HIGH COURTS

BOMBAY HIGH COURT

AMIT KUMAR SHUKLA

V/S

UNION OF INDIA & ORS

[SUNIL P. DESHMUKH & ABHAY AHUJA, JJ.]

WRIT PETITION (ST.) NO. 9335 OF 2021

Date of Decision: May 6, 2021

Bail- Fraudulent ITC availed – Absence of supply of goods – premises short of any goods – investigations pending to search co- conspirators- Held considering scale of scam and involvement of petitioner bail is rejected

The petitioner was arrested on grounds of availing fraudulent ITC without any supply of goods. The respondents contended that the petitioner is one of the key conspirators in the present case since the premises of the dealer were found empty and moreover, the petitioner is not co-operating with the investigation. The co-conspirators who were participating with the petitioner are absconding and are not joining the investigation. Investigations for ascertaining their role are going and there is a possibility that the petitioner could temper the evidence or influence the witnesses. The court has thus held that considering the scale of the alleged scam and the involvement of the petitioner. They are not inclined to interfere with the investigation at this stage. Hence bail is rejected at this stage. The petitioner may pursue other remedies available.

MADRAS HIGH COURT

KRISHNA MURARI SINGH

V/S

UNION OF INDIA & ORS

[SUNIL P. DESHMUKH & ABHAY AHUJA, JJ.]

WRIT PETITION (STAMP) NO. 9767 OF 2021

Date of Decision: May 6, 2021

Bail – offence u/s 132 of CGST Act – considering that petitioner has responded to summons, attended dates, not tampered with evidence, deposited a huge sum already and willing to deposit more money under protest, Bail is granted

The petitioner was accused of committing offence under section 132 of the CGST Act, 2017 for which he was arrested. A bail is sought in this regard. The Hon’ble Court has allowed the bail application considering the factual position that the petitioner had responded to the summons and attended the dates. No evidence that the petitioner had tempered with the documents or has ever tried to influence the witness is found. Further, under section 167 a person cannot be kept in detention beyond the period for 60 days if investigation relates to offence punishable with imprisonment for a term not less than 10 .The petitioner has paid an amount of Rs. 45 Lacs and is ready to deposit Rs. 5 Crores under protest towards the alleged amount of tax evasion to exhibit his bonafides.Thus, writ is allowed.

MADRAS HIGH COURT

SHRIRAM CITY UNION FINANCE LTD

V/S

THE PRINCIPAL COMMISSIONER OF GST AND CENTRAL EXCISE,

[Dr. Anita Sumanth, J]

W.P. No.832 of 2020 And WMP. No.1004 of 2020

Date of Decision: March 12, 2021

Transitional credit – show cause notice served for recovery of the same – Hon’ble court has viewed that appropriate term would be reversal and not credit- objections to be put forth by petitioner and accordingly order shall be passed by the authorities

Form Tran1 was audited by the GST department and the officer was of the opinion that the availment of cenvat credit on the services related to provision of food, accommodation and travels was not eligible. A show cause notice was issued where the officer refers to ‘recovery’ of the cenvat credit. However, the court has viewed that the appropriate term to have been used would be ‘reversal’ and not recovery at the stage of show cause notice. The petitioner may put out its objections before the department with regards to the proposed reversal of carried forward of ITC. The objection would be considered and the order would be accordingly passed. The writ is dismissed.

MADRAS HIGH COURT

SRI MUNIAPPA STEELS

V/S

THE ASSISTANT COMMISSIONER (ST)

[Dr. Anita Sumanth, J]

W.P. No.10489 of 2019 And WMP No.11086 of 2019

Date of Decision: April 27, 2021

Natural justice – Assessment order – Assessment order passed based on statement given by third party without hearing the petitioner or letting it put forth its objections – impugned order set aside – speaking order to be passed after hearing the petitioner.

A writ has been filed by the petitioner contending that the assessment order was passed by the department without hearing the petitioner. The said assessment order was passed based on the statement given by the third party dealer and the petition ought to have been granted opportunity to peruse the statement and put forth its objections to the same. Contesting the said order on grounds of violation of natural justice, a writ is filed before the Hon’ble High Court. The impugned order is set aside and the petitioner shall afforded an opportunity of hearing to put out its submission and file objections and consequently a speaking order shall be passed by the officer.

MADRAS HIGH COURT

CARLSTAHL CRAFTSMAN ENTERPRISES PRIVATE LIMITED

V/S

THE UNION OF INDIA

[Dr. Anita Sumanth, J]

W.P. No.11119 of 2020

Date of Decision: April 23, 2021

Transitional credit – inadvertent error/ mistake – rectification of error denied by department contending enough opportunity already granted – High court has allowed rectification of error it being a mere human error

While carrying forward credit from the erstwhile VAT regime to the GST regime an inadvertent error had crept into the form. While attempting to correct the error, yet another mistake occurred in the table 7D of the form. A request for rectifying was made but rejected by the department. The revenue had contended that there was enough opportunity already given to rectify the mistake but it wasn’t done. The Hon’ble Court has held the revenue does not dispute that it was an error inadvertent constituting a human error. The petitioner is thus permitted to transition the credit. The consequence of such transition is only the availment of credit and not the utilization itself which is a matter of assessment and can be looked into by the assessing officer. Therefore, the respondent will enable the modification of the form. The writ is thus allowed.

MADRAS HIGH COURT

TVL GOKUL TRADERS

V/S

THE DEPUTY STATE TAX OFFICER (ST)

[Dr. Anita Sumanth, J]

W.P. No.10015 of 2021 And WMP No.10642 of 2021

Date of Decision: April 22, 2021

Attachment of bank account – interim relief sought – No details being furnished regarding available bank balance, no direction can be given to set aside apportion of amount and permit operation thereof – petition disposed of –

The petitioner has challenged the order of assessment which was posted to petitioner through email. Service by email is an accepted mode of service. Regarding the interim relief sought by the petitioner that is for lifting of attachment of bank account pending appeal, the Hon’ble Court has held that the same cannot be considered as the details regarding the balance available in the bank account are not placed before the court. Had the same been produced, they could have given a direction to the authorities to set aside a portion of amount in satisfaction of the dues and permit operation of the bank account. The petitioner may file an appeal with an application for an interim protection. Petition is thus disposed.

MADRAS HIGH COURT

SUPRIMKUMAR JITENDRABHAI PATEL

V/S

STATE OF GUJARAT

[A.S. SUPEHIA, J]

R/CRIMINAL MISC.APPLICATION NO.1724 of 2021

Date of Decision: May 3, 2021

Bail – Fraudulent ITC availed – aspects like young age, role of accused , amount of tax evasion etc have been considered and bail is granted on furnishing of a personal bond and one local surety of the like amount

Allegedly the applicant has generated e-way bills of 16 firms without showing the identity of the purchaser and seller thereby evading tax. Thus a bail application is filed by the petitioner. The Hon’ble Court has considered certain aspects while granting regular bail to the applicant like the role attributed to the accused, age of the applicant being 30 years, applicant being under judicial custody since December 2020, total tax evasion coming to around Rs 16Lacs approximately, the investigation being over and the offence is punishable with maximum 5 years imprisonment. Thus bail is granted to the applicant on furnishing of a personal bond and one local surety of the like amount with the satisfaction of the Court.

MADRAS HIGH COURT

RAMAKRISHNAN MAHALINGAM

V/S

STATE TAX OFFICER (CIRCLE)

[Dr. Anita Sumanth, J]

W.P. No.15081 of 2020 And WMP.Nos.18799, 18801 & 18797 of 2020

Date of Decision: April 30, 2021

Registration certificate – revocation of – application filed for revocation – respondents contend that registration could be revoked upon satisfying tax dues – Honble High court has allowed writ holding that authorities cannot embark upon process of assessment in guise of considering revocation – Assessment can be done only u/s 73

The registration certificate was cancelled on the grounds of non filing of returns. However, under section 30 an application was filed for revocation of the order of the cancellation. The respondents contended that the registration could be revived upon the petitioner satisfying the tax dues and substantiating its claim of ITC. The Hon’ble High Court has held that in the guise of considering the application for revocation, the authorities cannot embark upon the process of assessment as assessment can be made only in terms of Section 73 or other provisions after following the procedure. Thus the respondents shall pass an order reviving the registration of the petitioner after which the assessment can be taken up. The writ petition is thus allow.

TELANGANA HIGH COURT

VIJAY METAL

V/S

THE DEPUTY COMMERCIAL TAX OFFICER

[M.S.RAMACHANDRA RAO & T.VINOD KUMAR, JJ]

WRIT PETITION NO. 2869 OF 2021

Date of Decision: April 28, 2021

Detention of goods – transporter took 2 sets of goods- one purchased by petitioner from the seller as well as another consignment (lighter in weight) sent by the same selling dealer, to be unloaded at Hyderabad and Adhoni respectively – goods detained in transit on grounds of absence of invoice and e way bill for goods destined to Adhoni – explanation tendered that goods for Adhoni were lighter in weight and the transporter planned to unload them first at Adhoni and take the heavier consignment to Hyderabad thereafter for unloading for the sake of convenience – explanation rejected by authorities as Hyderabad was a nearer destination and Adhoni was further away – reason found justified by Hon’ble High court – relief given accordingly

The petitioner had purchased goods from Firm A to be sent to Hyderabad. The transporter picked up another set of goods from the same seller company A to be further taken to Adhoni. Since the goods destined for Adhoni were lighter in weight than the goods purchased by the petitioner, the goods destined for Adhoni were loaded on the top of the goods of petitioner in transporter’s conveyance. For the sake of convenience the transporter planned his route in such a way that the lighter goods would be unloaded at Adhoni first and then he would come back to Hyderabad to unload the goods of by the petitioner. The goods and transit were detained on the ground that there was no invoice or e-way bill for the goods to be transported to Adhoni. The respondents were contended that since Hyderabad was a nearer destination and Adhoni was further ahead the transporter ought to have taken the goods first to Hyderabad and then to Adhoni. The Hon’ble Court has held that the impugned order has been passed by the officer without application of mind. It is understandable that the lighter consignment is easier to be unloaded first. The impugned order has been set aside and writ is allowed.

GUJARAT HIGH COURT

BHAVESH KIRITBHAI KALANI

V/S

UNION OF INDIA

[SONIA GOKANI & VAIBHAVI D. NANAVATI, JJ]

R/SPECIAL CIVIL APPLICATION NO. 16360 of 2020

Date of Decision: April 19, 2021

Provisional attachment – bank account freezed – no information supplied to applicant – Held – no proceeding against the application under section 62,63,64,67,73 and 74 of the Act are pending there is no reason to invoke section 83.

Bank account of the petitioner was freezed under section 83 of the Act. On seeking information regarding the reason behind it the manager did not supply any information. Hon’ble Court has held that since no proceeding against the application under section 62,63,64,67,73 and 74 of the Act are pending there is no reason to invoke section 83. The action of freezing is harsh and should be resorted to as provided under the statute. It is a drastic power, the authority concerned cannot be oblivious of the consequences of provisional attachment. The proceedings are initiated in connection with the third parties Hence invoking the power under section 3 is not available with the respondents. Therefore, the court has allowed the provisional attachment to be lifted.

ALLAHABAD HIGH COURT

NEERAJ KASYAP

V/S

UNION OF INDIA AND ANOTHER

[Saumitra Dayal Singh , J.]

CRIMINAL MISC ANTICIPATORY BAIL APPLICATION NO. 6952 of 2021

Date of Decision: April 30, 2021

Anticipatory bail – Sought as petitioner is summoned to participate in an inquiry against some other trader – Held No reason to believe that any inference is drawn against the applicant – no risk of arrest involved – bail application rejected

The applicant has approached the Hon’ble Court seeking an anticipatory bail as it has been summoned u/s 70 of the CGST Act with regard to an inquiry that is being made against the trader A who is accused of issuing bogus invoices. The department has summoned the applicant to participate in the inquiry. The court has held that there is no reason to believe that any inference is being drawn by the authorities against the applicant presently. Merely because it has been called to participate in the inquiry against the trader, it does not involve and automatic accusation against the applicant and it also does not involve the risk of his arrest. The bail application is being rejected.

TRIPURA HIGH COURT

SARVASIDDHI AGROTECH PVT. LTD.

V/S

THE UNION OF INDIA

[AKIL KURESHI, C.J. & S.G. CHATTOPADHYAY, J]

W.P. (C) No.279/2021

Date of Decision: April 20, 2021

Search – Branded rice – Rice seized on search of premises – contention that supply existed of unbranded rice while branded rice was used for internal purposes not accepted by authorities – writ filed – Held that the conclusion was based on material on record- sizeable quantity seized shows that petitioner was dealing in branded rice- tax is demanded on rice already supplied and not stored – no evidence to show that branded rice was meant for internal purposes

After a search was conducted, it was found that the petitioner was supplying branded rice instead of the unbranded rice as contended by it. The department seized some invoices, documents and some sizeable packages of rice. Tax, interest and penalty was imposed accordingly. The appellant authority confirmed the finding of the adjudicating authority as the authorities did not accept the petitioner‘s ground that the seized rice was being used for its internal use and purposes. On filing of writ, the Hon’ble Court has held that firstly, conclusion of the authorities is based on assessment of materials on record. Secondly, the seizure of sizeable quantity of packaged branded rice indicates that the petitioner is dealing in such product. Thirdly, tax is not being demanded on rice stored but on the quantity of rice which has been already supplied in the bill book. Moreover, the defence that the rice lying in godown was used for internal purposes is not supported by any evidence. Therefore, the petition is dismissed.

Posted in May.

Under the Goods and Services Tax Act 2017 though the input tax credit is projected as one of the incentives, but it is not so easily seen or visualized for the benefit of the tax payers. Let us examine the background of input tax credit given under the statute and now proposed is it to be circumscribed.

The input tax credit is first given by the Central Excise Act with regard to the inputs purchased for use in manufacture of the finished products and as per Rule 2(k) and 2(l), the input tax credit on goods services had also been extended. Thus pre-advent of GST, Cenvat has ruled the field for the benefit of ITC. The goods and services that are emanated in these rules are as follows.

Rule 2 (k) “input” means-

(i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;

(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service;

Explanation 1.- The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.

Explanation 2.- Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer; but shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated bar (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods;

Rule 2 (l) “input service” means any service,-

(i) used by a provider of taxable service for providing an output service; or

(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;

According to these rules, the claim of input tax credit is with regard to inputs that are used in the manufacture of finished products by the manufacturer and services are those that are used for the final service that would be provided by a service provider.

Under VAT Act also, the input tax credit facility was extended to the registered dealers. I would like to refer and explain in the article. The APVAT Act 2005 and TS VAT Act 2005 and as most of the State VAT Acts are similar and identical and accordingly, I continue. Under section 13(2) to (11), the claim of input tax credit to registered dealers is provided. However section 13(5) restricts the claim of input tax credit or will not allow the input tax credit claim to the dealers engaged in works contract and who have opted to pay the tax at compounded rate under the provisions of sub clause (b) & (d) of sub section (7) of section 4. Clause (b) and (d) of sub section (7) of section 4 deals with composite works contract where the dealer would be paying on the entire turnover, a tax of 4% or 5% as the case may be or 1% as the case may be. Hence the works contractor who has elected composite scheme would not be permitted to claim input tax credit. Then when a dealer transfers his business as a whole he would not be permitted to claim input tax credit and a dealer who sells exempted goods except when such goods are sold in the course of export or exported outside the territory of India , such dealer would not be entitled to claim input tax credit. Here for the reasons best known to the Governments or the draftsman of the VAT Act 2005, the exports outside the territory or in the course of exports outside the territory of India are given input tax credit but rest of the exempted goods are not given input tax credit. The reasons may be because the export outside India generates foreign exchange but I don’t see any rational in giving exemption in the cases of in the course of exports which is nothing but a penultimate export. When an exemption presupposes levy of tax but it is exempted only under certain circumstances or occurrence of events. In other words, the tax would levied on the commodity but would be exempted basing upon the circumstances and hence the denial of input tax credit to the penultimate exports is quite ununderstandable and unwanted. Though other sub sections deal with the claiming of input tax credit, I would like to quote sub section (7) which was subordinate by Ordinance No. 7/2011 w.e.f. 15-11-2011 and replaced by Act No. 21/2011 and this particular sub section deals with the works contract and where works contract leviable under section 4(7)(a), the input tax credit was earlier allowed at 90% and later was restricted to 75%. I do fail to understand as to when works contract was considered as a deemed sale, the rationale behind restricting the input tax credit either 90% or 75% as the case may be would completely be illogical and though it is said that grant of input tax credit is not a right but a concession grant still, the input tax credit is allowed to the VAT dealers only when they have paid the tax to the seller and the same tax would be given a set off from output tax payable by the dealer. Hence placing any restrictions on the purchases made from a registered dealer is somehow indigestible. Of course it is always for the concerned persons to mull over and decide on their measure of eligibility.

Whether a dealer is a registered or not , he has to pay the tax. when the department is able to catch the dealers and the definition of the dealer as envisaged in section 2(10) of the VAT Act 2005 specifies that dealer means any individual , firm or company, he is liable to pay the tax as per the charging section 4, which is the heart of the APVAT Act 2005. So it is for the statute to extend its hand and to catch the dealers but placing any restriction on the purchases made from a dealer would somehow is not advisable. Further one more unhappy provision namely section 13(3)(aa) of the APVAT Act 2005 categorically envisages that if the selling dealer has not paid the tax or filed the return, then no input tax would be found eligible to the purchasing dealer. Several writ petitions before various High Courts have been filed and the Delhi High Court has declared that provision in section 4(9) which says that the ITC would not be given to the purchasing dealer if the selling dealer does not pay the tax as arbitrary and as such read down. The order was carried in by way of an appeal to the Hon’ble Apex Court in the case of Commissioner of Trade and Taxes, Delhi and others v. Arise India Limited and others [TS-2-SC-2018-VAT] whereby the Hon’ble Supreme Court has confirmed the orders of the Delhi High Court. Similar view was also taken by other High Courts. As far as the Telangana High Court is concerned no final orders have been passed by the Hon’ble High Court. Same is the case with the A.P. High Court also.

I have argued a case in W.P. No. 14952/2020 in the case of Ganesh Enterprises where peculiarly the seller who is under the incentives scheme in the form of deferment has not paid the tax but the department is disallowing the input tax credit and asking the purchaser to pay the tax. This is quite surprising as also atrocious as on one hand the seller is not found fault and he is allowed to claim the benefit of incentive and on the other hand the purchaser is denied the ITC and asked to pay the tax. The Hon’ble Court has granted interim stay.

Coming to GST Act 2017, the denial of ITC has taken different colours and in a period of 3 ½ years advent, there are several amendments to section 16. I would like to deal with the recent amendment made to section 16. Section 16 deals with input tax credit

  1. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

    (2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––

    1. he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

    2. he has received the goods or services or both.

      Explanation.—For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

    3. subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and

    4. he has furnished the return under section 39:

    Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:

    Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:

    Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.

    (3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed.

    (4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.

    Sub section (2) of section 16 is proposed to be amended once again in the Finance Bill 2021 by inserting clause (aa) which promalgamates as under;

    “(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;”

    Already times be gone proved that section 16 is a night mare for the dealers under the GST Act 2017. As section 16 says that the dealer who is doing the business has to not only verify the books of accounts, the monthly returns such as GSTR 1, 3B and annual returns like GSTR 9 and 9C etc, but has also to verify whether the seller has filed the GSTR 2B returns and paid the tax and GSTR 2A is auto populated return and if any mistake takes place in GSTR 2A when compared with GSTR -3B then he has to face all sort of music and also the selling dealer has to provide a statement of payment of tax and invoice particulars , accounting details, uploading of the particulars to the purchasers.

    This seems to be a herculious task for the selling dealer. On one hand, it places in human workload to the selling dealer, it completely relieves and relaxes the officials appointed to administer the provisions. I would sarcastically say the Act enormously burdens the selling dealer to distract from his business and to look after these aspects. It is unfortunate that the GST Council proposed the section and its corresponding rules forgetting the fact under the indirect tax regime, the dealers act as agents on behalf of the Government.

    Certain writ petitions were filed before various High Courts in Delhi High Court in the case of Bharati Airtel Tele Media Limited, Himanshu Mohita and Associates and Kolkata High Court in the matter of LGW Industries and AP High Court in Bharati Airtel Tele Media Ltd, which has withdrawn the writ petition and several other High Court like Gujarat and Rajasthan in which stay was not pressed, subject to correction.

    Undoubtedly the proposal would trouble or harass the dealers who are registered with the departments and who are paying the taxes to the State and who are vigilant and kneen in filing the returns and the respective forms under the GST Act. However, it cannot be forgotten or ignored dealers are nothing less than agents who act for the Government in collecting the taxes only to pays to the Government exchequer. When the taxes are not paid by the dealer who are supposed to be the agents of the government, the government would be levying interest added to levy of penalties. It is no doubt that they are some blacksheep and unscrupulous dealers on whom the department would be initiating action very harshly including the provision for arrest not only against the dealers but also their family members and the persons like Chartered Accountants, Tax Practitioners and Advocates and their kith and kin.

    Be that as it may, the government should think of the well being dealers who constitute taxman family who are registered under the GST Act and who purchase the goods from the registered person who provide the details of the registered person such as registration number etc and claim ITC and instead of granting them ITC, the department is demanding them to pay the ITC which is nothing but a tax required to be paid by the selling dealer. When the selling dealer fails to pay, collecting such tax from the recipient amounts to double taxation and is violative of article 265. For these reasons under the GST Act, the dealers not only pay the taxes but the interest and penalties which may vary from 25% to 100%. The dealer is burdened with the tax that the seller has to pay. There is no RCM also provided under the Act to take the benefit of the tax that would be paid by the dealer if tax that has not been paid by his selling dealer.

    Whether it effects the capital expenditure:- Though RCM is referred to in the preceding paragraphs, nevertheless the RCM if implemented is a burdensome to the dealers as the dealers has to borrow money and pay the taxes on which he would be paying interest that would escalate the capital expenditure.

    Whether the price of the goods would effect the end customer:- This is a very important factor and subject, which has to be thought of by all the concerned stakeholders like the Government, the dealers and also the end customer as the end customer is the effected person who would be paying for the commodity at an increased rate.

    The end customer is certainly burdened with the hike in price as the selling dealer if does not pay tax, purchasing dealer would be paying the tax and interest and penalties under statutory mandate and would comprise of tax that he paid, penalties and interest which value would increase the capital expenditure also and would be determinative factor of the price after adding the gross profit to the commodity and adding to that the tax rate. That would be collected from the end customer and this aspect is not visualized or forecasted by anyone either Government or the dealer or the end customer as the Government wants money by hook or crook and the dealer who would be doing business wants his business to flourish and always looks towards for a healthy relationship with the Government would be penalizing the end customer who on account of the necessity for the goods would aim at purchasing the goods irrespective of the costs of the goods.

    Something has to be done with the rejection of the ITC by the department. At best what I can suggest is the department persons can provide a note informing that if the goods are purchased from the dealers other than the one specified in the statement provided by them, the dealer would not be eligible for ITC. The question that arises is the dealers may be added and the statement has to be amended from time to time. Friends rather than inviting undue hurdles, I feel that the amendments in the statements would be feasible and more so the department is coming up with lot of amendments by way of notifications and if these type of thoughts are given, then I think the pilferage for government revenue can be curbed down. After all the President of India is also a victim as he is also an end user and every person in this world is the end user of the product.

    Hence with great respect to all the people who read my article, I would with folded hands request earnestly and beg to give a thought including the departmental, GSTIN council and the Finance Minister and if permissible the Prime Minister to make suitable amendments to this effect. Hope that some goods days are in hear sight under the encomious leadership of our esteemed Prime Minister and his team who are striving hard for the development of the country.

Posted in May.

In the case of Radha Krishna Industries v. The State of Himachal Pradesh, during the course of hearing on 6.4.2021 the Honourable Supreme Court observed that the taxman couldn’t just attach assets at the drop of a hat and that the tax officers create huge demands in the absence of any accountability. The honourable Court also observed that provisional attachment is draconian and pre-emptive strike. The Honourable bench comprising Justices Sri D.Y. Chandrachud and Sri M.R. Shah said: “The Parliament had intended the GST to be a citizen-friendly tax structure… the purpose of the Act is lost in the manner in which it is enforced in our country.”

The success of tax system anywhere lies in its simplicity. We all know that even in 400 B.C., Kautilya (better known as Chanakya) in his “Artha Sastra” specified the points and rates of tax leviable on various goods. There were import and export duties in the name of “sulka”, octroi and gate tolls were levied in the name of “dwarabahirikadeya”, road cess in the name of “vartani”, royalty in the name of “prakriya” etc. Sales tax on goods in modern India as a fiscal measure is the outcome of the last century only. Government of India Act, 1935 has for the first time empowered the States to impose sales tax on goods. The erstwhile Bombay State was the first State to impose a selective tax on the sale of tobacco in the year 1938. This was followed by levy of tax on the retail sales of petrol and lubricants in the year 1939 in Central Province and Berar (now, Madhya Pradesh). However the erstwhile Madras State was the first State to impose a multi-point sales tax on goods in the year 1939 in the form of ‘General Sales Tax’. Subsequently all the States had levied General Sales Tax. There was also Central Sales Tax. Service tax came to be imposed in the year 1994. People did not feel any compliance burden for centuries in relation to the levy of the above taxes.

Ease of compliance for tax professionals

One of the nine canons of taxation is ‘simplicity’. The provisions should be so simple that the tax payer can easily understand them and without the help of an expert. Complicated and confusing tax provisions are good incentive to evade tax. About 90% of the tax professionals, particularly practitioners doing original side work and large number of GST tax payers have been accustomed to ‘sales tax’ law and procedure, which has been in vogue for more than eight decades, compared to service tax law and procedure, which has just completed two decades. Tax Professionals expected that the GST law and procedure would be more akin to the erstwhile sales tax law and procedure, with which they are all quite familiar. However to their dismay, the GST law stepped into the shoes of service tax law and procedure. We can understand that ‘supply’ has to be substituted for ‘sale’ for Constitutional reasons, but by and large, the time tested sales tax procedures, known to every one for decades ought to have been retained for better compliance and success. In general, tax professionals have not been feeling ease of compliance. Naturally the new law is not citizen-friendly as observed by the Honourable Supreme Court. Several issues and concepts have been made highly complicated. As on 13.4.2021, Notifications numbering 599 have been issued (Central tax 333, Central Tax –Rate 111, IGST 26, IGST Rate 114, Cess 3 and Cess Rate 12). All stake holders are expected to study and understand these. Frequent changes in the tax system oppose the canon of certainty. Not even a single Notification has been issued after introduction of the VAT system of taxation in 2005 till 2017 in respect of Andhra Pradesh/Telangana Value Added Tax Acts. On a global analysis of about 8 years, the 2013-World Bank Report says that the economic growth appears to be more strongly linked to reducing the administrative burden on businesses than on reducing the rates of tax. Such is the effect of compliance burden. Draftsmen of the statutes and notifications must consider the level of stakeholders, who will be using them. Complexity in the tax system distorts economy. Are there complexity costs in the present system? We should not ignore the fact that simplification results in greater compliance and lower compliance costs as well lower administrative costs. It is time to ponder on whether we have ‘simple’ GST structure or not.

Some compliance issues

Real Estate Developers used to pay just 1% or 1.25% or 1.5% VAT, as the case may be and 4.5% Service tax. Compliance was the easiest and litigation was minimal. In GST law one has to go through several pages of Notifications and Circulars and comply with several conditions and dates. Naturally at some point, tax payer is caught for non-compliance or wrong compliance, may be unintentionally. Is it necessary to have such extensive knowledge of several GST provisions and conditions including the provisions in RERA and several Government schemes just to pay indirect tax.

Under the erstwhile General Sales Tax regime and VAT regime, there used to be contingent purchase tax. It was payable on the purchase of taxable goods, only when there was no possibility to pay corresponding output tax. Under VAT regime, hence, it was not available for tax credit. It is a cost. Payment of tax on RCM basis for example on raw Cotton and Tobacco leaves would be in the nature of tax investment. While such tax paid on RCM basis is available for credit and thereby became pass-through tax, there is no place for levy of tax on RCM basis on such commodities. Even before the goods are supplied, tax became payable, thereby eating away the investment. Such levy opposes the canon of taxation –‘convenience and ease.’

An impression has been widely formed that Advance Rulings are more pro-revenue and sometimes different State authorities have given conflicting Rulings. Instead of getting the solution, tax payers are more confused.

For paying tax at the lower rate or for claiming exemption, several conditions have been specified in the Notifications. It has become impossible for the ordinary tax payers to ascertain the conditions as and when a transaction has to be done. Any innocent violation would result in the levy of tax at the higher rate and the tax payer would be put to untold misery due to the cost involved. In the erstwhile Sales Tax regime, such conditions are a rarity.

First appellate authority used to remand the matter to the assessing authority, for de novo enquiry and passing the order afresh in the erstwhile regime. In the GST scenario, appellate authority cannot refer back to the assessing authority. In the indirect tax scenario lot of verification of documents has to be made for making assessment. Assessing authority used to have 4 to 5 sittings for that purpose and it is assisted by adequate staff. However the present appellate authority is hardly assisted by a first level gazetted officer and two assistants, who are always busy with regular appellate work. Further tax payer and tax professional are required to appear for verification of documents several times in the office of the appellate authority, if it intends to modify the assessment order. Added to this, offices of appellate authorities are situated at a distance of even 400 KMs. On the contrary, if the matter is referred back to the assessing authority, it is easier because the authority is located within 40 to 50 KMs. The present procedure of modification by the appellate authority has been causing severe burden both to the appellate authority and to the tax payer/tax professional.

If the recipient has not paid the consideration within the 180 days to the supplier, he has to reverse the credit claimed. For this purpose, he has to keep track of the transactions. It is an issue between two private citizens and the Government has no role. It is an extra compliance burden on the recipient.

Assessment notices and assessment orders are running into 20, 30, etc., pages, while under the earlier sales tax/VAT regime, they are generally from 2 to 6 pages, unless large number of facts are involved. For example, a tax payer pays tax @ 5% instead of @ 12%. The notice may just explain in few lines, why is it taxable @ 12%. There is no necessity to extract provisions running into 20 or 30 pages or bring facts which are neither relevant nor material. If the provisions are to be extracted they may be shown in Annexure and not in the body of the notice and order, so that the crux of the issue is not missing. It is consuming lot of time to go through several pages.

Another one relates to transport of goods. For example, a goods vehicle commences journey from Tamilnadu and proceeds towards Assam. In Maharashtra, the vehicle and goods are inspected by the Officer. It results in levy of tax and penalty. According to the authorities, appeal has to be filed in Maharashtra, where the order has been passed. It results in waste of time, money and energy. Some tax professional has to be found in that State for dealing with the appeal. In some States, there was a provision under the erstwhile law to refer the case by the inspecting officer to the assessing authority of the seller, who moved goods for taking required statutory action. If at all any tax and penalty have been levied, appeal is filed in the State of the seller only.

In the case of change in the rates of tax, Notifications may be given effect from the first day of the succeeding month instead of from a date in the middle of the month, so that changes in software and return filing would be easier.

Dealers and tax professionals were familiar with ‘assessment (provisional and final) and ‘assessing authority’ and nothing more under the erstwhile law. The terms ‘determination’, ‘adjudicating authority’, ‘proper officer’, ‘recovery’, ‘many proforma notices’ etc., are foreign to them. Five to six sub sections served the purpose of assessment, including provisional assessment and the best judgment assessment in the erstwhile tax regime for nearly eight decades. Courts never found fault with such few provisions and Revenue had no complaint. There is necessity to simplify the assessment procedure by pruning the present provisions in tune with the erstwhile provisions. Even the State Tax Officers have been feeling uneasy with such provisions.

There was no concept of ‘time of supply of goods’ in the sales tax/VAT/CST regime of about eight decades and there was never any issue on this subject. Dealers used to declare the turnover in the month in which the goods were delivered. Introduction of ‘time of supply of goods’ into GST law therefore may not be necessary. More and more conditions mean, burdensome compliance and possible penal action for innocent violation. Unless circumstances seriously warrant, payment of tax shall be free from conditions.

Fortunately payment of tax on the advances received for the supply of goods has been omitted. But still tax has to be paid on the advances received in relation to supply of services. For this purpose, tax payer has to keep the track of events till the supply is completed. It is not convenient to have tax payment even before the supply of service has commenced. One of the nine canons of taxation is ‘convenience or ease’. As per this canon, tax payer is required to pay tax at such a time that it affords to his maximum of convenience. There need not be any discrimination between supply of goods and supply of services, because what has been received in both the cases is ‘consideration’ only. Such condition results in substantial compliance burden. In any case, tax has to be paid on the entire consideration, whether received or not from the recipient.

GST Practitioners have to pass the examination conducted by NACIN within a specified period. It is felt that such an examination has become infructuous. Instead of conducting such examination, it is desirable to conduct one-week long GST training course periodically to the GST Practitioners in all the States, by charging fee. Well trained and well informed Practitioners are assets to the Department.

Where services have been provided to ‘Governmental authorities’ and ‘Government Entities’, lower rates of tax are applicable. There is no clarity on these two terms. Assuming the recipient as for example a ‘Government entity’, tax has been charged at a lower rate. The proper officer disputes, in his own way as usual, that the recipient is not a Government Entity. It is impossible to know the percentage of the control. the State/Central Government has in that entity.

Ordinary tax payer can never understand the computation and formulae mentioned in Rules 42 and 43 of the CGST Rules, 2017 for claiming eligible ITC. Such a highly complicated formula will give the officers a stick to beat, as there are bound to be a number of mistakes resulting in claim of higher quantum of ITC. In AP/Telangana VAT Act, there used to be the most simple formula A x B/C, which is explained as—

“A is the total amount of input tax for common inputs for each tax rate excluding the tax paid on the purchase of any goods mentioned in sub-rule (2).

B is the sales turnover of taxable goods including zero-rated sales

C is the “total turnover” including sales of exempt goods”

Even a high-school studied rural accountant was correctly applying the above formula for over a decade in VAT regime. It is not too much to expect such simple procedures and computation. In the case of Krishna Iyer v. State of Kerala (1962—13 STC 838), the Full Bench of the Honourable Kerala High Court observed ‘the Legislature does not suppose our merchants to be naturalists, or geologists, or botanists.’ Similarly, one cannot suppose tax payers to be professors of mathematics and software engineers.

Another heart-burn is mismatch. Authorities expect the recipient, who has no control over the affairs of the supplier, to ensure that the supplier files the return correctly and completely and pays tax. For example, a supplier supplies goods and services in a month say, to one hundred tax payers and doesn’t file the return for that month. Instead of taking action against such single supplier, who is the known defaulter, all the hundred recipients face action, resulting in dent into their finances, due to restriction of ITC. See the compliance burden—one hundred recipients receive notices, which have to be complied with. Can the law compel a person to do something which cannot possibly be done (lex non cogit ad impossibilia) or will he be excused as there is no default on his part.

To make compliance simpler, Government may kindly think of making inter alia, certain changes like:-

  1. Easier formula to compute eligible ITC, which, even a less educated person can understand and follow

  2. Curtailing too many conditions against several entries in Notifications Nos.11 and 12/2017 Central Tax – Rate dated 28.6.2017.

  3. Doing away with mismatch concept and making the supplier responsible for all his misdeeds.

  4. Omitting payment of tax on RCM basis especially in the case of raw cotton, tobacco leaves, etc.

  5. Publishing State-wise list of ‘Governmental authorities’ and ‘Government Entities’, so as to avoid discretion by the authorities.

  6. Restructuring the Advance Ruling mechanism, as by and large the present set up has created more confusion than clarifying the issue.

  7. Instructing the authorities to issue brief notices and orders with the provisions, etc., in the Annexures, to save precious time.

  8. Amending the law requiring the inspecting officer of the goods vehicle to refer the case to the assessing authority/proper officer of the supplier with a request to take action as may be deemed fit under the law.

  9. Amending the provision relating to reversal of credit, if the consideration has not been paid within the 180 days to the supplier.

  10. Giving effect to the changes in the rate of tax from the first day of the succeeding month.

  11. Providing simplified assessment procedure.

  12. Amending the provision to allow the appellate authority to remand the matter to the assessing authority.

  13. Removing the condition of payment of tax on the advances received for the supply of services and

  14. Organizing periodical training course to the GST Practitioners, instead of conducting examination.

There may be many more issues of compliance burden. It is time for the Government after about 4-year GST experience to constitute a Committee consisting of trade and industry representatives, tax professionals and State & Central Tax Officers to look into the issue of simplifying the provisions to ensure substantial reduction in the compliance burden. Let us hope, as hope is eternal.

Posted in May.

“A statesman in these days has a difficult task. He has to pursue the policy he deems advantageous to his country, but he has at the same time to recognize the force of popular feeling. Popular feeling is very often sentimental, muddleheaded, and eminently unsound, but it cannot be disregarded for all that.” Hercule Poirot – Agatha Christie

Two years after the publication of the report titled Addressing Base Erosion and Profit Shifting, OECD countries together with the G20 and partner jurisdictions launched the final OECD/G20 Base Erosion and Profit Shifting Package in October 2015. In totality 15 Actions points were recommended as a part of the Action Plan. The aim of the BEPS plan was to address tax challenges faced by various taxing jurisdictions both at the national and International level, with particular reference to addressing taxation concerns where economic activities were undertaken and value was created, while at the same time giving business greater certainty with regards to tax policies, and effective and efficient methods of dispute resolution. Emphatically, most of the recommendations in the project were incorporated in the 2017 OECD Model Tax Convention and commentaries, specifically aimed at addressing:

  • Neutralizing the effects of hybrid mismatches.

  • Prevention of Artificial PE avoidance.

  • Granting of inappropriate treaty benefits or state aids.

  • Improving direct tax dispute resolutions between jurisdictions.

Some of which have been already highlighted in an alternate context by your author in the August 2020 issue.

Undoubtedly the Multilateral Convention to Implement tax Treaty Measures being a historical turning point in international taxation, that resulted in the introduction of a third paradigm in the arena, in addition to the existing private international tax law and bilateral treaties, revolutionises the international tax treaty network by way of a multilateral as opposed to a bilateral modification of Covered Tax Agreements (Under the MLI Convention) by a single stroke.

According to the Executive summary on Action point 15 of the BEPS report “Tax treaties are based on a set of common principles designed to eliminate double taxation that may occur in the case of cross-border trade and investments. The current network of bilateral tax treaties dates back to the 1920’s and the first soft law Model Tax Convention developed by the League of Nations…….. Globalisation has exacerbated the impact of gaps and frictions among different countries’ tax systems. As a result, some features of the current bilateral tax treaty system facilitate base erosion and profit shifting and need to be addressed. Beyond the challenges faced by the current tax treaty system on substance, the sheer number of bilateral treaties makes updating the current tax treaty network highly burdensome.”

The front note Multilateral Instrument (MLI) in accordance with action point 15 Base Erosion and Profit Shifting Report reads the purpose as to “Analyse the tax and public international law issues related to the development of a multilateral instrument to enable jurisdictions that wish to do so to implement measures developed in the course of the work on BEPS and amend bilateral tax treaties.” (https://www.oecd.org/ctp/BEPSActionPlan.pdf)

It goes without saying that bilateral tax treaties are a result of multiple years of hard labour and diplomatic negotiation and any amendments to any of them would also result in similar sort of labour. A mechanism thus which could lead to modification of multiple of them by a single stroke would be highly preferable, particularly which would entail lesser negotiation and would drive home the relevant point.

A brief introduction into the structure of the Multi Lateral Instrument would be in order at this juncture.

The MLI text introduces “Recognising that governments lose substantial corporate tax revenue because of aggressive international tax planning that has the effect of artificially shifting profits to locations where they are subject to non-taxation or reduced taxation………. “(https://www.oecd.org/tax/treaties/multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-BEPS.pdf)

The MLI document consists of 39 Articles with the following headings

Part I : Scope and Interpretation of Terms (Articles 1-2) : Sets out the scope of the Instrument and definitions thereunder

Part II : Hybrid Mismatches (Optional) (Articles 3-5) : BEPS Measures

Part III : Treaty Abuse (Articles 6-11) : BEPS Measures

Part IV : Permanent Establishment (Optional) (Articles 12-15) : BEPS Measures

Part V : Dispute Resolution (Articles 16-17) : BEPS Measures

Part VI : Arbitration (Optional) (Articles 18-26) : Provisions related to Mandatory Binding Arbitration

Part VI : Final Provisions (Articles 27-39) : Procedural provisions related to acceptance, reservations amendments, entry and exit provisions etc……

For a detailed overview, the reader might go online at https://www.oecd.org/tax/treaties/multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-beps.htm

It might be noted that as of December 2020 95 countries have signed the MLI agreement. For the Indian timeline, MLI document was published in November 2016, by June 2017 India was amongst the 68 jurisdictions that signed the MLI, June 2019 India Ratified and deposited the instrument of the MLI, MLI entered into force in India on the 1st October 2019, and on 1st April 2020 Indian MLI provisions became effective with 23 countries. While a detailed discussion on the Indian scenario would be out of scope, it can be said that India has been an active participant towards the formulation and continuity of the MLI.

Without going into the detailed academics of what the MLI Instrument actually is and what it strives to achieve, and by what mechanisms, this article tries to delve on what the direct and indirect issues of the MLI have been at large to the tax administration and the comity of nations thereof.

Its pertinent to note that the MLI applies only where all concerned parties have designated CTA’s, and application is limited only those provisions that all the parties to the relevant CTA’s have accepted. Consequently, the impact is limited by not only the jurisdictions ratifying the MLI but also the choices within the MLI which the contracting jurisdictions have chosen to adopt.

  1. Covered Tax Agreements:95 jurisdictions signed the MLI as of going into press (https://www.oecd.org/tax/treaties/mli-matching-database.htm), with over 2800 agreements notified. Of the notified agreements 59 jurisdictions have ratified and deposited their instruments, 36 although have signed but are still to notify their CTA’s. For 10 jurisdictions the MLI comes to force in the year 2021, mostly in the about the first quarter of 2021 as per rules, a notable name is Germany which although signed the instrument in June 2019, ratified only on 18/12/2020. Some notable exceptions from signing the MLI are Brazil and the United States. Among the tax havens the Isle of Man is a notable signatory. The United states has cited its tax agreements already being consistent with most of the proposed solutions under the MLI (https://www.orbitax.com/news/archive.php/Treasury-Official-on-Why-U.S.–25360 ) for not being a party to the MLI. Further the United States deems the provisions of the PPT/LOB(Principal Purpose Test/Limitation on Benefits), although desirable but not effective.

  2. Minimum Standard and Treaty Abuse : All jurisdictions who are signatories are required to include measures to prevent treaty abuse as a minimum standard under article 6. The text of the article 6(1) is self explanatory “ A Covered Tax Agreement shall be modified to include the following preamble text:

    Intending to eliminate double taxation with respect to the taxes covered by this agreement without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in this agreement for the indirect benefit of residents of third jurisdictions)”.

    Although there is no indicator from the OECD MLI database as to the specific implementation of this article in all about 61 jurisdictions have agreed to implement this as a minimum standard. India’s position on this article is interesting post the landmark Azadi Bachaao Andolan case in which the Supreme Court categorically held “ 125. There are many principles in fiscal economy which, though at first blush might appear to be evil, are tolerated in a developing economy, in the interest of long term development. Deficit financing, for example, is one; treaty shopping, in our view, is another. Despite the sound and fury of the respondents over the so called ‘abuse’ of ‘treaty shopping’, perhaps, it may have been intended at the time when Indo-Mauritius DTAC was entered into. Whether it should continue, and, if so, for how long, is a matter which is best left to the discretion of the executive as it is dependent upon several economic and political considerations. This Court cannot judge the legality of treaty shopping merely because one section of thought considers it improper. A holistic view has to be taken to adjudge what is perhaps regarded in contemporary thinking as a necessary evil in a developing economy.” Consequently India has not notified article 6(3) of the MLI.

    In addition to this a number of jurisdictions have also implemented article 6(3) of the MLI which reads “Desiring to further develop their economic relationship and to enhance their co-operation in tax matters”.

    This is possibly aimed at jurisdictions who are not OECD members nor have signed the Convention on Mutual Administrative Assistance in Tax Matters, however it might be noted that India has not notified the additional provision of article 6(3) over and above the minimum standard. Under article 7 most jurisdictions have opted for the simpler PPT Test as opposed to the more mechanical LOB model. However, it might be noted that in most US based treaties there are detailed LOB provisions and also they are deemed to be contradictory to the EU fundamental freedoms.

  3. Hybrid Mismatches :With the notable exception of Netherlands and Australia, who have chosen unrestricted rights as to determination of hybrid mismatches, 66 jurisdictions have notified clause 3(1) of the MLI instrument, which disallows hybrid mismatches. It is interesting to note India’s position of approval thereon where private international law has held that a partnership is a taxable unit under the Income Tax Act 1961 although it’s a transparent entity under English Law (P&O Nedlloyd v. ADIT, Calcutta High Court WP 457 & 458 of 2005). 35 Jurisdictions in all have adopted the rules under dual resident entities, and 38 jurisdictions have adopted the rules under elimination of double taxation.

  4. Dispute resolution :All jurisdictions are required under the MLI to adopt article 16 as a minimum standard, despite the fact that almost all treaties incorporate some form or the other with regards to dispute resolution. As a result almost 1700 non duplicative CTA’s are supposed to be impacted by the measures. For corresponding adjustments under article 17 most treaties already included a provision for the same even pre BEPS. However, there are only a handful of jurisdictions that have chosen to apply mandatory arbitration. It appears from the database that only about 30 jurisdictions have opted to apply for arbitration provisions. Interestingly only eight jurisdictions have chosen the “independent opinion” approach. On the face of it, it appears that most of the jurisdictions have a reluctance to get into arbitration possibly because of independent sovereignty, and also due to uncertainty over resources, both human and financial to handle arbitration procedures. Norway for example, takes the position that its own treaties, which it has renegotiated, have a better scope.

  5. Issues of adoption : Majority of the states who are signatories to the MLI convention have already or are in the process of adoption of the same with respect to their legislative features. Depending on the legal structure whether monistic or dualistic with reference to adoption into domestic law, the ratification process might entail further steps. In some cases it has been much simpler, bought to the executive to vote(New Zealand) or the authority been delegated to government (Singapore), however, there are some cases where legal structures are such that it might need cascading approvals it has gone through a number of approvals (Belgium).

    There has been a varying degree of success with regards to ratification. For example some states have cited lack of adequate budgetary support with regards to assessment of impact (Mexico, New Zealand). In many jurisdictions the opinion is that parliament has just given approvals out of a sheer need for tackling base erosion and profit shifting without any actual impact analysis, which explains the perspective of there being no substantial difference between the clauses chosen by the relevant department of Finance and the executive approval thereof. An interesting note can be made of the French position of its Court of Accounts wherein they have observed that the discrepancy between the scarcity of the quantitative analysis and of the human resources invested by the tax authorities during the ratification process are in sharp contrast with the financial amounts at stake, in particular reference to a country such as France which is a resident state for many MNE’s. (Duff and Gutmann-IFA Cahiers)

    Publishing of synthesized texts has been a follow-through, in accordance with the guidelines of the OECD on the same. However, its pertinent to note that synthesised texts in many jurisdictions are of a guiding nature without any legal standing whatsoever. The underlying principle of mistrust of the taxpayer by authorities holding in good vogue. There have been examples of countries preparing synthesized texts without consulting a treaty partner and India stands exemplary in that its version of synthesized texts actually contradict the other sides of UK, Japan and Singapore amongst others. An interesting observation with regards to synthesized texts has been in Liechtenstein with regards to consolidation of synthesised texts wherein the legal provisions published in the official gazette must be shown in a consolidated fashion. This obligation has not found proper ground, since, after internal debates thereof, it was arrived that the tax authorities took the view that the provisions of the MLI do not have a similar effect on a CTA as a revision protocol, which implies that the MLI and the relevant treaty would have to be read hand in hand. Another interesting departure from the OECD practice can be noted from France wherein the authorities published afresh novel CTA’s, to project the relevant treaties as modified by the MLI.

  6. Issues of interpretation: One of the very basic issues that arise out of the MLI is the language. The MLI and its official statement are to be in two official languages English and French, and any translations by the AD HOC committee ( https://www.oecd.org/tax/treaties/multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-beps.htm). This by itself raises questions of interpretation. It might be that translated versions of the MLI are used, or it might be that the CTA itself is in a different language. Explanatory statement no 317 of the MLI provides an answer to this as thus “Accordingly, where questions of interpretation arise in relation to Covered Tax Agreements concluded in other languages on in relation to translations of the Convention into other languages, it may be necessary to refer back to the English or French authentic texts of the Convention”.At the end of the day, it is not necessary that Competent Authorities or Courts be native English users and their interpretation regarding the same is going to matter a lot. Human behaviour cannot be ruled out.

    One common ground that arises with regards to interpretation is how will private laws distinguish between the operative interaction between the MLI and substantiative interaction of the CTA. This follows from the very nature of the MLI which in certain terms is a hybrid instrument. An interesting observation can be found in the explanatory statement in para 12 “It should be noted that while in some cases, as noted below, the provisions of the Convention differ in form from the model provisions that were produced through the BEPS Project, unless noted otherwise, these modifications are not intended to make substantive changes to those provisions. Instead, they are intended to implement the agreed BEPS measures in the context of a multilateral instrument that applies to a widely varied network of existing treaties.” Furthermore, in para 13 of the explanatory statement “It will not function in the same way as an amending protocol to a single existing treaty, which would directly amend text of a Covered Tax Agreement; instead, it will be applied alongside existing tax treaties, modifying their application in order to implement BEPS measures.” Also, para 12 substantiates that article 3-17 related to BEPS measures “should be interpreted in accordance with the ordinary principle of treaty interpretation, which is that a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose.”, which is more or less in line with the article 31(1) of Vienna Convention on the Law of Treaties and the observations of the House of Lords in the case of n Fothergill v. Monarch Airlines Ltd [1981] AC 251 and the rulings in the landmark Commerzbank AG case (CIR v. Commerzbank AG [1990] STC 285, 63 TC 218 (1990) STC 285).

    However, again in an ironical twist on what parameters can the Explanatory statement of the MLI be regarded on legal fortitude? Very interestingly while the official texts might validly draw from article 31 (1) of the Vienna Convention, the fact of questioning the validity of the Explanatory notes on the same grounds is very dicey. Again, the question arises whether it can constitute valid preamble and annexes under Art 31(2), it might do justice to recall that the same are prepared by an Ad-Hoc group, and thus it might not meet the standards of “agreement” of Article 31(2)(a), or in consonance with Article 32(2)(b), as universal consensus on the Explanatory Statements do not exist.

    So, it could actually satisfy the supplementary criteria under article 32(a) as supplementary material. Very interestingly although Russia has taken the stance of Explanatory statements being in consonance with Article 32(a), the Swiss have taken the position that the Explanatory statements fall with the definitions under Article 31(2).

    Belgium, one of the signatories has gone to the extent of making the explanatory statement codified law in its jurisdiction by submitting the Explanatory statement along with the instrument before its parliament for approval.

    It follows that there will be ambiguities in interpretation relating to the operation of MLI, alongside the operative mechanism of the MLI would result in issues regarding interpretation of the underlying CTA. Interestingly, in an observation by Duff and Gutmann in the IFA Cahiers Norway has reserved the right for the entirely of article 17 not to apply as it believes that its covered tax agreement with India already contains the provision for the corresponding adjustment described in the article. However, the on the Indian side there is a note that the view of a closer look at article 9(2) of the covered tax agreement reveals that the other sate “may make an appropriate adjustment” while article 17(1) requires such an adjustment to be mandatorily made. Such a provision which gives discretionary powers to a contracting state to make cannot be reserved, which again is an issue of interpretation by Norway. It is likely that such issues would continue to arise further in case of interpretation.

    Another important aspect is the “ex post” approach to the modification proposed by the MLI. Can such a modification result in a different interpretation of a pre-MLI status? In this case a reference might be made to Article 28 of the Vienna Convention which expressedly forbids such actions. However, as with all, even this aspect is riddled with complexities.

    An interesting question would be when a jurisdiction considers the wordings of an article to be merely clarificatory in nature and decides not to implement them, like for instance the position of India on Article 5(6). Does it lead to a conclusion that non-notified portions of a CTA be used to interpret ?

    At the end of it all, it should be borne in mind that private international law considerations of various jurisdictions and their interpretations regarding the same by courts will have an overbearing impact on the entire scope of the MLI. Be it the German Treaty Override case, or Black v. R 2014 (TCC 12), it should be borne in mind that jurisdictions might be prone to apply the Revenue Rule (Govt of India v. Taylor) in order to protect their own.

Posted in May.

Hon’ble High Court at Bombay in the Writ Petition No. (L) 5172 of 2021 decided on February 26, 2021, filed by The Goods and Service Tax Practitioners’ Association of Maharashtra (GSTPAM), has questioned the locus standi of associations filing writ petitions to extend the date of returns etc. The Association had filed the petition for extension of date of filing of the Annual Return. The Court dismissed the petition. While dismissing the same, amongst other reasons, the Court also stated that a professional body like GSTPAM was before them and an individual tax payer was not expressing any difficulty in filing the Annual Return within the prescribed time or already extended time. In other words, one of the reasons for rejecting the petition was that the GSTPAM had no “locus standi” to file Writ Petition in the court for extension of the prescribed date.

Naturally, there was an uproar throughout India in the tax professionals fraternity. Bombay High Court is one of the premier Courts of India. Any observation of their Lordships of this Court is read and followed with utmost respect throughout India. Normally, the Trade Organisations avoid to approach the court in tax related matters. They have their vested interests. However, such job of compiling the annual return etc. is done by the tax professionals and if they don’t get sufficient time to carefully examine the claims and compile them, there is a possibility of loss of revenue on either side and for which the professionals are at the end of the day blamed by the clients as well as the Government.

In fact, nowadays even tax professionals are being penalised or prosecuted for mis-statements in returns and audit reports, however innocent be such mistakes. For this reason, the associations of tax professionals file writ petitions when the time for completing the compliances is not sufficient. This will of course collaterally benefit the traders, but the same is also essential for safe-guarding the interests of the tax professionals and not just the interests of the traders. Now there is a fear that such associations of tax professional won’t be able to approach the Courts of law and equity for any such causes in future. The fraternity had expected the GSTPAM to approach the Supreme Court and get that observation removed. However, since the due date for filing itself was extended thereafter due to executive mercy, the GSTPAM chose not to challenge the judgment in the Supreme Court.

The author is of the firm opinion that these observations of the Bombay High Court, with due respect, are incorrect. Those were also unwarranted. Just prior to the pronouncement of judgment in this case i.e. on January 15, 2021, the same Bench in the case of CVO Chartered and Cost Accountants’ Association v. UOI had declined to give extension. However, the Court had not questioned the locus standi of that association.

What then is the correct position of law? What is “locus standi”? Whether this judgment of the Bombay High Court will affect the right of the tax professionals to move the Court in similar situations?

The expression “locus standi” has been lucidly explained by the Constitution Bench of the Hon’ble Supreme Court, consisting seven judges, in the year 1981 itself. In that case an individual, namely, Mr. S.P. Gupta had filed PIL (Public Interest Litigation) in the Supreme Court questioning the appointment and the tenure of judges. See what the Court says:

S.P. GUPTA v. UNION OF INDIA (1981) Supreme Court Cases 87

Per Bhagwati, J.

“Where a legal wrong or a legal injury is caused to a person or to a determinate class of persons by reason of violation of any constitutional or legal right or any burden is imposed in contravention of any constitutional or legal provision or without authority of law or any such legal wrong or legal injury or illegal burden is threatened and such person or determinate class of persons is by reason of poverty, helplessness or disability or socially or economically disadvantaged position, unable to approach the court for relief, any member of the public can maintain an application for an appropriate direction, order or writ in the High Court under article 226 and in case of breach of any fundamental right of such person or a determinate class of persons, in the Supreme Court under article 32 seeking judicial redress for the legal wrong or injury caused to such person or determinate class of persons.(Para 17 ).

……. the individual who moves the court for judicial redress in cases of this kind must be acting bona fide with a view to vindicating the cause of justice and if he is acting for personal gain or private profit or out of political motivation or some other oblique consideration, the court should not allow itself to be activised at the instance of such person and must reject his application at the threshold..

(Para 24).

Yet again, whenever there is a public wrong or public injury caused by an act or omission of the State or a public authority which is contrary to the Constitution or the law, any member of the public acting bona fide and having sufficient interest can maintain an action for redressal of such public wrong or public injury. The strict rule of standing which insists that only a person who has suffered a specific legal injury can maintain an action for judicial redress is relaxed and a broad rule is evolved which gives the standing to any member of the public who is not a mere busybody or a meddlesome interloper but one who has sufficient interest in the proceeding. In the absence of a machinery to effectively represent the public interest generally in courts, it is necessary to liberalise the rule of standing in order to provide judicial redress for public injury arising from breach of public duty or from other violation of the Constitution or the law by allowing public minded persons and organisations to move the court and act for a general or group interest, even though, they may not be directly injured in their own rights. It is only by liberalising the rule of locus standi that it is possible to effectively police the corridors of power and prevent violations of law. The operation might be financial, commercial, corporate or governmental.” (Paras 18 and 20). (Underlining by us).

The GSTPAM is a registered tax payer. No doubt, it represents the tax professionals, however, it also approached the Court in its own right. Therefore, the Court was not correct in raising the issue of locus standi. It seems, this particular fact was not brought to the notice of the Court. Even otherwise, the GSTPAM had every right to approach the Court for the redressal of the injury which was being caused to the members.

The due date for filing annual return as per the GST Act is 31st December of next year. So for the period 2019-20 is concerned, it is 31st December 2020. But the utility thereof was made available for the first time in December 2020 itself. Therefore the department extended it to 28th February, 2021. Further due date for filing income tax return for the year 2019-20 was extended to 15th January 2021 and without finalisation and audit of accounts it was not possible to furnish annual return. It was a most difficult task to compile the requirements of the return, irrespective of whether it was done by the dealer himself or by the tax professionals.

The Supreme Court has stated above that the rule of “locus standi” is required to be liberalised and the persons who have sufficient interest in the proceeding should be permitted to approach the Court. Unfortunately, the Bombay High Court was not able to appreciate the injury which was being caused. Probably the same was not properly put before the Court.

Kindly now see another judgment on the subject, popularly known as Indian Banks Association’s case. This case is under the Interest Act, 1974. The interest tax Act was enacted by Parliament with effect from 1.8. 1974 with an object of imposing tax on the total amount of interest received by scheduled banks/ credit institutions on loans and advances. RBI by its circular letter dated 2.9.1991 advised all the scheduled commercial banks that the incidence of interest tax should pro rata be passed on to borrowers wherefore a uniform practice should be followed in consultation with the Indian Banks Association (IBA). The IBA purporting to be acting pursuant to or in furtherance of the said circular as also with a view to formulate a structure of uniform interest rate chargeable after including the interest tax payable, which was passed on to the borrower’s by the banks concerned, and advised them that the rate of interest will be loaded with the interest tax of 3% and rounded up to the next higher 0.25%. Such rounding up was found necessary allegedly on account of the grossing -up involved in calculating the incidence of tax. RBI purportedly gave its approval to the proposal of the IBA in terms of its letter dated 22.4.1993. The aforementioned action on the part of the IBA came to be questioned by the respondents in a public interest litigation filed before the High Court, inter alia, on the ground that such purported rounding up was illegal and without jurisdiction as there by the tax element came to be increased and as a result thereof the banks concerned had collected additional sum of ` 7 23.79 crores annually. The High Court found the action on the part of the IBA illegal, arbitrary and untenable. A command was issued interalia to all the banks to submit an account of the excess interest collected by them from the borrowers and deposit the same with RBI to be debited in the account of the Union Bank of India. The appellants i.e. the IBA approached the Supreme Court by way of special leave petition against the said order. The first objection was about the locus standi of the petitioner before the High Court, the petitioner being a Chartered Accountant’s Firm. The observations of the Supreme Court on this issue in the impugned case are interesting and are directly applicable to the GSTPAM case.

INDIAN BANKS’ ASSOCIATION, BOMBAY AND OTHERS vs. DEVKALA CONSULTANCY SERVICE AND OTHERS (2004) 11 Supreme Court Cases

‘The writ petitioner before the High Court was a firm of Chartered Accountants. As an expert in accountancy and auditing, it must have come across several cases where its client had to pay a higher amount of interest to the banks pursuant to and in furtherance of the impugned action of the appellants. By reason of such action on the part of the appellants and also RBI the citizens of India had to pay a higher amount of tax as also a higher amount of interest for no fault on their part. The same had been recovered from them without any authority of law.’ (Para 32)

‘In an appropriate case, where the petitioner might have moved a court in his private interest and for redressal of his personal grievance, the court in furtherance of public interest may treat it as a necessity to enquire into the state of affairs of the subject of litigation in the interest of justice. Thus, a private interest case can also be treated as public interest case. (Para 34) (Underlining Supplied).

There are many decisions on the subject. All those decisions need not be cited. These two judgments are sufficient to say that even if the Bombay High Court felt that the GSTPAM case was a private interest case, they could have treated it as public interest case. However, they chose not to do so. Reasons are not known. Possibly, the precedential law was not brought to the notice of the court. In fact, Bombay High Court always welcomed the associations. When the author was arguing Abicor’s case, it was a private case, however, Hon’ble Justice Dharmadhikari himself invited the GSTPAM to put forth it’s grievances.

Lastly, to avoid such verdicts, we suggest the following:

  • The petition itself should in clear words bring out the relationship of the petitioner with the cause of action and the sufficiency of the interest of the petitioner in the proceedings;

  • The injury which is being caused by the act or omission of the State should be clearly brought out in the petition;

  • Most importantly, the court should not get the impression that the petitioner has approached the court for his personal gain or private profit. Personal gain or private profit need not be in terms of money. If the Court suspects that the petition has been filed for self-emulation, it will reject the petition at the threshold.

  • Many a times the Court gives indication if they were to decide against the petitioner. In such circumstances, it is prudent to withdraw the case, unless the petitioner is ready to approach the higher court.

  • Such judgments should necessarily be challenged in Supreme Court otherwise those become a hurdle for others.

To conclude, the Bombay High Court judgment in the case of GSTPAM is not a correct judgment so far it relates to locus standi. In my view, on future occasions, the other associations should request the Bombay High Court to revisit its views on the basis of the law declared by the Supreme Court. However, suggestions made above should also be scrupulously followed.

Posted in May.

Hon’ble High Court at Bombay in the Writ Petition No. (L) 5172 of 2021 decided on February 26, 2021, filed by The Goods and Service Tax Practitioners’ Association of Maharashtra (GSTPAM), has questioned the locus standi of associations filing writ petitions to extend the date of returns etc. The Association had filed the petition for extension of date of filing of the Annual Return. The Court dismissed the petition. While dismissing the same, amongst other reasons, the Court also stated that a professional body like GSTPAM was before them and an individual tax payer was not expressing any difficulty in filing the Annual Return within the prescribed time or already extended time. In other words, one of the reasons for rejecting the petition was that the GSTPAM had no “locus standi” to file Writ Petition in the court for extension of the prescribed date.

Naturally, there was an uproar throughout India in the tax professionals fraternity. Bombay High Court is one of the premier Courts of India. Any observation of their Lordships of this Court is read and followed with utmost respect throughout India. Normally, the Trade Organisations avoid to approach the court in tax related matters. They have their vested interests. However, such job of compiling the annual return etc. is done by the tax professionals and if they don’t get sufficient time to carefully examine the claims and compile them, there is a possibility of loss of revenue on either side and for which the professionals are at the end of the day blamed by the clients as well as the Government.

In fact, nowadays even tax professionals are being penalised or prosecuted for mis-statements in returns and audit reports, however innocent be such mistakes. For this reason, the associations of tax professionals file writ petitions when the time for completing the compliances is not sufficient. This will of course collaterally benefit the traders, but the same is also essential for safe-guarding the interests of the tax professionals and not just the interests of the traders. Now there is a fear that such associations of tax professional won’t be able to approach the Courts of law and equity for any such causes in future. The fraternity had expected the GSTPAM to approach the Supreme Court and get that observation removed. However, since the due date for filing itself was extended thereafter due to executive mercy, the GSTPAM chose not to challenge the judgment in the Supreme Court.

The author is of the firm opinion that these observations of the Bombay High Court, with due respect, are incorrect. Those were also unwarranted. Just prior to the pronouncement of judgment in this case i.e. on January 15, 2021, the same Bench in the case of CVO Chartered and Cost Accountants’ Association v. UOI had declined to give extension. However, the Court had not questioned the locus standi of that association.

What then is the correct position of law? What is “locus standi”? Whether this judgment of the Bombay High Court will affect the right of the tax professionals to move the Court in similar situations?

The expression “locus standi” has been lucidly explained by the Constitution Bench of the Hon’ble Supreme Court, consisting seven judges, in the year 1981 itself. In that case an individual, namely, Mr. S.P. Gupta had filed PIL (Public Interest Litigation) in the Supreme Court questioning the appointment and the tenure of judges. See what the Court says:

S.P. GUPTA v. UNION OF INDIA (1981) Supreme Court Cases 87

Per Bhagwati, J.

“Where a legal wrong or a legal injury is caused to a person or to a determinate class of persons by reason of violation of any constitutional or legal right or any burden is imposed in contravention of any constitutional or legal provision or without authority of law or any such legal wrong or legal injury or illegal burden is threatened and such person or determinate class of persons is by reason of poverty, helplessness or disability or socially or economically disadvantaged position, unable to approach the court for relief, any member of the public can maintain an application for an appropriate direction, order or writ in the High Court under article 226 and in case of breach of any fundamental right of such person or a determinate class of persons, in the Supreme Court under article 32 seeking judicial redress for the legal wrong or injury caused to such person or determinate class of persons.(Para 17 ).

……. the individual who moves the court for judicial redress in cases of this kind must be acting bona fide with a view to vindicating the cause of justice and if he is acting for personal gain or private profit or out of political motivation or some other oblique consideration, the court should not allow itself to be activised at the instance of such person and must reject his application at the threshold..

(Para 24).

Yet again, whenever there is a public wrong or public injury caused by an act or omission of the State or a public authority which is contrary to the Constitution or the law, any member of the public acting bona fide and having sufficient interest can maintain an action for redressal of such public wrong or public injury. The strict rule of standing which insists that only a person who has suffered a specific legal injury can maintain an action for judicial redress is relaxed and a broad rule is evolved which gives the standing to any member of the public who is not a mere busybody or a meddlesome interloper but one who has sufficient interest in the proceeding. In the absence of a machinery to effectively represent the public interest generally in courts, it is necessary to liberalise the rule of standing in order to provide judicial redress for public injury arising from breach of public duty or from other violation of the Constitution or the law by allowing public minded persons and organisations to move the court and act for a general or group interest, even though, they may not be directly injured in their own rights. It is only by liberalising the rule of locus standi that it is possible to effectively police the corridors of power and prevent violations of law. The operation might be financial, commercial, corporate or governmental.” (Paras 18 and 20). (Underlining by us).

The GSTPAM is a registered tax payer. No doubt, it represents the tax professionals, however, it also approached the Court in its own right. Therefore, the Court was not correct in raising the issue of locus standi. It seems, this particular fact was not brought to the notice of the Court. Even otherwise, the GSTPAM had every right to approach the Court for the redressal of the injury which was being caused to the members.

The due date for filing annual return as per the GST Act is 31st December of next year. So for the period 2019-20 is concerned, it is 31st December 2020. But the utility thereof was made available for the first time in December 2020 itself. Therefore the department extended it to 28th February, 2021. Further due date for filing income tax return for the year 2019-20 was extended to 15th January 2021 and without finalisation and audit of accounts it was not possible to furnish annual return. It was a most difficult task to compile the requirements of the return, irrespective of whether it was done by the dealer himself or by the tax professionals.

The Supreme Court has stated above that the rule of “locus standi” is required to be liberalised and the persons who have sufficient interest in the proceeding should be permitted to approach the Court. Unfortunately, the Bombay High Court was not able to appreciate the injury which was being caused. Probably the same was not properly put before the Court.

Kindly now see another judgment on the subject, popularly known as Indian Banks Association’s case. This case is under the Interest Act, 1974. The interest tax Act was enacted by Parliament with effect from 1.8. 1974 with an object of imposing tax on the total amount of interest received by scheduled banks/ credit institutions on loans and advances. RBI by its circular letter dated 2.9.1991 advised all the scheduled commercial banks that the incidence of interest tax should pro rata be passed on to borrowers wherefore a uniform practice should be followed in consultation with the Indian Banks Association (IBA). The IBA purporting to be acting pursuant to or in furtherance of the said circular as also with a view to formulate a structure of uniform interest rate chargeable after including the interest tax payable, which was passed on to the borrower’s by the banks concerned, and advised them that the rate of interest will be loaded with the interest tax of 3% and rounded up to the next higher 0.25%. Such rounding up was found necessary allegedly on account of the grossing -up involved in calculating the incidence of tax. RBI purportedly gave its approval to the proposal of the IBA in terms of its letter dated 22.4.1993. The aforementioned action on the part of the IBA came to be questioned by the respondents in a public interest litigation filed before the High Court, inter alia, on the ground that such purported rounding up was illegal and without jurisdiction as there by the tax element came to be increased and as a result thereof the banks concerned had collected additional sum of ` 7 23.79 crores annually. The High Court found the action on the part of the IBA illegal, arbitrary and untenable. A command was issued interalia to all the banks to submit an account of the excess interest collected by them from the borrowers and deposit the same with RBI to be debited in the account of the Union Bank of India. The appellants i.e. the IBA approached the Supreme Court by way of special leave petition against the said order. The first objection was about the locus standi of the petitioner before the High Court, the petitioner being a Chartered Accountant’s Firm. The observations of the Supreme Court on this issue in the impugned case are interesting and are directly applicable to the GSTPAM case.

INDIAN BANKS’ ASSOCIATION, BOMBAY AND OTHERS vs. DEVKALA CONSULTANCY SERVICE AND OTHERS (2004) 11 Supreme Court Cases

‘The writ petitioner before the High Court was a firm of Chartered Accountants. As an expert in accountancy and auditing, it must have come across several cases where its client had to pay a higher amount of interest to the banks pursuant to and in furtherance of the impugned action of the appellants. By reason of such action on the part of the appellants and also RBI the citizens of India had to pay a higher amount of tax as also a higher amount of interest for no fault on their part. The same had been recovered from them without any authority of law.’ (Para 32)

‘In an appropriate case, where the petitioner might have moved a court in his private interest and for redressal of his personal grievance, the court in furtherance of public interest may treat it as a necessity to enquire into the state of affairs of the subject of litigation in the interest of justice. Thus, a private interest case can also be treated as public interest case. (Para 34) (Underlining Supplied).

There are many decisions on the subject. All those decisions need not be cited. These two judgments are sufficient to say that even if the Bombay High Court felt that the GSTPAM case was a private interest case, they could have treated it as public interest case. However, they chose not to do so. Reasons are not known. Possibly, the precedential law was not brought to the notice of the court. In fact, Bombay High Court always welcomed the associations. When the author was arguing Abicor’s case, it was a private case, however, Hon’ble Justice Dharmadhikari himself invited the GSTPAM to put forth it’s grievances.

Lastly, to avoid such verdicts, we suggest the following:

  • The petition itself should in clear words bring out the relationship of the petitioner with the cause of action and the sufficiency of the interest of the petitioner in the proceedings;

  • The injury which is being caused by the act or omission of the State should be clearly brought out in the petition;

  • Most importantly, the court should not get the impression that the petitioner has approached the court for his personal gain or private profit. Personal gain or private profit need not be in terms of money. If the Court suspects that the petition has been filed for self-emulation, it will reject the petition at the threshold.

  • Many a times the Court gives indication if they were to decide against the petitioner. In such circumstances, it is prudent to withdraw the case, unless the petitioner is ready to approach the higher court.

  • Such judgments should necessarily be challenged in Supreme Court otherwise those become a hurdle for others.

To conclude, the Bombay High Court judgment in the case of GSTPAM is not a correct judgment so far it relates to locus standi. In my view, on future occasions, the other associations should request the Bombay High Court to revisit its views on the basis of the law declared by the Supreme Court. However, suggestions made above should also be scrupulously followed.

Posted in May.

Prem Lata Bansal, Senior Advocate

Accountability is an essential part of a healthy law enforcement agency. Like any organization, every law enforcement agency needs a strong healthy work culture to operate effectively.

Constitution & Accountability

Constitution of Republic of The Philippines, in Article XI states that “Public office is a public trust hence, public officers must, at all times, be accountable to the people, serve them with utmost responsibility, integrity, loyalty & efficiency, act with patriotism and justice & lead modest lives”.

There is no similar provision in our Constitution. However, Part-IV of our Constitution enumerates certain directive principles which are fundamental in the governance of the country & are mandatorily to be applied by the state in making the laws. Article 38 makes it obligatory on the state to strive to promote the welfare of the people by securing & protecting a social order in which justice, social economic & political, shall inform all the institutions of the national life Article 39 prescribes certain specific principles of policy to be followed by the state & Article 39A mandates that the state shall secure that the operation of the legal system promotes justice, on the basis of equal opportunity also ensuring that any citizen of India is not denied opportunity for securing justice by reason of economic or other disabilities.

Part-III of the Constitution guarantees certain fundamental rights to the citizens of India and article 13 (2) states that the state shall not make any law which takes away or a abridges the rights conferred by this part and law made in contravention of this clause shall, to the extent of the contravention, be void. Our government is formed by the people, of the people and for the people and therefore, it is implicit that it is accountable to the people of India. However, there is nothing in our Constitution which makes the public officers accountable for their acts of omission or commission in contravention of law.

Article 261 contained in Chapter-II of Part-XI states that full faith and credit shall be given throughout the territory of India to public acts, records and judicial proceedings of the Union and of every state.

Citizen’s Charter

It has been recognised world over that good governance is essential for sustainable development both economic and social. The three essential aspects emphasized in good governance are transparency accountability and responsiveness of the administration. The Citizens’ Charter initiative is a response to the quest for solving the problems which citizen encounters day in and day out while dealing with the organization providing public services.

The concept of Citizens Charter enshrines the trust between the service providers and its users.

In India for the first time, in conference of chief minister of various states and union territories held on 24/5/1997 in New Delhi presided by the Prime Minister of India an action plan “for effective and responsive government” at the Centre and state levels was adopted and it was decided to formulate Citizen Charter starting with those sectors that have large public interface. On March 2005, 107 Citizen Charters had been formulated by various agencies of state government and union territories.

The first Citizen Charter Bill 2011 was proposed by the Indian Central Legislation in Lok Sabha in December 2011 but it was lapsed due to dissolution of 15th Lok Sabha.

The first Citizens Charter was formulated by Income Tax Department in July 2010 which was their declaration of mission, vision, values and standards of delivery of various services to achieve excellence in service delivery to its taxpayers. This charter substantially talked of obligation of taxpayers and did not utter a word on accountability of tax administrators though timelines in disposing various applications was suggested. The charter was revised on 24/04/2014 which for the first time talked of accountability and transparency in their mission.

Hon’ble Finance Minister Smt. Nirmala Sitharaman, in her first budget 2020 speech, had stated that the tax system requires trust between taxpayers and tax administrators. This will be possible only when tax-payers’ rights are clearly enumerated. In order to enhance the efficiency of the delivery systems of the Income Tax Department, amendments were proposed in the Income Tax Act 1961, as a result of which new section 119A was inserted in the Income Tax Act which mandates that the board shall adopt and declare a Tax-payers’ Charter and issue such orders, instructions, directions or guidelines to other Income Tax Authorities as it may deem fit for the administration of such Charter.

Unlike earlier charters, which were largely administrative, the present charter is the first one having statutory backing. It is simpler and has only two parts – the tax departmental commitments and tax-payers expectations. The Tax departmental commitments include a specific commitment to hold its authorities accountable for their action.

The new tax-payers charter launched by the Hon’ble Prime Minister on 13.08.2020 promises to maintain privacy and confidentiality of taxpayers and to reduce the cost of compliance with the tax laws. It aims for clean and corruption free governance. The objective is to end taxpayers harassment or undue scrutiny from the tax officer. While unveiling the “transparent taxation- honouring the honest taxpayers” Prime Minister aimed at easing the tax compliance with the help of technology, data analytics and artificial intelligence. The main objects are :-

  1. To move away from power centric towards people centric administration.

  2. The faceless assessment/appeals having technology driven interface.

  3. Outlining the responsibilities and duties of tax officers.

  4. To decrease in complexity/taxes/litigation and increase in transparency /compliance trust by removing physical interface between the department and taxpayers.

In the new Charter, there is an interesting change with respect to accountability. Though the term “Accountability” finds mention in the earlier charter as well, there is a difference in the way it is expressed. The charter commits to hold its authorities accountable for their action.

Now the question arises as to how the officers would be made accountable and for what actions? Accountability ensures efficiency in many ways by improving standards of delivery systems. If the tax administration violates rules they lose credibility and break public trust which results in non-compliance of law- Change in the behaviour of the officers is the most important factor in creating the culture of accountability. Tax officials have the perception that every taxpayer is thief or is tax evaders. This mindset is to be changed because the tax-payers are substantially contributing in the welfare of state. Hence the values like integrity and ethics are to be fostered amongst the officials – to hold the officials accountable CBDT must create and enforce policies, procedures and other rules. These policies are to be regularly reviewed so as to be compatible with the passage of time.

When can accountability provisions be invoked? Department is supposed to deliver quality services in transparent and efficient manner and in a time bound framework. If such act is not committed or omitted in the manner prescribed under the law and the great prejudice is caused to the assessee then the Income Tax Officers may be made accountable though there is a provision in the Income Tax Act being section 293 which says that “no suit shall be brought in any civil court to set aside or modify any proceeding taken or order made under this act and no prosecution, suit or other position proceeding shall lie against the government or any officer of government for anything done in good faith or intended to be done under this Act”. Thus how the accountability of the officers can be invoked is a matter of great concern.

There are many provisions under the Income Tax Act, which requires fairness in actions of officers say –

  1. making adjustment in the intimation u/s 143(1)(a)

  2. issuing refunds promptly,

  3. giving fair opportunity before passing assessment order

  4. to pass the assessment order in a fair and reasonable manner based on material

  5. issuing notice u/s 148

  6. special audit u/s 142A

  7. disposing application for stay of demand and granting of installments

  8. disposing applications for rectification.

  9. giving effect to appellate/revision orders

  10. giving approval or granting registration under various provisions of Income Tax Act e.g. section 12AA, section 10(23C), etc.

  11. decision for transfer of cases from one place to another,

  12. taking actions u/s 263 or to decide filing of appeals I the Court of Law

  13. initiation of proceeding u/s 132 or 132A or 133A etc.

  14. assessment u/s 153A/153C

  15. Imposing of penalty

  16. launching of prosecution

  17. attachment of property

  18. withholding of refunds

Many of these provisions involve subjective satisfaction on the part of The Income Tax Authorities. Some of the provisions confer discretion on the Income Tax Officials, but this discretion has to be exercised in a judicious manner else, the actions of the officers can be redressed before the grievance cell, here comes the accountability.

Now a days, Courts are also vigilant to the rights and obligations of the citizens. Where it is explicit that the action of the officer has caused grave injustice to the citizens or their rights are infringed, then the Courts come to the rescue of citizens. On many occasions, in over enthusiasm, Department attaches the bank accounts of the assessee before expiry of the prescribed time for paying the demand or curtail the statutory time of 30 days for paying demand, rejects the application for stay of demand despite having refund payable to the assessee or issuing search warrants or 148 notices without having any reasonable belief based on material, making additions ignoring the judgements of the Apex Court or Jurisdictional High Courts, all these acts are being held arbitrary and Courts take no time to quash the same and even impose the cost on the Revenue and that to be collected from the pocket of concerned officer. In some cases Courts have awarded interest on interest to the assessees. These are some instances where Courts have made the officers accountable. Courts have also quashed the prosecutions launched by the officers for ulterior motive or in an arbitrary manner.

GST Act – Special Mention to the judgement of Supreme Court

The provisions similar to Income Tax Act are also contained in GST Act. Recently, Hon’ble Supreme Court while dealing with the contours of the powers of provisional attachment of property including bank accounts to protect Revenue under HPGST Act 2017 has commented upon the accountability of the proper officer under the GST Act. This is a case locus classicas. Hon’ble Supreme Court in the case of M/s Radhakrishan Industries v. State of Himachal Pradesh & Ors (Civil Appeal No.1155 of 2021 decided on 20.04.2021) observed that Section 83 of the said Act provides that where during the pendency of any proceedings under the Act. The Commissioner is of the opinion that for the purpose of protecting interest of Government Revenue, it is necessary so to do, he may by order in writing, attach provisionally any property including the bank account belonging to the taxable person. The Hon’ble Court emphasized that before Commissioner can levy a provisional attachment, there must be a formation of the “opinion” and that too on the basis of “tangible material” that it is necessary to do so for the purpose of protecting interest of Revenue.

Hon’ble Court opined at the outset that the power to levy a provisional attachment is draconian in nature. And the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled. Formation of opinion must bear a proximate and live nexus to the purpose of protecting interest of Revenue. “Necessity” postulate a more stringent requirement than a mere expectancy. Order in writing does not mean that the order should be like a judgement but it must be shown an application of mind. Doctrine of proportionality demands that a balance has to be maintained between protecting the interest of Revenue and protecting genuine business of the assessee. To allow the Commissioner to get away without passing a reasonable order will make his decision subjective and defeat the purpose of subjecting it to judicial scrutiny.

Hon’ble Court criticized the exercise of power of provisional attachment as a “Pre-emptive Strike”. Where there is a likelihood that Revenue will not be able to enforce the assessment order, there may be an order of provisional attachment. Department cannot just go and attach the property because there is an assessment order. Even where huge tax is paid, just because some part of tax is still due, Revenue cannot start attaching the property. If there is an alienation of assets or assessee is winding-up or going into liquidation, it is understandable but just because the Department has the account numbers of the assessee, it cannot start attaching and even block receivables.

Justice Chandrachud in this case, in the anguish spoke of introducing a mechanism of “assessment of Tax Officers” with a view to inculcate “accountability” stating that where huge demands are arbitrarily created after assessment but are drastically reduced by the higher authorities or Courts then it must go into the assessment of the Tax Officer. Hon’ble Supreme Court also observed that the Parliament had intended the GST to be a citizen-friendly tax structure but its purpose is lost by the manner in which it is enforced.

Conclusion

In the nutshell, it is concluded that it is not only the tax legislation but the tax administration, fair and impartial, is also important. The country needs to come-out of the tax culture that “businesses are all fraudulent”. Now as per the new tax-payers’ charter, the Tax Department is committed to treat every tax-payer as honest, unless proven otherwise and provide fair, courteous and reasonable treatment. To shape a healthy culture it is important to have core values like ethics and integrity. Culture can’t be dictated, it has to be lived out. Tax administrators and the tax-payers both are the wheels of the chariot of tax system. Hence, honesty and accountability are required from the both the sides. Higher the transparency, honesty and accountability, better the stability of the country’s economy.

Posted in May.

I hope you and your family members are safe and healthy as I write to you amidst a lock down in most of the states on account of the second wave of the COVID Pandemic, however we are getting positive news that daily positive cases are on the decline and the recovery rate is high.

Friends it is important that we get vaccinated and hence I would like to appeal to all movers to get yourselves and your families vaccinated and also don’t let your guard down and always be masked up, this will help us deal with the purported third wave as us being stated by some medical experts.

Friends, we at AIFTP are equally concerned about the health and well being of our members as we have also lost quite a few members to this pandemic, we pray that their souls get eternal peace at the lotus feet if the almighty.

We have initiated a COVID Relief Fund with an initial contribution of ` 20 Lakhs from the Head Office, under the Chairmanship of our Past President Dr. Ashok Saraf to provide relief to needy members, who have suffered on account of hospitalisation on account of COVID and also to the family members of the members who have lost their lives on account of the pandemic. The details of the scheme are given on the third Cover Page. I also would like to thank the North and East Zone for Contributing ` 10 lakhs each to the fund and other zones are following, I am also thankful to the members who have shown their largesse and donated handsomely, and helping us in achieving the initial target of ` 1 Crore, members are also requested to donate generously for the Fund so we can help our AIFTP members in these testing times and also circulate the scheme amongst members so that they can benefit of the Scheme. We are glad to inform that at the time of writing this message we have already started disbursing amounts to the needy members, I would like to thank the COVID Relief Committee and the Office Bearers for coming to action immediately

Friends it is the time when we get busy with our annual filing works, members are requested to take due precautions while at work to ensure safety for themselves and their staff and are encouraged if possible to work from home.

On account of the pandemic it is difficult to meet physically and hence we had organised a few online Webinars and we are planning virtual conferences, details of which will be circulated to members over time

I would at the end request all of you to Stay Home Stay Safe and always be masked up.

Place: Eluru 
Dated: 19-5-2021 

M. Srinivasa Rao
National President, AIFTP

Posted in May.

The second summer vacation, in a row, is being spent by us locked up in our houses. The second wave of the COVID-19 pandemic has proved to be very lethal and has devastated many families. Every one of us has lost many people, near and dear ones, to this pandemic. As professionals, this is the time for us to sit back and introspect whether we have been following COVID-19 appropriate behavior or not. We have to seriously consider to change our work schedules, as well as our work pattern, with the realization that the COVID-19, how much ever unwanted guest it may be, is going to be part of our lives for at least the coming two to three years. As per the experts on the subject, the vaccination against COVID-19 also prevents one from serious consequences, once infected. But, it is not a shield against getting infected. At the same time it is not possible to suspend our professional work for several years. We have to get back to our professional work with the same dedication and diligence, as we used to attend to it, in the pre-COVID-19 times. This is possible if only we resolve to strictly adhere to the COVID-19 appropriate behavior and ensure that at our work places everyone follows the protocol. We can come out of these trying circumstances only through our alert and vigilant approach towards the highly infectious disease. No doubt, tough questions should be put to the Governments, both State and Central, about their preparedness in the wake of the surge and the staggering vaccination programme. We are well aware that the media is doing that job. However, it is very important to understand that no amount of governance will be able to protect you from getting infected or re-infected. The health infra, which is being put in place on war footing, will come in handy once you are infected. The only person who can help you from not getting infected is you yourself. So in the interest of our family, colleagues, staff and in the interest of the society in general let’s follow all possible precautions so that we avoid any future calamities.

In these times of despair I don’t want to strike a pessimistic note. As tax professionals, we are acclimatized to change our work patterns at the shortest possible period of notice. Unfortunately, this quality of our resilience is being taken for granted by our clients as well as the Government. The flexibility shown by us is being considered as our weakness. It is high time that we, professionals, send a tough message to both. In the same vein, let me discuss the vows of the faceless regime in assessments. I have come across several assessment orders which are passed, pursuant to notices issued under section 148(1) under the Income tax Act,1961. The same were challenged by filing Writ Petitions before the High Courts and stay was granted by them against the said notices. However, without bothering for the interim orders, the assessment orders have been framed, raising huge demand in these matters. It seems that this is being done deliberately to create pressure on the judiciary by the tax administration. Sheer number of orders, passed, suggests that it is not a mistake or oversight. In an appropriate matter, this should be brought to the notice of the Hon’ble High Court. Another facet of the faceless regime is scant respect shown to the principles of natural justice. The Central Board of Direct Taxes keeps extending the time limits, applicable to the departmental authorities to pass orders. But, the faceless assessment regime refuses to grant time to the assesses without appreciating the fact that the professionals’ offices are not operational, due to infected staff or the lockdowns, announced by various State Governments. The arbitrary and high pitched assessments are fastening the assesses with huge demands, during these pandemic periods, where the businesses are struggling for the oxygen of liquidity. The assesses are not left with any other option but to knock the doors of the Courts under Article 226 of the Constitution to intervene to protect them from the arbitrary orders, passed in breach of principles of natural justice. It is high time the Hon’ble Finance Minister looks into this urgently and sees to it that all the gains, made by reducing the litigation by introducing Vivad Se Vishwas schemes both under the Direct Taxes and Indirect Taxes, are nullified.

On behalf of all the professionals, it is a humble request to the Hon’ble Finance Minister to interact with us, the professionals, on a regular basis on a common platform. There is one condition, it should not be moderated by the members of the either of the Direct or Indirect taxes Board. Your Honor will appreciate that the Boards are dedicated to achieving the goals, set by you. Their presence in these meetings makes them examples of running with the hare and hunting with hounds. These interactions will be very valuable especially to roll out new schemes, such as faceless assessments. If such an interaction takes place with respect to the Faceless First Appeal, as till now, not even a single order has been passed, the assesses can be saved from the similar kind of agony which they are facing under the faceless assessment regime.

In this issue, we have collected articles on important issues, concerning both under direct and indirect taxes. Eminent professionals have devoted their valuable time to enrich our knowledge. On behalf of the Journal Committee of the AIFTP I sincerely thank the contributors to this issue of the AIFTP- Journal. Please stay at home and remain safe.

K. Gopal,
Editor

Posted in May.