JULY 15, 2014

By B N Gururaj, Advocate

CENTRAL Excise law perhaps has the dubious distinction of having prescribed maximum number of periodic returns to be filed by the taxpayers. This seems like a punishment, considering the number of returns. Let me enumerate them:

Are these returns really scrutinised and analysed by the Central Excise department? The answer is obviously no, as few cases, if any, are commenced based on the assessee's returns. Audit report (when the disputes are not “settled with commission” with the auditors) is usually the basis for commencement of any dispute by the Revenue. For good measure, the notice adds that “but for detection by the audit, the matter would not have come to light, and the assessee would have continued to indulge in evasion of duty”. If the assessee pleads that such and such facts had been disclosed in the monthly returns, even at CESTAT stage one rarely finds sympathetic ear.

If this is the fate of ER1 to ER3 returns, less said the better about the other returns. If the diligent assessee goes through the drill of filing ER4 to ER8 returns, none in the Central Excise department will scrutinize them. If the returns are not filed, none in the Central Excise department care to pull up the errant assessee. In addition to these, a typical assessee would be filing ST3 returns, IT returns, VAT returns, Entry Tax and Profession Tax returns, Annual Returns with RoC, and perhaps similar returns under Labour laws.

Now to this list of returns of doubtful utility will be added returns to be filed under the proposed section 15A of the Central Excise Act, 1944. This provision enjoins diverse kind of entities and Authorities to file “prescribed returns, in prescribed form, at intervals as may be prescribed”. Since the provision is yet to be come law, and the prescribing rules are yet to be framed, we do not yet know the shape of this new beast in the jungle of Central Excise forms. For good measure, this provision has been extended to Service Tax law also through section 83 of the Finance Act, 1994.

As usual, the assessee tops this long list of persons who have to file this return. The list spares none. Amazingly, it includes State VAT authorities, Income Tax Authorities, Registrar of Companies, Registrars under the Registration Act, 1908, stock exchanges, depositories, Collectors acting under Land Acquisition law, Banks, Escoms, Road Transport Authorities. Even the Reserve Bank of India has not been spared. All these authorities are required to file returns in prescribed form or electronically. If the prescribed authority points out errors in their returns, these entities are required to rectify the error within thirty days, failing which there is a per diem penalty of Rs.100.

There is a comparable provision proposed to be inserted in the Income Tax Act, 1961 as section 285BA. This is more forthright in betraying the true intention. The list of entities required to file returns is slightly different and includes public bodies, local authorities and for good measure the Post Master General too! This provision does not speak of filing returns, but submitting of statements to the Income Tax Authority, or prescribed authority or Agency, regarding any specified financial transactions or reportable account. These specified financial transactions among other things include buying and selling of property and goods , lending and depositing, transactions of works contracts or rendering of any service, investment made or expenditure incurred, to name a few. Interestingly, while the IT authority receives such reports from other authorities under section 285BA, he himself is required to file returns under section 15A of the Central Excise Act, 1944. What is somewhat alarming is that under section 285BA, the floor limit fixed for reporting the transactions is Rs.50,000 (“value or aggregate value of the transactions” – second proviso to sub-section (3) of section 285). This means that the Government really wants to monitor huge number of transactions. At the present level of economic activity, this floor limit is too low to spare anyone who has a halfway decent income.

I assume that even under section 15A, there will be some kind of cut off limit based on pecuniary factor, or size of the entity, or whatever other basis. Even then, how many thousands of entities would be required to file the returns? Think of the number of banks in India, number of Escoms, number of States and their respective VAT authorities, RTAs, RoCs, Stock Exchanges, not to speak of number of Income Tax Authorities, Depositories, number of assessees. Though we do not yet know the complexity of this return, frequency of its filing, one may rest assured that the resultant number of returns filed at the end of prescribed period would be few thousand. Evidently, the purpose is to correlate assessee's business transactions with power consumption, banking transactions, income tax liability, VAT liability, properties invested in or disposed of, stock market transactions. Is the Central Excise department really equipped to scrutinize and correctly understand this diverse data? One despairs at the amount of misconstruction that the scrutinizing officers would indulge in, and baseless cases that might be foisted on the unsuspecting assessees. The possibility of misuse of this data for “negotiation and settlement with commission” cannot be ruled out. Who is going to watch the watchdog?

After Edward Snowden's episode, we know that all the government, including the Government of India, are nosy and are immensely curious to know what their citizens are upto. It is quite possible that these returns might be used for other unspecified purpose, though the Notes on Clauses says that it is for detection of tax evaders. Since this provision extends to service tax also, many individual service providers might be snared in this maze of returns. How can one be certain that one's privacy is respected and will not be compromised. How can anyone be certain that the financial data will not fall into the hands of blackmailers? Our experience with Indian bureaucracy hasn't changed for better so much that they can be trusted with our personal financial data.

As citizens, we have a right to demand an explanation from the Government on this creepy provision. Citizens and Trade Bodies have to wake up to this seemingly innocuous provision and represent to the government, before the Finance (No.2) Bill 2014 becomes Act.