OCTOBER 24, 2016

By Lukose Joseph,CA & Anil P Nair, CA

AND he said, "Woe unto you, experts of law also! For you load men with burdens hard to bear, and you yourselves do not touch the burdens with one of your fingers" {Luke 11:46}

For efficient administration of Tax Laws and to do justice to the majority who comply them faithfully, we should punish the guilty that evade Tax and defraud customers. But why, power to arrest on mere apprehension?

Threat of Arrest

Model GST Law contains power to arrest and prosecute if the Commissioner has reason to believe that someone is guilty of offences under the Law. Provisions of the Code of Criminal Procedure, 1973 will be applicable in such relevant cases.

According to Section 62(1) If the Commissioner of CGST or the Commissioner of SGST has reason to believe that any person has committed an offence punishable under clause (i) or (ii) of sub-section (1) or under sub-section (2) of section 73, he may, by order, authorize any CGST/SGST officer to arrest such person.

According to Section 62(3) In the case of a non-cognizable and bailable offence, the Deputy Commissioner or the Assistant Commissioner of CGST/SGST, as the case may be, shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer-in-charge of a police station has, and is subject to, under section 436 of the Code of Criminal Procedure, 1973 (2 of 1974).

Moreover, according to Section 62(4) All arrests made under this section shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) relating to arrest.

Section 73 lists out the offences which are liable for prosecution under the Act. According to Section 73(1)(l), whoever attempts to commit, or abets the commission of, any of the offences mentioned in clauses (a) to (k) of the section; shall be punishable –

(i) in cases where the amount of tax evaded exceed two hundred and fifty lakh rupees, with imprisonment for a term which may extend to five years and with fine;

(ii) in cases where the amount of tax evaded exceeds fifty lakh rupees but does not exceed two hundred and fifty lakh rupees, with imprisonment for a term which may extend to three years and with fine;

(iii) in the case of any other offence where the amount of tax evaded exceeds twenty five lakh rupees but does not exceed fifty lakh rupees, with imprisonment for a term which may extend to one year and with fine.

According to Sub-section (4) the offences relating to taxable goods and/or services where the amount of tax evaded exceeds two hundred and fifty lakh rupees shall be cognizable and non-bailable.

When Tax laws are at best Civil laws, the present insertion of provisions from the Criminal Procedure Code cannot be accidental. When tax laws should be simple and easy to comply, why this nostalgia of the extinct British Raj?

The evaded tax amount mentioned in the law has only relative value. When such an amount is expressly provided in the Act, it fails to get amended over time and the provision eventually degrades itself to mere tool of torture.

What is the reason to believe? Your own belief could salvage you, but to arrest another, whether belief alone is enough?

In Service Tax Laws, such provisions plays at a much momentous level and there are well notified instructions to officers before adopting any such drastic step. According to Section 91 (1) of the Finance Act, 1994 (14th May 2016) the power to arrest is for offense under Section 89 (1) (ii) that is when the tax collected but not deposited with the Government exceeds Rupees Two Crores. However, in Rajender Singh v UOI - 2015-TIOL-1405-HC-P&H-ST it was held that arrest was despicable even before issuing show cause notice and adjudication.

Whether there is tax evasion is something to be decided on the basis of solid proof. Is it acceptable to give power to arrest first and investigation later? Possibility of misuse is high when officers are left to decide when to arrest. May be when there is a chance of the guilty absconding or when the inevitability of questioning under detention is offered to the satisfaction of the Court, arrest and detention could be justified.

Who will decide the amount in an alleged evasion of tax? Who will decide that it crossed Rupees Fifty Lakhs? In debatable issues like the applicability of tax law or the quantum of amount of tax evaded, is it proper to go ahead with stringent procedures on the basis of one-sided approach of the Department? How much of police interference can be justified in economic offences, especially when, not giving the requested information could lead to arrest?

In economic offences, arrest and detention of the accused, a laid-back investigation and prosecution could finish off the accused businessmen.

In VAT Laws, such cases are rare.In Income Tax Laws, there are no punishments without adjudication. Hence in Tax Laws, relevance of arrest is doubtful. Only in certain laws like Customs, arrest may be justified.

Such draconian provisions in Tax laws could succeed only in creating a scare in the minds of young entrepreneurs and foreign investors. They may withhold decisions on new ventures. Don't we stand for ease of doing business?

Let us agree for giving exemplary punishment to those found guilty, only the guilty.

Detaining Refunds

Section 30 of Model law on IGST, provides for Tax wrongfully collected and deposited with the Central or a State Government.

"A taxable person who has paid IGST on a transaction considered by him to be an interstate supply, but which is subsequently held to be an intra-state supply, shall, upon Payment of CGST and SGST in the appropriate State, be allowed to take the amount of IGST so paid as refund subject to the provisions of Section 38 of the CGST Act, 2016 and such other conditions as may be prescribed".

When a taxable person has paid IGST on a transaction, by treating it as inter-State supply, but later, the transaction is held to be an intra-state supply, then the person who has made payment of CGST and SGST in the appropriate State, shall be allowed to take refund of the IGST amount paid subject to Section 38 (provision for refund of tax) and other prescribed conditions.

Provisions of Section 38 are anything but which help ease of doing business. It says any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application in that regard to the proper officer of IGST/CGST/SGST before the expiry of two years from the relevant date. If, on receipt of any such application, the proper officer is satisfied that the whole or part of the amount claimed as refund is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund . The proper officer shall issue the order within ninety days from the date of receipt of application. Moreover the explanation says, the "application" for this purpose shall mean complete application containing all information as may be prescribed. (Emphasis in italics provided)

There may be error in judgment by taxpayer. Place of provision of service under present service tax legislation is a grey area with enough scope for litigation. This will continue in GST also. So to relieve tax payer from undue hardship caused by a relative misjudgment should be permitted for intra head adjustment. In such cases, credit should be immediate and should not be detained as refund and left to the mercy of tax authorities.

Conclusion

To conclude, let us ask these questions to lawmakers, aiming to help reduce the woes of the assessee. Even for the sake of argument, if a power to arrest is de rigueur why the threshold amount is not comparable or at par with the existing provisions in law and adjusted to periodic inflation. The threshold exemption limit under Law is doubled to Rupees Twenty Lakhs now after much deliberation, we understand. A similar lenient consideration in the case of provisions of arrest is requested. Why do we provide for officers to sit on refund applications for such long periods and by raising flimsy excuses, when refund is from tax remitted inadvertently? There needs to be a provision for easy rectifications of erroneous remittances of tax in Returns.

It is earnestly requested that before the law gets etched in stone, issues like the ones mentioned above be deliberated sufficiently and then concretized so that we begin the next financial year on a pleasant note.