Major Take Away from two day "Annual Conference of Tax Administrators-2016"
By Arbind Aggarwal
The two day "Rajswa Gyansangam - Annual Conference of Tax Administrators-2016 concluded last week. It was inaugurated by the PM in the morning on 16th June, 2016.
The Prime Minister stressed that facilitation should be the core of the tax ecosystem and the fear of the law rather than the law enforcer should be the maxim on which tax administrators should work.
He exalted the revenue officers to achieve high standards in taxpayer friendly services towards compliant tax payers.
At the same time, Prime Minister asked them to knock on the doors of the non-tax payers so as to increase the number of taxpayers. Also said that 92% of tax collection is happening automatically and the more than lakhs of officers are adding 8% to the revenue.
A joint session of CBDT and CBEC was addressed by renowned novelist Chetan Bhagat on Taxing with Love. He also gave certain practical solutions for simplification of forms and user friendly website.
On the CBEC side, the deliberations covered subjects like analysis of revenue trends, update on GST, strategy to mitigate litigation, expansion of digital footprint, facilitation of trade, impact of WTO TFA and standardization of processes and dissemination of knowledge to officers at the cutting edge.
The Conference was extremely productive. The key take-away from the Conference on the CBEC side are:-
Now let me explain these points one by one in the present context and as to how this could be implemented in practice.
1. The fear of the law rather than the law enforcer should be the maxim let the assessee introspect and say whether they fear the taxman or the law? What about the arm-twisting ways of the preventive anti-evasion DGCI&E and other agencies/arms of the CBEC in addition of the annual mechanical EA 2000 audit and CAG audit? Even if you are following the law, still all these arms would catch you as the law itself gives them enough ground to play with. Further they will issue SCN on any matter which may be unsustainable by law but you still end up pre-deposit of 7.5% or 10%. In such situation you will fear the taxman.
2. Achieve high standards in taxpayer friendly services towards compliant tax payers tax payer friendly services carry a cost to get this friendship, be it monthly facilitation fee in cash or in kind but you have to give it either way else the friends will take no time to turn foes. You will not get your export container sealed in the factory, you will also not get the numerous permissions.
3. Knock on the doors of the non-tax payers but actually all the taxmans are knocking the doors of the tax payers as they are the easy targets. What does the audit do annually sitting in a factory or office of the service provider? What these audits results into is another story? Audit has become a ritual where give and take is the rule. Could anybody guess as to how many non-tax payers have been taken into fold?
4. Strategy to mitigate litigation Rather opposite is the rule. Cases filed by the department have the success rate of not more than 10% at higher judicial forums and the reason is obvious. All the major issues in central excise have now been settled by the Supreme Court be it manufacture, classification or valuation but still lakhs of cases are pending/created on these very issues. Settled positions are being un-settled either through retrospective amendments or simply by not following the decided case laws. WE are yet to conclude the definitions of inputs input services and capital goods and place of removal for the purpose of taking Cenvat credit of GTA service etc.
5. Facilitation of trade Can some body count the amendments, notifications and circulars which are not relevant but still followed? CBEC manual was last updated a decade ago and many of the provisions are not relevant but the manual is still quoted by the officers to issue notices and the numerous notifications and circulars gives you enough trouble to just find out the correct provision. Example is Rule 6 of the Cenvat Credit Rules, provisions related to credit under reverse charge of services, export rebate, export procedures under Central Excise, refund of accumulated credit etc.
6. Identify 20 topmost litigated issues Why 20? The most litigated issue is the Cenvat credit rules themselves. In my view there are only three main issues. One is not accepting the decisions of higher judicial forums, second is the denial of cenvat credit on whole list of services and third is the mechanical audit and its consequences due to lack of consideration.
7. Speedier disposal of adjudication who cares and why? There is no accountability for pending cases for adjudications. There should be a rule that if the SCN results in no demand, the officer should be accountable for loss of time and money and in case the SCN is not adjudicated in 6 month, it should be deemed to be closed. Remove he concept of call book, decide there and then.
8. Issuance of a master circular this should be issued at the end of each year, may be in the budget itself. This is much talked about but never put in practice. Who will ring the bell? There is no time to revise even the CBEC manual in last decade.
9. Roll-out of GST The poorly drafted Model GST code would create litigation from the day one as the definitions are ambiguous and most of them starts with includes rather than means and includes.
Supply, supply includes , in my view this must start with supply means .. and later on includes can be there to enlarge the scope. Similarly place of business the definition starts with place of business includes, now what it means?
GST requires multiple registrations what we were looking was single PAN based registration for goods and services all over the Country?
This draft has the same mind-set as is in the present dispensation where it took 50 years to define manufacture and 20 years to define meaning of includes and we are still to get the meaning of service and many other such critical terms on which the taxability itself depends.
EA 2000 Audit some facts Where is the risk review?
During the year 2011-12, 22534 units were audited and total recovery (including under protest) is 1243 crores. This data is based on the report released by Directorate General of Audit.
100 Commissionerates, each one having audit wing, collecting 1243 Crores per year (including under protest) means 12.43 Crores per Commissionerate per year. This is mere 0.21 percent of the total indirect tax collection of Rs. 6 lakh crores.
This could be assumed that 99.80% collection is coming in spite of the audits. If the registered assessees are paying 99.80% of the tax due, it is appreciable and must not be subjected to this mechanical audit each year without any risk to revenue.
Recovery per assessee audited, comes to an abysmal Rs. 5 lakh in a year. This suggests that there is no risk based audit but actually mechanical audit without any risk/desk review.
Out of 22534 (if not all), at least half will be issued SCN. Ripple effect on litigation machinery including CESTAT, Commissioner Appeals, Range Staff and all the assessees, lawyers. Tons of paper will be used for audit reports for each assessee, issuing SCN, reply to SCN, filing appeals with Commissioner Appeals, CESTAT and in few thousand cases to the High Courts and Supreme Court.
1. Audit Report 22500 reports, at least comprising 6 pages, 5 copies = 675000 pages which equals to 1700 rims of paper.
2. SCN 12000 * 10 pages each * 5 copies = 1500 rims of paper
3. Reply to SCN 12000 * 20 pages * 5 copies = 3000 rims of paper
4. Order-in-original again 3000 rims of paper
5. Appeal to CA at least equal to reply to SCN plus OIO plus annexures, conservatively 12000*20 SCN pages plus 20 OIO pages plus 20 pages of annexures * 5 copies = 9000 rims
6. Appeal to CESTAT at least equal to CA again 9000 rims
7. If half of these cases landed at HC/SC again 5000 rims
Total paper consumption could be 1700+1500+3000+3000+9000+5000 = 23200 rims of paper. This is exclusive of the printed data sheets which will be prepared by the assessee during audit and the documents submitted to audit department before and after the audit. Few correspondences between audit and assessee, audit and range, notices, personal hearings, additional submissions and so on. Besides the documents asked before the audit includes photo copies of the following documents for last three years (during each audit).
Balance sheet, Trial Balance, Income Tax audit report (3 CB), Cost audit report, sales tax returns, income tax returns, GLs, Registration Certificate/ copies of returns/ intimations/ permissions and many other documents. In some cases this may contain a full load of index file (400 500 pages).
Cost of audit and litigation could be more than the amount collected, leave aside the man-days lost for assesses and burden on the courts/tribunals plus the space required to stores these mountain of papers in the offices across the country.
This is high time to review the EA audit process and requirement.
In fact audit must be based on the actual risk review and the DG Audit should be accountable to the number of audit conducted vis--vis the recovery. If the recovery is few lakhs of rupees from an assessee, means that the risk review is farce and audit is without real objective but . This could be subject for research that why the issues raised in the audit are same each tear and in some areas you can match the audit report of each assessee Para by Para and the amount recovered is also identical. There are fixed rates for bundled audit and you may try to get this without actual visit of the audit staff in your premises.
There is no departmental audit in income tax and the collection is much more than the indirect taxes collectively. There is no departmental audit in VAT and collection is notches higher than the excise, customs and excise duty.
Introduce a process similar to income tax and VAT where annual audit report from an independent chartered accountant is submitted to the department Ease of doing business.
Depute the audit staff to look into un-registered category.
Minimum Governance Maximum Governance Go Green Swatch Bharat
Disclaimer: Views expressed are strictly personal. The content of this document are solely for informational purpose, it doesnt constitute professional advice or recommendation.