JUNE 04, 2019

By Dr G Gokul Kishore

AS full-fledged adjudication or appellate mechanism or body apparently is not in place yet, taxpayers are compelled to invoke writ remedy frequently. Knocking the doors of Constitutional Courts on questions of law is understandable but approaching such Courts for remedy in routine issues like refund speaks volumes about inertia of tax administration despite GST being considered as a giant leap forward. Interference in exercise of quasi-judicial powers (like consideration of refund claim) by administrative authorities further aggravates the pain of taxpayers. We look at this issue in this 40th part through the prism of a recent order of Delhi High Court.

Time-limit to decide refund claims - Salutary but ineffective

GST is a generation next tax reform. Everything is professed to be online. Submission of applications and claims in paper form is to be detested. However, preparing an electronic system to handle numerous functionalities as per new law for use by millions is a challenging task and is a work in progress. Realizing the realities, Rule 97A was inserted in CGST Rules on 15-11-2017 to deem electronic filing of application, intimation, declaration, etc., as including manual filing of such forms. Electronic refund module being non-functional, CBIC issued circular on 15-11-2017 which required claimants to file print-outs of online application, ARN, etc., along with supporting evidences in physical form. Later it was clarified by another circular on 31-12-2018 that all the documents need not be submitted physically but to be uploaded online.

Section 54(7) of CGST Act requires the department to issue refund order within 60 days from the date of receipt of application. However, this sub-section further adds the words 'complete in all respects' after the word 'application'. A salutary provision like statutory time-limit compelling the department to decide a refund claim within 60 days stands diluted by providing discretion to the officers to sit on the application without taking decision on the ground that the application is not complete in 'all respects'. Coupled with online glitches and departmental officers themselves not being fully aware of the new procedures, delay in sanctioning refund has become a routine affair. As delay is not something new to a government department, taxpayers generally do not expect refund claims to be sanctioned immediately but when the same gets inordinately delayed, they have no option but to seek judicial remedy.

Delhi High Court expresses dismay over delay

In one of the recent cases, Delhi High Court had, in January 2019, permitted the petitioners to file manual refund application. Refund was rejected by the department in respect of one of the petitioners on the ground that the application was not filed through electronic mode or through Facilitation Centre. Such rejection was despite the fact that Rule 97A deeming manual filing of application as electronic filing was inserted in CGST Rules as early as 15-11-2017 and the High Court had permitted manual filing. No order was passed on such refund claims and the Court was informed that Refund Approval Committee (RAC) had been constituted for considering high value refund claims and such Committee would meet shortly. The ordeal of the claimant continued as the RAC did not decide due to various reasons which are mainly administrative in nature but indirectly exhibited lack of seriousness of the tax administration in executing a statutory duty of passing orders on refund claims.

The High Court was dismayed at the tactics of the department and issued notices to high-ranking bureaucrats who were part of the RAC asking them to explain why action should not be taken against them for wilful disobedience of Court's orders GSI Products v. UOI, Order dated 21-5-2019 - 2019-TIOL-1139-HC-DEL-GST. The Court said "In matters of refund, despite numerous orders by this Court over the years, the statutory provisions have been observed invariably in the breach, and very often the Court is faced with the situation as explained in this order. It appears that the constitution of the RAC has, instead of improving compliance, made matters worse." Subsequently, the officers presented themselves before the High Court and the Court was informed that refund orders have been issued. It was further assured that RAC would be disbanded. The specific issue of State tax component alone being refunded and CGST portion not being refunded was also highlighted [Order dated 29-5-2019, Delhi High Court - 2019-TIOL-1158-HC-DEL-GST.

Interference in quasi-judicial functions

The fact of constituting and convening a committee like RAC for considering refund claims speaks volumes about the inability of tax administration to differentiate between various jurisdictions or capacities when a departmental officer is vested with quasi-judicial powers to determine rights and liabilities of taxpayers. When the officer executes adjudication or appellate function, he is not an executive officer having administrative jurisdiction in respect of such function. The mix-up of two jurisdictions or capacities has been an age-old practice as refund claims in Central Excise and Service Tax used to be pre-audited by the Commissioner before sanction or otherwise by the sanctioning authority (Asst. / Deputy Commissioner) who was required to hear the party, consider the application/claim judiciously and pass orders. Such practice of pre-audit of refund claims was disapproved by the judiciary and the relevant departmental instruction was struck down Rewa Gases Pvt. Ltd. v. Asst. Collector - 2003-TIOL-105-HC-MP-CX [See also this author's paper 'Independence and prismatic factors in quasi-judicial sphere of Union revenue administration - A study' - The Indian Journal of Political Science, Vol. LXVII, No. 3, July-Sept. 2006].

Though the department has undertaken to disband such Committee in the case mentioned in the earlier part of this article, it is likely that procedures like pre-audit are still prevalent. Executive Commissioners have no authority to interfere with the process of consideration of refund claim under Section 54 by the proper officer. This is purely a quasi-judicial function requiring the officer to observe principles of natural justice, consider the evidence and pass appropriate orders. The sanctioning authority dons the attire of a judge and the officers above such authority in the executive hierarchy have absolutely no role to play in such process and any interference by them does not have statutory sanction. GST may be new but the practices of tax administration hardly change. Only when they change and bureaucracy becomes more mature and nuanced, taxpayers' experience will change. This cannot happen in the second year of GST. We retain our hope for a change in the years to come.

(…To be continued)

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

See Part 39