Mr X is into the business of hotels and lodging in Ongole, Andhra Pradesh, through a partnership firm. The firm’s annual turnover has been in the range of ₹15-20 lakh (over FY04 to FY19). In his returns, Mr X has been setting off losses carried forward from the initial years. However, in assessment year (AY) 2010-11, he had erroneously missed out filling the schedule showing the set off and carried forward losses. Hence, he received a demand from the IT department on March 10, 2011, requesting either to submit data on carried forward losses or pay tax to the tune of ₹1.4 lakh.

Despite filing both rectification and revised returns in August 2011 and January 2012, respectively, the matter is still unsettled. The chartered accountant who now represents Mr X’s case before the authorities told us about how he has been running from pillar to post, but in vain. He says, “The delay has now led to a new notice (generated in August 2017), demanding penalty on the tax amount.”

This delay is mainly due to the numerous assessing officers handling the case. While a few brushed off the case citing a technical glitch, others cited various other reasons for delay. Since one such officer cited unavailability of records as a reason, Mr X also submitted submit physical copies of financials and returns filed from AY 2004-05 to AY2010-11. But the case didn’t move an inch.

Mr X told us that even the online portal is of no help. Even after replying against the demand on the website, he hasn’t received any recourse from the department till date.


A taxing affair

The narrative of tax harassment — some would say ‘tax terrorism’ — is gaining ground. And not without reason. The Centre has been setting itself steep targets for both direct and indirect tax collections (see graphic), while a slowing economy and liquidity crisis in industry has slowed down the receipts. This has led to the use of high-handed methods to recover amounts due, with revenue circles under pressure to meet local, informally set targets.

Recent reports of a Mumbai film producer being sentenced to one year’s RI for delay in the payment of a TDS amount of ₹25 lakh, deducted in 2009-10 is a case in point. The other fall-out of this collection drive is the sudden spurt in disputed claims, because of the ‘high-pitched’ assessments made by the Income Tax department.

To settle this problem, the Centre has introduced the Direct Tax Vivaad se Vishwas Bill. The Finance Minister informed the House that 4.83 lakh direct tax cases were pending in various forums, for which the resolution on offer is a waiver of interest and penalty, provided the amount is paid by March 31, 2020.

But harassment on account of GST claims is a sore issue with smaller segments in particular. Section 69 of the GST Act empowers the tax officer concerned to arrest any person accused of wrongdoing under Section 132 of the Act, which deals with fake invoicing and fraudulent claim of input tax credit. However, a Bengaluru-based chartered accountant points out that no due procedure is followed in this regard. “It is not clear to the business entity when someone will turn up to arrest him, nor is he given a chance to explain his case,” he says.

In fact, the Gujarat High Court makes precisely this point. In relation to the arrest of Ugarchand Gadhecha on December 6, 2019, the court asked the State Tax Officer to produce an “order of authorisation” on the arrest; and documentary evidence indicating application of mind regarding the arrest. On February 6, the Directorate General of GST Intelligence has made an arrest for the issue of fake invoices amounting to ₹69 crore. This has raised questions of procedure in the business fraternity, even as they concede that stringent punishment is justified for such transgressions.

Let’s take another case. Company E is a registered and regular taxpayer for decades. However, on account of slowdown and no-receipt of money from customers, the company is making its GST payments after a delay of three to four months. GST authorities have informed Company E that unless the GST dues are paid forthwith, the company’s bank account will be attached. Company E is unable to make fresh supplies to new customers due to the blocking of e-way bills.

Says Pune-based chartered accountant Pritam Mahure: “Bank attachment, which should have been the last step, is being regularly exercised as the first step.” He also calls for less arbitrariness in the implementation of Sabka Vishwas Scheme, introduced for the closure of service tax and excise litigations. “Some applicants who have paid the tax amount and applied for waiver of interest and late fees have been rejected, whereas in other cases 70 per cent of the service tax liability was waived along with interest and penalty,” he explains.

However, the issue of mounting GST fraud cannot be wished away. Minister of State for Finance Anurag Thakur informed Parliament recently that GST frauds could be in the region of ₹45,000 crore since the inception of GST in July 2017. West Bengal Finance Minister Amit Mitra has in turn observed that when State level frauds are included the sums can exceed ₹1 lakh crore. This has impacted transfers to States.

While it is hoped that invoice matching will improve matters, its application will be restricted at first to firms with a turnover of ₹100 crore or more. Fake invoicing occurs because the present norm allows for 180 days to settle a transaction after the invoice to claim the credit is uploaded on the portal. The parties concerned disappear after the six-month period after pocketing the credit, or cancel the transaction in the interim. “Fake invoicing has also set in as a means to tide over the working capital problems created by a poor business environment,” a Bengaluru-based chartered accountant explains. A Big 4 indirect tax consultant says that IT-related glitches have inconvenienced assessees in terms of their making a higher effort to comply. It also leads to denial of their rightful claims.

At another level, State tax officers unfamiliar with service tax seek excessive information and clarification, which have already been sought by other authorities. Exaggerated claims have led to litigation, he says.

The Finance Minister has said that tax-payers’ rights would be protected through a taxpayer charter. This should apply to both direct and indirect tax payers. However, income tax department officials contend that their search and seizure operations have been blown out of proportion. They remain low as a proportion of the total number of assessees, given that the tax base has widened. “In fact, the question that should be asked is how many prosecutions for unaccounted money have taken place post-demonetisation, given that it was all about unearthing unaccounted money.” It is also to be noted that technology has led to detection of fraud and suspicious transactions, which has led to an impression of the tax department being on overdrive, the income tax officials observe.

Benami land transactions have also come under the scanner more than ever before, thanks to modifications in the law.

Narendar Pani, Professor, School of Social Sciences at the National Institute of Advanced Studies, sums it up: “The tax harassment by authorities bears a striking parallel to the Emergency period when select industrialists were promoted and those seen to be against the government were investigated.”

Pani adds: “This government has come to power on an anti-corruption plank. It is using the legal process to implement its mandate, besides targeting those who are seen to be opposed to it.” He says false claims are not easily redressed owing to judicial delays, while the law and its interpretation leads to wrong assessments. “The battle against corruption has to be a social movement rather than one based on the legal machinery.”