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GST on bribe?

APRIL 12, 2023

By Vijay Kumar

LAST week it was in many newspapers that a GST Superintendent was arrested in Surat for a fake raid. While the raid was fake, not all the raiders were fake; at least one of them was real and a working GST Superintendent. The Indian Express reported:

Police on Friday arrested Superintendent of GST Surat, his driver and one more person for allegedly extorting Rs. 12 lakh from a textile trader. According to police, the trio went to a textile shop in Varachhaa on March 30 and threatened the shop owner that they have a warrant against him for tax evasion.

Police said that the GST Superintendent and the two others told the trader that he has to pay 12 per cent tax on the total sales, which is around Rs 80 lakh.  They also threatened to seal the shop, if he did not pay the tax amount.

The owner bargained with officials to get the matter settled. The three accused agreed on Rs 45 lakh as a settlement amount. The traders then paid them Rs 12 lakh and told them that he will pay the remaining amount soon.

While reading this news, I was wondering whether the Superintendent is liable to pay GST on the bribe amount received from the trader? What GST on bribe? Can you tax illegal activities? If you can't, do you allow people who earn money illegally to keep the booty?

Let me take you to a sensational case in the year 1993:

A chargesheet was filed against Mr. PV Narasimha Rao and some others (Members of Parliament and others) under section 120B IPC and sections 7, 12, 13(2) read with section 13(1)(d)(iii) of the Prevention of Corruption Act, 1988. The substance of the charge was that PV Narasimha Rao and some others entered into a criminal conspiracy to bribe certain other accused (JMM Members of Parliament), to induce them to vote against the motion of no confidence in Lok Sabha. Both the bribe givers and bribe takers were charge sheeted. A preliminary objection was raised on behalf of the accused before the special judge contending that the jurisdiction of the court to try the accused for the aforementioned offences was barred by clause (2) of Article 105 of the Constitution inasmuch as the charges and the prospective trial is in respect of matters which relate to the privileges and immunities of the Members of Parliament. The special judge held that members of Parliament are holding a public office and accepting illegal gratification for exercising their franchise in a particular manner is an offence punishable under the P.C. Act.

The matter was then taken to the Delhi High Court which agreed with the special judge and dismissed the revision petitions. The matter reached the Supreme Court. A five-judge Constitution Bench held.

that a Member of Parliament is a ‘public servant' within the meaning of the Prevention of Corruption Act and that while bribe-givers (who are Members of Parliament) cannot invoke the immunity conferred by clause (2) of Article 105, the bribe-takers (Members of Parliament) can invoke that immunity if they have actually spoken or voted in the House pursuant to the bribe taken by them; if however a Member of Parliament takes a bribe for speaking or voting in the House in a particular manner but does not so speak or vote, the immunity cannot be invoked by him.

Thus, the bribe takers were free. But then can they keep the money they took? And should they pay income tax on that money? The ITAT held that the money cannot be added to their incomes, but the Delhi High Court quashed the ITAT Order and held that the money has to be added to their income for the purpose of tax.

What happened to the alleged bribe givers?

The Special Court Judge Ajit Bharihoke on 12.10.2000 gave his historic judgement:

I hereby sentence convict Shri P.V. Narasimha Rao and Shri Buta Singh to undergo R.I. for the period of 3 years. They are further sentenced to pay a fine of Rs. 1 lakhs respectively.

Have you heard of Ajit Bharihoke?

Here are some excerpts from what I had written about him:

Justice Ajit Bharihoke is new President of CESTAT -Corruption is a high-risk business

TIOL-DDT 1805 - 29.02.2012

THE very name Ajit Bharihoke sends a chill down many a spine. He was the judge who sentenced former Prime Minister PV Narasimha Rao to three years rigorous imprisonment and had many high-profile cases before him like Bofors, St Kitts, 3G, Amar Singh bail plea, to name a few.

Now, Justice Ajit Bharihoke is the new President of our own CESTAT. The Tribunal is going to be different with Justice Bharihoke at the helm.

In his judgement in the PV Narasimha Rao case, Justice Bharihoke declared, “ The best way to discourage corruption in the public life particularly in high places is to award exemplary punishment to the high ranking public servants in order to send a message to the society that corruption... is really a high-risk business ”.

This was in the year 2000 and now after 12 years, the Justice is to head the Indirect Taxes Tribunal. The image of the Tribunal is not exactly envious and the previous President retired in rather unpleasant circumstances. Beware, Justice Bharihoke is here and in our own CESTAT! A lawyer remarked, “all the sinners are going to pay for the sins of even their past births”.

TIOL congratulates Justice Ajit Bharihoke on his appointment and heartily welcomes him into the intaxicating world of taxation.

CESTAT President Bharihoke Quits

TIOL-DDT 2002 - 13.12.2012

WE are told that Justice Ajit Bharihoke relinquished his office as President of CESTAT yesterday. Day before yesterday, I called up the President and he was not too keen to talk. When I asked him about his quitting CESTAT, he told us that nothing was certain.

And yesterday, when we called up his office, we are informed that he has relinquished charge.

Justice Bharihoke took over as President of the CESTAT exactly nine months ago on 12.03.2012.

Coming back to our case, PV Narasimha Rao appealed to the High Court. In a judgement delivered on 15 March, 2002, the Delhi High Court set aside the judgment of conviction and sentence and acquitted the appellants of all charges. 

The Hindu reported on June 22, 2016 - PV was never involved in JMM bribery case :

Former Director of the Central Bureau of Investigation K. Vijayarama Rao on Tuesday categorically stated that there was nary a shred of evidence that pointed to the former Prime Minister P.V. Narasimha Rao being involved in the Jharkhand Mukti Morcha bribery case.

Adding to this line, Mr. Rao who investigated the case in which some Members of Parliament were bribed by unknown persons, said those who took the money were ‘foolish enough to deposit the money which they got from a person who hailed from Andhra Pradesh.' he said, reiterating that P.V. Narasimha Rao was not involved in it at all.

History repeats:

Sita Soren an MLA approached the Jharkhand High Court seeking that the charges against her be quashed due to the immunity granted to members of the State legislature through Article 194(2). The High Court in its order noted that the petitioner did not cast her vote for the person for which she was bribed. Since the exact act for which she received the bribe did not take place, and a direct nexus between voting and the bribe did not exist, the immunity did not apply. She appealed to the Supreme Court and the matter is now before a five-member bench of the Supreme Court.

Let me conclude with this story from 1958.

One Piara Singh was apprehended in September 1958 by the Indian Police while crossing the Indo-Pakistan border into Pakistan. A sum of Rs. 65,500/- in currency notes was recovered from his person. On interrogation he stated that he was taking the currency notes to Pakistan to enable him to purchase gold in that country with a view to smuggling it into India. The Collector of Central Excise and Land Customs ordered the confiscation of the currency notes.

In the proceedings initiated by the Income Tax Officer, he found that Rs. 60,500/- constituted the income of the assessee from undisclosed sources. Before the Income Tax Appellate Tribunal, the assessee represented that if he was regarded as engaged in the business of smuggling gold, he was entitled to a deduction under section 10(1) of the Income Tax Act, 1922 of the entire sum of Rs. 65,500/- as a loss incurred in the business on the confiscation of the currency notes. The Tribunal upheld the claim to deduction. The High Court on a reference at the instance of the Revenue answered the reference against the Revenue.

The Income Tax Commissioner took the matter to the Supreme Court, which observed on May 8, 1980,

The currency notes carried by the assessee across the border constituted the means for acquiring gold in Pakistan, which gold he subsequently sold in India at a profit. The currency notes were necessary for acquiring the gold. The carriage of currency notes across the border was an essential part of the smuggling operation. If the activity of smuggling can be regarded as a business, those who are carrying on that business must be deemed to be aware that a necessary incident involved in the business is detection by the Custom authorities and the consequent confiscation of the currency notes.

The confiscation of the currency notes is a loss occasioned in pursuing the business, it is a loss in much the same way as if the currency notes had been stolen or dropped on the way while carrying on the business. It is a loss which springs directly from the carrying on of the business and is incidental to it.

The Supreme Court held that the assessee is entitled to the deduction of Rs. 65,500/-. The Revenue appeal was dismissed with costs.

But what about my GST?

Until Next week