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Reason and Order

DECEMBER 02, 2020

By Vijay Kumar

Rs. 50 Crore personal penalty 20 years ago

Let me bring to your notice a few recent cases, to appreciate the way, the Revenue works.

In Thought Blurb Vs Union Of India And Ors - 2020-TIOL-1813-HC-MUM-ST, in a case pertaining to Sabka Vishwas Scheme, the Bombay High Court observed, on October 27, 2020

The approach should be to ensure that the scheme is successful and therefore, a liberal view embedded with the principles of natural justice is called for.

A month later on 26th November 2020, the same Bench observed, in G R PALLE ELECTRICALS Vs UNION OF INDIA AND OTHERS - 2020-TIOL-2031-HC-MUM-ST,

the scheme is a beneficial one with the prime object of unloading the baggage of pending litigations centering around service tax and excise duty. The focus is to unload this baggage of pre-GST regime and thereby allowing business to move ahead but at the same time to also ensure that the administrative machinery can focus fully in the smooth implementation of GST. This is the broad picture which should be kept in mind while considering a declaration seeking amnesty under the scheme. Therefore, a liberal view embedded with the principles of natural justice is called for. The approach should be to ensure that the scheme is successful.

Were the officers of the Department ensuring that the Scheme did not succeed?

In a recent judgement - 2020-TIOL-2051-HC-AP-GST, the Andhra Pradesh High Court observed,

It should be made clear that the orders of Public Servants some of whom are quasi judicial authorities, which have the far reaching effect on the life, liberty, property and welfare of the public must be based on cogent reasons. The reason is the live nerve of an order. While interpreting the Tax Statutes and applying to the facts and holding that the provisions thereof are violated, the authorities must give cogent reasons. Unfortunately, in the instant case, the reasons, are a casualty.

Why is it that highly qualified adjudicators fail to pass orders with reasons? Has reason fled?

The Telangana High Court recently observed in 2020-TIOL-2049-HC-TELANGANA-GST, (November 11, 2020)

It is important to keep in mind that CGST  Act, 2017 /Telangana GST  Act, 2017  are very recent laws and the common businessman is admittedly having difficulty to understand these enactments and the procedures they have introduced.

Also interpretation of taxing statutes should be done in a way to facilitate business and inter-State trading, and not in a perverse manner which would result in impediment of the same by harassing business persons.

Why is it that taxmen don't realise that their existence depends on the success of business - maybe they are assured of their jobs, even if they kill the geese.

In 2020-TIOL-2013-HC-MP-GST dated November 19, 2020, grievance of the petitioner is that while raising the demand of tax vide summary of order dated 18.09.2020, the foundational show cause notice/orders, was never communicated to the petitioner who is an individual registered under GST Act.

State has filed reply on 11.11.2020 disclosing that show-cause notice/orders was communicated to petitioner on his E-mail address and despite receiving the same the petitioner failed to file any response.

The High Court observed,

A bare perusal of the provision reveals that the only mode prescribed for communicating the show-cause notice/order is by way of uploading the same on website of the revenue.

The State in its reply has provided no material to show that show-cause notice/orders No.11 and 11a dated 10.06.2020 were uploaded on website of revenue. In fact, learned AAG, fairly concedes that the show-cause notice/orders were communicated to petitioner by E-mail and were not uploaded on website of the revenue.

It is trite principle of law that when a particular procedure is prescribed to perform a particular act then all other procedures/modes except the one prescribed are excluded. This principle becomes all the more stringent when statutorily prescribed as is the case herein.

When they are asked to do a job in a particular way, why can't they do it? Is it because they are safe?

This is not exactly a new phenomenon unique to the GST era. I will take you to a case that happened more than twenty years ago. Here are the details of this interesting story.

A show cause notice dated 14-10-1998 was issued to Shri Z.U. Alvi, Dy. General Manager (E & T) of BHEL requiring him to show cause why personal penalty to the extend permissible under Rule 209A of Central Excise Rules, 1944 should not be imposed on him. He submitted his objections to the notice. After overruling all his contentions, Commissioner, by Order-in-Original No. 10/CEX/COMMR./99, dated 31-3-1999 imposed a personal penalty of Rs. 50 Crores (Fifty Crores) under Rule 209A of the Rules. 

Can you imagine a personal penalty of Rs. 50 Crores on a PSU employee, twenty one years ago? The Commissioner had his reasons. Read them.

"As per Rule 209A of the Rules, the maximum penalty permissible is three times the value of such goods or five thousand rupees, whichever is greater. In the instant case the value of goods involved in the ten show cause notices referred to above is Rs. 22.67 Crores and so the maximum penalty that could be imposed on Shri Alvi in this case is Rs. 68 Crores. I know that a person working in a Public Sector Undertaking cannot afford to pay a huge amount of penalty, even then I am compelled to impose here a greater amount of penalty so that the law of the land may not be faulted by anybody in such a blatant manner as has been done by Shri Z.U. Alvi and be it known to the concerned authorities that it is their duty to follow the law of the land sincerely and need not follow the duty evasion/avoidance/deferrement modus operandies of this type."

What would have happened if he had to make a pre-deposit while filing an appeal against this order? Anyway, they were good olden days and he could reach to the Tribunal without a pre-deposit.

The Tribunal observed, - 2002-TIOL-281-CESTAT-DEL

This is a classic instance to show how an Officer entrusted with a quasi-judicial function can become crazy and cause untold miseries in blatant violation of law with no regards for the rule of law. According to us if such an Officer is entrusted with quasi-judicial duties, he will resort to arbitrary exercise of power which will compel the victims to approach higher tribunals for extricating them from the illegal orders. The predicament of such an Officer is quite evident from the fate of the appellant before us. This case on hand is a classic example of the vagaries of a Government servant who can misuse his powers. The Officer acted in an arbitrary and illegal manner in exercise of his so-called judicial powers.

We do not find any semblance of support even from any legal provision warranting the conclusion that has been arrived at by the Commissioner in the impugned order. Ld. DR could not place reliance on any provision of law in his attempt to justify the action of the Commissioner. We have no hesitation, therefore, in quashing the order under challenge.

Appeal is allowed. The impugned order is set aside in its entirety. A copy of this order will be sent to the Secretary (Finance), holding charge of Department of Revenue so that he may understand how his subordinates at the field are enforcing the law. A copy of this order will also be sent to the concerned Commissioner wherever he is posted.

You know what happened to the Commissioner? He got promoted as Chief Commissioner.

In a judgement delivered yesterday in Civil Appeal Nos. 3860-3862 of 2020, the Supreme Court observed,

The state must discard the colonial notion that it is a sovereign handing out doles at its will. In all its actions, the State is bound to act fairly, in a transparent manner. This is an elementary requirement of the guarantee against arbitrary state action which Article 14 of the Constitution adopts. A deprivation of the entitlement of private citizens and private business must be proportional to a requirement grounded in public interest. This conception of state power has been recognized by this Court in a consistent line of decisions.

Yesterday, the Madras High Court observed,

"There cannot be any Mandamus to Parliament or Legislature to enact a law or to make amendment of a statute", is the settled position of law. It is based on the principle enunciated in the Constitution that there should be a separation of powers between the three wings of the State, namely, Executive, Legislature and Judiciary. However, the response shown by the other Wings to the suggestions made by judiciary regarding the important issues for enactment of suitable laws pointing out the absence of law as on date or the necessity to make new laws or to amend the existing Acts, is not positive and the suggestions made by the constitutional Courts are not considered by the legislatures very seriously and acted upon.

The history would tell that the suggestions given by the Honourable Supreme Court and various High Courts have been consistently ignored by the respective Governments. It seems that the orders giving suggestions to the respective Governments, either are not properly considered or not properly brought to the notice of the policy makers, so that, the decision could be taken for enactment of law as pointed out by the Courts. It seems that there is no proper Wing in every Department of the Government to note the suggestions/directions given by the Courts and bring them to the notice of the policy makers. Therefore, there is a necessity to have such a Wing in every Department.

Considering the facts and circumstances of the case, the High Court raised the following queries:

(a) In how many judgments, the Constitutional Courts have recommended for enactment of new laws or amendments of the existing Acts, so far?

(b) How many orders have been acted upon and suitable Acts/Rules and amendments to the existing Acts, have been done so far and what are all the new Acts/Rules and the amendments made so far?

(c) How many judgments are being acted upon and suitable Acts/Amendments are in the process of enactment?

(d) When will the Parliament will bring a comprehensive suitable legislation in the field of 'Torts and State Liability' for violation of fundamental rights of the citizens at the hands of the State and its officials?

(e) Whether the Central and State Governments are having appropriate Wings to note down the judgments/orders of the Constitutional Courts, wherein suggestions for enacting new Acts or amendments have been enacted/proposed or recommended?

(f) If there is no such Wing, when such Wing will be established to bring those suggestions to the higher-ups or policy makers to act upon suggestions given by Courts?

(g) When does the Central Government appoint Chairman and Members of 22nd Law Commission of India?

The Court wants the Government to answer these questions in ten days.

Hope for the best.

Until next week


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Sub: I Reign Supreme mindset

We keep hearing top brass of CBIC talking about facilitating ease of doing business, not to speak of sundry ministers speaking about it. But, the authorities down the line in the tax departments make it impossible to do business. Recently, an adjudication case involving demand of service tax on works contract has been transferred from Mysore Commissionerate to, bleieve it or not, Additional DGGST in Mumbai! For what justifiable reason, is anybody's guess. Why should an assessee in Mysuru be forced to litigate at Mumbai incurring extra cost? A letter requesting retention of file at Mysuru elicits no response, though CBIC citizens charter makes pious promises of responding to acknowledging every letter and acting upon them.

Posted by Gururaj B N