It is common knowledge among the cognoscenti that the arrears of taxes, be they direct or indirect, are invariably exaggerated, what with tax officials making high-pitched assessments to cozy up to their administrative and political bosses as well as to steer clear of auditors ire.
The Comptroller and Auditor General of India (CAG) has the tendency to highlight loss to the revenue even of genuine assessments so much so that tax officials playing safe err on the side of revenue and caution. Small wonder then that the tax department in the vast majority of the cases has to look sheepish before the high court which turns down the department’s stand, vindicating the taxpayer.
Between 2012-13 and 2017-18, as a result, tax arrears rose 2.3 times, from Rs 4,86,180 crore to Rs 11,22,752 crore, while direct taxes collections rose at a much slower 1.8 times.
The government, to be sure, has done its best to rein in this dangerous proclivity by providing for Advance Price Agreement being cleared by the CBDT as well as Advance Ruling by the high-powered Advance Ruling Authority whose opinion is binding on the department up to the tribunal level. But exaggerated assessments continue unabated with multi-national companies (MNCs) bearing the brunt of the tax officials’ high-handedness.
The Karnataka High Court has hit where it hurts. It has ordered the high-handed and willfully defiant service tax official to cough up a hefty Rs 1 lakh as fine from out of his personal sources i.e. without burdening the department. Parenthetically, it may be pointed out that in the US, citizens can sue the US government as well as the state governments for official highhandedness including for wrongful arrests and trespass by the police. But what the Karnataka High Court has done is a good start that would slow down bureaucratic tyranny and cussedness.
XL Health Corporation was charged with profiteering under the erstwhile Service Tax law by the Commissioner of Appeals. This was turned down by the CESTAT – the appellate forum — with the clear observations that the Commissioner’s order went beyond the show-cause notice and in any case there was no unjust enrichment.
The High Court which was seized of the same matter in a subsequent year’s proceedings found to its dismay that the same officer had wilfully disobeyed the CESTAT order and observations which strangely met with support from his department which blamed XL Health Corporation for adopting dilatory tactics despite the fact that it was armed with findings in its favor in the previous year’s assessment. The High Court did well to reiterate the importance of judicial precedence. An appellate authority’s views are binding on its subordinates. Otherwise, there won’t be any judicial and administrative discipline in addition to there being no finality to an issue with the self-same matter being raised again and again.
The High Court has directed the Revenue Secretary to take disciplinary action against the erring high-handed official if he fails to deposit Rs 1 lakh as fine. One wishes the honorable high court had not shown this indulgence but instead ordered attachment of his properties to recover the fine. Be that as it may, the refreshing thing is tax officials would now fear similar hefty penalties and mellow down while doing assessments instead of being more loyal than the King!
It is nobody’s case that the tax officials should discard revenue interests but when cast in the role of quasi-judicial officers, they must act impartially and not harass the assessees.
CAG should also cease to have revenue fixation to the exclusion of fairness and justice. If bank managers while processing even genuine loans are hobbled by the fear of the Central Bureau of Investigation (CBI) snapping at its heels, even honest tax officers fear the adverse remarks of the CAG resulting in their Confidential Report (CR) getting smudged and smeared with adverse remarks by their superiors.
Prasanta Patnaik