Attaching assets is a favourite tool of the taxman and, as SC points out, this is draconian and needs to be changed
The SC also came down heavily on the tax department’s assertion that, under the law, it was well within its rights to not ask the company to defend itself prior to the order being issued.
Admittedly, it is only an observation since the ruling in the case is yet to be made, but while coming down on GST authorities in Radha Krishna Industries versus the State of Himachal Pradesh, the Supreme Court has made some important observations. With the state GST authorities trying to attach the firm’s property, SC said that the taxman couldn’t just attach assets at the drop of a hat. Indeed, attaching property seems to be the preferred modus operandi not just for GST authorities, but for all taxmen. Indeed, the global arbitration ruling in the Cairn Energy case would not have caused such a furore had it not been for the taxman being asked to refund $1.2 billion dollars to the firm; these were assets that had been attached while the case was still going on. While the government lost the Vodafone arbitration as well, this didn’t matter as much as there were no payments to be made as no assets had been seized.
The SC also came down heavily on the tax department’s assertion that, under the law, it was well within its rights to not ask the company to defend itself prior to the order being issued. Theoretically, the company can always appeal the order, but when doing so can take decades—and the company can go out of business if, in the meanwhile, its assets are seized—it is only fair that it be allowed to defend itself before the order is passed. Not surprisingly, the court said this was a draconian law and needed to be fixed.
Indeed, in the past, other courts have also found the law to be wanting. So, a couple of years ago, in the anti-profiteering case against Jubilant Foodworks, the Delhi High Court stayed the National Anti-Profiteering Authority (NAA) order against the company on grounds there was a prima facie case of a lack of methodology to determine profiteering. And in the case of Hardcastle Restaurants (McDonald’s), the Bombay High Court said “the Act and Rules provide no appeal” and then added that “the importance of fair decision-making is necessary”.
In Radha Krishna, SC said that there was also a need to ensure accountability of tax officials. After all, when the huge demands made by tax officials are reduced drastically by tribunals or courts, surely the tax officer needs to be held accountable? Indeed, a recent CAG report took some cases of tax raids and it found that, for 84 industrial groups where the taxman had added `24,966 crore to their income, less than a fourth of this remained after the cases had been through just the CIT(A) and ITAT appeals process. In a nutshell, the taxman, and not just in the case of GST, still has too many powers and there is very little recourse for citizens even now. Now that SC has also highlighted this, perhaps the government needs to come out with firm punishment guidelines for the taxman when he gets it wrong; and ultimately, the tax boards need to be held accountable as it is their job to scrutinise the tax orders being passed to make sure they are reasonable.