The Hindu Business Line : `Excising' issue

NEITHER TAX DISPUTES between governments and assessees nor their adjudication by the highest judicial forum is new. In the event, the dispute between the Government and the cigarette major ITC, which was eventually resolved to the latter's advantage, would have been dismissed as yet another tax litigation the size of the amount in dispute, notwithstanding. Even the Ordinance promulgated by the Government to nullify the effect of the Supreme Court's decision would have been accepted as par for the course. But the Finance Minister, Mr P. Chidambaram's clarification that the Government decided to settle with the company at the prompting of the apex court not only resurrects the whole issue but also raises questions in the public mind.

Why, for instance, did the Government not think it necessary to heed the suggestion at the time it was made? By the Minister's own admission it was made by the court after hearing the arguments from both sides and before reserving its judgement. The Government not only did not respond then but waited a good six months after the court verdict. If anything the Government had, by issuing the Ordinance, given the impression that in its view there was no case for a compromise solution and that it even felt confident of recovering the tax dues despite the adverse court ruling. Perhaps, the Government suddenly felt unsure of the prospects of retaining what it had collected as a deposit, leave alone recovering the balance sum and, hence, resorted to issuing an Ordinance only to apply some pressure on the company to come to the negotiating table. Unfortunately, even this explanation is not satisfactory as it would mean that either the President was an unwitting accomplice to this stratagem or that the Government was guilty of misleading him.

No less intriguing is the action of the company, which fought all the way to the Supreme Court and succeeded in obtaining a verdict in its favour and yet chose to forego the money that is rightfully its. The Ordinance seemingly overcomes the legal infirmity in the excise notification which led the Supreme Court to turn down the Government's claim. The fact of the matter is that the Ordinance could still be subject to a legal challenge. The new regime would require establishing a uniform retail price across the country for determining the duty — a legally unsustainable position for the Government. Alternatively it would have to add up the duty across innumerable retail prices — a logistical nightmare for the tax department. The company perhaps must be hoping that its forbearance in pursuing the claim would be reciprocated by an executive forbearance of a punitive levy on future cigarette sales by the company. The Government, on its part, would be better off sticking with the spin put out earlier — when it chose not to introduce a Bill to replace the Ordinance but allowed it to die a natural death — that it was keen not to give an impression of confronting the judiciary at a time when the delicate balance between the two had come under some strain in the wake of the developments in the Jharkhand Assembly.

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