It remains to be seen whether the presence of these provisions will help check tax evasion or will it cause undue hardship to tax payersThe presence of elements of penal provisions in fiscal laws has always been a bone of contention, more so, when it is perceived that the tax laws are far too complex, complicated and lack stability. Power of arrest and similar privileges is an overwhelming...
It remains to be seen whether the presence of these provisions will help check tax evasion or will it cause undue hardship to tax payers
The presence of elements of penal provisions in fiscal laws has always been a bone of contention, more so, when it is perceived that the tax laws are far too complex, complicated and lack stability. Power of arrest and similar privileges is an overwhelming tool available with the Revenue Department. Though the objective cited by the Revenue officials over the years for inclusion of such vast powers is checking tax evasion, it has been witnessed in the past that such powers sometimes have been exercised without proper application of mind, causing insurmountable hardship to tax payers.
The Indian Judiciary in a plethora of cases had dealt with the applicability of penal provisions under tax laws and had given various guidelines from time to time expressing in no uncertain words their disapproval and anguish.
Revenue authorities suggest that the possibility of criminal sanctions should increase tax compliance, on the other hand, people from within the Government and opposition have argued that convictions for tax evasions may have a deleterious effect on tax compliance and perhaps punishment may crowd out co-operative behaviour amongst assessees.
It is a well established principle under fiscal laws, that tax compliance follows good governance. Therefore, while drafting any penal provision under fiscal laws, government should be sensitive to the interest of the population and should understand that the propensity to pay taxes is positively related to perceptions of fairness about tax enforcement procedures, tax rates and fiscal policy.
Despite the existing trust deficit among tax payers and tax exchequers, dealing with an iron fist, the Finance Minister in the Budget 2013 has proposed to introduce cognizable, non-cognizable and arrest provisions under Indirect tax law, citing misuse of provisions by assessee for evasion of tax as reason.
Prior to the Budget 2013, Excise Officer, not below the rank of an inspector, and Customs Officer, who has been empowered by the Commissioner of Customs by general or special order, has the power to arrest under Central Excise, and Customs law respectively. Now with the Finance Bill, 2013, Section 91 gives officers not below the rank of Superintendent of Central Excise the power to arrest for certain specified offences under Service Tax as well.
The provisions with respect to non-cognizable and power to arrest already existed under the Central Excise and Customs law. The Hon'ble Supreme Court in the case of Om Prakash vs UOI 2011 (272) ELT 321 (SC), had held that all offences under Central Excise and Customs laws are bailable offences and that the main object of Taxation laws is to recover the taxes and not imposing punishment for infringement of provisions.
The Apex Court in its judgement observed that the meaning of the words "cognizable"1, "non-cognizable"2 and "bailable"3 offences is not provided under Central Excise Act/Customs Act and therefore, the meaning of the same needs to be referred from the Code of Criminal Procedure, 1973. The Court further observed that since Section 9A of the Central Excise Act starts with a non-obstante clause that "notwithstanding anything contained in the code of criminal procedure", this implies that all offences under Central Excise shall be deemed to be non-cognizable offences irrespective of what is provided under CrPC.
The Court further observed that Section 20 of the Central Excise Act mandates the Officer-in-Charge of police station to grant bail to arrested person brought before him, and Section 9A (2) thereof providing for compounding of all offences under its Chapter II - Scheme of Central Excise Act, 1944 suggests that its main object was recovery of excise duties and not punishment for infringement of its provisions. Therefore, on conjoint reading of Section 9, Section 9A and Section 20, Court held that offences under Central Excise Act and Customs Law are non-cognizable and bailable.
To overcome the Judgement of the Hon'ble Apex Court, the Government has proposed to make the following amendments under Budget 2013:
Central Excise Act, 1944
| Section 9A: Certain offences to be Non-cognizable | ||
| Evasion of payment of duty or contravention in relation to credit of any duty allowed to be utilised towards payment of excise duty on final products | If > '50 Lacs, then Cognizable and Non-Bailable | |
| All other offences under Section 9 | Non-Cognizable | |
The provisions with respect to non-cognizable offences were there earlier in the Finance Act, 1994, which were subsequently in the year 1998 omitted with effect from October 16, 1998. These provisions are herein once again introduced vide the Budget 2013.
The Finance Bill 2013 proposes to amend the Service Tax law in the following manner:
Service Tax Law
| Section 89: Offence and Penalties | ||
| (a) Knowingly evades payment of Service Tax | If > '50 Lacs, then with an imprisonment which may extend to 3 years If < '50 Lacs, then with an imprisonment which may extend to 1 year | |
| (b) Avails or utilises credit without actual receipt of taxable services either fully or partially | ||
| (c) Maintains false books of accounts or fails to supply any information which he is required to supply | ||
| (d) Collects service tax from public but does not pay the same to Government beyond a period of six months from the date on which such payment was to be made | If > '50 Lacs, then with imprisonment which may extend to 7 years If < '50 Lacs, then with an imprisonment which may extend to 1 year | |
| Section 90: Cognizance of Offence | ||
| Offence punishable with imprisonment which may extend to 7 years | Cognizable | |
| All other offences other than referred above punishable with imprisonment | Non-Cognizable and bailable | |
| Section 91: Power to Arrest | ||
| Power of arrest has been given to officer of Central Excise, not below the rank of the Superintendent of Central Excise for offences specified under Section 89 | In case of cognizable offence, arrested person shall be produced before the Magistrate with 24 hours In case of Non-Cognizable and Bailable offences, the person shall be released on bail as per Section 436 of CrPC, 1973 | |
In Summary
The above amendments proposed vide Budget 2013 seem to have drawn inspiration, perhaps in the wake of Government not meeting the expected overall growth projected for tax collections in Union Budget 2012-2013 rather than curbing the misuse of tax provisions as putforth by the Revenue Authorities in various post Budget interactions.
Despite harsh opposition and notwithstanding the possible misuse of such powers by the Revenue Authorities, it seems that there is enough conviction within the Finance Ministry to be firm on the same. Finance Minister has recently refused to go back on the proposed amendments.
It would, therefore, be interesting to see whether the Authorities would be able to curb the evasion of taxes by introducing disproportionate and penal punishment provisions or on the contrary, would lead to undue harassment for tax payers and may take us back in time to the days infamously remembered as 'inspector raj' and how it fortifies the confidence of a tax payer with the tax department.
Footnote: * Shashank Goel, Senior Associate has usefully contributed in the same. 1 Section 2(c): "Cognizable offence" means an offence for which and "cognizable case" means a case in which, a police officer may, in accordance with the First Schedule or under and other law for the time being in force, arrest without warrant." 2 Section 2(1): "Non-Cognizable offence" means an offence for which and "non-cognizable case" means a case in which a police officer has no authority to arrest without warrant." 3 Section 2(a): "Bailable offence" means an offence which is shown as bailable in the First Schedule, or which is made bailable by any other law for the time being in force and "non bailable offence" means any other offence."
Disclaimer-The views expressed in this article are the personal views of the author and are purely informative in nature.