DECODING FISCAL LAWS:A JURISPRUDENTIAL PERSPECTIVE

III.RES JUDICATA AND FISCAL LAWS

1.Continuing in my series of short expositions on jurisprudential aspects of tax laws ,it is universally held that res judicata does not apply to fiscal laws.

2.The principle of res judicata is enshrined in s 11 of CPC 1908.

Section 11 of CPC : ‘a final judgment rendered by a Court of competent jurisdiction on the merits is conclusive as to the rights of the parties and their privies, and, as to them, constitutes an absolute bar to a subsequent action involving the same claim, demand or cause of action’.

3.The most famous authority on the point is DP MORE 82 ITR 540(SC) where it was held among other famous expositions that res judicata and estoppel do not apply to income tax proceedings.

4.Its a little known fact that decades before there existed a ruling on the same issue:Kamlapat Motilalv.Commissioner of Income-tax[1950] 18 ITR 812 (ALL.) a decision passed on OCTOBER 26, 1949 wherein it was held that ‘’…………... An assessment is inherently of a passing nature and it cannot provide an estoppel by res judicata in later years by reason of a matter being taken into account or not being taken into account by the Income-tax Officer in an earlier year of assessment.’’

5.The issue came up in Bharat Sanchar Nigam Ltd. & Anr vs Union Of India & Ors [2006] 3 STT 245 (SC).In this matter the issue was:

?‘’The principal question to be decided in these matters is the nature of the transaction by which mobile phone connections are enjoyed. Is it a sale or is it a service or is it both? If it is a sale then the States are legislatively competent to levy sales tax on the transaction under Entry 54 List II of the Seventh Schedule to the Constitution. If it is a service then the Central Government alone can levy service tax under Entry 97 of List I (or Entry 92C of List I after 2003). And if the nature of the transaction partakes of the character of both sale and service, then the moot question would be whether both legislative authorities could levy their separate taxes together or only one of them.?‘’

The matter was decided among other findings as follows:‘’The nature of the transaction involved in providing the telephone connection may be a composite contract of service and sale. It is possible for the State to tax the sale element provided there is a discernible sale and only to the extent relatable to such sale.’’

6.But the interesting part from the perspective of fiscal laws was the exposition in regard to differing view taken by a taxing authority on the same issue in different years.Here is what the Court observed:

‘’…….The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar Courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The Courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why Courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a coordinate bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a bench of superior strength or in some cases to a bench of superior jurisdiction.’’

7.The issue admits of no easy solution as in the decision ,I did not see DP More being discussed ,nor Kamlapat.However ,the interesting aspect for tax law practitioners is the additional aspect of theory of precedent.That's a delightful departure for tax litigators,a point worth pleading in fiscal laws.