SEPTEMBER 09, 2020

By Dr G Gokul Kishore

THE issue of compensation to States in the backdrop of compensation cess collections being inadequate is the topic of the day. In this series, because attempt to set the agenda is undertaken, in Part 83 ("Compensation to States - Borrowing to bridge the gap" published on 17 June, 2020), option of market borrowing, extension of cess levy for period beyond five years and force majeure including connected matters as discussed in GST Council's 8 th meeting in January, 2017 were analysed. The divergence in opinion has now shifted from whether to borrow to who should borrow and the issue has taken political colours. Moving away from this issue, in this 87 th part, use of extreme powers on a routine basis and in a casual manner is highlighted.

Ease of doing business through detention drama

CGST Act and SGST Acts contain provisions like search of premises and conveyances, detention, seizure, provisional attachment and confiscation of goods and vehicles and arrest and prosecution of persons for indulging in practices leading to evasion of tax. Exercise of these powers has the capacity to cause great prejudice to the persons involved and their operations to the extent of temporarily closing down their business besides curtailing the Constitutionally guaranteed fundamental rights of freedom of movement and practice of business / profession. Because these powers deprive such basic rights of the individuals, tax officers are not permitted to use them routinely and in every case of minor infraction or procedural mistake. But the instances of use of these powers continue to gallop and the CBIC / State Commissioners are hardly seen admonishing their officers when they go berserk.

One of the most reported categories of misuse of such powers pertains to detention and seizure of goods and vehicles for e-way bill related mistakes. In one such recent case [Shri Venkateshvara Logistics Fleet Owners v. Asst. Commissioner - 2020-TIOL-1400-HC-KAR-GST, the lorry and goods were detained as there was a mix-up of e-way bill and invoice i.e. the driver had e-way bill of a different vehicle and invoice pertaining to goods carried in the other vehicle. The taxpayer produced the correct documents, offered sufficient explanation as to the confusion over handing over unrelated documents to the driver and both tax and penalty were paid. The officers were not satisfied and the same lorry and goods were once again detained on the ground that certain investigations were being undertaken against such taxpayer and there was some suspicion over his transactions being bogus. Though the Karnataka High Court granted relief to the taxpayer after holding that necessary authorization for inspection and search was absent, the case is a classic manifestation of exercise of extreme powers in a very casual and indifferent manner.

The tax authorities in Kerala are not behind their counterparts in Karnataka. Even an empty vehicle i.e. vehicle without any goods was detained for the reason that there were no goods on return trip whereas when the vehicle was intercepted by the officers in the onward trip, it was laden with goods. The goods were to be auctioned but could not be so auctioned on the same day and were deposited in the auction centre. But this does not empower the officers to entertain monstrous suspicion of huge evasion warranting detention of the empty vehicle. Though the vehicle was ordered to be released by the High Court [Jeelani v. Asst. State Tax Officer -  2020-TIOL-1278-HC-KERALA-GST], such cases reflect poorly on the domain knowledge or capacity of the field officers tasked with implementation of GST.  

One need not have any notion that only small taxpayers are 'assisted' in doing business by such detention by the department. Even big companies are at the mercy of the authorities literally on the road as the case before Gujarat High Court reveals [Colgate Palmolive India Ltd. v. State of Gujarat - 2020-TIOL-1032-HC-AHM-GST]. When the company was undertaking inter-State routine movement of raw materials, goods were detained en route, on the ground that e-way bill carried a delivery address different from the one mentioned in other documents. After submitting to onerous conditions of the department, the taxpayer obtained reprieve. A company's tax compliance history, turnover, routine nature of movement, etc., become irrelevant before a tax officer on the road when there is a discrepancy in documents.

Field formations were instructed to refrain from invoking such powers as Section 129 of CGST Act by the CBIC by Circular No. 64/38/2018-GST dated 14-9-2018 for minor infractions in e-way bill. But these instructions are generally observed more in breach.

Facilitating taxpayers through provisional attachment

Issuance of summons to top management and promoters is routinely resorted to by both regular tax authorities and revenue intelligence agencies. While in a few cases, they may have given instructions on modus operandi relating to alleged evasion, in most cases, they are not involved in day-to-day routine business operations. However, by acts capable of casting stigma by searching both offices and residences, making them wait after summoning to offices for long hours, recording statements multiple times and detention / seizure of books, documents, goods, etc., the tax authorities who are not police officers, conduct themselves as such law enforcement agencies.

The promoter of a company was summoned by the department but he explained his inability to appear due to advanced age and Covid-19 related restrictions on movement of senior citizens. He had surgery and had been medically advised not to travel out of home. But, the officers opted to be ruthless. The taxpayer was directed to pay a huge amount as tax and the factory and residence were provisionally attached within a short period. Though the High Court provided some relief [Formative Tex Fab v. State of Gujarat - 2020-TIOL-1431-HC-AHM-GST], such cases evidence use of extreme powers of summoning persons, ordering provisional attachment, etc., without any circumspection or consideration of particular facts.

While the power to order provisional attachment of property including bank account has been provided under Section 83 of CGST Act, another startling instance of invoking such power and failure to remember any further action was brought before Allahabad High Court [Jackpot Exim Pvt. Ltd. v. UOI -  2020-TIOL-1505-HC-ALL-GST]. In this case, provisional attachment was ordered on 6-9-2019. On 24-12-2019, apparently the dispute over registration got settled with the department revoking cancellation of registration of the taxpayer. But from the date of provisional attachment of bank account, for almost one year, no tax demand was raised and such provisional attachment of bank account was not lifted, thus effectively 'facilitating' the taxpayer in his business. The Court had to intervene as the law provides for cessation of such attachment after one year.

Instructions to officers by the CBIC or State Commissioners, from time to time, are desirable so that they are reminded of the restraint required while contemplating exercise of such powers. However, numerous cases of misuse will call for appropriate protection of taxpayers' rights by way of sufficient safeguards in the statutory provisions. Such demand is certain to become more pronounced in future.

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