Procedural and technical lapses may be costly - a lesson to strictly comply with legal formalities.

[C.A. DEV KUMAR KOTHARI]

Legal and procedural requirements:

A tax payer is required to comply with legal and procedural requirements under provisions of various laws. Any non compliance can bring in disadvantages and also monetary loss. In some situations, a delayed compliance can also be very costly by way of burden of interest payable, penalty payable and other disqualifying features under law. For example, in case of Income-tax Act, a delayed filed return of loss will impose disqualification to carry forward loss. In case of return of income there will be interest payable for delay in filing of return. In case of refund, there will be no interest receivable for the period for which the return was delayed etc.

Under many provisions, the benefit conferred in law is allowable subject to timely compliance. In case of delayed compliance, the benefits may be lost forever.

For tax practioners:

The above illustrations are just some examples of disadvantages which may be attracted in case of even delayed compliance. The tax practioners should therefore be well aware of advantage of timely compliance and should convey various disadvantages of delayed compliance to their clients.

Therefore, timely compliance should be target.

It can be said that the future of most of tax professionals lie in compliance of legal provisions. Non compliance causes heavy loss or disadvantage to tax payer. Non compliance also causes more litigations and for that is a separate class of practioners are required to deal with situations arising from non-compliance.

Recent judgment in case of Kamal Kumar Agarwal Vs. CCT, (2010) 5 SCC 142

The above case relates to Sales Tax in West Bengal. In this case the Supreme Court inter alia held that

"Machinery provisions cannot be segregated from charging provisions", this rule is equally applicable to all laws, and particularly all tax laws, which provide statutory provisions for duties and obligations of taxpayers and also some benefits to taxpayers on compliance of relevant procedures. In case machinery provisions are not complied with the taxpayer may loose the benefits available.

The court was considering provisions of sections 2(10) , 68(3), 71-B, and 72 and Expln. (a) thereto, of the West Bengal Sales Tax Act read with Rule 211-A, of the West Bengal Sales Tax Rules, 1995 which dealt with procedure for the movement of goods from one state to other state and laid down certain conditions and a situation in which such conditions were not complied with.

The Court also construed expression ``Any person'' who is responsible for filing declaration. The Court considered the role of clearing/customs house agent (CHA) in movement of goods - CHA was appointed to clear goods coming from Hamburg transiting through port situate in state of West Bengal and were ultimately bound for Mumbai (Maharastra State).

There was failure to produce endorsed countersigned copy of declaration prescribed in S. 68(3) and such failure attracted penalty. The Supreme Court held that ``any person'', before taking delivery of consignment is required to make a declaration as required under S. 68(3) and then only is such person allowed to transport goods outside the State . The Declarant could be an importer, a clearing and forwarding agent or any person taking delivery of the consignment.

Prescribed declaration is a condition precedent for taking delivery of the goods and it mandates a statutory obligation to transport consignment outside the State.

By making prescribed declaration appellant undertook obligation to transport consignment outside State. To substantiate the fact of goods going out of state of West Bengal the prescribed proof was countersigned copy of the declaration by concerned authorities.

Once such declaration is made by a person, he is a considered transporter, even assuming Ss. 68, 71-B and Expln. (a) to S. 72, are applicable only to a transporter, then any person making declaration will be considered a transporter vis a vis goods declared and covered in the declaration .

When a person signs declaration under R. 211-A(1) it undertakes an obligation to act as a transporter . Therefore, the appellant was liable for failure to produce countersigned copy of the declaration before assessing authority.

Appellant failed to produce evidence to show consignment had gone out of the State by producing countersigned copy of declaration.

Therefore, law presumes goods sold unauthorizedly within the State,(or that goods did not go out of the state- added by author).

Therefore in the above case the appellant failed to get relief for the lapse of producing countersigned declaration.

Thus, non compliance of machinery or procedural provisions or procedural requirements can go to disadvantage of the tax payer. When a specific manner is prescribed, the same should be complied with as far as possible. This is because non compliance will expose the taxpayer to the risk of mood, behavior and thinking of concerned officers and / or judges. In any case this will involve unnecessary litigation.

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CASES REPORTED IN (2010) 5 SCC PART 2

Kamal Kumar Agarwal v. CCT, (2010) 5 SCC 142

Sales Tax and VAT

W.B. Sales Tax Act, 1994 (49 of 1994)

S. 68(3) r/w R. 211-A, W.B. Sales Tax Rules, 1995 and Ss. 71-B, 2(10) and 72 Expln. (a) - Movement of goods - Conditions - Non-compliance - ``Any person'' - Who is - Role of clearing/customs house agent (CHA) in movement of goods - CHA appointed to clear goods coming from Hamburg transiting through West Bengal ultimately bound for Mumbai - Failure to produce endorsed countersigned copy of S. 68(3) declaration - Levy of penalty - Propriety - Held, ``any person'', before taking delivery of consignment is required to make a declaration as required under S. 68(3) and then only is such person allowed to transport goods outside the State - Declarant could be an importer, a clearing and forwarding agent or any person taking delivery of the consignment - Declaration is a condition precedent for taking delivery of the goods - Declaration mandates a statutory obligation to transport consignment outside the State - Hence, with making of declaration appellant undertook obligation to transport consignment outside State, for which the proof was countersigned copy of the declaration - Further held, once such declaration is made by a person, he is a transporter, even assuming Ss. 68, 71-B and Expln. (a) to S. 72, are applicable only to a transporter - When a person signs declaration under R. 211-A(1) it undertakes an obligation to act as a transporter - Hence, appellant was liable for failure to produce countersigned copy of the declaration before assessing authority - Appellant failed to produce evidence to show consignment had gone out of the State - Therefore, law presumes goods sold unauthorisedly within the State, (2010) 5 SCC 142-A.

The appellant produced confirmation from consignee of receipt of goods in other state, however that was not acceptable evidence as the prescribed evidence was not produced. Court held that non-production of countersigned copy of prescribed declaration, raises a legal presumption of tax evasion - Law presumes, unless otherwise proved, that goods in question have been consumed, used or otherwise disposed of within the State - Confirmation from consignee cannot be accepted because under the Act, importer/consignee is not liable for the breach - Consignee is not the declarant, (2010) 5 SCC 142-D.

CASES REPORTED IN (2010) 5 SCC PART 2

Kamal Kumar Agarwal v. CCT, (2010) 5 SCC 142

 

Sales Tax and VAT

W.B. Sales Tax Act, 1994 (49 of 1994)

S. 68(3) r/w R. 211-A, W.B. Sales Tax Rules, 1995 - Scope, effect and applicability - Examined - Both Ch. VIII of the Act and Ch. XV of the Rules deal with regulatory measures to avoid tax evasion - Machinery provisions cannot be segregated from charging provisions, (2010) 5 SCC 142-B

Sales Tax and VAT

W.B. Sales Tax Act, 1994 (49 of 1994)

Ss. 68(1) and (3) - Relative scope - Words ``no person'' in S. 68(1) - Scope - Held, do not refer to the word ``transporter'' - Expression ``any person'' in S. 68(3) would include a clearing and forwarding agent, a transporter or any person who makes a declaration in the prescribed manner - Sub-section (3) not confined to a transporter, (2010) 5 SCC 142-C

Sales Tax and VAT

W.B. Sales Tax Rules, 1995

R. 211-A - Declaration in prescribed form - Non-production of countersigned copy of - Effect - Confirmation from consignee of receipt of goods - Sufficiency of - Held, non-production of countersigned copy of prescribed declaration, raises a legal presumption of tax evasion - Law presumes, unless otherwise proved, that goods in question have been consumed, used or otherwise disposed of within the State - Confirmation from consignee cannot be accepted because under the Act, importer/consignee not liable for the breach - Consignee is not the declarant, (2010) 5 SCC 142-D

Discussions to this article

[CA UMA KOTHARI]

For tax payers compliance is very important to save from additional direct financial burdens by way of interest and penalty, indirect financial burden by way of direct and indirect costs of litigation. Besides various disadvantage associated with noncompliance may some time be not very costly but may altogether change the financial plans. We find hardly any amendment in favor of tax payer to pardon non compliance. Though making amendments and that too with retrospective effect to regularize gross lapses, non compliance, and irregularities made by revenue authorities and also provisions to presume compliance by revenue authorities.That is the reason that revenue authenticates are having approach of 'who care' and they go on committing non compliance of procedures in spite of judgments and advice of courts to comply with the same. But the tax payer is not that lucky as revenue officers are in all respect of tax administration. here lies inequality before law for two parties concerned with the same matter. This is unfortunate, that public servants do not act as a public servant but as a master and dictator on public.