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Demand of Tax vs Pre Deposit

Dilip K Raina 
on 04 August 2014

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 "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. Taxes should be collected in small and not in large proportions”. Acharya Chanakya.

Tax payers used to be considered the back bone of the Government treasury and that is why any tax paying citizen use to command respect and would enjoy certain facilities from the state. All governments try to work for the development of the economy of the country enabling it to increase the revenue through collection of taxes. Increase in revenue collections help the state to meet expenditure targets and to achieve its objectives in all sectors of the society.

After coming into the power a statement was issued by the new government advising tax authorities to treat tax payers as customers. Tax payers in India were feeling pampered by this welcome statement as the present world which is driven by economies customer is considered to be king.

But one of the biggest blow came on the day of budget when it was proposed that before making an appeal against any demand an aggrieved assessee has to deposit 7.50% and later on 10% of the said demand as precondition before an adjudicating authority admits any appeal to be heard. The logic behind was given that time is lost in deciding the quantum of pre deposit before admitting and appeal for grant of stay to be decided in due course of time.

The said action of the state authorities lack the vision and the logic as by fixing the quantum of pre deposit the assessee has been denied the initial chance to prove before the judiciary how seriously and meticulously the department has decided an issue keeping in view the facts of the case. It is said that the success rate of wining disputed cases by the department is around 15% when it comes for justice before the judiciary. In other words in around 85% cases of demand issued by the department are being decided in favour of the assessee. There are cases which have fallen flat during the initial stage of hearings and the department as a matter of routine pleads the case at higher courts which take years to complete. Under the new rules even if the demand was issued without following the best practices of law or by wrong interpretations the assessee will be at disadvantage as he is supposed to deposit a minimum of 7.50% before he can file an appeal before the first level of judiciary or appellate tribunal.

Even if the authorities were forced to ask for such harsh provisions in excise and service tax laws guidelines must have been issued making assessing officers answerable in case tax demands fail the test of judiciary thus restricting the misuse of the new scheme of pre deposit. Tax authorities have been found to pass orders just to achieve their tax targets and or follow the instructions of the seniors and or maintain status quo with the assessment orders issued by their predecessor even if the law interpreted during earlier assessment was not in line with the spirit of legislation.

Assessee will not be able to get the advantage of initial relief of justified initial deposit against a bad/defective order based on which the demand was issued as he is supposed to make deposit on the  prescribed rate card before filing an appeal for justice. Further by capping the maximum deposit at 10 crores is in favour of large demands which is against the natural justice and at the same time it looks as if the present government believes that all the assessments are being carried out on merits and every caution is taken by the department before issuing the demand notices.

As an assessee my personal opinion is that before bringing such harsh legislation government should have made a study of the demands issued by the department and the comments on their fairness by the judiciary, may be on sample basis. Law can be interpreted in both ways, now it is up to the assessing officer as to how he/she interprets the law during the process of assessment. Small and medium business house may find it difficult to maintain working capital as any demand of tax raised by the department whether good or bad can be contested only after depositing the 7.50% or 10% of the demand. At least government should not treat pre deposited money part of the tax target as fixed by the government towards collection of revenue.  The only remedy may be to compromise with the situation.

DILIP K RAINA –Chartered Accountant:

B.Com; FCA (ICAI); PGDFM; PGDCA; DBM; Cert. IFRS (ICAEW); NCFM Capital Market (Dealers Module); Microsoft Certified IT Professional: Application for Microsoft Dynamics NAV (ERP) & AXAPTA (ERP)


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