SEPTEMBER 13, 2023

By Vijay Kumar

IF there was death sentence in GST, these officers would have executed it at the Show Cause Notice stage and advised the assessee to appeal to the non-existing Tribunal.

Here's another tale of tax terrorism.

Justice Krishna Iyer in his classic elegance observed in R.S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited in 1977:

There is a tendency for valiant tax executives clothed with judicial powers to remember their former capacity at the expense of the latter. In a Welfare State and in appreciation of the nature of the judicial process, such an attitude, motivated by various reasons, cannot be commended. The penalty for deviance from these norms is the peril to the order passed. The effect of mala fides on exercise of administrative power is well-established .

Chief Justice K Vinod Chandran of the Patna High Court quoted the above words in a recent judgement 2023-TIOL-1120-HC-PATNA-GST and observed,

This is a classic case of a valorous overreach by a tax executive; recovering the tax due, just after a day of dismissal of the appeal; when there was a further appeal provided and the Tribunal before which such an appeal is to be filed was not constituted .

This is the story:

The assessee was issued with an assessment order dated 14.12.2022. The liability came to Rs. 73,66,644/- which was directed to be paid on or before 14.03.2023. The assessee filed an appeal which did not find favour with the Appellate Authority, who rejected it on 27.03.2023. Immediately on the next day, the Assessing Officer issued notice to the Branch Managers of the four banks in which the assessee maintained accounts. A total amount of Rs. 69,88,322.00 was sought to be recovered. The recovery notice is dated 28.03.2023 and the entire amounts have been recovered which resulted in the present challenge before the High Court.

As is well-known, (except to a few zealous GST officers), the CGST Act provides for constitution of an Appellate Tribunal for hearing appeals against the orders passed by the Appellate Authority. An aggrieved person can appeal to the Tribunal within three months from the date on which the order is communicated to him. For filing the appeal before the Tribunal, he has to deposit twenty per cent of the disputed tax amount. On such payment being made, not only is the appeal maintainable, but there is also a deemed stay of the recovery for the balance amount till the disposal of the appeal. Hence, when a proper appeal is instituted before the Appellate Tribunal, then there is a statutory embargo from making any recovery based on the assessment order or the first appellate order.

Please note that the Appellate Tribunal under the CGST Act has not yet been constituted. The Government is conscious of the fact that the Tribunal has not yet been constituted. So, the three months limitation period to appeal has been extended to the date on which the President of the Tribunal, after its constitution, enters office.

Thus, there could not have been a recovery by issuing notices to the banks and coercing them to pay the amounts, that too the entire due amounts, including the tax, interest and penalty.

It may be noted that in the event of an appeal filed to the Tribunal, only twenty percent of the tax dues is to be paid, on which payment, the entire demand is stayed till the disposal of the appeal. So, even if coercive action could have been taken, the tax officer should have confined it to the twenty percent of the demand.

Why did the officer rush to recover the demand by attaching accounts just a day after the appellate order, when the assessee had time till three months after a President takes office in the Tribunal?

Though the assessee was not informed the reasons, the High Court was told that there is no requirement for a notice and reasons alone are to be recorded, which is available in the files – which was shown to the High Court.

The reasons stated, in the file which is also dated 27.03.2023:

1. the financial year 2022-23is coming to an end, and

2. there are bank holidays on the immediate days following.

The High Court was naturally aghast and noted,

We cannot but express our deep anguish and dissatisfaction in the reasons recorded by the officer. The imminent bank holidays of 2 or 3 days and the close of the financial year, we are afraid, cannot be termed valid reasons to justify an expedient recovery under the proviso to Section 78 and it is not clear as to how the interest of the revenue would suffer, if the recovery is kept in abeyance for three months or at least a notice is issued to the assessee before the recovery is effectuated from the banks, behind the back of the assessee.

The High Court further observed:

1. the tax officer had definitely erred, that too egregiously , to the extent of his action being termed high-handed, in surreptitiously making the recovery of the entire amounts due as tax, interest and penalty, even contrary to the legislative mandate;

2. the reasons stated are unconvincing and clearly untenable and the approaching closure of the financial year end can only be a motivation to enhance the individual targets assigned by the higher authorities.

In the unlikely event of you not knowing the meaning of egregiously , it means in an outstandingly bad way; shockingly : The High Court could not have been more precise.

The High Court issued the following guidelines insofar as the recoveries are concerned-

1. There shall be no recovery of tax within the time limit for filing an appeal and when a stay application is filed in a properly instituted appeal, before the stay application is disposed of by the Appellate Authority;

2. Even when the stay application is disposed of, the recovery shall be initiated only after a reasonable period so as to enable the assessee to move a higher forum;

3. However, in cases where the Assessing Officer has reason to believe that the assessee may defeat the demand or that it is expedient in the interest of Revenue, as is provided under the proviso to Section 78, there can be a recovery but with notice to the assessee, which notice shows the reasons for initiating it and specifies the lesser time within which the assessee is directed to satisfy the dues;

4. Though a bank account could be attached; before withdrawing the amount, reasonable prior notice should be furnished to the assessee to enable the assessee to make a representation or seek recourse to a remedy in law;

The High Court reminded the Tax Authorities, that the 'authorities under the tax enactment shall not act as a mere tax gatherer but act as a quasi-judicial authority vested with the public duty of protecting the interest of the Revenue while at the same time balancing the need to mitigate the hardship to the assessee' .

The High Court also observed:

1. We cannot but find a definite overreach by the tax authority, the officer who issued the order, to surreptitiously recover the amounts, without proper intimation being given to the assessee or a time specified for the assessee to satisfy the demands.

2. The reasons stated by the officer kept hidden within the folds of the files were also not convincing.

3. The close of the assessment year and one or two days of bank holidays, we are not convinced, are sufficient reasons to forfeit the amounts kept in the account of a running business.

4. The State and its revenues would not collapse if the said amounts were not recovered but there is every chance of a business folding up without liquid funds being available to it, especially a running concern with liabilities to its employees, its other creditors and so on and so forth.

5. The actions of the Tax Authorities, under the taxing statute should be tempered with good conscience and judicious reasoning, which in the instant case was in complete derogation of the established principles of rule of law;

6. The tax authority should also act as a facilitator of business and economy and not merely as an extortionist, always looking to have the pound of flesh, to satisfy his hierarchical superiors to push his/her personal agendas. We have no doubt that the action complained of, was high handed and arbitrary.

The High Court held:

what was required to be paid by the assessee, for maintaining an appeal before the Appellate Tribunal, if constituted, was Rs. 7,56,644/- being the twenty per cent of the tax dues. Hence, the balance amounts from the total sums forfeited of Rs. 69,88,322 recovered shall be paid over to the assessee within a period of two weeks from today, failing which interest shall run at the rate of 12 per cent per annum.

The officer who issued the order, who acted in complete derogation of the statutory provisions and established principles of law, should pay an amount of Rs. 5,000/- (five thousand) as cost to the assessee.

I can't leave you without a few more quotes from Justice Krishna Iyer's judgement mentioned in the beginning of this Jest.

The law was uncertain and was often overzealously interpreted against the assessees by the Caesarist officials of the department.

'Heads I win, tails you lose''-was the comfortable position of the Revenue, thanks to the draconic attitude of the tax collectors to view with hostility any legitimate claim for exemption. The purchasing public eventually suffered, as the merchants were not eager for pyrrhic victories by litigating for tax exemption.

The persistence of the department drove dealers to achieve victorious futilities, for, at the end of the litigation, they did succeed in law but lost in fact.

Certainly, the fiscal minions of Government, if they blatantly misuse power and overtax to bring discredit to a benignant State, must be publicly punished since respect for the law is not a one-way street .

After all, the reality of rights is their actual enjoyment by the citizen and not a theoretical set of magnificent grants.

''An acre in Middlesex'', said Macaulay, ''is better than a principality in Utopia''.

Tail spark: Chief Justice K Vinod Chandran is famous for his humour. Speaking at the full court reference held at the Kerala High Court in honour of his elevation, Justice K Vinod Chandran said , "It was said that my elevation was delayed. But it brought joy to my admirers; only a few, for they wanted me here. And also my detractors; quite a few who rejoiced at the denial. Hence, eventually, I made everyone happy."

Until Next week