Taxman slips: MakeMyTrip HC order highlights need to fix tax policy

By: | Published: September 3, 2016 6:12 AM

Delhi HC’s MakeMyTrip order makes clear the need to urgently fix tax policy, rein in taxman

income tax returns, how to file income tax returns, how to file your income tax returns, income tax returns, income tax returns forms, ITR 1For the government, the priority—apart from reviewing the arrest powers given to the taxman—has to be filling the gaps in the tax policy that allowed DGCEI to strong-arm MakeMyTrip on mere suspicion of evasion even though the service tax department had accepted its filings. (Thinkstocks)

The Delhi High Court deeming the arrest—without a show-cause notice being served—of MakeMyTrip official MK Pallai “unconstitutional” and “unwarranted” for alleged service tax evasion, shows up the taxman’s coercive tendencies. The High Court has ordered the Directorate General of Central Excise Intelligence (DGCEI) to refund the R70 crore the company deposited with it, as also the money taken from two other online portals, Ibibo and Ebiz. The court said that these payments were “not voluntary but under coercion and duress” and allowed the online portals to institute appropriate proceedings against the officers of the DGCEI, besides imposing costs of R1 lakh each for the petitions filed against it by the companies. That it said that the power of arrest is to be used with “great circumspection, and not casually” speaks volumes about widely tax officials interpret the powers vested in them. Earlier, the DGCEI, upon being asked by the court why it hadn’t sent a show-cause notice, had replied that the investigation was still on and a show-cause notice will be issued after that, a case of leaping before having looked.

For the government, the priority—apart from reviewing the arrest powers given to the taxman—has to be filling the gaps in the tax policy that allowed DGCEI to strong-arm MakeMyTrip on mere suspicion of evasion even though the service tax department had accepted its filings. DGCEI’s interpretations of tax policy have larger implications, for the entire e-commerce space in India. MakeMyTrip is arguing that the service tax on the billing made out to customers must be paid by the hotel/airlines providing the lodging/air-travel—e-tail firms similarly say that the VAT implications for purchases made through them are on the eventual sellers. If MakeMyTrip were to collect the service tax on the transactions and deposit it with the government, it would imply that the platform owns the airlines/hotels and therefore will be eligible for a 60% abatement in tax due, instead of the 90% abatement it can avail of on the money it gets as a tour operator facilitating the transactions . The government must clarify the policy urgently, else improving the ‘ease of doing business’ will suffer.

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