International Agreements vs domestic laws – In international law, government cannot override Parliament

Source: This post on International Agreements vs domestic laws has been created on the article “In international law, government cannot override Parliament” published in “Indian Express” on 28^th November 2023.

UPSC Syllabus Topic: GS paper 3- Indian Economy – Mobilisation of resources (Taxation)

News: The article discusses a ruling by India’s Supreme Court (Nestle SA case). It says international agreements by the government need to be approved by Parliament to become law. This decision reinforces democratic principles and the separation of powers in India’s constitutional framework.

Background

Recently Supreme Court delivered an important ruling in Assessing Officer Circle (International Taxation) New Delhi Vs Nestle Sa case. It emphasized the need for a formal notification under Section 90(1) of the IT Act, to enact a Double Taxation Avoidance Agreement (DTAA) or modify its terms. The ruling emphasized international obligations of the executive branch cannot automatically become enforceable law in India unless they meet specific legislative requirements.

The case centered on the interpretation of the Most Favored Nation (MFN) clause within the DTAA. It raised the issue of whether the MFN clause is automatically applicable or requires separate notification for activation. This decision has significant implications for enacting the international agreement in India.

For more details on MFN controversy read here

What are the constitutional provisions related to international obligations assumed by the executive?

Article 73 of the Constitution: It outlines that the Union executive can assume international obligations, but these are limited by the powers of Parliament. This means the executive can make agreements, but they need legislative backing to become enforceable laws in India.

Article 253 of the Constitution: This article embodies the concept of dualism, distinguishing between international law and domestic (municipal) law.

Article 246 of the Constitution, with Entry 14 of the Seventh Schedule: This grants Parliament the authority to make treaties and agreements with foreign countries. It shows that while the executive can negotiate treaties, their implementation often requires legislative action.

What are the implications of this judgment?

Upholding Constitutional Principles: The decision reinforces the principles of dualism and separation of powers in the Indian Constitution. It ensures that executive actions in international agreements align with legislative endorsement and constitutional norms.

Avoiding Legal Uncertainty: By requiring legislative backing and notification, the judgment aims to prevent uncertainty and inconsistency in the application of international obligations within India’s legal system, particularly in the area of taxation.

Supremacy of domestic laws: It emphasized that international treaties, especially tax treaties, need to comply with India’s constitutional and statutory requirements.

Terminology used

Most Favored Nation (MFN) clause: It is a principle of the World Trade Organization (WTO), embodies a principle of non-discrimination in international trade. This principle ensures that WTO member countries do not differentiate among their trading partners. If a member country offers a trade concession to one partner, it must extend the same concession to all other WTO members. This principle is integral to maintaining a predictable and fair-trading system.

MFN status plays a crucial role in various agreements under the WTO, such as the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Question for practice:

Examine how the recent Supreme Court ruling in the Nestle SA case aligns with the principles of dualism and separation of powers.