CBIC cautions against coercive tax collection during searches

In a strongly worded instruction, the Goods and Services Tax (GST) wing of the Central Board of Indirect Taxes and Customs (CBIC) has warned its officers of disciplinary action if they use force and coercion for recovery of tax or deposit of tax during the course of search, inspection, or investigation.

The trade has welcomed the CBIC clarification that no recovery can be made unless the amount becomes payable in pursuance of an order passed by the adjudication authority or otherwise becomes payable under the provisions of the CGST Act and the rules made thereunder. However, seasoned practitioners and a large section of taxpayers are still apprehensive that at the ground level the officers will still use all possible means to persuade the taxpayers to voluntarily pay the tax liability ascertained by him or the tax officer in respect of any issue detected during search, inspection, or investigation.

During the initial years of the GST regime, the government was not too harsh on the taxpayers as several changes in the legal dispensations were taking place and many issues were subject to various interpretations. However, in the past two years, the administration has closed many loopholes and stepped up pressure on the field formations to be tough on tax evaders and ensure higher tax collection through better enforcement.

Some of the officers have responded by subjecting the taxpayers to harassment and undue demands during inspection, search, and investigation. Some taxpayers have complained about the illegal demands of such officers and some have approached the courts for suitable relief. The CBIC has now recognised such undesirable practices of its officers as incorrect and asked its officers to follow the law for recovery of legitimate dues of the government.

The experience of the taxpayers is that many officers do not follow the CBIC instructions in tax collection or enforcement matters and do subject the taxpayers to unnecessary harassment. For example, CBEC Circular F.No.208/122/189-CX.6 dated October 13, 1989, said that issue of summons should only be a last resort in cases where assessees are not cooperating or investigations are to be completed expeditiously and should not be used for harassing the top management or forcing them to pay up demands which are disputed by them and that for recovery of demands normal procedure under the law should be followed. If any instance of issue of summons to managing directors and other directors without justification is noticed, a serious view will be taken by the board and collectors will be held personally responsible for enforcing these instructions in their charges, said the CBEC. But, in practice, this instruction is not followed strictly by the officers.

In the past 2-3 years, the Department of Revenue Intelligence has routinely summoned senior functionaries of many companies to appear personally at its office in Kolkata in the matter relating to pre-import conditions in the Customs notification relating to advance authorisation. It is not unusual for the investigating officers to threaten the person appearing in person with instant arrest unless he agrees to pay the disputed amount.

Given the past experience, the taxpayers are not too sure how the latest CBIC instructions will play out at the ground level. The CBIC should demonstrate its commitment to its instructions by punishing the officers not following its instructions.

Email: tncrajagopalan@gmail.com