SC stay of HCs' temporary tax relief amidst coronavirus crisis legally flawed

The orders by Kerala and Allahabad HCs were for both protection of fundamental rights of citizens and to grant some kind of relief to a sagging economy in the wake of the virus.

Coronavirus Opinion

On March 18, a regular bank loan recovery case came up before Justices Ajit Kumar and Ramesh Sinha of the Allahabad High Court. Taking note of the COVID-19 pandemic and various circulars and orders of the Ministry of Health, the Supreme Court, the Chief Justice of the Allahabad High Court, and the Council of Ministers of Uttar Pradesh, the Bench decided that State Government should go easy on citizens for two weeks. They directed the State Government, banks, financial institutions, District Magistrates and the District Administration to not take any coercive steps to recover any dues or carry out any eviction or demolition.

On March 19, the Justice Ajit Rawal of the Kerala High Court passed a similar, but wider, order. The judge, who was sitting on the tax portfolio of the High Court (judges are rotated amongst portfolios in the High Courts every few months) noted that in a number of cases, the tax departments were starting proceedings or t aking coercive action contrary to settled law. This had led to a large number of writ petitions in the High Court on decided questions. He pointed to four separate such instances that had led to an avalanche of meaningless litigation. Further, he saw that in many bank loan recovery cases, urgent hearings were becoming necessary since properties were being auctioned or other recovery steps were being taken. He said that these led to the High Court being crowded every single day, putting lawyers, judges and court staff at severe risk of contracting the coronavirus. He noted that on March 19, there were 80 such cases before him!

After recording all of this, he passed a slew of directions. He first said that all tax departments, banks and financial institutions must defer coercive recovery proceedings until April 6. Where timelines for completing assessments or processes were ending on March 31, he stated that such timelines are extended until April 6. He also gave, in paragraph 11 of the order, the power to all tax departments and lenders to approach the courts to make exceptions in particular cases where urgent recovery measures were required to be taken.

These are vital orders for both protection of fundamental rights of citizens and to grant some kind of relief to a sagging economy in the wake of the virus. A businessman, already having to pay salaries without business, deserves a two-week tax relief. As any tax practitioner, be it a chartered accountant or a lawyer, will tell you – the two weeks leading up to March 31 are when the tax department, desperate to hit annual revenue targets, will be at its most unreasonable. A relief against this is always welcome, but even more so during this crisis. Also, it is basic human decency that during an unprecedented worldwide pandemic requiring self-isolation, aperson should not be evicted from her house for recovery of bank dues, and the State should not carry out demolitions of buildings for violation of building laws. These can wait for two weeks.

In the case of the Kerala High Court, the orders were passed for the protection of Court officers. It is important to understand that like hospitals, courts can never be fully shut down – bail, habeas corpus writs and urgent civil relief often cannot be postponed. The best one can do is reduce the burden on the courts, which is what the Court sought to do.

The Union of India challenged these orders immediately in the Supreme Court. The special leave petition was filed this morning, mentioned before a bench, and heard, contrary to all known procedure, at the mentioning itself. The Supreme Court, in a pithy paragraph, citing no reasons whatsoever, without dealing with any of the concerns raised by the High Court orders, granted a stay of these orders.

The problems with this order start at the very beginning. The matter was filed this morning, it was not even numbered or listed before the Court for hearing. This means that no person outside of the Centre’s lawyers had any way of knowing such a petition is before the Court, let alone be present at the hearing and make out their case. Also, the High Court orders are in force for two weeks only, and the Supreme Court has not even set a next date for hearing. Effectively, the Supreme Court has overruled orders of two High Courts without even listing the appeals formally for hearing.

Let us come to Union of India’s petition itself. At the outset, it is absurd that the Union has filed an appeal against the order of the Allahabad High Court, which gives directions only to the State Government. The State of Uttar Pradesh has not chosen to file any appeal against these directions so far. The Solicitor General who appeared before the Supreme Court, from the reports of the hearing, did not even bring this issue to the notice of the Supreme Court.

The petition before the Supreme Court makes a point that the judiciary is stepping into the role of the executive. There are murmurs in the petition about the separation of powers. This issue proceeds on a misunderstanding of the Kerala High Court’s decision which, as I pointed out above, came from the necessity for the Court to control crowds and ensure safety of its own officers. Surely the High Court has the powers to pass a two-week order to protect its own employees.

The next issue raised by the Union is that the order of the Kerala High Court will freeze all revenue collections until 6.4.2020. This is a bogus claim. The Kerala High Court has not extended a single statutory tax deadline. Those of us who have to pay advance tax, deposit TDS, pay GST to Government, still have to do so as per existing deadlines. If we don’t, we are liable to all consequences of delay – being interest, penalty, late fee and even prosecution.

In cases where a demand of taxes is made against a person, in most tax laws, she is given 30 days’ time to pay this tax. So, if an order is made in the next two weeks, the deadline to pay taxes will never fall before April 6. Only in cases where there is already a default of taxes, the consequences of the default, being “coercive” action, have been postponed for two weeks. This is a very small percentage of tax collections of the Government. It is wrong to say that the order “incentivises” people to pay tax late.

​The Union’s petition also says that since taxes are paid online, coronavirus has no impact on it. This is an unfortunate submission – what of those who dispute their tax liability, of those who have to work in these dispute resolution forums such as tribunals and courts, those who work in tax recovery through attaching and selling of property and those who are in tax enforcement, doing raids and searches? But most importantly, what of those whose cash flows have been affected by the virus?

​The last two grounds in the Union’s petition deal with banks and financial institutions – the petition says that most defaults in these cases have arisen prior to the coronavirus, and that if banks are not allowed to recover loans, then their cashflows will be affected and this will have a domino-effect on the economy. These grounds are also not tenable. Most loan default cases that are at the recovery stage, as the Union itself admits, have been pending for years – it is only these cases where the two-week relief has been given. It is not as if every single borrower has been given a two-week break from paying off loans. In any case, if any bank felt that a particular borrower will evade payments, the Kerala High Court’s order clearly states that they can move the court for urgent orders.

​Two High Courts of this country passed limited protective orders to help citizens in a difficult time. They have given relief that the Government should ideally give, like the Governments of the USA, Italy, Iran, China and Canada have already done. It is regrettable that the Supreme Court has set them aside without even a proper adversarial hearing.

The author is a musician and lawyer practising in the Madras High Court.