the essay of 27 December 2023 · the untouched capture
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<p align="left"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>December 27, 2023</strong></font></p>
<p align="center"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Provisional Collection of Taxes Act, 1918</strong></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><u>By Vijay Kumar</u></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>PARLIAMENT</STRONG> of India recently passed the<em> Provisional Collection of Taxes Act, 2023</em>. What is Provisional Collection of Taxes? In simple terms, it means that any increase or imposition of excise and customs duties proposed in the Finance Bill will have immediate effect. Immediate effect means from the next day. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Why this Provisional Collection of Taxes Act, 2023 now? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Doesn't the Provisional Collection of Taxes Act, 1931 provide for exactly this? Why this new Act now? The Finance Minister, Ms. Nirmala Sitharaman explained in Parliament: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">The Provisional Collection of Taxes Bill, 2023 which is before us proposes to replace the erstwhile Provisional Collection of Taxes Act, 1931 with just minor changes which are technical in nature. This law is in existence from 1931. We have just made minor changes and we are here, therefore, not with a new law but with a mildly amended existing law. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">As it existed since 1931, we carry it forward. But then, why are we bringing it here? It is a part of the larger relook at all the Bills and if any colonial past residues are there in the Acts, we want to remove them and make them reflective of the modern India, the new India that we are trying to build. </font></p>
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<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">Not required for GST </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">In the case of GST, all the rate changes are first of all carried out only based on recommendations of the GST Council. So, it gets decided in the Council, and then it comes here for the Central Government to pass it as a part of either Finance Bill or otherwise. On the recommendations of the GST Council the effective date of change of rate is also decided, and then it is synchronized between the Centre and the States. That is the case for the GST. Hence, the power to collect tax provisionally is not required for the GST. It is only, therefore, for the Customs and Excise Duties that we need it. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There is hardly any excise duty now and if the government wants to increase any duty of customs with immediate effect, they can do it by notification and they need not wait for the Budget. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is well known that as per the provisions of the Provisional Collection of Taxes Act, 1931, certain Customs and Central Excise Duties have immediate effect after presentation of the Bill to Parliament. That is increase in Customs and Excise duties are effective from the midnight of the presentation of the Union Budget unlike other taxes like Income tax. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It should be noted that not all proposals in the Finance Bill relating to Customs and Excise duties have immediate effect. The general understanding is that a Finance Bill comes into force only from the date of enactment or a date to be determined by the Government after enactment if there is such a provision in a particular clause of the Finance Bill. But Provisional Collection of Taxes Act, 1931, gives the power to Government to make certain Customs and Excise Duties immediately effective. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Section 3 of the Provisional Collection of Taxes Act, 1931 gives the power to the Government to make a declaration in the Finance Bill that any provision of the Bill relating to imposition or increase of Customs or Excise Duties shall have immediate effect. It is interesting to note that first of all there has to be a declaration in the Finance Bill that certain provisions will have immediate effect. It is in compliance with this provision that we find a declaration under the Provisional Collection of Taxes Act, 1931 in the Finance Bill that certain clauses of the Finance Bill have immediate effect. It is also of interest that this immediate effect is only in relation to imposition or increase in Customs and Excise duties. Merely because a particular clause is declared to have immediate effect under the Provisional Collection of Taxes Act, 1931, it will not have immediate effect unless it relates to an imposition or increase in Customs and Excise Duties. So the natural corollary is that a decrease in Customs and Excise Duties will not have immediate effect. To give effect to such decrease immediately, exemption notifications are given. </font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">What is Immediate Effect? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Section 4(1) of the Provisional Collection Taxes Act, 1931, states that a declared provision shall have effect immediately on the expiry of the day on which the bill is introduced in Parliament, that is, when the budget is presented on the 1st February, the provisions are effective from 0000 hours of the second day of February. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The declared provision under the Provisional Collection Taxes Act, 1931, ceases to have effect under the following conditions: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. When it becomes an Act with or without amendments. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. When Government by notification directs that it ceases to have effect in pursuance of a motion passed by Parliament. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. If it does not cease to have effect under (1) or (2), then on the expiry of seventy five days after the Bill was presented to Parliament. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Thus the maximum life of a Declared provision is seventy five days. It can be seen that a Finance Bill presented to Parliament:- </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. can be passed without any amendment as is normally the case. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. can be passed with some amendments which rarely happens. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. may be rejected (which may mean the Government itself going out). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. may not be passed at all (for any reason). </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now what are the consequences of each of the above situations, with regards to imposed or increased duties already collected by virtue of Provisional Collection of Taxes Act, 1931? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the first case, that is when the budget is passed without amendment, there is no effect, as the Bill has become law. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the second case, that is when the Finance Bill is passed with amendments and if these amendments result in certain declared increase or imposition not accepted by the Parliament, then the position is that the duties collected from the day after the presentation of the Finance Bill till its enactment which would not have been collected if the amended provision had been the declared provision, should have to be refunded. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What happens if after presentation of the Finance Bill, the Government falls and the same Finance Bill is reintroduced by the new Government? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Under the Provisional Collection of Taxes Act, 1931, the provisions of the new Bill can have effect from the date of presentation of the new bill and the old Bill not having become law ceases to have effect after seventy five days and refunds have to be given. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the third and fourth situations, the proposals cease to have effect after seventy five days and if it so happens, all the duties collected will have to be refunded. Of course, refunds under Customs and Central Excise are granted to the parties only when the incidence of Tax is not passed on to the buyer. Otherwise the refundable amount is credited to the Consumer Welfare fund. However, if it can be proved that incidence has not been passed on, refunds can be claimed. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Nothing has changed in 2023. The 2023 Act does not bring in any changes except the year in the name. Yes, there is a small change: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please see the table below for the new and old Acts: </font></p>
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<td valign="top"><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">1. This Act may be called the Provisional Collection of Taxes Act, 2023. </font></div></td>
<td valign="top"><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">1. This Act may be called the Provisional Collection of Taxes Act, 1931. </font></div></td>
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<td valign="top"> <div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">2. In this Act, a "<em>declared provision</em>" means a provision in a Bill in respect of which a declaration has been made under section 3. </font></div></td>
<td valign="top"> <div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">2. In this Act, a "<em>declared provision</em>" means a provision in a Bill in respect of which a declaration has been made under section 3. </font></div></td>
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<td valign="top"> <div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">3. Where a Bill to be introduced in Parliament on behalf of the Government provides for the imposition or increase of a duty of customs or excise <font color="#FF0000">with or without change in tariff classification</font>, the Central Government may cause to be inserted in the Bill a declaration that it is expedient in the public interest that any provision of the Bill relating to such imposition or increase shall have immediate effect under this Act. </font></div></td>
<td valign="top"> <div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">3. Where a Bill to be introduced in Parliament on behalf of Government provides for the imposition or increase of a duty of customs or excise, the Central Government may cause to be inserted in the Bill a declaration that it is expedient in the public interest that any provision of the Bill relating to such imposition or increase shall have immediate effect under this Act. </font></div></td>
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">4. (1) A declared provision shall have the force of law immediately on the expiry of the day on which the Bill containing it is introduced. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF"> (2) A declared provision shall cease to have the force of law under the provisions of this Act- </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">(a) when it comes into operation as an enactment, with or without amendment. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">(b) when the Central Government, in pursuance of a motion passed by Parliament, directs, by notification in the Official Gazette, that it shall cease to have the force of law; or </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">(c) if it has not already ceased to have the force of law under clause (a) or clause (b), then on the expiry of the seventy-fifth day after the day on which the Bill containing it was introduced. </font></p>
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">4. (1) A declared provision shall have the force of law immediately on the expiry of the day on which the Bill containing it is introduced.</font></p>
<p> <font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">(2) A declared provision shall cease to have the force of law under the provisions of this Act- </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">(a) when it comes into operation as an enactment, with or without amendment, or </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">(b) when the Central Government, in pursuance of a motion passed by Parliament, directs, by notification in the Official Gazette, that it shall cease to have the force of law, or </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">(c) if it has not already ceased to have the force of law under clause (a) or clause (b), then on the expiry of the seventy-fifth day after the day on which the Bill containing it was introduced. </font></p>
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">5. (1) Where a declared provision comes into operation as an enactment in an amended form before the expiry of the seventy-fifth day after the day on which the Bill containing it was introduced, refunds shall be made of all duties collected which would not have been collected if the provision adopted in the enactment had been the declared provision: </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF"> Provided that the rate at which refunds of any duty may be made under this sub-section shall not exceed the difference between the rate of such duty proposed in the declared provision and the rate of such duty in force when the Bill was introduced. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF"> (2) Where a declared provision ceases to have the force of law under clause (b) or clause (c) of sub-section (2) of section 4, refunds shall be made of all duties collected which would not have been collected if the declaration in respect of it had not been made. </font></p>
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">5. (1) Where a declared provision comes into operation as an enactment in an amended form before the expiry of the seventy-fifth day after the day on which the Bill containing it was introduced, refunds shall be made of all duties collected which would not have been collected if the provision adopted in the enactment had been the declared provision: </font> </p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">Provided that the rate at which refunds of any duty may be made under this sub-section shall not exceed the difference between the rate of such duty proposed in the declared provision and the rate of such duty in force when the Bill was introduced. </font> </p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">(2) Where a declared provision ceases to have the force of law under clause (b) or clause (c) of sub-section (2) of section 4, refunds shall be made of all duties collected which would not have been collected if the declaration in respect of it had not been made. </font></p>
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<td valign="top"> <div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">6. The Provisional Collection of Taxes Act, 1931 is hereby repealed </font></div></td>
<td valign="top"> <div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#FFD7AE" span="span">6. [Repeal.] Rep. by the Repealing Act, 1938 (1 of 1938), s. 2 and Sch. </font></div></td>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, there is an addition of <font color="#FF0000">with or without change in tariff classification.</font> What is the significance of this? </font></p>
<p align="justify"><font color="#006600" size="3" face="Verdana, Arial, Helvetica, sans-serif"><em>Provisional Collection of Taxes Act, 1918</em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While the Provisional Collection of Taxes Act, 1931 is well-known, very few know about the Provisional Collection of Taxes Act, 1918, which is reproduced below: </font></p>
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<td valign="top"><div align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">ACT No. XVI OF 1918. </font></div></td>
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<td valign="top"><div align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">[PASSED BY THE INDIAN LEGISLATIVE COUNCIL] </font></div></td>
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<td valign="top"><div align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">(Received the assent of the Governor General on the 20th September, 1918.) </font></div></td>
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<td valign="top"><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">An Act to provide for the immediate effect for a limited period of Bills introduced into the Indian Legislative Council which impose or vary certain taxation. </font></div></td>
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<td valign="top"><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">WHEREAS it is expedient to provide for the immediate effect for a limited period of Bills introduced into the Indian Legislative Council which impose or vary certain taxation; It is hereby enacted as follows :- </font></div></td>
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<td valign="top"><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">1 . This Act may be called the Provisional Collection of Taxes Act, 1918 </font></div></td>
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<td valign="top"><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">2. When a Bill is introduced into the Indian Legislative council, by a Member of the Executive Council of the Governor General, and such Bill provides for the imposition or variation of any tax in the nature of customs or excise duties, and there is inserted therein a declaration that it is expedient in the public interest that the Bill should have temporary effect under the provisions of this Act, the Bill shall, for the period limited by this section and subject to the provisions of this Act, have effect from the date of its introduction as if it were an Act of the Governor General in Council, : </font></div></td>
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">Provided that the Bill shall cease to have such effect if it is rejected by the said Council or is not passed into law within thirty days from the date of introduction: </font></p>
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<td valign="top"><blockquote> </blockquote> </td>
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">Provided further that, if the Bill is passed into law by the said Council in a modified form, the Bill shall be deemed to have effect under this Act as so modified. </font></p>
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<td valign="top"><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">3. (1) Where under this Act a Bill to which this Act applies ceases to have effect
thereunder, any money paid in pursuance of the Bill shall be repaid or made good,
and any deduction made in pursuance of the Bill shall be deemed to be an unauthorized deduction. </font></div></td>
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<td valign="top"><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">(2) Where the tax as imposed by the Bill is modified by the Act passed by the Indian Legislative Council, any money which has been paid in pursuance of the Bill which would not have been payable under the new conditions affecting the tax shall be repaid or made good; and any deduction made in pursuance of the Bill shall, so far as it would not have been authorised under the new conditions affecting the tax, be deemed to be an unauthorised deduction. </font></div></td>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please note, this Act provided for immediate effect, not only for imposition (or increase), but also any <font color="#FF0000">variation.</font> Thus, from 1918 to 1931, even <font color="#FF0000">decrease</font> in tax rates had immediate effect. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In a book published in 1925, "<em>The System of Financial Administration in British India</em>" authored by P. K. WATTAL of the Indian Audit and Accounts Service, it is explained: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">The Finance Bill is introduced in the Legislative Assembly the same day that the budget is presented. At the end of the Bill a clause is inserted declaring that it is expedient in the public interest that the Bill should have temporary effect under the provisions of the Provisional Collection of Taxes Act, 1918. This clause is inserted to give retrospective effect from the date of the presentation of the budget to changes proposed in customs and excise duties. Even prior to the passing of the Provisional Collection of Taxes Act, it had been the practice to give effect by executive orders to the proposed changes in taxation from the date of introduction of the budget in the Legislative Council, without waiting for such changes to be formally embodied in the law, which necessarily took some time. Such a step was and is obviously necessary in order to avoid loss to Government by the passing of goods through the Customs or the removal of goods from bond in the interval between the introduction and the passing of the Bill. Executive regulation did not, however, invariably prevent losses to Government, as some importers objected to paying duty at the higher rates pending the passing of the Bill, and when the Bill was passed with retrospective effect it was not always possible to recover the difference between the lower rate actually paid and the higher rate due under the new Act. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, we have the Provisional Collection of Taxes Act, 2023 with all the provisions of the Provisional Collection of Taxes Act, 1931 intact. </font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until next week</font></p>
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