Role of the Judiciary in Indian Tax Policy - An Evaluation of the Efficiency of Judicial Outcomes

The Indian tax system suffers from an excessive incidence and pendency of tax disputes before civil courts. A certain degree of disputes are unavoidable since the tax code and policy of any jurisdiction (being the outcome of various competing factors) inevitably contains a certain degree of ambiguity. However, a significant amount of unnecessary tax litigation is caused by the development of inconsistent tax jurisprudence. The author details the permissible scope of litigation expected in a tax system that truly complies with the rule of law. Following this, the author surveys two major areas of disputes – namely, the distinction between a “tax” and “fees”, and the interpretation of exemption notifications. This demonstrates the significant likelihood of judicial activism by appellate courts in tax disputes, which contributes to a tax policy that is doctrinally incoherent. It is submitted that inconsistent tax jurisprudence contributes to a larger number of disputes since both the taxpayers and the revenue department are uncertain of the outcomes in a tax system where the judiciary enjoys extraordinary jurisdiction in tax disputes. The solution proposed is to identify and enforce a broad set of principles concerning an efficient and fair tax system at the level of the judiciary, in line with international best practices