. The case against the government internationally was that it was undermining the independence of the tribunals by making it the norm to give the Executive this kind of power to control the appointment and service of tribunal members. The fear was that a tribunal member could be bribed to decide in favor of the government since they realized that their paycheck, job contract and future employment opportunities require the goodwill of the government.

3. Unjustified Regulations and inability to exercise judicial supremacy: In the wake of the Finance Act, 2017, the government has issued the rules about the Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2017. Such regulations court a lot of challenges as well.

The Supreme Court ruled that these rules constituted the contravention of judicial impartiality and also the separation of powers. The rules could provide for a search-and-selection committee for tribunals that do not have judicial dominance. It is consistently declared by the Supreme Court that every time a body undertakes a judicial role, its appointments should be independent of executive control. This should be in order to achieve impartiality and fairness. Another perceived erosion of the quality and independence of the tribunals was the fact that the rules also enabled people with no judicial or legal background to be appointed to adjudicatory positions.

4. Abolition and Merger of Tribunals: Another provision in the Finance Act, 2017 was the abolition and merger of certain existing tribunals and their functions were transferred to other tribunals. An example was the Competition Appellate Tribunal (COMPAT) which has been merged with the National Company Law Appellate Tribunal (NCLAT).

The legal issue in this was twofold. First, it was doubted whether judicial bodies could be abolished and reorganized using a Finance Act. Second and more to the point, it was a question of whether the new and merged tribunals would possess the requisite expertise to deal with the new kinds of cases in which they had now been mandated to adjudicate. A tribunal with a focus on company law, such as exemplified, may lack expertise to determine the cases on anti-competitive practices which is what originally occurred at COMPAT.

The judgments given by the Supreme Court

The legal issues in the Finance Act, 2017 led to some historic decisions of the Supreme Court. In Rojer v. Mathew, the challenge to the tribunal related amendments was heard by the Supreme Court by the South Indian Bank Ltd.

In its decision of 2019, the Supreme Court did not unanimously resolve the issue of the so-called Money Bill. In the case, though one of the opinions was that the Act could not have been enacted as a Money Bill, the majority opinion remitted this important matter to a big bench of seven judges to be finally decided. The reason was because the Court believed the matter was complicated and it had far implications, especially in the wake of the precedent established with regard to the Aadhaar Act that was also adopted as a Money Bill and was contested based on the same basis.

Nonetheless, on the one hand, the Supreme Court clearly stated the rules provided by the Finance Act, 2017. The Court set aside on the Subordinate Matter making the Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2017 in its entirety. According to the Court, such rules were unlawful due to interference with the principles of judicial independence and the doctrine of separation of powers. The Court instructed the government to draft new regulations that would meet constitutional doctrines.

The history of the Finance Act 2017 and tribunal amendment provisions illustrates an inherent conflict between parliamentary sovereignty and the power of the government and the constitutional right to independence of the judiciary. Although the government defended the amendments as required by reason in terms of ease of doing business, the legal fraternity and the judiciary consider this a potentially hazardous precedent.

Clearly, the ruling of the Supreme Court to dismantle the rules sent a powerful message that the Executive cannot influence the appointment and working conditions of members of such judicial bodies. Although the bigger picture of the famous Money Bill is still unanswered, the declaring of the rules as unconstitutional has demonstrated that the courts are a great protector of the constitutional structure and will not relent to the diminishing of central values even though the act behind it is undertaken with a very tricky process in the form of a law. The case of constitutionality around the Finance Act, 2017 is an essential case study in India on the aspect of constitutional law where checks and balances established by a democratic system are highlighted.