Service tax implications on services provided by the government or local authority after considering the amendments made in Finance Bill, 2016

Introduction

The Government or Local Authority along with performing statutory duties also provide services as like any other commercial business entity viz., advertisement services, logistic services etc. In this article an attempt, has been made to analyse the service tax implications on service provided by Government/s or local authorities, post budget 2016.

Does the activities performed by the Government/s or local authorities qualify as a ‘service’?

When any activity assigned to and performed by the Government/s or local authorities to any person, under the provisions of law, are statutory in nature, same cannot be treated as “Service” though consideration is received for the same. Since such activities are purely in a public interest and are undertaken as a mandatory and statutory function.

Applicability of service tax with respect to activities carried out by Government/s or local authorities

• In order to levy service tax on any activity, firstly the activity must fall within the ambit of definition of “Service”1, under the Finance Act, 1994 and such service must be a “Taxable service”. Thus, all services, other than those specified in the negative list2 or other than those which are specifically exempt, would be liable to service tax.

• With respect to services provided by Government/s or local authorities, it is relevant to note that there exists few services which are covered under negative list of services and few services which are exempt.

• Hitherto, only ‘support services’ provided by the Government were liable to Service tax. However, w.e.f 1-4-2016, “any service” provided to business entities would be liable to tax. The term “any service” was introduced in the place of “support services”, in budget 2015-16. However same was made effective from 1-4-2016.

Payment of service tax with respect to activities carried out by Government/s or local authorities

• Normally, the service provider is liable to discharge the service tax liability. However, in specific cases, the onus of payment of service tax is cast upon the recipient of services. Amongst others, in case of services received from Government or Local Authority, the recipient of services (business entities) will be liable to discharge the Service tax.

• Exceptions to this are – services by way of Renting of Immovable property, services by Department of Posts by way of speed post, express parcel post, life insurance and agency services; services in relation to aircraft or vessel, inside or outside the precincts of a port or an airport; and transport of goods or passengers.

• Services other than the above will be liable to service tax when the same are received by the business entities, whose
turnover exceeds
₹ ten lakh in the preceding financial year. Thus, the business entities will be liable to remit service tax as “Service recipient”, when they receive any such services from Government/s or local authorities.

The term “any service”
and “all services” used in both Negative list of services and in case of specified services covered under “RCM” respectively, has created ambiguity on the taxability of services provided by Government/s or local authorities.

Analysis of services provided by Government/s or local authorities as taxable and exempted services

After considering the services which are covered by notifications/circulars3 issued after amendment to Finance Bill 2016, and those which continues to exist even
after the amendments, the following should be noted:

Note:-

1. The service tax to be remitted by Business entities under “RCM” and in such case the Service provider i.e., Government/s or local authorities need not charge service tax.

2. Since services provided by Government/s or local authorities to business entities with a turnover upto ₹ 10 lakhs, in the preceding financial year is exempt.

3. Since in the Negative list of services “Any service” provided to business entities alone are taxable.

However, apart from the services covered above, the following are the list of exempted services covered by way of Mega exemption notification and clarifications provided by department by way of circular

1. Services by a Government, a local authority by way of any activity in relation to any function entrusted to a municipality under article 243W of the Constitution. This includes matters listed in the Twelfth Schedule which is as under:

• Urban planning including town planning; Regulation of land-use and construction of buildings, slaughter houses and tanneries; Roads and bridges; Urban forestry, protection of the environment and promotion of ecological aspects; Planning for economic and social development; Slum improvement and upgradation; Water supply for domestic, industrial and commercial purposes; Public health, sanitation conservancy and solid waste management; Fire services; Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded; Urban poverty alleviation; Public amenities including street lighting, parking lots, bus stops and public conveniences; Promotion of cultural, educational and aesthetic aspects; Provision of urban amenities and facilities such as parks, gardens, playgrounds; Cattle pounds; prevention of cruelty to animals; Burials and burial grounds; cremations, cremation grounds and electric crematoriums; and vital statistics including registration of births and deaths.

Hitherto, the exemption was restricted only if the above services were provided by Governmental authority

2. Any service where the gross amount charged in respect of each service does not exceed ₹ 5,000/-, except for services by Department of Posts by way of speed post, express parcel post, life insurance and agency services, services in relation to aircraft or vessel and service of transport of goods or passengers. However, in case of continuous supply of services the exemption will be available only if the gross amount charged does not exceed
₹ 5,000 in a financial year.

3. Fines or liquidation damages payable to Government or local authority for:-

• Non-performance of contract entered into with Government or local authority;

• Violation of a statute, bye-laws, rules or regulations;

4. Services provided by way of:

• Registration required under any law for time being in force;

• Testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large, required under any law for time being in force;

• Issuance of passport, visa, driving licence, birth certificate or death certificate;

• Deputing officers after office hours or on holidays for inspection or such other duties in relation to import export cargo on payment of Merchant overtime charges;

• Assignment of right to use natural resources to an individual farmer for the purpose of agriculture;

5. Any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution. This includes matters listed in the Eleventh Schedule, which is as under:

• Agriculture, including agricultural extension; Land improvement, implementation of land reforms, land consolidation and soil conservation; Minor irrigation, water management and watershed development; Animal husbandry, dairying and poultry; Fisheries; Social forestry and farm forestry; Minor forest produce; Small scale industries, including food processing industries; Khadi, village and cottage industries; Rural housing; Drinking water; Fuel and fodder; Roads, culverts, bridges, ferries, waterways and other means of communication; Rural electrification, including distribution of electricity; Non-conventional energy sources; Poverty alleviation programme; Education, including primary and secondary schools; Technical training and vocational education; Adult and non-formal education; Libraries; Cultural activities; Markets and fairs; Health and sanitation, including hospitals, primary health centres and dispensaries; Family welfare; Women and child development; Social welfare, including welfare of the handicapped and mentally retarded; Welfare of the weaker sections, and in particular, of the Scheduled Castes and the Scheduled Tribes; Public distribution system; and Maintenance of community assets.

6. One time charge payable in full upfront or in instalments for assignment of right to use natural resources, where the assignment was assigned before 1-4-2016.

7. Licence fee or spectrum user charges paid by business entities for allowing them to operate as telecom service provider or use radio frequency spectrum during the year 2015-16.

8. All services provided to another government or local authority, except for Services by Department of Posts by way of speed post, express parcel post, life insurance and agency services, services in relation to aircraft or vessel, inside or outside the precincts of a port or an airport and service of transport of goods or passengers;

9. Services provided by a specified organisation like Kumaon Mandal Vikas Nigam Limited, a Government of Uttarakhand Undertaking and ‘Committee’ or ‘State Committee’ as defined in Section 2 of the Haj Committee Act in respect of a religious pilgrimage facilitated by the Ministry of External Affairs of the Government of India (“GOI”), under bilateral arrangement are exempted with effect from 1-7-2012, hitherto, same was effective from 19-8-2014.

10. Any services provided by:

• National Skill Development Corporation (“NSDC”) set up by the “GOI”;

• Sector Skill Council approved by the NSDC;

• assessment agency approved by the Sector Skill Council or the NSDC;

• training partner approved by the NSDC or the Sector Skill Council.

11. Services provided by Government or a local authority to a business entity with a turnover up to ₹ 10 lakhs in the preceding financial year, except for Services by Department of Posts by way of speed post, express parcel post, life insurance and agency services, Services in relation to aircraft or vessel, inside or outside the precincts of a port or an airport and Service of transport of goods or passengers and services by way of Renting of immovable property.5

12. Taxes, cesses or duties levied like Excise duty, Customs duty, Service tax, State VAT, CST, Income tax, wealth tax, stamp duty, taxes on professions, trades, callings or employment, octroi, entertainment tax, luxury tax, property taxes etc.

Thus, unless an activity falls squarely within the language of each of the above exemptions, the taxability of the services provided from Government or local authority will continue.

Availment of CENVAT Credit on taxes paid for services received from government or local authority

CENVAT credit can be claimed in respect of all such services which qualify as 'input services' within the meaning of CENVAT Credit Rules, 2004. The credit can be taken on the basis of invoice issued by Government or local authority and in case of service tax remitted by the service recipient under “RCM”, the credit can be taken on the basis of challan evidencing payment of Service tax by the service recipient, as provided under Rule 9 of the CENVAT Credit Rules, 2004.

However, specifically with respect to availment of CENVAT credit on assignment of rights, the following should be noted:

1. The credit should be taken evenly over a period of 3 years, irrespective of the fact that the one-time charges are paid in a financial year (upfront or in instalments);

2. The service tax paid on spectrum user charges, licence fee, transfer fee, royalty in respect of natural resources and any periodical payments shall be available in the year in which such payment is made.

3. The manufacturer or the service provider can take CENVAT credit even after 1 year of the date of issuance of invoice/ bill/ challan by Government, local authority or any other person, by way of assignment of right to use any natural resource.

4. Where the manufacturer of goods or provider of output service, further assigns such right assigned to him, in any financial year, to another person against consideration, the balance amount of CENVAT credit not exceeding the service tax payable on the consideration charged by him for such further assignment, shall be allowed in the relevant financial year (year in which the output tax liability arises).

The above comments/analysis are based on amendments to Finance Bill, 2016 and subsequent notifications/circulars issued by the department up to 20-5-2016. Every effort has been made to avoid errors or omissions in this write-up. In spite of this, errors may have crept in. Any mistake, error or discrepancy noted may be brought to the notice of the paper writers: [email protected].

Historical background on levy of service tax on mutual organisations

The genesis of service tax on club or association dates back to 1998 when the Government attempted to levy service tax on members club under “Mandap Keeper’s Service”. The question of mutuality arose that whether there existed two entities for having a transaction between them as against a consideration. The Hon’ble Calcutta High Court1 exercising the powers in Writ jurisdiction held that the members’ club and the members being same entity, transaction in between themselves cannot be regarded as income or sale or service. The Hon’ble Court held that the ratio of the decision in case of
Tamil Nadu Kalyana Mandapam Owners’ Associations vs. UOI2 was not applicable in this case.

Having failed to impose the liability of service tax on mutual organisations, the Government introduced a new taxable service called “Club or Association Service” from 16-6-2005 under Finance Act, 1994 by insertion of S. 65(105)(zzze) alongwith definition of Club or Association in clause 25a3 to S. 65. Simultaneously, Explanation was added to S. 65(105) to impose service tax on services by “unincorporated associations” or “body of persons” to its members.

The definition of taxable service as contained under Section 65(105)(zzze) sought to expand meaning to the term, “service” by adding the words, “facilities” and “advantage” to it. The term “facility” or “advantage” are not defined in the Act. This was done to give a wide coverage to the term “service” and as answer to the contention that a club or association may not be regarded as providing service to its members but there can be some “facility” or “advantage” attuned to the members of the club or association. Further, the term, “consideration” was also replaced by the terms “subscription” and “any other amount” to avoid any confusion or ambiguity as to whether in fact there is a flow of any consideration from the member to such unincorporated association.

In this article, attempt is made to examine applicability of service tax on the clubs and
co-operative housing societies. Clubs can further be divided into members’ club and proprietary club.

Service tax on proprietary clubs

Proprietary clubs are not covered in the definition as such clubs do not serve to its members but to the customers on professional basis. Leviability of service tax on proprietary clubs should be otherwise decided on the basis of nature of taxable service they provide. Prior to 1-7-2012, services were taxable under different clauses of S. 65(105) and if the service fits into category of any of the clause, it would become taxable. The distinction between various clauses of S. 65(105) was blurred from 1-7-2012 after introduction of Negative List based taxation in service tax and all the services became taxable subject to the Negative List and exemptions provided under the law. Thus, the proprietary club became taxable even prior to or from
1-7-2012 based on the nature of service provided by them

Service tax on Member's club & co-op. housing societies upto 30.6.2012:

The members’ club is one which is formed by a some members coming together. It is an organisation composed of people who voluntarily meet on a regular basis for a mutual purpose. A club is any kind of group that has members who meet for a social, literary, or political purpose, such as health clubs, country clubs, book clubs, women's associations etc.

Thus, a members’ club is a mutual organisation wherein a group of persons contribute some amount and serve themselves. Hon’ble Jharkhand High Court4 in a case dealing with implications of service tax on providing club halls to its members for organising functions held that, “if club provides any service to its members may be in any form including as mandap keeper, then it is not a service by one to another in the light of the decisions referred above as foundational facts of existence of two legal entities in such transaction is missing. However, so far as services by the club to other than members, learned counsel for the petitioner submitted that they are paying the tax”.

The Hon’ble Gujarat High Court in Sports Club of Gujarat5 took one step ahead in declaring Section 65(25a), Section 65(105)(zzze) and Section 66 of the Finance (No. 2) Act, 1994 as incorporated/amended by the Finance Act, 2005 Ultra Vires to the extent that the said provisions purport to levy service tax in respect of services purportedly provided by the petitioner club to its members.

On the similar facts, the Hon’ble Gujarat High Court in Karnavati Club Ltd.6 allowed refund of service tax to the petitioners and the Special Leave Petition of the department was dismissed by the Hon’ble Supreme Court7.

The Hon’ble Mumbai Tribunal in a combined ruling in case of Matunga Gymkhana, Tahnee Heights Co-operative Housing Society & Mittal Tower Premises Co-operative society8 held that,
“on application of principle of mutuality, services provided by appellants to their respective members would not fall within ambit of taxable club or association service nor the consideration whether by way of subscription/fee or otherwise received therefore be exigible to Service Tax”. This decision was confirmed by the Hon’ble Bombay High Court. The departmental appeal against this decision is pending in Hon’ble Supreme Court.

Quote

“These judgments were also considered by the Principal Bench in the case of FICCI (supra). It was held that “On the analyses above and on the basis of the precedential guidance adverted to, we conclude that in view of the decision in Ranchi Club Limited (supra), on application of the principle of mutuality, services provided by the appellants to their respective members would not fall within the ambit of the taxable “club or association” service nor the consideration whether by way of subscription/fee or otherwise received therefore be exigible to Service Tax. In view of the decision of the Gujarat High Court in Sports Club of Gujarat Limited, as the relevant provisions (namely Section 65(25a), Section 65(105)(zzze) and Section 66 of the Act), to the extent these provisions purport to levy Service Tax in respect of services provided by a “club or association” to its members is declared Ultra Vires, we hold that there are no operative legislative provisions of the Act legitimizing the levy and collection of Service Tax from the appellants, for providing “club or association” service, in so far as these relate to any services provided to members of these appellants.” It was further held by the Bench that “services provided to non-members fall outside the ambit of “club or association” service prior to 1-5-2011 and subsequent to this date there is no specific allegation that the services provided to non-members fall within the expanded scope of this taxable service qua provisions of the Finance Act, 2011………….”

The above decision of Mumbai Tribunal assumes great importance as it consists three different types of mutual organizations, a members’ club, a co-operative housing society and a commercial premises society wherein all of them are treated at par so far as levy of service tax is concerned prior to 1-7-2012. Apart from both being mutual organisations, there may be a subtle difference in working of a members’ club and a co-operative society so far as dealing with its members are concerned, the later has a more stronger case being only a collective mechanism sans provision of any service.

Reimbursement of expense – service tax liability

In the context of members’ club or co-operative housing society, it is possible to contend that the amounts collected are nothing but reimbursement of expenditure. In this context, it is important to take note of judgment of Hon’ble Delhi High Court in case of Intercontinental Consultants & Technocrats Pvt. Ltd9. In this case, the High Court on the basis of valuation provisions contained in the Finance Act, 1994 held that the Government lacked power to tax the reimbursement of expenditure. The term “for a consideration” contained under S. 67 has to be viewed in the context of a “service”. There is no element of service in case of “reimbursement of expense” and Rule 5 of Service Tax (Determination of Value) Rules 2006 fails the test of the charging section. The departmental appeal against this decision is pending in the Apex Court and the decision is awaited.

Service tax on Members’ club and co-operative housing societies from 1-7-2012:

Applicability of above decisions needs to be tested in the changed scenario of negative list based taxation wherein it is generally accepted that mutuality concept is given go-bye, we shall discuss the provisions and attempt to arrive at some common understanding until they are tested in the court of law.

The term, “service” is first time given a statutory meaning that encompass almost all activities into its ambit. By virtue of the paradigm shift in the levy of service tax, the definitions of taxable services provided u/s. 65(105) have been given go-bye and the “Club or Association Service” under sub-clause (zzze) no more exists on the statute book.

As per the new dispensation, the definition of “service” u/s. 65B (44) read as,
“service means, any activity carried out by a person for another for a consideration” and includes “declared services”. Certain exclusions are provided in the definition clause itself has discussed above alongwith a Negative List and certain exemptions including the mega exemption notification.

As per the definition, for the levy of service tax, it is necessary to have some activity to be carried out by one person for another. Here the distinction between a members’ club and a co-operative housing society may be more pronounced. In the former case, there may be existence of some activity but in case of a co-operative society it is difficult to say that the society carry on any activity. In the final analysis, any entity having involved in provision of service is a question of fact and the levy of service tax may be decided on the basis of the facts of each case.

The term “activity” is not defined in the Act and therefore has to be understood in generic sense. The dictionary meaning of the term “activity” is as follows:

• “the condition in which things are happening or being done”(The Oxford Dictionary).

• “Activity” means the state of being active or energetic action or movement, liveliness
(The Free online dictionary.com).

From the above definition it is clear that there should be an activity by a person for another for consideration. As explained above, the society is merely a collecting and pass through mechanism like in case of property tax, water charges, common area repairs and maintenance etc. It can be contended that no activity is carried out by a society for its members. There may be various service providers providing service to the society which is the legal owner of the building including that of common areas, for e.g. repairs service providers, maintenance service providers, security agencies etc. Thus, the society is receiver of service and not provider of service. If a member’s flat or office premises require repairs, the same is obtained directly by the member and the society is not involved in provision of that service. Further no consideration is flowing from the members to the society except allocation and collection of expense. Any such payments without quid-pro-quo of a service cannot be liable to tax. Thus, it can be argued that even under the new dispensation, service tax is not applicable in case of a co-operative society. The important ingredients of the definition of service is absent in case of a co-operative society:

a) ‘Any activity’;

b) Relationship of service provider and service receiver;

c) Any consideration.

It is worthwhile to know that, the Explanation 3 in the definition clause stating that, that in case of an unincorporated association or body of persons, such association and member thereof shall be treated as distinct persons may not be relevant as it only covers unincorporated association or body of persons. In case of member's club it is possible to have such entity. However, the co-operative societies are incorporated bodies and hence the Explanation does not apply.

Exemption in case of a non-profit entity:

The discussion would be incomplete without taking into account the exemption in Entry 28 of the mega exemption notification10.

“Service by an unincorporated body or a non- profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution –

(a) As a trade union;

(b) For the provision of carrying out any activity which is exempt from the levy of service tax; or

(c) Upto an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex”.

(emphasis supplied under all above paraphrases)

Being the exemption notification, it can be said that both the exemptions under sub clauses (b) and (c) are applicable to a co-operative society, the former being of general nature applicable to all non-profit entities and the second being specific to the housing societies. So far as the monetary limit of ₹ 5,000 is concerned, the notification is worded in ambiguous manner, i.e.
“exemption by way of reimbursement of charges or share of contribution upto an amount of ₹
5,000 p.m. per member……………..”. Here in the opinion of the writer, the word, “upto” would mean that exemption is allowed upto collection of ₹ 5,000 per member per month and not that if the amount collected in excess of ₹ 5,000 p.m. per member, the entire amount would become taxable. In other words, if
₹ 5,100 is collected p.m. per member, only ₹ 100 would be liable to be taxed. It is further to be noted that the exemption is allowed for sourcing of any goods or services from outsiders for common use of members. In this regards, it is pertinent to take note of Circular issued by CBEC11 clarifying the exemptions to unincorporated/non-profit entity arranging exempt service for its members. As per this circular, if per month per member contribution of any or some members of a Residential Welfare Association12 (RWA) for sourcing of goods and services from third person exceeds
₹ 5000/-, the entire contribution of such member whose per month contribution exceeds ₹ 5000/- would not be eligible for exemption and service tax would be levied on aggregate amount of monthly contribution of such member. However, this circular if juxtaposed against the earlier exemption notification No. 8/2007 ““ ST, it would be clear that in the earlier notification, exemption was subject to the condition
that the total consideration received from an individual member for providing such service does not exceed ₹ 3000/- per month, whereas the present exemption is
up to ₹ 5000/- per member per month. In the opinion of the writer, it can therefore be said that the exemption under the current notification No. 25/2012 ““ ST has to be read in the manner stated above and the circular does not reflect correct position in law.

Exemption under clause (b) of NN 25/2012-ST (Entry 28)

In addition to the exemption of ₹ 5000/-, carrying out any activity by an unincorporated entity for its members which is exempt from levy of service tax, would also not be liable to tax. Here, though not clear, the term “activity exempt from levy of service tax” would mean such activities on which service tax is not leviable under the charging section13 and would also include, the exclusions from the definition of service and items listed in Negative List and not be limited only to the exemption notification. Hence, there would be a blanket exemption in relation to services covered under clause (b) independent of the limited monetary exemption under clause (c). The examples of such exempt activities could be collection of municipal tax or any other Government levy, water charges etc. It is pertinent to note that the exemption under clause (b) is applicable to all unincorporated or incorporated organizations and hence even the commercial or industrial co-operative societies would be eligible for this exemption though the monetary limit specified in sub-clause (c) may not be applicable to them.

It is therefore necessary that each type of collection by a member's club or co-operative housing society should be examined for leviability of service tax. It is to be borne in mind that every collection does not ipso facto liable for service tax. The definition of service and the charging section pre-supposes provision of service as
quid-pro-quo to a consideration. This means an agreement is necessary whether in writing or oral, to establish nexus between the consideration and service provided or to be provided. In absence of such nexus in view of the writer, no liability of service tax can be envisaged on mere collection or receipt. Examples of such collection are sinking fund, repair fund, etc. Thus, if at all there is a levy of service tax on co-operative society it can only on maintenance charges and facilities like club house, swimming pool etc.

Exemption cannot determine taxability

It is a settled principle that the exemption cannot be determined liability of tax. If the levy is non-existent, the exemption under the law cannot make the levy valid in the eyes of the law. Therefore, the above discussion on exemption may be for the benefit of readers who do not want to contest the levy and play safe.

Conclusion

From above discussion it appears that service tax is not leviable on member's club and co-operative societies prior to 1-7-2012. However, the same cannot be said in case of the proprietary club up to 30-6-2012 wherein the leviability of service tax may be decided with reference to nature of service being provided. From 1-7-2012 it appears to be more or less certain that they will be liable to service tax. In case of members’ club, it is a good case to argue that even after 1-7-2012 service tax may not be applicable depending on the nature of service. For a co-operative housing society including a commercial or industrial premises society there appears to be a better case to argue about non-applicability of service tax even after 1-7-2012. However, one needs to verify each receipt before coming to the conclusion. Only a judicial verdict can bring finality to the contentious issue and the views expressed in this article are personal views of the writer.

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An economic offence has multiple layers to it. The commission of a criminal act for pecuniary gains is merely the tip of the proverbial iceberg. A parallel economy largely run by anti-social elements or their agents often involves a copious number of cash transactions. However, the enjoyment of such illicit money is severely curtailed. The process of converting the proceeds of crime (black money) into legitimate money (white money) that can be freely used is called money laundering. A typical money laundering operation consists of three stages namely placement, layering and integration. In a country like India where poverty and illiteracy are still rampant, ‘Benami’ transactions have historically been perceived as an effective method to both conveniently hide as well as launder illicit money. Typically ‘Benami’ transactions especially in the guise of property and real estate are not only effective in the placement and layering process of money laundering but due to reduced rates of taxation on capital gains (subject to the provisions of Sections 45 to 55 of the Income-tax Act) and the tax exempt nature of sale of agricultural land (subject to the provisions of Sec. 2(14)(iii)of the Income-tax Act) have also been seen as the most ‘Tax effective’ means of integrating the laundered money back into the economy. Many scholars and studies show that mere punishment is not a sufficient deterrent for the commission of crime. The underlying principle behind control of crime in modern day jurisprudence is not to merely put in place an effective machinery to curb and punish crime, but to minimise or eliminate the underlying profit objective.

The Indian Legislature has often been criticised for its laidback approach towards that archaic and antiquated laws that in today’s age and date rapidly get obsolete. In the innovative and highly imaginative world of money laundering and tax evasion, perpetrators always come up with increasingly complex transactions in order to dispose of their ill-gotten gains. Merely plugging the loopholes as they are discovered then, ensures that the authorities remain two steps behind these perpetrators. In an effort to curb profits from criminal activities as well as to plug leaks in collection of taxes, the Legislature has undertaken many comprehensive steps in the recent past to impose strong deterrents upon and to aid effective action upon economic offenses. Various laws such as the PMLA (Prevention of Money Laundering Act), the Companies Act, the Information Technology Act and the Benami Property (Prohibition) Act, 1998 have seen comprehensive enactments/amendments to better address challenges thrown up by technology, globalisation & to provide strong teeth to the Law enforcement machinery. The Benami Transactions (Prohibition) Amendment Act, 2016 has introduced a raft of changes to the Benami Property (Prohibition) Act, 1988.

The Original Benami Transactions (Prohibition) Act, 1998 (hereinafter referred to as the ‘principal act’) was woefully inadequate to address the menace of rampant Benami transactions in a country with widespread poverty and illiteracy. ‘Benami Transaction’ as defined by the original enactment meant “any transaction in which property is transferred to one person for a consideration paid or provided by another person” with exceptions provided for coparceners in a Hindu Undivided Family & a person holding property in a fiduciary capacity subject to the conditions laid down by Sec. 4(3)(a). This definition was not only generic but it also lent itself to ambiguities in interpretation. With merely 9 Sections, it relied heavily on secondary legislation in the form of rule making powers conferred by Sec. 8 for enforcement of the provisions of the Act. Though the Act provided for acquisition of Benami properties, via Sec. 5, neither did it explicitly make holding Benami properties a criminal offence under the Act itself nor did it set up a comprehensive mechanism for administration of the Act, preferring to rely therefore on secondary legislation and other existing laws.

The Statement of Objects & Reasons to the Benami Transactions (Prohibition) Amendment Bill, 2015 states that it was found that the provisions of the Benami Transactions (Prohibition) Act, 1988 were inadequate to deal with Benami transactions as the Act did not contain any specific provision for vesting of confiscated property with the Central Government, have any provision for an appellate mechanism against an action taken by the authorities under the Act, while barring the jurisdiction of a civil court, confer the powers of the civil court upon the authorities for its implementation or provide for adequate rule making powers. Further, the Bill also sought the implementation of the said Act by the existing institutional structure of the Income Tax Department.

The provisions of Sec. 4 the Benami Property (Prohibition) Act, 1988 (hereinafter referred to as the amending Act) substantially expanded on the definitions provided by the principal Act. Besides introducing new definitions, it has also comprehensively overhauled the definitions provided by the principal Act.

• Section 4 of the amending Act defines ‘Benami Transactions’. A “Benami transaction" means a transaction or an arrangement where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration OR a transaction or an arrangement in respect of a property carried out or made in a fictitious name; OR a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership; OR a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious. However, Sec. 2(9)(A) also provides for the exceptions in the case of a Karta or member of a HUF, family members and lineal descendants or a fiduciary as long as they satisfy the conditions set out in sub-sections (i-iv).

• Section 4 of the amending Act defines ‘Property’. The principal Act had defined property to mean property of any kind, whether movable or immovable, tangible or intangible, and included any right or interest in such property. The amending Act expands the definition of ‘Property’ to further include within its ambit assets that can be corporeal or incorporeal, any rights or interest or legal documents or instruments evidencing title to or interest in the property and if the property is capable of conversion then the property in the converted form. Importantly, it also includes within the definition of property any of the proceeds from the property.

The principal Act, being enacted in 1988 also suffered from limitations imposed by developing technology as well as legal jurisprudence. Though the Financial Memorandum of the 2015 Bill also sought the implementation of the said Act by the existing institutional structure of the Income Tax Department, the legislature in its wisdom has seen it fit to comprehensively set out Authorities for the implementation of the Act, the composition of the said authorities, the Jurisdiction exercised by the said authorities and the powers thereof (Chapter III Amending Act). The Authorities set out for the purposes of this Act are [Sec. 18(1)]

• The Initiating Officer

• Approving Authority

• Administrative Authority

• Adjudicating Authority

It has specifically been provided by Sec. 19(1) that the authorities shall have all the powers as vested with a civil court under CPC (Code of Civil Procedure) while trying a suit with respect to discovery and inspection, enforcing the attendance of any person for examination under oath, compelling production of books of account and other documents, issuing commissions, receiving evidences on affidavits and for any other prescribed matters.

The Act also provides that the following officers shall assist the authorities in the enforcement of this Act subject to Sec. 20 of the Amending Act:-

• Income Tax Authorities

• Customs and Central Excise Department Officers

• Narcotics Drugs and Psychotropic Substances Act Officers

• Officers of a recognised stock exchange

• Officers of Reserve Bank of India

• Police

• Officers of Enforcement under Foreign Exchange Management Act

• Officers of Securities and Exchange Board of India

• Officers of any ‘body corporate’ constituted or established under State of Central Act

• Officers of the Central Government, State Government, local authorities or banking companies notified by Central Government for the purpose of this Act.

The powers listed out in Chapter III are comprehensive and a far cry from merely providing for framing of Rules as set out by the ‘Principal Act”. Besides vesting substantial powers in the hands of the Authorities under this Act, it also explicitly provides for active assistance by officers of every major Government body which automatically shall enable the authorities to have access to a vast database of information and resources provided for by virtually all the major regulatory/investigating bodies. This shall enable the authorities to carry out in-depth investigations and provide water tight cases for attachment and prosecution.

The Principal Act enabled the Central Government by notification in the Official Gazette to make rules to make necessary rules to carry out the purposes of this Act by providing an authority competent to acquire properties [Sec. 8(2)(a)], prescribing the manner in which and procedure to be followed for acquisition of properties [Sec. 8(2)(a)] and other providing for other matter which is required to be or may be prescribed for carrying out the purposes of the Act. However, Chapter IV of the Amending Act puts in place specific provisions with regards to Attachment, Adjudication and Confiscation.

Sec. 24 of the Amending Act empowers the Initiating Officer to issue a show cause notice to a Benamidar based on material in his possession after recording his reasons in writing with a copy to be sent to the beneficial owner if traceable. It further empowers him, if he is under the opinion that the Benami may alienate the said property, to attach the said property with previous approval of the Approving Authority for a period not exceeding ninety days. After making inquiries and calling for reports and evidence within a period of ninety days of issuing the show cause notice the Initiating Officer has the power to provisionally attach the Benami property if not already done and if provisional attachment is already done, the Initiating Officer has the power to pass an order continuing the attachment until the Adjudicating Authority passes the order in the matter. However, if the said provisional attachment is done or continued by the Initiating officer as per Sec. 24(4), he shall have to draw up a statement of the case and refer it to the Adjudicating Authority within 15 days.

Chapter V provides for the setting up of the Appellate Tribunal that shall ordinarily sit in Delhi or at any other place the Central Government will decide in consultation with the Chairperson of the Appellate Authority. The Tribunal shall not be bound by procedure laid down by the Code of Civil Procedure but shall have powers to regulate its own procedure. It shall also have the powers vested in a Civil Court under Code of Civil Procedure in respect of matters enumerated by Sec. 40(2) of the Amending Act. The orders of the Appellate Tribunal are appealable before the High Court within a period of 60 days only on questions of law.

However, secondary legislation and rules have inherent limitations and suffer from a multitude of legal challenges. Measures put in place for preventing money laundering and tax evasion or other criminal or anti-social activities via ‘Benami Transactions’ needed to fulfil a dual purpose, of preventing the beneficial owners of the ‘Benami’ properties from actually benefiting from the transaction as well as by prosecution. An obvious shortcoming of the ‘Principal Act’ was that it did not explicitly make entering into a ‘Benami’ Transaction a crime by itself. In order to rectify this shortcoming, Chapter VII of the Amending Act states that any person entering into a Benami Transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, as the beneficial owner or as the Benamidar and any other person who abets or induces any person to enter into a Benami transaction shall be guilty of the offence of ‘Benami Transaction’ [Sec 53(1)]. Whoever is found guilty of committing the said offence shall be punishable with a minimum of one year rigorous imprisonment but which may extend to up to seven years along with a fine which may extend to 25% of the fair market value of the property [Sec. 53(2)]. In addition, if any person required to furnish information under this act knowingly gives false information or provides a false document, the person shall be punishable with a minimum of six months rigorous imprisonment but which may extend up to five years along with a fine which may extend to 10% of the fair market value of the property [Sec 54]. However, Sec. 55 of the amending Act also provides that no prosecution shall be instituted against any person in respect of any offense u/s 3, 53 or 54 without prior sanction of the board. The Provisions of 53(2) and 54 clearly seek to bring out the fact that indulging in, abetting or assisting a Benami Transaction is taken as a serious offense by the Government of India and the punishment is now commensurate with the crime.

Chapter VI of the Amending Act provides for Special Courts to be set up for trial of offences under the Act. Such Courts shall be constituted by the Central Government in consultation with the Chief Justice of the High Court by notification and the Special Court so constituted shall take cognizance of an offence punishable under the Act only upon a written complaint made by the Adjudicating Authority or an officer authorized by the State or Central Government. Though the Appellate Tribunal is not bound by the Code of Civil Procedure, the Code of Criminal Procedure shall apply to prosecution proceedings before the Special Court. If the accused is charged of other offenses under Code of Criminal Procedure at the same trial, the Special Court will have the jurisdiction to try him for all such other offences.

The Amending Act has 71 Sections as opposed to 9 Sections that constituted the Principal Act. This amendment is not only comprehensive, but also critical in an era where technology and other advancements demand a strong institutional framework in fighting the menace of black money and the murky parallel economies that characterize countries that have laws that are typically ineffective and law administrations that are inefficient. The amendment has comprehensively set out a mechanism not only for fast detection and investigations but also for effective and speedy dispute resolution and prosecution. The constitution of the Tribunals shall greatly enhance the speed of dispute resolutions as opposed to overburdened civil courts bound by the rules of the Civil Procedure Code where a suit typically take a number of years to reach its logical conclusion. On the prosecution side, by setting up Special Courts that shall exclusively look after matters under this Act, the speed of disposal of criminal trials shall also be enhanced. The effectiveness of the amended Act shall be gauged by its performance over time, however it is a giant stride in the right direction.

For law students, globalisation have impacted its land scope. Today service sector, which incidentally include professional services by Advocates and law graduates at different level, have contributed a major role in India's economy. That scenario favourable to all of you is the opportunity to grab it to your advantage by joining the bigger power house and actively participating as a practising Advocate. Sky is the limit for you but do not expect an instant jump to the top. If you have to go to 5th floor in a building without lift you will have to necessarily climb to each floor one after the other. You have to strive for reaching at the destination i.e. to the top; with the help and encouragement of some senior in profession. Experience is something which cannot be transferred by senior to junior; that has to be gained by attending the court of law regularly. Please do not succumb to the attractive offers to lure you, by corporate sector. Remember Employment is Nokari – should always be avoided. That will suffocate you. Always Believe in God given Computer rather that manmade one.

Moot courts are an integral part of law Students' learning process. It prepares students for working in similar to real court conditions. The lawyers' skills, professional ethics, confidence and advocacy that they acquire in the process will keep all participants in good stead in their life and professional career. Whenever you are free do visit any court of law. In India, all courts are open to public. On visit try to learn manner in which, the arguments are exchanged between two sides.

Moot court competition is an ideal platform for all of you to attempt tacking the intricacies and complexity of the law in hand. Today a case, based on a decided case by the Supreme Court, is placed for arguments in favour and against the ill effects of Dowry System, ill treatments to ladies and suicides etc. Present legal education is not mere reading of the books. Participation in Moot court of this nature will help you to analyse legal issues and learn the practical side of the profession. The legal profession today is in need of youngsters driven by high moral principles and carry forward the legacy
handed down by seniors; in practice present and past.

I am sure and confident that after participating in this Moot court, you all will develop advocacy skills, attain new insights on the subject in particular and art of practicing in court in general. Some of you will be leading
advocates in future churned out of today competition.

I conclude with a note of satisfaction that the future of legal profession is very bright.

[Source: Speech delivered at the 6th Five Years
Law Course Competition on 3rd September, 2016 at Jaipur]

VANDE
MATARAM

Taxes are the Governments' way of earning an income which can then be used for various projects that the Governments need to indulge in to help boost the economy of the country or its people. Taxation is important to society because government use the tax revenues to fund projects related to health care systems, education systems, public transports etc. Also, the money collected can also be used to give employment benefits, pensions and other matters that can benefit the society as a whole. Without tax, the Government would not be able to fund the essential projects and services that people need.

Tax laws consist of a body of rules of public law that affects the activities and reciprocal interests of a political community and the members composing it as distinguished from relationships between individuals in the sphere of private law. It can be divided into substantial tax law, which is a body of the legal provisions giving rise to the charging of a tax; and procedural tax law, which consists of the rules laid down in the law as to assessment and enforcement procedure, coercive measures, administrative and judicial appeals and other similar matters.

The subject, important enough, at any time, is of particular significance now, since Indian economy, being plan-conscious and plan-directed, is in a transitionary stage, when efforts are being channelled towards the rapid economic development of the country.

Tax reform is one of the pressing Issues currently engaging the attention of the Public and the Government. Tax is not only a prolific revenue-yielder but exerts a major impact on the economic and social life of the people.

"Oliver Wendell Holmes once said: 'I like to pay taxes. With them I buy civilisation."

Assuming a certain level of revenue that needs to be raised, which depends on the broader economic and fiscal policies of the country concerned, there are a number of broad tax policy considerations that have traditionally guided the development of taxation systems. 'Fhese include neutrality, efficiency, certainty and simplicity, effectiveness and fairness, as well as flexibility. The imposition of tax leads to diversion of resources from the taxed to the non-taxed sectors. The revenue is allocated on various productive' sectors in the country with a view to increase the overall growth of the country. Tax revenues may be used to encourage development activities in the less developed areas of the country where normal investors are not willing to invest.

In a context, where many governments have to cope with less revenue, increasing expenditures and resulting fiscal constraints, raising revenue remains the most important function of taxes, which serve as the primary means for financing public goods such as maintenance of law and order and public infrastructure.

As Stated by Holly Sklar

"Taxes are how we pool our money for public health and safety, infrastructure, research and services – from the development of vaccines and the internet to public schools and universities, transportation, courts, police, parks and safe drinking water."

Taxation follows the principle of equity. The direct taxes are progressive in nature. Also certain indirect taxes, such as taxes on luxury goods are also progressive in nature. This means the such class has to bear the higher incidence of taxes, whereas, the lower income group is exempted from tax (direct taxes). Thus, taxation helps to reduce inequalities of income and wealth.

In modern times, the aim of public finance is not merely to raise sufficient financial resources for meeting administrative expense, for maintenance of law and order and to protect the country from foreign aggression. Now, the main object is to ensure the social welfare. The increase in the collection of tax increases the Government revenue. It is safer for the Government to avoid borrowings by increasing tax revenue. Taxation generates social welfare.

A part of the tax revenue is utilised for social development activities, such as health, family welfare etc., which also improve social welfare as well as social order in the society.

The taxes that we pay are what enable the lesser privileged many to get a good education and healthcare that they cannot afford themselves. In fact, the Government is able to work out plans of free primary education or free high school and college education for the under privileged only because of the income that it gains from taxpayers.

An important merit of taxation is that it is not only a good instrument of resource mobilisation for development but it also cuts down consumption of goods and thereby helps in checking inflation. Whereas direct taxes on income, profits and wealth reduce the disposable incomes of the people and thereby tend to reduce aggregate demand in the economy, indirect taxes directly discourages the consumption of the goods on which they are levied by raising their prices.

Taxation policy should be used to prevent the potential economic surplus from being wasted inconspicuous consumption and unproductive investment. It may be noted that this potential economic surplus is not a given amount but it increases in the very process of economic development.

It is worth mentioning that in a mixed economy such as ours, there is a need to raise not only the public savings and investment but also to promote private savings and investment so that the overall rate of saving and investment in the economy is stepped up. This implies that taxation measures should not impair incentives to save and invest of the people. Therefore, a developing economy encounters a crucial dilemma in augmenting larger resources for public investment on the one hand and to promote private savings and investment on the other.

Role of professionals

The tax profession is a solemn and serious occupation. It is a noble calling and all those who belong to it are its honourable members. Although the entry to the profession can be made merely by acquiring the qualification of tax competence, the honour as a professional has to be maintained by its members by their exemplary conduct both in and outside the Court.

Practice in the field of taxation is considered as a traditional field where members of the legal and accounting profession have made a very useful contribution. Lawyers and charted accountants, with their expertise in the field of law and accounting, have a distinct advantage in tax practice.

Some of the professionals who hold dual qualifications as an advocate and as a Chartered Accountant and who are engaged in the tax practice find their accounting background to be very useful in resolving many complicated legal issues in day-to-day practice. Apart from direct taxation, many professionals have now specialised in the filed of indirect taxation such as sales tax, excise duty, custom duty etc.

What is necessary is to create a public Image that the members of the profession are competent, that they are keeping public interest above self interest, that the members are honest and that the erring members are awarded due punishment expeditiously. This is possible only if each member supports the effort of the professional body. Legislative support may not be available for all efforts. This has to be supplemented by self regulatory measures. It is in the field of self regulatory measures that support of the members is more needed for enhancing the public image of the profession.

Pendency of tax matters before courts and methods for reduction of litigation

It is common knowledge that hundreds of thousands of cases by way of Second Appeals before Tribunal, writ petitions, applications and references before the High Courts and Special Leave Petitions before the Supreme Court relating to taxes, are pending for disposal. The pendency is increasing day-by-day because the disposal during. any period always lags behind the additions during such period. It is also noticed that while the ratio of cases as filed by the assessee and the department before tribunal is nearly equal, the same IS greatly disproportionate in the case of the matters pending before the High courts and the Supreme Court.

This attitudinal background has to be kept in mind to resolve the problems of pendency.

• As a first step, it will be necessary to drastically curtail indiscriminate filing of the applications and references by the department since the pendency on account of such applications and references constitute more than 90% of the total pendency before Courts.

• Much of litigations arise because of myriad exemption and deductions. If these are given a go-by and instead very low rates of taxes in direct taxation statutes introduced, there may hardly arise any controversy between the revenue and taxpayers.

• Lastly, legal professionals also owe responsibility to the taxpayers' community and therefore must extend helping hand for the reduction of litigation and checking its mushrooming tendency.

Moreover, in matters of taxation, like in the administration of the law, it is not enough that justice should be done-it must also be seen to be done. If owing to defects in the tax law or in their administration, highly progressive taxes on wealth or income have no visible effect on the prevailing economic inequalities or in the standards of living of the rich, the mere enactment of advanced tax legislation will prove fruitless.

In a way, there must be equity in a taxation system and an element of redistribution of resources between high and low income people as well as similar tax burden for taxpayers with similar means. Taxation must impact neutrally on various taxpayer groups and economic sectors, and commercial decision making must not get distorted by the tax considerations. Simultaneously, the system should have nexus between the revenue proposed to be raised and the public expenditure needs. A good tax system must always pave the way for simplicity and transparency in the system. Taxpayers must be able to clearly understand the nature and extent of their obligation and consequences of non-compliance and they must also know how and when they are paying tax. Similarly, the tax scheme should be so framed that there would be minimal incentive and potential for avoidance of taxation.

So, I would like to say that we all should strive together to achieve the main object of tax laws and Constitution which could help in the development of nation in a better way. I conclude with an earnest hope that members of this Association will rise to the occasion and meet the challenges of new millennium with dynamism and enthusiasm.

I wish the Association every Success.

Jai Hind

[Source : Speech delivered at Two Day National Tax Conference held at Jamshedpur on 20th August, 2016]

Taxation is the process by which the Government collects money from people to use for public purposes.

Tax es are generally an involuntary fee levied on individuals or corporations that is enforced by a Government entity, whether local, regional or national in order to finance Government activities.

Purpose of taxation

Taxes are mainly used to finance the expenses incurred by Government to manage an economy. These expenses include: health care, education, transportation and operating Government business entities etc. Taxation is also used by Government for several other purposes such as—

a. Expenses related to building and technology infrastructure.

b. To reduce pollution by taxing offending firms.

c. To discourage unhealthy lifestyle e.g, a tax on cigarettes, other tobacco products, liquor etc.

d. To protect local and infant industries by taxing imports.

e. To achieve greater equality of wealth and income. Revenue from taxation is used to help the very poor e.g. providing food stamps.

f. To improve the balance of payments (BOP) by increasing the duties charged on imported goods.

g. To control spending in an economy thus reduce inflation

h. Prevent Concentration of Wealth in a few hands–Tax is imposed on persons according to their income level.

Importance of taxation

" … but in this world nothing can be said to be certain, except death and taxes."

– Benjamin Franklin

Taxation is important to society because the Government use the tax collected to fund projects related to health care systems, education systems, and public transports. Also, the money collected can also be used to give unemployment benefits, pensions, and other matters that can benefit the society as a whole. Without tax, the Government would not be able to fund the essential projects and services that people need. The Government allocates the money collected from the taxpayers to different areas of the country. For example: Some areas of our country are rich in natural resources (like minerals, fuels etc) that if utilised properly are beneficial for the development of nation and its economy. The Government needs to allocate part of the tax money towards development of such areas. Such allocation of finances generated by taxes by the Government not only helps the nation's economic growth but also helps the local habitants of such places by raising their standards of living (which is consequentially positively affected by the development programmes undertaken by the Government). Similarly, expenses made by the Government on maintenance of historic monuments, archaeological sites etc. not only improves the standards of such places but also helps in generating more revenues using tourism as a tool.

Moreover, another tax benefit on society is it discourages certain undesirable activities such as; liquor, tobacco and gambling. On such activities the Government imposes excise tax, discouraging individuals from selling such commodities.

Economic growth and taxation

Economic growth is the basis of increased prosperity. Growth comes from the accumulation of capital and from innovations which lead to technical progress. Accumulation and innovation raise the productivity of inputs into production and increase the potential level of output. The rate of growth can be affected by policy through the effect that taxation has upon economic decisions. An increase in taxation reduces the returns to investment (in both physical and human capital) and Research and Development (R&D). Lower returns mean less accumulation and innovation and hence a lower rate of growth. This is the negative aspect of taxation. Taxation also has a positive aspect. Some public expenditure can enhance productivity, such as the provision of infrastructure, public education, and health care. Taxation provides the means to finance these expenditures and indirectly can contribute to an increase in the growth rate. Taxation can have both a negative and a positive effect on growth. The negative effect arises from the distortions to choice and the disincentive effects. The positive effect arises indirectly through the expenditures financed by taxation.

The classical view of economics is that the only objective of taxation is to raise Government revenue. But with the changes in circumstances and ideologies, the aim of taxes has also been changed. These days apart from the object of raising the public revenue, taxes is levied to affect consumption, production and distribution with a view to ensuring the social welfare through the economic development of a country. For economic development of a country, tax can be used as an important tool in the following manner:

1. Optimum allocation of available resources

Taxation is the most important source of public revenue. The imposition of tax leads to diversion of resources from the taxed to the non-taxed sector. The revenue is allocated on various productive sectors in the country with a view to increasing the overall growth of the country. Tax revenues may be used to encourage development activities in the less developed areas of the country where normal investors are not willing to invest.

2. Raising Government revenue

In modern times, the aim of public finance is not merely to raise sufficient financial resources for meeting administrative expense, for maintenance of law and order and to protect the country from foreign aggression but to ensure the social welfare. The increase in the collection of tax increases the government revenue. It is safer for the government to avoid borrowings by increasing tax revenue.

3. Encouraging savings and investment

Since developing countries has mixed economy, care has also to be taken to promote capital formation and investment both in the private and public sectors. Taxation policy is to be directed to raising the ratio of savings to national income.

4. Reduction of inequalities in income and wealth

Through reducing inequalities in income and wealth by using an efficient tax system, Government can encourage people to save and invest in productive sectors.

5. Acceleration of economic growth

Tax policy may be used to handle critical economic situation like depression and inflation. In depression, tax is set to increase the consumption and reduce the savings to increase the aggregate demand and vice versa. Thus the tax policy may be used to strengthen incentives to savings and investment.

6. Price stability

In underdeveloped countries, there is another role to maintain price stability to ensure growth with stability which can be handled by a smart tax policy.

7. Control mechanism

Tax policy is also used as a control mechanism to check inflation, consumption of liquor and luxury goods and to protect the local poor industries from the uneven competition. Taxation is the only effective weapon by which private consumption can be curbed and transfer of resources to the State. Thus, the economy can ensure sustainable development.

Therefore, it can be said that the economic development of a country depends on various reasons one of them are on the presence of an effective and efficient taxation policy.

Tax revolution: tax reforms

The first comprehensive attempt at reforming the tax system was by the
Tax Reform Committee in 1953. This provided the backdrop for the generation of resources for the Second Five-Year Plan (1956-60), and was required to fulfil a variety of objectives such as raising the level of savings and investment, effecting resource transfer from the private to the public sector and achieving a desired state of redistribution. Since then, there have been a number of attempts, most of them partial, to remedy various aspects of the tax system. The expenditure tax levied on the recommendation of the
Kaldor Committee in 1957-58 had to be withdrawn after three years as it did not generate the expected revenues. The attempt to achieve the desired state of redistribution caused the policy makers to design the income tax system with confiscatory marginal rates. The consequent moral hazard problems led the Direct Taxes Enquiry Committee in 1971 to recommend a significant reduction in marginal tax rates. On the indirect taxes side, a major simplification exercise was attempted by the
Indirect Taxes Enquiry Committee in 1972. At the State and local level, there were a number of tax reform committees in different states that went into the issue of rationalization and simplification of the tax system. The motivation for almost all these committees was to raise more revenues to finance ever-increasing public consumption and investment requirements.

The Tax Reforms Commiitee 1991 (TRC) laid out a framework and a roadmap for the reform of direct and indirect taxes as a part of the structural reform process. The paradigm shift in tax reforms adopted by the TRC was in keeping with the best practice approach of broadening the base, lowering marginal tax rates, reducing rate differentiation, simplifying the tax structure, and adopting measures to make the administration and enforcement more effective.

The important proposals put forward by the TRC included reduction in the rates of all major taxes, i.e., customs, individual, and corporate income and excise taxes to reasonable levels, maintain progressivity but not such as to induce evasion. The TRC recommended a number of measures to broaden the base of all the taxes by minimising exemptions and concessions, drastic simplification of laws and procedures, building a proper information system and computerisation of tax returns, and revamping and modernisation of administrative and enforcement machinery.

It also recommended that the taxes on domestic production should be fully converted into a value added tax, and it should be extended to the wholesale level, in agreement with the States, with additional revenues beyond post-manufacturing stage passed on to the State Governments. The tax reforms witnessed thereafter sought to follow the directions spelt out in this report.

While the TRC laid down the analytical foundations for the reform of the tax system in a liberalised environment, subsequent reports extended the roadmap for reforms to meet the demands of the emerging economic environment in the new millennium.

India's biggest indirect tax reform has finally arrived–the Goods and Service Tax (GST)

From its first official mention in 2009 when a discussion paper was introduced by the previous United Progressive Alliance Government to the point when the current Government tabled the Constitutional Amendment Bill in the Parliament, building consensus on the GST hasn't been easy, Its current status is that it has been passed by both the Houses, of Parliament and is now being ratified by the State Assemblies gradually.

Why does India need the GST?

The GST is being introduced not only to get rid of the current patchwork of indirect taxes that are partial and suffer from infirmities, mainly exemptions and multiple rates, but also to improve tax compliances.

The spread of GST in different countries has been one of the most important developments in taxation over the last six decades. Owing to its capacity to raise revenue in the most transparent and neutral manner, more than 150 countries have adopted the GST. With the increase of international trade in services, the GST has become a preferred global standard. All OECD countries, except the US, follow this taxation structure.

What is GST?

It has been long pending issue to streamline all the different types of indirect taxes and implement a "single taxation" system. This system is called as GST (GST is the abbreviated form of Goods & Services Tax). The main expectation from this system is to abolish all indirect taxes and only GST would be levied. As the name suggests, the GST will be levied both on Goods and Services.

GST was first introduced during 2007-08 budget session. On 17th December 2014. It is defined as any tax on the supply of goods or services that will subsume CENV AT, service tax, Central Excise duty, additional excise duties, excise duties levied under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, service tax, additional customs duty (countervailing duty or CVD), special additional duty of customs (SAD), central surcharges and cesses, State VAT, State Sales Tax, entertainment tax not levied by local bodies, luxury tax, taxes on lottery, betting, and gambling, tax on advertisements, State cesses and surcharges related to supply of goods and services and entry tax not levied by local bodies.

The primary reason for introducing the Bill is to pave the way for the Centre to tax sale of goods and the States to tax provision of services. The Bill further proposes that the Central Government will have the exclusive power to levy GST on imports and interstate trade.

The bill has also recognised the need to have a GST council. The Union Finance Minister, the union minister of State in charge of revenue or finance, and the minister in charge of Finance or Taxation or any other Minister nominated by each State Government would constitute the council to ensure that both the Centre and the States are on equal footings.

In addition, the Bill proposes to set up a Dispute Settlement Authority that would look into disputes between the States and the Centre. Appeals from the authority would directly lie with the Supreme Court.

How is GST applied?

GST is a consumption based tax/levy. It is based on the "Destination principle." GST is applied on goods and services at the place where final/actual consumption happens. GST is collected on value-added goods and services at each stage of sale or purchase in the supply chain. GST paid on the procurement of goods and services can be set off against that payable on the supply of goods or services. The manufacturer or wholesaler or retailer will pay the applicable GST rate but will claim back through tax credit mechanism.

But being the last person in the supply chain, the end consumer has to bear this tax and so, in many respects, GST is like a last-point retail tax. GST is going to be collected at point of Sale.

The GST is an indirect tax which means that the tax is passed on till the last stage wherein it is the customer of the goods and services who bears the tax. This is the case even today for all indirect taxes but the difference under the GST is that with streamlining of the multiple taxes the final cost to the customer will corne out to be lower on the elimination of double charging in the system.

Benefits of CST Bill implementation

• The tax structure will be made lean and simple

• The entire Indian market will be a unified market which may translate into lower business costs. It can facilitate seamless movement of goods across states and reduce the transaction costs of businesses.

• It is good for export oriented businesses. Because it is not applied for goods/services which are exported out of India.

• In the long run, the lower "tax burden could translate into lower prices on goods for consumers.

• The suppliers, manufacturers, wholesalers and retailers are able to recover GST incurred on input costs as tax credits. This reduces the cost of doing business, thus enabling fairer prices for consumers.

• It can bring more transparency and better compliance.

• Number of departments (tax departments) will reduce which in turn may lead to less corruption.

• More business entities will come under the tax system thus widening the tax base. This may lead to better and more tax revenue collections.

• Companies which are under unorganised sector will come under tax regime.

Role of tax professionals

Throughout the world, Tax Professionals including Gaffed Accountants and lawyers who practice majorly in the field of tax–with their technical expertise and professional and ethical training-play a key role in assisting client and employer taxpayers regarding tax obligations. At one extreme, it is clear that tax evasion–which is illegal–should be condemned by all parties and no professional accountant should ever be associated with it. At the other, leveraging tax incentives in the way they are intended by Governments is certainly appropriate. Between the two extremes lies the complex question of "tax avoidance", which is by definition legal. This poses a difficult dilemma for taxpayers and, thus, for the accountancy profession.

The tax professionals

• Help employers and clients understand their fiscal and regulatory obligations in relation to taxation and advise them on how to comply;

• Ensure that their employers and clients understand the options available to them and assist them to be as tax-competitive as possible (thus creating economic wealth and employment), but should also ensure that they understand the consequences of each option (including potential reputational consequences);

• Are obliged to comply with strict ethical principles (e.g., the international
Code of Ethics or the codes of national professional and regulatory organisations), and are guided by the fundamental principles of integrity and professional behaviour; and

• Play an important role in combating tax evasion. For example, accountants in public practice help clients comply with their legal obligations. If a client is unwilling, an accountant considers options, such as resigning from the account; in some circumstances, accountants may have a reporting obligation to revenue or regulatory authorities.

Clearly, accountants play an important role-in effective tax systems, employer and client education, business advisory, ethics, and more.

[Source: Speech delivered at the 6th Five Years
Law Course Competition on 3rd September, 2016 at Jaipur]

My Dear brothers and sisters in the AIFTP family.

Well you all know that the entire tax practitioner fraternity is in the grip of fear on account of one of the major taxation reforms in our country that would commence with the advent of the Goods Service Tax Regime. More than 50% of the State Legislatures have already ratified the Constitutional Amendment Bill as passed by the Parliament and the Parliament Act having also received the assent of the President of India became law. Recently the Government also issued notification notifying the date as 12-9-2016 to constitute the GST Council to start the work in the direction of introducing the GST. Subsequently on 16-9-2016 another notification was issued giving effect to most of the provisions of the 101st Constitutional Amendment Act 2016 and the effect of enforcement of the provisions of the Constitutional Amendment Act have also started to raise the vibrations touching upon the continuity of levy of certain fiscals namely the Central Excise duties. Whatever consequences of adverse nature having imminent impact on the enforcement of certain provisions, the effect of the notification dated 16-9-2016 would have to be relooked at by the Government.

Now the greatest concern impacting the professional lives on the eve of the proposed GST is catching wild fire throughout all parts of the country and the entire tax practitioner professional fraternity is concentratedly looking at the leadership of AIFTP for redressal of their grievance. The tax practitioner fraternity in a nutshell desires that status quo in respect of their placements in VAT Acts shall be maintained in all respects both the qualifications as well as the status and stature of their relevance in the GST law as everyone is aware that in all the State VAT laws, there is a provision for licensing the tax practitioners for the purpose of audit of the prescribed assessees along with other tax professionals and also representational status before various quasi judicial authorities. Since the official Model Draft GST Law is not clear as to the placement of the tax practitioners in GST regime, agitation amongst themselves has gathered a momentum throughout all parts of the country. In the NEC meeting on 20-8-2016 at Jamshedpur and subsequently in the office bearers meeting on 9-9-2016 at Mumbai a decision was taken that the Federation should also contribute its mighty and powerful share in protecting the interest of the tax practitioners throughout the country as they are also the members of the Federation. Accordingly representations on behalf of the Federation duly signed by the President have been submitted to all the State Finance Ministers in the country, for, they being members in the GST Council shall consider the justification for inclusion of the tax practitioners in GST regime in terms of the existing VAT laws proposed to be subsumed in GST regime and with the active and encouragive initiation and support of the National President, in every State in the zone representations are presented to the concerned State Finance Ministers through the zone and the good sign is a tremendous positive response is vibrating everywhere to strengthen the efforts of the Federation to achieve this goal.

Federation from its side being the premier professional organization has been doing its best ahead of others since introduction of the Constitutional Amendment Bill in Loksabha to shield the interest of the tax practitioners. It has always strived for the professional interest of the concerned without any compromise and the same spirit shall continue assuring the same benefit will enure to the tax practitioners at large in the country. Already appointments are sought for with the Union Finance Minister and Revenue Secretary for explaining the cause and its jusfification for positive incorporation in the GST regime. It is the moral responsibility and bounden duty of the professional organisation to save the lives of around 2 crore human beings. It is hoped that with the positive response being received from each State, the efforts of the Federation would transform into fruitful one for being reaped by the all Tax Practitioners in the country.

Hope to see you all in 40th Year Foundation Day Celebrations at Pune.

Dr. M. V. K. Moorthy

National President

TRAINING
PROGRAMME "UDBHAV" FOR THE
JUDICIAL AND ACCOUNTANT MEMBERS OF THE
INCOME TAX APPELLATE TRIBUNAL, WILL HELP
THE INSTITUTION RENDER BETTER
ADMINISTRATION OF JUSTICE

Tax Bar highly appreciates that 42 newly appointed Members of the ITAT have undergone the training programme at Nagpur from 29th August, to 3rd September, 2016.

The Tax Bar has made an appeal, that when the new Members are appointed there has to be an orientation course so that the Honourable Members of the ITAT are able to deliver qualitative judgments. [AIFTPJ September, 2015 www.itatonline.org]. The Income Tax Appellate Tribunal being one of the oldest institutions of our country, is considered the Mother Tribunal of our country which celebrated its 75 years. It has a great tradition and reputation that has been built over the years, hence the new Members who have joined this institution have an even greater responsibility to preserve the purity, integrity and honour of the institution. The ITAT being the final fact finding body on direct taxes has to pass a speaking and well reasoned order. Only substantial question of law can be challenged before the High Court. One will have to appreciate that while hearing the appeals before the Tribunal, the Honourable Members of ITAT are not merely adjudicating on the issues before them but they are invariably deciding on the fortunes of the assessees. One wrong decision against an assessee may ruin his life and relegate him to the position of a pauper. At the same time, if the decision is against the Government it may affect the coffers of the Government only to an extent of a rain drop in the ocean.

In cities like Mumbai when an appeal is filed before the High Court, it can take a minimum of three years to hear the admission of appeal and assuming the appeal is admitted, it may take another 10 years to reach final hearing. At present, the appeals admitted of year 2012 are being taken up for final hearing. Hence, one can imagine the importance of the orders passed by the Income Tax Appellate Tribunal.

The Hon’ble Members of the ITAT are remembered by the quality of judgments they deliver. Due to innovation in technology, all the orders of the Tribunal are available for public scrutiny. In an appeal to High Court against the order of ITAT, the judges first read the Orders of the ITAT and thereafter they read the orders of lower authorities. Income tax Act, refers to various Central Acts and State laws, therefore while deciding important issues before the ITAT, it is very essential to know general law, which helps in delivering qualitative judgments. The training course will definitely help the members to deliver speaking and qualitative orders.

At present the pendency before the ITAT is only 92,000 appeals and we have 105 Members i.e. not more than 1,000 matters per member. With better management, use of modern technology and the help of the Tax Bar, pendency can be brought down to 75,000 and then it would be possible for tax-payers to get justice from the ITAT within six months of filing of an appeal. We desire that each and every assessee who approaches the ITAT must have the satisfaction that his grievances are heard patiently and qualitative reasoned orders are passed. We are sure that the initiation by the President of the Tribunal will go a long way in the justice delivery system of the ITAT.

Some of the Members of the ITAT are very young and it is the need of the hour that they should be groomed as ideal Members so that the institution can retain the glory as one of the finest institution of our country. We have confidence in the younger generation of Lawyers and Chartered Accountants. We feel they are more accomplished than us and far more alive. Good number of professionals are strictly following the ethics, values, and the conventions of the Tax Bar that have been inherited from respected seniors.

There is no doubt that the Income Tax Appellate Tribunal is one of the finest institutions of our country and both Bar and Bench must make a sincere attempt that it remains so. According to us, educational course must be held every year wherein all the members can participate in discussions and enrich their knowledge and experience as this will go a long way in improving the justice delivery system.

The Income Tax Appellate Tribunal Bar Associations’ co-ordination committee meeting will be held on 2nd December, 2016, at National Convention to be held at Delhi to discuss and to make representation relating to the ITAT, in respect of law, procedure, digitalisation of the ITAT, non-appointment of Vice-Presidents and introduction of concept of e-Court before the APEX Court, etc. The readers may send their objective suggestions which will be discussed and appropriate representation will be made to the concerned authorities which will help the institution to render better administration of justice.

Dr. K. Shivaram

Editor-in-Chief