the essay of 18 March 2020 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body> <p align="justify"><font color="#660099" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>MARCH 18, 2020</strong></font></p> <p align="center"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Unjust Interest Virus Contained</strong></font><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"></font></p> <p align="center"><u><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>By Vijay Kumar</strong></font></u></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> A</strong> badly drafted law coupled with overanxious officers, playing havoc with taxpayers' lives could be seen in the kaleidoscopically confused GST scenario in the last few months.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In spite of being outstandingly boring, the story has to be retold.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CGST Act, which came into force from 1.7.2017, had an innocent Section 50, which provided for payment of interest on tax not paid. The brilliant bureaucratic jurists who drafted the section, with unimaginable precision managed to plant humungous confusion and litigation in the few words in the section.</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>50. (1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or </em></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"sans-serif" style="background-color:#FFFF00" span="span"><em>any part thereof </em></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>to the Government within the period prescribed, shall </em></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"sans-serif" style="background-color:#FFFF00" span="span"><em>for the period for which the tax </em></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>or </em></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"sans-serif" style="background-color:#FFFF00" span="span"><em>any part thereof </em></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>remains unpaid, pay, </em></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"sans-serif" style="background-color:#FFFF00" span="span"><em>on his own</em></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council. </em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(2) The interest under sub-section (1) shall be calculated, </em></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"sans-serif" style="background-color:#FFFF00" span="span"><em>in such manner as may be prescribed</em></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>, from the day succeeding the day on which such tax was due to be paid. </em></font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">From above Section,</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Tax could be part-paid - the Law recognised that there could be occasions when the whole amount of tax is not paid. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. <em>The period for which the tax or any part thereof remains unpaid </em> - There is so much confusion on when the tax is to be paid, what the return for payment is, if there is one. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. <em>'pay, on his own' - </em>What happens if he does not pay on his own? Bank attachments? </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. <em>in such manner as may be prescribed - </em>'prescribed' means prescribed by the Rules made under the Act. They forgot to prescribe the manner in the Rules. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. Though the Law permits the part-payment of tax, the GST portal does not allow it and would accept the return (a non-existent one) only if the whole tax is paid. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. It resulted in an absurd conclusion that if you had to pay a tax of 100 rupees and you had a credit of 99 rupees and you could not pay that cash liability of one rupee, you had to pay interest at 18% on the whole of 100 rupees. For that one rupee, you may be required to end up paying many rupees more. Just multiply these figures with crores and you will know how intimidating it is.</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Most of this Frankensteinic flaw went unnoticed until one brilliant Commissioner discovered the lethal power of the provisions and proceeded to unleash its might on the unsuspecting taxpayers by attaching their bank accounts thereby crippling them from further business. Soon the virus spread to other Commissionerates followed by notices and bank attachments and the hapless taxpayers were forced to knock the doors of High Courts. While one High Court held that interest had to be paid on the gross amount and another High Court held that payment of interest, 'on his own' was mandatory without a notice, the general prima facie opinion was that interest had to be on the net amount and that the government cannot go on a recovery spree without putting the taxpayers on notice. Several High Courts granted stay of recovery and bank attachments. Interestingly, some banks were more loyal than the king. In a case, the bank refused to lift the freezing of the account, in spite of the order being stayed by the High Court. The taxpayer had to go to the High Court again to get directions for the bank. (I know because I appeared for the taxpayer in the High Court).</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the midst of all this mindless litigation, there were sane voices. Many Commissioners understood the plight and did not drive the taxpayers to the High Courts. Even the CBIC, the author of the complicated and confusing legislation saw reason and suggested to the GST Council to amend the law to provide for interest only on the net amount and not gross. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As is usual with fiscal legislation, the amendment to Section 50 did not solve the problem. First, similar amendment was not made by some States in their State GST Acts and even the Centre did not notify it even till today. Then there is a big doubt as to whether the amendment has retrospective effect or not. The <a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTU2NTE2" target="_blank">Madras High Court </a> has already held that it has retrospective effect, even though it was not notified when the Court held so.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Then all of a sudden, a Member of the CBIC entered the scene recently and riled up the Hornet's Nest with his <a href="https://taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MjY2NjQ=" target="_blank">instructions </a> to the field to collect the astonishing amount of Rupees 45,996/- crores of illegitimate interest. Fortunately, again the CBIC itself and the GST Council saw reason and the Council in its meeting last week decided to put an end to this fiasco.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Did it?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Press Release issued by the PIB immediately after the Council Meeting states:</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"sans-serif" style="background-color:#FFFF00" span="span">Interest for delay in payment of GST to be charged on the net cash tax liability w.e.f. 01.07.2017 (<strong>Law to be amended retrospectively</strong>).</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Are we going to enter the dragon of legislative chaos and confusion again? Quite often corrective measures are more damaging than the original calamity. Now, to amend the law retrospectively, they will have to again go to Parliament and get the amendment passed by all the State legislatures and then notify it. When will they do it? And what will happen if somebody gets some brilliant ideas before the retrospective legislation is notified?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Actually, there is no need of any retrospective amendment. In fact, there was no need of an amendment, let alone a retrospective one at that. If the system did not allow what the law did, the remedy was to correct the system and not the law. Just because you could not put the portal in order, do you ask the Parliament to change the law? Shouldn't you show a little more respect to Parliament? Since the law is already amended, there is no need to amend it further to make it retrospectively effective. The Madras High Court has already held so. The Government can give a clarification that the amendment would have effect from 1.7.2017. They can also think of giving a 'Removal of difficulties' Order under Section 172. This could be a simple solution to the problem, but are we ready for simple solutions?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While on this, they can also clarify that if the taxpayer is not very obedient or does not understand bureaucratic English and forgets to pay that interest <em>'on his own', </em>he will be issued a notice and the due process of law will be followed, before rushing to the bank to freeze his account. The wise words of the Supreme Court in a recent judgement - <a href="http://rgz.ftrans01.com/VJSLDZHCQTXF?id=10970=cEgGA1IDDA8JSAcECVRWBQcFUUQ=B1kKDhoOAwtbdkZeXFgYWg1PBA0BBwQAD1JXBw8HVQ9UCFYeCxcWEg0ZHUVUThhVF0FUVkoEBhpaCwsaYX8ydCdiKyEyNzokCF9WS0UG&fl=W0BCQ1kcGkxQW1tXVhYWWVZCEhYAVw5NAAIRB1tXRRhXUUJSCl9GF3ReVEx3NVsI" target="_blank"><strong>2020-TIOLCORP-09-SC-MISC-LB</strong></a> in <em>Internet and Mobile Association of India versus Reserve Bank of India, </em>should guide every taxman when he thinks of freezing the bank account of a taxpayer.</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>There can also be no quarrel with the proposition that banking channels provide the lifeline of any business, trade or profession. When currency itself has undergone a metamorphosis over the centuries, from stone to metal to paper to paperless and we have ushered into the digital age, cashless transactions (not penniless transactions) require banking channels. Therefore, the moment a person is deprived of the facility of operating a bank account, the lifeline of his trade or business is severed, resulting in the trade or business getting automatically shut down</em>.</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If you sever the lifeline of a business, the first casualty is of course, business, but the second casualty is your taxes. Overzealous taxmen should be taught to exercise caution before they damage the very basis of tax.</font></p> <p align="justify"><font color="#990000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Cunningham's Law : </strong>the best way to get the right answer on the internet is not to ask a question; it's to post the wrong answer. </font></p> <p align="justify"><font color="#663366" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Until next week </strong></font></p> </body> </html>