MAY 22, 2017

By S Murugappan, Advocate

IN taxation statutes a longer period of limitation is provided for issue of tax / duty demands where there is an allegation of fraud, collusion etc. This is basically for the reason that to detect fraud, collusion as well as misstatements it takes time for the departmental officials and hence, a longer period is required to initiate action. The Central Goods and Service Tax Act, 2017 is no exception to this. Section 74 of the above Act provides for issue of notice as well as determination of tax not paid or erroneously refunded or where input tax credit has been wrongly availed and utilized because of fraud, wilful misstatement or suppression of facts by invoking a longer period . But this Act has gone one step further, in that, there is a new meaning and definition given to the expression "suppression".

2. Explanation 2 to Section 74 defines "suppression" in the following manner.

" For the purposes of this Act, the expression "suppression" shall mean non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under this Act or the rules made thereunder, or failure to furnish any information on being asked for, in writing, by the proper officer. "

3. Thus, the scope of the word "suppression" has been substantially expanded and given a new meaning. At the same time, the definition suffers from vagueness. The explanation states that when a taxable person fails to provide declaration regarding facts or information, which he is required to declare in a return, report etc., that will amount to suppression. At the same time, the explanation also states that when a taxable person fails to declare facts or information in any other document furnished under CGST Act, that also will be "suppression". The explanation fails to stipulate whether the other document referred to here is a statutory document. Secondly, any sort of letter or communication given to the department by the taxable person with reference to CGST Act can also get covered under the expression "any other document furnished under this Act". Apart from this, the explanation also states that failure to furnish any information on being asked for in writing will be "suppression". The explanation fails to indicate at what point of time the failure to provide information will be determined. If the department asks for information within two days (which, usually, is the case) and if it is not possible for the taxable person to provide that information within the stipulated period, then, the officers can bounce upon the taxpayer with the charge of suppression.

4. Thus, the expressions used in the explanation are open to different interpretations and can lead to misuse of powers and abuse of authority by the officers.

5.1 In fact, what is "suppression" in the legal context has been settled by the Supreme Court and other appellate authorities in several judgments in the past. In the context of issue of demand notices by invoking longer period under the Central Excise Act 1944, in terms of Section 11A of the said Act, following observations were made by the Supreme Court in the case of Pushpam Pharmaceuticals Company Vs. Collector of Central Excise, Bombay - 2002-TIOL-235-SC-CX .

"Section 11A empowers the Department to re-open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of course the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty."

5.2 Similarly, in the case of Cosmic Dye Chemical Vs. Collector of Central Excise, Bombay - 2002-TIOL-236-SC-CX-LB the Supreme Court has made the following observations with regard to invocation of longer period in terms of Section 11A of Central Excise Act 1944.

"Now so far as fraud and collusion are concerned, it is evident that the requisite intent, i.e., intent to evade duty is built into these very words. So far as mis-statement or suppression of facts are concerned, they are clearly qualified by the word "wilful" preceding the words "mis-statement or suppression of facts" which means with intent to evade duty. The next set of words "contravention of any of the provisions of this Act or Rules" are again qualified by the immediately following words "with intent to evade payment of duty". It is, therefore, not correct to say that there can be a suppression or mis-statement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11A. Mis-statement or suppression of fact must be wilful ."

5.3 In the case of Collector of Central Excise Vs. Chemphar Drugs & Liniments - 2002-TIOL-266-SC-CX the Supreme Court observed.

" ..........Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before (sic beyond) the period of six months. "

6. There is a plethora of judgments to explain the settled proposition that mere omission to disclose information will not be 'suppression' and that wilful withholding of that information is essential to constitute 'suppression'.

7.1 Now that is unsettled; and the new definition as contained in Section 74 raises several interesting issues.

7.2 First, there appears to be a conscious attempt by the State to overcome the judicial wisdom and reasoned judicial pronouncements of the past by bringing in new definitions to set at naught the relevance of such judgments.

7.3 Second, the entire responsibility is shifted to the taxpayers, irrespective of the fact whether their omissions are merely accidental or not and the job of the officers is made simple and straight without any need for them to go through rigorous requirements to establish a case.

7.4 Third, there is a danger that this will make the officers inefficient and incompetent as well as lethargic in the long run as the law is set against the taxpayer and nothing much is required to be done by the officers.

7.5 Fourth, there are numerous compliance requirements needed from the taxpayers with a shorter time limit for compliance with strict time schedules and any failure in that regard is visited with penalties. But, on the other hand, even for issue of a demand notice under normal period when officers come across short payment etc. the time limit given in the CGST Act to them is two years and nine months and the gap between normal period and extended period is less than two years. Thus, officers responsible for tax collection and monitoring can take their own sweet time in a leisurely fashion for initiating action and to spring surprises on taxpayers after 2½ years or 4½ years of filing of returns.

8. But, such draconian definitions may not advance the cause of user-friendly tax administration . For any tax payer, large or small, there can be occasions where there are omissions or accidental slips because of negligence, inadvertence, change of personnel etc. Similarly, there can be numerous reasons for not being able to provide the information asked for in writing by the department within the stipulated period. Now, the effect of the new definition in Section 74 is to gather all such instances under one basket and dub them as "suppression".

9. It is to be kept in mind that draconian laws do not guarantee elimination of tax evasion. But proper implementation of simple laws by officers in a honest manner can plug any revenue leakage.

10. With new laws, it appears that we give 'new' meanings to different words in the English language. But one hopes that we are able to retain our wisdom to distinguish what is "intentional" from what is "accidental", "deliberate" from "oversight" and "wilful" from "negligent".