Tax Thoughts

Finance Act- Validity of Including Non-finance Subjects

Mr. Arvind Datar (Senior Advocate)
Apr 10, 2017

In an unprecedented move, the Finance Act, 2017 amended 18 central legislations which had nothing to do with taxation or finance. The Finance Act is not an ordinary piece of legislation but a ‘Money Bill’ under Article 110 of the Constitution of India. A Money Bill, under Article 109, cannot be introduced in the Rajya Sabha and the Lok Sabha can pass it ignoring the recommendations, if any, suggested by the former House. This regrettable step   was indeed designed to bypass the Rajya Sabha which is nothing but a colourable exercise of power that is  not contemplated by the  Constitution. 

Barrage of amendments

After the budget speech of the Finance Minister, the Union Government introduced a barrage of amendments to non-fiscal statutes in the Finance Bill, 2017. These include, inter alia, amendments to the following statutes:-

  • Industrial Disputes Act, 1947
  • Airport Authority of India Act, 1994 
  • Telecom Regulatory Authority of India Act, 1997 
  • Trade Marks Act, 1999
  • Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 
  • Companies Act, 2013
  • Administrative Tribunals Act, 1985 
  • Cinematograph Act, 1952 
  • Railway Claims Tribunal Act, 1987 
  • Consumer Protection Act, 1986 
  • Securities and Exchange Board of India Act, 1992 
  • Electricity Act, 2003 
  • Recovery of Debts due to Banks and Financial Institutions Act, 1993 
  • Armed Force Act, 2007 
  • National Green Tribunal Act, 2010

Money Bill

Article 110 of the Constitution, which deals with money bills, says that a money bill must only contain provisions dealing with the imposition, abolition, remission, alteration or regulation of any tax; the regulations of borrowings by the Government of India and the regulation of the Consolidated Fund of India, including appropriation of moneys out of it. The significance of the term “only” in Article 110 was highlighted in the Constituent Assembly Debates by Ghanshyam Singh Gupta. He moved an amendment to delete the word ‘only’ from Article 90 of the Draft Constitution which later became Article 110 of the Indian Constitution. On May 20, 1949, he said: 

“Now Article 90 says that a Bill shall be deemed to be a money Bill if it contains only provisions dealing with the imposition, regulation, etc., of any tax or the borrowing of money, etc. This can mean that if there is a Bill which has other provisions and also a provision about taxation or borrowing etc., it will not become a money Bill. If that is the intention I have nothing to say; but that if that is not the intention I must say the word "only" is dangerous, because if the Bill does all these things and at the same time does something else also it will not be a money Bill.”

The amendment moved by him was rejected by the Constituent Assembly. A perusal of the above Constituent Assembly Debates on Article 110 makes it clear that if there is a bill which has several provisions, of which only one provision relates to taxation, borrowing, charge on Consolidated Fund of India etc., it will not be considered as a money bill. 

In Cadbury-Fry-Pascall Prop. Ltd. v. The Federal Commissioner of Taxation (1944) 70 CLR 362, while interpreting ss. 53-54 of the Australian Constitution (which deals with money bills), Latham C.J. observed that the word “only” safeguards the Upper House against an abuse of this provision by the Lower House which seeks to treat ordinary bills as money bills by adding some financial clauses to it. Erskine May, a 19th century clerk of the House of Commons and an authoritative commentator on Parliamentary Practice in the UK, says that on this ground, there have been instances where the Speaker has refused to certify even an Annual Finance Bill as a Money Bill. 

Finality of the Speaker’s decision

Article 110(3) of the Constitution provides that the decision of the Speaker as regards characterization of a bill as a ‘money bill’ shall be final. Acharya D.D. Basu, in his commentary on the Constitution of India, cites the Lok Sabha debate of 06.05.1953 and observes that, in practice, the Speaker consults the Law Ministry before recording his/her decision whether a bill is a money bill or not, although, legally, he/she is not bound to consult anybody.

Remedial Measures 

The trend of moving amendments to non-fiscal statutes through  Money Bills is a cause for serious concern. Recently, the Insolvency and Bankruptcy Code, 2016 and the Aadhar Act, 2016 were introduced in the Lok Sabha as Money Bills. None of the amendments to the non-fiscal statutes, as made by the Finance Bill, 2017, could have been introduced, either singly or collectively, as a Money Bill in the Lok Sabha.  By adding them as additional clauses in the Finance Bill, is to do indirectly what cannot be done directly. This is undoubtedly a colourable exercise of power and ought to be checked by the Speaker. If this trend continues, it is bound to be challenged in the near future. The courts may perhaps invoke the Doctrine of Severability and separate the subjects coming under Article 110 that can form part of the Money Bill and other non-finance subjects that plainly cannot. The introduction of non-fiscal subjects in a Money Bill can be then struck down as unconstitutional even though, under Article 110(3), the decision of the Speaker is final. 

*Mr. Arvind P. Datar is a senior Advocate practicing in the Supreme Court.

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