With Central Excise and Customs officers interpreting laws to suit themselves, the trade ends up paying undue penalties. The dept, too, is embroiled in unnecessary litigations
“Taxation should not be a painful process for the people. There should be leniency and caution while deciding the tax structure. Ideally, governments should collect taxes like a honeybee, which sucks just the right amount of honey from the flower so that both can survive.”
Chanakya (350-283 BC)
The Kacchit Sarga of Valmiki’s Ramayana contains a similar advice. The ideal of the state should be to so conduct its affairs that it achieves its objectives without causing harassment. The Constitution, too, ordains likewise. While it is customary for finance ministers to reiterate this in the budgets, the assurance remains confined to their speeches only.
An incident that took place barely two months ago exemplifies how trade suffers when a law is misinterpreted.
A field formation of the Central Excise in south India — at the behest and interpretation of law by a senior officer — slapped showcause notices worth Rs 140 crore to Rs 600 crore on units that have been in existence for less than a year, have a turnover of Rs 5 crore to Rs 10 crore, and with total net worth of Rs 5 crore to Rs 10 crore. The action came even there was no allegation of any clandestine removal or any other charge.
This marvel of (mis) interpretation was achieved through Rule 9 of the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 (hereinafter called ‘the Rules’), to suit the purpose of revenue and extraordinary detection of evasion (even when none exists). The interpretation which has been resorted to (presumably even without taking CBEC into confidence) involves Proviso 7 to Rule 9 of the Rules.
The concerned field formation has demanded hundreds of crores by so construing the Rule that once an assessee defaults and pays duty with interest under Proviso 2 to Rule 9, he is still a defaulter for the purpose of Proviso 7 to Rule 9 and can be asked to pay duty on all the machines lying in his factory for the whole year despite having paid the same correctly for the period.
In other words, the Commissionerate concerned has made the Proviso 2 redundant and interpreted Rule 9 in a way to declare that “once a defaulter, always a defaulter” and deserves to be punished under the draconian provision of Proviso 7 alongwith interest, although the provision, by its very language, is meant for clandestine manufacturers.
While the department takes pride in the large-scale detection of evasions and the whole exercise may fetch a few “excellent” gradings in Annual Confidential Reports (ACRs) to officers concerned, it is nonetheless threatening the very existence of the units targeted. More than that, it is a gross violation of the law of the land, resulting in avoidable litigations and wastage of manpower and money.
To clarify the legal position in this regard, the Rule 9 is reproduced here for reference:
9. Manner of payment of duty and interest: The monthly duty payable on notified goods shall be paid by the 5th day of same month and intimation in Form 2 shall be filed with the Jurisdictional Superintendent of Central Excise before the 10th day of the same month:
Provided that a monthly duty payable for the month of July, 2008 shall be paid on or before 15th day of July, 2008:
Provided further that if the manufacturer fails to pay the amount of duty by due date, he shall be liable to pay the outstanding amount along with the interest at the rate specified by the Central Government vide notification under Section 11AB of the Act on the outstanding amount for the period starting with the first day after due date till the date of actual payment of the outstanding amount:
Provided also that in case a manufacturer does not pay the duty payable, and continues to operate any packing machine, he shall be liable to pay the duty for the remaining months of the financial year based on the number of operating packing machines declared in the month for which duty was last paid by him or the total number of packing machines found available in his premises at any time thereafter, whichever is higher.
As a reading of Rule 9 will indicate, the last (Seventh) Proviso comes into play only when a person, after paying duty for some months, or even without paying any duty at all, starts defaulting and continues to default or is indulging in clandestine manufacture. Since in such a situation it is the department that resorts to some kind of assessment of duty as there is no information forthcoming from the person, then and only then the department can take resort to Proviso 7. The Proviso will not come into picture when a person discharges his duty after a temporary default of dates and also pays interest due as per Proviso 2 of the Rule 9. Because in that case he has paid duty and, therefore, the condition of non-payment of duty payable as provided in Proviso 7 does not subsist. The demand notice of the field formation then suffers on two counts:
i) It proceeds on the basis that once a defaulter (even if for a few days) is always a defaulter
ii) That once a person is a defaulter historically even if for a few days, he continues to be in the category of a person who ‘does not pay the duty payable’.
By common sense, no law can be so restrictive and penalising in nature that just for a default of a few days (which at times can be due to illness or otherwise of a manufacturer), it should so penalise him so as to demand duty on all machines lying in his factory even if the same are sealed by the department for the whole of the year. If this is the way the law is interpreted, it will lead to draconian consequences.
Various difficulties have been experienced by the assessees dealing with gutkha and pan masala due to misinterpretation, lack of uniformity in interpretation, absence of procedures relating to abatement as also due to absence of any public notice on various procedural matters.
While it needs to be appreciated that gutkha and pan masala have emerged as one of the largest tax payer industries since 2008 and are also one of the highest contributors to tax growth for the exchequer in the recession-hit times, the lack of uniformity in interpretation of the rules is causing undue hardship. This needs to be addressed through the intervention of CBEC to avoid unnecessary litigations in future.
An industry, which is learning to be tax compliant after a not-so-distant past wherein everyone was forced to join evasion bandwagon (owing to other competitors), needs to be supported. educated and guided in its efforts to make a fair beginning rather than being treated with the old approach of ‘punching them at the very first sight’ and regarding the industry as enemy of tax collectors. For, it is no prudence in killing the goose that has begun to lay golden eggs.