Tax cannot be arbitrary

Updated: Dec 10 2005, 05:30am hrs
A higher rate of tax cannot be levied merely because a taxpayer is willing to pay his taxes under the mistaken belief that the law obliges him to do so. As a taxpayer if you pay your taxes at a rate higher than what is applicable in your case, under mistaken belief, what should be the governments approach

The settled law is that the government cannot collect even a penny more or less than what you owe to the exchequer. But in this case involving an American company that paid taxes at the rate of 20% in the place of applicable rate of 15% on interest income under the Double Taxation Avoidance Treaty between India and the US, the income tax authorities accepted the computation submitted by the US company and also defended their action on the ground that such a mistake was made in computation by the taxpayer itself. The assessee later realised it and pleaded for rectification of the mistake. But the income tax assessing officer did not agree. Nor did the Commissioner of Income Tax (Appeals). Finally, the matter was settled by the highest fact-finding body, the Income Tax Appellate Tribunal (ITAT), which ruled that it is not open to the revenue authorities to take advantage of mistakes committed by the assessee or to deprive the assessees of a fair and reasonable opportunity, even when specifically prayed for, of correcting their inadvertent errors.

A tax cannot be levied on an assessee at a higher rate merely because the assessee, under a mistaken belief, offered the income for taxation at that rate. It can only be levied when it is authorised by the law, as is the mandate of Article 265 of the Constitution of India. The Tribunal also remarked that the assessing officer was too technical and pedantic in his approach. As for the appellate commissioners words of helplessness, the tribunal said: We can only say that he was perhaps taking too modest and a somewhat superficial view of the assessing officers powers and, correspondingly, of his duties as well.

Risk management system

Taking a giant step forward in the direction of striking a balance between trade facilitation and growing security concerns, the Ministry of

Finance (MoF) has finally translated the oft-heard terminology of Risk Management System into an operational scheme Accredited Clients Programme (ACP) for speedy clearance of growing volumes of cargo. The government aims at reducing dwell time of cargo clearance and thereby reduce transaction costs for industry.

The ACP scheme is going to replace all the existing schemes such as green channel, fast track clearance etc in a phased manner. Under the new scheme an importer will be allowed to clear his cargo on the basis of self-assessment. However, the scheme would begin with only major customs stations having EDI facility the pilot project is to start at Sahar Air Cargo.

Importers registered by the department as Accredited Clients will form a separate category to which assured facilitation would be provided. Except for a small percentage of consignments selected on a random basis by the RMS, or cases where specific intelligence is available or where a specifically observed pattern of non-compliance is required to be addressed, accredited clients will be allowed clearance on self-assessment.

However, the registration criteria under this scheme is indeed very tough and, only those companies are eligible who have either imported goods valued at Rs 10 cr (assessable value) in the previous financial year or paid more than Re 1 cr of customs duty in the previous financial year or in the case of importers who are also Central Excise assessees, paid Central Excise duties over Re 1 crore from the Personal Ledger Account in the previous financial year.

Secondly, they should have filed at least 25 Bills of Entry in the previous financial year and have no cases of Customs, Central Excise or Service Tax booked against them. Also, they should have no duty demands pending on account of non-fulfillment of export obligation. Every aspect of this scheme looks good except the condition that no show cause notice should be there against the applicant company, invoking penal provisions. Given the general tendency in the Department to resort to penal provisions in every case it may dampen the response of the industry to this scheme.

Syndicated column by www.taxindiaonline.com