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GST The legal tangle - Nagara Gopal
The integrity and efficiency of any tax system hinges on the credibility of its adjudication mechanism in the eyes of taxpayers. Now that litigation under the Goods and Services Tax (GST) law is in full swing, we analyse some of its provisions and test them against the touchstone of fairness and taxpayer friendliness.
The allocation of administrative and enforcement power under the GST has been a thorny area from the very beginning. The GST Council settled on the implementation of a single interface and distributed administrative jurisdiction between the Centre and States in its ninth meeting. However, it was decided that both the Central and State tax authorities will have the power to conduct intelligence-based enforcement in respect of the entire value chain.
Based on these decisions, a clarification authorised both the Central and State authorities to initiate intelligence-based enforcement action on the entire taxpayer base, irrespective of their administrative jurisdiction. The clarification also empowered the authority initiating such action to conduct investigation, adjudication, recovery, file appeal, etc., arising out of such action.
In several GST Council meetings prior to the ninth one, concerns were expressed that the grant of such parallel powers could cause confusion and harassment of taxpayers. A Committee of Officers was set up to evaluate the issue, which suggested the introduction of measures to prevent abuse of concurrent enforcement powers.
However, none of these apprehensions were discussed in the ninth Council meeting and the clarification was introduced without any guidelines to regulate the simultaneous exercise of powers by the Centre and States. The grant of such wide, unfettered powers complicates the mechanism, and is likely to lead to harassment of taxpayers.
Certain provisions under the Central GST Act empower the same officer to investigate, and adjudicate matters. Section 61, for instance, empowers a ‘proper officer’ to scrutinise taxpayers’ returns, highlight discrepancies in such returns and seek subsequent explanations. Further, if the ‘proper officer’ is not satisfied with the explanation offered, he is also authorised to issue a show-cause notice and subsequently adjudicate the matter to pass an order. In accordance with the circular issued under this provision, the Superintendent has been assigned the role of a ‘proper officer’.
Effectively, this provision and the assignment of the role of ‘proper officer’ thereunder, results in taxpayers offering an explanation before the same authority twice — first at the time of scrutiny of returns and again at the time of filing a reply to the show-cause notice.
Moreover, since the authority passing the order is the same authority who conducted the scrutiny, they are likely to believe their initial findings and fail to adjudicate the matter without prejudice. The allocation of powers under the GST law needs to be rethought to ensure that it does not create a confirmation bias. The current structure is ineffective and fails to inspire public faith in the system.
It is settled position that tribunals created under statutes must maintain independence of the judiciary. When a tribunal takes over the functions of a court of law, persons who are as nearly equal in rank, experience or competence to those of the court should be appointed as members of the tribunal. The number of technical members must thus, not exceed the judicial members.
Under the Central GST Act, the national and regional benches of the tribunal are taking over the High Courts’ jurisdiction, and the State and area benches are taking over the District Courts’ jurisdiction. However, all of these bodies have two technical members and only one member acting in judicial capacity.
Further, in certain circumstances, tribunals have been permitted to hear matters through a single member bench, or a bench of two members. In such cases there is a chance that only technical members adjudicate on questions of law. The constitution of tribunals under the GST thus violates the doctrine of separation of powers, and compromise the independence of the judiciary. It also breaches the reasonable expectation that matters before tribunals would be adjudicated upon application of legal mind.
Given that GST is still in its formative years, its future is heavily dependent on taxpayers’ confidence in the uniform, fair and unbiased functioning of the dispute-settlement mechanism. Strengthening the structure should, therefore, be treated as a priority.
The writers are Research Fellows at Vidhi Centre for Legal Policy.
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