New Delhi: The government on Tuesday reiterated its intention to crack down hard on tax evaders and defended some of the stringent provisions introduced in the Finance Bill last week to check evasion, including granting wider powers of arrest to taxmen and making certain offences non-bailable.
Finance minister P. Chidambaram, in his budget speech on 28 February, had announced steps to increase the tax base and signalled his intent to check tax evasion, in both direct and indirect taxes.
By keeping tabs on various financial transactions of individuals such as credit card payments, cash deposits in banks, and the purchase of tax-saving instruments and corresponding income-tax returns, all linked through the permanent account number (PAN), the government has created an information framework for checking tax evasion.
Revenue secretary Sumit Bose said in an interactive session, organized by industry lobby Federation of Indian Chambers of Commerce and Industry, in New Delhi on Tuesday that the government has launched a business intelligence project that tracks high-value financial transactions and matches them with tax returns filed by the individuals concerned using their PAN.
Bose said the government has sent out more than 35,000 letters related to such transactions and that another 35,000 would follow shortly.
“This data analysis had identified a target segment of 1.219 million non filers, linked to more than 47.4 million information records, including TDS (tax deducted at source), ECS (electronic clearance service) and cash transaction reports from the intelligence unit,” Bose added.
The government has also made changes in the wording related to special audits. An assessing officer, with the permission of the chief commissioner of income-tax, can ask a company to undertake a special audit, taking into account the “nature and complexity of the accounts, the volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or the specialized nature of business activity”. Earlier, only the term “nature and complexity” was used.
“We found that the expression ‘nature and complicity of the accounts’ was being interpreted in a very restricted manner by the courts. There have been instances when the assessees bring truckloads of information. Despite the assessing officer seeking pointed information, it is not forthcoming,” said Poonam Kishore Saxena, chairperson of the Central Board of Direct Taxes.
The government also proposed, in the budget, to make certain offences, where tax evasion exceeds Rs.50 lakh, non-bailable. It also sought to introduce arrest provisions under service tax.
Together, these provisions have raised fears about the return of a so-called raid-raj (or regime of tax raids)
Praveen Mahajan, chairperson of the Central Board of Excise and Customs (CBEC), sought to reassure industry about the misuse of these rules. “There are enough safeguards in these provisions and these will be reviewed from time to time. There is no need for concern,” she said.
The arrest provision isn’t new and has always existed in customs and central excise regulations, Mahajan added.
While provisions have been made more stringent, the department has also raised the limit at which arrests can be invoked—from a tax evasion of Rs.30 lakh to Rs.50 lakh, she added, pointing out that arrests have taken place in less than 1% of detected cases.
“On the service tax side, we have handled it with kid gloves. But if you see, some have blatantly misused the service tax provision, particularly in those cases where they have recovered the money from the people and not given it to the government. There are huge amounts involved,” Mahajan said.
Of the 1.7 million registered service tax assessees, only 691,000 file their returns, as per CBEC data.
The government offered the prospect of some respite to industry by promising to set up a committee to look into the implications of the Supreme Court judgement in the case of Fiat India that has far-reaching implications for the way some industries such as automobiles, consumer goods and pharmaceuticals price their products and how much excise duty they need to pay.
Last year, the apex court had ruled that Fiat India will have to pay excise duty on the basis of cost of production plus a notional mark-up, rather than on the selling price.
This had led to concerns over excise levies among many companies such as those making automobiles and fast-moving consumer goods because they sometimes cut prices to capture market share.
“The Supreme Court has merely interpreted the law as it exists. There is nothing new. Despite that, seeing the concern of the industry, we have decided to set up a committee in April to see if the concerns of the industry and the Supreme Court judgement can be aligned,” said Mahajan.
“The government is following a carrot and stick approach, especially in relation to service tax. On the one hand, it is encouraging service providers to declare their tax dues under the voluntary compliance scheme. At the same time, it is bringing in punitive provisions to check people who do not pay the tax,” said Harishankar Subramanian, partner and national leader (indirect tax services) at audit and consulting firm Ernst and Young. “Through its various provisions, the tax department wants to instil the fear of compliance. The arrest provisions, especially on the service tax side, are creating a sense of fear because of possible misinterpretation or misuse even when there is a genuine case.”