FEBRUARY 18, 2019

By Dr G Gokul Kishore

TAX administration has been vested with police powers like compelling attendance by persons through process of summons and prosecution in court of law. It is expected that such powers are exercised with greater circumspection. The proposed amendment to CGST Act to provide for Advance Rulings Authority at the Central level needs to go the extra mile and be comprehensive. These two issues are discussed in this 25th part.

Centralized AAAR - Advancing the objectives

In the first part of this series, the requirement of a centralised advance ruling authority was discussed. This was in the context of divergent or contradictory stand taken in the same issue by the Authority for Advance Rulings in different States. GST treatment of solar power projects and jurisdiction to consider questions like whether a particular activity falls under intermediary service are two such issues. Recently, in the case of K Uttamlal Exports, (Ruling dated 23-10-2018, Maharashtra AAR - 2017-TIOL-37-AAR-GST, the AAR held that in respect of the query based on exports, it did not have jurisdiction.

GST Council, in the 31 st meeting held in December last year, has recommended amendment to CGST Act/SGST Acts to enable establishment of Centralized Appellate Authority for Advance Ruling. It is obvious that such authority will replace the existing appellate AARs in the States. Some brainstorming is essential as to whether such Centralized AAR, instead of being vested only with appellate jurisdiction, should have original jurisdiction. The first step in this direction will be to examine the desirability of conferring such original jurisdiction in respect of those questions like place of supply which are currently outside the ambit of AAR. These are not provided for in Section 97(2) of CGST Act as the AARs and AAARs are, at present, State-level authorities and they could not have been asked to pronounce rulings on issues which are inter-State or exports in nature.

One further step in amendments can be providing for negative list of issues on which advance ruling will not be available instead of having a limited exhaustive list consisting questions like classification, valuation and ITC in the above-mentioned provision. This can be on the lines of Section 35B of Central Excise Act whereby jurisdiction of CESTAT has been excluded in respect of issues like export rebate. Barring the issues excluded expressly, AAR under GST should have the power to admit applications and issue rulings on all other questions referred to it.

AAR is a mechanism, meant for providing certainty to business on various issues. Exclusion of important questions like nature of supply as to inter-State or otherwise and exports does not advance the objective of establishing such body. Questions may arise as to possible overlap of AAR's functioning with that of regular tax administration engaged in assessment and adjudication. Bar on admission of application involving question/issue which is pending in any proceeding under any other provision of GST law and similar provisions should be able to reconcile such overlap.

Let second and third years of GST be used for fundamental analysis of the objectives, jurisdiction, overlap and other factors which may enable establishment of a robust AAR at the Central level.

Prosecution under GST law - Arresting tax evasion

Press is full of reports on GST evasion these days. Arrest of key personnel and department being successful in countering bail pleas are being regularly reported. The most common charge or modus operandi is issuance of invoices without supply of goods to confer undue ITC benefit. One cannot have a shred of hesitation as to punishing in harshest terms where design to defraud the exchequer is staged by unscrupulous elements.

Power to launch prosecution in court of law as provided in Section 132 of CGST Act is an exceptional power as it commences with curtailment of personal liberty when arrest takes place. Section 132 includes non-payment of amount collected as tax for more than three months as one of the offences for which criminal prosecution can be launched. These are open-ended provisions without even having the requirement of mala fide or intent to evade. The threshold for launching prosecution is kept at Rs. 1 crore and the maximum punishment is imprisonment for five years with fine. Most of the offences involving tax evasion of more than Rs. 5 crore are cognizable and non-bailable. The former empowers the officers to arrest without warrant and the latter denotes bail to be obtained only from the court.

Economic offences are white-collared crimes but drawing the line between non-payment of tax and deliberate arrangement to evade payment of tax falls within the subjective realm of tax administration. Economic interest of the nation is supreme but the vast powers of prosecution involving subjective decisions and prima facie evidence at investigation stage need to be exercised with great circumspection. In Customs, CBIC used to issue guidelines on launching prosecution but the same are absent insofar as prosecution under CGST Act is concerned. Such detailed/ unambiguous instructions to field formations will provide guidance not only to officers at the ground level but also to the revenue investigating agencies within CBIC. Judicious and responsible use of powers to initiate precipitative action will guarantee both economic and individual freedom. It is time that CBIC issues instructions before the actions in this regard, though well-intentioned, are seen as vindictive and iron-handed to instil fear psychosis among the industry.

(To be continued)

[The author is an Advocate and Joint Partner, Lakshmikumaran & Sridharan, New Delhi. The views expressed are personal.]

See Part XXIV