[By Samridhi]
The author is a student at Law Centre-1, Faculty of Law, University of Delhi.
Status Quo
On 24 November 2020, the Allahabad High Court delivered a judgment on an issue involving the revocation of the registration certificate by the Assistant Commissioner because the assessee had failed to file the returns for a period of six months. The Court while ruling in favour of the assessee noted that the administration of quasi-judicial functions by the people ‘who do not have a legally trained mind’ had led to discharging of the functions in an arbitrary manner. The Court found that the Commissioner’s failure to verify the assessee’s claims that the returns were filed and the Appellate Authority’s admission that the averments made by the assessee could not be verified at the appeal stage was ‘manifestly arbitrary’ and ‘militates against the whole purpose of a statutory appeal’. The Court granted the assessee a cost of Rs. 10, 000 to compensate for the unnecessary harassment and wastage of financial resources.
These observations merit serious consideration in the backdrop of the Government’s increasing inclination to expand the powers of quasi-judicial authorities and the Executive. This has led to an increase in the litigation at the doors of High Courts due to arbitrary orders being passed by such authorities which remain incongruent with established legal principles.
This is evident through several High Court judgments where the lack of application of legal mind leads to a frequent overturning of the orders issued. A recent example can be noted through the Kerala High Court’s judgment in the matter involving the validity of the proceedings initiated under Section 130 of the Central Goods and Services Act, 2017 (“CGST Act”). The Court discovered that the notice issued by the Income Tax Department (“Department”) against Veer Pratab Singh did not show anything which could have suggested an intention to evade taxes. Despite the lacunae in the notice, the authorities rejected Mr. Singh’s contentions and confiscated the goods. The High Court found that the proceedings initiated by the Department were legally unsustainable as there was no evidence through Mr. Singh’s act or omission that could provide grounds for establishing an intention to evade taxes. This highlights the dismal failure of the Department’s proceedings and rulings. Deloitte had calculated that the Department is successful in only 11.5% of appeals, while the global average is at 65%.
The resultant chaos in implementation of taxation statutes has made the assessees vulnerable to such arbitrary actions initiated by the Department under the boundless power which operates outside the purview of the Legislature. The vulnerability is demonstrated from the increasing arrests of the assessees under the CGST Act where the ambit of Section 69, which grants the power to arrest, has been exploited by the Commissioners to establish ‘reasons to believe’. It was reflected in the judgment pronounced by the Bombay High Court that a mere paraphrasing of the requirements of Section 41 of the Code of Criminal Procedure, which provides for the situations when such power to arrest may be exercised, will not be sufficient to form ‘reasons to believe’ and effectuate an arrest.
While the lackadaisical approach towards constituting the GST Tribunal has robbed the assesses of an opportunity to avail a judicial mind on the validity of the orders. It compels the aggrieved assessee to go to the High Court which continues to suffer from a logjam thereby leading to prolonged pendency, to challenge the orders.
Need for Review of the Executive Powers
It is contended that the economic offenses are distinct in nature and a separate mechanism needs to be developed for their regulation. Moreover, the delegated functions to the Executive are necessary for a nation where legislative proceedings are repeatedly disrupted. Moreover, there is an urgent need to boost economic growth and attract investments to facilitate post-lockdown recovery and implementation of government schemes and initiatives. It is a well-established fact that the collection of taxes in the government’s coffers reflect economic prosperity. This prosperity can be achieved by providing certainty with respect to taxation provisions in order to attract investment and instill confidence in the minds of the assessees to pursue economic growth and profits without fear of harassment. The same has been reiterated by the Supreme Court through Justice Chandrachud where he stated that,
“There is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made with the expectation of consistency, uniformity, and certainty. To detract from those principles is neither expedient nor desirable.”
But the Executive has been known to detract to principles which have been found to be undesirable, and such principles have found the assent of the appellate authorities in several instances where a wrong interpretation leads to a decision either in favour of the Department or a dismissal. In either circumstance, the assessee has to go to the High Court. A recent example can be found in the Allahabad High Court’s judgment which pronounced that a bare reading of Sections 73 and 74 of the CGST Act provides that a show-cause notice is mandatory to be served before determining the leviable tax on ‘deemed supply’ and the orders and arbitrary penalty amount were set aside.
Besides, the disruption of legislative proceedings or the distinction of economic offenses cannot provide a ground for the Legislature to abdicate its responsibility of being diligent in executing its legislative functions and employ ambiguous and equivocal terms to provide a wide ambit of powers to the Executive to implement unclear legislative intentions. The interpretation of such statutory provisions only leads to a surge in the judicial burden as it increases the number of cases filed to seek clarification and resolution of disputes with respect to incorrect assessment. Moreover, tax certainty cannot be provided by ousting the inclusion of law members at the frontline through the establishment of the Board for Advance Ruling (‘Board’) in place of the Authority of Advance Ruling (‘Authority’). This initiative by the Government rings alarming bells due to a variety of reasons.
The Authority was introduced in 1993 through the insertion of Chapter XIX-B in the Income Tax Act, 1961 with an aim to save the assessees and the Department officials from a cycle of appeal and resolve disputes speedily through a composition of Chairman, Vice Chairman, other members from revenue and law as notified by the Government. By providing the posts of Chairman and Vice-Chairman to current or former judges of the Supreme Court or High Court, the government provided a platform where the taxation statutes could be construed by legal minds in order to resolve disputes pertaining to errors in assessment. But the failure of the Authority’s operations and inefficiency is reflected from the conflicting orders. In one instance it resulted in Karnataka Authority levying 5% tax and Maharashtra Authority levying 18% tax involving the same dispute-matter for the same assessee-applicant. The bizarre contradictions were a result of the framework under which the Authority laboured with inadequate infrastructure and continuous vacancy resulting in soaring pendency. There have been demands raised by the Authority’s Chairman to equip the Authority with necessary means to deal with the pendency, lest the Authority fade into oblivion due to its inefficiencies but the Government’s response to those calls for help was the replacement of the Authority with the Board.
An attempt should have been made by the Government to resolve the issues faced by the Authority and make it efficient. But a complete handover of adjudication to the Board fails to resolve the problem of uncertainty and incongruity in the implementation of provisions as the Board will consist of Commissioners from the Department and there will remain an absence of legal minds. It is essential to grasp the fact that the restriction of the Board’s posts to Commissioners of the same department, against whom the action is being sought, can lead to a rise in legally untenable orders pronounced against the assessees which will see an inevitable overruling by the High Court. This provides substantial ground for the suspicion that the Board may essentially be reduced to functioning as a rubber-stamp.
Conclusion
The boundless powers granted to the revenue authorities require a review before providing further expansion. The primary aim should be to provide an environment where an unprejudiced resolution of disputes, in accordance with the established legal principles, can take place in order to avoid further harassment endured by the assessee when he is put through the process of justification and appeals. Though the Supreme Court had established that when the Authority’s ruling is appealed then it will be adjudged by the Division Bench rather than a single judge, but the Government must attempt to enforce strict timelines for disposal of disputes as protracted pendency leads to clogging of the finances. The Government can adopt a method, similar to that of Belgium where the rulings are differentiated within ‘General rulings’ and ‘Specific rulings’ (based on the subject of tax dispute) with the former adjudged within three months and the latter within one month. Moreover, the tax authorities should be provided with strict guidelines before filing for appeal and issuing arbitrary orders against assessees to achieve revenue collection targets. Such guidelines will bring consistency in the Department’s and the future Board’s operations which will encourage individuals to pursue successful enterprise without fearing the possible repercussions from the Department in form of erratic reassessments and initiation of haphazard proceedings. It is high time that the Department’s approach is modified to be assessee-friendly rather than assessee-wary as increasing suspicions lead to a scenario of 30, 536 outstanding audit objections locking up an amount of Rs. 11, 41, 529.14. Such an approach will also fulfill the Government’s promise of tax certainty and uniformity.