AUGUST 27, 2019

By Dr G Gokul Kishore

TWO terms have come to occupy centre stage in the tax arena because of certain unfortunate incidents. Tax terrorism involving certain excesses and overreach by tax administration are being discussed by all stake-holders. Finance Minister has stated that tax targets as set in Budget 2019 are achievable and there is no need for overreach by the bureaucracy. Change in tax has not meant change in methods, as GST administration shows. Let us try to validate this assertion in the backdrop of the title to this 52 nd part.

Doubt over ITC admissibility - Jurisdiction to compel spot payment?

Both under Central Excise as well as GST, tax administration has been vested with wide powers like issuance of summons to compel attendance of persons and production of documents, seizure of goods believed to have escaped duty / tax, eventual confiscation of such goods and also police powers like arrest. That a person's personal liberty can be curtailed to an extent by a tax officer is something which may surprise even those priding themselves with the democratic legacy of our country. It was not uncommon in the pre-GST regime to summon Chairman or Manging Director or such top-level officers of companies, make them wait for 7 or 8 hours in tax office and then interrogate them for 4-5 hours thus making them vulnerable to accepting the demand for payment of certain amounts on the spot. There cannot be an iota of doubt that economic offences are white-collar crimes and they have to be dealt with severely. But, such severity can only be through fair trial and cannot be triggered at the time of suspicion of non-payment of tax.

One would have thought that visiting assessee's premises based on ‘reasonable belief' that statutory provisions are being contravened (which, in itself, is very vague) and pressurising them to pay amounts towards tax liability which according to the tax department is payable, was part of pre-GST legacy. However, practices hardly change. In a recent case before Gujarat High Court, the taxpayer had to file writ petition seeking release of amount paid under coercion on the spot when officers visited their premises. The department entertained the view that certain input tax credit was not admissible and there was difference in stock. During the arguments, the petitioner pleaded that the department should initiate proper assessment (adjudication) which the Court accepted and directions to this effect were issued [Navkar Ispat Pvt. Ltd. v. State of Gujarat, 2019-TIOL-1892-HC-AHM-GST ].

Having an alternative view on admissibility of ITC is not a ground to pressurise the taxpayer to pay back the credit on the spot. A different view cannot confer jurisdiction to demand tax merely by visiting the premises of the taxpayer. The amount involved in the above case was around Rs.10 lakhs but the taxpayer had to rush to High Court. One may wonder as to the reason for moving the Court for such modest amount. It could be either the business was not doing well and the amount was substantial for the petitioner or the visiting officers did not treat the taxpayer properly. Such action of the department can be perceived as grossly disproportionate to the alleged commissions and omissions of the assessee. To seek reversal of ITC, statutory provisions exist for issuance of show cause notice. In the notice, not only tax but also interest and penalty can be proposed. Besides, personal penalty on directors or others can also be proposed. Despite having such powers, seeking an amount of Rs. 10 lakhs on the spot cannot be considered as a change in the methods of the tax administration in the GST regime.

Spot payment is a result of overreach

Payment of amounts towards tax at the time of visit by officers should be prohibited by the CBIC by way of unambiguous instructions. This practice has continued unabated under the pretext of being voluntary payment. No taxpayer would hazard to risk valuable time of their business whereby statements are recorded by the department, books are seized and long drawn process of investigations adversely impact their operations. No taxpayer would actually pay amounts voluntarily only because a few officers are of the view that tax is payable or credit is to be reversed. As per reports, department is commencing audit as per the provisions in CGST Act and rules based on annual returns being filed. Seeking payment of tax based on objections raised at the time of audit, rewarding the officers internally or benchmarking performance of officers in audit cell based on such spot recoveries or having target for such recoveries should cease. Instructions to be issued by CBIC should cover such issues as well. Having target for tax officers performing preventive or audit work is like having target for law enforcement machinery like police on crimes and consequently number of cases booked.

It is precisely that such interactions of tax administration with taxpayers that lead to what is uncharitably called tax terrorism. The anxiety to adopt various methods to achieve targets gets the colour of overreach by the officers. The spate of cases in High Court on detention of vehicles and seizure of both the vehicle and goods for errors in e-way bills needs to be arrested. Seizure of vehicles has a chilling effect on the industry - both the companies as well as the logistics partners. Transporters become reluctant to do business with particular companies which affect both. The cascading effect of overreach by the tax administration, particularly when the taxpayers are not large corporations, not only affects businesses but also economy in the longer run.

Striking a balance or having discretion

Till last month, incessant reports on revenue leakage dominated the media. The focus and debate have shifted to overreach now. Modus operandi like circular trading by raising invoices without actual movement of goods so as to enable availment of ineligible ITC and evasion of payment of tax even when the same is collected from recipients need to be appropriately dealt with. The same treatment should not be extended to e-way bill infractions and interpretation on ITC or valuation. The key to tax administration being simultaneously humane and strict lies in striking a balance or having discretion when different types of challenges are faced. GST Council may deliberate on this issue so that CBIC issues comprehensive instructions to immunize GST administration from the charges of not-so-kind terms used in the title of this part.

[…To be continued]

[The author is an Advocate. Views expressed are strictly personal.]

See : Part 51