By P G Chacko
THE Constitution (122nd Amendment) Bill, 2014 seeking to confer concurrent taxing powers on the Union and the States and introduce “Goods and Services Tax” [GST] subsuming therein a variety of indirect taxes presently levied by the Union and the States separately has been passed by LOK SABHA and is under legislative scrutiny by the Select Committee of RAJYA SABHA. The Constitution (115th Amendment) Bill, 2011 presented to LOK SABHA for the same purpose by the previous Government had lapsed on the dissolution of the House last year.
The stated object of the proposed GST law is to eliminate the cascading effect of taxes and provide for a common national market for goods and services. The champions of this major tax reform would consider it as an attribute of “co-operative federalism”. Of late, the Union Finance Minister has gone a step further to call it “competitive federalism”. He hopes, GST can be rolled out on April 1 next year.
The Central indirect taxes sought to be subsumed in GST are Service Tax, Central Sales Tax and Central Excise Duty besides a few other duties, cesses and surcharges presently levied by the Union, while Sales Tax/Value Added Tax, Purchase Tax, Entry Tax/Octroi and a few other taxes, cesses and surcharges presently levied by the States will also become part of GST which will be a composite tax consisting essentially of two components viz. ‘Central GST’ [CGST] to be levied by the Centre and ‘State GST’ [SGST] to be levied by the States. Where inter-State transactions are involved in the supply chain of goods and services, the tax will have a third component namely ‘Integrated GST’ [IGST] with CGST and SGST elements integrated therein. The State Legislatures should make laws with respect to SGST, while Parliament should legislate on CGST and IGST. This will not be possible unless the Constitution is suitably amended. Hence the Constitution (122nd Amendment) Bill, 2014.
Kinds of disputes:
++ From the provisions of the 122 nd Amendment Bill, it appears, the GST Council which will consist of the Union Finance Minister, Union Minister of State in charge of Revenue or Finance and the Finance Ministers of all the States will recommend to the Central and State Governments on all crucial aspects of the proposed levy such as (a) which of the taxes/cesses/surcharges should be subsumed in GST, (b) which of the goods and services should be subjected to the levy or exempted from it, (c) what should be the principles of levy as also the principles that should govern the place of supply, (d) what should be the tax rates, and so on. Further, the GST Council will recommend on model GST laws. More significantly, the Council will recommend on “any other matter relating to the GST, as the Council may decide “, which clause has wide scope and can most likely take within its ambit a mechanism for redress of GSTdisputes between the tax-administering authorities and the tax-payers. Insofar as disputes that may arise out of the GST Council’s recommendations to the Central and State Governments-these could be disputes between the Government of India and the State Governments– areconcerned, the 122 nd Amendment Bill provides thus: “The GSTCouncil may decide about the modalities to resolve disputes arising out of its recommendation”.
Centre-State disputes at pre-legislative stage :
++ The Bill, on the one hand, does not specifically say that the GST Council’s recommendations shall be binding on the Union and the States. On the other, it foresees the arising of disputes out of the GST Council’s recommendations as is clear from the fact that the Bill seeks to empower the Council to decide on ‘the modalities’ for resolving such disputes. Impliedly, if there is no dispute with regard to a recommendation of the Council, such recommendation must be binding on the Union and the States which shall incorporate the recommended provisions in the GST laws to be enacted by the respective legislatures. If a dispute arises out of a recommendation of the Council, the same has to be resolved first by recourse to the said ‘modalities’ which may be conciliatory in nature and administrative in operation; the dispute resolution may possibly yield one of these results-the Council’s recommendation getting [a] confirmed, [b] partially modified or [c] revoked and replaced with a new recommendation . In any case, there must be in place a binding recommendation post-resolution of dispute, and the provisions so recommended shall find their way into the GST laws to be enacted by the respective legislatures. Thus, ultimately, it is the GST Council that spells out the policy, and provides templates, for Union GST laws and State GST laws which shall be enacted by Parliament and State Legislatures respectively.
Centre-State disputes at legislative stage :
++ Then, what, if the Council-recommended (binding) provisions are deviated from by Parliament or State Legislatures while enacting GST laws? Obviously, in such a situation where there is infraction of binding
recommendations of one Constitutional body (GST Council) by another Constitutional body (Legislature), there can be no remedy through any administrative mechanism made by the GST Council. The remedy should be provided at judicial or quasi-judicial level rather than administrative. A high-ranking judicial or quasi-judicial body established under the Constitution itself may offer an effective remedy for the above infractions. Anyone still aggrieved by the verdict of this body should be enabled to appeal to the Supreme Court. The lapsed Bill of 2011 had provided for establishment of such a body by name“GST Dispute Settlement Authority”. The new (122 nd ) Amendment Bill does not provide for any such dispute settlement mechanism, which is a potentially fatal lacuna.
++ This is not to say that the “GST Dispute Settlement Authority” [GSTDSA] envisaged in the Amendment Bill of 2011 if enacted would have been a panacea for any conflict between the GST Council and any Legislature or between the Central and State Legislatures. That authority was to consist of a Chairperson and two other Members. A retired Judge of the Supreme Court or a retired Chief Justice of High Court was to be appointed Chairperson of the GSTDSA by the President of India on the recommendation of the Chief Justice of India. As per the Bill, “other members shall be persons of ‘proven capacity and expertise’ in the field of law, economics or public affairs, to be appointed by the President on the recommendation of the GST Council”. This provision if enacted would have enabled the GST Council-a body of politicians, basically-to recommend two other politicians as persons of ‘proven capacity and expertise in the field of public affairs’, for appointment as Members of the GSTDSA to make it a ‘bench’ of one judicial expert (chairman)and two politicians without the requisite knowledge of law or economics. As it is not necessary that, in all cases, the two ‘political’ Members should endorse the view taken judicially by the Chairman, what kind of verdicts would have come from such a Dispute Settlement Authority is anybody’s guess. Suffice it to say that, most likely, such an authority with flawed structure would have malfunctioned with its inherent limitations to the detriment of the tax-payers and/or the revenue.
++ Parliament should have incorporated in the Amendment Bill of 2014 necessary provision for establishment of an appropriate body of constitutional and other experts, free from the above limitations, so that all disputes between the Centre and any States in relation to legislative implementation of the Council’s recommendations could be resolved in a hassle-free manner through a judicial or quasi-judicial process. Ideally, such a dispute-resolving body must have three members; its chairman should be a retired Judge of the Supreme Court or a retired Chief Justice of High Court; one of the other two members should be a constitutional/legal expert specialised in tax laws; and the third member should be an economist with sufficient expertise in the field of public affairs. However, in our democratic polity, the Parliamentary Select Committee can prudently consider a better model. The Committee might also prescribe a provision for appeal to the Supreme Court against a decision of the said body as had been proposed in the lapsed Bill of 2011.
‘Taxman versus assessee’ disputes :
++ The Bill of 2014 is also silent about resolution of grass-roots level disputes. It is beyond doubt that the GST reform will open the flood-gates to multitudes of disputes between the tax administrators and tax-payers. The need for a suitable statutory mechanism for adjudication of such disputes is imperative. The draftsmen of the Bill seem to have left this important aspect to be taken care of by the GST Council (which will have a recommendatory role in the matter) as well as Parliament and State Legislatures which will ultimately legislate on all aspects of GST and its administration. May be, it was thought that Parliament and State Legislatures could invoke an existing provision of the Constitution- Article 323B– to provide for adjudication of disputes arising out of the levy of GST. Clause (1) of Art.323B reads: “The appropriate Legislature may, by law, provide for the adjudication or trial, by tribunals, of any disputes, complaints or offences with respect to all or any of the matters specified in clause (2) with respect to which such Legislature has power to make laws”. The matters specified in various sub-clauses of clause (2) include:-
“(a) levy, assessment, collection and enforcement of any tax;”
“(j) any matter incidental to any of the matters specified in sub-clauses (a) to (i).”
Clause (3) of Art.323B says that a law made under clause (1) may provide for the establishment of a hierarchy of tribunals.
++ However, as Prime Minister Mr NarendraModi has publicly expressed serious reservations about the efficacy of the existing system of tribunals in the country, one cannot at this stage say for certain that a ‘tribunalised’ justice delivery system may be recommended by the GST Council with respect to disputes that might arise between the tax administrators and the tax-payers. The Council, while taking a call on the subject,may not take any lopsided view. It must arrive at a viable model of dispute resolution mechanism after considering all relevant factors such as (a) efficacy of the ordinary courts to deal with tax cases, (b) extent of skill and expertise required of tax judges, (c) comparative speed of disposal of cases by existing tax tribunals and that of disposal of tax cases by ordinary courts, (d) comparative merits of justice delivery systems working under GST laws of other countries.
A few foreign models :
[I] In Malaysia, the Sales Tax Act, 1972 and the Service Tax Act, 1975 were repealed and GST was rolled out under “the Goods and Services Tax Act, 2014”; the charge is on (a) the supply of goods and services in Malaysia and (b) the importation of goods into Malaysia.
++ Any person aggrieved by any decision of an ‘officer of goods and services tax’ can file an application with the ‘Director- General’ [D-G] under section 124 of the GST Act for review of that decision. (The D-G of Customs & Excise, in Malaysia, functions as the D-G of GST also). If any party to the proceedings happens to have any grievance against the D-G’s decision, an appeal can be preferred, under section 126 of the Act, to the established under section 125 of the Act. The only matters which are not appealable to this tribunal are those specified in the Fourth Schedule to the Act. In all other matters, the tribunal has exclusive jurisdiction.
++ The Chairman and Deputy Chairmen of this tribunal are persons selected from amongst members of the ‘Judicial and Legal Service’. Other members (not less than five) of the tribunal are persons having “wide knowledge or extensive experience in anyfield of activities relating to GST, customs or taxation”. All members are appointed for a term of three years.
++ The appeals filed with the tribunal are normally heard by a panel (bench) of three members, presided by the Chairman or a Deputy Chairman. The tribunal may, in appropriate cases, help the parties negotiate an agreed settlement and, if ‘Goods and Services Tax Appeal Tribunal’such settlement comes about, orders incorporating the terms of settlement will be passed. In other cases, the tribunal would proceed to take decision based on the facts, evidence and law. It may affirm, vary or set aside the impugned decision of the D-G. The tribunal’s decisions are binding on all parties to the lis and enforceable like orders of a Sessions Court.
++ However, against the tribunal’s orders, the aggrieved parties have the option, under section 148 of the GST Act, to appeal to the High Court on a ‘question of law’ or a ‘question of mixed fact and law’.
++ The aforesaid remedies are available, apparently, with respect to the levy of GST and matters connected therewith. Apart from this, the Malaysian GST Act also provides for prosecution of offenders. Section 100 of the Act reads: “Notwithstanding any written law to the contrary, a Sessions Court shall have jurisdiction to try any offence under this Act and to impose the full punishment for the offence”. However, section 101 says, “Nothing in this Act shall prevent the prosecution, conviction and punishment of any person according to the provisions of any other written law for the time being in force”. The GST Act contains elaborate evidential provisions applicable to all proceedings thereunder. It also provides for compounding of offences.
[II] In the United Kingdom, the Value Added Tax Act, 1994 is the law that governs levy of a tax on (a) the supply of taxable property and services in the UK, (b) the acquisition of any goods in the UK from other European Union member States, and (c) the importation of goods from places outside the EU member states, “property” by definition includes goods.
++ A decision of the assessing or adjudicating authority is appealable to atribunal, if the decision relates to any of the matters listed under section 83 of the VAT Act. The appeal will be entertained only if the relevant conditions (such as pre-deposit of the adjudged tax) prescribed under section 84 have been satisfied by the assessee-appellant. If, during the pendency of the appeal, the Commissioner concerned (who represents the revenue) and the appellant come to an agreement that the decision under appeal be treated-(a) as upheld without variation , or (b) as varied in a particular manner, or (c) as discharged or cancelled , the tribunal must give effect to the agreement as mandated by section 85 of the Act. However, if the appellant repudiates, or resiled from, the agreement within 30 days from the date of the agreement, the tribunal will proceed to determine the appeal in accordance with law.
++ The modes of enforcement of the tribunals’ decisions are different in England & Wales, Scotland and Northern Ireland.
++ Section 86 of the VAT Act provides for appeals from decisions of the tribunals in the UK excluding Scotland. It reads: “The Lord Chancellor may by order provide that-(a) in such classes of appeal as may be prescribed by the order, and, (b) subject to the consent of the parties and to such other conditions as may be so prescribed-an appeal shall lie to the Court of Appeal”.
++ The UK law also provides for prosecution of offences.
[III] In Singapore , GST is a tax on (a) the supply of goods and services in Singapore and (b) the importation of goods into Singapore, and levied under the Goods and Services Tax Act originally enacted in 1993 and revised thereafter.
++ Where a ‘taxable person’ has failed to make any returns or has made incomplete or incorrect returns, the Comptroller of GST may make an assessment, to the best of his judgment, of the amount of tax due from that person, and notify the same to him [Section 45 of the Act]. Where the Comptroller is satisfied that the taxable person has, by certain commissions or omissions (such as omission or understatement of output tax in any return, overstatement of input tax in any return, falsification of any books of account or record, use of fraud or contrivance, etc.), evaded tax willfully, the Comptroller may, by best judgment, assess, by way of penalty for that offence, a tax not exceeding three times the amount of tax which would have been undercharged if the offence had not been detected [Section 48]. If the assessee has any objection to theassessment of tax made under section 45 or the assessment of penal tax made under section 48, he may apply to the Comptroller for review and revision of the assessment [Section 49]. Similar remedy is also available against the Comptroller’s decisions on matters with respect to: registration or its cancellation; tax chargeable on the supply of any goods or services or on the importation of any goods; input tax or interest thereon; claim for refund of tax, etc.
++ Any decision made by the Comptroller on a review-and-revision application is appealable to the ‘Board of Review’ [Section 51]. This Board consists of not more than 50 members. Its Chairman and Deputy Chairmen should either have qualifications to be District Judge or be public accountants within the meaning of the Accountants Act. A panel of not less than three members of the Board, presided by the Chairman or a Deputy Chairman, can exercise the powers, functions and duties of the Board. This panel (bench) would hear any appeal arising out of the Comptroller’s decision and render its verdict by a majority of votes confirming, varying or annulling the impugned decision. In the event of equality of votes, the president of the bench can make a majority with a ‘casting vote’. The decisions of the panel are deemed to be decisions of the Board.
++ The Board’s decisions are appealable, by the Comptroller or the opposite party, to the High Court on any ‘question of law’ or any ‘question of mixed law and fact’ and there is a further right of appeal to the Supreme Court from the High Court’s judgment as if this judgment has been rendered in the original civil jurisdiction of the High Court [Section 54].
++ At any stage of an appeal filed under section 51, the Board can refer any‘question of law’ for the High Court‘ s opinion [Section 55]. This reference can be made before or after the Board’s decision on the appeal. Where the appeal is pending with the Board, the High Court will form an opinion on the referred question of law and remit the case, with its opinion, to the Board, which shall have to dispose of the appeal in accordance with such opinion. In the case of a post-decisional reference by the Board, the High Court may, on the basis of its opinion on the referred question of law, confirm, vary or annul the Board’s decision.
++ Singapore’s GST Act also provides for prosecution of offences. It has prescribed penalties for offences such as non-registration, non-filing of returns, non-payment of tax,fraudulent or otherwise willful evasion of tax, inappropriate claim of refund, etc. As per section 76, a District Court or a Magistrate’s court shall have jurisdiction to ‘hear and determine’ all offences and impose the full penalty or punishment under the Act. However, section 70 reads: “Nothing in this Act shall affect any criminal proceedings under any other written law”. The Comptroller has the power to sanction prosecutions under the Act. In appropriate cases, he can also initiate the procedure for compounding of offences.
[IV] In the Commonwealth of Australia where GST is levied under ‘A New Tax System (Goods and Services Tax) Act, 1999’ [Act No. 55 of 1999] as amended, the tax applies to (a) taxable supplies of goods and services in Australia, (b) ‘reverse-charge’ supplies made to registered entities in Australia, and (c) taxable importations of goods into Australia. The tax is administered by the Australian Taxation Office [ATO] led by the Commissioner of Taxation. There are also Deputy Commissioners and Assistant Commissioners in the ATO.
++ If a taxpayer is dissatisfied with an assessment, determination, notice or decision by a Commissioner, his remedy is to file, within the prescribed period, an objection [called ‘taxation objection’] with the Commissioner under the relevant provision of the Taxation Administration Act, 1953 if the matter objected to is one of the reviewable matters listed in the same Act. The Commissioner will, after discussion with the objector and obtaining from him further information if necessary, review the facts and evidence provided by him and will come to a decision normally within 8 weeks. If the objection is allowed in full or in part, the Commissioner will accordingly amend his original decision. This is an in-house procedure.
++ The ATO has also a “Test Case Litigation Program” where the legal costs of the objector are reimbursed wholly or partly if it is held that the case has important implications for the administration of the revenue system.
++ The Act of 1953 also provides for external review by an independent body called the Administrative Appeals Tribunal [AAT] where the Commissioner’s decision sought to be reviewed is in the reviewable category. The AAT can exercise most of the powers and discretions of the Commissioners and may, on an appeal filed by the taxpayer, confirm, vary or set aside the Commissioner’s decision.
++ If aggrieved by the AAT’s decision, one can prefer an appeal on a ‘question of law’ to the Federal Court which is a superior court of record and a court of law and equity. Apart from this appellate jurisdiction, the Federal Court has also original jurisdiction to decide on certain ‘taxation objections’ of taxpayers to original decisions of Commissioners. In its original jurisdiction which is exercised on the taxpayer’s application, the Federal Court may set aside the Commissioner’s decision and send the case back for further consideration. Once the taxpayer has invoked the original or appellate jurisdiction of the Federal Court, the ATO will send to him copies of the documents relevant to the case along with a statement setting out the relevant facts, issues and its (ATO’s) own contentions. Then, in due course of its procedure, the court will give its verdict.
++ The decision of a Single Judge of the Federal Court is appealable to theFull (Federal) Court and, from the Full Court decision, an appeal will lie to theHigh Court of Australia but only with special leave of the High Court.
++ In addition to review of Commissioners’ decisions by courts, the Inspector-General of Taxation [IGT] can be approached by taxpayers with complaints against administrative actions taken by the ATO. Though the IGT cannot compel ATO to take a particular course of action, it will function like a safety valve re-establishing communication between ATO and taxpayers and achieving procedural fairness.
++ The Taxation Administration Act also contains elaborate provisions forprosecution of GST-related offences.
++ The ATO has also a Dispute Management Plan [DMP] with a high-level framework for managing and resolving disputes. Where issues arise, ATO seeks to work collaboratively with taxpayers wherever possible to avoid their escalating into disputes . There are the following structured options for resolving disputes before they reach litigation stage:-
(a) ATO in-house facilitation;
(b) Alternative Dispute Resolution [ADR];
(c) Early Assessment and Resolution [EAR].
These modes are applicable to all cases lodged with the Administrative Appeals Tribunal or the Small Taxation Claims Tribunal . There is also a “Code of Settlement” that sets out the ATO’s policy on the settlement of taxation disputes.
From a survey of foreign jurisdictions, one would be back home with some valuable tenets of tax administration, which can if necessary be so modified as to suit the more complex Indian ‘GST situation’. In this regard, perhaps, the time-tested GST law of Australia-a federation of States, like India-may be the best model generally. However, if one’s focus is on a statutory mechanism for resolution of GST disputes, one has got to identify the salient features of various foreign models and pick the essential features out of them foradaptation. The essential features emerging from the above survey are the following:
++ In-house (intradepartmental) administrative review of tax assessments or of determinations on other tax-related matters, upon tax-payers’ objections;
++ External quasi-judicial review, by an independent tribunal, of decisions made on taxpayers’ objections; the tribunal has experts as its members; it is the final fact-finding authority; it can, in appropriate cases, advise disputants to settle the disputes by negotiations; jurisdiction of courts excluded.
++ Judicial review on appeal from tribunal’s decision to a superior court on a question of law or a question of mixed law and fact;
++ Further appeal from the decision of the superior court to the highest appellate court with the leave of the latter;
++ Period of limitation prescribed for each of the above remedies to ensure time-bound resolution of the dispute;
++ Commissions or omissions in breach of mandatory provisions of GST law, defined as ‘offences’; punishments prescribed for such offences; prosecution in specially designated courts; however, no bar to prosecution of same offences under any general criminal law.
Retrospection before legislation :
++ Lessons learned from one’s own experience should prove more productive than those learned from others. In our country, there is a ‘Settlement Commission’ in respect of disputes inrelation to Central indirect taxes. Whether this Commission is asuccess story can be determined only from its net output. How much was spent on this Commission in a financial year? Howmany disputes did it settle in that year? Quantum of revenue collected through such settlement? All these also will have to be ascertained. The statistics would constitute the necessary “experience”, unfolding in retrospection, to bear on our legislatures while enacting provisions for settlement of GST disputes. If such experience means dismal performance of the Settlement Commission, the GST law should not create any such or similar mechanism for settlement of disputes.
++ The new law should recognise a tribunal-the final fact-finding entity in a hierarchy of dispute-resolving authorities-to be the appropriate forum for settlement of disputes. It should empower the tribunal to settle disputes through a summary but fair procedure in all cases that satisfy the statutory conditions for settlement. The law may also lay down any substantive principles to be followed by the tribunal in settlement proceedings.
++ Revenue hold-ups due to tax litigation have been a major hurdle on India’s developmental path. A robust statutory mechanism such as the one suggested for settlement of GST-related disputes, coupled with statutory pre-deposits for appeals, will mitigate this problem to a considerable extent. Needless to say that this is vital for the nation.
++ The tribunal must also be given the power to hear and decide on petitions for punishment of willful breach of its binding orders, and the power to award costs in appropriates cases.
[The author is former Judicial Member of the Customs, Excise and Service Tax Appellate Tribunal.]