MARCH 25, 2020

By Vijay Kumar

WE in the tax field often witness challenge to the vires of a statute - legislated or delegated. 'Vires' is pronounced something like virus. In a High Court, there used to be doubts whether the writ petition challenging the vires of a tax statute should be before the tax bench or the first court of the Chief Justice. Once when a case came up before the tax bench, the judge asked the counsel whether he was challenging the vires of the Act also. If so, it should go to the First Court. He said, "virus should go there; I deal with bacteria."

This is the time to attack the virus, not the tax. Our High Courts have taken cognizance of the corona.

The Kerala High Court observed, - 2020-TIOL-627-HC-KERALA-MISC

The entire world is facing the threat of CORONA virus named by World Health Organization as Covid-19 and pandemic.

In all the High Courts, including this High Court, decision has been taken leaving open to the Judges to reduce the number of cases in order to prevent further spread of the aforementioned disease. But I found that handling of the files by the High Court staff as well as the Advocate General staff is done without proper precautions, as they are handled with bare hands instead of using protective measures like gloves etc.

I am of the view that this present scenario of outburst of deadly corona virus is very precarious and sensitive, as the lawyers and the staff rendering assistance to this Court and the Judges are vulnerable, thus in order to prevent such rampant spread by taking preventive measures, I deem it appropriate to issue general directions to the departments concerned like the banks, financial institutions, Income tax authorities, authorities dealing with the erstwhile KVAT, GST, recovery of tax on motor vehicles and building tax to defer the recovery proceedings or coercive measures till 06.04.2020.

In matters pertaining to seizure and detention of goods and vehicles under the provisions of Section 129 of the GST Act, 2017, many affected parties have been approaching this Court challenging the jurisdiction of the adjudicating authority for one reason or the other. Since the goods are to be released by furnishing Bank Guarantee including the penalty and the interest, if the party so desire, they can always move an application for release of the goods by furnishing Bank Guarantees which shall not be encashed even if the adjudication proceedings are culminated such time the period specified for filing appeal under Section 107 has not lapsed.

The Allahabad High Court observed, - 2020-TIOL-614-HC-ALL-MISC

Due to serious threat presently to the society in the country due to pandemic disease of Corona Virus(COVID-19), it has become necessary to issue directions to the State Government to issue necessary circulars/directives to the various authorities including the District Magistrates of every district of the State and other Government Agencies and authorities not to take coercive measures or any exercise against any individual or body of individuals which may force them to approach the Courts for legal remedies and also to avoid any public gathering pursuant to any such proceedings like auction etc. It has become necessary in the interest of public at large and in the face of the fact that the disease is quite fatal one and may result in its third stage at any time in the country. If still we remain oblivious to the fatal effect of the COVID-19, it would result into a panic situation in the society as while people should be more concerned of health issues will be unnecessarily forced to face litigation in the Courts.

We cannot remain oblivious of the impending threat of fatal consequences of COVID-19.

Today, there is an extraordinary situation in the country due to pandemic Corona Virus and therefore, it calls for an extraordinary measure to be taken to contain COVID-19. It is a situation where 'self quarantine' should be encouraged amongst people in the society in particular and the country in general.

Accordingly in our considered opinion all the concerned competent authorities both administrative and non-administrative under the State Government be issued directions restraining them from taking any coercive measures against any person or body of persons in the society so as to force him/them to approach the Court for the redressal of grievance

The Government was obviously not very happy and approached the Supreme Court with an SLP on the grounds that:

- The High Court has exceeded its jurisdiction in giving broad omnibus directions to defer recovery proceedings by various tax authorities of Central and State Governments as well as by banks till 06.04.2020, on account of the Coronavirus outbreak.

- The High Court has encroached upon purely executive functions and policy decision making which should be best left to the executive who are being advised by experts in the field.

- The order of the High Court will incentivise people to postpone their payment of taxes by effectively deferring the consequences of non-payment of taxes to 06.04.2020 - as a result of which the government may not get its taxes and revenue in time and thereby may face severe cash flow and liquidity crisis and cash crunch and consequently the Government may find extremely difficult to run even its basic maintenance and development activities and pay salary to its crores of employees, pensioners, wage earners including armed forces, police, and health workers.

- The impugned order fails to consider that that even those who are financially capable to pay taxes in time would also wait till 06.04.2020 because the consequences of late payment such as late fee, penalty, interest, etc. have been deferred and it has been the common experience that that almost 90% of the taxes get paid only on the last date or one or two days before the last date.

- The impugned order of the High Court will incentivize people to either delay payment of taxes or not pay any taxes at all which fall due, without facing any consequences in light of directions to defer recovery proceedings and it would lead to a devastating consequences for the country's financial system wherein even those who are able to pay and are not affected by Corona Virus will not comply with their obligations under the various laws to file returns or pay taxes in time, secure in the knowledge that all recovery proceedings have been deferred.

- The impugned directions of the High Court will severely impact the monthly revenue collections of the Government of India which are to the tune of 2 lakh crores without considering the fact that the Government has to balance various factors including meeting its monthly expenditure commitments for the various governmental functions and dealing with the situation out of the Corona Virus pandemic.

- The High Court has failed to consider that the Government is fully committed to use all its resources at its command to deal with the situation arising out of the Corona Virus pandemic and it is taking pro-active precautions and measures from time-to-time and has also been praised by the World Health Organization for its response.

- The High Court has failed to consider that most of the taxes which are required to be paid and compliances which are required to be made are made online without human-to-human contact and there is no legal basis or rationale behind the broad and omnibus direction to defer all recovery proceedings till 06.04.2020.

- The High Court has failed to consider that Governments require taxes to collect revenue to provide services to the citizenry and that process cannot be arbitrarily halted by giving omnibus directions to defer recovery proceedings in all cases.

- The order passed by the Hon'ble High Court is in violation of the doctrine of separation of powers in as much as it encroaches upon the functions of the Executive and is opposed to the basic framework of the Constitution of India.

- The High Court has exceeded its jurisdiction and encroached upon the powers of the Government of India to take policy decisions.

- The Court has lost sight of the basic fact the Government would require funds which it collects through revenue, which cannot be deferred by an ipse dixit of the Court.

- The order passed by the High Court suffers from grave violation of principles of justice inasmuch as broad omnibus directions have been passed against various Central Government tax authorities without hearing or issuing notice to the Union of India.

- The High Court could not have taken it upon itself to pass directions to contain the outbreak of Coronavirus.

The Government cited the Supreme Court Judgement in CCE v. Dunlop India Ltd - 2002-TIOL-156-SC-CX-LB:

Liquid cash is necessary for the running of a Government as indeed any other enterprise. We consider that where matters of public revenue are concerned, it is of utmost importance to realise that interim orders ought not to be granted merely because a prima facie case has been shown.

The Government felt it had a good prima facie case on merits and the balance of convenience in its favour and submitted that irreparable loss and injury would be occasioned if an ad-interim ex parte stay is not granted.

The Supreme Court obliged and observed in - 2020-TIOL-76-SC-MISC-LB

The Registry is directed to accept these special leave petitions against the judgment and order(s) passed by the High Court of Judicature at Kerala, Ernakulam Bench in Writ Petition (Civil) No.8231/2020 - 2020-TIOL-627-HC-KERALA-MISC  and of the High Court of Judicature at Allahabad, Allahabad Bench in Writ Petition (Civil) No.7014/2020 - 2020-TIOL-614-HC-ALL-MISC.

Permission to file special leave petitions is granted.

Issue notice.

In the meantime, there shall be ex-parte ad-interim stay of the impugned judgment and order(s) passed in the aforesaid writ petitions and of further proceedings before the High Court(s), in view of the stand taken by the Government of India through learned Solicitor General, before us, that the Government is fully conscious of the prevailing situation and would itself evolve a proper mechanism to assuage concerns and hardships of every one.

And as promised in the Supreme Court, the government came out with several helping measures yesterday.

The Kerala High Court order was delivered on 19.03.2020 and the Allahabad High Court was on 18.03.2020. The Supreme Court interim order is dated 20.03.2020. Who says our legal system is slow?

Yes, the government needs money - even to fight Covid-19. This is not the time to find fault with the government. Let us stand with the government - we can have all our disputes and litigation later.

More than fifty years ago, when there was a food crisis, the then Prime Minister Lal Bahadur Shastri made an appeal to the people to miss a meal in a week and the whole country wholeheartedly supported him and it is a habit with many even now.

Government needs money; let's all help. Let's all stay put at home and pay some advance tax/donation to the PMNRF if possible.

Illegal Attachment of Bank Account - Cost Awarded:

Government needs money, but not this way. I cannot resist the temptation of closing this week without this extract from a recent judgement of the Calcutta High Court - 2020-TIOL-633-HC-KOL-GST.

Issue : Whether an order passed under Section 83 of the CGST Act, 2017, remains valid after the expiry of one year from the date of the order?

Answer: The actions of the respondent authorities in continuing with the provisional attachment beyond the period of one year and without informing the bank that the provisional attachment seizes to operate after a period of one year is an act that is reprehensible and absolutely contrary to law. Such an arbitrary action has clearly resulted in violation of the petitioners' rights for carrying on business under Article 19(1) of the Constitution of India and under Article 300A of the Constitution of India wherein the petitioners have been deprived of their property without authority of law. Accordingly, the issue is answered in favour of the petitioners and the respondent authorities are directed to pay costs of Rs. 5 lakhs to each of the three petitioners. This amount should be deposited in the current accounts that have provisionally attached within a period of four weeks from date.

Be careful - stay at home

Until next week