Archives

Extracts from the opinion of the Supreme Court

Extracts from the opinion of the Supreme Court on the reference by the President, under Article 129 (1) of the Constitution of Sri Lanka regarding the Inland Revenue Special Provisions Act. No. 10 of 2003 as amended by Act, No. 31 of 2003.

The President invoked the consultative jurisdiction in terms of Article 129 (1) of the Constitution by referring questions of law and fact for an opinion in relation to the Inland Revenue (Special Provisions) Act, No. 10 of 2003 as amended by Act, No. 31 of 2003).

Additional Solicitor General took up the position that in terms of Article 80 (3) of the Constitution and in view of the previous decisions, this Court cannot entertain the questions referred to by the President.

Article 80 (3) of the Constitution is in the following terms:

"Where a Bill becomes law upon the certificate of the President or the Speaker, as the case may be, being endorsed thereon no Court or tribunal shall inquire into, pronounce upon or in any manner call in question, the validity of such Act on any ground whatsoever."

The questions were raised in terms of Article 129 of the Constitution, which states that,

"If at any time it appears to the President of the Republic that a question of law or fact has arisen or is likely to arise which is of such nature and of such public importance that it is expedient to obtain the opinion of the Supreme Court upon it, he may refer that question to that Court for consideration..."

The consultative jurisdiction granted in terms of Article 129 of the Constitution confers upon the President the power to refer to the Supreme Court any question of law or fact which is of "public importance", as the President may think fit. The Supreme Court of India, held that in terms of Article 143 of the Constitution, which provision is identical to Article 129 (1) of our Constitution, that the President's opinion as to the questions being of public importance cannot be canvassed.

The words of Article 143 (1) are wide enough to empower the President to forward to this Court for its advisory opinion any question of law or fact which has arisen or which is likely to arise, provided it appears to the President that such a question is of such a nature or of such public importance that it is expedient to obtain the opinion of this Court upon it. (In re, Under Article 143, Constitution of India [1965 SC pg. 745 at pg. 755."])

We are of the view that the consultative jurisdiction exercised in terms of Article 118 (d) read with Article 129 of the Constitution is distinct and different from the ordinary jurisdiction of this Court and that the ouster clause contained in Article 80 (3) is not a bar to the Court expressing an opinion on a question of law referred to it by the President.

The questions raised in the reference are all based on the Inland Revenue (Special Provisions) Act. The cumulative effect of the questions is that

a) whether the provisions contained therein are inconsistent with Article 12 (1) of the Constitution which requires all persons to be treated equally before the law;

b) (i) whether a pardon could be given by way of an Act such as Inland Revenue (Amendment) Act to a person who is guilty of an offence;

(ii) whether there has been an alienation of judicial power;

(c) whether there has been misappropriation of public funds held in trust for the benefit of the people resulting in an erosion of the Rule of Law.

The Inland Revenue (Special Provisions) Act, No. 10 of 2003 was introduced, as stated in its long title, for the following purpose:

a) to enable persons who have not furnished a return of income and assets prior to March 31, 2002 to make a declaration in respect of their income.

b) to make provision for the grant of certain concessions to declarants and non-declarants;

c) to indemnify such persons against liability to pay certain taxes and against liability from investigations; prosecutions and penalties under specified statutes with a view to securing the future compliance of such persons with the prevalent Tax Laws.

Learned Additional Solicitor General submitted that the tax amnesty, which was granted in the aforementioned form by Act, No. 10 of 2003 was due to a serious deficiency of the present taxation system, in that if had only a few taxpayers. A large number of potential taxpayers had evaded the payment of tax over several decades and even some of the existing taxpayers had suppressed the correct income and had only disclosed a part of their income for the purpose of tax. According to learned Additional Solicitor General, attempts over the past several decades to bring these tax evaders to pay to the Inland Revenue had been futile and even the previous amnesties offered to such tax evaders had not brought in the expected results. Therefore the rationale for Act, No. 10 of 2003 was to bring those resorting to tax evasion to make a voluntary declaration of all their assets and income and by that to increase the number of persons who could be made liable for future taxation purpose.

It was also stated that a further objective of Act. No. 10 of 2003 was to provide an incentive to the existing taxpayers so that they could make a complete disclosure, of their income and assets. By an amnesty, according to the learned Additional Solicitor General, both the Government and community would be benefited and would increase the future tax revenue of the Government as the number of people who are liable for taxation would be increased. It was pointed out that, to achieve this objective it is necessary to offer sufficient incentive, which are attractive to such defaulters. In the process, according to the learned Additional Solicitor General, the existing taxpayers were also allowed to make a complete disclosure of their income and assets.

However, it is to be noted that, in doing so, a special class of persons have been created who would be entitled to benefits, denied to others who had complied with the law and paid their dues.

Sections 4 (2) and 4 (3) of the Act, No. 10 of 2003 provide that if a person has made a declaration in terms of Section 2 of the Act for the period ending on or before March 31, 2002, and if there is any tax in dispute, the tax specified by such person as being the amount of tax payable by him shall be accepted by the relevant authority.

An honest taxpayers who took pains to submit a tax return elaborating his income and expenditure is treated differently from the person who now submits a declaration in terms of Section 2 read with Sections 4 (2) and 4 (3) incorporating amounts which he decides that should be paid as taxes. With regard to an honest taxpayer the amounts to be paid as tax is finally decided by the Assessor of the Department of Inland Revenue whereas a person submitting a declaration in terms of Sections 2 read with 4 (2) and 4 (3), would himself decide the amount that should be paid as taxes.

Discussing the Rule of Law, which forms a fundamental principle of the Constitution, A. V. Dicey, (Introduction to the study of the Law of the Constitution, 9th Edition, 1948 pg. 202) stated that,

"That 'rule of law'... has three meanings, or may be regarded from three different points of view.

It means, in the first place, the absolute supremacy or predominance of regular law as opposed to the influence of arbitrary power, and excludes the existence of arbitrariness of prerogative, or even of wide discretionary authority on the part of the government. Englishmen are ruled by the law, and by the law alone;...

It means, again, equality before the law, or the equal subjection of all classes to the ordinary law of the land administered by the ordinary law Courts..."

It is thus apparent that there cannot be any kind of unequal treatment and all classes of people should be subjected to equal treatment.

The immunity granted is not restricted to persons who have not made declarations or had evaded paying tax under the Inland Revenue Act. Sections 2 and 3 of the said Act refers to the immunity granted under any law which is specified in the Schedule to the Act.

The schedule to the Act includes the following Acts which could be considered as being pivotal to the country's revenue, public finance and fiscal control. They are,

(a) The Customs Ordinance;

(b) The Excise Ordinance;

(c) The Turnover Tax Act;

(d) The National Security Levy Act;

(e) The Goods and Services Tax Act;

(f) The Stamp Duty Act;

(g) The Finance Act;

(h) The Save the Nation Contribution Act;

(i) The Exchange Control Act;

(j) The Import and Export Control Act.

Thus it is obvious that the immunity granted by the Inland Revenue (Special Provisions) Act is not restricted to Inland Revenue alone, but brings in a number of other important areas such as Customs, Excise and even the Goods and Services Tax.

The effect of the aforesaid provisions is the creation of two segments of tax payers and persons within the country. One being the law abiding honest person who has diligently complied with laws relating to revenue, public finance and fiscal control and submitted the requisite declarations and returns and paid what is due. The other would be the person who has been evading tax for several years and who has not complied with the salutary requirements of laws relating to revenue, public finance and fiscal control and who would now benefit through the immunity granted by the Inland Revenue (Special Provisions) Act, No. 10 of 2003. Section 3 referred to above, grants 'full immunity from liability to pay tax under any law specified in the schedule hereto' and the immunity would be enjoyed from liability from any investigation or prosecution for any offence under any law specified in the schedule to the Act. Thus the Act has made clear provisions to create two categories and through such classification has favoured one category by allowing them to enjoy full imunity not only from liability to pay tax, but also from any investigation or prosecution. There again the immunity is not limited to the Inland Revenue Act, but extends as referred to earlier, to a number of other subject areas.

The grant of such immunity in terms of the provisions contained in Act, No. 10 of 2003, it was submitted, had a serious adverse impact on the revenue generated by way of taxes.

It is to be borne in mind that public revenue is held in trust for the people of Sri Lanka who cannot be denied its benefit. Any exemption that is granted should be strictly in compliance with Article 12 (1) of the Constitution.

Out attention was also drawn to the amounts due as arears of taxes in respect of laws administered by the Commissioner General of Inland Revenue as at 31.12.2002. The Performance Report of the Commissioner General of Inland Revenue for the year 2002, states that the taxes in arears as at 31.12.2002 is Rupees 68,723,222,261 which includes Rupees 19,027,057,007 being Goods and Services Tax, Rupees 10,299,012,135 as Turnover Tax and Rupees 7,029,100,036 as National Security Levy. This would reflect the loss of public revenue in relation to tax recoverable by the Commissioner General of Inland Revenue. No estimate has been made of the losses resulting from the immunity granted in respect of custom duty, excise duty and other dues.

The right to equality is statutorily enshrined in terms of Article 12 of our Constitution and is a component of the Universal Declaration of Human Rights and International Covenant on Civil and Political Rights (Article 2). It provides for all persons to be equal before the law and to be entitled to equal protection of the law. This guarantee of equal protection of the law is an injunction issued by the Constitution to the Legislature against enacting discriminatory laws.

What it attempts to prevent is discrimination between any two persons where they are similarly situated. As pointed out by Durga Das Basu, When a law is challenged as denying equal protection, the question for determination by the Court is not whether it has resulted in inequality, but whether there is some difference which bears a just and reasonable relation to the object of legislation."

Sections 2 and 3 of the Act, No. 10 of 2003 provides full immunity, not only from liability to tax, but also from any investigation or prosecution from any offence under any law specified in the schedule. Ironically, the basis of the differential treatment as conferred by the provisions of Act No. 10 of 2003 is the non compliance, the violation and evasion of taxes and duties payable under laws that are pivotal to the country's revenue, public finance and fiscal control such as the Inland Revenue Act, the Turnover Tax Act, the Goods and Services Act, the Stamp Duty Act, the Customs Ordinance, the Excise Ordinance, the Exchange Control Act and the Import and Export Control Act. These laws have been enacted from time to time; the integrity and the strength of the legal regime established thereby is dependent on due compliance and effective enforcement. The non-compliance and violation of and the evasion of taxes and duties payable under the salutary provisions of these laws could never be a permissible basis to grant the sweeping indemnities from liability and immunities as contained in Sections 2 and 3 of Act, No. 10 of 2003. Hence, the indemnities from liability and immunities thus granted would not only erode the equal protection of the law guaranteed by Article 12 (1) of the Constitution, but also be antithetic to the Rule of law being the underlying basis of our Constitution.

It is our opinion, based upon the preceding analysis that, the provisions contained in the Inland Revenue (Special Provisions) Act, No. 10 of 2003, as amended, are inconsistent with Article 12 (1) of the Constitution which guarantees to every person equal protection of the law; in that it grants; immunities and indemnities to persons who have contravened the laws that have been referred to and thereby defrauded public revenue causing extensive loss to the State. In view of the above position it would not be necessary to consider the other questions referred to earlier.

www.ceylincoproperties.com

www.Pathmaconstruction.com

www.ppilk.com

www.crescat.com

News | Business | Features | Editorial | Security
Politics | World | Letters | Sports | Obituaries

Produced by Lake House
Copyright © 2003 The Associated Newspapers of Ceylon Ltd.
Comments and suggestions to :Web Manager